-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DR801Ds3ZSEQ7MhDo3RZ8Ni43YBI+sqkLYYh93DSAK2tIShI2xdG8dG4bjK4pSDf tjAt4SosDQlF8wt6R+CrQA== 0000950136-01-000784.txt : 20010424 0000950136-01-000784.hdr.sgml : 20010424 ACCESSION NUMBER: 0000950136-01-000784 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 56 FILED AS OF DATE: 20010420 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY INTERNATIONAL CENTRAL INDEX KEY: 0001133936 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 980182115 FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328 FILM NUMBER: 1607982 BUSINESS ADDRESS: STREET 1: C/O SEAGATE TECHNOLOGY LLC STREET 2: 920 DISC DRIVE CITY: SCOTTS VALLEY STATE: CA ZIP: 95066 BUSINESS PHONE: 8314395370 FILER: COMPANY DATA: COMPANY CONFORMED NAME: XIOTECH CORP CENTRAL INDEX KEY: 0001016703 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 411821093 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-01 FILM NUMBER: 1607983 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRYSTAL DECISIONS INC CENTRAL INDEX KEY: 0001126499 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770537234 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-02 FILM NUMBER: 1607984 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 8314386550 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FORMER COMPANY: FORMER CONFORMED NAME: SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS INC DATE OF NAME CHANGE: 20001017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW SAC CENTRAL INDEX KEY: 0001130817 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 980232217 FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-03 FILM NUMBER: 1607985 BUSINESS ADDRESS: STREET 1: C/O MAPLES & CALDER STREET 2: P.O. BOX 309GT, UGLAND HOUSE, S. CHURCH CITY: GEORGETOWN STATE: E9 ZIP: 00000 BUSINESS PHONE: 8314386550 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY US HOLDINGS CENTRAL INDEX KEY: 0001137780 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770551570 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-04 FILM NUMBER: 1607986 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY LLC CENTRAL INDEX KEY: 0001137781 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770545899 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-05 FILM NUMBER: 1607987 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE REMOVABLE STORAGE SOLUTIONS US HOLDINGS INC CENTRAL INDEX KEY: 0001137782 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770551572 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-06 FILM NUMBER: 1607988 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE REMOVABLE STORAGE SOLUTIONS LLC CENTRAL INDEX KEY: 0001137783 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770545900 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-07 FILM NUMBER: 1607989 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE RSS LLC CENTRAL INDEX KEY: 0001137784 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770545902 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-08 FILM NUMBER: 1607990 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE US LLC CENTRAL INDEX KEY: 0001137785 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770545987 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-09 FILM NUMBER: 1607991 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REDWOOD ACQUISITION CORP CENTRAL INDEX KEY: 0001137786 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 522134904 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-10 FILM NUMBER: 1607992 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: XIOTECH CANADA LTD CENTRAL INDEX KEY: 0001137787 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-11 FILM NUMBER: 1607993 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRYSTAL DECISIONS CORP CENTRAL INDEX KEY: 0001137788 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-12 FILM NUMBER: 1607994 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY HOLDINGS CENTRAL INDEX KEY: 0001137789 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 980232277 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-13 FILM NUMBER: 1607995 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY HDD HOLDINGS CENTRAL INDEX KEY: 0001137790 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-14 FILM NUMBER: 1607996 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY CHINA HOLDING CO CENTRAL INDEX KEY: 0001137791 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 980182119 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-15 FILM NUMBER: 1607997 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY ASIA HOLDINGS CENTRAL INDEX KEY: 0001137792 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 980336209 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-16 FILM NUMBER: 1607998 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY IRELAND CENTRAL INDEX KEY: 0001137793 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-17 FILM NUMBER: 1607999 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY MEDIA IRELAND CENTRAL INDEX KEY: 0001137795 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-18 FILM NUMBER: 1608000 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY FAR EAST HOLDINGS CENTRAL INDEX KEY: 0001137796 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-19 FILM NUMBER: 1608001 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY PHILIPPINES CENTRAL INDEX KEY: 0001137797 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-20 FILM NUMBER: 1608002 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY SAN HOLDINGS CENTRAL INDEX KEY: 0001137798 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-21 FILM NUMBER: 1608003 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS CENTRAL INDEX KEY: 0001137800 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-22 FILM NUMBER: 1608004 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE REMOVABLE STORAGE SOLUTIONS INTERNATIONAL CENTRAL INDEX KEY: 0001137801 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 980229623 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-23 FILM NUMBER: 1608005 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE SOFTWARE CAYMAN HOLDINGS CENTRAL INDEX KEY: 0001137803 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770397623 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-24 FILM NUMBER: 1608006 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NIPPON SEAGATE INC CENTRAL INDEX KEY: 0001137805 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-25 FILM NUMBER: 1608007 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NIPPON SEAGATE SOFTWARE INC CENTRAL INDEX KEY: 0001137806 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-26 FILM NUMBER: 1608008 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY REYNOSA S DE R L DE C V CENTRAL INDEX KEY: 0001137807 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-27 FILM NUMBER: 1608009 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE DISTRIBUTION UK LTD CENTRAL INDEX KEY: 0001137808 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-28 FILM NUMBER: 1608010 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE SINGAPORE DISTRIBUTION PTE LTD CENTRAL INDEX KEY: 0001137810 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-29 FILM NUMBER: 1608011 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRYSTAL DECISIONS SINGAPORE PTE LTD CENTRAL INDEX KEY: 0001137811 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-30 FILM NUMBER: 1608012 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY THAILAND LTD CENTRAL INDEX KEY: 0001137812 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 980182120 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-31 FILM NUMBER: 1608013 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY MARLOW LTD CENTRAL INDEX KEY: 0001137813 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-32 FILM NUMBER: 1608014 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP LTD CENTRAL INDEX KEY: 0001137814 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770465436 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-33 FILM NUMBER: 1608015 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY MALAYSIA HOLDING CO CAYMAN ISLANDS CENTRAL INDEX KEY: 0001137815 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59328-34 FILM NUMBER: 1608016 BUSINESS ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6502515000 MAIL ADDRESS: STREET 1: C/O SIMPSON THACHER & BARTLETT STREET 2: 3330 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304 S-4 1 0001.txt REGISTRATION STATEMENT MARKED COPY LEVEL 26 As filed with the Securities and Exchange Commission on April 20, 2001 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------- SEAGATE TECHNOLOGY INTERNATIONAL (Exact name of Registrant as specified in its charter) CAYMAN ISLANDS 3572 98-0182115 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) ------- 7000 ANG MO KIO AVENUE #5 SINGAPORE 569877 (65) 483-3888 (Address, including Zip Code, and Telephone Number, including Area Code, of Registrant's principal executive offices) ------- CT CORPORATION SYSTEM 111 EIGHTH AVENUE, 13TH FLOOR NEW YORK, NEW YORK 10011 (212) 894-8400 (Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service) ----
WITH A COPY TO: WILLIAM L. HUDSON, ESQ. WILLIAM H. HINMAN, JR., ESQ. SENIOR VICE PRESIDENT, GENERAL COUNSEL SIMPSON THACHER & BARTLETT 920 DISC DRIVE 3330 HILLVIEW AVENUE P.O. BOX 66360 PALO ALTO, CALIFORNIA 94304 SCOTTS VALLEY, CALIFORNIA 95067 (650) 251-5000 (831) 438-6550
------- Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement. ------- If any of the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ------- CALCULATION OF REGISTRATION FEE - --------------------------------------------------------------------------------
PROPOSED TITLE OF MAXIMUM PROPOSED SECURITIES TO AMOUNT TO OFFERING PRICE MAXIMUM AMOUNT OF BE REGISTERED BE REGISTERED PER NOTE AGGREGATE OFFERING PRICE (1) REGISTRATION FEE 12 1/2% Senior Subordinated Notes due 2007 $210,000,000 100% $210,000,000 $52,500 Guarantees of 12 1/2% Senior Subordinated Notes $210,000,000 100% $210,000,000 (3) due 2007 (2)
- -------------------------------------------------------------------------------- (1) Estimated solely for the purpose of calculating the registration fee. (2) See inside facing page for additional registrant guarantors. (3) Pursuant to Rule 457(n) under the Securities Act of 1933, as amended, no separate fee for the Guarantees is payable. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- TABLE OF ADDITIONAL REGISTRANT GUARANTORS
PRIMARY ADDRESS, INCLUDING ZIP CODE, STATE OR OTHER STANDARD AND TELEPHONE NUMBER, JURISDICTION OF I.R.S. EMPLOYER INDUSTRIAL INCLUDING AREA CODE, OF EXACT NAME OF REGISTRANT INCORPORATION OR IDENTIFICATION CLASSIFICATION REGISTRANT GUARANTOR'S GUARANTOR AS SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER CODE NUMBER PRINCIPAL EXECUTIVE OFFICES - --------------------------------------- ------------------ ----------------- ---------------- ----------------------------- New SAC Cayman Islands 98-0230396 3572 c/o Maples & Calder P.O. Box 309GT Ugland House South Church Street George Town, Grand Cayman Cayman Islands (345) 949-8066 Quinta Corporation(1) California 77-0426766 3572 920 Disc Drive P.O. Box 66360 Scotts Valley, California, 95067 (831) 438-6550 Seagate Technology(1) Delaware 77-0551570 3572 920 Disc Drive (US) Holdings, Inc. P.O. Box 66360 Scotts Valley, California, 95067 (831) 438-6550 Seagate Technology LLC(1) Delaware 77-0545899 3572 920 Disc Drive P.O. Box 66360 Scotts Valley, California, 95067 (831) 438-6550 Seagate Removable Storage Delaware 77-0551572 3572 920 Disc Drive Solutions (US) Holdings, P.O. Box 66360 Inc.(1) Scotts Valley, California, 95067 (831) 438-6550 Seagate Removable Storage Delaware 77-0545900 3572 1650 Sunflower Avenue Solutions LLC(1) Costa Mesa, CA 92626 (714) 641-1230 Seagate RSS LLC(1) Delaware 77-0545902 7363 1650 Sunflower Avenue Costa Mesa, CA 92626 (714) 641-1230 Seagate US LLC(1) Delaware 77-0545987 7363 920 Disc Drive P.O. Box 66360 Scotts Valley, California, 95067 (831) 438-6550 Redwood Acquisition Delaware 52-2134904 3572 920 Disc Drive Corporation(1) P.O. Box 66360 Scotts Valley, California, 95067 (831) 438-6550 Crystal Decisions, Inc.(2) Delaware 77-0537234 7372 895 Emerson St. Palo Alto, CA 94301 (650) 473-3132 XIOtech Corporation(3) Minnesota 41-1821093 3572 6455 Flying Cloud Drive Eden Prairie, MN 55344-3305 (952) 983-3000
PRIMARY ADDRESS, INCLUDING ZIP CODE, STATE OR OTHER STANDARD AND TELEPHONE NUMBER, JURISDICTION OF I.R.S. EMPLOYER INDUSTRIAL INCLUDING AREA CODE, OF EXACT NAME OF REGISTRANT INCORPORATION OR IDENTIFICATION CLASSIFICATION REGISTRANT GUARANTOR'S GUARANTOR AS SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER CODE NUMBER PRINCIPAL EXECUTIVE OFFICES - --------------------------------------- ------------------ ----------------- ---------------- ------------------------------ XIOtech (Canada) Ltd. New Brunswick, N/A 3572 c/o Stewart McKelvey Canada Stirling Scales 44 Chipman Hill, 10th Floor P.O. Box 7289, Stn. "A" Saint John, N.B. E2L456, Canada (506) 632-8312 Crystal Decisions, Corp New Brunswick, N/A 7372 840 Cambie Street Canada Vancouver, BC V6B 4J2 Canada (604) 681-3435 Seagate Technology Holdings Cayman Islands 98-0232277 3572 c/o Maples & Calder P.O. Box 309GT Ugland House South Church Street George Town, Grand Cayman Cayman Islands (345) 949-8066 Seagate Technology HDD Cayman Islands N/A 3572 c/o Maples & Calder Holdings P.O. Box 309GT Ugland House South Church Street George Town, Grand Cayman Cayman Islands (345) 949-8066 Seagate Technology China Cayman Islands 98-0182119 3572 c/o Maples & Calder Holding Company P.O. Box 309GT Ugland House South Church Street George Town, Grand Cayman Cayman Islands (345) 949-8066 Seagate Technology Asia Cayman Islands 98-0336209 3572 c/o Maples & Calder Holdings P.O. Box 309GT Ugland House South Church Street George Town, Grand Cayman Cayman Islands (345) 949-8066 Seagate Technology (Ireland) Cayman Islands N/A 3572 c/o Maples & Calder P.O. Box 309GT Ugland House South Church Street George Town, Grand Cayman Cayman Islands (345) 949-8066
PRIMARY ADDRESS, INCLUDING ZIP CODE, STATE OR OTHER STANDARD AND TELEPHONE NUMBER, JURISDICTION OF I.R.S. EMPLOYER INDUSTRIAL INCLUDING AREA CODE, OF EXACT NAME OF REGISTRANT INCORPORATION OR IDENTIFICATION CLASSIFICATION REGISTRANT GUARANTOR'S GUARANTOR AS SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER CODE NUMBER PRINCIPAL EXECUTIVE OFFICES - --------------------------------------- ------------------ ----------------- ---------------- ------------------------------ Seagate Technology Media Cayman Islands N/A 3695 c/o Maples & Calder (Ireland) P.O. Box 309GT Ugland House South Church Street George Town, Grand Cayman Cayman Islands (345) 949-8066 Seagate Technology Far East Cayman Islands N/A 3572 c/o Maples & Calder Holdings P.O. Box 309GT Ugland House South Church Street George Town, Grand Cayman Cayman Islands (345) 949-8066 Seagate Technology Cayman Islands N/A 3572 c/o Maples & Calder (Philippines) P.O. Box 309GT Ugland House South Church Street George Town, Grand Cayman Cayman Islands (345) 949-8066 Seagate Technology SAN Cayman Islands N/A 3572 c/o Maples & Calder Holdings P.O. Box 309GT Ugland House South Church Street George Town, Grand Cayman Cayman Islands (345) 949-8066 Seagate Removable Storage Cayman Islands N/A 3572 c/o Maples & Calder Solutions Holdings P.O. Box 309GT Ugland House South Church Street George Town, Grand Cayman Cayman Islands (345) 949-8066 Seagate Removable Storage Cayman Islands 98-0229623 3572 c/o Maples & Calder Solutions International P.O. Box 309GT Ugland House South Church Street George Town, Grand Cayman Cayman Islands (345) 949-8066
PRIMARY ADDRESS, INCLUDING ZIP CODE, STATE OR OTHER STANDARD AND TELEPHONE NUMBER, JURISDICTION OF I.R.S. EMPLOYER INDUSTRIAL INCLUDING AREA CODE, OF EXACT NAME OF REGISTRANT INCORPORATION OR IDENTIFICATION CLASSIFICATION REGISTRANT GUARANTOR'S GUARANTOR AS SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER CODE NUMBER PRINCIPAL EXECUTIVE OFFICES - --------------------------------------- ------------------ ----------------- ---------------- ------------------------------ Seagate Software (Cayman) Cayman Islands 77-0397623 7371 c/o Maples & Calder Holdings P.O. Box 309GT Ugland House South Church Street George Town, Grand Cayman Cayman Islands (345) 949-8066 Seagate Technology Cayman Islands N/A 3572 c/o Maples & Calder (Malaysia) Holding Company P.O. Box 309GT Ugland House South Church Street George Town, Grand Cayman Cayman Islands (345) 949-8066 Nippon Seagate Inc. Japan N/A 3572 Tennoz Parkside Building 3F, 2-5-8, Higashi-Shinagawa, Shinagawa-ku, Tokyo 140-022, Japan (81)354622900 Nippon Seagate Software KK Japan N/A 7372 Bridgestone Bldg., 3rd Fl., 2-13-12 Hirakawa-cho, Chiyoda-Ku, Tokyo, 102-0093 Japan (81)352263601 Seagate Technology-Reynosa, Mexico N/A 3572 Blvd. Montebello #737 S. de R.L. de C.V. Esq. Blvd. Chapultepec, Parque Industrial Colonial, Cd. Reynosa, Tamps. 88780, Mexico (52)89211200 Seagate Distribution (UK) Scotland N/A 5045 1 Brewster Place, Limited Riverside Business Park, Oldhall West, Irvine KA11 5DE, Scotland (44)1294277766 Seagate Singapore Singapore N/A 5045 Seagate AMK Bldg., Distribution Pte. Ltd. 7000 Ang Mo Kio Avenue 5, Singapore 569877 (65)4833888 Crystal Decisions (Singapore) Singapore N/A 7372 14 Science Park Dr., Pte Ltd #03-02 The Maxwell, Singapore Science Park 118226 Singapore (65)7770533
PRIMARY ADDRESS, INCLUDING ZIP CODE, STATE OR OTHER STANDARD AND TELEPHONE NUMBER, JURISDICTION OF I.R.S. EMPLOYER INDUSTRIAL INCLUDING AREA CODE, OF EXACT NAME OF REGISTRANT INCORPORATION OR IDENTIFICATION CLASSIFICATION REGISTRANT GUARANTOR'S GUARANTOR AS SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER CODE NUMBER PRINCIPAL EXECUTIVE OFFICES - --------------------------------------- ------------------ ----------------- ---------------- ------------------------------ Seagate Technology Thailand 98-0182120 3572 No. 1627 Moo 7 (Thailand) Limited Teparuk Road, Tambol Teparuk, Amphur Muang, Samutprakarn 10270 Thailand (66)27152999 Seagate Technology England and N/A 3572 Seagate House, Globe (Marlow) Limited Wales Park, Fieldhouse Lane, Marlow Bucks SL7 1LW, United Kingdom (44)1628890366 Crystal Decisions (UK) England and 77-0465436 7372 The Broadwalk #54 The Limited Wales Broadway Ealing England W5 5JN (44)1815662330
- ---------- (1) The agent for service of process for this registrant is its corporate secretary, who is currently William L. Hudson. The address and telephone number for the agent is 920 Disc Drive, P.O. Box 66360, Scotts Valley, California 95067, (831) 438-6550. (2) The agent for service of process for this registrant is its corporate secretary, who is currently Susan P. Wolfe. The address and telephone number for the agent is 895 Emerson Street, Palo Alto, California 94301, (650) 473-3132. (3) The agent for service of process for this registrant is its corporate secretary, who is currently John P. Guider. The address and telephone number for the agent is 6455 Flying Cloud Drive, Eden Prairie, Minnesota 55344, (952) 983-3000. For all other registrants listed above, the agent for service of process is CT Corporation System, as specified on the front cover of this registration statement. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER, SOLICITATION OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED APRIL 20, 2001 PROSPECTUS $210,000,000 [GRAPHIC OMITTED] SEAGATE TECHNOLOGY INTERNATIONAL OFFER TO EXCHANGE ALL OUTSTANDING 12 1/2% SENIOR SUBORDINATED NOTES DUE 2007 FOR 12 1/2% SENIOR SUBORDINATED NOTES DUE 2007, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 THE EXCHANGE OFFER o We will exchange all outstanding notes that are validly tendered and not validly withdrawn for an equal principal amount of exchange notes that are freely tradeable. o You may withdraw tenders of outstanding notes at any time prior to the expiration of the exchange offer. o The exchange offer expires at 5:00 p.m., New York City time, on , 2001, unless extended. We do not currently intend to extend the expiration date. o The exchange of outstanding notes for exchange notes in the exchange offer will not be a taxable event for U.S. federal income tax purposes. o We will not receive any proceeds from the exchange offer. THE EXCHANGE NOTES o The exchange notes are being offered in order to satisfy certain of our obligations under the exchange and registration rights agreement entered into in connection with the placement of the outstanding notes. o The terms of the exchange notes to be issued in the exchange offer are substantially identical to the outstanding notes, except that the exchange notes will be freely tradeable. RESALES OF EXCHANGE NOTES o The exchange notes may be sold in the over-the-counter market, in negotiated transactions or through a combination of these methods. If you are a broker-dealer and you receive exchange notes for your own account, you must acknowledge that you will deliver a prospectus in connection with any resale of the exchange notes. By making that acknowledgment, you will not be deemed to admit that you are an "underwriter" under the Securities Act of 1933. Broker-dealers may use this prospectus in connection with any resale of exchange notes received in exchange for outstanding notes where the outstanding notes were acquired by the broker-dealer as a result of market-making activities or trading activities. We will make this prospectus available to any broker-dealer for use in any such resale for a period of up to 180 days after the date of the prospectus. A broker-dealer may not participate in the exchange offer with respect to outstanding notes acquired other than as a result of market-making activities or trading activities. See "Plan of Distribution." If you are an affiliate of Seagate Technology International or any of the guarantors of the outstanding notes or are engaged in, or intend to engage in, or have an agreement or understanding to participate in, a distribution of the exchange notes, you cannot rely on the applicable interpretations of the Securities and Exchange Commission and you must comply with the registration requirements of the Securities Act of 1933 in connection with any resale transaction. YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 17 OF THIS PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is , 2001. TABLE OF CONTENTS
PAGE ----- Prospectus Summary ............................... 1 Risk Factors ..................................... 17 Use of Proceeds .................................. 36 Capitalization ................................... 37 The Transactions ................................. 38 Unaudited Pro Forma Consolidated Condensed Statements of Income of New SAC ....................................... 42 Selected Historical Consolidated Financial Information of New SAC ........................ 50 Management's Discussion and Analysis of Financial Condition and Results of Operations .................................... 54 Industry ......................................... 120 Business ......................................... 123 Management ....................................... 139
PAGE ----- Security Ownership of Certain Beneficial Owners and Management ......................... 155 Certain Relationships and Related Transactions .................................. 158 Description of the Senior Credit Facilities ...... 164 The Exchange Offer ............................... 168 Description of the Notes ......................... 178 Certain Income Tax Considerations ................ 232 Exchange and Registration Rights Agreement ..................................... 233 Book-Entry; Delivery and Form .................... 236 Plan of Distribution ............................. 239 Legal Matters .................................... 240 Experts .......................................... 240 Where You Can Find More Information .............. 241 Index to Financial Statements .................... F-1
------------------ SHORTHAND REFERENCES Throughout this prospectus, we use the following terms for ease of reference, unless it is otherwise noted or evident from the context: o The "Issuer" refers to Seagate Technology International, a Cayman Islands limited liability company, as the issuer of the notes. o Suez Acquisition Company refers to Suez Acquisition Company (Cayman) Limited before the transactions that closed on November 22, 2000 described in this prospectus and to New SAC after these transactions. Prior to November 22, 2000, Suez Acquisition Company entered into a stock purchase agreement to purchase substantially all the operating assets of Seagate Technology, Inc. o "We," "us" and "our" refer to New SAC, a Cayman Islands limited liability company, and its subsidiaries after giving effect to the transactions that closed on November 22, 2000 described in this prospectus, or, where the context otherwise requires, to Seagate Technology, Inc. and its subsidiaries, prior to the closing of the transactions on November 22, 2000 described in this prospectus. Before the closing of these transactions, Suez Acquisition Company assigned all its rights and obligations under the stock purchase agreement referred to above to New SAC, a shell company formed in connection with the transactions. After the closing, New SAC became the indirect parent company of the Issuer and of various other former subsidiaries of Seagate Technology, Inc. o "Seagate Technology" refers to Seagate Technology, Inc., a Delaware corporation, and, where applicable, to Seagate Technology, Inc. and its subsidiaries, prior to giving effect to the transactions that closed on November 22, 2000 described in this prospectus. o "Crystal Decisions" refers to Crystal Decisions, Inc., a Delaware corporation and an indirect subsidiary of New SAC, and, where applicable, to its predecessor, Seagate Software Information Management Group Holdings, Inc. o "Seagate Software Holdings" refers to Seagate Software Holdings, Inc., a Delaware corporation ------------------ FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts i included in this prospectus, including statements under "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Industry" and "Business," regarding our financial condition, strategy, the industry in which we compete, restructuring activities and other statements regarding other future events or prospects, are forward-looking statements. We have used the words "may," "will," "expect," "anticipate," "believe," "estimate," "plan," "intend" and similar expressions in this prospectus to identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance. Actual results could differ materially from those suggested in the forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions, regarding, among other things: o our substantial leverage, the restrictive covenants in our debt instruments and other risks related to our ability to comply with our debt obligations; o competition within our industry and, in particular, the related effects of declining average sales prices of rigid disc drives and short product life cycles; o changes in the demand for systems in which our products are components; o declining demand for information technology; o our ability to achieve a competitive time to market with new products; o the uncertainty of the realization of cost savings from restructuring plans and other cost savings initiatives; o potential loss of material licensed technology; o the difficulty in predicting quarterly demand for our products; o technological changes and other trends in the information storage industry, in general, and the rigid disc drive industry, in particular; o our dependence on obtaining a future supply of product components; o the effects of high fixed costs associated with our vertical integration strategy; o our dependence on key customers; o risks associated with our international operations and the risks related to the Issuer and some of our other subsidiaries having been incorporated in jurisdictions outside the United States; o control by the sponsor group, whose interests may differ from yours; o risks associated with future acquisitions; o risks of intellectual property litigation and our dependence on intellectual property; o adverse results of other litigation; o our dependence on key personnel; o system failures; and o the execution and success of our business strategies. Except as required by the U.S. federal securities laws, we are not obligated to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this prospectus. Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. ------------------ INDUSTRY AND MARKET SHARE DATA In this prospectus, we refer to information regarding the information storage industry and the rigid disc drive, tape drive, software and other sectors of the information storage industry. Unless otherwise indicated, all information in this prospectus was obtained from Dataquest Incorporated, a division of The Gartner Group, Inc. The Gartner Group, founded in 1979, is a research group focusing on the computer hardware, software, communications and related information technology ii industries. Although most of the industry information was obtained from market statistics reports periodically published by Dataquest, some of the information was prepared by Dataquest specifically for inclusion in this prospectus. Although we believe this information is generally reliable, we cannot guarantee the accuracy and completeness of the information and have not independently verified it. Silver Lake Partners, which owns approximately 35% of the outstanding ordinary shares of New SAC, owns, together with Integral Capital Partners, whose partners are also principals of Silver Lake Partners, convertible securities which would represent, upon conversion, approximately 17.8% of the voting capital stock of The Gartner Group on a fully diluted basis. In addition, a member of the board of directors of The Gartner Group, Glenn D. Hutchins, is a member of the board of directors of New SAC. In addition, some of the market share and other information in this prospectus does not contemplate or otherwise give effect to the recent acquisition of Quantum Corporation's disc drive operations by Maxtor Corporation. Maxtor and Quantum are two of our principal competitors. According to Dataquest, following this acquisition, Maxtor will become the largest manufacturer of rigid disc drives in terms of the units of rigid disc drives shipped. ------------------ SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES The Issuer and several of the note guarantors, including New SAC, are organized under the laws of the Cayman Islands and many other note guarantors are organized in various other jurisdictions outside the United States. Some of the directors and officers and a substantial portion of the assets of these companies are located outside the United States. Although the Issuer and the note guarantors which are organized outside the United States have agreed to accept service of process in the United States by their agent designated for that purpose, it may be difficult for you to effect service of process within the United States upon these persons or to enforce against them, in courts outside the United States, judgments of courts of the United States predicated upon civil liabilities under the U.S. federal securities or other laws. The Issuer and the note guarantors organized outside of the United States have designated CT Corporation as their agent for service of process in any action brought against any of them under the U.S. federal securities and other laws, with respect to the outstanding notes and the exchange notes, the guarantees of the outstanding notes and the exchange notes and the indenture under which the outstanding notes, the exchange notes and these guarantees were issued. We have been advised by our Cayman Islands legal counsel, Walkers, that there is doubt with respect to Cayman Islands law as to (a) whether a judgment of a U.S. court predicated solely upon the civil liability provisions of the U.S. federal securities or other laws would be enforceable in the Cayman Islands against the Issuer or a note guarantor and (b) whether an action could be brought in the Cayman Islands against the Issuer or a note guarantor in the first instance on the basis of liability predicated solely upon the provisions of the U.S. federal securities or other laws. In addition, we have been advised by our counsel in the jurisdictions of organization of the note guarantors other than the Cayman Islands that there is similar doubt with respect to the laws of these other jurisdictions. In addition, other laws of these jurisdictions, such as those limiting a party's enforcement rights on the grounds of public policy of that jurisdiction, and the fact that a treaty may not exist between the United States and the governments of these jurisdictions regarding the enforcement of civil liabilities, may also restrict the ability to enforce the note guarantors' obligations under their guarantees. ------------------ TRADEMARKS The "S" logo, "Seagate," "Seagate Technology," "Barracuda" and "Cheetah," among others, are our registered trademarks. iii PROSPECTUS SUMMARY This summary highlights some of the information described in detail in other parts of this prospectus. It does not contain all of the information that may be important to you in making a decision to exchange the outstanding notes for the exchange notes. Unless otherwise stated, references to the "notes" in this prospectus are references to both the outstanding notes and the exchange notes. OUR COMPANY We are a leading designer, manufacturer and marketer of products for storage, retrieval and management of electronic data. Businesses, other organizations and individuals use rigid disc drives as the primary medium for storing electronic information in computer systems ranging from desktop computers to data centers delivering information over corporate networks and the Internet. We produce a broad range of rigid disc drive products and are a leader in both the enterprise (primarily Internet servers, mainframes and workstations) and desktop (personal computers, or PCs), sectors of the rigid disc drive industry. We also design, manufacture and market tape drives and intelligent storage solutions and are a leading provider of business intelligence software. We sell our rigid disc drives primarily to major original equipment manufacturers, or OEMs, and also market to distributors under our globally recognized brand name. We also have key relationships with major distributors, who sell our rigid disc drive products to small OEMs, dealers, system integrators and retailers in most geographic areas of the world. THE TRANSACTIONS The private offering of the outstanding notes was part of a series of transactions, which closed on November 22, 2000. They consisted of the following: o the contribution by a group of private equity investment firms, which we refer to as the sponsor group, of approximately $875 million in cash to Suez Acquisition Company in exchange for ordinary and preferred shares of Suez Acquisition Company; o the purchase by Suez Acquisition Company of substantially all of the operating assets of Seagate Technology, which comprised Seagate Technology's rigid disc drive, tape drive, software and intelligent storage solutions businesses, a portion of the cash on the balance sheet of Seagate Technology, and other assets of Seagate Technology and the assumption by Suez Acquisition Company of substantially all of the liabilities of Seagate Technology; o the acquisition by VERITAS Software Corporation of the assets of Seagate Technology that Suez Acquisition Company did not purchase through a merger of Seagate Technology and a subsidiary of VERITAS and the payment by VERITAS to the shareholders of Seagate Technology of cash and VERITAS common stock as merger consideration for their shares of Seagate Technology common stock and options to purchase these shares; o the assignment by Suez Acquisition Company of all its rights and obligations under its agreement to purchase substantially all the operating assets of Seagate Technology to New SAC, a shell company formed in connection with these transactions; o the exchange by a group of officers of Seagate Technology, which we refer to as the management group, of a portion of their Seagate Technology common stock and options to purchase Seagate Technology common stock, valued at approximately $184 million, into deferred compensation and ordinary and preferred shares of New SAC, which we refer to as the management rollover, and contribution of approximately $41 million in cash in exchange for ordinary and preferred shares of New SAC; o the financing of the purchase of the assets described above by New SAC and the payment of fees and expenses related to the transactions; and 1 o the redemption by Seagate Technology of its then existing senior notes, which constituted substantially all of its outstanding debt. These events are collectively referred to in this prospectus as the "transactions." --------------------- PRINCIPAL EXECUTIVE OFFICES The address of the Issuer's principal executive office is 7000 Ang Mo Kio Avenue #5, Singapore 569877 and its telephone number is (65) 483-3888. The address of New SAC's principal executive office is c/o Maples & Calder, P.O. Box 309GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands and the telephone number there is (345) 949-8066. --------------------- 2 CHART OF OUR CORPORATE STRUCTURE The following diagram provides a summary illustration of our corporate structure following the closing of the transactions. [GRAPHIC OMITTED] 3 SUMMARY OF TERMS OF THE EXCHANGE OFFER On November 22, 2000, we completed the private offering of the outstanding notes. The Issuer and the guarantors entered into an exchange and registration rights agreement with the initial purchasers in the private offering in which the Issuer and the guarantors agreed to deliver to you this prospectus as part of the exchange offer and the Issuer agreed to complete the exchange offer within 300 days after the date of original issuance of the outstanding notes. You are entitled to exchange in the exchange offer your outstanding notes for exchange notes which are identical in all material respects to the outstanding notes except: o the exchange notes have been registered under the Securities Act of 1933 and will not bear legends restricting their transfer; o the exchange notes are not entitled to registration rights which are applicable to the outstanding notes under the exchange and registration rights agreement; and o the exchange notes will not provide for liquidated damages upon the failure of the Issuer to fulfill its obligations to file and cause to be effective a registration statement. The Exchange Offer.......... The Issuer is offering to exchange up to $210,000,000 aggregate principal amount of outstanding notes for up to $210,000,000 aggregate principal amount of exchange notes. Outstanding notes may be exchanged only in integral multiples of $1,000. Resale...................... Based on an interpretation by the staff of the Securities and Exchange Commission contained in no-action letters issued to third parties, we believe that the exchange notes issued under the exchange offer in exchange for outstanding notes may be offered for resale, resold and otherwise transferred by you (unless you are an "affiliate" of the Issuer or the guarantors, within the meaning of Rule 405 under the Securities Act of 1933) without compliance with the registration and prospectus delivery provisions of the Securities Act of 1933, provided that you are acquiring the exchange notes in the ordinary course of your business and that you have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of the exchange notes. Each participating broker-dealer that receives exchange notes for its own account pursuant to the exchange offer in exchange for outstanding notes that were acquired as a result of market-making or other trading activity must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. See "Plan of Distribution." Any holder of outstanding notes who: o is an affiliate of the Issuer or the guarantors; o does not acquire exchange notes in the ordinary course of its business; or 4 o tenders in the exchange offer with the intention to participate, or for the purpose of participating, in a distribution of exchange notes cannot rely on the position of the staff of the Commission enunciated in Exxon Capital Holdings Corporation, Morgan Stanley & Co. Incorporated or similar no-action letters and, in the absence of an exemption from them, must comply with the registration and prospectus delivery requirements of the Securities Act of 1933 in connection with the resale of the exchange notes. Expiration Date; Withdrawal of Tender.................. The exchange offer will expire at 5:00 p.m., New York City time, on , 2001, or such later date and time to which the Issuer extends it, which we refer to as the "expiration date." The Issuer does not currently intend to extend the expiration date. A tender of outstanding notes pursuant to the exchange offer may be withdrawn at any time prior to the expiration date. Any outstanding notes not accepted for exchange for any reason will be returned without expense to the tendering holder promptly after the expiration or termination of the exchange offer. Certain Conditions to the Exchange Offer............. The exchange offer is subject to customary conditions, which the Issuer may waive. Please read the section captioned "The Exchange Offer -- Certain Conditions to the Exchange Offer" of this prospectus for more information regarding the conditions to the exchange offer. Procedures for Tendering Outstanding Notes.......... If you wish to accept the exchange offer, you must complete, sign and date the accompanying letter of transmittal, or a facsimile of the letter of transmittal according to the instructions contained in this prospectus and the letter of transmittal. You must also mail or otherwise deliver the letter of transmittal, or a facsimile of the letter of transmittal, together with the outstanding notes and any other required documents, to the exchange agent at the address set forth on the cover page of the letter of transmittal. If you hold outstanding notes through The Depository Trust Company, or DTC, and wish to participate in the exchange offer, you must comply with the Automated Tender Offer Program procedures of DTC, by which you will agree to be bound by the letter of transmittal. By signing, or agreeing to be bound by the letter of transmittal, you will represent to us that, among other things: o any exchange notes that you receive will be acquired in the ordinary course of your business; 5 o you have no arrangement or understanding with any person or entity to participate in a distribution of the exchange notes; o if you are a broker-dealer that will receive exchange notes for your own account in exchange for outstanding notes that were acquired as a result of market-making activities, that you will deliver a prospectus, as required by law, in connection with any resale of such exchange notes; and o you are not an "affiliate," as defined in Rule 405 of the Securities Act of 1933 of the Issuer, or, if you are an affiliate, you will comply with any applicable registration and prospectus delivery requirements of the Securities Act of 1933. Special Procedures for Beneficial Owners.......... If you are a beneficial owner of outstanding notes which are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, and you wish to tender such outstanding notes in the exchange offer, you should contact such registered holder promptly and instruct such registered holder to tender on your behalf. If you wish to tender on your own behalf, you must, prior to completing and executing the letter of transmittal and delivering your outstanding notes, either make appropriate arrangements to register ownership of the outstanding notes in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time and may not be able to be completed prior to the expiration date. Guaranteed Delivery Procedures.................. If you wish to tender your outstanding notes and your outstanding notes are not immediately available or you cannot deliver your outstanding notes, the letter of transmittal or any other documents required by the letter of transmittal or comply with the applicable procedures under DTC's Automated Tender Offer Program prior to the expiration date, you must tender your outstanding notes according to the guaranteed delivery procedures set forth in this prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures." Effect on Holders of Outstanding Notes.......... As a result of the making of, and upon acceptance for exchange of all validly tendered outstanding notes pursuant to the terms of the exchange offer, we will have fulfilled a covenant contained in the registration rights agreement and, accordingly, there will be no increase in the interest rate on the outstanding notes under the circumstances described in the registration rights agreement. If you are a holder of outstanding notes and you do not tender your outstanding 6 notes in the exchange offer, you will continue to hold such outstanding notes and you will be entitled to all the rights and limitations applicable to the outstanding notes in the indenture, except for any rights under the registration rights agreement that by their terms terminate upon the consummation of the exchange offer. To the extent that outstanding notes are tendered and accepted in the exchange offer, the trading market for outstanding notes could be adversely affected. Consequences of Failure to Exchange................... All untendered outstanding notes will continue to be subject to the restrictions on transfer provided for in the outstanding notes and in the indenture. In general, the outstanding notes may not be offered or sold, unless registered under the Securities Act of 1933, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act of 1933 and applicable state securities laws. Other than in connection with the exchange offer, the Issuer does not currently anticipate that it will register the outstanding notes under the Securities Act of 1933. Income Tax Considerations... The exchange of outstanding notes for exchange notes in the exchange offer will not be a taxable event for United States federal income tax purposes. Use of Proceeds............. We will not receive any cash proceeds from the issuance of exchange notes pursuant to the exchange offer. Exchange Agent.............. The Bank of New York is the exchange agent for the exchange offer. The address and telephone number of the exchange agent are listed under "The Exchange Offer -- Exchange Agent" of this prospectus. 7 SUMMARY OF TERMS OF THE EXCHANGE NOTES The following summary contains basic information about the notes. It does not contain all the information that may be important to you. For a more complete description of the notes, please refer to the section of this prospectus entitled "Description of the Notes." Issuer...................... Seagate Technology International. Notes Offered............... $210,000,000 aggregate principal amount of 12 1/2% Senior Subordinated Notes due 2007. Maturity.................... November 15, 2007. Interest.................... Annual rate: 12 1/2% Payment frequency: every six months on May 15 and November 15. First Payment............... The first payment under the outstanding notes is due May 15, 2001. The first payment under the exchange notes will be due November 15, 2001. Optional Redemption......... After November 15, 2004, the Issuer may redeem some or all of the notes at the redemption prices listed in the section entitled "Description of the Notes -- Optional Redemption." Prior to that date, the Issuer may not redeem the notes, except as described in the following paragraphs. At any time prior to November 15, 2003, the Issuer may redeem up to 35% of the aggregate principal amount of the notes with the net cash proceeds of certain equity offerings at a redemption price equal to 112.5% of the principal amount of the notes, plus accrued and unpaid interest and liquidated damages thereon, if any, so long as (a) at least 65% of the aggregate amount of the notes remain outstanding after each redemption and (b) any redemption by the Issuer is made within 90 days of the equity offering. See "Description of the Notes -- Optional Redemption." The Issuer may redeem all but not part of the notes if there are specified changes in tax law, at a redemption price equal to 100% of the principal amount of the notes plus accrued and unpaid interest to the date of redemption. See "Description of the Notes -- Redemption for Changes in Withholding Taxes." Change of Control........... Upon the occurrence of a change of control of us, the Issuer, or various of our subsidiaries, (1) the Issuer will have the option, at any time before November 15, 2004, to redeem the notes in whole, but not in part, at a redemption price equal to 100% of the principal amount of the notes plus the applicable premium, as defined in the indenture, together with accrued and unpaid interest and liquidated damages, if any, to the date of redemption and (2) if the Issuer has not exercised its right to redeem all of the notes, you will have the right to require the Issuer to purchase all or a portion of your notes at a purchase price in cash equal to 101% of the 8 principal amount thereof, plus accrued and unpaid interest and liquidated damages thereon, if any, to the date of purchase. See "Description of the Notes -- Change of Control." Note Guarantees............. The notes are fully and unconditionally guaranteed on an unsecured, senior subordinated basis, jointly and severally, by us and each of our existing or subsequently acquired or organized direct or indirect subsidiaries, other than the Issuer, any unrestricted subsidiary and any subsidiary that does not provide a guarantee under the senior credit facilities. This includes our subsidiaries that have been, or will be, formed in Australia, Barbados, China, Denmark, France, Germany, Hong Kong, Indonesia, Italy, Malaysia, the Netherlands, Sweden, Switzerland, Taiwan and the U.S. Virgin Islands. We refer to these subsidiaries as the non-guarantors. The note guarantees are subordinated to the guarantees of senior debt issued by the note guarantors under the senior credit facilities. See "Description of the Notes -- Note Guarantees." Security and Ranking........ The notes are unsecured and: o junior in right of payment to all of the existing and future senior debt of the Issuer, including borrowings under the senior credit facilities; o rank equally in right of payment with any of the Issuer's future senior subordinated debt; o rank senior in right of payment to any of the Issuer's future subordinated debt; o are effectively junior to any secured debt of us and our subsidiaries to the extent of the value of the assets securing the debt; and o are effectively junior in right of payment to all liabilities, including trade payables, and preferred stock of each subsidiary of ours that is not a note guarantor. Similarly, the note guarantees of each note guarantor are unsecured and: o are junior in right of payment to all of the note guarantors' existing and future senior debt, including their guarantees of the Issuer's borrowings under the senior credit facilities; o rank equally in right of payment with any of the note guarantor's future senior subordinated debt; o rank senior in right of payment to any of the note guarantor's future subordinated debt; and 9 o are effectively junior to any secured debt of us and our subsidiaries to the extent of the value of the assets securing the debt. See "Description of the Notes -- Ranking." The indenture governing the notes permits us to incur a significant amount of additional senior debt. Certain Covenants........... The indenture, among other things, restricts our ability and the ability of our restricted subsidiaries, including the Issuer, to: o incur additional debt; o issue redeemable equity interests and preferred equity interests; o pay dividends or make other distributions; o repurchase equity interests; o make other restricted payments including, without limitation, investments; o create liens; o redeem debt that is junior in right of payment to the notes; o sell or otherwise dispose of assets, including capital stock of subsidiaries; o conduct rigid disc drive operations through designated subsidiaries; o amend deferred compensation plans; o enter into mergers or consolidations; and o enter into transactions with affiliates. These covenants are subject to a number of important exceptions and qualifications. See "Description of the Notes -- Certain Covenants" and "-- Merger and Consolidation." Unrestricted Subsidiaries... Seagate Technology Investment Holdings LLC is what we refer to as an unrestricted subsidiary. An unrestricted subsidiary is neither: o a guarantor of the notes; nor o subject to the restrictive covenants of the indenture. We can sell the assets or capital stock of an unrestricted subsidiary without restriction and can dividend or distribute the proceeds of these sales on the terms and subject to the conditions in the indenture. We can also sell several of the investments owned by Seagate Technology Investment Holdings LLC, each of which we refer to as an existing unrestricted entity, without restriction and dividend or distribute these investments or the proceeds of the sales of these investments on the terms and subject to the conditions in the indenture. Under circumstances specified in the indenture, we can designate other subsidiaries as unrestricted subsidiaries. 10 Restricted Subsidiaries and Designated Subsidiaries.... All of our other subsidiaries are what we refer to as restricted subsidiaries. Restricted subsidiaries are subject to the restrictive covenants in the indenture. Three of these restricted subsidiaries, Seagate Removable Storage Solutions Holdings, through which we operate our tape drive business, Seagate Software (Cayman) Holdings, through which we operate our software business, and Seagate Technology SAN Holdings, through which we operate our intelligent storage solutions business, and their subsidiaries are also what we refer to as designated subsidiaries. Designated subsidiaries are subject to the same restrictive covenants that govern the restricted subsidiaries, but: o a designated subsidiary may be released from its guarantee, to the extent it was issued, if we effect specified sales of its capital stock, including in an initial public offering; and o we may dividend the capital stock of these designated subsidiaries or the proceeds of secondary sales of their capital stock on the terms and subject to the conditions specified in the indenture. We will not be able to designate other subsidiaries as designated subsidiaries. Absence of a Public Market for the Exchange Notes..... The exchange notes generally will be freely transferable, but will be new securities for which there will not initially be a market. Accordingly, we cannot assure you as to the development or liquidity of any market for the exchange notes. We do not intend to apply for a listing of the exchange notes on any securities exchange or any automated dealer quotation system. In connection with the offering of the outstanding notes, the initial purchasers, Chase Securities, Inc., Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, advised us that they intend to make a market in the exchange notes. However, they are not obligated to do so, and any market making with respect to the exchange notes, may be discontinued without notice. See "Transfer Restrictions" and "Plan of Distribution." 11 SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF NEW SAC We list in the table below summary historical consolidated financial information of Seagate Technology as of the end of and for each of the last three fiscal years ended June 30, 2000 and for the six months ended December 31, 1999 and the period from July 1, 2000 to November 22, 2000 and summary historical consolidated financial information for New SAC as of the end of and for the period from November 23, 2000 to December 29, 2000. The operations of New SAC are substantially identical to the operations of Seagate Technology before the transactions and New SAC had no significant operations from the date of its incorporation on August 10, 2000 to the consummation of the transactions on November 22, 2000. We have derived the historical consolidated financial information of Seagate Technology below as of the end of and for fiscal years 1998, 1999 and 2000 and for the period for July 1, 2000 through November 22, 2000 and the historical consolidated financial information of New SAC as of the end of and for the period from November 23, 2000 through December 29, 2000 from the audited consolidated financial statements and the related notes of New SAC and its predecessor, Seagate Technology, included elsewhere in this prospectus. We have derived the summary financial information for the six months ended December 31, 1999 from the unaudited interim consolidated condensed financial statements and the related notes of Seagate Technology included elsewhere in this prospectus, which in our opinion include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for the fair presentation of our financial position and results of operations for these periods. Operating results for the periods from July 1, 2000 through November 22, 2000 and from November 23, 2000 to December 29, 2000 are not necessarily indicative of results that may be expected for the entire year or any future period. You should read the summary financial information below in conjunction with "Selected Historical Consolidated Financial Information of New SAC," "Management's Discussion and Analysis of Financial Condition and Results of Operations -- New SAC" and the consolidated financial statements and related notes of New SAC and its predecessor, Seagate Technology, included elsewhere in this prospectus.
SEAGATE TECHNOLOGY NEW SAC ------------------------------------------------------------ ------------- SIX MONTHS JULY 1, 2000 NOVEMBER 23, FISCAL YEAR (a) ENDED TO 2000 TO ------------------------------ DECEMBER 31, NOVEMBER 22, DECEMBER 29, 1998 1999 (b) 2000 1999 2000 2000 --------- ---------- --------- -------------- -------------- ------------- (IN MILLIONS) STATEMENT OF OPERATIONS DATA: Revenue .................................. $6,819 $6,802 $6,448 $3,327 $ 2,449 $1,017 Cost of sales ............................ 5,788 5,176 5,056 2,665 2,130 896 Product development ...................... 627 655 725 359 442 73 Marketing and administrative ............. 502 534 515 243 490 101 Amortization of goodwill and other intangibles ............................. 40 39 51 17 26 5 In-process research and development (c) ......................... 223 2 105 -- -- 59 Restructuring (d) ........................ 347 60 207 135 20 -- Unusual items (e) ........................ (22) 78 350 325 -- -- ------ ------ ------ ------ -------- ------ Total operating expense .................. 7,505 6,544 7,009 3,744 3,108 1,134 ------ ------ ------ ------ -------- ------ Income (loss) from operations ............ (686) 258 (561) (417) (659) (117) Other income (expense): Interest income ......................... 98 102 101 42 58 3 Interest expense ........................ (51) (48) (52) (26) (24) (10) Other non-operating income (expense) (f) ........................... (65) 1,561 1,121 414 (1,015) (8) ------ ------ ------ ------ -------- ------ Income (loss) before income taxes ........ (704) 1,873 609 13 (1,640) (132) Benefit (provision) for income taxes ..... 174 (697) (299) (70) 76 (21) ------ ------ ------ ------ -------- ------ Net income (loss) ........................ $ (530) $1,176 $ 310 $ (57) $ (1,564) $(153) ====== ====== ====== ====== ======== ======
12
SEAGATE TECHNOLOGY NEW SAC -------------------------------------------------------------- ------------- SIX MONTHS JULY 1, 2000 NOVEMBER 23, FISCAL YEAR (a) ENDED TO 2000 TO -------------------------------- DECEMBER 31, NOVEMBER 22, DECEMBER 29, 1998 1999 (b) 2000 1999 2000 2000 --------- ---------- ----------- -------------- -------------- ------------- (IN MILLIONS, EXCEPT FOR RATIOS) OTHER FINANCIAL DATA: EBITDA (j) ................................. $529 $1,104 $831 $392 $282 $ 53 Depreciation and amortization .............. 664 696 693 351 271 69 Capital expenditures, net .................. 709 603 580 279 272 34 Working capital (g) ........................ 414 150 17 (95) Cash interest expense ...................... 52 52 52 26 26 -- Ratio of EBITDA to cash interest expense ................................... 10.2x 21.2x 16.0x 15.1x 8.4x -- Ratio of total debt to EBITDA .............. 1.33x 0.64x 0.85x 17.1x Ratio of net debt to EBITDA (h) ............ 0.07x 0.28x (0.21)x 3.2x BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents (i) .............. $ 666 $ 396 $ 875 $ 732 Short-term investments ..................... 1,161 1,227 1,140 118 Total assets ............................... 5,645 7,072 7,167 3,547 Total debt (including current portion of long-term debt) ........................... 705 704 704 904 Total shareholders' equity ................. 2,937 3,563 3,847 759
- ---------- (a) Seagate Technology reported financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30 of that year. Accordingly, fiscal year 1998 ended on July 3, 1998, fiscal year 1999 ended on July 2, 1999, and fiscal year 2000 ended on June 30, 2000. Fiscal years 1999 and 2000 were 52 weeks, and fiscal year 1998 was 53 weeks. All references to years represent fiscal years unless otherwise noted. (b) On May 28, 1999, Seagate Technology contributed all of the operations and assets of its Network & Storage Management Group, or NSMG, to VERITAS Software Corporation in exchange for the issuance to its subsidiary, Seagate Software Holdings, of shares of VERITAS common stock representing approximately 42% of the outstanding shares of VERITAS at that time and the assumption by VERITAS of some of the liabilities associated with the operations of NSMG. We refer to the above transaction as the NSMG contribution. As a result of the NSMG contribution, we recognized a gain of $1.808 billion offset by compensation charges of $124 million and transaction costs of $12 million for a net gain of $1.670 billion. We also incurred a charge in fiscal year 1999 of approximately $85 million in connection with the write-off of in-process research and development by VERITAS which was included in other income (expense) as activity related to equity interest in VERITAS. The NSMG contribution led to a permanent reduction in gross margins for Seagate Technology since the NSMG business provided higher gross margins than the rigid disc drive business. (c) These amounts represent portions of the purchase price of prior acquisitions that were attributed to in-process research and development projects of the acquired companies. The allocated amount is written off in the period the acquisition closes because we cannot be sure that the technologies under development will achieve technological feasibility. We recorded charges related to the write-off of in-process research and development: (1) in fiscal year 1998, which principally consisted of $214 million in connection with the acquisition of Quinta Corporation and of $7 million in connection with the acquisition of Eastman Software; (2) in fiscal year 1999, of $2 million in connection with the acquisition of a minority interest in Seagate Software Holdings; (3) in fiscal year 2000, of $105 million in connection with the acquisition of XIOtech; and (4) for the period from November 23, 2000 through December 29, 2000, of $59 million in connection with the transactions that closed on November 22, 2000 described in this prospectus. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- All Entities -- Prior Acquisitions" for more information. (footnotes continue on next page) 13 (d) Restructuring charges are the result of board approved restructuring plans we have implemented to align our global work force and manufacturing capacity with existing and anticipated future market requirements. These charges are described in more detail in footnotes to the audited consolidated financial statements of New SAC and its predecessor included elsewhere in this prospectus and under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- New SAC -- Restructuring Activities." (e) Unusual items include: (1) in fiscal year 1998, a $22 million reversal of expense recognized in fiscal year 1997 but paid in a lesser amount in fiscal year 1998 relating to a settlement of litigation; (2) in fiscal year 1999, a charge of $78 million of cash compensation expense related to the acquisition of Quinta; (3) in fiscal year 2000, $286 million of compensation expense and payroll taxes related to the reorganization of Seagate Software Holdings and $64 million related to the settlement of litigation; and (4) in the six months ended December 31, 1999, $286 million of compensation expense related to the reorganization of Seagate Software Holdings and $39 million related to the settlement of litigation. (f) Other non-operating income (expense) includes (1) in fiscal year 1998, mark-to-market losses on foreign exchange hedging contracts offset by gains on the sale of certain investments in equity securities; (2) in fiscal year 1999, the net gain on our contribution of NSMG to VERITAS offset by activity related to our investment in VERITAS; (3) in fiscal year 2000, the gains on sales and exchanges of certain investments in equity securities and activity related to our investment in VERITAS; (4) in the six months ended December 31, 1999, the activity related to our investment in VERITAS offset by a gain on the sale of VERITAS and SanDisk stock; (5) in the period from July 1, 2000 through November 22, 2000, the activity related to our investment in VERITAS, losses recognized on our Lernout & Hauspie Speech Products N.V. or LHSP investment and the loss on the sale of Seagate Technology's operating assets to New SAC offset by gains on sales of SanDisk and Veeco stock. (g) Working capital represents total current assets, excluding cash, cash equivalents and short-term investments, less total current liabilities, excluding short-term borrowings and current maturities of long-term debt. (h) Net debt is total debt less cash and cash equivalents. (i) On the closing of the transactions, New SAC received, as part of the assets it purchased from Seagate Technology, $765 million of cash, subject to upward adjustment, that was on the balance sheet of Seagate Technology. We used approximately $149 million of this amount as a source of cash in connection with the closing of the transactions. For more information regarding these adjustments, see "The Transactions." (j) EBITDA represents income (loss) before income taxes, interest income (expense), and depreciation and amortization and excludes the impact of certain non-recurring events summarized below. We have included certain information concerning EBITDA because management believes EBITDA is generally accepted as providing useful information regarding a company's ability to service and incur debt. EBITDA should not be considered, however, in isolation or as a substitute for net income, cash flows or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. Although EBITDA is frequently used as a measure of operations and ability to meet debt service requirements, it is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. EBITDA, as calculated above, differs from the definition of EBITDA and the related definition of Consolidated Coverage Ratio described under the caption "Description of the Notes -- Certain Definitions." We have calculated EBITDA for the periods presented as follows: (footnotes continue on next page) 14
SEAGATE TECHNOLOGY NEW SAC -------------------------------------------------------------- ------------- SIX MONTHS JULY 1 NOVEMBER 23, FISCAL YEAR ENDED TO 2000 TO -------------------------------- DECEMBER 31, NOVEMBER 22, DECEMBER 29, 1998 1999 2000 1999 2000 2000 ---------- ----------- --------- -------------- -------------- ------------- (IN MILLIONS) Income (loss) before income taxes (1) ......... $ (704) $ 1,873 $ 609 $ 13 $ (1,640) $(132) Interest income ............................... (98) (102) (101) (42) (58) (3) Interest expense .............................. 51 48 52 26 24 10 Depreciation and amortization ................. 664 696 693 351 271 69 Non-recurring items: Non-cash items: Gain on contribution of NSMG to VERITAS, net ............................... -- (1,670) -- -- -- -- Activity related to equity interest in VERITAS (2) ................................ -- 119 326 183 99 -- Gain on exchange of certain investments in equity securities, net (3) .................................... -- -- (231) -- -- -- In-process research and development ................................ 223 2 105 -- -- 59 Loss on LHSP investment ..................... -- -- -- -- 138 -- Loss on sale of operating assets to New SAC .................................... -- -- -- -- 889 -- Restructuring ............................... 203 35 109 76 7 -- Unusual items (4) ........................... -- -- 286 286 584 -- Other, net (5) .............................. 68 -- 29 -- (11) -- Cash items: Gain on sale of VERITAS stock ............... -- -- (537) (537) -- -- Gain on sale of SanDisk stock ............... -- -- (679) (62) (102) -- Gain on sale of Veeco stock ................. -- -- -- -- (20) -- Transaction related costs ................... -- -- _ -- 88 -- Restructuring ............................... 144 25 98 59 13 -- Unusual items (4) ........................... (22) 78 64 39 -- 40 Other, net (5) .............................. -- -- 8 -- -- 10 ------ -------- ------ ------ -------- ------- EBITDA ....................................... $ 529 $ 1,104 $ 831 $ 392 $ 282 $ 53 ====== ======== ====== ====== ======== =======
- ---------- (1) Income (loss) before income taxes includes: (1) in fiscal year 1999, $1.670 billion net gain related to the NSMG contribution to VERITAS; (2) in fiscal year 2000, gains on the sale of portions of our investments in VERITAS and SanDisk and gains on the exchange of certain investments in equity securities of $537 million, $679 million, and $231 million, respectively; (3) in the six months ended December 31, 1999, combined gains on the sale of portions of our investments in VERITAS and SanDisk of $537 million, and $62 million respectively; and (4) in the period from July 1, 2000 to November 22, 2000, gains on the sale of portions of our investment in SanDisk and Veeco of $102 million and $20 million, respectively, offset by losses on our investment in LHSP of $138 million and the sale of our operating assets to New SAC of $889 million. The equity investments in VERITAS and SanDisk were not acquired by New SAC under the stock purchase agreement. (2) Activity related to equity interest in VERITAS includes Seagate Technology's share of the net income or loss of VERITAS, adjusted to reflect the difference between the amortization of the intangible assets by Seagate Technology and VERITAS. The net income or loss of VERITAS was included in the results of Seagate Technology on a one quarter lag basis. In fiscal year 1999, Seagate Technology recorded $34 million of amortization expense related to its equity interest in VERITAS and a charge of $85 million in connection with the write-off of in-process research and development by VERITAS. In fiscal year 2000, Seagate Technology recorded $356 million of amortization expense related to its equity interest in VERITAS, which was partially offset by our $30 million share of the net income of VERITAS for the same period. For the six months ended December 31, 1999, Seagate Technology recorded $190 million of amortization expense related to Seagate Technology's equity investment in VERITAS, and Seagate Technology's $7 million share of the net loss of VERITAS for the same period. For the period from July 1, 2000 through November 22, 2000, Seagate Technology recorded $129 million of amortization expense related to its equity investment in VERITAS, which was partially offset by its $30 million share of the net income of VERITAS for the same period. The equity investment in VERITAS was not acquired by New SAC under the stock purchase agreement. (footnotes continue on next page) 15 (3) Represents gain recognized by Seagate Technology in fiscal year 2000 comprised of (1) the exchange of all the shares of stock of Dragon Systems for shares of stock of LHSP in connection with the merger of Dragon Systems and LHSP; (2) the exchange of all the shares of stock of CVC for shares of stock of Veeco in connection with the merger of CVC and Veeco; and (3) the exchange of shares of stock of iCompression for shares of stock of GlobeSpan. The shares of stock in LHSP and Veeco were not acquired by New SAC. (4) Represents (1) in fiscal year 1998, a $22 million cash reversal of expense recognized in fiscal year 1997 but paid in a lesser amount in fiscal year 1998 relating to a settlement of litigation; (2) in fiscal year 1999, $78 million of cash compensation expense related to the acquisition of Quinta; (3) in fiscal year 2000, $286 million of non-cash compensation expense and payroll taxes related to the reorganization of Seagate Software Holdings and $64 million of cash expense related to the settlement of litigation; (4) for the six months ended December 31, 1999, $39 million of cash expense related to the settlement of litigation, $286 million of non-cash compensation expense and payroll related taxes related to the reorganization of Seagate Software Holdings; (5) for the period from July 1, 2000 through November 22, 2000, $584 million non-cash compensation expense related to the acceleration of options in Seagate Technology in connection with the transactions; and (6) for the period from November 23, 2000 through December 29, 2000, $40 million for consulting and advisory fees paid to certain sponsors in connection with the transactions. (5) Other, net (1) in fiscal year 1998, includes mark-to-market losses on foreign exchange hedging contracts of $76 million offset by gains on the sale of certain investments in equity securities of $8 million; (2) in fiscal year 2000, includes non-cash compensation charges for termination of certain employees of $29 million and costs related to the transactions of $8 million; (3) in the period from July 1, 2000 through November 22, 2000, includes mark-to-market gain on equity securities of $27 million offset by losses on our investment in Gadzoox of $8 million and loss on sale of marketable securities of $8 million. 16 RISK FACTORS You should carefully consider the risk factors described below, together with the other information in this prospectus, before deciding to participate in the exchange offer. RISKS RELATING TO THE NOTES FAILURE TO EXCHANGE -- THERE MAY BE ADVERSE CONSEQUENCES IF YOU DO NOT EXCHANGE YOUR OUTSTANDING NOTES. If you do not exchange your outstanding notes for exchange notes under the exchange offer, then you will continue to be subject to the transfer restrictions on the outstanding notes as set forth in the offering memorandum distributed in connection with the offering of the outstanding notes. In general, the outstanding notes may not be offered or sold unless they are registered or exempt from registration under the Securities Act of 1933 and applicable state securities laws. Except as required by the exchange and registration rights agreement, we do not intend to register resales of the outstanding notes under the Securities Act of 1933. You should refer to "Prospectus Summary -- Summary of Terms of the Exchange Offer" and "The Exchange Offer" for information about how to tender your outstanding notes. The tender of outstanding notes under the exchange offer will reduce the principal amount of the outstanding notes outstanding, which may have an adverse effect upon, and increase the volatility of, the market price of the outstanding notes due to a reduction in liquidity. SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT OUR ABILITY TO FULFILL OUR OBLIGATIONS UNDER THE NOTES AND OPERATE OUR BUSINESS. We are highly leveraged and have significant debt service obligations. As of December 29, 2000, we had total debt of approximately $904 million, excluding unused commitments, and total shareholders' equity of $759 million. For fiscal year 2000 and the combined results for the six months ended December 29, 2000, our interest expense was $52 million and $34 million, respectively. For fiscal year 2000 and the six months ended December 29, 2000, our ratio of earnings to fixed charges would have been 2.8 to 1 and 5.0 to 1, respectively on a pro forma basis. We may incur additional debt from time to time to finance strategic acquisitions, investments and alliances, capital expenditures or for other purposes, subject to the restrictions contained in the senior credit facilities and in the indenture. Our substantial debt could have important consequences to you, including the following: o we are required to use a substantial portion of our cash flow from operations to pay principal and interest on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances and other general corporate requirements; o our interest expense could increase if interest rates in general increase because a substantial portion of our debt bears interest at floating rates; o our substantial leverage increases our vulnerability to general economic downturns and adverse competitive and industry conditions and could place us at a competitive disadvantage compared to those of our competitors that are less leveraged; o our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business and the information storage industry; o our level of debt may restrict us from raising additional financing on satisfactory terms to fund working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances and other general corporate requirements; 17 o our level of debt may prevent us from raising the funds necessary to repurchase all of the notes tendered to the Issuer upon the occurrence of a change of control, which would constitute an event of default under the notes; and o our failure to comply with the financial and other restrictive covenants in our debt instruments, which, among other things, require us to maintain specified financial ratios and limit our ability to incur debt and sell assets, could result in an event of default that, if not cured or waived, could have a material adverse effect on our business or prospects. See "Description of the Notes -- Certain Covenants" and "-- Default" and "Description of the Senior Credit Facilities." ABILITY TO SERVICE DEBT -- SERVICING OUR DEBT REQUIRES A SIGNIFICANT AMOUNT OF CASH, AND OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL. We expect to obtain the cash to make payments on the notes and the senior credit facilities and to fund working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances and other general corporate requirements from our operations. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations, that we will realize currently anticipated cost savings, revenue growth and operating improvements on schedule or at all or that future borrowings will be available to us under the senior credit facilities, in each case, in amounts sufficient to enable us to service our debt, including the notes, or to fund our other liquidity needs. If we cannot service our debt, we will have to take actions such as reducing or delaying capital expenditures, product development efforts, strategic acquisitions, investments and alliances, selling assets, restructuring or refinancing our debt, which could include the notes, or seeking additional equity capital. We cannot assure you that any of these remedies could, if necessary, be effected on commercially reasonable terms, or at all. In addition, the terms of existing or future debt agreements, including the credit agreement relating to the senior credit facilities and the indenture, may restrict us from adopting any of these alternatives. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Additional Discussion -- Relevant to All of New SAC, Seagate Technology Holdings, Seagate Technology SAN Holdings, Seagate Removable Storage Solutions Holdings and Crystal Decisions -- Liquidity and Capital Resources," "Description of the Notes -- Certain Covenants" and "Description of the Senior Credit Facilities." ADDITIONAL BORROWING CAPACITY -- DESPITE OUR SUBSTANTIAL LEVERAGE, WE WILL BE ABLE TO INCUR MORE DEBT, WHICH MAY INTENSIFY THE RISKS ASSOCIATED WITH OUR SUBSTANTIAL LEVERAGE, INCLUDING OUR ABILITY TO SERVICE OUR DEBT. The senior credit facilities and the indenture permit us, subject to the conditions described under "Description of the Senior Credit Facilities" and "Description of the Notes -- Certain Covenants -- Limitation on Indebtedness," to incur a significant amount of additional debt. In addition, we may incur additional debt under our $200 million revolving credit facility, of which approximately $144 million was available as of December 29, 2000. See "Description of the Senior Credit Facilities." If we incur additional debt above the levels in effect upon the closing of the transactions, the risks associated with our substantial leverage, including our ability to service our debt, could intensify. STRUCTURAL SUBORDINATION -- THE ISSUER DEPENDS ON THE RECEIPT OF DIVIDENDS OR OTHER INTERCOMPANY TRANSFERS FROM ITS SUBSIDIARIES AND THE OTHER SUBSIDIARIES OF NEW SAC TO PAY THE PRINCIPAL OF AND INTEREST ON THE NOTES. CLAIMS OF CREDITORS OF THESE COMPANIES MAY HAVE PRIORITY OVER YOUR CLAIMS WITH RESPECT TO THE ASSETS AND EARNINGS OF THESE COMPANIES. The Issuer conducts a substantial portion of its operations through its subsidiaries. The Issuer therefore is dependent upon dividends or other intercompany transfers of funds from these companies and other of our subsidiaries in order to pay the principal of and interest on the notes and to meet its other obligations. Generally, creditors of these companies will have claims to the assets and earnings of these companies that are superior to the claims of creditors of the Issuer, except to the extent the claims of the Issuer's creditors are guaranteed by these entities. 18 Although the note guarantees provide the holders of the notes with a direct claim against the assets of the note guarantors, enforcement of the note guarantees against any note guarantor may be challenged in a bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of the note guarantor and could be subject to the defenses available to guarantors generally. To the extent that the note guarantees are not enforceable, the notes would be effectively subordinated to all liabilities of the note guarantors, including trade payables and contingent liabilities, and preferred stock of the note guarantors. In any event, the notes will be effectively subordinated to all liabilities of the non-guarantors. In addition, the designated subsidiaries which initially were note guarantors may be released from their note guarantees and cease to be note guarantors under the conditions specified in the indenture. Accordingly, in the event of the Issuer's dissolution, bankruptcy, liquidation or reorganization, the holders of the notes may not receive any amounts with respect to the notes until after the payment in full of the claims of creditors of its subsidiaries and our other subsidiaries. The note guarantees are unsecured obligations of the note guarantors that are subordinated to all senior debt of the note guarantors. Although the indenture limits the ability of subsidiaries to enter into consensual restrictions on their ability to pay dividends and make other payments, these limitations have a number of significant qualifications and exceptions. See "Description of the Notes -- Certain Covenants -- Limitations on Restrictions on Distributions from Restricted Subsidiaries." In addition, we have been advised by our counsel in the jurisdictions of incorporation of the non-U.S. note guarantors that the ability of the Issuer's and note guarantors' subsidiaries to pay dividends and make other distributions and payments to them may be restricted by, among other things, applicable corporate, tax and other laws and regulations and agreements of the subsidiaries. RESTRICTIVE COVENANTS IN OUR DEBT INSTRUMENTS -- RESTRICTIONS IMPOSED BY THE INDENTURE AND THE AGREEMENT GOVERNING THE SENIOR CREDIT FACILITIES LIMIT OUR ABILITY TO FINANCE FUTURE OPERATIONS OR CAPITAL NEEDS OR ENGAGE IN OTHER BUSINESS ACTIVITIES THAT MAY BE IN OUR INTEREST. The indenture imposes, and the terms of any future debt may impose, operating and other restrictions on us and our restricted subsidiaries, including the Issuer. These restrictions affect, and in many respects limit or prohibit, among other things, the Issuer's, the other restricted subsidiaries' and our ability to: o incur additional debt; o issue redeemable equity interests and preferred equity interests; o pay dividends or make distributions; o repurchase equity interests; o make other restricted payments including, without limitation, investments; o create liens; o redeem debt that is junior in right of payment to the notes; o sell or otherwise dispose of assets, including capital stock of subsidiaries; o enter into mergers or consolidations; and o enter into transactions with affiliates. In addition, the senior credit facilities include other and more restrictive covenants and prohibit us from prepaying our other debt, including the notes, while debt under the senior credit facilities is outstanding. The agreement governing the senior credit facilities also requires us to achieve specified financial and operating results and maintain compliance with specified financial ratios. Our ability to comply with these ratios may be affected by events beyond our control. The restrictions contained in the indenture and the agreement governing the senior credit facilities could: 19 o limit our ability to plan for or react to market conditions or meet capital needs or otherwise restrict our activities or business plans; and o adversely affect our ability to finance our operations, strategic acquisitions, investments or alliances or other capital needs or to engage in other business activities that would be in our interest. A breach of any of these restrictive covenants or our inability to comply with the required financial ratios could result in a default under the agreement governing the senior credit facilities. If a default occurs, the lenders under the senior credit facilities may elect to: o declare all borrowings outstanding, together with accrued interest and other fees, to be immediately due and payable; or o prevent us from making interest payments on the notes, any of which would result in an event of default under the notes. The lenders also have the right in these circumstances to terminate any commitments they have to provide further borrowings. If we are unable to repay outstanding borrowings when due, the lenders under the senior credit facilities also have the right to proceed against the collateral, including our available cash, granted to them to secure the debt. If the debt under the senior credit facilities and the notes were to be accelerated, we cannot assure you that our assets would be sufficient to repay in full that debt and our other debt, including the notes. See "Description of the Notes -- Ranking," "-- Certain Covenants" and "Description of the Senior Credit Facilities." CONTRACTUAL SUBORDINATION -- IF A BANKRUPTCY, LIQUIDATION OR DISSOLUTION OF THE ISSUER OR ANY NOTE GUARANTOR OCCURS, THE ASSETS OF THE ISSUER OR NOTE GUARANTOR WILL NOT BE AVAILABLE TO PAY OBLIGATIONS TO YOU UNDER THE NOTES UNTIL THE ISSUER OR NOTE GUARANTOR HAS MADE ALL PAYMENTS ON ITS SENIOR DEBT. The notes are general, unsecured obligations of the Issuer that are junior to the prior payment in full of all of the Issuer's existing and future senior debt. The note guarantees are general, unsecured obligations of the note guarantors that are junior in right of payment to all of the existing and future senior debt of the note guarantors. The indenture permits us and our subsidiaries, including the Issuer, to borrow certain additional debt, which may be senior debt, if we meet specified conditions. However, it does not permit the Issuer or any note guarantor to incur or otherwise become liable for any debt that is junior in right of payment to any senior debt and senior in any respect in right of payment to the notes and the note guarantees. See "Description of the Notes -- Ranking." Neither the Issuer nor the note guarantors may pay principal, premium, if any, interest or other amounts on account of the notes or a note guarantee in the event of a payment default or some other defaults in respect of senior debt, including debt under the senior credit facilities, unless the senior debt has been paid in full or the default has been cured or waived. In addition, in the event of some other defaults with respect to the senior debt, the Issuer and the note guarantor may not be permitted to pay any amount on account of the notes or the note guarantees for a designated period of time. Because of the subordination provisions of the notes and the note guarantees, if a bankruptcy, liquidation or dissolution of the Issuer or any note guarantor occurs, the assets of the Issuer or the note guarantors will not be available to pay obligations under the notes or the note guarantors until the Issuer or the note guarantors have made all payments on their senior debt. If any of these events were to occur, we cannot assure you that sufficient assets would remain after all these payments have been made to make any payments on the notes, including payments of interest when due. UNSECURED OBLIGATIONS -- BECAUSE THE NOTES ARE NOT SECURED, OUR ASSETS MAY BE INSUFFICIENT TO PAY AMOUNTS DUE ON YOUR NOTES. In addition to being contractually subordinated to all existing and future senior debt, the notes and the note guarantees are unsecured obligations of the Issuer and the note guarantors, as applicable, whereas debt outstanding under the senior credit facilities is secured. This debt is secured by the following: 20 o substantially all of the real and personal property that is located in the Cayman Islands, the Netherlands (with the exception of intellectual property), Northern Ireland, Scotland, Singapore and the United States and that is owned by the Issuer and each of our other existing subsidiaries that guarantee the senior credit facility; o some real property located in Thailand; o some personal property located in the United Kingdom; and o a pledge of all the capital stock held by us and each of our subsidiaries that is organized under, or that holds the capital stock of an entity organized under, the laws of the Cayman Islands, the Netherlands, Northern Ireland, Scotland, Singapore and the United States and some other subsidiaries. In addition, borrowings under the senior credit facilities are secured by: o substantially all of the real and personal property of any newly formed subsidiary of us if the newly formed subsidiary accounts for 10% or more of our total assets or consolidated EBITDA; and o all the capital stock of subsidiaries of us owned directly by that newly formed subsidiary. As of December 29, 2000, on a consolidated basis, we had $703 million of secured debt, excluding unused commitments. In addition, we may incur other senior debt, which may be substantial in amount, and which may, in some circumstances, be secured. Because the notes and the note guarantees are unsecured obligations, your right of repayment may be compromised if any of the following situations were to occur: o a bankruptcy, liquidation, reorganization or other winding-up involving the Issuer, us or any of our subsidiaries; o a default in payment under the senior credit facilities or other secured debt; or o an acceleration of any debt under the senior credit facilities or other secured debt. If any of these events were to occur, the secured lenders could foreclose on the pledged stock of the Issuer and our other subsidiaries and on the assets of the Issuer and the note guarantors in which they have been granted a security interest, in each case to your exclusion, even if an event of default exists under the indenture at that time. As a result, upon the occurrence of any of these events, there may not be sufficient funds to pay amounts due on the notes and the note guarantees. Furthermore, under the note guarantees, if all shares of any note guarantor are sold to persons under an enforcement of the pledge of shares in the note guarantor for the benefit of the lenders under the senior credit facilities, then the applicable note guarantor will be released from its note guarantee automatically and immediately upon the sale. Additionally, the note guarantee of a designated subsidiary will be released upon some sales of that designated subsidiary's common stock. See "Description of the Senior Credit Facilities." INABILITY TO REPURCHASE NOTES PRIOR TO MATURITY -- BECAUSE THE SENIOR CREDIT FACILITIES PROHIBIT THE ISSUER FROM REPURCHASING THE NOTES, A DEFAULT UNDER THE INDENTURE MAY BE TRIGGERED IF YOU EXERCISE YOUR RIGHT TO REQUIRE THE ISSUER TO REPURCHASE THE NOTES IN THE EVENT THE ISSUER OR ANY OF ITS DIRECT OR INDIRECT PARENT COMPANIES EXPERIENCE A CHANGE OF CONTROL OR WE OR ANY OF OUR RESTRICTED SUBSIDIARIES, INCLUDING THE ISSUER, MAKE ASSET SALES THAT DO NOT MEET SPECIFIED CONDITIONS. The senior credit facilities prohibit, and other future senior debt may prohibit, the Issuer from repurchasing any notes, even though the indenture requires the Issuer to offer to repurchase some or all of the notes if specified events occur. Specifically, if we and our restricted subsidiaries, including the Issuer, make specified asset sales or if a change of control of the Issuer or any of its direct or indirect parent companies occurs when the Issuer is prohibited under the senior credit facilities or agreements for other future senior debt from repurchasing notes, the Issuer could ask the lenders 21 under the senior credit facilities, or that future senior debt, for permission to repurchase the notes or we could attempt to refinance the borrowings that contain these prohibitions. If the Issuer does not obtain the consent to repay the borrowings or is unable to refinance the borrowings, it would be unable to repurchase the notes. The Issuer's failure to repurchase tendered notes at a time when the repurchase is required by the indenture would constitute an event of default under the indenture, which, in turn, would constitute a default under the senior credit facilities and may constitute an event of default under other, future senior debt. Under these circumstances, the subordination provisions in the indenture would restrict payments to you before these other obligations are satisfied. See "Description of the Notes -- Ranking," "-- Change of Control" and "-- Certain Covenants" and "Description of the Senior Credit Facilities." In addition, the change of control provisions, which are contained in the indenture, will not necessarily afford you protection in the event of a highly leveraged transaction that may adversely affect you, including a reorganization, restructuring, merger or other similar transaction involving any of the direct or indirect parent companies of the Issuer. These transactions may not involve a change in voting power or beneficial ownership, or, even if they do, may not involve a change of the magnitude required under the definition of change of control in the indenture to trigger these provisions. Except as described under "Description of the Notes -- Change of Control," the indenture does not contain provisions that permit the holders of the notes to require the Issuer to repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction. U.S. FRAUDULENT TRANSFER OR CONVEYANCE CONSIDERATIONS -- UNDER U.S. FEDERAL AND STATE FRAUDULENT TRANSFER OR CONVEYANCE STATUTES, A COURT COULD VOID THE OBLIGATIONS OF THE ISSUER AND THE NOTE GUARANTORS OR TAKE OTHER ACTIONS DETRIMENTAL TO HOLDERS OF THE NOTES. Under U.S. federal or state fraudulent transfer or conveyance laws, a court could take actions detrimental to you if it found that, at the time the notes or the note guarantees were issued: (1) the Issuer or the note guarantor issued the notes or the note guarantee with the intent of hindering, delaying or defrauding current or future creditors; or (2)(a) the Issuer or the note guarantor received less than fair consideration or reasonably equivalent value for incurring the debt represented by the notes or the note guarantees; and (b) the Issuer or the note guarantor: o was insolvent or rendered insolvent by issuing the notes or the note guarantees; o was engaged, or about to engage, in a business or transaction for which the assets remaining with the Issuer or the note guarantor would constitute unreasonably small capital to carry on the Issuer's or the note guarantor's business; or o intended to incur, believed that it would incur or did incur, debt beyond the Issuer's or the note guarantor's ability to pay. If a court made this finding, it could: o void all or part of the Issuer's or the note guarantor's obligations to the holders of the notes and direct the repayment of any amounts thereunder to the Issuer's and the note guarantors' other creditors; o subordinate the Issuer's or the note guarantor's obligations to the holders of the notes to the Issuer's or the note guarantors' other debt; or o take other actions detrimental to the holders of the notes. In that event, we cannot assure you that the Issuer could pay amounts due on the notes. Under fraudulent transfer statutes, it is not certain whether a court would determine that the Issuer or the note guarantor was insolvent on the date that the notes and note guarantees were issued. However, the Issuer or the note guarantor generally would be considered insolvent at the time it incurred the notes or the note guarantees if: 22 o the fair saleable value of the Issuer's or the note guarantor's assets, as applicable, was less than the amount required to pay the Issuer's total existing debts and liabilities, including contingent liabilities, or those of the note guarantor, as applicable, as they become absolute and mature; or o the Issuer or the note guarantor incurred debts beyond its ability to pay as these debts mature. We cannot predict: o what standard a court would apply in order to determine whether the Issuer or any of the note guarantors were insolvent as of the date the Issuer or the note guarantors issued the notes or the note guarantees, or that regardless of the method of valuation, a court would determine that the Issuer or the note guarantors were insolvent on that date; or o whether a court would determine that the payments constituted fraudulent transfers or conveyances on other grounds. To the extent a court voids a note guarantee as a fraudulent transfer or conveyance or holds it unenforceable for any other reason, holders of notes would cease to have any claim against the note guarantor. If a court were to take this action, the note guarantor's assets would be applied to the note guarantor's liabilities and preferred stock claims. We cannot assure you that a note guarantor's assets would be sufficient to satisfy the claims of the holders of notes relating to any voided portions of any of the note guarantees. In rendering their opinions in connection with the transactions, our counsel and counsel to the initial purchasers of the notes did not express any opinion as to the applicability of U.S. federal bankruptcy or state fraudulent transfer and conveyance laws. Based upon financial and other information available to us, we believe that the Issuer and the note guarantors issued the notes and the note guarantees for proper purposes and in good faith and that, at the time the notes and the note guarantees are issued, the Issuer and the note guarantors: o were not insolvent or rendered insolvent by the issuance; o had sufficient capital to run their businesses; and o were able to pay their debts as they mature or become due. In reaching these conclusions, we have relied on various valuations and estimates of future cash flow that necessarily involve a number of assumptions and choices of methodology. However, if the notes or the note guarantees were to be subject to any of these kinds of claims, a court may not adopt the assumptions and methodologies that we have chosen or concur with our conclusion as to our solvency and the solvency of our subsidiaries. Additionally, under U.S. federal bankruptcy or applicable state insolvency law, if certain bankruptcy or insolvency proceedings were initiated by or against the Issuer or the note guarantors within 90 days after any payment by the Issuer with respect to the notes or by the note guarantors under their note guarantees, or if the Issuer or the note guarantors anticipated becoming insolvent at the time of the payment, all or a portion of the payment could be avoided as a preferential transfer and the recipient of the payment could be required to return the payment. In the event there are any additional note guarantors in the future, the foregoing would also apply to their guarantees. ORIGINAL ISSUE DISCOUNT -- IN THE EVENT OF BANKRUPTCY, CLAIMS OF HOLDERS OF NOTES MAY BE REDUCED BY THE AMOUNT OF UNAMORTIZED ORIGINAL ISSUE DISCOUNT. The outstanding notes were issued at a discount from their principal amount. Consequently, if a bankruptcy case is commenced by or against us under the U.S. bankruptcy code after the issuance of the notes, the claim of a holder of the notes may be limited to an amount equal to the sum of (1) the initial public offering price of the notes and (2) that portion of the original issue discount that is not deemed to constitute "unmatured interest" for purposes of the U.S. bankruptcy code. Any original issue discount that had not been amortized as of the date of the commencement of this bankruptcy filing would constitute "unmatured interest." 23 NON-U.S. FRAUDULENT PREFERENCES AND BANKRUPTCY LAWS -- UNDER NON-U.S. FRAUDULENT PREFERENCE AND BANKRUPTCY LAWS, A COURT COULD VOID THE OBLIGATIONS OF THE ISSUER AND THE NOTE GUARANTORS OR TAKE OTHER ACTIONS DETRIMENTAL TO HOLDERS OF THE NOTES. Under applicable provisions of the Cayman Islands Companies Law (2000 Revision), if at any time, a winding-up of the Issuer or the note guarantors incorporated in the Cayman Islands were to begin in circumstances in which the issuance of the notes or the issuance of the note guarantees, or any related security, would be deemed to be a fraudulent preference within the meaning of the Companies Law, then the notes and these note guarantees could be voided or claims in respect of the notes could be subordinated to all our other claims. In addition, under Cayman Islands law, similar provisions to those outlined under "-- U.S. Fraudulent Transfer or Conveyance Considerations" above may also apply to the notes and these note guarantees. Furthermore, a disposition of the Issuer's or note guarantors' property at an undervalue with an intention to defraud other creditors is voidable at the instance of the creditor prejudiced by that disposition. The payment of interest and principal by the Issuer under the notes or the payment of amounts by the note guarantors under the note guarantees could be voided and required to be returned to the person making those payments or to a fund for the benefit of the Issuer's creditors or the note guarantors' creditors. In addition, the procedural and substantive provisions of Cayman Islands insolvency laws generally are more favorable to secured creditors than comparable provisions of U.S. laws and afford debtors only limited protection from creditors. In addition, under Cayman Islands insolvency law, the liabilities in the event of a winding-up will be paid only after repayment of some kinds of debts which are entitled to priority under Cayman Islands law. These debts include: o amounts owed in respect of rates, taxes, assessments or impositions; o amounts owed to depositors; o amounts owed to employees, subject to certain limits; and o liquidation expenses. We have been advised by our local counsel in the jurisdictions of incorporation of the note guarantors other than the Cayman Islands that broadly similar issues with respect to fraudulent or unfair preference and bankruptcy laws exist in these jurisdictions. NO PRIOR MARKET FOR THE NOTES -- THERE IS NO PRIOR MARKET FOR THE NOTES. IF ONE DEVELOPS, IT MAY NOT BE LIQUID. The exchange notes will generally be permitted to be resold or otherwise transferred by each holder without requirements of further registration subject to the restrictions described under "Exchange and Registration Rights Agreement" and "Transfer Restrictions." However, the exchange notes will constitute a new issue of securities with no established trading market. If any of the notes are traded after their initial issuance or the completion of the exchange offer, they may trade at a discount from their initial offering price, depending upon: o prevailing interest rates; o the market for similar securities; and o other factors, including general economic conditions and our financial condition, performance and prospects. We do not intend to list the outstanding notes or exchange notes on any national securities exchange or to seek their quotation on any automated dealer quotation system. In addition, the market for non-investment grade debt has been historically subject to disruptions that have caused volatility in their prices independent of the operating and financial performance of the Issuers of these securities. It is possible that the market for the outstanding notes and the exchange notes will be subject to these kinds of disruptions. Accordingly, declines in the liquidity and market price of the outstanding notes or exchange notes may also occur independent of our operating and financial performance. The exchange offer will not be conditioned upon any minimum or maximum aggregate 24 principal amount of notes being tendered for exchange. We cannot assure you that any liquid market for the exchange notes will develop. In addition, notwithstanding that the initial purchasers have informed us that they currently intend to make a market in the exchange notes, they are not obligated to do so and may discontinue without notice any market making with respect to the exchange notes, at any time in their sole discretion. RISKS RELATED TO OUR BUSINESS COMPETITION -- OUR INDUSTRY IS HIGHLY COMPETITIVE AND HAS EXPERIENCED SIGNIFICANT PRICE EROSION. Even during periods when demand is stable, the rigid disc drive industry is intensely competitive and vendors experience price erosion over the life of a product. Historically our competitors have offered new or existing products at lower prices as part of a strategy to gain or retain market share and customers. We expect these practices to occur again in the future. We also expect that price erosion in the rigid disc drive industry will continue for the foreseeable future. Because we may need to reduce our prices to retain our market share, the competition could adversely affect our results of operations. We have experienced and expect to continue to experience intense competition from a number of domestic and foreign companies, including other independent rigid disc drive manufacturers and large integrated manufacturers, such as:
INTEGRATED INDEPENDENT - ---------------------------------------------------- ---------------------------- Fujitsu Limited Maxtor Corporation International Business Machines Corporation Western Digital Corporation NEC Corporation Samsung Electronics Co. Ltd. Toshiba Corporation
The term "independent" in this context refers to manufacturers that primarily produce rigid disc drives as a stand-alone product, and the term "integrated" refers to manufacturers that produce complete computer or other systems which contain rigid disc drives or other information storage products. Integrated manufacturers are formidable competitors because they have the ability to determine pricing for complete systems without regard to the margins on individual components. Because components other than rigid disc drives generally contribute a greater portion of the operating margin on a complete computer system than do rigid disc drives, integrated manufacturers do not necessarily need to realize a profit on the rigid disc drives included in a computer system and, as a result, may be willing to sell rigid disc drives to third parties at very low margins. Many integrated manufacturers are also formidable competitors because they have more substantial resources and greater access to customers than we do. We face risks that integrated manufacturers will enter into agreements with our customers to supply those customers' rigid disc drive requirements as part of more expansive agreements. In addition, Maxtor's recent acquisition of Quantum's disc drive operations makes Maxtor the largest manufacturer of rigid disc drives in terms of the number of rigid disc drives shipped, according to Dataquest, and may make it a more formidable competitor. We also face indirect competition from present and potential customers, including several of the computer manufacturers listed above, that evaluate whether to manufacture their own rigid disc drives and other information storage products or purchase them from outside sources. If our customers decide to manufacture their own rigid disc drives or other information storage products, it could have a material adverse effect on our business, results of operations and financial condition. We also compete with manufacturers of products that use alternative data storage and retrieval technologies. Products using alternative technologies, such as semiconductor memory, could become a significant source of competition. Semiconductor memory is much faster than rigid disc drives, but currently is volatile in that it is subject to loss of data in the event of power failure and much more costly. Flash EE prom, a nonvolatile semiconductor memory, is currently much more costly and, while 25 it has higher read performance than rigid disc drives, it has lower write performance. Flash EE prom could become competitive in the near future for applications requiring less storage capacity than is required in traditional markets for our products, such as that for less than 200 megabytes. INDUSTRY DEMAND -- SLOWDOWN IN DEMAND FOR COMPUTER SYSTEMS MAY CAUSE A DECLINE IN DEMAND FOR OUR PRODUCTS. Our rigid disc drives and tape drives are components in computer systems and collectively accounted for approximately 97% of our consolidated revenue for both fiscal year 2000 and the six months ended December 29, 2000 and approximately 90% and 83% of our consolidated gross profit for fiscal year 2000 and the six months ended December 29, 2000. The demand for our products, therefore, depends to a significant degree upon demand for computer systems, which has been volatile. In the past, unexpected slowdowns in demand for computer systems have generally caused sharp declines in demand for rigid disc drive and tape drive products. As a result of recent demand slowdowns experienced by a number of computer systems suppliers, short-term demand for rigid disc drive and tape drive products has declined. Causes of the declines in demand for our products in the past have included the announcement or introduction of major operating system or semiconductor improvements, such as Windows 95 or the Pentium II semiconductor chip. We believe these announcements and introductions caused consumers to defer their purchases and made existing inventory obsolete. In addition, in our industry, the supply of rigid disc drives and tape drives periodically exceeds demand. When this happens, the oversupply of available products causes us to have higher than anticipated inventory levels and we experience intense price competition from other rigid disc drive and/or tape drive manufacturers. SHORT PRODUCT LIFE CYCLES -- SHORT PRODUCT LIFE CYCLES MAKE IT DIFFICULT TO RECOVER THE COST OF DEVELOPMENT AND FORCE US TO CONTINUALLY QUALIFY NEW PRODUCTS WITH OUR CUSTOMERS. Over the last several years, the rate of increase of areal density, or the storage capacity per rigid disc drive, has grown at a much more rapid pace than it had previously. Higher areal densities mean that fewer read/write heads and rigid discs are required to achieve a given rigid disc drive storage capacity. In addition, advances in computer hardware and software have led to the demand for successive generations of storage products with increased storage capacity and/or improved performance and reliability. Product life cycles have shortened because increases in areal density and advances in computer hardware and software have allowed the introduction of a new generation of rigid disc drives that is more efficient and cost effective than the previous one. Shorter product cycles make it more difficult to recover the cost of product development because those costs must be recovered over increasingly shorter periods of time during the life cycles of products. We expect this trend to continue and cannot assure you that we will be able to recover the cost of product development in the future. Short product life cycles also require us to engage regularly in new product qualification of next generation products with our customers. In order for our products to be considered by our customers for qualification, we must be among the leaders in time-to-market with those new products. Once a product is accepted for qualification testing, any failure or delay in the qualification process can result in our losing sales to that customer until the next generation of products is introduced. The effect of missing a product qualification opportunity is magnified by the limited number of high volume computer manufacturers, most of which continue to increase their share of the personal computer market. These risks are magnified because we expect cost improvements and competitive pressures to result in declining sales and declining gross margins on our current generation products. We cannot assure you that we will be among the leaders in time to market with new products, or that we will be able to successfully qualify new products with our customers in the future. IMPORTANCE OF TIME TO MARKET -- OUR OPERATING RESULTS DEPEND ON OUR BEING AMONG THE FIRST-TO-MARKET AND ACHIEVING SUFFICIENT PRODUCTION VOLUME WITH OUR NEW PRODUCTS. 26 To achieve consistent success with our original equipment manufacturer, or OEM, customers, we must be an early provider of next generation rigid disc drives featuring leading, high quality technology. If we fail to: o consistently maintain or improve our time-to-market performance with our new products; o produce these products in sufficient volume; o qualify these products with key customers on a timely basis by meeting our customers' performance and quality specifications; or o achieve acceptable manufacturing yields and costs with these products, then our market share would be adversely affected, which would harm our operating results. In addition, if delivery of our products is delayed, our OEM customers may use our competitors' products to meet their production requirements. If delivery of those OEMs' computer systems into which our products are integrated is delayed, consumers and businesses may purchase comparable products from the OEMs' competitors. Moreover, we face the related risk that consumers and businesses may wait to make their purchases if they want to buy a product that has been shipped or announced but not yet released. If this were to occur, we may be unable to sell our existing inventory of products which may have become less efficient and cost effective compared to new products. As a result, even if we are among the first-to-market with a given product, subsequent introductions or announcements by our competitors of next generation products could cause us to lose revenue and not achieve a positive return on our investment in existing products and inventory. IMPORTANCE OF REDUCING OPERATING COSTS -- IF WE DO NOT REDUCE OUR OPERATING EXPENSES, WE WILL NOT BE ABLE TO COMPETE EFFECTIVELY IN OUR INDUSTRY. Our strategy involves, to a substantial degree, increasing revenue while at the same time reducing operating expenses. In furtherance of this strategy, we are engaged in ongoing, company-wide manufacturing efficiency activities to increase productivity and reduce costs. These activities include closures and transfers of facilities, significant personnel reductions and efforts to increase automation. We cannot assure you that we will be able to implement our plans without delay or that, when implemented, our efforts will result in the increased profitability, cost savings or other benefits management expects. Moreover, the reduction of personnel and closure of facilities may adversely affect our ability to manufacture our products in required volumes to meet customer demand and may result in other disruptions that affect our products and customer service. In addition, the transfer of manufacturing capacity of a product to a different facility frequently requires qualification of the new facility by some of our OEM customers. We cannot assure you that these activities and transfers will be implemented on a cost-effective basis without delays or disruption in our production and without adversely affecting our results of operations. NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE -- IF WE DO NOT DEVELOP PRODUCTS IN TIME TO KEEP PACE WITH TECHNOLOGICAL CHANGES, OUR OPERATING RESULTS WILL BE ADVERSELY AFFECTED. Our customers have demanded new generations of rigid disc drive products as advances in computer hardware and software have created the need for improved storage products with features such as increased storage capacity or improved performance and reliability. We and our competitors have developed improved products, and we will need to continue to do so in the future. As a result, the life cycles of our products have been shortened and we have been required to constantly develop and introduce new cost-effective products within time to market windows that become progressively shorter. We had product development expenses of $655 million and $725 million for fiscal years 1999 and 2000, respectively. Excluding product development allocated compensation expense related to the transactions, we would have had combined product development expenses of $380 million for the six months ended December 29, 2000. We cannot assure you that we will be able to successfully complete the design or introduction of new products in a timely manner, manufacture new products in sufficient volumes with acceptable manufacturing yields, or successfully market these new products, or that these products will perform to specifications on a long-term basis. 27 When we develop new products with higher capacity and more advanced technology, our operating results may decline because the increased difficulty and complexity associated with producing these products increases the likelihood of reliability, quality or operability problems. If our products suffer increases in failures, are of low quality or are not reliable, customers may reduce their purchases of our products and our manufacturing rework and scrap costs and service and warranty costs may increase. In addition, a decline in the reliability of our products may make us less competitive as compared with other rigid disc drive manufacturers. CHANGES IN INFORMATION STORAGE PRODUCTS -- FUTURE CHANGES IN THE NATURE OF INFORMATION STORAGE PRODUCTS MAY REDUCE DEMAND FOR TRADITIONAL RIGID DISC DRIVE PRODUCTS. We expect that in the future new personal computing devices and products will be developed, some of which, such as Internet appliances, may not contain a rigid disc drive. While we are investing development resources in designing information storage products for new applications, it is too early to assess the impact of these new applications on future demand for rigid disc drive products. We cannot assure you that we will be successful in developing other information storage products. In addition, there are currently no widely accepted standards in various technical areas that may be important to the future of our business, including the developing sector of intelligent storage solutions. We participate in working groups of the Storage Networking Industry Association to develop industry standards for storage area network solutions. We cannot assure you, however, that the standards we support will prevail or be widely adopted, or that our products will be compatible with any standards that are ultimately adopted. HIGH FIXED COSTS -- OUR VERTICAL INTEGRATION STRATEGY ENTAILS A HIGH LEVEL OF FIXED COSTS. Our vertical integration strategy entails a high level of fixed costs and requires a high volume of production and sales to be successful. During periods of decreased production, these high fixed costs have had, and could in the future have, a material adverse effect on our operating results and financial condition. In addition, a strategy of vertical integration has in the past and could in the future delay our ability to introduce products containing market-leading technology, because we may not have developed the technology and source of components for our products and do not have access to external sources of supply without incurring substantial costs. DEPENDENCE ON SUPPLY OF COMPONENTS -- IF WE EXPERIENCE SHORTAGES OR DELAYS IN THE RECEIPT OF CRITICAL COMPONENTS FOR OUR PRODUCTS, WE MAY SUFFER LOWER OPERATING MARGINS, PRODUCTION DELAYS AND OTHER MATERIAL ADVERSE EFFECTS. The cost, quality and availability of some components for rigid disc drives and other information storage products are critical to the successful manufacture of these products. Particularly important components include read/write heads, recording media, application specific integrated circuits, or ASICs, spindle motors, printed circuit boards and resistors. We rely on sole suppliers and a limited number of suppliers for some of these components, such as the read/write heads and recording media which we do not manufacture, ASICs, spindle motors and printed circuit boards. In the past, we have experienced increased costs and production delays when we were unable to obtain sufficient quantities of some components and have been forced to pay higher prices for some components that were in short supply in the industry in general. For example, in the fourth quarter of fiscal year 2000 and in the first half of fiscal year 2001, we and other rigid disc drive manufacturers experienced shortages and delays in the receipt of ASICs, a critical component in the manufacture of rigid disc drives. We believe these shortages and delays were caused by several reasons, including a recent consolidation among the manufacturers of these components and the use of ASIC manufacturing capacity to produce semiconductor chips for other applications, including wireless communications devices. If there is further consolidation among ASIC manufacturers or if any other factors should cause us to experience renewed shortages or delays in the receipt of ASICs in the future, our financial condition and results of operations could be materially adversely affected. In particular, shortages of ASICs may require us to allocate the ASICs we are able to obtain between 28 products or customers, which would have the effect of reducing our shipment volumes. Also, increased costs of ASICs would increase our cost of sales and, if we are unable to achieve corresponding increases in prices for our products, reduce our profit margins. In addition, Maxtor's recent acquisition of Quantum's disc drive operations may enable Maxtor to obtain a proportionately greater supply of critical components from third party manufacturers than we may be able to obtain because of the increased size and negotiating leverage of Maxtor, which could adversely affect our ability to source a sufficient amount of these components for our operations. If there is a shortage or delay in supplying us with critical components, then: o it is likely that our suppliers would raise their prices and, if we could not pass these price increases to our customers, our operating margin would decline; o we might have to reengineer some products, which would likely cause production and shipment delays, make the reengineered products more costly and provide us with a lower rate of return on these products; o we would likely have to allocate the components we receive among some of our products and ship less of other products, which would reduce our revenues and could cause us to lose sales to customers who could purchase more of their required products from manufacturers, which either did not experience these shortages or delays or which made different allocations; and o we might be late in shipping products, causing potential customers to make purchases with our competitors and, thus, causing our revenue and operating margin to decline. We cannot assure you that we will be able to obtain critical components in a timely and economic manner, or at all. DEPENDENCE ON KEY CUSTOMERS -- WE MAY BE ADVERSELY AFFECTED BY THE LOSS OF, OR REDUCED, DELAYED OR CANCELED PURCHASES BY, ONE OR MORE OF OUR LARGER CUSTOMERS. For fiscal year 2000 and the combined results for the six months ended December 29, 2000, our top 10 customers accounted for approximately 58% and 62% of our disc drive revenue. Compaq, our largest customer, accounted for approximately 17% of our disc drive revenue in both fiscal year 2000 and the six months ended December 29, 2000 and EMC Corporation accounted for approximately 14% of our disc drive revenue for the six months ended December 29, 2000. If any of our key customers were to significantly reduce its purchases from us, our results of operations would be adversely affected. While sales to major customers may vary from period to period, a major customer that permanently discontinues or significantly reduces its relationship with us could be difficult to replace. In line with industry practice, new customers usually require that we pass a lengthy and rigorous qualification process at the customer's cost. Accordingly, it may be difficult for us to attract new major customers. Typically, our OEM purchase agreements permit OEMs to cancel orders and reschedule delivery dates without significant penalties. In the past, orders from many of our OEMs were canceled and delivery schedules were delayed as a result of changes in the requirements of the OEM's customers. These order cancellations and delays in delivery schedules have had a material adverse effect on our results of operations in the past and may again in the future. Our OEMs and foreign distributors typically furnish us with non-binding indications of their near-term requirements, with product deliveries based on weekly confirmations. Shipments to domestic distributors are on a consignment basis, whereby our inventory held by these distributors is still owned by us and our revenue recognition is delayed until the product is actually used by the distributor to fill an end-user order. If actual orders from foreign distributors and OEMs decrease from their non-binding forecasts, or actual orders placed by end-users with our domestic distributors are not in line with expectations, these variances could have a material adverse effect on our business, results of operations and financial condition. 29 RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS -- OUR INTERNATIONAL OPERATIONS SUBJECT US TO SOCIAL, POLITICAL AND ECONOMIC RISKS OF DOING BUSINESS IN FOREIGN COUNTRIES. We have significant operations in foreign countries, including manufacturing facilities, sales personnel and customer support operations. For fiscal year 2000 and the combined results for the six months ended December 29, 2000, approximately 34% and 35% of our revenue was from sales to customers located in Europe and approximately 24% and 22% was from sales to customers located in Asia. We have manufacturing facilities in China, Indonesia, Malaysia, Mexico, Northern Ireland, Singapore and Thailand, in addition to those in the United States. A substantial portion of our desktop drive assembly occurs in our facility in China. Our offshore operations are subject to risks inherent in doing business in foreign countries, including the following: o fluctuations in currency exchange rates, which resulted, in fiscal year 1998, in a $76 million charge to income from marking our hedge positions to market; o longer payment cycles for sales in foreign countries; o difficulties in staffing and managing international manufacturing operations; o seasonal reductions in business activity in the summer months in Europe and other countries; o increases in tariffs and duties, price controls, restrictions on foreign currencies and trade barriers imposed by foreign countries; o political unrest, particularly in areas in which we have manufacturing facilities; o local legal and regulatory requirements; o increased costs of transportation and shipping; o the credit risk of local customers and distributors; o potential difficulties in protecting intellectual property; o the risk of nationalization of private enterprises by foreign governments; and o potential adverse tax consequences, including imposition of withholding or other taxes on payments by subsidiaries. Prices for our products are denominated predominately in U.S. dollars, even when sold to customers which are located outside the United States. Currency instability in Asian and other geographic markets may make our products more expensive than products sold by other manufacturers that are priced in the local currency. Therefore, foreign customers may reduce purchases of our products. Disruption in financial markets and the deterioration of the underlying economic conditions in the past in some countries, including those in Asia, have had an impact on our sales to customers located in, or whose end-user customers are located in, these countries. Disruptions in financial markets and the deterioration of the underlying economic conditions may affect our future operating results due to: o the impact of currency fluctuations on the relative price of our products, because the increased strength of the dollar increases the effective price to local customers of a product, the price of which is denominated in dollars; o customers' reduced access to working capital to fund purchases of our products due to: -- higher interest rates; -- reduced bank lending due to contractions in the money supply or the deterioration in the customer's or its bank's financial condition; or -- the inability to access other financing. 30 Many of the costs associated with our operations located outside the United States are denominated in local currencies. The increased strength of local currencies against the dollar in countries where we have foreign operations would result in higher effective operating costs and, potentially, reduced earnings. Currently we do not hedge our foreign exchange risk. We cannot assure you that fluctuations in foreign exchange rates will not have a negative effect on our operations and profitability. In addition, our international operations and, specifically, the ability of our non-U.S. subsidiaries to dividend or otherwise to transfer cash among our subsidiaries, including transfers of cash to the Issuer to pay interest and principal on the notes, may be affected by limitations on imports, currency exchange control regulations, transfer pricing regulations and potentially adverse tax consequences, among other things. In addition, the governments of many countries, including China, Malaysia, Singapore and Thailand, in which we have significant operating assets, have exercised and continue to exercise significant influence over many aspects of their domestic economies and international trade. We cannot assure you that the governments of these countries will not take actions that will materially affect our business and our ability to pay interest on and the principal of the notes and, if necessary, the note guarantees. We cannot assure you that we will continue to be found to be operating in compliance with applicable customs, currency exchange control regulations, transfer pricing regulations or any other laws or regulations to which we may be subject. We also cannot assure you that these laws will not be modified, the result of which may be to prevent us from transferring sufficient cash to the Issuer to service and repay its debt. DIFFICULTY IN PREDICTING QUARTERLY DEMAND -- IF WE FAIL TO PREDICT DEMAND ACCURATELY FOR OUR PRODUCTS IN ANY QUARTER, WE MAY NOT BE ABLE TO RECAPTURE THE COST OF CAPITAL INVESTMENTS. The rigid disc drive industry operates on quarterly purchasing cycles, with much of the order flow in any given quarter coming at the end of that quarter. Our manufacturing process requires us to make significant product-specific capital investments in each quarter for that quarter's production. Because we typically receive the bulk of our orders late in a quarter, after we have made our capital investments, there is a risk that our orders will not be sufficient to allow us to recapture the costs of our investment before that investment has become obsolete. We cannot assure you that we will be able to accurately predict demand in the future. Other factors that may negatively impact our ability to recapture the cost of capital investments in any given quarter include: o our inability to reduce our fixed costs to match sales in any quarter because of our vertical manufacturing strategy, which means that we make more capital investments than we would if we were not vertically integrated; o the timing of orders from and shipment of products to major customers, such as Compaq; o our product mix, and the related margins of the various products; o accelerated reduction in the price of our rigid disc drives due to an oversupply of rigid disc drives in the market; o manufacturing delays or interruptions, particularly at our major manufacturing facilities in China, Indonesia, Malaysia, Singapore and Thailand; o variations in the cost of components for our products; o limited access to components that we obtain from a single or a limited number of suppliers; and o the impact of changes in foreign currency exchange rates on the cost of producing our products and the effective price of these products to foreign consumers. 31 IT MAY NOT BE POSSIBLE TO SUE THE ISSUER AND THE NON-U.S. NOTE GUARANTORS -- BECAUSE THE ISSUER AND SOME OF THE NOTE GUARANTORS ARE ORGANIZED IN JURISDICTIONS OUTSIDE THE UNITED STATES, YOU MAY NOT BE ABLE TO SERVE PROCESS ON THEM OR THEIR OFFICERS AND DIRECTORS, REALIZE UPON JUDGMENTS AGAINST THEIR ASSETS OR BRING SUIT AGAINST THEM IN JURISDICTIONS OUTSIDE THE UNITED STATES. The Issuer and several of the note guarantors are incorporated under the laws of the Cayman Islands and many other note guarantors are organized in various other jurisdictions outside the United States. Some of the directors and officers and a substantial portion of the assets of these companies are located outside the United States. Although the Issuer and the note guarantors which are organized outside the United States have agreed to accept service of process in the United States by their agent designated for that purpose, it may be difficult for investors in the notes to effect service of process within the United States upon these persons or to enforce against them, in courts outside the United States, judgments of courts of the United States predicated upon civil liabilities under the U.S. federal securities or other laws. We have been advised by our Cayman Islands legal counsel, Walkers, that there is doubt with respect to Cayman Islands law as to (a) whether a judgment of a U.S. court predicated solely upon the civil liability provisions of the U.S. federal securities or other laws would be enforceable in the Cayman Islands against the Issuer or the note guarantors and (b) whether an action could be brought in the Cayman Islands against the Issuer or a note guarantor in the first instance on the basis of liability predicated solely upon the provisions of the U.S. federal securities or other laws. In addition, we have been advised by our counsel in the jurisdictions of organization of the note guarantors other than the Cayman Islands that there are similar doubts with respect to the laws of these other jurisdictions. In addition, other laws of these jurisdictions, such as those limiting a party's enforcement rights on the grounds of public policy of that jurisdiction, and the fact that a treaty may not exist between the United States and the governments of these jurisdictions regarding the enforcement of civil liabilities, may also restrict the ability to enforce the note guarantors' obligations under their guarantees. CONTROL BY THE SPONSOR GROUP -- WE ARE CONTROLLED BY THE SPONSOR GROUP, AND THEIR INTERESTS MAY CONFLICT WITH YOUR INTERESTS. Affiliates of Silver Lake Partners, Texas Pacific Group, August Capital and Chase Capital Partners and investment funds affiliated with Goldman, Sachs & Co. own approximately 35%, 23%, 12%, 7%, and 2%, respectively, of our outstanding ordinary shares, and we, in turn, indirectly own 100% of the outstanding share capital of the Issuer. If members of the sponsor group who hold ordinary shares with voting rights vote together, the sponsor group will have the power to control all matters submitted to our shareholders, elect our directors and exercise control over our business, policies and affairs. We have entered into a shareholders agreement with the members of the sponsor group which requires the approval of their designated members of our board of directors before we will be allowed to take specified actions. Accordingly, our ability to engage in some transactions requiring the approval of our board of directors will be limited without the consent of specified members of the sponsor group. The interests of the members of the sponsor group may differ from each other and from yours. For more information regarding the shareholders agreement, see "Certain Relationships and Related Transactions -- Shareholders Agreement." RISKS ASSOCIATED WITH FUTURE ACQUISITIONS -- WE MAY NOT BE ABLE TO IDENTIFY SUITABLE ALLIANCE, ACQUISITION OR INVESTMENT OPPORTUNITIES, OR SUCCESSFULLY ACQUIRE AND INTEGRATE COMPANIES THAT PROVIDE COMPLEMENTARY PRODUCTS OR TECHNOLOGIES. Our growth strategy involves pursuing strategic alliances with, and making acquisitions of or investments in, other companies that are complementary to our business. There is substantial competition for attractive strategic alliance, acquisition and investment candidates. We cannot assure you that we will be able to partner with, acquire or invest in suitable candidates, or integrate acquired technologies or operations successfully into our existing technologies and operations. Our ability to finance potential acquisitions will be limited by our high degree of leverage and the covenants contained in the senior credit facilities and the indenture. 32 If we are successful in acquiring other companies, these acquisitions may have an adverse effect on our operating results, particularly while the operations of an acquired business are being integrated. It is also likely that integration of acquired companies would lead to the loss of key employees from those companies or the loss of customers of these companies. In addition, the integration of any acquired companies would require substantial attention from our senior management, which may limit the amount of time available to be devoted to our day-to-day operations or to the execution of our strategy. In addition, the expansion of our business involves the risk that we might not manage our growth effectively, that we would incur additional debt to finance these acquisitions or investments and that we would incur substantial charges relating to the write-off of in-process research and development, similar to that which we incurred in connection with several of our prior acquisitions. Each of these items could have a material adverse effect on our financial position and results of operations. POTENTIAL LOSS OF MATERIAL LICENSED TECHNOLOGY -- THE CLOSING OF THE TRANSACTIONS TRIGGERED CHANGE OF CONTROL OR ANTI-ASSIGNMENT PROVISIONS IN SOME OF OUR MATERIAL LICENSE AGREEMENTS WHICH MAY RESULT IN A LOSS OF OUR RIGHT TO USE MATERIAL LICENSED TECHNOLOGY. We license technology from third parties that is integral to the production of our products. A number of these licenses contain change of control or anti-assignment provisions which provide that the licenses would terminate on the closing of the transactions. A number of the licenses that may be so terminated are material to our business, including the agreements with other companies in the rigid disc drive industry. Our inability to renegotiate these terminated agreements or obtain new licenses from these parties could result in delays in product development or prevent us from selling our products until equivalent substitute technology can be identified, licensed and/or integrated or until we are able to substantially engineer our products to avoid infringing the rights of these counterparties. We might not be able to renegotiate these agreements, obtain the necessary licenses in a timely manner, on acceptable terms, or at all or be able to engineer our products successfully. The loss of these material licenses could have a material adverse effect on our business. RISK OF INTELLECTUAL PROPERTY LITIGATION -- OUR PRODUCTS MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH MAY CAUSE US TO INCUR UNEXPECTED COSTS OR PREVENT US FROM SELLING OUR PRODUCTS. We cannot be certain that our products do not and will not infringe issued patents or other intellectual property rights of others. Historically, patent applications in the United States and some foreign countries have not been publicly disclosed until the patent is issued, and we may not be aware of currently filed patent applications that relate to our products or technology. If patents later issue on these applications, we may be liable for infringement. We may be subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties by us or our licensees in connection with their use of our products. Intellectual property litigation is expensive and time-consuming, regardless of the merits of any claim, and could divert our management's attention from operating our business. Moreover, software patent litigation has increased due to the current uncertainty of the law and the increasing competition and overlap of product functionality in the field. If we were to discover that our products infringe the intellectual property rights of others, we would need to obtain licenses from these parties or substantially reengineer our products in order to avoid infringement. We might not be able to obtain the necessary licenses on acceptable terms, or at all, or be able to reengineer our products successfully. Moreover, if we are sued for infringement and lose the suit, we could be required to pay substantial damages and/or be enjoined from using or selling the infringing products or technology. Any of the foregoing could cause us to incur significant costs and prevent us from selling our products. 33 DEPENDENCE ON INTELLECTUAL PROPERTY -- IF OUR INTELLECTUAL PROPERTY AND OTHER PROPRIETARY INFORMATION WERE COPIED OR INDEPENDENTLY DEVELOPED BY COMPETITORS, OUR OPERATING RESULTS WOULD BE NEGATIVELY AFFECTED. Our success depends to a significant degree upon our ability to protect and preserve the proprietary aspects of our technology. However, we may be unable to prevent third parties from using our technology without our authorization or independently developing technology that is similar to ours, particularly in those countries where the laws do not protect our proprietary rights as fully as in the United States. The use of our technology or similar technology by others could reduce or eliminate any competitive advantage we have developed, cause us to lose sales or otherwise harm our business. If it became necessary for us to resort to litigation to protect these rights, any proceedings could be burdensome and costly, and we may not prevail. Although we have numerous U.S. and foreign patents and numerous pending patents that relate to our technology, we cannot assure you that any patents, issued or pending, will provide us with any competitive advantage or will not be challenged by third parties. Moreover, our competitors may already have applied for patents that, once issued, will prevail over our patent rights or otherwise limit our ability to sell our products in the United States or abroad. Our competitors also may attempt to design around our patents or copy or otherwise obtain and use our proprietary technology. With respect to our pending patent applications, we may not be successful in securing patents for these claims. Our failure to secure these patents may limit our ability to protect the intellectual property rights that these applications were intended to cover. We have entered into confidentiality agreements with our employers and non-disclosure agreements with customers, suppliers and potential strategic partners, among others. If any party to these agreements were to violate their agreement with us and disclose our proprietary technology to a third party, we may be unable to prevent the third party from using this information. Because a significant portion of our proprietary technology consists of specialized knowledge and technical expertise developed by our employees, we have a program in place designed to ensure that our employees communicate any developments or discoveries they make to other employees. However, employees may choose to leave our company before transferring their knowledge and expertise to our other employees. Violations by others of our confidentiality or non-disclosure agreements and the loss of employees who have specialized knowledge and expertise could harm our competitive position and cause our sales and operating results to decline. Our trade secrets may otherwise become known or independently developed by others, and trade secret laws provide no remedy against independent development or discovery. We have registered and applied for some service marks and trademarks, and will continue to evaluate the registration of additional service marks and trademarks, as appropriate. We cannot guarantee that any of our pending applications will be approved by the applicable governmental authorities. Moreover, even if the applications are approved, third parties may seek to oppose or otherwise challenge these registrations. A failure to obtain trademark registrations in the United States and in other countries could limit our ability to use our trademarks and impede our marketing efforts in those jurisdictions. ENVIRONMENTAL MATTERS -- WE COULD INCUR SUBSTANTIAL COSTS, INCLUDING CLEANUP COSTS, FINES AND CIVIL OR CRIMINAL SANCTIONS, AS A RESULT OF VIOLATIONS OF OR LIABILITIES UNDER ENVIRONMENTAL LAWS. Our operations are subject to laws and regulations relating to the protection of the environment, including those governing discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated sites. We could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, third party property damage or personal injury claims, as a result of violations of or liabilities under environmental laws or non-compliance with environmental permits required at our facilities. Contaminants have been detected at some of our present and former sites, principally in connection with historical operations. In addition, we have been named as a potentially responsible party at a number of superfund sites. 34 While we are not currently aware of any contaminated or superfund sites as to which material outstanding claims or obligations exist, the discovery of additional contaminants or the imposition of additional cleanup obligations at these or other sites could result in significant liability. In addition, the ultimate costs under environmental laws and the timing of these costs are difficult to predict. Liability under some environmental laws relating to contaminated sites can be imposed retroactively and on a joint and several basis. In other words, one liable party could be held liable for all costs at a site. Potentially significant expenditures could be required in order to comply with environmental laws that may be adopted or imposed in the future. DEPENDENCE ON KEY PERSONNEL -- THE LOSS OF SOME KEY EXECUTIVE OFFICERS AND EMPLOYEES COULD NEGATIVELY IMPACT OUR BUSINESS PROSPECTS. Our future performance depends to a significant degree upon the continued service of key members of management as well as marketing, sales, and product development personnel. The loss of one or more of our key personnel would have a material adverse effect on our business, operating results and financial condition. We believe our future success will also depend in large part upon our ability to attract and retain highly skilled management, marketing, sales and product development personnel. We have experienced intense competition for personnel, and we cannot assure you that we will be able to retain our key employees or that we will be successful in attracting, assimilating and retaining them in the future. SYSTEM FAILURES -- SYSTEM FAILURES CAUSED BY EVENTS BEYOND OUR CONTROL COULD ADVERSELY AFFECT COMPUTER EQUIPMENT AND ELECTRONIC DATA ON WHICH OUR OPERATIONS DEPEND. Our operations are dependent on our ability to protect our computer equipment and the information stored in our databases from damage by, among others, earthquake, fire, natural disaster, power loss, telecommunications failures, unauthorized intrusion and other catastrophic events. A significant part of our operations are based in an area of California that has experienced earthquakes and is considered seismically active. Additionally, California is currently experiencing power outages and the threat of increased energy costs due to a shortage in the supply of power within the state. We cannot be sure that any measures we take will be sufficient to prevent system failures caused by power losses, natural disasters or other events beyond our control. Any damage or failure that causes interruptions in our operations could have a material adverse effect on our business, results of operations and financial condition. RISKS OF LEGAL PROCEEDINGS -- OUR OPERATING RESULTS MAY BE NEGATIVELY AFFECTED BY CLAIMS AND LAWSUITS AGAINST US. We are subject to a number of claims and lawsuits, the outcomes of which are, at this time, difficult to predict. Even if we are successful in defending these claims and lawsuits, they are costly to manage, investigate and pursue. In fiscal year 2000 and through the six months ended December 29, 2000, we recorded $73 million in litigation settlement costs. In the future, our future operating earnings may also be adversely affected if we receive an adverse judgment in or settle these claims and lawsuits. 35 USE OF PROCEEDS We will not receive any cash proceeds from the issuance of the exchange notes. The net proceeds from the issuance of the outstanding notes were approximately $190 million after deducting the initial purchasers' discount and expenses related to the offering. We applied the proceeds from the issuance of the outstanding notes, together with the cash contributions from the sponsor group, the management rollover and borrowings under the senior credit facilities, to fund the payment of the purchase price under the stock purchase agreement, and to pay related fees and expenses of the transactions as described under "The Transactions." 36 CAPITALIZATION The table below lists our cash, cash equivalents and short term investments and capitalization as of December 29, 2000. You should read this table in conjunction with "The Transactions," and "Selected Historical Consolidated Financial Information of New SAC." In consideration for issuing the exchange notes as contemplated in this prospectus, we will receive in exchange a like principal amount of outstanding notes, the terms of which are substantially identical to the terms of the exchange notes, except that the exchange notes will be freely tradable, will not bear legends restricting their transfer and will not be subject to payments described in "Description of the Notes -- Principal, Maturity and Interest" and in "Exchange and Registration Rights Agreement." The outstanding notes surrendered in exchange for the exchange notes will be retired and cancelled and cannot be reissued. Accordingly, issuance of the exchange notes will not result in any change in our capitalization.
AS OF DECEMBER 29, 2000 NEW SAC ------------------ (IN MILLIONS) Cash, cash equivalents and short term investments (a) ......... $ 850 ====== Total debt (including current portion of long-term debt): Senior credit facilities: Revolving credit facility (b) .............................. $ -- Term loan A facility (c) ................................... 200 Term loan B facility (c) ................................... 500 Senior subordinated notes (d) ............................... 201 Capitalized lease obligations ............................... 3 ------ Total debt .................................................... 904 ------ Shareholders' Equity: Paid-in capital ............................................. 938 Accumulated deficit ......................................... (179) ------ Total shareholders' equity .................................... 759 ------ Total capitalization ....................................... $1,663 ======
- ---------- (a) On the closing of the transactions, New SAC received, as part of the assets it purchased from Seagate Technology, $765 million of cash, subject to upward adjustment, that was on the balance sheet of Seagate Technology. We used approximately $149 million of this amount as a source of cash in connection with the closing of the transactions. For more information regarding these adjustments, see "The Transactions." (b) The senior credit facilities contain a five year, senior secured $200 million revolving credit facility, with a sublimit of $100 million for letters of credit. We did not borrow under this facility on the closing of the transactions. We had approximately $56 million of letters of credit outstanding on the closing of the transactions which reduced availability to approximately $144 million. For more information regarding the revolving credit facility, see "Description of the Senior Credit Facilities." (c) The senior credit facilities contain a five year, senior secured $200 million term loan A facility and a six year, senior secured $500 million term loan B facility. We borrowed the entire amount of these facilities on the closing of the transactions. For more information regarding these facilities, see "Description of the Senior Credit Facilities." (d) The senior subordinated notes were issued at a discount to the aggregate principal amount of $210 million, for gross proceeds of approximately $201 million. 37 THE TRANSACTIONS We summarize below the principal terms of the stock purchase agreement and other agreements that relate to the transactions. For further information regarding the terms and provisions of these agreements please refer to the agreements themselves which we have filed as exhibits to the registration statement of which this prospectus is a part. OVERVIEW The private offering of the outstanding notes was part of a series of simultaneous transactions, which consisted of the following: o the purchase by Suez Acquisition Company under the stock purchase agreement of substantially all of the operating assets of Seagate Technology, which comprised its rigid disc drive, tape drive, software, and intelligent storage solutions businesses, and a portion of the cash on the balance sheet of Seagate Technology, and some other assets of Seagate Technology; the assumption by Suez Acquisition Company of substantially all of the liabilities of Seagate Technology; and the assignment by Suez Acquisition Company of all its rights and obligations under the stock purchase agreement to us; o the acquisition by VERITAS, under a merger agreement dated March 29, 2000 among VERITAS, Seagate Technology and Victory Merger Sub., Inc., a wholly owned subsidiary of VERITAS, of the assets of Seagate Technology that we did not purchase through a merger of Seagate Technology and a subsidiary of VERITAS and the payment by VERITAS to the shareholders of Seagate Technology of cash and VERITAS common stock as merger consideration for their shares of Seagate Technology common stock and options to purchase these shares; o the cash contributions from the sponsor group in exchange for our ordinary and preferred shares; o the cash contributions from the management group in exchange for our ordinary and preferred shares; o the exchange by the management group of a portion of their Seagate Technology common stock and options to purchase Seagate Technology common stock for deferred compensation and our ordinary and preferred shares; o the issuance of the notes; o the entering into by the Issuer and certain of our other subsidiaries of the senior credit facilities and borrowings under them; o the redemption by the Issuer of its existing senior notes, which constituted substantially all of its outstanding debt; and o the payment of fees and expenses in connection with the above transactions, including the fees and expenses of the lenders under the senior credit facilities, the initial purchasers, the trustee and our lawyers, accountants and printing company. On the close of the transactions, the sponsor group beneficially owned approximately 79% and the management group beneficially owned approximately 21% of our outstanding ordinary shares. On March 29, 2000, the Issuer, Seagate Software Holdings, a subsidiary of Seagate Technology, and Suez Acquisition Company, entered into a stock purchase agreement. Suez Acquisition Company was a limited liability company organized under the laws of the Cayman Islands. It was formed solely for the purpose of entering into the stock purchase agreement and closing the transactions contemplated by that agreement. On November 22, 2000, Suez Acquisition Company assigned all of its rights and obligations under the stock purchase agreement to us. 38 Under the stock purchase agreement, we agreed to purchase substantially all of the operating assets of Seagate Technology, which comprised the rigid disc drive, tape drive, software and intelligent storage solutions businesses of Seagate Technology, and some other assets of Seagate Technology and to assume substantially all of the liabilities of Seagate Technology. The acquired assets consisted of the following: o the capital stock of all of Seagate Technology's subsidiaries comprising its rigid disc drive business; o the capital stock of all of Seagate Technology's subsidiaries comprising its tape drive business; o the capital stock of substantially all of Seagate Technology's subsidiaries comprising its software business, which consisted of the majority of the outstanding capital stock of Crystal Decisions and the capital stock of other indirect subsidiaries of Seagate Technology; o the capital stock of Seagate Technology's subsidiaries comprising its intelligent storage solutions business; o $765 million of cash on the balance sheet of Seagate Technology, subject to upward adjustment. We used approximately $149 million of this amount as a source of cash on the closing of the transactions. As of December 29, 2000 we had $850 million of cash, cash equivalents and short-term investments on our balance sheet; and o the capital stock of Seagate Technology Investments, a subsidiary of Seagate Technology, which owns investments in several privately owned companies, including CacheVision and Iolon, Inc. The portion of the capital stock of Crystal Decisions that we did not purchase consists of the shares of Crystal Decisions common stock that are outstanding as a result of the exercise of options to purchase these shares under the 1999 and 2000 stock option plans of Crystal Decisions. The outstanding unexercised options granted under these plans continue to remain outstanding. For more information, see "Management -- Employment and Other Agreements -- Option Plans - -- 1999 Stock Option Plan and 2000 Stock Option Plan of Crystal Decisions." We purchased the assets under the stock purchase agreement for a purchase price of $1.840 billion in cash, including transaction costs of $25 million. On the closing of the transactions, we deposited $50 million of the purchase price into an escrow account to be held by VERITAS, which will be released by VERITAS to the former shareholders of Seagate Technology in accordance with a stipulation of settlement, as described under "Business -- Legal Proceedings -- Securities Class Actions." In addition, we may owe VERITAS additional amounts related to the transactions under the indemnification agreement dated as of March 29, 2000 among Suez Acquisition Company, Seagate Technology and VERITAS. MANAGEMENT GROUP The management group consisted of approximately 200 officers of Seagate Technology, including members of its senior management team. Under rollover agreements that we entered into with each of the members of the management group by the closing of the transactions, a group of officers of Seagate Technology, which we refer to as the management group, exchanged, or rolled, a portion of their Seagate Technology common stock and options to purchase Seagate Technology common stock, valued at approximately $184 million, into deferred compensation and our ordinary and preferred shares, which we refer to as the management rollover, and contributed approximately $41 million in cash in exchange for our ordinary and preferred shares. On the closing of the transactions, the management group beneficially owned approximately 21% of our outstanding ordinary shares. The value of the rolled securities was exchanged on the closing of the transactions for deferred compensation, representing approximately 97% of the value of the rolled securities, our 39 preferred shares, representing approximately 3% of the value of the rolled securities, and our ordinary shares, representing the portion of the total ordinary shares equal to the value of the rolled securities divided by the sum of the cash contributions by the sponsor group plus the value of the rolled securities. The portion of the management rollover consisting of the deferred compensation was credited into deferred compensation accounts established and maintained by Seagate Technology HDD Holdings, Seagate Technology SAN Holdings and Seagate Removable Storage Solutions Holdings. For a description of the vesting, payment and other provisions of the deferred compensation plans, see "Management -- Employment and Other Agreements -- Rollover Agreements and Deferred Compensation Plans." SPONSOR GROUP Silver Lake Partners organized and lead a group of investors that, together with the management group, owns New SAC. Specifically, affiliates of Silver Lake Partners, Texas Pacific Group, August Capital and Chase Equity Associates and investment funds affiliated with Goldman, Sachs & Co., which we refer to as the sponsor group, made cash contributions to us on the closing of the transactions in exchange for our ordinary and preferred shares. The sponsor group contributed $875 million in cash and received, in exchange, approximately 79% of our outstanding ordinary shares on the closing of the transactions. We indirectly own 100% of the outstanding ordinary shares of the Issuer. MERGER AGREEMENT On March 29, 2000, Seagate Technology, VERITAS and Victory Merger Sub, Inc., a wholly owned subsidiary of VERITAS, entered into a merger agreement. Under the merger agreement, Seagate Technology, which at that time owned only the assets of Seagate Technology not purchased by us under the stock purchase agreement, became a wholly owned subsidiary of VERITAS. As a result of the merger, VERITAS indirectly acquired the following assets: o 128.1 million shares of common stock of VERITAS, which were held by Seagate Software Holdings and which were received in connection with the sale of Seagate Technology's Network and Storage Management Group to VERITAS in fiscal year 1999, which we describe under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- All Entities -- Transactions with VERITAS and Other Events;" o the capital stock of Seagate Software Holdings provided that the capital stock of Crystal Decisions and the capital stock of any other indirect subsidiaries of Seagate Software Holdings were sold to us before the capital stock of Seagate Software Holdings was acquired by VERITAS; o cash on the balance sheet of Seagate Technology in excess of the required cash balance of $765 million as adjusted, which was purchased by us; o Seagate Technology's investments in Gadzoox Networks, Inc. and LHSP, to the extent they were owned by Seagate Technology at the closing of the transactions; and o rights to the value of specified tax refunds claimed and credits used by VERITAS which are attributable to Seagate Technology. REDEMPTION OF EXISTING SENIOR NOTES Under the stock purchase agreement, Seagate Technology agreed to call the four series of its outstanding debt and to redeem these existing senior notes at the closing of the transactions. The existing senior notes consisted of the following: o $200 million principal amount of 7.125% senior notes due March 1, 2004; 40 o $200 million principal amount of 7.37% senior notes due March 1, 2007; o $100 million principal amount of 7.875% senior debentures due March 1, 2017; and o $200 million principal amount of 7.45% senior debentures due March 1, 2037. Seagate Technology redeemed these existing senior notes under the optional call provisions of the indenture under which they were issued. The giving of an irrevocable notice of redemption and the deposit of funds sufficient to redeem the existing senior notes was a condition to the issuance of the outstanding notes. OTHER AGREEMENTS AND PLANS In connection with the transactions, we entered into the following agreements and benefit and compensation plans, at or following the closing of the transactions: o a shareholders agreement with the sponsor group; o a management shareholders agreement with the management group; o an indemnification agreement with VERITAS and Seagate Technology; o employment agreements and management retention agreements with our senior management team; o the rollover agreements and the related deferred compensation plans, as described above; o the New SAC 2000 and New SAC 2001 restricted stock plans, under which New SAC granted restricted stock awards; and o an assumption of indemnification and insurance obligations of Seagate Technology regarding our directors and officers. In addition, we have adopted stock option plans at Seagate Technology Holdings and Seagate Removable Storage Solutions Holdings and, although no options have yet been issued, we expect options to be issued under these plans in the future. We also expect to adopt a stock option plan at Seagate Technology SAN Holdings in fiscal 2001. We describe the principal terms of these agreements and plans under "Management -- Employment and Other Agreements" and "Certain Relationships and Related Transactions." 41 UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME OF NEW SAC The following unaudited pro forma consolidated condensed financial information of New SAC has been prepared based on the consolidated financial statements of New SAC from November 23, 2000 through December 29, 2000 and the historical consolidated financial statements of Seagate Technology, predecessor to New SAC, included elsewhere in this prospectus, adjusted to give pro forma effect to the transactions that closed on November 22, 2000, the acquisition of XIOtech on January 28, 2000, and the reorganization of Seagate Software Holdings on October 20, 1999, the latter two of which are referred to as the prior pro forma events. The unaudited pro forma consolidated condensed statements of operations of New SAC for the six months ended December 29, 2000 and the year ended June 30, 2000 give effect to the transactions that closed on November 22, 2000 and the prior pro forma events as if they had occurred at July 1, 1999. For a description of the transactions that closed on November 22, 2000, see "The Transactions." For a description of the acquisition of XIOtech and the reorganization of Seagate Software Holdings, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- All Entities -- Prior Acquisitions -- Acquisition of XIOtech Corporation" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- All Entities -- Transactions with VERITAS and Other Events -- Seagate Software Holdings Reorganization." The unaudited pro forma adjustments, which are based upon available information and upon assumptions that management believes are reasonable, are described in the accompanying notes. The unaudited pro forma consolidated condensed financial information is for informational purposes only and does not purport to represent what our financial position or results of operations would actually have been had the transactions and prior pro forma events occurred as of the dates indicated, nor does the unaudited pro forma consolidated condensed financial information purport to project our results for any future period. In particular, the unaudited pro forma consolidated condensed statements of operations do not reflect certain future charges and uses of cash that we may incur which are described in the "Management's Discussion and Analysis of Financial Condition and Results of Operations -- All Entities -- Transactions." You should read the unaudited pro forma consolidated condensed financial information in conjunction with the "Selected Historical Consolidated Financial Information of New SAC," the audited consolidated financial statements of New SAC and its predecessor, Seagate Technology, as of the end of and for the period from November 23, 2000 through December 29, 2000 and for the period from July 1, 2000 through November 22, 2000 and as of the end of and for the three year period ended June 30, 2000, together with the related notes, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- New SAC" and the other financial information included elsewhere in this prospectus. The purchase by Suez Acquisition Company under the stock purchase agreement was accounted for using the purchase method of accounting. The purchase price under the stock purchase agreement was allocated to the assets acquired and liabilities assumed, based on their respective fair values. The purchase accounting adjustments reflect the fair values of the assets that were acquired and liabilities assumed were based upon independent appraisals. An allocation of the purchase price was made to major categories of assets and liabilities in the accompanying unaudited pro forma consolidated condensed financial information. The acquisition of XIOtech was accounted for using the purchase method of accounting. The total purchase price for XIOtech was allocated to the assets acquired and liabilities assumed, based on their respective fair values. The operating results for XIOtech for the period prior to the acquisition are not included in the pro forma financial statements as the results are immaterial. The reorganization of Seagate Software Holdings was accounted for using the purchase method of accounting. The total purchase price for the reorganization of Seagate Software Holdings was allocated to the assets acquired and liabilities assumed, based on their respective fair values. 42 UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME OF NEW SAC FOR THE YEAR ENDED JUNE 30, 2000 (IN MILLIONS, EXCEPT RATIOS)
ADJUSTMENTS FOR PRIOR ORGANIZATIONAL ACTIVITIES PRO FORMA SEAGATE BY SEAGATE SEAGATE TECHNOLOGY TECHNOLOGY TECHNOLOGY ------------ ---------------- ------------ Revenue .................................. $6,448 6,448 Cost of sales ............................ 5,056 5 (a) 5,061 Product development ...................... 725 725 Marketing and administrative ............. 515 515 Amortization of goodwill and other intangible .............................. 51 20 (a) 71 In-process research and development ...... 105 (105)(b) Restructuring ............................ 207 207 Unusual items ............................ 350 (286)(c) 64 ------ ---- ----- Total operating expenses ................ 7,009 (366) 6,643 ------ ---- ----- Income (loss) from operations ........... (561) 366 (195) Interest income .......................... 101 101 Interest expense ......................... (52) (52) Activity related to equity interest in VERITAS ................................. (326) (326) Gain on sale of SanDisk stock ............ 679 679 Gain on sale of VERITAS stock ............ 537 537 Other, net ............................... 231 231 ------ ---- ----- Other income (expense), net ............. 1,170 -- 1,170 ------ ---- ----- Income (loss) before income taxes ....... 609 366 975 Benefit (provision) for income taxes ..... (299) (43)(d) (342) ------ ---- ----- Net income .............................. $ 310 $ 323 $ 633 ====== ======== ======= Ratio of earnings to fixed charges ....... NEW ACCOUNTING BASIS IN ASSETS FINANCINGS AND AND LIABILITIES REDEMPTION AS A MERGER OF EXISTING RESULT OF PRO FORMA WITH SENIOR THE STOCK NEW VERITAS NOTES PURCHASE SAC ---------------- ------------- -------------- ---------- Revenue .................................. $6,448 Cost of sales ............................ (1)(e) 10 (v) 4,754 (316)(w) Product development ...................... (38)(w) 687 Marketing and administrative ............. (6)(g) 9 (o) (20)(w) 502 4 (y) Amortization of goodwill and other intangible .............................. (16)(i) (31)(v) 24 In-process research and development ...... -- Restructuring ............................ 207 Unusual items ............................ 64 ------ Total operating expenses ................ (23) 9 (391) 6,238 --- -- ---- ------ Income (loss) from operations ........... 23 ( 9) 391 210 Interest income .......................... (66)(p) 35 Interest expense ......................... (41)(q) (100) (7)(r) Activity related to equity interest in VERITAS ................................. 326 (e) -- Gain on sale of SanDisk stock ............ (679)(j) -- Gain on sale of VERITAS stock ............ (537)(j) -- Other, net ............................... (199)(k) 32 ------ ---- ---- ------ Other income (expense), net ............. (1,089) (114) -- (33) ------ ---- ---- ------ Income (loss) before income taxes ....... (1,066) (123) 391 177 Benefit (provision) for income taxes ..... 423 (n) (81)(t) -- ------ ---- ------ Net income .............................. $ (643) $ (204) $ 391 $ 177 ======== ======= ======== ====== Ratio of earnings to fixed charges ....... 2.8x
43 UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME OF NEW SAC FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 (IN MILLIONS, EXCEPT RATIOS)
SEAGATE TECHNOLOGY FOR THE PERIOD FINANCINGS FROM AND JULY 1, 2000 REDEMPTION THROUGH MERGER OF EXISTING NOVEMBER 22, WITH SENIOR 2000 VERITAS NOTES ---------------- --------------- --------------- Revenue ...................... $ 2,449 Cost of sales ................ 2,141 (1)(e) (270)(f) Product development .......... 431 (124)(f) Marketing and administrative .............. 490 (4)(g) 4(o) (88)(h) (190)(f) Amortization of goodwill and other intangibles ....... 26 (5)(i) Restructuring ................ 20 Unusual items ................ -- -------- -------- -------- Total Operating Expenses ................... 3,108 (682) 4 -------- -------- -------- Income (Loss) from Operations ................. (659) 682 (4) Interest income .............. 58 (42)(p) Interest expense ............. (24) (21)(q) (3)(r) Activity related to equity interest in VERITAS ......... (99) 99(e) Gain on sale of SanDisk stock ....................... 102 (102)(j) Gain on sale of Veeco stock ....................... 20 (20)(j) Loss on LHSP investment....... (138) 138 (i) Loss on sale of operating assets to New SAC ........... (889) 889 (s) Other, net ................... 3 8 (l) 8 (m) -------- -------- -------- Other Income (Expense), net ............. (967) 131 823 -------- -------- -------- Income (loss) before income taxes ............... (1,626) 813 819 Benefit (provision) for income taxes ................ 76 143 (n) (246)(u) -------- -------- -------- Net Income (Loss) ........... $ (1,550) $ 956(n) $ 573 ======== ======== ======== Ratio of earnings to fixed charges (dd) ................ NEW NEW ACCOUNTING SAC BASIS IN FOR THE ASSETS AND PERIOD ADJUSTMENTS LIABILITIES NOVEMBER 23, PRO FORMA FOR NON- AS A RESULT 2000 NEW SAC RECURRING PRO OF THE THROUGH PRIOR TO CHARGES FORMA STOCK DECEMBER 29, NON-RECURRING RELATED TO NEW PURCHASE 2000 ADJUSTMENTS TRANSACTIONS SAC --------------- -------------- --------------- ---------------- --------- Revenue ...................... 1,017 3,466 $3,466 Cost of sales ................ 2 (v) 896 2,538 2,538 (99)(w) (131)(x) Product development .......... (17)(w) 73 363 363 Marketing and administrative .............. (7)(w) 101 308 (40)(aa) 268 2 (y) Amortization of goodwill and other intangibles ....... (11)(v) 5 15 15 Restructuring ................ 20 20 Unusual items ................ 59 59 (59)(bb) -- ---- ----- ----- --- ------ Total Operating Expenses ................... (261) 1,134 3,303 (99) 3,204 ---- ----- ----- --- ------ Income (Loss) from Operations ................. 261 (117) 163 99 262 Interest income .............. 3 19 19 Interest expense ............. (10) (58) (58) Activity related to equity interest in VERITAS ......... -- Gain on sale of SanDisk stock ....................... -- Gain on sale of Veeco stock ....................... -- Loss on LHSP investment....... -- Loss on sale of operating assets to New SAC ........... -- Other, net ................... (8) 11 11 ---- ------- ----- --- ------ Other Income (Expense), net ............. -- (15) (28) -- (28) ---- ------- ----- --- ------ Income (loss) before income taxes ............... 261 (132) 135 99 234 Benefit (provision) for income taxes ................ (42)(z) (21) (90) 38 (cc) (52) ---- ------- ----- --- ------ Net Income (Loss) ........... $ 219 $(153) $ (45) $ 137 $ 182 ======== ======= ====== ======== ====== Ratio of earnings to fixed charges (dd) ................ 5.0x
(footnotes appear on next page) 44 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME OF NEW SAC (a) To record amortization of developed technology of $5 million and amortization of $20 million for intangibles related to the acquisition of the minority interests of Seagate Software Holdings and the XIOtech acquisition for the period prior to the date of the acquisitions. (b) To write off in-process research and development recognized for the XIOtech acquisition in January 2000. (c) To eliminate the compensation expense and related payroll taxes recorded in the reorganization of Seagate Software Holdings in October 1999. Such compensation expense represented the value of Seagate Technology common stock exchanged for Seagate Software Holdings common stock and held by employees for less than six months. (d) To eliminate the tax effects of the events referred to in notes (a) through (c) above. (e) To eliminate activity relating to the equity investment in VERITAS. The VERITAS investment was not acquired by New SAC. (f) To eliminate the compensation expense recorded as a result of the acceleration of Seagate Technology stock options in connection with the transactions. (g) To eliminate amortization of deferred compensation related to the Seagate Technology restricted stock plan Shares issued under the restricted stock plan were exchanged for merger consideration. (h) To eliminate transaction related costs. (i) To eliminate activity relating to the equity investments in VERITAS and LHSP that were not acquired by New SAC. (j) To eliminate the gains upon the sale of a portion of Seagate Technology's equity investments in VERITAS, Veeco, and SanDisk that were not acquired by New SAC. (k) To eliminate the gain upon the exchange of all of the shares of stock of Dragon Systems for shares of stock of LHSP and the gain on the exchange of all of the shares of CVC, for shares of Veeco in connection with the merger of CVC and Veeco. The shares of stock in LHSP and Veeco were not acquired by New SAC in the transactions. (l) To eliminate the other than temporary loss recorded by Seagate Technology on its investment in Gadzoox that was not acquired by New SAC in the transaction. (m) To eliminate the loss on sale of marketable securities that were sold in anticipation of the transactions. (n) To eliminate the tax effects of the events referred to in notes (e) through (m) above. (o) To record amortization associated with unvested restricted ordinary and preferred shares issued under the deferred compensation plan. The compensation of $23 million is amortized over the vesting period, 30 months, at approximately $9 million per year. (footnotes continue on next page) 45 (p) On the closing of the transactions, New SAC acquired $765 million of cash, subject to upward adjustment. Approximately $149 million of this amount was used as a source of cash in connection with the transactions. Interest income was reduced to reflect the average rate of return earned by Seagate Technology on its cash equivalents, and short-term investments applied to the pro forma cash balance of New SAC on the closing of the transactions. (q) To record interest expense that New SAC will incur as a result of entering into the senior credit facilities and issuing the Notes, and the elimination of historical interest expense related to existing senior notes, which were redeemed as part of the transactions.
SIX YEAR MONTHS ASSUMED ENDED ENDED PRINCIPAL INTEREST JUNE 30, DECEMBER 29, AMOUNT RATE 2000 2000 ----------- ---------- ---------- ------------- (IN MILLIONS) Senior Credit Facilities: Term loan A facility (*) .............. $500 9.2% $ 47 $24 Term loan B facility (*) .............. 200 9.7% 20 10 Revolving credit facility (*) ......... -- -- -- -- Senior Subordinated Notes (*) ........... 210 12.5% 26 13 Amortization of $9 million discount on Senior Subordinated Notes over a 7 year life ............................. 1 -- Less: historical interest expense on existing Senior Notes of Seagate Technology: March 1, 2004 ......................... 200 7.125% (15) (7) March 1, 2007 ......................... 200 7.37% (15) (7) March 1, 2017 ......................... 100 7.875% (8) (4) March 1, 2037 ......................... 200 7.45% (15) (8) ------ ---- Net adjustments.......................... $ 41 $21 ====== ====
(*) We have assumed that we will use the LIBOR options for the term loan A facility and the term loan B facility which is LIBOR plus 2.50%, and LIBOR plus 3.00%, respectively. We have assumed a rate of 6.7% for LIBOR. The effect of an 0.1250% increase or decrease in interest rates would increase or decrease total Interest expense by approximately $1 million, and $0.5 million for the year ended June 30, 2000, and the six months ended December 29, 2000, respectively. (r) To record amortization of debt issuance costs, not including the $9 million discount on the face value of the Notes, of $37 million over the weighted average life of the Senior Credit Facilities and the Notes. (s) To eliminate the loss on the sale of Seagate Technology's operating assets to New SAC. This amount included $95 million representing the premium paid on the redemption of Seagate Technology's existing senior notes, fees related to a hedging contract entered into by Seagate Technology to mitigate interest rate exposure on the redemption of the debt and interest of $3 million. (footnotes continue on next page) 46 (t) Eliminate tax effect of transaction. (u) Tax effects of adjustments (o) through (s) above. (v) To record for the amortization of intangibles acquired at the closing of the transactions based upon the purchase accounting used to record the transaction. We accounted for the transactions as a purchase in accordance with Accounting Principles Board, or APB, Opinion No. 16, "Business Combinations." All acquired tangible assets, identifiable intangible assets as well as assumed liabilities were valued based on their relative fair values and reorganized into the following businesses: (1) the rigid disc drive business (HDD, which is now Seagate Technology Holdings), which includes the storage area networks business (SAN, which is now Seagate Technology SAN Holdings), (2) the removable storage solutions business (RSS, which is now Seagate Removable Storage Solutions Holdings), (3) the software business (Crystal Decisions), and (4) an investment holding company (STI). The fair value of the net assets exceeded the net purchase price by approximately $909 million. Accordingly, the resultant negative goodwill was allocated on a pro rata basis to the acquired long-lived assets and reduced the recorded amounts by approximately 46%. The completion of the underlying in-process projects acquired within each business combination was the most significant and uncertain assumption utilized in the valuation of the in-process research and development. Such uncertainties could give rise to unforeseen budget over runs and/or revenue shortfalls in the event that we are unable to successfully complete a certain research and development project. We are primarily responsible for estimating the fair value of the purchased research and development in all business combinations accounted for under the purchase method. The table below summarizes the allocation of net purchase price by business. Amounts for HDD include SAN.
ESTIMATED FAIR VALUE ------------------------------------------------------------------- (IN MILLIONS) ------------------------------------------------------------------- USEFUL LIFE TOTAL CRYSTAL DESCRIPTION IN YEARS NEW SAC HDD SAN RSS DECISIONS STI - ------------------------------------ --------- --------- --------- -------- --------- ----------- ------ Net current assets (1)(4) $ 939 $ 873 $ 27 $32 $ 9 $25 Long-term investments (2) 42 -- -- -- -- 42 Other long-lived assets 42 42 -- -- -- -- Property, plant & equipment (3) 778 764 2 9 5 -- Identified intangibles: Trade names (5) 10 47 47 1 -- -- -- Developed technologies (5) 3-7 76 50 5 11 15 -- Assembled workforces (5) 1-3 53 43 1 3 7 -- Other 5 1 1 1 -- -- -- ------ ------ ----- ---- --- --- Total identified intangibles 177 141 8 14 22 -- Long-term deferred taxes (4) (75) (70) -- (3) (2) -- Long term liabilities (122) (122) (10) -- -- -- ------ ------ ----- ----- ----- --- Net assets 1,781 1,628 27 52 34 67 In-process research & development (5) 59 52 25 -- 7 -- ------ ------ ----- ----- ----- --- NET PURCHASE PRICE $1,840 $1,680 $ 52 $52 $41 $67 ====== ====== ===== ===== ===== ===
(1) Acquired current assets included cash and cash equivalents, accounts receivable, inventories and other current assets. The fair values of current assets generally approximated the recorded historic book values. Short-term investments were valued based on quoted market prices. Inventory values were estimated based on the current market value of the inventories less completion costs and less a profit margin for activities remaining to be completed until the inventory is sold. Valuation allowances were established for current deferred tax assets in excess of long-term deferred tax liabilities. Assumed current liabilities included accounts payable, accrued compensation and expenses and accrued income taxes. The fair values of current liabilities generally approximated the historic recorded book values because of the monetary nature of most of the liabilities. (footnotes continue on next page) 47 (2) The value of individual long-term equity investments was based upon quoted market prices, where available, and when such market prices were not available an independent appraisal was performed to estimate the fair values of the individual investments. (3) We obtained an independent valuation of the acquired property, plant and equipment. In arriving at the determination of market value for the assets, the appraisers considered the estimated cost to construct or acquired comparable property. Machinery and equipment were assessed using replacement cost estimates reduced by depreciation factors representing the condition, functionality and operability of the assets. The sales comparison approach was used for office and data communication equipment. Land, land improvements, buildings, and building and leasehold improvements were valued based upon discussions with knowledgeable personnel. (4) Long-term deferred tax liabilities arose as a result of the excess of the fair values of inventory, long-term investments, and acquired intangible assets over their related tax basis. We have $350 million of federal and state deferred tax assets for which a full valuation allowance has been established. (5) We obtained an independent valuation of acquired identified intangibles. The significant assumptions relating to each category are discussed in the following paragraphs. Also, these assets are being amortized on the straight-line basis over their estimated useful life and resultant amortization is included in amortization of goodwill and other intangibles. Trade names--The value of the trade names was based upon discounting to their net present value the licensing income that would arise by charging the operating businesses that use the trade names. Developed technologies--The value of this asset for each operating business was determined by discounting the expected future cash flows attributable to all existing technologies which had reached technological feasiblility, after considering risks relating to: (1) the characteristics and applications of the technology, (2) existing and future markets, and (3) life cycles of the technologies. Estimates of future revenues and expenses used to determine the value of developed technology was consistent with the historical trends in the industry and expected outlooks. Assembled workforces--The value of the assembled work force was determined by estimating the recruiting, hiring and training costs to replace each group of existing employees. In-process research & development--The value of in-process research & development was based on an evaluation of all devolopmental projects using the guidance set forth in Interpretation No. 4 of Financial Accounting Standards Board, or FASB, Statement No. 2, "Accounting for Research and Development Costs" and FASB Statement No. 86, "Accounting for the Cost of Computer Software to Be Sold, Leased, or Otherwise Marketed." The amount was determined by: (1) obtaining management estimates of future revenues and operating profits associated with existing developmental projects, (2) projecting the cash flows and costs to complete the underlying technologies and resultant products and (3) discounting these cash flows to their net present value. Estimates of future revenues and expenses used to determine the value of in-process research and development was consistent with the historical trends in the industry and expected outlooks. The entire amount was charged to operations because related technologies had not reached technological feasibility and they had no alternative future use. At the valuation date, HDD's developmental projects focused on increasing capacity, reducing size and power consumption, improving performance and reliability, and reducing production costs. They were grouped into three categories. Those included in category one had completed conceptualization and there was substantial progress in coding, building, simulating, and testing the technologies functionality and performance. For those included in category two, subsystem requirements had been identified, design plans had been completed, and substantial progress had been made in coding and/or building the technologies. Those included in category three had completed design plans and system requirements. Based upon an analysis of efforts to date, developmental projects in these three categories were 70%, 50%, and 30% complete, respectively, and were scheduled for completion throughout the period ended in fiscal 2003 at an additional estimated cost of $107 million. (footnotes continue on next page) 48 At the valuation date, SAN was in the process of developing two next generation versions of existing technologies, which, based on an effort to date, were 50% and 75% complete. Activities necessary to convert this in-process research and development into commercially viable technologies include the writing and testing of code diagnostic software design development testing and system integration. SAN expects resultant products will be successfully developed in fiscal 2002 at an additional estimated cost of $1 million. At the valuation date, the software business was in the process of developing three next generation versions of existing technologies which, based on total man hours and absolute time, were 70% to 85% complete. Activities necessary to covert this in-process research and development into commercially viable products include completion of all planning, designing, prototyping, verifying and testing to establish the products can meet their design specifications. This business expects resultant products will be successfully developed in fiscal 2002 at an additional estimated cost of $28 million. (w) To record reduction in depreciation as the new accounting basis in the property, plant and equipment and leasehold improvements is lower than the historical basis of Seagate Technology. (x) To eliminate the write up of inventories to fair value for inventories acquired at the close of the transactions. (y) To reflect that portion of the annual fee of $4 million to be paid to members of the sponsor group to render management, consulting and financial services to New SAC. (z) To record tax effects on adjustments (u) through (x) above. (aa) To eliminate management consulting and advisory fees paid to certain sponsors at the close of the transactions. (bb) To eliminate the write-off of in-process research and development acquired in connection with the transactions. (cc) To record tax effects on adjustments (z) through (aa) above. (dd) Earnings used in computing the ratio of earnings to fixed charges consist of income (loss) before provision (benefit) for income taxes plus fixed charges. Fixed charges consist of interest expense. 49 SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF NEW SAC We list in the table below selected historical consolidated financial information of Seagate Technology as of the end of and for each of the last five fiscal years ended June 30, 2000, for the six month period ended December 31, 1999 and for the period from July 1, 2000 to November 22, 2000 and of New SAC as of the end of and for the period from November 23, 2000 to December 29, 2000. The operations of New SAC are substantially identical to the operations of Seagate Technology before the transactions and we consider Seagate Technology to be our predecessor. We have derived the historical financial information of Seagate Technology below as of the end of and for fiscal years 1996 and 1997 from audited consolidated financial statements and related notes of Seagate Technology, which are not included in this prospectus. We have derived the historical financial information of Seagate Technology below as of the end of and for fiscal years 1998, 1999 and 2000 and for the period from July 1, 2000 through November 22, 2000 and the historical financial information of New SAC below as of the end of and for the period from November 23, 2000 through December 29, 2000 from the audited consolidated financial statements and related notes of New SAC and its predecessor, Seagate Technology, included elsewhere in this prospectus. We have derived the historical financial information for the six months ended December 31, 1999 from the unaudited interim consolidated condensed financial statements and related notes of Seagate Technology included elsewhere in this prospectus, which in our opinion include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for the fair presentation of our financial position and results of operations for these periods. Operating results of New SAC from the date of its inception, August 10, 2000, through the date of the transactions, November 22, 2000, were not material and have thus not been included here. Operating results for the periods from July 1, 2000 to November 22, 2000 and from November 23, 2000 to December 29, 2000, are not necessarily indicative of results that may be expected for the entire year or any future period. You should read the selected historical consolidated financial information below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations--New SAC" and the consolidated financial statements and related notes of New SAC included elsewhere in this prospectus.
SEAGATE TECHNOLOGY ------------------------------------------------------ FISCAL YEAR (a) ------------------------------------------------------ 1996 1997 1998 1999 (b) 2000 ---------- ------------ --------- ---------- --------- (IN MILLIONS, EXCEPT FOR RATIOS) STATEMENT OF OPERATIONS DATA: Revenue ................................. $8,588 $ 8,940 $6,819 $6,802 $6,448 Cost of sales ........................... 7,007 6,918 5,788 5,176 5,056 Product development ..................... 420 459 627 655 725 Marketing and administrative ............ 486 493 502 534 515 Amortization of goodwill and other intangibles ............................ 47 50 40 39 51 In-process research and development (c) ........................ 99 3 223 2 105 Restructuring (d) ....................... 242 (7) 347 60 207 Unusual items (e) ....................... -- 166 (22) 78 350 ------ ---------- ------ ------ ------ Income (loss) from operations ........... 287 858 (686) 258 (561) Other income (expense): Interest income ........................ 94 92 98 102 101 Interest expense ....................... (56) (35) (51) (48) (52) Other non-operating income (expense) (f) ......................... 6 (24) (65) 1,561 1,121 ------ ---------- ------ ------ ------ Income (loss) before income taxes........ 331 891 (704) 1,873 609 Benefit (provision) for income taxes .................................. (118) (233) 174 (697) (299) ------ ---------- ------ ------ ------ Net income (loss) ....................... $ 213 $ 658 $ (530) $1,176 $ 310 ====== ========== ====== ====== ====== OTHER FINANCIAL DATA: EBITDA (i) .............................. $1,051 $ 1,603 $ 529 $1,104 $ 831 Depreciation and amortization ........... 417 607 664 696 693 Capital expenditures, net ............... 907 941 709 603 580 Working capital (g) ..................... 790 433 414 150 17 Cash interest expense ................... 64 27 52 52 52 Ratio of earnings to fixed charges (h) ............................ 6.9x 26.5x 40.0x 12.7x Net cash provided by (used in) operating activities ................... 572 1,880 500 1,200 73 Net cash provided by (used in) investing activities ................... (885) (1,532) (848) (706) 993 Net cash provided by (used in) financing activities ................... (43) 193 (39) (761) (585) BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents ............... $ 504 $ 1,047 $ 666 $ 396 $ 875 Short-term investments .................. 670 1,236 1,161 1,227 1,140 Total assets ............................ 5,240 6,723 5,645 7,072 7,167 Total debt (including current portion of long-term debt) ..................... 801 703 705 704 704 Total shareholders' equity .............. 2,466 3,476 2,937 3,563 3,847 SEAGATE TECHNOLOGY NEW SAC ----------------------------- ------------- SIX MONTHS JULY 1, 2000 NOVEMBER 23, ENDED TO 2000 TO DECEMBER 31, NOVEMBER 22, DECEMBER 29, 1999 2000 2000 -------------- -------------- ------------- (IN MILLIONS, EXCEPT FOR RATIOS) STATEMENT OF OPERATIONS DATA: Revenue ................................. $3,327 $ 2,449 $1,017 Cost of sales ........................... 2,665 2,130 896 Product development ..................... 359 442 73 Marketing and administrative ............ 243 490 101 Amortization of goodwill and other intangibles ............................ 17 26 5 In-process research and development (c) ........................ -- -- 59 Restructuring (d) ....................... 135 20 -- Unusual items (e) ....................... 325 -- -- ------ -------- ------ Income (loss) from operations ........... (417) (659) (117) Other income (expense): Interest income ........................ 42 58 3 Interest expense ....................... (26) (24) (10) Other non-operating income (expense) (f) ......................... 414 (1,015) (8) ------ -------- ------- Income (loss) before income taxes........ 13 (1,640) (132) Benefit (provision) for income taxes .................................. (70) 76 (21) ------ -------- ------- Net income (loss) ....................... $ (57) $ (1,564) $(153) ====== ======== ======= OTHER FINANCIAL DATA: EBITDA (i) .............................. $ 392 $ 282 $ 53 Depreciation and amortization ........... 351 271 69 Capital expenditures, net ............... 279 272 34 Working capital (g) ..................... (95) Cash interest expense ................... 26 26 -- Ratio of earnings to fixed charges (h) ............................ 1.5x Net cash provided by (used in) operating activities ................... 33 105 (89) Net cash provided by (used in) investing activities ................... 767 (404) (953) Net cash provided by (used in) financing activities ................... (710) (576) 1,774 BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents ............... $ 732 Short-term investments .................. 118 Total assets ............................ 3,523 Total debt (including current portion of long-term debt) ..................... 904 Total shareholders' equity .............. 759
(footnotes appear on next page) 50 - ---------- (a) Seagate Technology reported financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30 of that year. Accordingly, fiscal year 1996 ended on June 28, 1996, fiscal year 1997 ended on June 27, 1997, fiscal year 1998 ended on July 3, 1998, fiscal year 1999 ended on July 2, 1999, and fiscal year 2000 ended on June 30, 2000. Fiscal years 1996, 1997, 1999 and 2000 were 52 weeks, and fiscal year 1998 was 53 weeks. All references to years represent fiscal years unless otherwise noted. (b) On May 28, 1999, Seagate Technology contributed all of the operations and assets of its Network & Storage Management Group, or NSMG, to VERITAS Software Corporation in exchange for the issuance to its subsidiary, Seagate Software Holdings of shares of VERITAS common stock representing approximately 42% of the outstanding shares of VERITAS at that time and the assumption by VERITAS of some of the liabilities associated with the operations of NSMG. We refer to the above transaction as the NSMG contribution. As a result of the NSMG contribution, Seagate Technology recognized a gain of $1.806 billion offset by compensation charges of $124 million and transaction costs of $12 million for a net gain of $1.670 billion. Seagate Technology also incurred a charge in fiscal year 1999 of approximately $85 million in connection with the write-off of in-process research and development by VERITAS which was included in other income (expense) as activity related to equity interest in VERITAS. The NSMG contribution led to a permanent reduction in gross margins for Seagate Technology since the NSMG business produced higher gross margins than the rigid disc drive business. (c) These amounts represent portions of the purchase price of prior acquisitions that were attributed to in-process research and development projects of the acquired companies. The allocated amount is written off in the period the acquisition closes because we cannot assure you that the technologies under development will achieve technological feasibility. Seagate Technology recorded charges related to the write-off of in-process research and development (1) in fiscal year 1996, of $99 million in connection with the acquisition of certain software companies; (2) in fiscal year 1997, of $3 million in connection with the acquisition of certain software companies; (3) in fiscal year 1998, these amounts principally consisted of $214 million in connection with the acquisition of Quinta Corporation and $7 million in connection with the acquisition of Eastman Software; (4) in fiscal year 1999, of $2 million in connection with the acquisition of a minority interest in Seagate Software Holdings; and (5) in fiscal year 2000, of $105 million in connection with the acquisition of XIOtech. New SAC recorded an in-process research and development charge of $59 million for the period from November 23, 2000 to December 29, 2000 in connection with the transactions. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- All Entities -- Prior Acquisitions" for more information. (d) Restructuring charges are the result of board approved restructuring plans we have implemented to align our global work force and manufacturing capacity with existing and anticipated future market requirements. These charges are described in more detail in footnotes to the audited consolidated financial statements of New SAC and its predecessor included elsewhere in this prospectus and under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- New SAC -- Restructuring Activities." (e) Unusual items include: (1) in fiscal year 1997, compensation expense of $13 million realized in connection with certain acquisitions and expenses of $153 million in connection with the settlement of litigation; (2) in fiscal year 1998, a $22 million reversal of expense recognized in fiscal year 1997 but paid in a lesser amount in fiscal year 1998 relating to the settlement of litigation; (3) in fiscal year 1999, a charge of $78 million of cash compensation expense related to the acquisition of Quinta; (4) in fiscal year 2000 $64 million of expense related to the settlement of litigation, and $286 million of compensation expense and payroll taxes related to the reorganization of Seagate Software Holdings; and (5) for the six months ended December 31, 1999, $39 million related to the settlement of litigation and $286 million of compensation expense and payroll taxes related to the reorganization of Seagate Software Holdings. (f) Other non-operating income (expense) includes (1) in fiscal year 1998, mark-to-market losses on foreign exchange hedging contracts offset by gains on the sale of certain investments in equity securities; (2) in fiscal year 1999, the net gain on our contribution of NSMG to VERITAS offset by activity related to our investment in VERITAS; (3) in fiscal year 2000, the gains on sales and exchanges of certain investments in equity securities and activity related to our investment in VERITAS; (4) in the six months ended December 31, 1999, the activity (footnotes continue on next page) 51 related to our investment in VERITAS offset by a gain on the sale of VERITAS and SanDisk stock; (5) for the period from July 1, 2000 through November 22, 2000, the activity related to our investment in VERITAS, losses recognized on our LHSP investment and the loss on the sale of Seagate Technology's operating assets to New SAC offset by gains on sales of SanDisk and Veeco Stock; and (6) for the period from November 23, 2000 through December 29, 2000, compensation charges of $10 million for bonuses paid in connection with the acquisition of XIOtech offset by foreign currency gains of $2 million. (g) Working capital represents total current assets, excluding cash, cash equivalents and short-term investments, less total current liabilities, excluding short term borrowings and current maturities of long-term debt. (h) Earnings used in computing the ratio of earnings to fixed charges consist of income (loss) before provision (benefit) for income taxes plus fixed charges. Fixed charges consist of interest expense. For fiscal year 1998, the period from July 1, 2000 through November 22, 2000, and the period from November 23, 2000 through December 29, 2000 earnings were insufficient to cover fixed charges by $653 million, $1.616 billion, and $122 million, respectively. (i) EBITDA represents income (loss) before income taxes, interest income (expense), and depreciation and amortization and excludes the impact of certain non-recurring events summarized below. We have included certain information concerning EBITDA because management believes EBITDA is generally accepted as providing useful information regarding a company's ability to service and incur debt. EBITDA should not be considered, however, in isolation or as a substitute for net income, cash flows or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. Although EBITDA is frequently used as a measure of operations and ability to meet debt service requirements, it is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. EBITDA, as calculated above, differs from the definition of EBITDA and the related definition of Consolidated Coverage Ratio described under "Description of the Notes -- Certain Definitions." We have calculated EBITDA for the periods presented as follows:
SEAGATE TECHNOLOGY -------------------------------------------------------- FISCAL YEAR -------------------------------------------------------- 1996 1997 1998 1999 2000 ---------- ------------ ---------- ----------- --------- (IN MILLIONS) Income (loss) before income taxes (1) ..... $ 331 $ 891 $ (704) $ 1,873 $ 609 Interest income ........................... (94) (92) (98) (102) (101) Interest expense .......................... 56 35 51 48 52 Depreciation and amortization ............. 417 607 664 696 693 Non-recurring items Non-cash items: Gain on contribution of NSMG to VERITAS, net .......................... -- -- -- (1,670) -- Activity related to equity interest in VERITAS (2) ........................ -- -- -- 119 326 Gain on exchange of certain investments in equity securities, net (3) ......... -- -- -- -- (231) In-process research and development ........................... 99 3 223 2 105 Loss on LHSP investment ................ -- -- -- -- -- Loss on sale of operating assets to New SAC ............................... -- -- -- -- -- Restructuring .......................... -- -- 203 35 109 Unusual items (4) ...................... -- 13 -- -- 286 Other, net (5) ......................... -- -- 68 -- 29 Cash items: Gain on sale of VERITAS stock .......... -- -- -- -- (537) Gain on sale of SanDisk stock .......... -- -- -- -- (679) Gain on sale of Veeco stock ............ -- -- -- -- -- Transaction related costs .............. -- -- -- -- -- Restructuring .......................... 242 (7) 144 25 98 Unusual items (4) ...................... -- 153 (22) 78 64 Other, net (5) ......................... -- -- -- -- 8 ------ ------- ------ --------- ------- EBITDA .................................. $1,051 $1,603 $ 529 $ 1,104 $ 831 ====== ======= ====== ========= ======= SEAGATE TECHNOLOGY NEW SAC ----------------------------- ------------- SIX MONTHS JULY 1 NOVEMBER 23, ENDED TO 2000 TO DECEMBER 31, NOVEMBER 22, DECEMBER 29, 1999 2000 2000 -------------- -------------- ------------- (IN MILLIONS) Income (loss) before income taxes (1) ..... $ 13 $ (1,640) $(132) Interest income ........................... (42) (58) (3) Interest expense .......................... 26 24 10 Depreciation and amortization ............. 351 271 69 Non-recurring items Non-cash items: Gain on contribution of NSMG to VERITAS, net .......................... -- -- -- Activity related to equity interest in VERITAS (2) ........................ 183 99 -- Gain on exchange of certain investments in equity securities, net (3) ......... -- -- -- In-process research and development ........................... -- -- 59 Loss on LHSP investment ................ -- 138 -- Loss on sale of operating assets to New SAC ............................... -- 889 -- Restructuring .......................... 76 7 -- Unusual items (4) ...................... 286 584 -- Other, net (5) ......................... -- (11) -- Cash items: Gain on sale of VERITAS stock .......... (537) -- -- Gain on sale of SanDisk stock .......... (62) (102) -- Gain on sale of Veeco stock ............ -- (20) -- Transaction related costs .............. -- 88 -- Restructuring .......................... 59 13 -- Unusual items (4) ...................... 39 -- 40 Other, net (5) ......................... -- -- 10 ------- -------- ------- EBITDA .................................. $ 392 $ 282 $ 53 ======= ======== =======
------------ (1) Income (loss) before income taxes includes the following activity in certain investments in equity securities (1) in fiscal year 1999, $1.670 billion of net gain related to the contribution of NSMG to VERITAS; (2) in fiscal year 2000, gains on the sale of portions of our investments in VERITAS and SanDisk and gains on the exchange of certain investments in equity securities of $537 million, $679 million and $231 million, (footnotes continue on the next page) 52 respectively; (3) in the six months ended December 31, 1999, gains on the sale of portions of our investments in VERITAS and SanDisk of $537 million, and $62 million, respectively; and (4) in the period from July 1, 2000 to November 22, 2000, gains on the sale of portions of our investment in SanDisk and Veeco of $102 million and $20 million, respectively, offset by losses on our investment in LHSP of $138 million and the sale of operating assets to New SAC of $889 million. The equity investments in VERITAS and SanDisk were not acquired by New SAC under the stock purchase agreement. (2) Activity related to equity interest in VERITAS includes Seagate Technology's share of the net income or loss of VERITAS, adjusted to reflect the difference between the amortization of the intangible assets by Seagate Technology and VERITAS. The net income or loss of VERITAS is included in the results of Seagate Technology on a one quarter lag basis. In fiscal year 1999, Seagate Technology recorded $34 million of amortization expense related to its equity interest in VERITAS and a charge of $85 million in connection with the write-off of in-process research and development by VERITAS. In fiscal year 2000, Seagate Technology recorded $356 million of amortization expense related to its equity interest in VERITAS, which was partially offset by its $30 million share of the net income of VERITAS for the same period. For the six months ended December 31, 1999, Seagate Technology recorded $190 million of amortization expense related to its equity interest in VERITAS, and Seagate Technology's $7 million share of the net loss of VERITAS for the same period. For the period from July 1, 2000 to November 22, 2000, Seagate Technology recorded $129 million of amortization expense related to its equity investment in VERITAS, which was partially offset by its $30 million, share of the net income of VERITAS for the same period. The equity investment in VERITAS was not acquired by New SAC under the stock purchase agreement. (3) Represents gain recognized by Seagate Technology in fiscal year 2000 comprised of (1) the exchange of all the shares of stock of Dragon Systems for shares of stock of LHSP in connection with the merger of Dragon Systems and LHSP, (2) the exchange of all the shares of stock of CVC for shares of stock of Veeco in connection with the merger of CVC and Veeco and (3) the exchange of shares of stock of iCompression Inc. for shares of stock of GlobeSpan, Inc. The investments in LHSP and Veeco were not acquired by New SAC. (4) Represents (1) in fiscal year 1997, $13 million of non-cash compensation charges related to the acquisition of certain software companies and cash expense of $153 million relating to the settlement of certain litigation; (2) in fiscal year 1998, a $22 million cash reversal of expense accrued in a prior period, but paid in a lesser amount in fiscal year 1998 relating to a settlement of litigation; (3) in fiscal year 1999, $78 million of cash compensation expense related to the acquisition of Quinta; (4) in fiscal year 2000, $64 million of cash expense related to the settlement of litigation, and $286 million of non-cash compensation expense and payroll taxes related to the reorganization of Seagate Software Holdings; (5) for the six months ended December 31, 1999, $39 million of cash expense related to the settlement of litigation and $286 million of non-cash compensation expense and payroll related taxes related to the reorganization of Seagate Software Holdings; (6) for the period from July 1, 2000 through November 22, 2000, $584 million of non-cash compensation expense related to the acceleration of options in Seagate Technology in connection with the transactions; and (7) for the period from November 23, 2000 through December 29, 2000 consulting and advisory fees paid to certain sponsors in connection with the transactions. (5) Other, net (1) in fiscal year 1998, includes mark-to-market losses on foreign exchange hedging contracts of $76 million offset by gains on the sale of certain investments in equity securities of $8 million; (2) in fiscal year 2000, principally includes non cash compensation charges for termination of certain employees of $29 million, and costs related to the transactions of $8 million; (3) for the period from July 1, 2000 through November 22, 2000, includes mark-to-market gain on equity securities of $27 million offset by losses on our investment in Gadzoox of $8 million and loss on sale of marketable securities of $8 million; and (4) in the period from November 23, 2000 through December 29, 2000, a $10 million compensation payment relating to a previous acquisition. 53 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the financial condition and results of operations for the fiscal years ended July 3, 1998, July 2, 1999 and June 30, 2000 and for the six months ended December 31, 1999 for Seagate Technology, and of the combined results in the period from July 1, 2000 through December 29, 2000 for Seagate Technology and New SAC. Through November 22, 2000, we operated as Seagate Technology. Since November 23, 2000, we have been operating as New SAC.The operations of New SAC are substantially identical to what the operations of Seagate Technology were before November 22, 2000, and thus we have presented the results of Seagate Technology and New SAC on a combined basis for the six months ended December 29, 2000. The following also includes a discussion of the financial condition and results of operations for the fiscal years ended July 3, 1998, July 2, 1999 and June 30, 2000 and for the six months ended December 31, 1999 and December 29, 2000 for three former business units of Seagate Technology that are now subsidiaries of New SAC, Seagate Technology Holdings, Seagate Technology SAN Holdings and Seagate Removable Storage Solutions Holdings, each of which intends to issue options in the future, and one subsidiary of New SAC, Crystal Decisions, that already has options outstanding. Each of these subsidiaries is a guarantor of the notes. Certain discussions below are pertinent to all four of these subsidiaries as well as us, including "--All Entities --The Transactions," "--All Entities -- Allocation of Net Purchase Price," "--All Entities -- Prior Acquisitions," "--All Entities -- Transactions with VERITAS and Other Events," "-- All Entities -- Other Events" and "-- Additional Discussion -- Relevant to All of New SAC, Seagate Technology Holdings, Seagate Technology SAN Holdings, Seagate Removable Storage Solutions Holdings and Crystal Decisions." You should read this discussion in conjunction with the consolidated financial statements and the related notes included elsewhere in this prospectus. See "Risk Factors," "Selected Historical Consolidated Financial Information of New SAC" and "Business -- Business Strategy." Except as noted, references to any fiscal year mean to the twelve month period ending on the Friday closest to June 30 of that year. ALL ENTITIES THE TRANSACTIONS On November 22, 2000, Seagate Technology, Seagate Software Holdings, a subsidiary of Seagate Technology, and Suez Acquisition Company completed a stock purchase agreement, and Seagate Technology and VERITAS Software Corporation completed an agreement and plan of merger and reorganization. Suez Acquisition Company was a limited liability company organized under the laws of the Cayman Islands and formed solely for the purpose of entering into the stock purchase agreement and related acquistions. Suez Acquisition Company assigned all of its rights and obligations under the stock purchase agreement to us. Under the stock purchase agreement, Suez Acquisition Company agreed to purchase for $1.840 billion in cash, including transaction costs of $25 million, all of the operating assets of Seagate Technology and its consolidated subsidiaries, including Seagate Technology's disc drive, tape drive and software businesses and operations and certain cash balances, but excluding the approximately 128 million shares of VERITAS common stock held by Seagate Software Holdings and Seagate Technology's equity investments in Gadzoox Networks, Inc. and Lernout & Hauspie Speech Products N.V., or LHSP. In addition, under the stock purchase agreement, Suez Acquisition Company agreed to assume substantially all of the operating liabilities of Seagate Technology and its consolidated subsidiaries. In addition, Suez Acquisition Company acquired Seagate Technology Investments, Inc., a subsidiary of Seagate Technology which holds strategic investments in various companies. Immediately following the consummation of these transactions, VERITAS acquired the remainder of Seagate Technology and a wholly-owned subsidiary of VERITAS merged with and into Seagate Technology, with Seagate Technology becoming a wholly-owned subsidiary of VERITAS. We refer to this transaction as the VERITAS merger. VERITAS did not acquire Seagate Technology's disc drive business or any other Seagate Technology operating business. In the VERITAS merger, the Seagate Technology stockholders received merger consideration consisting of VERITAS stock and cash. 54 An indemnification agreement provided that we are required to indemnify VERITAS and its affiliates for any liability for taxes of Seagate Technology, Crystal Decisions and the subsidiaries of Seagate Technology we acquired, in excess of an amount deposited into an escrow account by VERITAS. VERITAS deposited $150 million in an escrow account, which may be withdrawn by us to satisfy these tax liabilities. See "Certain Relationships and Related Transactions -- Indemnification Agreement." We refer to the transactions relating to the stock purchase agreement, the agreement and plan of merger and the VERITAS merger as the "transactions". At the closing of the transactions, the board of directors of New SAC adopted the New SAC 2000 Restricted Share Plan. The 2000 Restricted Share Plan allows for grants of ordinary and preferred share awards to key employees, directors and consultants. We have authorized 1,843,000 ordinary shares and 48,500 preferred shares to be granted under this plan. On February 2, 2001, the board of directors of New SAC approved the 2001 Restricted Share Plan. Unlike the 2000 Restricted Share Plan, the 2001 Restricted Share Plan only provides for the grant of restricted ordinary shares and does not provide for the grant of restricted preferred shares. In addition, members of the management group of Seagate Technology entered into rollover agreements in connection with the transactions. Under these agreements, members of the management group agreed not to receive merger consideration for a portion of their shares of Seagate Technology common stock and options to purchase shares of Seagate Technology common stock, valued at approximately $184 million. In exchange for the management rollover, the members of the management group received deferred compensation and ordinary and preferred shares of New SAC. The unvested ordinary and preferred shares vest as follows: o one-third of the shares will vest on the first anniversary of the closing of the transactions; o one-third will vest proportionately each month over the next 18 months; and o the final one-third will vest on the date which is 30 months after the closing of the transactions. Of the total value of the management rollover, approximately $179 million of the management rollover has been credited to the management group's accounts in respect of the restricted stock awards. With respect to the restricted ordinary and preferred shares received in connection with the rollover agreements, we will recognize compensation expense of approximately $23 million over the next 30 months as these shares vest. In connection with the management rollover, members of the management group also received interests in deferred compensation plans adopted at Seagate Technology Holdings, Seagate SAN Holdings and Seagate Removable Storage Solutions Holdings, depending on which subsidiary employed the individual. Under the terms of the deferred compensation plans, the employee vests in certain deferred compensation at the same rate as vesting in the ordinary and preferred shares. However, such vesting can be accelerated at any time at the election of the subsidiary. Payments, if any, under these deferred compensation plans are contingent upon the occurrence of future events. As a result, compensation expense recognition will be deferred until these future events occur. For a description of the deferred compensation plans, see "Management -- Rollover Agreements and Deferred Compensation Plans." Following the closing of the transactions, the board of directors of Seagate Technology Holdings and Seagate Removable Storage Solutions Holdings adopted stock option plans for the grant of options to employees for the purchase of ordinary shares. These plans provide for grants of non-qualified and incentive stock options to key employees, directors, and consultants of the subsidiaries and their affiliates. The board of directors of Seagate Technology SAN Holdings is also expected to adopt a stock option plan in fiscal year 2001. When options are granted under any of these plans, these subsidiaries, like Crystal Decisions, will constitute non-wholly owned subsidiaries of New SAC. We have included the results of operations of these subsidiaries in this management's discussion by entity. 55 ALLOCATION OF NET PURCHASE PRICE We accounted for the transactions as a purchase in accordance with Accounting Principles Board, or APB, Opinion No. 16, "Business Combinations." All acquired tangible assets, identifiable intangible assets as well as assumed liabilities were valued based on their relative fair values and reorganized into the following businesses: (1) the rigid disc drive business (HDD, which is now Seagate Technology Holdings), which includes the storage area networks business (SAN, which is now Seagate Technology SAN Holdings), (2) the removable storage solutions business (RSS, which is now Seagate Removable Storage Solutions Holdings), (3) the software business (Crystal Decisions), and (4) an investment holding company (STI). The fair value of the net assets exceeded the net purchase price by approximately $909 million. Accordingly, the resultant negative goodwill was allocated on a pro rata basis to the acquired long-lived assets and reduced the recorded amounts by approximately 46%. The table below summarizes the allocation of net purchase price by business. Amounts for HDD include SAN.
ESTIMATED FAIR VALUE ------------------------------------------------------------------- (IN MILLIONS) ------------------------------------------------------------------- USEFUL LIFE TOTAL CRYSTAL DESCRIPTION IN YEARS NEW SAC HDD SAN RSS DECISIONS STI - --------------------------------- --------- --------- --------- -------- --------- ----------- ------ Net current assets (1)(4) $ 939 $ 873 $ 27 $32 $ 9 $25 Long-term investments (2) 42 -- -- -- -- 42 Other long-lived assets 42 42 -- -- -- -- Property, plant & equipment (3) 778 764 2 9 5 -- Identified intangibles: Trade names (5) 10 47 47 1 -- -- -- Developed technologies (5) 3-7 76 5 11 15 -- Assembled workforces (5) 1-3 53 43 1 3 7 -- Other 5 1 1 1 -- -- -- ------ ------ ----- ---- --- --- Total identified intangibles 177 141 8 14 22 -- Long-term deferred taxes (4) (75) (70) -- (3) (2) -- Long term liabilities (122) (122) (10) -- -- -- ------ ------ ----- ----- ----- --- Net assets 1,781 1,628 27 52 34 67 In-process research & development (5) 59 52 25 -- 7 -- ------ ------ ----- ----- ----- --- NET PURCHASE PRICE $1,840 $1,680 $ 52 $52 $41 $67 ====== ====== ===== ===== ===== ===
(1) Acquired current assets included cash and cash equivalents, accounts receivable, inventories and other current assets. The fair values of current assets generally approximated the recorded historic book values. Short-term investments were valued based on quoted market prices. Inventory values were estimated based on the current market value of the inventories less completion costs and less a profit margin for activities remaining to be completed until the inventory is sold. Valuation allowances were established for current deferred tax assets in excess of long-term deferred tax liabilities. Assumed current liabilities included accounts payable, accrued compensation and expenses and accrued income taxes. The fair values of current liabilities generally approximated the historic recorded book values because of the monetary nature of most of the liabilities. (2) The value of individual long-term equity investments was based upon quoted market prices, where available, and when such market prices were not available an independent appraisal was performed to estimate the fair values of the individual investments. (3) We obtained an independent valuation of the acquired property, plant and equipment. In arriving at the determination of market value for the assets, the appraisers considered the estimated cost to construct or acquired comparable property. Machinery and equipment were assessed using replacement cost estimates reduced by depreciation factors representing the condition, functionality and operability of the assets. The sales comparison approach was used for office and data communication equipment. Land, land improvements, buildings, and building and leasehold improvements were valued based upon discussions with knowledgeable personnel. (footnotes continue on next page) 56 (4) Long-term deferred tax liabilities arose as a result of the excess of the fair values of inventory, long-term investments, and acquired intangible assets over their related tax basis. We have $338 million of federal and state deferred tax assets for which a full valuation allowance has been established. (5) We obtained an independent valuation of acquired identified intangibles. The significant assumptions relating to each category are discussed in the following paragraphs. Also, these assets are being amortized on the straight-line basis over their estimated useful life and resultant amortization is included in amortization of goodwill and other intangibles. Trade names--The value of the trade names was based upon discounting to their net present value the licensing income that would arise by charging the operating businesses that use the trade names. Developed technologies--The value of this asset for each operating business was determined by discounting the expected future cash flows attributable to all existing technologies which had reached technological feasiblility, after considering risks relating to: (1) the characteristics and applications of the technology, (2) existing and future markets, and (3) life cycles of the technologies. Estimates of future revenues and expenses used to determine the value of developed technology was consistent with the historical trends in the industry and expected outlooks. Assembled workforces--The value of the assembled work force was determined by estimating the recruiting, hiring and training costs to replace each group of existing employees. In-process research & development--The value of in-process research & development was based on an evaluation of all devolopmental projects using the guidance set forth in Interpretation No. 4 of Financial Accounting Standards Board, or FASB, Statement No. 2, "Accounting for Research and Development Costs" and FASB Statement No. 86, "Accounting for the Cost of Computer Software to Be Sold, Leased, or Otherwise Marketed." The amount was determined by: (1) obtaining management estimates of future revenues and operating profits associated with exisiting developmental projects, (2) projecting the cash flows and costs to completion of the underlying technologies and resultant products, and (3) discounting these cash flows to their net present value. Estimates of future revenues and expenses used to determine the value of in-process research & development were consistent with the historical trends in the industry and expected outlooks. The entire amount was charged to operations because related technologies had not reach technological feasibility and they had no alternative future use. At the valuation date, HDD's developmental projects focused on increasing capacity, reducing size and power consumption, improving performance and reliability, and reducing production costs. These projects were grouped into three categories. Those included in category one had completed conceptualization and there was substantial progress in coding, builiding, simulating and testing the technologies functionality and performance. For those included in category two, subsystem requirements had been identified, design plans had been completed, and substantial progress had been made in coding and/or building the technologies. Those included in category three had completed design plans and system requirements. Based upon an analysis of efforts to date, developmental projects in these three categories were 70%, 50%, and 30% complete, respectively, and were scheduled for completion throughout the period ending in fiscal 2003 at an additional estimated cost of $107 million. At the valuation date, SAN was in the process of developing two next generation versions of existing technologies, which, based on efforts to date, were 50% and 75% complete. Activities necessary to convert this in-process research & development into commercially viable technologies include the writing and testing of code diagnostic software, design development testing and system integration. Seagate Technology SAN Holdings expects resultant products will be successfully developed in fiscal 2002 at an additional estimated cost of $1 million. At the valuation date, Crystal Decisions was in the process of developing three next generation versions of existing technologies which, based on total man hours and absolute time, were 70% to 85% complete. Activities necessary to covert this in-process research and development into commercially viable products include completion of all planning, designing, prototyping, verifying and testing to establish the products can meet their design specifications. Crystal Decisions expects resultant products will be successfully developed in fiscal 2002 at an additional cost of $28 million. 57 PRIOR ACQUISITIONS We have entered into a number of business combinations during the three most recent fiscal years, including the acquisitions of Quinta Corporation and Eastman Storage Software Management Group in fiscal year 1998 and XIOtech in fiscal year 2000. In connection with these and other transactions, we have recognized significant write-offs of in-process research and development. We are primarily responsible for estimating the fair value of the purchased research and development in all transactions accounted for under the purchase method. We summarize below these significant acquisitions.
DATE OF ACQUISITION ACQUISITION APPLICATIONS - ----------------------------- -------------- ----------------------------------------------------- Quinta Corporation August 1997 Optically assisted Winchester technology to multiply the areal density of rigid disc drives Eastman Software Storage June 1998 Storage management product for Microsoft Management Group Corporation's Windows NT platform XIOtech Corporation January 2000 Virtual storage and storage area network solutions
ACQUISITION OF QUINTA CORPORATION We acquired Quinta Corporation in August 1997. Quinta's research and development efforts revolve around optically assisted Winchester technology. Optically assisted Winchester combines traditional magnetic recording technology with Winchester rigid disc drives and optical recording capabilities; optical recording technology enables greater data storage capacity. By integrating advanced optical features with a sophisticated tracking and delivery system within the read/write head design, we expected optically assisted Winchester to multiply the areal density of rigid disc drives. Since the acquisition, we have redirected our efforts so that we are focused less on the development of a specific product and more on the advancement of optical technology in general. As such, the spending elements associated with the development of optical technology are embedded in the research and development budgets of our product design centers and component technology organizations. At the present time, we have no immediate plans to release a storage device which makes specific use of Quinta's optically assisted Winchester technology. The delay in releasing an optically assisted Winchester storage device is not expected to materially affect our future earnings. In fiscal year 1998, we incurred a one-time write-off of in-process research and development of $214 million and in fiscal year 1999, we recognized $78 million for compensation expense related to the acquisition of Quinta. ACQUISITION OF EASTMAN SOFTWARE STORAGE MANAGEMENT GROUP We acquired Eastman Software Storage Management Group in June 1998, through our subsidiary Seagate Software Holdings. Eastman develops a storage management product for Microsoft's Windows NT platform and its two primary products are OPEN/stor for Windows NT and AvailHSM for NetWare. Eastman was included in the contribution of the Network & Storage Management Group, or NSMG, to VERITAS in May 1999, which we describe below. In fiscal year 1998, Seagate Software Holdings incurred a one-time write-off of in-process research and development of $7 million related to the acquisition of Eastman. ACQUISITION OF XIOTECH CORPORATION We acquired XIOtech, a provider of virtual storage and storage area network solutions, in exchange for 8,031,804 shares of our common stock issued from treasury shares and options with a combined fair value of $359 million in January 2000. We accounted for this acquisition as a purchase and, accordingly, the results of operations of XIOtech have been included in our consolidated financial statements from the date of the acquisition. The purchase price has been allocated based on the estimated fair market value of net tangible and intangible assets acquired and in-process research and development costs. As a result of the acquisition, we incurred a one-time write-off of in-process research and development of $105 million in fiscal year 2000. Amortization of goodwill and other intangibles was $20 million in fiscal year 2000, including $4 million for developed technology 58 contained in cost of sales. Since its acquisition, XIOtech's revenue and expenses have not been material to our consolidated revenue and expenses. TRANSACTIONS WITH VERITAS AND OTHER EVENTS CONTRIBUTION OF NSMG TO VERITAS On May 28, 1999, Seagate Technology and its subsidiaries, Seagate Software Holdings and NSMG, closed and consummated an agreement and plan of reorganization, dated as of October 5, 1998, with VERITAS and VERITAS Operating Corporation, which we refer to as the software acquisition agreement. That agreement provided for the contribution by Seagate Technology, Seagate Software Holdings and other subsidiaries to VERITAS of the outstanding stock of NSMG and other subsidiaries of Seagate Software Holdings and the assets used primarily in the network and storage management business of Seagate Software Holdings, in exchange for the issuance of VERITAS common stock to Seagate Software Holdings and the offer by VERITAS to grant options to purchase VERITAS common stock to some Seagate Software Holdings' employees who became employees of VERITAS or its subsidiaries. As part of this transaction, VERITAS assumed certain liabilities of the NSMG business. The transaction was structured to qualify as a tax-free exchange. We accounted for the contribution of the NSMG business to VERITAS as a non-cash, stock for stock exchange using the fair value of the assets and liabilities exchanged. After the transaction, Seagate Software Holdings owned approximately 42% of the outstanding shares, or 155,583,468 shares, of VERITAS. Because Seagate Technology still owned a portion of the NSMG business through its ownership of VERITAS, Seagate Technology did not recognize 100% of the gain on the exchange. The gain recorded was equal to the difference between 58% of the fair value of the VERITAS common stock received and 58% of Seagate Technology's basis in the NSMG assets and liabilities exchanged. Seagate Technology accounted for its ongoing investment in VERITAS using the equity method. The difference between the recorded amount of Seagate Technology's investment in VERITAS and the amount of its underlying equity in the net assets of VERITAS was allocated based upon the fair value of the underlying tangible and intangible assets and liabilities of VERITAS. The intangible assets included amounts allocated to in-process research and development and resulted in a $85 million write-off in fiscal year 1999 included in activity related to equity interest in VERITAS in the accompanying statement of operations. Intangible assets, including goodwill, had a four year amortization schedule. Seagate Technology has included in its financial results its share of the net income or loss of VERITAS, excluding certain NSMG purchase accounting related amounts recorded by VERITAS, but including Seagate Technology's amortization of the difference between its recorded investment and the underlying assets and liabilities of VERITAS. Because of practicality considerations, the net income or loss of VERITAS has been included in the results of Seagate Technology on a one quarter lag basis. Thus, the results of VERITAS for the period from May 29, 1999 to June 30, 1999, the period subsequent to the contribution of NSMG to VERITAS, and for the period from July 1, 1999 through March 31, 2000 were included in Seagate Technology's results for the fiscal year ended June 30, 2000. We eliminate from VERITAS' income (loss) the effect of VERITAS' accounting for the NSMG business contribution, including VERITAS' amortization expenses related to intangible assets. Excluding amortization of intangibles of $356 million, the total equity income recorded by Seagate Technology related to VERITAS in fiscal year 2000 was $30 million. SEAGATE SOFTWARE HOLDINGS EXCHANGE OFFER In a transaction separate from but related to the contribution of the NSMG business to VERITAS, on June 9, 1999, Seagate Technology exchanged 5,275,772 shares of its common stock for 3,267,255 of the outstanding shares of Seagate Software Holdings common stock owned by employees, directors and consultants of Seagate Software Holdings. The fair value of the Seagate Software Holdings shares acquired less the original purchase price paid by the employees was recorded as compensation expense for those shares outstanding and vested less than six months. The purchase of Seagate Software Holdings shares outstanding and vested more than six months 59 was accounted for as the purchase of a minority interest and, accordingly, the fair value of the shares exchanged was allocated to all of the identifiable tangible and intangible assets and liabilities of Seagate Software Holdings. In connection with the acquisition, Seagate Software Holdings recorded the acquisition of the minority interest and we recorded compensation expense amounting to approximately $124 million and wrote off purchased research and development amounting to $2 million in the fourth quarter of fiscal year 1999. Associated intangible assets and goodwill are being amortized to operations over four years. SEAGATE SOFTWARE HOLDINGS REORGANIZATION On October 20, 1999, Seagate Daylight Merger Corp., a wholly owned subsidiary of Seagate Technology, was merged with and into Seagate Software Holdings. Seagate Software Holdings' assets consisted of the assets of the information management group of Seagate Software Holdings and an investment in VERITAS common stock that VERITAS acquired under the merger agreement. The merger was effected on October 20, 1999. As a result of the merger, Seagate Software Holdings became a wholly owned subsidiary of Seagate Technology. In connection with the reorganization, Seagate Software Holdings also formed a wholly owned subsidiary, which we refer to as Crystal Decisions. Seagate Software Holdings transferred the assets and operations of its information management group into Crystal Decisions, which is now the operating entity for this business. In connection with the merger, Seagate Software Holdings stockholders and optionees received payment in the form of 3.23 shares of Seagate Technology common stock for each share of Seagate Software Holdings common stock less any amounts due for the payment of the exercise price for the options. All outstanding Seagate Software Holdings stock options were accelerated immediately prior to the merger. Seagate Software Holdings accounted for the exchange of shares of its common stock as the acquisition of a minority interest for Seagate Software Holdings common stock outstanding and vested more than six months held by employees and all stock held by former employees and consultants. The fair value of the shares of Seagate Technology common stock issued was $19 million and was recorded as purchase price and allocated to the assets and liabilities received. During the quarter ended December 31, 1999, we recorded compensation expense of $284 million, plus $2 million in payroll taxes, related to the purchase of the minority interest in Seagate Software Holdings. OTHER EVENTS In fiscal year 1998, we recorded a non-cash charge of $76 million on a mark-to-market of the value of foreign exchange hedging contracts. On November 22, 1999 and March 6, 2000, Seagate Software Holdings sold 18,523,502 and 9,000,000 shares of VERITAS common stock, adjusted for 3 for 2 stock splits, for proceeds of $397 million and $437 million, respectively, net of underwriting discounts and commissions. Seagate Software Holdings acquired those shares in connection with the contribution of the NSMG business to VERITAS in May 1999. The sale of shares of VERITAS common stock by Seagate Software Holdings in the six months ended December 31, 1999 resulted in pre-tax gains of $537 million. In fiscal year 2000, several marketable equity securities held by us, including securities issued by SanDisk Corporation, Gadzoox Networks, Inc., Veeco Instruments, Inc. and LHSP, were marked to market resulting in a $95 million unrealized gain, net of taxes. We record unrealized gains and losses on the mark to market of investments as a component of accumulated other comprehensive income and make appropriate adjustments to the value of these assets. The investments were subject to changes in valuation based upon the market price of their common stock. In fiscal year 2000, we sold 10,675,000 shares of SanDisk common stock, adjusted for a 2 for 1 stock split on February 23, 2000, for proceeds of $681 million, net of underwriting discounts and commissions. The sale of shares of SanDisk common stock in fiscal year 2000 resulted in a pre-tax gain of $679 million. In fiscal year 2000, we recognized gains of $231 million on the exchange of certain investments in equity securities. Specifically, the gain related to (1) the exchange of shares of stock of Dragon 60 Systems for shares of stock of LHSP in connection with the merger of Dragon Systems and LHSP and (2) the exchange of shares of stock of CVC, Inc. for shares of stock of Veeco Instruments, Inc. in connection with the merger of CVC and Veeco. The shares of stock in LHSP, Gadzoox and Veeco were not acquired by us under the stock purchase agreement. In addition, we recognized a charge of $64 million related to the settlement of litigation. In the six months ended December 29, 2000, on a combined basis, we recognized gains on the sales of investments in SanDisk common stock and Veeco of $102 million and $20 million, respectively. NEW SAC BASIS OF PRESENTATION Because we acquired all the operating assets of Seagate Technology as of November 22, 2000, Seagate Technology is our predecessor. Accordingly, references to "we", "our" or "us" for events, transactions or regarding financial information during these periods are references to our predecessor, Seagate Technology. For comparative purposes, the financial information presented combines the operations of Seagate Technology from July 1 to November 22, 2000 with our operations as New SAC from November 23, 2000 to December 29, 2000. Although we were incorporated on August 10, 2000, prior to November 23, 2000 our operations were not significant. Financial information for the fiscal years ended 1998, 1999 and 2000 and for the six-month period ended December 31, 1999 is the historical financial information of Seagate Technology. OVERVIEW We are a leading designer, manufacturer and marketer of products for storage, retrieval and management of electronic data. Businesses, other organizations and individuals use rigid disc drives as the primary medium for storing electronic information in computer systems ranging from desktop computers to data centers delivering information over corporate networks and the Internet. We produce a broad range of rigid disc drive products and are a leader in both the enterprise (primarily Internet servers, mainframes and workstations) and desktop (personal computers or PCs) sectors of the rigid disc drive industry. According to Dataquest, our shares of unit shipments for the enterprise and desktop sectors of the rigid disc drive industry, for the calendar year 2000, were 44.3% and 22.5%, respectively. We also design, manufacture and market tape drives and intelligent storage solutions and are a leading provider of business intelligence software. Our advanced research and development capabilities, combined with our vertically integrated manufacturing facilities, enable us to be a leader in bringing high quality, next generation information storage products to market. For the six months ended December 29, 2000, we had combined revenue of approximately $3.46 billion and combined EBITDA of approximately $272 million. During that period, our rigid disc drive operations accounted for 94% of our combined revenue and 76% of our combined gross profit, and our software operations accounted for 2% of our combined revenue and 16% of our combined gross profit. We sell our rigid disc drives primarily to major original equipment manufacturers, or OEMs, and also market to distributors under our globally recognized brand name. For the twelve months ended December 29, 2000, approximately 67% of our combined rigid disc drive revenue was from sales to OEMs, including customers such as Compaq, Dell, EMC, Hewlett Packard, IBM and Sun Microsystems. We have longstanding relationships with many of these OEM customers, such as Compaq, our largest customer, which we have served for approximately 18 years. We also have key relationships with major distributors, who sell our rigid disc drive products to small OEMs, dealers, system integrators and retailers in most geographic areas of the world. For the twelve months ended December 29, 2000, approximately 42% of our combined revenue was from customers located in North America, approximately 33% was from customers located in Europe and approximately 25% was from customers located in Asia. Substantially all of our revenue is denominated in U.S. dollars. 61 We have three operating segments, rigid disc drives, tape drives and software. However, only the rigid disc drive and software businesses were reportable segments under the Statement of Financial Accounting Standards, or SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." For fiscal year 2000, revenue from rigid disc drive operations was $6.013 billion, revenue from software operations was $127 million and revenue from other operations was $308 million; gross profit from rigid disc drive operations was $1.238 billion, gross profit from software operations was $82 million and gross profit from other operations was $72 million. For the six months ended December 29, 2000, combined revenue from rigid disc drive operations was $3.248 billion, combined revenue from software operations was $77 million and combined revenue from other operations was $141 million; combined gross profit from rigid disc drive operations was $364 million, combined gross profit from software operations was $54 million and combined gross profit from other operations was $22 million. For more information regarding these segments and related information, see Note 9 to the audited consolidated financial statements of New SAC and its predecessor included elsewhere in this prospectus. RESTRUCTURING ACTIVITIES FISCAL YEAR 1998 RESTRUCTURING ACTIVITIES In fiscal year 1998, we recorded restructuring charges of $347 million. These charges were the result of exiting production of rigid disc drives with a form factor of less than 3.5 inches for mobile products; discontinuing older generation rigid disc drive products; closing and selling the Clonmel, Ireland manufacturing facility; closing and subleasing the San Jose and Moorpark, California design center facilities; aborting production expansion projects in Cork, Ireland; and divesting our new manufacturing facility in The Philippines, which was nearing completion. The restructuring charges consisted of the following: employee related costs for severance of $56 million; facilities costs for facilities we were no longer using for current activities, which included lease termination expenses and residual payments on leases for facilities of $24 million for facilities in California and Asia and the write-off or write-down of owned and leased facilities located in California, The Philippines and Ireland of $54 million; the write-off or write-down of $137 million for excess manufacturing, assembly and test equipment and tooling formerly used primarily in California, Singapore, Thailand and Ireland; the write-off of intangibles and other assets, including $9 million for capital equipment deposits and $2.5 million for goodwill associated with permanently impaired equipment; contract cancellations comprised of $43 million for costs incurred to cancel outstanding purchase commitments existing prior to the restructuring plan; and other costs consisting of the repayment of various grants to the Industrial Development Agency of Ireland of $7 million and a contingency of $14 million for adjustments to estimates used when the restructuring charge was recorded. These restructuring changes resulted in cash charges except for those related to the write-off or write-down of assets. FISCAL YEAR 1999 RESTRUCTURING ACTIVITIES In fiscal year 1999, we recorded restructuring charges of $72 million and reversed $12 million of restructuring accruals recorded in fiscal year 1998, resulting in a net restructuring charge of $60 million, of which $35 million was a non-cash charge. The $12 million reversal was a result of abandoning our plan to seek an agreement with an external vendor to supply parts currently manufactured at a facility in Thailand. The $72 million restructuring charge was a result of steps we took to further improve the efficiency of our operations. These actions included the following: closure of our microchip manufacturing facility in Scotland; discontinuance of our read/write head suspension business located in Malaysia and Minnesota; consolidation of global customer service operations by relocating those operations from Singapore, Scotland and Costa Mesa, California to Mexico; and closure of our recording media substrate facility in Mexico. In connection with the restructuring, we reduced our work force by approximately 1,250 employees. Our implementation of the restructuring plan was substantially completed as of March 31, 2000. 62 FISCAL YEAR 2000 RESTRUCTURING ACTIVITIES In fiscal year 2000, we recorded restructuring charges totaling $218 million and reversed $11 million of our restructuring accruals comprised of $2 million of restructuring reserves recorded in the same period, $5 million of restructuring reserves recorded in fiscal year 1999 and $4 million of restructuring reserves recorded in fiscal year 1998, resulting in a net restructuring charge of $207 million. These charges were a result of a restructuring plan established to align our global work force and manufacturing capacity with existing and anticipated future market requirements. These actions included work force reductions, reductions of excess capacity including closure of surplus manufacturing facilities or portions of facilities which did not reduce manufacturing capacity due to efficiency gains, write-offs of excess equipment and consolidation of operations in our recording media operations, rigid disc drive assembly and testing facilities, printed circuit board assembly manufacturing, recording head operations, software operations, customer service operations, sales and marketing activities, and research and development activities. The restructuring charges were comprised of the following: $81 million for the write-off of excess manufacturing, assembly and test equipment formerly used in Singapore, Thailand and Northern California; $90 million for employee termination costs; $29 million for the write-off of owned facilities located in Singapore; $11 million in lease termination expenses and residual payments on leases; $5 million in renovation costs to restore facilities in Singapore and Northern California to their pre-lease condition; and $2 million in contract cancellations associated with one of the Singapore facilities. These restructuring charges resulted in cash charges except for those related to write-off of assets and the Singapore contract cancellations. Prior to this period, there was no indication of permanent impairment of the assets associated with the closure and consolidation of the facilities. Under the fiscal year 2000 restructuring plan, we planned to reduce our work force by approximately 24,000 employees. Approximately 22,000 of the 24,000 employees had been terminated as of December 29, 2000. We estimate that if we had completed the fiscal year 2000 restructuring activities by the end of fiscal year 2000, annual salary and depreciation expense would have been reduced by approximately $151 million and $48 million, respectively. The implementation of our fiscal year 2000 restructuring plan was substantially complete by December 29, 2000. FISCAL YEAR 2001 RESTRUCTURING ACTIVITIES As part of the transactions, New SAC assumed all the restructuring liabilities previously recorded by Seagate Technology, including $41 million related to restructuring activities announced in fiscal 2000 and $3 million related to restructuring activities announced in fiscal 2001. During the period from July 1, 2000 to November 22, 2000, Seagate Technology recorded restructuring charges totaling $20 million. Of the $20 million, $11 million was a result of a restructuring plan established to continue the alignment of Seagate Technology's global workforce and manufacturing capacity with existing and anticipated future market requirements, specifically in its recording head operations in Thailand. The remaining $9 million consisted of a $3 million employee termination benefit adjustment to the original estimate related to the fiscal 2000 restructuring plan and $6 million in additional restructuring charges for adjustments to original estimates to the fiscal 1998 restructuring plan. The fiscal 2001 restructuring plan includes workforce reductions, capacity reductions including closure of facilities or portions of facilities, write-off of excess equipment and consolidation of operations. The restructuring charges were comprised of $3 million for employee termination costs; $6 million for the write-off of owned facilities located in Thailand; $1 million for the write-off of excess manufacturing, assembly and test equipment; and $1 million in other expenses. Prior to these restructuring activities, there was no indication of permanent impairment of the assets associated with the closure and consolidation of facilities. In connection with the fiscal 2001 restructuring plan, we plan to reduce our workforce by approximately 2,000 employees, primarily in manufacturing. Approximately 100 of the 2,000 employees had been terminated as of December 29, 2000. As a result of employee terminations and the write-off of equipment and facilities in connection with the fiscal 2001 restructuring plan, we 63 estimate that after completion of these restructuring activities, annual salary and depreciation expense will be reduced by approximately $7 million and $2 million, respectively. However, we expect that reduction in annual salary expense will be substantially offset by increases of headcount in other recording head operations facilities. In March 2001, we announced $54 million of additional restructuring activities at our Perai and Ipoh, Malaysia disc drive plants and our Oklahoma City customer service facility. Total restructuring charges included additional severance of $23 million, lease termination expenses and residual payments on leases of $17 million, equipment costs of $12 million and other costs of $2 million. We expect these restructuring activities to be complete by the first half of fiscal 2002. We may implement additional actions pursuant to our restructuring plans, particularly in light of current economic conditions, and, if such additional actions are implemented, we anticipate that additional charges would be taken related to these actions. RESULTS OF OPERATIONS OF NEW SAC We list in the table below the consolidated statements of operations data as a percentage of revenue for Seagate Technology for fiscal years 1998, 1999 and 2000 and the six months ended December 31, 1999 and our combined consolidated statements of operations data as a percentage of revenue for the six months ended December 29, 2000. Our operations as New SAC are substantially identical to those of Seagate Technology prior to the transactions, we have combined the results of Seagate Technology from July 1, 2000 to November 22, 2000, and our results as New SAC from November 23, 2000 to December 29, 2000, in the table and the discussions below for easier comparison with the results of Seagate Technology for the six months ended December 31, 1999. We therefore refer to the results of operations for the six months ended December 29, 2000 as "combined" in the discussion below.
COMBINED RESULTS OF NEW SAC AND SEAGATE TECHNOLOGY SEAGATE TECHNOLOGY --------------------------------------------------- -------------------- FISCAL YEAR ------------------------------- SIX MONTHS ENDED SIX MONTHS ENDED 1998 1999 2000 DECEMBER 31, 1999 DECEMBER 29, 2000 ----------- -------- ---------- ------------------- -------------------- Revenue ...................................... 100% 100% 100% 100% 100% Cost of sales ................................ 85 76 78 80 88 Gross margin ................................. 15 24 22 20 12 Product development .......................... 9 10 11 11 15 Marketing and administrative ................. 7 8 8 7 17 Amortization of goodwill and other intangibles ................................. 1 -- 1 -- -- In-process research and development ................................. 3 -- 2 -- 2 Restructuring ................................ 5 1 3 4 -- Unusual items ................................ -- 1 5 10 -- Income (loss) from operations ................ (10) 4 (8) (12) (22) Other income (expense), net .................. -- 23 18 12 (29) Income (loss) before income taxes ............ (10) 27 10 -- (51) Benefit (provision) for income taxes ......... 2 (10) (4) (2) 2 Net income (loss) ............................ (8)% 17 % 5% (2)% 49%
64 SIX MONTHS ENDED DECEMBER 29, 2000 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 1999 REVENUE. Combined revenue for the six months ended December 29, 2000 was $3.466 billion, an increase of 4% when compared with revenue of $3.327 billion for the six months ended December 31, 1999. The increase in revenue was primarily due to $0.9 billion related to higher unit sales volumes offset by $0.8 billion related to price erosion. We expect that price erosion in the data storage industry will continue for the foreseeable future. Industry competition and continuing price erosion could adversely affect our results of operations in any given quarter, and such adverse effects often cannot be anticipated until late in any given quarter. Furthermore, we believe that our results of operations could be adversely affected by the declining demand for information technology products in both the personal storage and enterprise sectors of the market, which our principal customers have addressed in recent public statements. Based on these statements we expect that short-term demand for rigid disc drive and tape drive products will be reduced. GROSS MARGIN. Combined gross margin as a percentage of revenue for the six months ended December 29, 2000 was 12%, as compared with gross margin as a percentage of revenue of 20% for the six months ended December 31, 1999. Combined gross margin was impacted negatively in the six months ended December 29, 2000 by charges related to the transactions. These charges were primarily $131 million for the sale of inventories written-up to fair value pursuant to purchase accounting rules and a compensation charge of $281 million related to the acceleration of stock options. These two charges reduced the combined gross margin as a percentage of combined revenue by 12% for the six months ended December 29, 2000. Excluding items related to the closing of the transactions, our combined gross margin as a percentage of revenue for the six months ended December 29, 2000 was 24% as compared with gross margin as a percentage of revenue of 20% for the six months ended December 31, 1999. This increase in gross margin as a percentage of revenue from December 31, 1999 was primarily due to ongoing cost savings as a result of our restructuring activities and our program to implement operational efficiencies. These efficiencies include implementation of advanced manufacturing processes resulting in lower average unit costs per disc drive produced. PRODUCT DEVELOPMENT EXPENSES. Combined product development expenses for the six months ended December 29, 2000 were $515 million, an increase of 43% when compared with product development expenses of $359 million for the six months ended December 31, 1999. The increase in product development expenses from the six months ended December 31, 1999 was primarily due to $124 million in compensation expense related to the acceleration of stock options, $10 million in salaries and related costs, $3 million in occupancy costs, $8 million in depreciation expense, $2 million in information technology expense. The acceleration of stock options was in connection with the closing of the transactions. As a percentage of combined revenues, combined product development expenses increased to 15% in the six months ended December 29, 2000 from 11% for the six months ended December 31, 1999. Excluding those items related to the closing of the transactions, our combined product development expenses would have represented 11% of combined revenue for both periods. MARKETING AND ADMINISTRATIVE EXPENSES. Combined marketing and administrative expenses for the six months ended December 29, 2000 were $591 million, an increase of 143% when compared with $243 million of marketing and administrative expenses for the six months ended December 31, 1999. The increase in marketing and administrative expenses from the six months ended December 31, 1999 was primarily due to increases of $191 million in compensation expense related to the acceleration of stock options, $124 million in transaction related costs, $39 million in salaries and related costs, $21 million in outside services, $7 million in equipment costs, $2 million in marketing and administrative expenses related to our information management group software products and services, $4 million in legal expenses, $4 million in information technology expenses and $1 million in accruals for profit sharing and management bonuses. These increases were partially offset by decreases of $26 million in depreciation expense, $14 million in the provision for bad debts and $13 million in occupancy costs. The $191 million in compensation expense and the 65 $124 million in transaction related costs were in connection with the closing of the transactions. As a percentage of combined revenues, combined marketing and administrative expenses increased to 10% for the six months ended December 29, 2000 from 7% for the six months ended December 31, 1999. Excluding those items related to the closing of the transactions, our combined marketing and administrative expenses would have represented 8% of combined revenue for the six months ended December 29, 2000 compared with 7% of revenue for the six months ended December 31, 1999. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Combined amortization of goodwill and other intangibles for the six months ended December 29, 2000 was $31 million, an increase of 82% when compared with amortization of goodwill and other intangibles of $17 million for the six months ended December 31, 1999. The increase in amortization from the six months ended December 31, 1999 was primarily due to additional amortization related to goodwill and other intangibles arising from the acquisition of XIOtech Corporation in January 2000 partially offset by reduced amortization of Seagate Technology's investment in VERITAS that was acquired by VERITAS in the merger in November 2000. We expect amortization of intangibles as a result of the transactions to be $47 million annually. UNUSUAL ITEMS. The $59 million charge to unusual items during the six months ended December 29, 2000 represents the write-off of in-process research and development acquired in connection with the transactions. NET OTHER INCOME (EXPENSE). Combined net other income decreased by $1.426 billion to combined net other expense of $996 million for the six months ended December 29, 2000 when compared with net other income of $430 million for the six months ended December 31, 1999. The decrease in net other income from December 31, 1999, was primarily due to gains on sales of certain investments in equity securities, previously held by Seagate Technology, of $599 million and net losses of $32 million on certain equity investments, previously held by Seagate Technology, in the six months ended December 29, 2000, as well as the $889 million loss on the sale of Seagate Technology's operating assets to us offset by a decrease of $84 million in the charge for activity related to Seagate Technology's former equity interest in VERITAS. INCOME TAXES. New SAC. We recorded a $21 million provision for income taxes for the period from November 23, 2000 to December 29, 2000. The $21 million provision for income taxes differs from the benefit from income taxes that would be derived by applying the federal statutory rate to the loss before income taxes primarily due to the net effect of nondeductible charges related to the acquisition of the operating assets of Seagate Technology and the income generated from our manufacturing plants located in Singapore, Thailand, China and Malaysia that operate under tax holidays and, accordingly, are not subject to tax. As a result of the transactions and the ensuing corporate structure, we are now a foreign parent corporation with various foreign and U.S. subsidiaries. Certain of our U.S. subsidiaries are expected to incur domestic operating losses in fiscal 2001 and they will no longer file their federal income tax returns on a consolidated basis with our U.S. disc drive operations. We do not expect to realize a tax benefit for these domestic operating losses in fiscal 2001. We also expect that a substantial portion of our anticipated income from operations for fiscal 2001 will be generated by our Far East manufacturing plants located in Singapore, Thailand, China and Malaysia that currently operate under tax holidays. Excluding items relating to the closing of the transactions, we anticipate that our projected pro forma effective tax rate on income from operations for the period beginning November 23, 2000 through June 29, 2001 will approximate 20%. In connection with the purchase of the operating assets of Seagate Technology, we recorded a valuation allowance for deferred tax assets of $338 million. The $338 million of deferred tax assets subject to the valuation allowance arose primarily as a result of the excess of tax basis over the fair values of acquired property, plant and equipment, and liabilities assumed for which we expect to receive tax deductions in our federal and state returns in future periods. We also recorded $38 million of deferred tax liabilities as a result of the excess of the fair market value of inventory, long-term investments, and acquired intangible assets over their related tax basis. Our realization of the tax 66 benefits for the federal and state deferred tax assets subject to the valuation allowance will depend primarily on our ability to generate sufficient taxable income in the United States in future periods, the timing and amount of which are uncertain. We anticipate that the tax benefits of the deferred tax assets when realized will first result in an increased adjustment to the amount of unamortized negative goodwill that has been allocated on a pro rata basis to the long-lived assets. Any excess tax benefit would then be realized as a reduction of future income tax expense. Seagate Technology. Seagate Technology recorded a benefit from income taxes of $76 million for the period from July 1, 2000 to November 22, 2000. The recorded benefit from income taxes differs from the benefit from income taxes that would be derived by applying the federal statutory rate to the loss before income taxes primarily due to losses recorded in connection with the sale by Seagate Technology of the operating assets located in the Far East that were not deductible for U.S. tax purposes and the write-off of deferred tax assets that could not be recognized in the federal and state tax returns of Seagate Technology for the taxable year ended November 22, 2000. Excluding those items relating to the closing of the transactions, various nonrecurring restructuring charges, activity related to Seagate Technology's equity interest in VERITAS and sales of SanDisk and Veeco stock, the pro forma effective tax rate used to record the benefit for income taxes for the period from July 1, 2000 to November 22, 2000 would have been 28%. Seagate Technology recorded a provision for income taxes of $70 million for the six months ended December 31, 1999. The effective tax rate used to record the provision for income taxes differs from the U.S. statutory rate primarily due to the net effect of gains from the sales of VERITAS and SanDisk common stock and activity related to Seagate Technology's equity interest in VERITAS, and the nondeductible charges associated with the October 1999 acquisition of the minority interest in Crystal Decisions. FISCAL YEAR ENDED JUNE 30, 2000 COMPARED TO FISCAL YEAR ENDED JULY 2, 1999 REVENUE. Revenue in fiscal year 2000 was $6.448 billion, 5% lower than revenue in fiscal year 1999, which was $6.802 billion. The decrease in revenue from the prior year was due primarily to a continuing decline in the average unit sales prices of our products as a result of intensely competitive market conditions and a shift in mix away from our higher priced products. The decrease in average unit sales price and effect of mix on revenue was partially offset by a higher level of unit shipments, an increase of 28% as compared to fiscal year 1999. Our overall average unit sales price on our rigid disc drive products was $160, $148, $140 and $140 for the four quarters of fiscal year 2000, respectively. Average price erosion from fiscal year 1999 to fiscal year 2000 was approximately 23%. GROSS MARGIN. Gross margin as a percentage of revenues decreased to 22% in fiscal year 2000 from 24% in fiscal year 1999. The largest contributing factor to the decrease in gross margin in fiscal year 2000 was the contribution of NSMG to VERITAS on May 28, 1999. Excluding NSMG, our gross margin as a percentage of revenue would have been 22% for fiscal year 1999. In addition, the decrease in gross margin as a percentage of revenue from the prior year was a result of price erosion due to intense price competition. This decrease was offset by cost savings as a result of our restructuring activities and our program to implement operational efficiencies. These efficiencies include implementation of advanced manufacturing processes resulting in lower average unit costs per rigid disc drive produced. PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased by 11% to $725 million in fiscal year 2000, compared with $655 million in fiscal year 1999, primarily due to increases of $70 million in salaries and related costs, $27 million in depreciation and $2 million in research and development. These expenses were partially offset by a decrease of $33 million in product development expenses related to the NSMG business. 67 MARKETING AND ADMINISTRATIVE EXPENSES. Marketing and administrative expenses decreased by 4% to $515 million in fiscal year 2000, compared with $534 million in fiscal year 1999, primarily due to decreases of $96 million in marketing and administrative expenses related to the NSMG business and $23 million in advertising and promotion expenses. These decreases were partially offset by increases of $36 million in salaries and related costs, $30 million in outside services, $23 million in the provision for bad debts and $8 million in marketing and administrative expenses related to our information management group business software products and services. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill and other intangibles increased by 31% to $51 million in fiscal year 2000, compared with $39 million in fiscal year 1999, primarily due to additional amortization of $15 million related to goodwill and intangibles arising from the acquisition of XIOtech, partially offset by $3 million in write-offs, in fiscal year 1999, of certain intangible assets related to past acquisitions of companies, whose value had become permanently impaired. RESTRUCTURING CHARGES. In fiscal year 2000, we recorded restructuring charges totaling $218 million and reversed $11 million of our restructuring accruals comprised of $2 million of restructuring reserves recorded in the same period, $5 million of restructuring reserves recorded in fiscal year 1999 and $4 million of restructuring reserves recorded in fiscal year 1998, resulting in a net restructuring charge of $207 million. UNUSUAL ITEMS. The $350 million charge to unusual items in fiscal year 2000 consisted of a $286 million compensation charge related to the reorganization of Seagate Software Holdings and a $64 million charge related to various legal settlements. NET OTHER INCOME. Net other income in fiscal year 2000 decreased by 28% to $1.170 billion in fiscal year 2000, compared with $1.615 billion in fiscal year 1999. The decrease in net other income was primarily due to a one-time gain of $1.670 billion in fiscal year 1999 on the contribution of our NSMG business to VERITAS and an increase of $207 million in activity related to our equity interest in VERITAS. The decrease was partially offset by gains on the sale of portions of our investments in VERITAS and SanDisk of $537 million and $679 million, respectively, in fiscal year 2000. Additionally, we realized gains totaling $231 million in the fourth quarter of fiscal year 2000 on the exchange of our investments in the equity securities of Dragon Systems for those of LHSP, on the exchange of our investments in the equity securities of CVC for those of Veeco Instruments and on the exchange of our investments in the equity securities of iCompression for those of GlobeSpan. INCOME TAXES. We recorded a $299 million provision for income taxes at an effective rate of 49% in fiscal year 2000 compared with a $697 million provision for income taxes at an effective rate of 37% in fiscal year 1999. The reduction in the provision for income taxes was primarily due to the loss from operations in fiscal year 2000 and a reduction in fiscal year 2000 in the level of recorded net gains attributable to SanDisk, VERITAS and other equity securities. Excluding the tax effects of net non-deductible charges associated with the acquisition of the minority interest in Crystal Decisions, the acquisition of XIOtech, the net gain from the sales of SanDisk and VERITAS common stock and activity related to our equity investment in VERITAS, certain non-recurring restructuring costs and the effects of our settlement of litigation with Rodime PLC, the pro forma effective tax rate used to record the provision for income taxes for the fiscal year ended June 30, 2000 was 28%. We provided income taxes at the U.S. statutory rate of 35% on substantially all of our current year foreign earnings in fiscal year 2000 compared with approximately 55% of such earnings in fiscal year 1999 due to dividends received by us from our foreign subsidiaries. A substantial portion of our Asia Pacific manufacturing operations at plant locations in China, Malaysia, Singapore and Thailand operate under various tax holidays which expire in whole or in part during fiscal 2001 through 2010. The tax holidays had no impact on net income in fiscal year 2000. The net impact of these tax holidays was to increase net income by approximately $35 million in fiscal 1999. During fiscal year 2000, we settled a number of the disputed tax matters reflected in the statutory notices of deficiencies dated June 27, 1997 and June 12, 1998 that were received from the 68 Internal Revenue Service relative to our taxable years 1991 through 1993 and Conner Peripherals, Inc.'s taxable years 1991 and 1992, respectively. We believe that we have meritorious defenses against the remaining asserted deficiencies and that the likely outcome of a re-determination of these asserted deficiencies by the U.S. Tax Court will not result in an additional provision for income taxes. FISCAL YEAR ENDED JULY 2, 1999 COMPARED TO FISCAL YEAR ENDED JULY 3, 1998 REVENUE. Revenue for fiscal year 1999 was $6.802 billion, approximately the same as revenue in fiscal year 1998, which was $6.819 billion. A 9% increase in unit shipments, combined with a shift in mix to our higher priced products, was offset by a continuing decline in the average unit sales prices of our products as a result of intensely competitive market conditions. Revenue decreased to $1.643 billion in the fourth quarter of 1999 from $1.805 billion in the third quarter of 1999 as a result of price erosion. Our overall average unit sales price on our rigid disc drive products was $194, $194, $196 and $177 for the four quarters of fiscal year 1999, respectively, and $219, $206, $208, and $229 for the four quarters of fiscal year 1998, respectively. Average price erosion across all products from fiscal year 1998 to fiscal year 1999 was 9%. GROSS MARGIN. Gross margin as a percentage of revenue was 24% for fiscal year 1999, compared with 15% for fiscal year 1998. The increase in gross margin as a percentage of revenue was primarily due to cost savings as a result of our restructuring activities and an intensive program of cost reduction resulting in lower average unit costs per rigid disc drive produced. Excluding the gross margin of our Seagate Software Holdings subsidiary, the products of which generally have higher gross margins, our gross margins would have been 22% and 11% in fiscal year 1999 and fiscal year 1998, respectively. PRODUCT DEVELOPMENT EXPENSES. Product development expenses were $655 million for fiscal year 1999, compared with $627 million for fiscal year 1998, an increase of $28 million, or 4%. The increase in product development expenses was primarily due to increases of $29 million in salaries and related costs and $19 million in depreciation partially offset by a $19 million accrual in fiscal year 1998 for payments to former shareholders of Quinta Corporation for achieving certain product development milestones. MARKETING AND ADMINISTRATIVE EXPENSES. Marketing and administrative expenses were $534 million for fiscal year 1999, compared with $502 million for fiscal year 1998, an increase of $32 million, or 6%. The increase in marketing and administrative expenses was primarily due to increases of $28 million related to our software products and services, including $13 million related to Crystal Decisions, $17 million in salaries and related costs, $8 million in legal expenses, $7 million in profit sharing accruals and $6 million in depreciation. These expenses were partially offset by decreases of $27 million in occupancy costs and $13 million in advertising and promotion expenses. The decrease of $27 million in occupancy costs from fiscal year 1998 was primarily due to the closure of certain of our facilities under our January 1998 restructuring activities. IN-PROCESS RESEARCH AND DEVELOPMENT. We recorded a $223 million charge for the write-off of in-process research and development in fiscal year 1998, $214 million of which was primarily a result of the August 1997 acquisition of Quinta Corporation and $7 million of which was a result of the June 1998 acquisition of Eastman Software. RESTRUCTURING CHARGES. We recorded restructuring charges of $72 million in fiscal year 1999, and reversed $12 million of restructuring accruals recorded in fiscal year 1998, resulting in a net restructuring charge of $60 million. We recorded restructuring charges of $347 million in fiscal year 1998. UNUSUAL ITEMS. We recorded a $78 million charge to unusual items in fiscal year 1999 in connection with an amendment to the purchase agreement for the acquisition of Quinta Corporation. The $22 million in income in unusual items in 1998 represents a $22 million reduction of the $153 million charge recorded in 1997 to settle a lawsuit against us by Amstrad PLC. 69 NET OTHER INCOME. Net other income for fiscal year 1999 was $1.615 billion, compared with $18 million of net other expense for fiscal year 1998, an increase of $1.633 billion. The increase in net other income was primarily due to the net gain of $1.670 billion on the contribution of our NSMG business to VERITAS partially offset by the charge related to our equity investment in VERITAS of $119 million in the fourth quarter of fiscal year 1999. The net gain of $1.670 billion consisted of a gain of $1.806 billion net of compensation expense of $124 million and merger-related expenses of $12 million. In addition, the increase in net other income was due to $76 million of expenses related to mark-to-market adjustments in fiscal year 1998 on certain of our foreign currency forward exchange contracts for the Thai baht and the Malaysian ringgit that did not recur in fiscal year 1999. INCOME TAXES. We recorded a $697 million provision for income taxes at an effective rate of 37% in fiscal year 1999, compared with a $174 million benefit for income taxes at an effective rate of 25% in fiscal year 1998. The change in income taxes was primarily due to income from operations in fiscal year 1999 and to income taxes paid on the pre-tax gain of $1.670 billion recorded on the contribution of our NSMG business to VERITAS. Excluding the effects of the VERITAS transaction, the non-deductible charges from the Quinta acquisition and certain non-recurring restructuring costs, the effective tax rate was approximately 28% in fiscal year 1999. We provided income taxes at the U.S. statutory rate in fiscal year 1999 on approximately 55% of our foreign earnings, compared with approximately all of our foreign earnings in fiscal year 1998. A substantial portion of our Asia Pacific manufacturing operations at plants located in China, Malaysia, Singapore and Thailand operate under various tax holidays which expire in whole or in part during fiscal years 2001 through 2010. The net impact of these tax holidays was to increase net income by approximately $35 million in fiscal year 1999. The tax holidays had no impact on the net loss in 1998. We received a statutory notice of deficiency dated June 27, 1997 from the Internal Revenue Service relative to taxable years 1991 through 1993 assessing potential deficiencies approximating $39 million plus interest and approximately $6 million of penalties. We petitioned the United States Tax Court on September 24, 1997 for a re-determination of the deficiencies. We believe that the likely outcome of this matter will not have a material adverse effect on its financial position or results of operations. We received a statutory notice of deficiency dated June 12, 1998 from the Internal Revenue Service relative to Conner's taxable years 1991 and 1992 assessing potential deficiencies approximating $11 million plus interest. We petitioned the United States Tax Court on September 10, 1998 for a re-determination of the deficiencies. We believe that the likely outcome of this matter will not have a material adverse effect on our financial position or results of operations. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK. Our exposure to market risk for changes in interest rate risk relates primarily to our investment portfolio and long-term debt obligations. We do not use derivative financial instruments in our investment portfolio. We place our investments with high credit quality issuers and, by policy, limit the amount of credit exposure to any one issuer. We are averse to principal loss and seek to ensure the safety and preservation of our invested funds by limiting default risk, market risk and reinvestment risk. We have both fixed-rate and floating-rate based long-term debt obligations. Our debt obligations were primarily incurred for general corporate purposes, including capital expenditures and working capital needs. Also, we incurred debt to finance our purchase of Seagate Technology's operating assets. We use swap agreements to exchange our floating interest rate portfolios for fixed interest rates. In December 2000, we entered into a fixed rate interest rate swap agreement with a notional amount of $245 million and an interest rate of 5.43% for a term of 3 years. The maturity date of the swap matches principal serial maturities on the underlying debt. 70 The table below presents principal (or notional) amounts and related weighted average interest rates by year of maturity for our investment portfolio and debt obligations as of December 29, 2000. All investments mature in three years or less, except for some investments that may mature in more than three years but whose weighted average maturity is three years or less.
2001 ---------- ASSETS Cash equivalents Fixed rate $ 620 Average interest rate 6.63% Short-term investments Fixed rate 43 Average interest rate 6.74% Variable rate 75 Average interest rate 6.92% Total investment securities 738 Average interest rate 6.67% LONG-TERM DEBT Fixed rate -- Average interest rate -- Floating rate Tranche A (LIBOR + 250 bp) 2 8.22% Tranche B (LIBOR + 300 bp) 3 8.72% Swap (3 month LIBOR) 245 5.43% FAIR VALUE 2002 2003 2004 2005 THEREAFTER TOTAL DECEMBER 29, 2000 ---------- ---------- ---------- ---------- ------------ ---------- ------------------ (IN MILLIONS) ASSETS Cash equivalents Fixed rate $ -- $ -- $ -- $ -- $ -- $ 620 $ 618 Average interest rate -- -- -- -- -- 6.63% -- Short-term investments Fixed rate -- -- -- -- -- 43 43 Average interest rate -- -- -- -- -- 6.74% Variable rate -- -- -- -- -- 75 75 Average interest rate -- -- -- -- -- 6.92% Total investment securities -- -- -- -- -- 738 736 Average interest rate -- -- -- -- -- 6.67% LONG-TERM DEBT Fixed rate -- -- -- -- 210 210 201 Average interest rate -- -- -- -- 12.50% 12.50% Floating rate Tranche A (LIBOR + 250 bp) 18 35 45 55 45 200 200 8.22% 8.22% 8.22% 8.22% 8.22% 8.22% Tranche B (LIBOR + 300 bp) 5 5 5 5 477 500 500 8.72% 8.72% 8.72% 8.72% 8.72% 8.72% Swap (3 month LIBOR) 245 245 5.43% 5.43%
FOREIGN CURRENCY RISK. We transact business in various foreign countries. Our primary foreign currency cash flows are in emerging market countries in Asia and in European countries. During fiscal year 1998, we employed a foreign currency hedging program using foreign currency forward exchange contracts and purchased currency options to hedge local currency payment obligations for payroll, inventory, other operating expenditures and fixed asset purchases in Malaysia, Northern Ireland, Singapore and Thailand. Under this program, increases or decreases in our local currency operating expenses and other cash outflows, as measured in U.S. dollars, partially offset realized gains and losses on the hedging instruments. The goal of this hedging program was to economically guarantee or lock in the exchange rates on our foreign currency cash outflows rather than to eliminate the possibility of short-term earnings volatility. Because of uncertainty in the southeast Asian foreign currency markets, beginning in the second quarter of fiscal year 1998, we suspended purchasing foreign currency forward exchange and option contracts for the Malaysian ringgit, Singapore dollar and Thai baht. At July 3, 1998, we had effectively closed out all of our foreign currency forward exchange contracts by purchasing offsetting contracts. We do not use foreign currency forward exchange contracts or purchased currency options for trading purposes. Under our former foreign currency hedging program, gains and losses related to qualified hedges of firm commitments and anticipated transactions were deferred and recognized in income or as adjustments of carrying amounts when the hedged transaction occurred. All other foreign currency hedge contracts were marked-to-market and unrealized gains and losses were included in current period net income. Because not all economic hedges qualified as accounting hedges, certain 71 unrealized gains and losses were recognized in income in advance of the actual foreign currency cash flows. This mismatch of accounting gains and losses and foreign currency cash flows was especially pronounced during the first and second quarters of fiscal year 1998 as a result of the declines in value of the Malaysian ringgit and Thai baht, relative to the U.S. dollar. This mismatch resulted in a pre-tax charge of $76 million for fiscal year 1998. 72 SEAGATE TECHNOLOGY HOLDINGS For the purposes of this section only, "we," "us" and "our" refer to Seagate Technology Holdings (formerly HDD, an operating business of Seagate Technology) and its subsidiaries, including Seagate Technology SAN Holdings, which is discussed in the next section of this management's discussion and analysis. Seagate Technology Holdings is a subsidiary of New SAC and a guarantor of the notes. SELECTED HISTORICAL CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL INFORMATION OF SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR, HDD, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY We list in the table below selected historical condensed consolidated and condensed combined financial information of the hard disc drive business, which we refer to as HDD, an operating business of Seagate Technology, as of the end of and for each of the last five fiscal years through June 30, 2000, for the six months ended December 31, 1999 and for the period from July 1, 2000 to November 22, 2000 and for Seagate Technology Holdings as of the end of and for the period from November 23, 2000 to December 29, 2000. The operations of Seagate Technology Holdings are substantially identical to the operations of HDD before the transactions and HDD is considered to be our predecessor. We have derived the historical financial information of HDD below as of the end of and for the fiscal years 1996 and 1997 from unaudited financial statements and related notes, which are not included in this prospectus. We have derived the historical financial information of HDD below as of the end of and for fiscal years 1998, 1999, and 2000 from the audited financial statements and the related notes of HDD included elsewhere in this prospectus. We have derived the historical financial information for the six months ended December 31, 1999, for the period from July 1, 2000 to November 22, 2000 and as of the end of and for the period from November 23, 2000 to December 29, 2000 from the unaudited interim consolidated condensed financial statements of Seagate Technology Holdings and its predecessor, HDD, included elsewhere in this prospectus, which in our opinion include all adjustments, consisting of only normal recurring adjustments, which we consider necessary for the fair presentation of our financial position and results of operations for these periods. Operating results for the periods from July 1, 2000 to November 22, 2000 and from November 23, 2000 to December 29, 2000 are not necessarily indicative of results that may be expected for the entire year or any future period. You should read the selected historical consolidated financial information below in conjunction with the discussion below and the financial statements and related notes of Seagate Technology Holdings and its predecessor, HDD, included elsewhere in this prospectus.
HDD ------------------------------------------------------ FISCAL YEARS(A) ------------------------------------------------------ JUNE 28, JUNE 27, JULY 3, JULY 2, JUNE 30, 1996 1997 1998 1999 2000 ---------- ---------- --------- ----------- ---------- (IN MILLIONS) STATEMENT OF OPERATIONS DATA: Revenue ................................. $ 8,158 $ 8,468 $6,245 $ 6,152 $ 6,058 Net income (loss) ....................... 377 905 (531) 214 366 BALANCE SHEET DATA: Total assets ............................ 5,036 6,572 5,438 5,122 5,818 Long-term debt (including current portion) ............ 801 703 705 704 704 Ratio of earnings to fixed charges ...... 7.7x 26.9x -- 6.5x 13.4x Deficiency of earnings to fixed charges ................................ $ 708 SEAGATE TECHNOLOGY HDD HOLDINGS ------------------------------- --------------------- SIX MONTHS PERIOD FROM PERIOD FROM ENDED JULY 1, 2000 TO NOVEMBER 23, 2000 TO DECEMBER 31, NOVEMBER 22, DECEMBER 29, 1999 2000 2000 ------------- ----------------- --------------------- (IN MILLIONS) STATEMENT OF OPERATIONS DATA: Revenue ................................. $3,117 $2,305 $ 969 Net income (loss) ....................... (52) (601) (142) BALANCE SHEET DATA: Total assets ............................ 3,347 Long-term debt (including current portion) ............ 903 Ratio of earnings to fixed charges ...... -- -- -- Deficiency of earnings to fixed charges ................................ $ 52 $ 601 $ 126
- ---------- (a) HDD has prepared financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30 of that year. Accordingly, fiscal year 1996 ended on June 28, 1996, fiscal year 1997 ended on June 27, 1997, fiscal year 1998 ended on July 3, 1998, fiscal year 1999 ended on July 2, 1999, and fiscal year 2000 ended on June 30, 2000. Fiscal years 1996, 1997, 1999 and 2000 were 52 weeks, and fiscal year 1998 was 53 weeks 73 The following includes a discussion of unusual activities that occurred in the periods presented above for comparability purposes: FISCAL YEAR 1998 Fiscal year 1998 includes a $347 million restructuring charge, a $216 million write-off of in-process research and development costs, a $76 million charge for mark-to-market adjustments on certain of HDD's foreign currency forward exchange contracts and a $22 million reduction in the charge recorded in 1997 as a result of the adverse judgment in the Amstrad PLC litigation. FISCAL YEAR 1999 Fiscal year 1999 includes a $78 million charge arising out of an amendment to the purchase agreement for the August 1997 acquisition of Quinta and a $59 million net restructuring charge. FISCAL YEAR 2000 Fiscal year 2000 includes a $206 million net restructuring charge, a $105 million write-off of in-process research and development incurred in connection with the acquisition of XIOtech, a $64 million charge for various legal settlements, a $43 million compensation charge for the reorganization of Seagate Software Holdings, and a $28 million charge related to employee separations. BASIS OF PRESENTATION Because we acquired all the operating assets of the hard disc drive business, an operating business of Seagate Technology that we refer to as HDD, as of November 22, 2000, HDD is our predecessor. Accordingly, references to "we", "our" or "us" for events, transactions or regarding financial information during these periods are references to our predecessor, HDD. For comparative purposes, the financial information presented combines the operations of HDD from July 1, 2000 to November 22, 2000 with our operations as Seagate Technology Holdings from November 23, 2000 to December 29, 2000. Although we were incorporated on August 10, 2000, prior to November 23, 2000 our operations were not significant. Financial information for the fiscal years ended 1998, 1999 and 2000 and for the six months ended December 31, 1999 is the historical financial information of HDD. ALLOCATION OF PURCHASE PRICE TO US PURSUANT TO THE APPLICATION OF PUSH DOWN ACCOUNTING The transactions described in this prospectus constituted a purchase business transaction of Seagate Technology. Under purchase accounting rules, the net purchase price under this transaction has been allocated to the assets and liabilities of Seagate Technology and its subsidiaries, including us, based on their estimated fair values at the date of the transaction. However, the estimated fair values of identifiable tangible and intangible assets and liabilities of Seagate Technology and its subsidiaries at the date of the transactions were greater than the amount paid, resulting in negative goodwill. The negative goodwill has been allocated to the long-lived tangible and intangible assets, including our assets, on the basis of relative fair values. The fair values of tangible and intangible assets, including in-process research and development, have been determined based upon independent appraisals. The accounting for the purchase transaction has been "pushed down" to our financial statements. Our December 29, 2000 condensed consolidated financial statements reflect the new basis in our assets and liabilities at that date in accordance with the pushed down purchase accounting adjustments, followed by the results of operations and financial position for the period from November 23, 2000 to December 29, 2000. As a result of the transactions and the push down accounting, our results of operations following the transactions, particularly the depreciation and amortization charges, are not necessarily comparable to our results of operations prior to the transactions. 74 The actual allocation of the amounts may differ from those reflected below after finalization of the purchase price allocation and post closing transactions. The following describes the impact of push down accounting on our results: Amortization and depreciation -- As a result of purchase price accounting and the allocation of negative goodwill to the fair value of our long-lived tangible assets, our capital assets were reduced by approximately $800 million as compared with the historical balances prior to the transaction. Consequently, our ongoing depreciation expense will be lower than our historical expense prior to the transactions. The combined results for the six months ended December 29, 2000 benefitted by one month of reduced depreciation and is approximately $15 million less than what it would have been had the push down adjustments not been made. In addition, we recorded additional combined amortization expense of approximately $16 million during the six months ended December 29, 2000 resulting from the recording of incremental fair value of intangibles in the push down adjustments. In-process research and development -- We wrote off in-process research and development of $52 million as an expense during the period from November 23, 2000 through December 29, 2000. RESULTS OF OPERATIONS We list in the table below the consolidated statements of operations data as a percentage of revenue for HDD for fiscal years 1998, 1999 and 2000 and the six months ended December 31, 1999 and the combined consolidated statements of operations data for Seagate Technology Holdings and HDD as a percentage of revenue for the six months ended December 29, 2000. As our operations as Seagate Technology Holdings are substantially identical to those of HDD prior to the transactions, we have combined the results of HDD from July 1, 2000 to November 22, 2000 and our results as Seagate Technology Holdings from November 23, 2000 to December 29, 2000 in the table and the discussions below for easier comparison with the results of HDD for the six months ended December 31, 1999. We therefore refer to the results of operations for the six months ended December 29, 2000 as "combined" in the discussion below.
COMBINED RESULTS OF SEAGATE TECHNOLOGY HDD HOLDINGS AND HDD -------------------------------------------------- ------------------- FISCAL YEAR ------------------------------- SIX MONTHS ENDED SIX MONTHS ENDED 1998 1999 2000 DECEMBER 31, 1999 DECEMBER 29, 2000 ----------- -------- ---------- ------------------ ------------------- Revenue .............................................. 100% 100% 100% 100% 100% Cost of Sales ........................................ 88 80 80 81 89 ---- ---- ----- ---- ---- Gross Margin ......................................... 12 20 20 19 11 Product development .................................. 9 10 11 11 14 Marketing and administrative ......................... 5 5 7 6 16 Amortization of goodwill and other intangibles ....... -- -- -- -- 1 In-process research and development .................. 3 -- 2 -- -- Restructuring ........................................ 6 1 3 4 1 Unusual items ........................................ -- 1 2 3 2 ---- ---- ----- ---- ---- Income (loss) from operations ........................ (11) 3 (5) (5) (23) Other income (expense), net .......................... -- 1 15 2 -- ---- ---- ----- ---- ---- Income (loss) before income taxes .................... (11) 4 10 (3) (23) Benefit (provision) for income taxes ................. 3 1 (4) 1 -- ---- ---- ----- ---- ---- Net income (loss) .................................... (8)% 3% 6% (2)% (23)% ==== ==== ===== ==== ====
75 SIX MONTHS ENDED DECEMBER 29, 2000 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 1999 REVENUE. Combined revenue for the six months ended December 29, 2000 of Seagate Technology Holdings and its predecessor was $3.271 billion, an increase of 5% as compared with $3.117 billion for the six months ended December 31, 1999. The increase in combined revenue was primarily due to $900 million related to higher unit sales volume offset by $800 million related to price erosion. We expect that price erosion in the data storage industry will continue for the foreseeable future. Industry competition and continuing price erosion could adversely affect our results of operations in any given quarter and such adverse effects often cannot be anticipated until late in any given quarter. Furthermore, we believe that our results of operations could be adversely affected by the declining demand for information technology products in both the personal storage and enterprise sectors of the market, which our principal customers have addressed in recent public statements. Based on these statements we expect that short-term demand for rigid disc drive products will be reduced. GROSS MARGINS. Combined gross margin as a percentage of revenue for the six months ended December 29, 2000 was 11%, as compared with gross margins as a percentage of revenues of 19% for the six months ended December 31, 1999. Combined gross margin was impacted negatively in the six months ended December 29, 2000 by charges related to the transactions. These charges were primarily $131 million for the sale of inventories written-up to fair value pursuant to purchase accounting rules and a compensation charge of $281 million related to the acceleration of stock options. These two charges reduced the combined gross margin as a percentage of combined revenue by 13% for the six months ended December 29, 2000. Excluding those items related to the closing of the transactions, our combined gross margin as a percentage of revenue for the six months ended December 29, 2000 was 24%, as compared with 19% for the six months ended December 31, 1999. The increase in combined gross margin as a percentage of revenue from all comparable periods was primarily due to ongoing cost savings as a result of our restructuring activities and program to implement operational efficiencies. These efficiencies include implementation of advanced manufacturing processes resulting in lower average unit costs per disc drive produced. PRODUCT DEVELOPMENT EXPENSES. Combined product development expenses for the six months ended December 29, 2000 were $476 million, an increase of 45% when compared with the $328 million for the six months ended December 31, 1999. Excluding those items related to the closing of the transactions, our product development expenses as a percentage of revenue were for the six months ended December 29, 2000 was 15%, as compared with 11% for the six months ended December 31, 1999. Including those items related to the closing of the transactions, the increase in combined product development expenses for the six months ended December 29, 2000 as compared to the six months ended December 31, 1999 was primarily due to $113 million in compensation expense related to the acceleration of stock options, $16 million in salaries and related costs, $7 million in occupancy costs, $6 million in depreciation expense, $2 million in information technology expense and $2 million in accruals for profit sharing and management bonuses. The acceleration of stock options was in connection with the closing of the transactions. MARKETING AND ADMINISTRATIVE EXPENSES. Combined marketing and administrative expenses for the six months ended December 29, 2000 were $528 million, an increase of 182% when compared with $187 million for the six months ended December 31, 1999. Excluding those items related to the closing of the transactions, our marketing and administrative expenses represented 7% of combined revenue for the six months ended December 29, 2000 compared with 6% for the six months ended December 31, 1999. Including those items related to the closing of the transactions, the increase in combined marketing and administrative expenses from the six months ended December 31, 1999 was primarily due to increases of $191 million in compensation expense related to the acceleration of stock options, $124 million in transaction related costs, $39 million in salaries and related costs, $21 million in outside services, $7 million in equipment costs, $4 million in legal expenses, $4 million in information technology expenses and $1 million in accruals for profit sharing 76 and management bonuses. These increases were partially offset by decreases of $26 million in depreciation expense, $14 million in the provision for bad debts and $13 million in occupancy costs. The $191 million in compensation expense and the $124 million in transaction related costs were in connection with the closing of the transactions. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill and other intangibles for the six months ended December 29, 2000 was $25 million, an increase of $16 million when compared with the six months ended December 31, 1999. The increase in amortization was primarily due to additional amortization related to goodwill and other intangibles arising from the acquisition of XIOtech in January 2000. RESTRUCTURING CHARGES. Fiscal year 2001 restructuring. As a result of the transactions, we assumed all restructuring liabilities previously recorded by HDD, including $41 million related to restructuring activities announced in fiscal 2000 and $3 million related to restructuring activities announced in fiscal 2001. During the period from July 1, 2000 to November 22, 2000, HDD recorded restructuring charges totaling $20 million. Of the $20 million, $11 million was a result of a restructuring plan established to continue the alignment of HDD's global workforce and manufacturing capacity with existing and anticipated future market requirements, specifically in its recording head operations in Thailand. The remaining $9 million consisted of a $3 million employee termination benefit adjustment to original estimate related to the fiscal 2000 restructuring plan and $6 million in additional restructuring charges for adjustments to original estimates to the fiscal 1998 restructuring plan. The fiscal 2001 restructuring plan includes workforce reductions, capacity reductions including closure of facilities or portions of facilities, write-off of excess equipment and consolidation of operations. In connection with the fiscal 2001 restructuring plan, we plan to reduce our workforce by approximately 2,000 employees, primarily in manufacturing. Approximately 100 of the 2,000 employees had been terminated as of December 29, 2000. As a result of employee terminations and the write-off of equipment and facilities in connection with the fiscal 2001 restructuring plan, we estimate that after completion of these restructuring activities, annual salary and depreciation expense will be reduced by approximately $7 million and $2 million, respectively. However, the reduction in annual salary expense will be substantially offset by increases of headcount in certain other recording head operations facilities. We expect the fiscal 2001 restructuring plan will be substantially complete by September 30, 2001. We may implement additional actions pursuant to the fiscal 2001 restructuring plan, particularly, in light of current economic conditions, and, if such additional actions are implemented, we anticipate that additional charges would be taken related to these actions. In March 2001, we announced $54 million of additional restructuring activities at our Perai and Ipoh, Malaysia disc drive plants and our Oklahoma City customer service facility. Total restructuring charges included additional severance of $23 million, facilities costs of $17 million, equipment costs of $12 million and other costs of $2 million. We expect these restructuring activities to be complete by the first half of fiscal 2002. We may implement additional actions pursuant to our restructuring plans, and, if such additional actions are implemented, we anticipate that additional charges would be taken related to these actions. Fiscal year 2000 restructuring. In connection with the fiscal 2000 restructuring plan, an adjustment of $3 million was recorded in the quarter ended September 29, 2000 as a result of an increase in the estimated number of employees to be terminated. We now plan to reduce our workforce by approximately 24,000 employees primarily in manufacturing. Approximately 22,000 of the 24,000 employees had been terminated as of December 29, 2000. As a result of employee terminations and the write-off of equipment and facilities in connection with the fiscal 2000 restructuring plan, we estimate that after completion of these restructuring activities, annual salary and depreciation expense will be reduced by approximately $151 million and $40 million, respectively. The fiscal 2000 restructuring plan was substantially complete as of December 29, 2000. In connection with the restructuring plan implemented in fiscal 1998, HDD revised its original lease termination cost estimates on certain of its facilities and recorded an additional $6 million in restructuring charges. 77 The restructuring activities undertaken in the six months ended December 29, 2000 are a continuation of a broader plan to further consolidate worldwide operations. These activities are designed to further integrate our manufacturing processes and should give rise to significant reductions in worldwide facilities and headcount. UNUSUAL ITEMS. The $50 million charge to unusual items during the six months ended December 29, 2000 represents the write-off of in-process research and development acquired in connection with the transactions NET OTHER INCOME (EXPENSE). Combined net other income decreased by $86 million to combined net other expense of $9 million for the six months ended December 29, 2000, when compared with net other income of $77 million for the six months ended December 31, 1999. The decrease in combined net other income was primarily due to gains on sales of certain investments in equity securities, previously held by HDD, of $62 million in the six months ended December 31, 1999 and net losses of $16 million on certain equity investments, previously held by HDD, in the six months ended December 29, 2000. INCOME TAXES. Seagate Technology Holdings. We recorded a $20 million provision for income taxes for the period November 23, 2000 to December 29, 2000. The $20 million provision for income taxes differs from the benefit from income taxes that would be derived by applying the federal statutory rate to the loss before income taxes primarily due to the net effect of nondeductible charges related to the acquisition of the operating assets of Seagate Technology in the recording of a valuation allowance for deferred tax assets and the income generated from our manufacturing plants located in Singapore, Thailand, China and Malaysia that operate under tax holidays and, accordingly, are not subject to tax. As a result of the transactions and the ensuing corporate structure, we are now a foreign holding company with various foreign and U.S. subsidiaries. Certain of our U.S. subsidiaries are expected to incur domestic operating losses in fiscal 2001 and they will no longer file their federal income tax returns on a consolidated basis. We do not expect to realize a tax benefit for these domestic operating losses in fiscal 2001. We also expect that a substantial portion of our anticipated income from operations for fiscal 2001 will be generated by our Far East manufacturing plants located in Singapore, Thailand, China and Malaysia that currently operate under tax holidays. Excluding items relating to the closing of the transactions, we anticipate that our projected pro forma effective tax rate on income from operations for the period beginning November 23, 2000 through June 29, 2001 will approximate 20%. In connection with the purchase of the operating assets of Seagate Technology, we recorded a $314 million valuation allowance for deferred tax assets. The $314 million of deferred tax assets subject to the valuation allowance arose primarily as a result of the excess of tax basis over the fair values of acquired property, plant and equipment, and liabilities assumed for which we expect to receive tax deductions in our federal and state returns in future periods. We also recorded $36 million of deferred tax liabilities as a result of the excess of the fair market value of inventory, long-term investments and acquired intangible assets over their related tax bases. Our realization of the tax benefits for the federal and state deferred tax assets subject to the valuation allowance will depend primarily on our ability to generate sufficient taxable income in the United States in future periods, the timing and amount of which are uncertain. We anticipate that the tax benefits of the deferred tax assets when realized, will first result in an increased adjustment to the amount of unamortized negative goodwill that has been allocated on a pro rata basis to the long-lived assets. Any excess tax benefit would then be realized as a reduction of future income tax expense. HDD. HDD recorded a benefit from income taxes of $206 million for the period from July 1, 2000 to November 22, 2000. The recorded benefit from income taxes in each period differs from the benefit from income taxes that would be derived by applying the federal statutory rate to the loss before income taxes primarily due to certain losses recorded in connection with the sale by HDD of the operating assets located in the Far East that were not deductible for U.S. tax purposes. HDD recorded a benefit for income taxes of $22 million for the six months ended December 31, 1999. The effective tax rate used to record the benefit for income taxes differed from the U.S. statutory rate primarily due to the nondeductible charges associated with the October 1999 acquisition of the minority interest in Crystal Decisions and other acquisition related items. 78 FISCAL YEAR ENDED JUNE 30, 2000 COMPARED TO FISCAL YEAR ENDED JULY 2, 1999 REVENUE. Revenue in fiscal year 2000 was $6.058 billion, 2% lower than revenue in fiscal year 1999 of $6.152 billion. The decrease in revenue from the prior year was due primarily to a continuing decline in the average unit sales prices of our products as a result of intensely competitive market conditions and a shift in mix away from our higher priced products. The decrease in average unit sales price and effect of mix on revenue was partially offset by a higher level of unit shipments, an increase of 28% as compared to 1999. HDD overall average unit sales prices on disc drive products was $160, $148, $140 and $140 for the four quarters of fiscal 2000, respectively. Average price erosion from fiscal year 1999 to fiscal year 2000 was approximately 23%. We expect that price erosion in the data storage industry will continue for the foreseeable future. This competition and continuing price erosion may adversely affect our results of operations in any given quarter and such an adverse effect often cannot be anticipated until late in any given quarter. GROSS MARGIN. Gross margin was 20% of revenue in fiscal year 2000 and 20% of revenue in fiscal year 1999. In fiscal year 2000, gross margin as a percentage of revenue was negatively affected as a result of price erosion due to intense price competition, as discussed in the paragraph above. However, this was offset by cost savings as a result of our restructuring activities and our program to implement operational efficiencies. These efficiencies include implementation of advanced manufacturing processes resulting in lower average unit costs per disc drive produced. PRODUCT DEVELOPMENT EXPENSES. Product development expenses were $663 million in fiscal year 2000, an increase of 17% compared with fiscal year 1999 product development expenses of $566 million. This increase was primarily due to increases of $66 million in salaries and related costs, $33 million in depreciation and $2 million in occupancy costs. These expenses were partially offset by decreases of $4 million in equipment expense and $3 million in recruitment and relocation costs. MARKETING AND ADMINISTRATIVE EXPENSES. Marketing and administrative expenses were $409 million in fiscal year 2000 or an increase of $92 million or 29%, compared with fiscal year 1999 marketing and administrative expenses of $317 million. This increase was primarily due to increases of $36 million in salaries and related costs, $30 million in outside services and $23 million in the provision for bad debts. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill and other intangibles was $33 million for fiscal year 2000 as compared to $20 million for fiscal year 1999, representing an increase of $13 million or 65%. This increase was primarily due to additional amortization of $15 million related to goodwill and intangibles arising from the acquisition of XIOtech partially offset by $1.5 million in write-offs in fiscal year 1999 of certain intangible assets related to past acquisitions of companies whose value had become permanently impaired. On January 28, 2000, Seagate Technology acquired XIOtech for 8,031,804 shares of Seagate Technology common stock, issued from treasury shares and options, with a combined fair value of $359 million. This acquisition was accounted for as a purchase. The results of operations of XIOtech have been included in the combined financial statements from the date of acquisition under the push down accounting rules. The purchase price was allocated based on the estimated fair value of net tangible and intangible assets acquired as well as in-process research and development costs. As a result of the acquisition, we incurred a one-time write-off of in-process research and development of $105 million. Goodwill and other intangibles arising from the acquisition are being amortized on a straight-line basis over periods ranging from four months to seven years. Amortization of goodwill and other intangibles was $20 million in fiscal year 2000, including $4 million for developed technology included in cost of sales. XIOtech's revenue and expenses were immaterial to HDD's combined revenue and expenses. RESTRUCTURING CHARGES. In fiscal year 2000, we recorded restructuring charges of $216 million, net of $2 million of reversals of amounts recorded in the same period, $5 million of restructuring accruals recorded in fiscal 1999 and $3 million of restructuring accruals recorded in fiscal 1998, resulting in a net restructuring charge of $206 million. The $206 million restructuring charge was a 79 result of a restructuring plan established to align our global workforce and manufacturing capacity with existing and anticipated future market requirements and necessitated by our improved productivity and operating efficiencies. These actions include workforce reductions, capacity reductions including closure of facilities or portions of facilities, write-off of excess equipment and consolidation of operations in our recording media operations, disc drive assembly and test facilities, printed circuit board assembly manufacturing, recording head operations, software operations, customer service operations, sales and marketing activities and research and development activities. In connection with the fiscal 2000 restructuring plan, we plan to reduce our workforce by approximately 23,000 employees primarily in manufacturing. Approximately 18,300 of the 23,000 employees had been terminated as of June 30, 2000. As a result of employee terminations and the write-off of equipment and facilities in connection with the restructuring charges recorded during the year ended June 30, 2000 related to the fiscal 2000 restructuring plan, we estimate that after the completion of these restructuring activities, annual salary and depreciation expense will be reduced by approximately $151 million and $40 million, respectively. We anticipate that the implementation of the fiscal 2000 restructuring plan will be substantially complete by December 29, 2000. In connection with the restructuring plan implemented in fiscal 1999, HDD's planned workforce reduction had been completed as of March 31, 2000 and the other restructuring activities were substantially complete as of March 31, 2000. UNUSUAL ITEMS. The $107 million charge to unusual items in fiscal year 2000 consisted of a $43 million compensation charge related to HDD employees who held Seagate Software Holdings stock in connection with the reorganization of Seagate Software Holdings and a $64 million charge related to various legal settlements. NET OTHER INCOME. Net other income in fiscal year 2000 was $926 million, an increase of $862 million compared with $64 million for fiscal year 1999. The increase was primarily due to a gain on the sale of portions of our investment in SanDisk of $679 million in fiscal 2000 as well as gains on the exchange of certain investments in equity securities of $199 million in fiscal year 2000. INCOME TAXES. We recorded a provision for income taxes of $263 million for the fiscal year ended June 30, 2000 compared to a provision for income taxes of $61 million for the fiscal year ended July 2, 1999. The effective tax rate used to record the provision for income taxes for the fiscal year ended June 30, 2000 differed from the U.S. federal statutory rate primarily due to in-process research and development expenses that were not deductible for tax purposes, partially offset by the benefit related to research and development tax credits. The effective tax rate used to record the provision for income taxes for the fiscal year ended July 2, 1999 differed from the U.S. federal statutory rate primarily due to the tax benefit from permanently reinvested earnings in certain foreign subsidiaries, partially offset by in-process research and development expenses that were not deductible for tax purposes. We provided income taxes at the U.S. federal statutory rate of 35% on substantially all of our current year foreign earnings for the fiscal year ended June 30, 2000 compared to approximately 55% of such earnings for the fiscal year ended July 2, 1999. A substantial portion of our Asia Pacific manufacturing operations at plant locations in China, Singapore, Malaysia and Thailand operate under various tax holidays, which expire in whole or in part during fiscal years 2001 through 2010. The tax holidays had no impact on net income in the fiscal year ended June 30, 2000. The net impact of these tax holidays was to increase net income by approximately $34 million in fiscal year ended July 2, 1999. Cumulative undistributed earnings of our Asia Pacific subsidiaries for which no income taxes have been provided aggregated approximately $1.631 billion at June 30, 2000. These earnings are considered under the laws of relevant jurisdictions to be permanently invested in non-U.S. operations. Additional federal and state taxes of approximately $584 million would have to be provided if these earnings were repatriated to the United States in the fiscal year ended June 30, 2000. INCOME TAXES. We recorded a provision for income taxes of $263 million for the fiscal year ended June 30, 2000 compared to a provision for income taxes of $61 million for the fiscal year ended July 2, 1999. The effective tax rate used to record the provision for income taxes for the fiscal year ended June 30, 2000 differed from the U.S. federal statutory rate primarily due to in-process research and development expenses that were not deductible for tax purposes, partially offset by the benefit related to research and development tax credits. The effective tax rate used to record the provision for income taxes for the fiscal year ended July 2, 1999 differed from the U.S. federal statutory rate primarily due to the tax benefit from permanently reinvested earnings in certain foreign subsidiaries, partially offset by in-process research and development expenses that were no deductible for tax purposes. We provided income taxes at the U.S. federal statutory rate of 35% on substantially all of our current year foreign earnings for the fiscal year ended June 30, 2000 compared to approximately 55% of such earnings for the fiscal year ended July 2, 1999. A substantial portion of our Asia Pacific manufacturing operations at plant locations in China, Singapore, Malaysia and Thailand operate under various tax holidays, which expire in whole or in part during fiscal 2000 through 2010. The tax holidays had no impact on net income on the fiscal year ended June 30, 2000. The net impact of these tax holidays was to increase net income by approximately $34 million in the fiscal year ended July 2, 1999. Cumulative undistributed earnings of our Asia Pacific subsidiaries for which no income taxes have been provided aggregated approximately $1.631 billion at June 30, 2000. These earnings are considered under the laws of relevant jurisdictions to be permanently invested in non-U.S. operations. Additional federal and state taxes of approximately $584 million would have to be provided if these earnings were repatriated to the United States in the fiscal year ended June 30, 2000. 80 FISCAL YEAR ENDED JULY 2, 1999 COMPARED TO FISCAL YEAR ENDED JULY 3, 1998 REVENUE. Revenue in fiscal year 1999 was $6.152 billion, as compared to $6.245 billion for fiscal year 1998, representing a decrease of $93 million or 1%. A higher level of unit shipments, an increase of 9% as compared to fiscal 1998, combined with a shift in mix to higher priced products was offset by a continuing decline in the average unit sales prices of our products as a result of intensely competitive market conditions. Our overall average unit sales price on disc drive products was $194, $194, $196 and $177 for the four quarters of fiscal year 1999, respectively. Average price erosion from fiscal year 1998 to fiscal year 1999 was 9%. GROSS MARGIN. Gross margin as a percentage of revenue was 20% in fiscal year 1999, as compared with 12% in fiscal year 1998. The increase in gross margin as a percentage of revenue in fiscal year 1999 was primarily due to cost savings as a result of our restructuring activities and an intensive program of cost reduction resulting in lower average unit costs per disc produced. PRODUCT DEVELOPMENT EXPENSES. Product development expenses in fiscal year 1999 were $566 million, an increase of $11 million or 2%, as compared with product development expenses of $555 million in fiscal year 1998. This increase was primarily due to increases of $18 milion in salaries and related costs and $12 million in depreciation. These increases were partially offset by a $19 million accrual in fiscal year 1998 for payments to former shareholders of Quinta for achievement of certain product development milestones. MARKETING AND ADMINISTRATIVE EXPENSES. Marketing and administrative expenses were $317 million in fiscal year 1999, an increase of $9 million or 3%, compared with marketing and administrative expenses of $308 million in fiscal year 1998. This increase was primarily due to increases of $15 million in salaries and related costs, $8 million in legal settlement expenses, $6 million in profit sharing accruals and $5 million in depreciation. These expenses were partially offset by decreases of $17 million in occupancy costs and $8 million in advertising and promotion expenses. IN-PROCESS RESEARCH AND DEVELOPMENT. The $216 million charge for the write-off of in-process research and development in fiscal year 1998 was a result of the August 1997 acquisition of Quinta. RESTRUCTURING CHARGES. In fiscal year 1999, we recorded restructuring charges of $71 million and reversed $12 million of restructuring accruals recorded in fiscal year 1998, resulting in a net restructuring charge of $59 million. The $12 million reversal was a result of abandoning our plan to seek an agreement with an external vendor to supply parts currently manufactured at a facility in Thailand. The $71 million restructuring charge was a result of steps we are taking to further improve the efficiency of our operations. These actions included closure of our microchip manufacturing facility in Scotland; discontinuance of our recording head suspension business located in Malaysia and Minnesota; consolidation of global customer service operations by relocating such operations in Singapore and Scotland to Mexico; and closure of our recording media substrate facility in Mexico. In connection with this restructuring, our workforce was reduced by approximately 1,250 employees. Our implementation of the restructuring plan was substantially complete as of March 31, 2000. UNUSUAL ITEMS. The $75 million charge to unusual items in fiscal year 1999 was in connection with an amendment to the purchase agreement for the August 1997 acquisition of Quinta. The $22 million in income in unusual items in 1998 represents a $22 million reduction of the $153 million charge recorded in 1997 to settle a lawsuit against Seagate Technology by Amstrad PLC. NET OTHER INCOME (EXPENSE). Net other income was $64 million in fiscal year 1999 as compared to net other expense of $19 million in fiscal year 1998, an increase of $83 million. The increase in net other income was primarily due to $76 million of expenses related to mark-to-market adjustments in fiscal year 1998 on certain of our foreign currency forward exchange contracts for the Thai baht and the Malaysian ringgit. INCOME TAXES. We recorded a provision for income taxes of $61 million for the fiscal year ended July 2, 1999 compared to a benefit for income taxes of $189 million for the fiscal year ended 81 July 3, 1998. The effective tax rate used to record the provision for income taxes for the fiscal year ended July 2, 1999 differed from the U.S. federal statutory rate primarily due to the tax benefit from permanently reinvested earnings of certain foreign subsidiaries, partially offset by in-process research and development expenses that were not deductible for tax purposes. The effective tax rate used to record the benefit for income taxes for the fiscal year ended July 3, 1998 differed from the U.S. federal statutory rate primarily due to in-process research and development expenses that were not deductible for tax purposes. We provided income taxes at the U.S. federal statutory rate of 35% on approximately 55% of our current year foreign earnings for the fiscal year ended July 2, 1999 compared to substantially all of such earnings for the fiscal year ended July 3, 1998. A substantial portion of our Asia Pacific manufacturing operations at plant locations in China, Sigapore, Malaysia and Thailand operate under various tax holidays, which expire in whole or in part during fiscal years 2001 through 2010. The net impact of these tax holidays was to increase net income by approximately $34 million in the fiscal year ended July 2, 1999. The tax holidays had no impact on the net loss in the fiscal year ended July 3, 1998. OTHER We record unrealized gains and losses on the mark-to-market of our investments as a component of accumulated other comprehensive income. As of June 30, 2000 and July 2, 1999, total accumulated other comprehensive income (loss) was $86 million and $(7) million, respectively. During fiscal year 2000, several marketable equity securities held by us, including SanDisk Corporation, Gadzoox, Veeco, and LHSP, were included in this mark-to-market calculation resulting in a $95 million unrealized gain, net of taxes. No similar amounts were recorded in fiscal year 1999. In July 2000, we sold our remaining investment in SanDisk for net proceeds of approximately $105 million. In November 2000, the remaining investments were contributed to VERITAS in connection with the transactions and thus no future effects of changes in valuation will occur related to these investments. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK. Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and long-term debt obligations. We do not use derivative financial instruments in our investment portfolio. We place our investments with high credit quality issuers and, by policy, limit the amount of credit exposure to any one issuer. We are averse to principal loss and ensure the safety and preservation of our invested funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in only high credit quality securities and by positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer, guarantor or depository. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. We have both fixed-rate and floating-rate based long-term debt obligations. We primarily enter into debt obligations to support general corporate purposes, including capital expenditures and working capital needs. Also, we incurred debt to finance our purchase of HDD's operating assets. We use derivative financial instruments to hedge our floating-rate long-term debt obligations as required by the senior credit facility. The table below presents principal (or notional) amounts and related weighted average interest rates by year of maturity for our investment portfolio and debt obligations as of December 29, 2000. All investments mature, in three years or less, except for certain types of investments that may mature in more than three years but whose weighted average maturity is three years or less. 82
FAIR VALUE DECEMBER 29, 2001 2002 2003 2004 2005 THEREAFTER TOTAL 2000 ---------- ---------- ---------- ---------- ---------- ------------ ---------- ------------- (IN MILLIONS) ASSETS Cash equivalents Fixed rate ..................... $ 620 $ -- $ -- $ -- $ -- $ -- $ 620 $618 Average interest rate .......... 6.63% -- -- -- -- -- 6.63% Short-term investments Fixed rate ..................... 43 -- -- -- -- -- 43 43 Average interest rate .......... 6.74% -- -- -- -- -- 6.74% Variable rate ................... 75 -- -- -- -- -- 75 75 Average interest rate .......... 6.92% -- -- -- -- -- 6.92% Total investment securities ..... 738 -- -- -- -- -- 738 736 Average interest rate .......... 6.67% -- -- -- -- -- 6.67% LONG-TERM DEBT Fixed rate ...................... -- -- -- -- -- 210 210 201 Average interest rate .......... -- -- -- -- -- 12.50% 12.50% Floating rate Tranche A (LIBOR + 250 bp) ..... 2 18 35 45 55 45 200 200 8.22% 8.22% 8.22% 8.22% 8.22% 8.22% 8.22% Tranche B (LIBOR + 300 bp) ..... 3 5 5 5 5 477 500 500 8.72% 8.72% 8.72% 8.72% 8.72% 8.72% 8.72% Swap (3 month LIBOR) ........... 245 245 245 5.43% 5.43% 5.43%
FOREIGN CURRENCY RISK. We transact business in various foreign countries. Our primary foreign currency cash flows are in emerging market countries in Asia and in European countries. During fiscal year 1998, we employed a foreign currency hedging program using foreign currency forward exchange contracts and purchased currency options to hedge local currency payment obligations for payroll, inventory, other operating expenditures and fixed asset purchases in Malaysia, Northern Ireland, Singapore and Thailand. Under this program, increases or decreases in our local currency operating expenses and other cash outflows, as measured in U.S. dollars, partially offset realized gains and losses on the hedging instruments. The goal of this hedging program was to economically guarantee or lock in the exchange rates on our foreign currency cash outflows rather than to eliminate the possibility of short-term earnings volatility. Because of uncertainty in the southeast Asian foreign currency markets, beginning in the second quarter of fiscal year 1998, we suspended purchasing foreign currency forward exchange and option contracts for the Malaysian ringgit, Singapore dollar and Thai baht. At July 3, 1998, we had effectively closed out all of our foreign currency forward exchange contracts by purchasing offsetting contracts. We do not use foreign currency forward contracts or purchased currency options for trading purposes. Under our former foreign currency hedging program, gains and losses related to qualified hedges of firm commitments and anticipated transactions were deferred and recognized in income or as adjustments of carrying amounts when the hedged transaction occurred. All other foreign currency hedge contracts were marked to market and unrealized gains and losses were included in current period net income. Because not all economic hedges qualified as accounting hedges, certain unrealized gains and losses were recognized in income in advance of the actual foreign currency cash flows. This mismatch of accounting gains and losses and foreign currency cash flows was especially pronounced during the first and second quarters of fiscal year 1998 as a result of the declines in value of the Malaysian ringgit and Thai baht, relative to the U.S. dollar. This mismatch resulted in a pre-tax charge of $76 million for fiscal year 1998. 83 SEAGATE TECHNOLOGY SAN HOLDINGS For the purposes of this section only, "we," "us" and "our" refer to Seagate Technology SAN Holdings (the successor to XIOtech Corporation) and its subsidiaries. Seagate Technology SAN Holdings is an indirect subsidiary of New SAC, a direct subsidiary of Seagate Technology Holdings and a guarantor of the notes. SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF SEAGATE TECHNOLOGY SAN HOLDING AND ITS PREDECESSORS, SAN AND XIOTECH CORPORATION We list in the table below selected historical consolidated financial information of XIOtech Corporation (XIOtech), prior to its acquisition by Seagate Technology as of the end of and for the period from its inception (October 5, 1995) to December 31, 1995, as of the end of and for each of the four years in the period ended December 31, 1999, and as of the end of and for the six month period ended December 31, 1999 and for the period from January 1, 1999 to January 28, 2000. We also list in the table below selected historical consolidated financial information of XIOtech, subsequent to its acquisition by Seagate Technology (prior to the Transactions) as of the end of and for the period from January 29, 2000 to June 30, 2000 and for the period from July 1, 2000 to November 22, 2000 and for Seagate Technology SAN Holdings as of the end of and for the period from November 23, 2000 to December 29, 2000. We consider XIOtech, prior to its acquisition by Seagate Technology, to be the pre-predecessor, and we consider XIOtech, subsequent to its acquisition by Seagate Technology but before the transactions to be the predecessor. We have derived the historical financial information below as of the end of and for the period from October 5, 1995 (date of inception) to December 31, 1995 and for the fiscal year 1996 from audited financial statements and related notes which are not included in this prospectus. We have derived the historical financial information below as of the end of and for the fiscal years 1997, 1998, and 1999, and as of June 30, 2000 and for the periods from January 1, 2000 to January 28, 2000 and January 29, 2000 to June 30, 2000 from the audited financial statements and the related notes of XIOtech included elsewhere in this prospectus. We have derived the historical financial information as of the end of and for the six months ended December 31, 1999, and for the periods from July 1, 2000 to November 22, 2000 and as of the end of and for the period from November 23, 2000 to December 29, 2000 from the unaudited interim consolidated condensed financial statements of Seagate Technology SAN Holdings and its predecessors, included elsewhere in this prospectus, which in our opinion include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for the fair presentation of our financial position and results of operations for these periods. Operating results for the periods from July 1, 2000 to November 22, 2000 and from November 23, 2000 to December 29, 2000 are not necessarily indicative of results that may be expected for the entire year or any future period. You should read the selected historical consolidated financial information below in conjunction with the discussion below and the financial statements and related notes of Seagate Technology SAN Holdings and its predecessors, included elsewhere in this prospectus.
PRE-PREDECESSOR ----------------------------------------------------------------------------------------------- PERIOD FROM INCEPTION FISCAL YEAR ENDED DECEMBER 31, OCTOBER 5, 1995 - ---------------------------------------------------- JANUARY 1, 2000 - DECEMBER 31, 1995 1996 1997 1998 1999 JANUARY 28, 2000 ------------------- ----------- ----------- ----------- ---------- ------------------ (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenue .................. $ -- $ -- $ -- $ 1,542 $ 10,727 $ 430 Net loss ................. (66) (1,302) (3,100) (5,750) (5,217) (880) BALANCE SHEET DATA (AT END OF PERIOD): Total assets ............. 834 323 3,942 8,888 16,860 Long term obligations and redeemable preferred stock ......... -- -- 6,947 18,100 30,106
84 (Table continued)
PREDECESSOR PRE-PREDECESSOR PREDECESSOR SAN --------------------- ------------------- ---------------------- --------------------- SIX MONTHS JANUARY 29, 2000 - ENDED JULY 1, 2000 - NOVEMBER 23, 2000 - JUNE 30, 2000(A)(B) DECEMBER 31, 1999 NOVEMBER 22, 2000(A) DECEMBER 29, 2000(C) --------------------- ------------------- ---------------------- --------------------- (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenue .................. $ 12,739 $ 6,675 $ 20,588 $ 11,183 Net Loss ................. (126,895) (2,649) (32,613) (28,092) BALANCE SHEET DATA (AT END OF PERIOD): Total assets ............. 260,838 16,860 62,244 Long term obligations and redeemable preferred stock ......... -- 30,106 25,403
- ---------- (a) Prior to Seagate Technology's acquisition of XIOtech on January 28, 2000, XIOtech had reported financial results on a fiscal year ending on December 31 of that year. Beginning on January 28, 2000, XIOtech, as a result of the acquisition by Seagate Technology became a wholly owned subsidiary of Seagate Technology and changed its fiscal year to a 52 or 53 week year ending on the Friday closest to June 30 of that year. (b) Results include write-off of in-process research and development that represents a portion of the purchase price of XIOtech by Seagate Technology. The allocated amount was written off in the period the acquisition closed because we could not be assured that the technologies under development would achieve technological feasibility. We recorded charges related to the write-off of in-process research and development in the period from January 29, 2000 to June 30, 2000 of $104,844. (c) Results include write-off of in-process research and development that represents a portion of the purchase price of XIOtech by Seagate Technology SAN Holdings. The allocated amount was written off in the period the acquisition closed because we could not be assured that the technologies under development would achieve technological feasibility. We recorded charges related to the write-off of in-process research and development in the period from November 23, 2000 to December 29, 2000 of $25,027. OVERVIEW Seagate Technology SAN Holdings is wholly owned, on an outstanding shares basis, by Seagate Technology Holdings. Seagate Technology Holdings is itself a wholly owned subsidiary, on an outstanding shares basis, of New SAC. The operating results discussed below for the period from November 23, 2000 to December 29, 2000 represent the results of Seagate Technology SAN Holdings after its acquisition of XIOtech as a result of the transactions. The results of Seagate Technology SAN Holdings prior to November 23, 2000 were not material. Operating results presented below for the periods from January 28, 2000 to November 22, 2000 represent the results of XIOtech while it was a wholly owned subsidiary of Seagate Technology. XIOtech is considered the predecessor company during this period. Operating results for periods prior to January 28, 2000 represent the results of XIOtech as an independent privately held company prior to its acquisition by Seagate Technology. XIOtech is considered the pre-predecessor company prior to January 28, 2000. Prior to Seagate Technology's acquisition of XIOtech on January 28, 2000, XIOtech had reported its financial results on a calendar year basis ending on December 31 each year. Beginning on January 28, 2000, XIOtech, changed its fiscal year end to conform with Seagate Technology's fiscal year end of 52 or 53 weeks per year ending on the Friday closest to June 30. We began shipping product in the second half of calendar year 1998. Prior to that time, we were a development stage company. The overall growth in revenue and operating activities since the initial introduction of product relates to the acceptance of the initial storage area network product into the market place, the development and strengthening of the sales and distribution capabilities and a 85 broadening and success of the new product offering. A direct sales force services domestic distribution of our products while an increasing network of distributors provides sales coverage internationally. In connection with our growth, our employee base has grown from approximately 50 in 1998 to approximately 350 as of December 29, 2000. BUSINESS COMBINATIONS ACQUISITION BY SEAGATE TECHNOLOGY Prior to January 28, 2000, XIOtech operated as a privately held independent company. On January 28, 2000, XIOtech was acquired by Seagate Technology for 8,031,774 shares of Seagate Technology common stock issued from treasury shares and options with an aggregate total value of $359 million. This acquisition was accounted for as a purchase by Seagate Technology and, accordingly, the financial position, results of operations and cash flows of XIOtech for periods from January 28, 2000 through November 22, 2000 reflect a step-up in the basis of the assets and liabilities of XIOtech to reflect the purchase price paid by Seagate Technology. The purchase price was allocated to the assets and liabilities of XIOtech based on the estimated fair market value of net tangible and intangible assets acquired and in-process research and development costs. As a result of the acquisition by Seagate Technology, XIOtech recorded a one-time write-off of $105 million related to in-process research and development costs. The purchased intangible assets were amortized on a straight-line basis over their estimated useful lives ranging from four months to seven years. ACQUISITION BY SEAGATE TECHNOLOGY SAN HOLDINGS AND NEW SAC From January 28, 2000 until November 22, 2000, XIOtech operated as wholly owned subsidiary of Seagate Technology. On November 22, 2000, as a result of the stock purchase agreement, XIOtech was acquired by Seagate Technology SAN Holdings in a series of transactions involving the acquisition of all the operating assets and liabilities of Seagate Technology by New SAC. Seagate Technology SAN Holdings is a subsidiary of Seagate Technology Holdings. Seagate Technology Holdings itself is a subsidiary of New SAC. Seagate Technology SAN Holdings had no operations prior to its acquisition of XIOtech. The acquisition of the operating assets and liabilities of Seagate Technology by New SAC was accounted for as a purchase by New SAC. Accordingly, the financial position, results of operations and cash flows of Seagate Technology SAN Holdings for the period subsequent to November 22, 2000, reflect a new basis in accounting based on the purchase price paid by New SAC and the allocation of the purchase price to the fair values of all the assets and liabilities acquired, including those relating to the hard disc drive business the storage area networks business, the removable storage systems business, the software business, and the investment company business. However, the estimated fair values of identifiable tangible and intangible assets and liabilities acquired from Seagate Technology at the date of the transaction were greater than the amount paid, resulting in negative goodwill. The negative goodwill was allocated to long-lived assets on the basis of relative fair value and reduced the recorded amounts, including the amounts recorded for the long-lived assets of XIOtech acquired by Seagate Technology SAN Holdings, by 46 percent. The fair values of tangible and intangible assets, including in-process research and development, were determined based upon independent appraisals. As a result of the acquisition by New SAC, Seagate Technology SAN Holdings recorded a one-time write-off of $25 million related to in-process research and development costs. The purchased intangible assets are being amortized on a straight-line basis over their estimated useful lives ranging from one to five years. BASIS OF PRESENTATION As described above, prior to January 28, 2000, XIOtech operated as an independent privately held company, and for the period from January 29, 2000 to November 22, 2000, XIOtech was a wholly owned subsidiary of Seagate Technology. Accordingly, references to "we", "our", or "us" for 86 events, transactions or regarding financial information during these periods are references to our predecessor, XIOtech. The accounting basis in the assets and liabilities was adjusted on January 29, 2000 as a result of the acquisition of XIOtech by Seagate Technology, and adjusted again on November 22, 2000 as a result of the acquisition of XIOtech by Seagate Technology SAN Holdings. Accordingly, the historical operating results of Seagate Technology SAN Holdings and its predecessor, XIOtech, are not necessarily comparable because of the different accounting basis in assets and liabilities, particularly amounts relating to depreciation and amortization charges. RESULTS OF OPERATIONS We list in the table below our consolidated or combined statements of operations as a percentage of revenue for the six-months ended December 31, 1999, December 29, 2000, June 30, 1999 and June 30, 2000 and the years ended 1997, 1998 and 1999. For comparative purposes, the operating results for the six months ended June 30, 2000 represent the operating results of XIOtech for the period from January 1, 2000 to January 28, 2000 prior to its acquisition by Seagate Technology, combined with the operating results of XIOtech for the period from January 29, 2000 to June 30, 2000 after its acquisition by Seagate Technology. The operating results for the six months ended June 30, 1999 and December 31, 1999 and the fiscal years ended December 31, 1997, 1998, and 1999, represent the historical operating results of XIOtech as an independent privately held company prior to its acquisition by Seagate Technology. The operating results for the six months ended December 31, 2000 represent the operating results of XIOtech as a subsidiary of Seagate Technology for the period from July 1, 2000 to November 22, 2000 combined with the operating results of Seagate Technology SAN Holdings for the period from November 23, 2000 to December 29, 2000.
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS ENDED ENDED ENDED ENDED FISCAL YEAR JUNE 30 JUNE 29, DECEMBER 31, DECEMBER 29, ------------------------ ------------ ------------ -------------- ------------- 1998 1999 1999 2000 1999 2000 ----------- ---------- ------------ ------------ -------------- ------------- Revenue 100% 100% 100% 100% 100% 100% Cost of Sales 121 56 65 67 51 48 --- --- --- --- --- --- Gross margin (21) 44 35 33 49 52 Product development 132 20 24 13 17 13 Marketing and administrative 236 76 77 120 74 110 Amortization of goodwill and intangible assets -- -- -- 128 -- 43 In-process research and development -- -- -- 796 -- 79 --- --- --- --- --- --- (Loss) from operations (389) (52) (66) (1,024) (42) (193) ---- --- --- ------ --- ---- Interest Income 16 3 3 1 3 1 ---- --- --- ------ --- ---- Loss before income taxes (373) (49) (63) (1,023) (39) (192) Benefit for income taxes -- -- -- 53 -- 29 ---- --- --- ------ --- ---- Net Loss (373)% (49)% (63)% (970)% (39)% (163)% ==== === === ====== === ====
The 1997 percentages are not reflected above as there were no revenues in 1997. SIX MONTHS ENDED DECEMBER 29, 2000 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 1999 REVENUE. Our revenue is derived primarily from the sale of storage area network systems. Total revenue for the six months ended December 29, 2000 was $32 million, an increase of 376% compared to $7 million for the six months ended December 31, 1999. The increase in revenue is a result of higher unit shipments resulting from an expansion in our customer base and the growing acceptance of our products in the domestic and international markets we serve. The expansion of our customer base is a result of growth in our domestic sales force and the development of an international distribution network. Nevertheless, we believe these positive factors will be offset by current economic conditions. 87 GROSS MARGIN. Gross margin as a percentage of revenue was 52% for the six months ended December 29, 2000 compared to 49% for the six months ended December 31, 1999. This increase was primarily a result of improved operational cost efficiencies gained by higher unit shipments, offset by the sale of inventories on hand at November 22, 2000 that were written-up to estimated fair value as a result of purchase accounting. The write-up to our inventories as a result of purchase accounting approximated $2.4 million, of which approximately $2.1 million was sold in the period ended December 29, 2000. The remainder is expected to be sold in the quarter ended March 30, 2001. Gross margin for the six months ended December 29, 2000 was also negatively impacted by the amortization of intangibles in the amount of $3.6 million. These charges had the effect of reducing our gross margin by 18% in the six months ended December 29, 2000. PRODUCT DEVELOPMENT. Product development expenses for the six months ended December 29, 2000 was $4.0 million, an increase of 264% from $1.1 million for the six months ended December 31, 1999. These expenses represented 13% of revenue for the six months ended December 29, 2000 compared with 17% for the six months ended December 31, 1999. The increase in expenses from the same period in the prior year was primarily related to increased engineering headcount, facility costs and other allocable costs, primarily benefits and recruiting costs, as we pursued our growth strategy and emphasized product design and development, increased salaries and compensation for existing engineers, and increased prototyping expenses for the design and testing for new products. We expect that research and development costs will increase in absolute dollars in future periods as we develop new products, engage in other product development initiatives and increase the number of our product development personnel. MARKETING AND ADMINISTRATIVE. Marketing and administrative expenses for the six months ended December 29, 2000 were $34.9 million, an increase of 598% when compared to marketing and administrative expenses of $5.0 million for the six months ended December 31, 1999. These expenses represented 110% of revenue for the six months ended December 29, 2000, compared with 74% for the six months ended December 31, 1999. The increase in marketing and administrative expenses from the same period in the prior year was primarily due to hiring of additional personnel and a resulting increase in salaries and related facility and other allocable expenses to support our overall growth. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill and other intangibles was $13.8 million in the six months ended December 29, 2000. This amortization of goodwill and intangible assets is the result of the acquisition of XIOtech by Seagate Technology in January 2000 and the acquisition of XIOtech by Seagate Technology SAN Holdings in November 2000. As a result of the negative goodwill allocation we expect that the amortization of intangibles of Seagate Technology SAN Holdings will negatively impact gross margin by approximately $1.4 million annually through November 2004. There was no amortization of goodwill and intangibles for the six months ended December 31, 1999. IN-PROCESS RESEARCH AND DEVELOPMENT. We recorded a $25.0 million charge for the write-off of in-process research and development in the six months ended December 29, 2000 based on the results of an independent valuation performed as of the date that XIOtech was purchased by Seagate Technology SAN Holdings in November 2000. INTEREST INCOME. Interest income for the six months ended December 29, 2000 was $0.3 million, an increase of 50% when compared to $0.2 million for the six months ended December 31, 1999. This increase reflects higher average invested cash balances in the period ended December 29, 2000. INCOME TAXES. The federal tax allocation agreement XIOtech had entered into with Seagate Technology was terminated on November 22, 2000 and we will no longer file federal income tax returns on a consolidated basis with Seagate Technology or U.S. affiliates of New SAC. We will enter into a state tax allocation agreement with affiliates of New SAC, as applicable. Therefore, the U.S. affiliates of New SAC will not benefit from nor will they reimburse us pursuant to the tax allocation agreement for federal tax losses we sustain subsequent to consummation of the transactions. In prior 88 periods, we have received substantial cash payments for our tax losses utilized by Seagate Technology that we have used to reduce our obligation due to New SAC or its predecessor under the revolving loan agreement. As a result of the termination of the tax allocation agreement we may not be able to convert any future tax losses into cash. We recorded a benefit for income taxes of $9.0 million for the six months ended December 29, 2000 compared to no provision for income taxes for the six months ended December 31, 1999. The benefit for income taxes was recorded to recognize the benefit of federal tax losses utilized by Seagate Technology in its consolidated federal income tax returns for the period ended November 22, 2000, and state tax losses for combined state income tax filings for the six months ended December 29, 2000, pursuant to the tax allocation agreement. The effective tax rate used to record the benefit for income taxes for the period ended December 29, 2000 differed from the statutory rate primarily due to amortization of goodwill that was not deductible for tax purposes and the recording of a valuation allowance related to deferred tax assets that are more likely than not unrealizable subsequent to the SAC transactions. At December 29, 2000, our net deferred tax assets have been fully offset by a valuation allowance. The expected benefit for income taxes for the six months ended December 31, 1999 derived by applying the federal statutory rate to the net loss of $2.6 million was fully offset by a valuation allowance for deferred tax assets because we were not filing our tax returns on a consolidated or combined basis with Seagate Technology. SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999 REVENUE. Total revenue for the six months ended June 30, 2000 was $13.2 million, an increase of 222% compared to $4.1 million for the six months ended June 30, 1999. The increase in revenue is the result of higher unit shipments reflecting increased market presence, sales force growth and an expanded international distribution system. GROSS MARGIN. Gross margin as a percentage of revenue was 33% for the six months ended June 30, 2000 compared to 35% for the six months ended June 30, 1999. This increase was primarily due to a higher level of unit shipments as stated above combined with increased operational efficiencies offset by amortization of intangibles in the six months ended June 30, 2000 of $3.5 million. This amortization had the effect of reducing gross margin by 26.3% in the six months ended June 30, 2000. PRODUCT DEVELOPMENT. Product development expenses for the six months ended June 30, 2000 were $1.7 million, an increase of 70% from $1.0 million for the six months ended June 30, 1999. These expenses represented 13% of revenue for the six months ended June 30, 2000 compared with 24% for the six months ended June 30, 1999. The decrease as a percentage of revenue primarily relates to a more than threefold increase in revenue growth, a result of increased market presence, sales force growth and an expanded distribution system. MARKETING AND ADMINISTRATIVE. Marketing and administrative expenses for the six months ended June 30, 2000 were $15.8 million, an increase of 410% from $3.1 million for the six months ended June 30, 1999. These expenses represented 120% of revenue for the six months ended June 30, 2000 compared with 77% for the six months ended June 30, 1999. This increase consisted primarily of salaries and related compensation expenses. The increase reflects the growth of the sales force and distribution network in support of our sales growth objectives. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill and other intangibles was $16.9 million in the six months ended June 30, 2000. There was no amortization of goodwill and intangibles for the six months ended June 30, 1999. The amortization of goodwill and intangibles in 2000 is the result of the acquisition of XIOtech by Seagate Technology in January 2000. IN PROCESS RESEARCH AND DEVELOPMENT. We recorded a charge of $104.8 million for the write-off of in-process research and development in the six months ended June 30, 2000 based on the results of an independent valuation performed as of the date that XIOtech was purchased by Seagate Technology in January 2000. 89 INTEREST INCOME. Interest income for the six months ended June 30, 2000 was $0.2 million, an increase of $0.1 million when compared to the six months ended June 30, 1999. This increase in interest income reflects higher average invested cash balances as a result of additional cash invested in our business by Seagate in January 2000. INCOME TAXES. We recorded a benefit for income taxes of $7.0 million for the six months ended June 30, 2000 compared to no provision for income taxes for the six months ended June 30, 1999. The benefit for income taxes was recorded to recognize the benefit of tax losses utilized by Seagate Technology in its consolidated federal and certain combined and consolidated state income tax returns for the year ended June 30, 2000 pursuant to the tax allocation agreement. We became a member of Seagate Technology's consolidated or combined tax return group upon our acquisition by Seagate Technology on January 28, 2000. The effective tax rate used to record the benefit for income taxes for the period ended June 30, 2000 differed from the statutory rate due primarily to amortization of goodwill and the write-off of in-process research and development in the period that were not deductible for tax purposes. The expected benefit for income taxes for the six months ended June 30, 1999 derived by applying the federal statutory rate to the net loss of $2.6 million was fully offset by a valuation allowance for deferred tax assets because we were not filing our tax returns on a consolidated or combined basis with Seagate Technology. FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1998 REVENUE. Total revenue for the fiscal year ended December 31, 1999 was $10.7 million compared to $1.5 million for the fiscal year ended December 31, 1998, an increase of 613%. Our first product shipments occurred in the second half of 1998 and we emerged from the development stage. Revenue grew due to increased market penetration and presence, sales force growth and an expanded distribution system. GROSS MARGIN. Gross margin as a percentage of revenue was 44% for the fiscal year ended December 31, 1999 compared to a negative gross margin of 21% for the fiscal year ended December 31, 1998. The product first became available for sale in the second half of 1998. In 1999, the product was available for sale for the entire twelve months generating a more efficient utilization of resources resulting in an improved gross margin. PRODUCT DEVELOPMENT. Product development expenses for the fiscal year ended December 31, 1999 were $2.1 million, an increase of 5% from $2.0 million for the fiscal year ended December 31, 1998. These expenses represented 20% of revenue for the fiscal year ended December 31, 1999, compared to 132% for the prior year. The difference in the relationship to revenue was a result of higher revenue dollars in 1999 and less emphasis placed on product development and more on selling as we completed developing the first generation product during the first half of the year and focused on selling during the second half of the year. MARKETING AND ADMINISTRATIVE. Marketing and administrative expenses for the fiscal year ended December 31, 1999 were $8.1 million, an increase of 125% from $3.6 million for the fiscal year ended December 31, 1998. These expenses represented 76% of revenue for the year ended December 31, 1999 compared with 236% for the prior year. These expenses consist primarily of salaries and related compensation expenses and facilities costs. The increase reflects the growth of our support systems, sales force and distribution network in support of our sales growth objectives. INTEREST INCOME. Interest income was $300,000 for the fiscal year ended December 31, 1999, an increase of 20% from $250,000 for the fiscal year ended December 31, 1998. This income reflects earnings on the investment of cash received from venture capital financing. The increase reflects a larger average invested cash balance in 1999 versus 1998. INCOME TAXES. We did not record a provision for income taxes for the fiscal years ended December 31, 1999 and December 31, 1998 due to net operating losses. At December 31, 1999 and December 31, 1998, our net deferred tax assets were fully offset by a valuation allowance. 90 FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1997 REVENUE. Prior to 1998, our product was in its development stage and unavailable for sale. Total revenue for the fiscal year ended December 31, 1998 was $1.5 million. GROSS MARGIN. Gross margin of negative 21% for the fiscal year ended December 31, 1998 is reflective of the first sales for the company, for which manufacturing efficiencies had not been reached. PRODUCT DEVELOPMENT. Product development expenses for the fiscal year ended December 31, 1998 were $2.0 million, a decrease of $0.4 million, or 17%, over the fiscal year ended December 31, 1997. These expenses consist primarily of salaries and related compensation expenses and prototyping expenses related to the design and testing of our products. The decrease in product development expenses from December 31, 1997 to December 31, 1998 reflects initial product development and testing during our early years. MARKETING AND ADMINISTRATIVE. Marketing and administrative expenses for the fiscal year ended December 31, 1998 were $3.6 million, an increase of $2.6 million, or 260%, over the fiscal year ended December 31, 1997. These expenses consisted primarily of salaries and related compensation expenses and facilities costs. The increase reflects the growth of support systems and the initial start up of the sales force and distribution network. INTEREST INCOME. Interest income of $0.2 million for the fiscal year ended December 31, 1998 was relatively consistent with interest income for the fiscal year ended December 31, 1997. This income reflects earnings on the investment of cash received from venture capital financing. INCOME TAXES. We did not record a provision for income taxes for the fiscal years ended December 31, 1998 and December 31, 1997 due to net operating losses. At December 31, 1998 and December 31, 1997, our net deferred tax assets were fully offset by a valuation allowance. OTHER Storage Computer Corporation has filed suit alleging that one of our products infringes its patent. See "Legal Proceedings -- Securities Class Actions." 91 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS For the purposes of this section only, "we," "us" and "our" refer to Seagate Removable Storage Solutions Holdings (formerly RSS) and its subsidiaries. Seagate Removable Storage Solutions Holdings is a subsidiary of New SAC and a guarantor of the notes. SELECTED HISTORICAL CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL INFORMATION OF SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR, RSS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY We list in the table below selected historical condensed consolidated and condensed combined financial information of the removable storage solutions business, which we refer to as RSS, an operating business of Seagate Technology, as of the end of and for each of the last five fiscal years through June 30, 2000, for the six months ended December 31, 1999 and for the period from July 1, 2000 to November 22, 2000 and for Seagate Removable Storage Solutions Holdings as of the end of and for the period from November 23, 2000 to December 29, 2000. The operations of Seagate Removable Storage Solutions Holdings are substantially identical to the operations of RSS before the transactions, and RSS is considered to be our predecessor. We have derived the historical financial information of RSS below as of the end of and for the fiscal years 1996 and 1997 from unaudited financial statements and related notes, which are not included in this prospectus. We have derived the historical financial information of RSS below as of the end of and for fiscal years 1998, 1999 and 2000 from the audited financial statements and the related notes of RSS included elsewhere in this prospectus. We have derived the historical financial information for the six months ended December 31, 1999, for the period from July 1, 2000 to November 22, 2000 and as of the end of and for the period from November 23, 2000 to December 29, 2000 from the unaudited interim condensed consolidated financial statements of Seagate Removable Storage Solutions Holdings and its predecessor, RSS, included elsewhere in this prospectus, which in our opinion include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for the fair presentation of our financial position and results of operations for these periods. Operating results for the periods from July 1, 2000 to November 22, 2000 and from November 23, 2000 to December 29, 2000 are not necessarily indicative of results that may be expected for the entire year or any future period. You should read the selected historical consolidated financial information below in conjunction with the discussion below and the financial statements and related notes of Seagate Removable Storage Solutions Holdings and its predecessor, RSS, included elsewhere in this prospectus.
RSS -------------------------------------------------------------------------- FISCAL YEAR (A) ----------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, 1996 1997 1998 1999 2000 1999 ----------- ----------- ----------- ----------- ----------- -------------- (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenue ................. $ 405,954 $397,213 $286,086 $314,006 $262,814 $152,071 Income (loss) from operations ............. (10,211) 6,081 2,162 25,932 12,095 14,189 BALANCE SHEET DATA: Total assets ............ 140,332 96,720 83,578 78,334 65,638 67,374 Long term obligations (including current portion of long-term debt) ........ 1,319 2,205 1,596 2,267 3,505 3,114 SEAGATE REMOVABLE STORAGE SOLUTIONS RSS HOLDINGS -------------- ------------------ JULY 1, 2000 NOVEMBER 23, 2000 TO TO NOVEMBER 22, DECEMBER 29, 2000 2000 -------------- ------------------ STATEMENT OF OPERATIONS DATA: Revenue ................. $ 89,987 $ 28,371 Income (loss) from operations ............. (23,441) (5,873) BALANCE SHEET DATA: Total assets ............ 90,383 87,528 Long term obligations (including current portion of long-term debt) ........ 2,840 3,221
- ---------- (a) RSS has prepared financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30 of that year. Accordingly, fiscal year 1996 ended on June 28, 1996, fiscal year 1997 ended on June 27, 1997, fiscal year 1998 ended on July 3, 1998, fiscal year 1999 ended on July 2, 1999, and fiscal year 2000 ended on June 30, 2000. Fiscal years 1996, 1997, 1999 and 2000 were 52 weeks, and fiscal year 1998 was 53 weeks. 92 BASIS OF PRESENTATION Because we acquired all the operating assets of the removable storage solutions business, an operating business of Seagate Technology that we refer to as RSS, as of November 22, 2000, RSS is our predecessor. Accordingly, references to "we", "our" or "us" for events, transactions or regarding financial information during these periods are references to our predecessor, RSS. For comparative purposes, the financial information presented combines the operations of RSS from July 1, 2000 to November 22, 2000 with our operations as Seagate Technology Holdings from November 23, 2000 to December 29, 2000. Although we were incorporated on August 10, 2000, prior to November 23, 2000 our operations were not significant. Financial information for the fiscal years ended 1998, 1999 and 2000 and for the six months ended December 31, 1999 is the historical financial information of RSS. ALLOCATION OF PURCHASE PRICE TO US PURSUANT TO THE APPLICATION OF PUSH DOWN ACCOUNTING The transactions described in this prospectus constituted a purchase business transaction of Seagate Technology. Under purchase accounting rules, the net purchase price under this transaction has been allocated to the assets and liabilities of Seagate Technology and its subsidiaries, including us, based on their estimated fair values at the date of the transaction. However, the estimated fair values of identifiable tangible and intangible assets and liabilities of Seagate Technology and its subsidiaries at the date of the transactions were greater than the amount paid, resulting in negative goodwill. The negative goodwill has been allocated to the long-lived tangible and intangible assets, including our assets, on the basis of relative fair values. The fair values of tangible and intangible assets have been determined based upon independent appraisals. The accounting for the purchase transaction has been pushed down to our financial statements. Our December 29, 2000 condensed consolidated financial statements reflect the new basis in our assets and liabilities at that date in accordance with the pushed down purchase accounting adjustments, followed by the results of operations and financial position for the period from November 23, 2000 to December 29, 2000. As a result of the transactions and the push down accounting, our results of operations following the transactions, particularly the depreciation and amortization charges, are not necessarily comparable to the results of operations prior to the transactions. The actual allocation of the amounts may differ from those reflected below after finalization of the purchase price allocation and post closing transactions. The following describes the impact of push down accounting on our results: AMORTIZATION AND DEPRECIATION. As a result of the allocation of negative goodwill to our long-lived tangible assets, our capital assets were reduced by $8.1 million. Consequently, depreciation expense for the combined results in the six months ended December 29, 2000 is approximately $245,000 less than what it would have been had the push down adjustments not been made. In addition, we recorded additional combined amortization expense of approximately $400,000 during the six months ended December 29, 2000 resulting from the recording of incremental fair value of intangibles in the push down adjustments. RESULTS OF OPERATIONS We list in the table below the consolidated statements of operations data as a percentage of revenue for RSS for fiscal years 1998, 1999 and 2000 and the six months ended December 31, 1999 and the combined consolidated statements of operations data as a percentage of revenue for Seagate Removable Storage Solutions Holdings for the six months ended December 29, 2000. In the six months ended December 29, 2000, we operated as RSS, an operating business of Seagate Technology, and from November 23, 2000 to December 29, 2000, we operated as Seagate Removable Storage Solutions Holdings, a stand alone company. As our operations as Seagate Removable Storage Solutions Holdings are substantially identical to those of RSS prior to the 93 transactions, we have combined the results of RSS from July 1, 2000 to November 22, 2000 and the results of Seagate Removable Storage Solutions Holdings from November 23, 2000 to December 29, 2000 in the table and the discussions below for easier comparison with the results of RSS for the six months ended December 31, 1999. We therefore refer to the results of operations for the six months ended December 29, 2000 as "combined" in the discussion below.
COMBINED RESULTS OF SEAGATE REMOVABLE STORAGE SOLUTIONS RSS HOLDINGS AND RSS ------------------------------------------------- --------------------- SIX MONTHS SIX MONTHS FISCAL YEAR ENDED ENDED -------------------------------- DECEMBER 31, DECEMBER 29, 1998 1999 2000 1999 2000 -------- --------- --------- -------------- --------------------- Revenue ......................... 100% 100% 100% 100% 100% Cost of revenue ................. 80 72 74 71 89 --- --- --- --- --- Gross margin .................... 20 28 26 29 11 Product development ............. 9 11 14 12 21 Marketing and administrative..... 9 7 7 8 13 Amortization of goodwill & other intangibles .............. 1 1 -- -- -- Restructuring ................... -- -- -- -- 1 --- --- --- --- --- Income (loss) from operations ..................... 1 9 5 9 (24) Other income (expense), net...... -- -- 1 -- 1 --- --- --- --- --- Income (loss) before income taxes .......................... 1 9 5 9 (23) Benefit (provision) for income taxes .......................... 0 (3) (2) (3) 8 --- --- --- --- --- Net income (loss) ............... 1% 6% 4% 6% (15)% === === === === ===
SIX MONTHS ENDED DECEMBER 29, 2000 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 1999 REVENUE. Combined revenue decreased by 22% from $152.1 million for the six months ended December 31, 1999 to $118.4 million for the six months ended December 29, 2000. Tape drive shipments decreased by 34% from approximately 487,000 units for the six months ended December 31, 1999 to 319,000 units for the six months ended December 29, 2000. The reduction in tape drive shipments in the six months ended December 29, 2000 compared to the six months ended December 31, 1999 is attributed to reduced shipments of our Scorpion DAT tape drives to our major customers. This trend is combined with a movement away from the use of low end tape drive products for backing up data on desk top computers which resulted in a decrease in shipments of our Travan tape drives of approximately 70%. We believe our reduced shipments resulted from a migration by users in the desktop PC market to alternative technologies such as CD ROM or DVD type products. During the six months ended December 31, 1999, the sales force was reorganized so as to combine tape and disc personnel. The effects of this change were felt throughout the remainder of the fiscal year ended June 30, 2000 and into the period ended December 29, 2000 as tape products received less emphasis by the sales force, compounding the downturn in demand already noted above and further depressing revenue. A sales vice president and several key regional sales personnel have now been dedicated to us. Management believes that these actions will result in a more focused sales force and provide opportunities for improving our revenue. Nevertheless these positive factors may be offset by current economic conditions. GROSS MARGIN. Combined gross margin decreased by $31 million to $12.6 million for the six months ended December 29, 2000 from $43.6 million for the comparable period in 1999. Gross margin as a percent of revenue decreased from 29% for the six months ended December 31, 1999 to 11% for the six months ended December 29, 2000. The December 29, 2000 period includes 94 one-time charges of $2.7 million for compensation expense related to the acceleration of options to purchase Seagate Technology stock in connection with the transactions and $7.9 million revaluation of higher inventory values related to purchase accounting for the transactions. Excluding these one-time charges, the gross margin for the December 29, 2000 period would have been $23.5 million and 20%. The balance of the decrease in gross margin of approximately $20.1 million is primarily a result of the lower unit volumes, a higher proportion of revenue from lower margin OEM customers versus higher margin sales through the distribution channel, lower repair costs in the six months ended December 31, 1999, the level of fixed costs remaining in the business and significant startup expenses incurred during the six months ended December 29, 2000 associated with the launch of the linear tape open, or LTO product. PRODUCT DEVELOPMENT EXPENSES. Combined product development expenses increased by 40% to $25.0 million for the six months ended December 29, 2000 from $17.8 million for the comparable period in 1999. The increase was due to a one-time charge for compensation expense related to the acceleration of options to purchase Seagate Technology stock related to the transactions. Without the one-time charge there would have been a decrease of 8% from the year earlier period as spending on LTO product development dropped off as the product transitioned into manufacturing. MARKETING AND ADMINISTRATIVE EXPENSES. Combined marketing and administrative expenses increased by 34% to $15.8 million for the six months ended December 29, 2000 from $11.8 million for the six months ended December 31, 1999. The increase was primarily due to the one-time charge for compensation expense recorded for the acceleration of vesting of options to purchase Seagate Technology stock in connection with the transactions. Without the one-time charge, expenses for the six months ended December 29, 2000 would have been lower by 2% or $11.6 million. The decrease in other spending was from lower advertising expenses, and the reorganization of the sales force resulting in reduced overall headcount, in the six months ended December 29, 2000. RESTRUCTURING CHARGES. During the six months ended December 29, 2000, we recorded restructuring charges of $0.8 million compared to $0.4 million for the six months ended December 31, 1999. Restructuring charges recorded in the six months ended December 29, 2000 were primarily severance payments to employees terminated due to management actions taken to reduce headcount and lower expenses in the Costa Mesa tape drive operation and in the Santa Maria tape head operation. Restructuring charges recorded in the six months ended December 31, 1999 were primarily for severance payments related to the sales force reorganization discussed in marketing and administrative expenses above. NET OTHER INCOME. Net other income for the six months ended December 29, 2000 increased by $0.8 million compared with the six months ended December 31, 1999. The increase in net other income was primarily due to the net gain of $0.9 million in foreign exchange transaction gains. INCOME TAXES The federal tax allocation agreement between Seagate Removable Storage Solutions LLC and Seagate Technology was terminated on November 22, 2000, and we will no longer file federal income tax returns on a consolidated basis with Seagate Technology or U.S. affiliates of New SAC. We will enter into a state tax allocation agreement with affiliates of New SAC, as applicable. Therefore, the U.S. affiliates of New SAC will not benefit from nor will they reimburse us pursuant to the tax allocation agreement for federal tax losses we sustain subsequent to consummation of the transactions. In prior periods, we recorded substantial intercompany receivables for our tax losses utilized by Seagate Technology that have been netted against the Seagate Technology's business equity interest in Seagate Removable Storage Solutions LLC. As a result of the termination of the tax allocation agreement, we may not be able to convert any future tax losses into cash. We recorded a benefit for income taxes of $9.5 million for the six months ended December 29, 2000 compared to a provision for income taxes of $4.9 million for the six months ended December 31, 1999. The benefit for income taxes was recorded to recognize the benefit of federal 95 tax losses utilized by Seagate Technology in its consolidated federal income tax return for the period ended November 22, 2000, and state tax losses for combined state income tax filings for the six months ended December 29, 2000, pursuant to the tax allocation agreement. The effective tax rate used to record the benefit for income taxes for the six months ended December 29, 2000 differed from the U.S. federal statutory rate primarily due to the recording of a valuation allowance related to deferred tax assets that are more likely than not unrealizable subsequent to the transactions. At December 29, 2000, our net deferred tax assets were fully offset by a valuation allowance due to the termination of the federal tax allocation agreement with Seagate Technology and uncertainties regarding our ability to forecast future taxable income. The effective tax rate used to record the provision for income taxes for the six months ended December 31, 1999 differed from the U.S. federal statutory rate primarily due to the tax benefit from research and development tax credits. We provided income taxes at the U.S. federal statutory rate of 35% on approximately 72% of our current year foreign earnings for the six months ended December 29, 2000 compared to substantially all of such earnings for the six months ended December 31, 1999. A substantial portion of our Asia Pacific manufacturing operations at plant locations in Singapore and Malaysia operate under various tax holidays, which expire in whole or in part during fiscal years 2001 through 2010. The net impact of these tax holidays was to increase net income by approximately $0.3 million in the six months ended December 29, 2000. The tax holidays had no impact on net income in the six months ended December 31, 1999. FISCAL YEAR ENDED JUNE 30, 2000 COMPARED TO FISCAL YEAR ENDED JULY 2, 1999 REVENUE. Revenue in fiscal year 2000 was $262.8 million, 16% lower than revenue of $314.0 million in fiscal year 1999. The decrease in revenue from the prior year was due primarily to a reduction in tape drive shipments and overall lower average selling prices. Tape drive unit shipments in fiscal 2000 were approximately 816,000 compared to 912,000 in fiscal 1999. The reduction in tape drive shipments in fiscal 2000 is attributable to lower server shipments by our major customers resulting in a decrease in shipments of our Scorpion DAT tape drives. This trend, combined with a movement away from the use of low end tape drive products for backing up data on desk top computers, resulted in a decrease in shipments of our Travan tape drives. We believe that in the desk top PC market users began migrating to alternative technologies such as CD ROM or DVD type products. During the six months ended December 31, 1999 the sales force was reorganized so as to combine tape and disc personnel. The effects of this change were felt throughout the remainder of the fiscal year ended June 30, 2000, compounding the downturn in demand already noted above and further depressing results. Management believes that actions enacted since the fiscal year ended June 30, 2000 will result in a more effective and cost efficient sales operation. GROSS MARGIN. Gross margin as a percentage of revenue was 26% for fiscal year 2000 compared with 28% for fiscal year 1999. The decrease in gross margin as a percentage of revenue was primarily due to the lower overall average unit selling prices, combined with the lower volume shipments, leaving fixed costs to be spread over fewer units in fiscal year 2000 compared with fiscal year 1999. PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased 4% to $37.4 million for the fiscal year 2000 from $36.1 million for fiscal year 1999. The increase was primarily due to a need for more engineering resources and prototype materials required to complete the development work on the LTO project. Average engineering headcount increased approximately 15% from fiscal year 1999 to fiscal year 2000. In addition, approximately $0.6 million was paid to an outside engineering firm to develop firmware code to allow high-speed Fibre-Channel interface capability for the LTO product. MARKETING AND ADMINISTRATIVE EXPENSES. Marketing and Administrative expenses decreased by 19% to $18.6 million for fiscal year 2000 from $22.9 million for fiscal year 1999. The decrease was due to significant reductions in advertising and other discretionary spending over the period, in 96 an effort to offset the increase in required engineering spending on the LTO development and the decrease in revenue and gross profit. Approximately $4.1 million of the decrease was due to a one-time reversal of excess advertising expense accruals. During the second fiscal quarter of 2000, the RSS sales force was combined with the hard disc drive division sales force and a reduction in headcount of approximately 40 salespersons from the combined sales force resulted. A corresponding reduction in RSS selling expense was realized over the balance of fiscal year 2000 from this reorganization. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill and other intangibles decreased in fiscal year 2000 by $2.3 million, or 73%, compared with fiscal year 1999, primarily due to the write-off of $1 million of remaining intangibles related to the acquisition of Santa Marin Tape Heads business in 1995. RESTRUCTURING CHARGES. In fiscal year 2000, we recorded restructuring charges totaling $0.6 million, primarily for severance payments related to the reorganization of the sales force into a combined tape and disc sales force resulting in a net reduction of approximately 40 salespersons. NET OTHER INCOME. Net other income in fiscal year 2000 increased by approximately $1.6 million compared with fiscal year 1999. Other income (expense) is comprised primarily of royalty income, foreign exchange gains or losses and expenses incurred by the partnership between IBM, Hewlett Packard and RSS, which we refer to as TPCs, related to the mutual development, promotion and compliance verification of the jointly owned LTO format. Net other income in fiscal year 2000 consisted of $0.8 million income from Travan royalty payments, $0.1 million of interest income offset by $1.2 million of TPC expenses and foreign exchange gains of $1.9 million, a net of $1.6 million of other income for the period. Other income/expense in fiscal 1999 consisted of $0.8 million of Travan royalty income and $0.1 million of interest income which was offset by approximately $0.3 million of TPC expenses and foreign exchange losses of $0.6 million which netted to zero in fiscal 1999. INCOME TAXES. We recorded a provision for income taxes of $4.4 million for the fiscal year ended June 30, 2000 compared to a provision for income taxes of $9.6 million for the fiscal year ended July 2, 1999. The effective tax rate used to record the benefit for income taxes for the fiscal year ended June 30, 2000 differed from the U.S. federal statutory rate primarily due to the tax benefit realized from research and development tax credits. The effective tax rate used to record the provision for income taxes for the fiscal year ended July 2, 1999 differed from the U.S. federal statutory rate, primarily due to the tax benefit from research and development tax credits and permanently reinvested earnings in certain foreign subsidiaries, partially offset by amortization of goodwill that is not deductible for tax purposes. We provided income taxes at the U.S. federal statutory rate of 35% on substantially all of our current year foreign earnings for the fiscal year ended June 30, 2000 compared to approximately 68% of such earnings for the fiscal year ended July 2, 1999. A substantial portion of our Asia Pacific manufacturing operations at plant locations in Singapore and Malaysia operate under various tax holidays, which expire in whole or in part during fiscal 2001 through 2010. The tax holidays had no impact on net income in the fiscal year ended June 30, 2000. The net impact of these tax holidays was to increase net income approximately $.7 million in the fiscal year ended July 2, 1999. FISCAL YEAR ENDED JULY 2, 1999 COMPARED TO FISCAL YEAR ENDED JULY 3, 1998 REVENUE. Revenue for fiscal year 1999 was $314.0 million compared to $286.1 million in fiscal 1998, an increase of 9.8% from 1998 to 1999. The increase in revenue from the prior year was due primarily to an increase in tape drive shipments to two major OEM customers. Unit shipments increased from 809,000 in fiscal 1998 to 912,000 in fiscal 1999, an increase of 13% from 1998 to 1999. Part of the increase in tape drive revenue in fiscal 1999 was offset by a decrease in tape head revenue from fiscal 1998 to 1999 of $9.9 million. GROSS MARGIN. Gross margin as a percentage of revenue was 28% for fiscal year 1999 compared with 20% for fiscal 1998. The increase in gross margin as a percentage of revenue was primarily due to the increased volume of tape drive shipments in fiscal 1999 resulting in lower 97 average unit costs, lower repair expenses in fiscal 1999, and a mix shift of $9.9 million in tape heads with no gross margin to tape drives at an average gross margin of 23%. PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased 44% to $36.1 million for fiscal year 1999 from $25.0 million for the comparable period in 1998. Increased spending was primarily due to adding additional resources in the tape drive engineering organization required for continued development work on the LTO program and to complete development work on the DDS4 drive. Engineering spending in the tape head organization increased from $2.2 million in fiscal year 1998 to $4.4 million in fiscal year 1999 due to increased efforts to develop an LTO head. Average engineering headcount increased 28% from fiscal year 1998 to 1999. MARKETING AND ADMINISTRATIVE EXPENSES. Marketing and administrative expenses decreased by 15% to $23.0 million for fiscal year 1999 from $27.2 million for fiscal year 1998. The decrease was due to significant reductions in advertising and other discretionary spending over the period in an effort to offset the increase in required engineering spending on the LTO development. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill and other intangibles increased from $2.2 million in fiscal year 1998 to $3.2 million in fiscal year 1999, an increase of $1.0 million compared with fiscal year 1998. The increase was primarily due to a decision late in fiscal year 1999 to write-off the remaining $1 million balance of intangible assets still on the books from the Conner acquisition of the tape drive business in 1996. RESTRUCTURING CHARGES. In fiscal year 1999 and 1998, we recorded restructuring charges of $0.7 million and $0.7 million, respectively, primarily for severance payments to employees terminated due to management actions taken to reduce headcount and lower expenses in the Costa Mesa tape drive operation and in the Santa Maria tape head operation. NET OTHER INCOME. Net other income in fiscal year 1999 decreased by $0.9 million compared with fiscal year 1998. Other income (expense) is comprised primarily of royalty income, foreign exchange gains or losses and expenses incurred by the partnership between IBM, Hewlett Packard and Seagate (known as the TPCs) related to the mutual development, promotion and compliance verification of the jointly owned LTO format. Other income (expense) in fiscal 1999 consisted of $0.8 million of Travan royalty income and $0.1 million of interest income which was offset by approximately $0.4 million of TPC expenses and foreign exchange losses of $0.6 million which netted to zero. Other income (expense) in fiscal 1998 consisted primarily of approximately $0.8 million of royalty payments from a Travan license agreement. INCOME TAXES. We recorded a provision for income taxes of $9.6 million for the fiscal year ended July 2, 1999, compared to a provision for income taxes of $1.6 million for the fiscal year ended July 3, 1998. The effective tax rate used to record the benefit for income taxes for the fiscal year ended July 2, 1999 differed from the U.S. federal statutory rate primarily due to the tax benefit realized from research and development tax credits and permanently reinvested earnings of certain foreign subsidiaries, partially offset by amortization of goodwill that is not deductible for tax purposes. The effective tax rate used to record the provision for income taxes for the fiscal year ended July 3, 1998 differed from the U.S. federal statutory rate primarily due to the tax benefit from research and development tax credits, partially offset by amortization of goodwill that is not deductible for tax purposes. We provided income taxes at the U.S. federal statutory rate of 35% on approximately 68% of our current year foreign earnings for the fiscal year ended July 2, 1999, compared to substantially all of such earnings for the fiscal year ended July 3, 1998. A substantial portion of our Asia Pacific manufacturing operations at plant locations in Singapore and Malaysia operate under various tax holidays, which expire in whole or in part during fiscal 2001 through 2010. The net impact of these tax holidays was to increase net income by approximately $0.7 million in the fiscal year ended July 2, 1999. The tax holidays had no impact on net income in the fiscal year ended July 3, 1998. 98 CRYSTAL DECISIONS For the purposes of this section only, "we," "us" and "our" refer to Crystal Decisions (formerly Seagate Software Information Management Group Holdings, Inc.) and its subsidiaries. Crystal Decisions is a subsidiary of New SAC and a guarantor of the notes. SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) We list in the table below selected historical, consolidated and combined financial information of Crystal Decisions as of the end of and for each of the last five fiscal years ended June 30, 2000, for the six months ended December 31, 1999, and as of the end of and for the six months ended December 29, 2000. We have derived the historical financial information of Crystal Decisions below as of the end of and for the fiscal years 1996 and 1997 from unaudited financial statements and related notes of Crystal Decisions, which are not included in this prospectus. We have derived the historical financial information of Crystal Decisions as of the end of and for the fiscal years 1998, 1999, and 2000 from the audited financial statements and the related notes of Crystal Decisions included elsewhere in this prospectus. We have derived the historical financial information for the six months ended December 31, 1999 and as of the end of and for the six month period ended December 29, 2000 from the unaudited interim consolidated condensed financial statements of Crystal Decisions included elsewhere in this prospectus, which in our opinion include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for the fair presentation of our financial position and results of operations for these periods. Operating results for the six months ended December 29, 2000 are not necessarily indicative of results that may be expected for the entire year or any future period. The selected historical consolidated financial information below should be read in conjunction with the discussion below and the financial statements and related notes of Crystal Decisions included elsewhere in this prospectus.
FISCAL YEAR SIX MONTHS ENDED ---------------------------------------------------------------- ---------------------------- DECEMBER 31, DECEMBER 29, 1996 1997 1998 1999 (1) 2000 (2) 1999 2000 ------------ ------------ ----------- ------------ ------------- -------------- ------------- (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenue .................... $ 23,843 $ 74,534 $115,952 $ 141,757 $ 126,518 $ 58,175 $ 77,048 (Loss) from operations ..... (36,152) (20,207) (4,993) (98,957) (276,237) (265,484) (14,113) BALANCE SHEET DATA: Total assets ............... 64,344 53,854 63,569 79,820 71,280 83,189 92,737
- ---------- (1) The net loss for fiscal 1999 includes unusual items of approximately $87,000 described below in "-- The June 1999 Seagate Technology Exchange Offer." (2) The net loss for fiscal 2000 includes unusual items of approximately $243,000 described below in "-- The October 1999 Seagate Technology Exchange of Shares." 99 OVERVIEW We develop, market and support an integrated product line of end user enterprise software products, which enable business users, developers and information technology professionals to access, analyze, report on and distribute enterprise information. We believe our products meet an extensive range of data-based business needs commonly described as enterprise reporting, enterprise business intelligence, enterprise portals, developer reporting tools, analytic application development and packaged analytic applications. Our primary market is North America where our products are sold through a direct sales force and indirect sales channels, such as distributors and OEM relationships. Outside North America, our products are sold through a direct sales force, distributors and OEMs. As of November 22, 2000, we have been a majority owned subsidiary of Seagate Software (Cayman) Holdings, which is a wholly owned subsidiary of New SAC. Prior to November 22, 2000, we were a majority owned subsidiary of Seagate Software Holdings, a Delaware corporation and wholly owned subsidiary of Seagate Technology. The outstanding minority interests in our capital stock amounted to approximately 12.8% and 10.5% on a fully diluted basis as of December 29, 2000 and June 30, 2000, respectively. The minority interests consisted of our common stock and options to purchase our common stock issued pursuant to our 1999 and 2000 Stock Option Plans to certain employees and directors of us, our subsidiaries and our affiliated companies. On November 22, 2000, New SAC, through Seagate Software (Cayman) Holdings, acquired 75,001,000 shares of our common stock under the terms of a stock purchase agreement. As a result of the transaction, Seagate Software (Cayman) Holdings held 99.6% of our actual outstanding capital stock as of December 29, 2000. This transaction resulted in a change in control of us. Seagate Software (Cayman) Holdings did not purchase shares of our common stock that are outstanding as a result of the exercise of options to purchase these shares under our 1999 and 2000 Stock Option Plans. Our minority stockholders continue to hold their interests in common stock. In addition, the outstanding unexercised options granted under our 1999 and 2000 Stock Option Plans continue to remain outstanding. Under SEC rules and regulations, because more than 95% of our capital stock was acquired and a change of ownership occurred, we have restated all our assets and liabilities as of November 22, 2000 on a push down accounting basis in the accompanying financial statements, presented as of December 29, 2000. Accordingly, results of operations prior to November 22, 2000 and the comparative information presented do not reflect these adjustments. A majority of our assets, along with various other assets of Seagate Technology, are now pledged as a guarantee for debt issued to finance the transactions described in this prospectus. The federal tax allocation agreement we had with Seagate Technology was terminated on November 22, 2000, and we will no longer file federal income tax returns on a consolidated basis with Seagate Technology. We rely on a revolving loan with Seagate Technology, LLC, which is a wholly owned subsidiary of New SAC, to fund a portion of our operating cash needs. The revolving loan agreement continued in effect subsequent to the closing of the transactions on November 22, 2000 and expires on July 4, 2001. PRIOR ORGANIZATIONAL EVENTS In August 1999, we were formed to acquire Seagate Software Holdings' information management business. On November 16, 1999, Seagate Software Holdings contributed the information management business to us in exchange for 75,000,000 shares of common stock. Prior to November 16, 1999, Seagate Software Holdings entered into two separate share exchange transactions with Seagate Technology. The first transaction, the June 1999 Seagate Technology Exchange Offer, relates to an offer Seagate Technology made to the optionees and stockholders of Seagate Software Holdings to exchange shares of Seagate Software Holdings common stock for 100 shares of Seagate Technology common stock. The June 1999 Seagate Technology Exchange Offer was made at the time of the contribution of the NSMG business to VERITAS. The second exchange transaction, the October 1999 Seagate Technology Exchange of Shares, was the result of a reorganization of Seagate Software Holdings. This reorganization resulted in Seagate Software Holdings becoming a wholly owned subsidiary of Seagate Technology and the minority stockholders of Seagate Software Holdings receiving Seagate Technology common stock for their Seagate Software Holdings common stock and options. Each of the June and October exchanges resulted in Seagate Software Holdings recording compensation expense for stock options and shares held less than six months and purchase accounting where shares were held by minority stockholders longer than six months. A portion of the amount of excess purchase price and compensation expense was allocated to us, as explained below. THE JUNE 1999 SEAGATE TECHNOLOGY EXCHANGE OFFER On May 28, 1999, Seagate Software Holdings contributed its NSMG business and related assets and liabilities to VERITAS in exchange for shares of VERITAS common stock. In a separate but related transaction on June 9, 1999, Seagate Technology exchanged 5,275,772 shares of Seagate Technology common stock for 3,267,255 shares of Seagate Software Holdings common stock owned by employees, directors and consultants of Seagate Software Holdings and its parent and subsidiaries. The exchange ratio was determined based on the estimated value of Seagate Software Holdings common stock divided by the fair market value of Seagate Technology common stock. The estimated value of Seagate Software Holdings common stock exchanged into Seagate Technology common stock was determined based upon the sum of the fair value of the NSMG business, as measured by the fair value of the shares received from VERITAS, plus the estimated fair value of the information management business of Seagate Software Holdings as determined by the Seagate Software Holding's Board of Directors, plus the assumed proceeds from the exercise of all outstanding Seagate Software Holdings stock options, divided by the number of fully converted shares of Seagate Software Holdings. The Board of Directors of Seagate Software Holdings consulted with financial advisors and considered a number of factors in determining the estimated fair value of the information management business, including historical and projected revenues, earnings and cash flows, as well as other factors. Seagate Software Holdings recorded the acquisition of its common stock by Seagate Technology as an acquisition of the minority interest by Seagate Technology. Seagate Software Holdings accounted for the exchange of shares of its common stock outstanding and vested more than six months as the purchase of a minority interest and, accordingly, the fair value of the shares exchanged of $51.8 million was allocated to all the identifiable tangible and intangible assets and liabilities of Seagate Software Holdings. For those shares outstanding and vested less than six months, the fair value of the shares purchased less the original purchase price paid by the employees was recorded as compensation expense, as this constitutes an early settlement of an award of stock or grant of an option. Compensation expense associated with the issuance of Seagate Technology shares amounted to approximately $102.5 million, plus $630,000 of employer portion of payroll taxes. Related to the June 1999 Seagate Technology Exchange Offer, Seagate Software Holdings recorded additional compensation expense of $8.6 million for the purchase of unvested stock options held by various continuing employees. This amount was not considered a capital contribution from Seagate Technology. In addition, Seagate Software Holdings recorded compensation expense amounting to $12.7 million for accelerated vesting on certain stock options for its former chief executive officer and several other employees, each of whom became employees of VERITAS. Our consolidated and combined statement of operations for fiscal 1999 includes an allocation of compensation expense arising from the June 1999 Seagate Technology Exchange Offer attributable to us. Compensation expense was allocated to us on the basis of employees specifically identified with our business who participated in the exchange and for those employees of Seagate Software Holdings and Seagate Technology who performed services for us, on the basis of time estimates. 101 Accordingly, we recorded $77.5 million of the $102.5 million of total compensation expense as a capital contribution from Seagate Technology. In addition, both the $630,000 relating to the employer portion of payroll taxes and the $8.6 million compensation expense for the purchase of unvested stock options relate to certain of our continuing employees and therefore both amounts were reflected as expenses for fiscal 1999. We did not allocate any of the $12.7 million compensation expense that arose from the accelerated vesting on certain stock options for employees who became employees of VERITAS because the compensation expense was not attributable to our employees. Our consolidated and combined financial statements for fiscal 1999 also include an allocation of $5.4 million of the $51.8 million purchase price allocation described above. The allocation to us was based on the fair value of our assets relative to Seagate Software Holdings. We consulted with financial advisors and considered a number of factors in determining our estimated fair value, including historical and projected revenues, earnings and cash flows, as well as other factors. The allocation of the purchase price to our intangible assets as of June 9, 1999 was as follows: Developed technologies ...................... $ 686,000 Trademark ................................... 158,000 Assembled workforce ......................... 207,000 In-process research and development ......... 109,000 Goodwill .................................... 4,700,000 Deferred tax liability ...................... (412,000) ---------- Total purchase price allocated .............. $5,448,000 ==========
METHODOLOGY The excess purchase price attributable to us was allocated to intangible and tangible assets based on their fair market values for our company on a stand-alone basis in accordance with the provisions of APB Opinion Nos. 16 and 17. Our tangible net assets principally include cash, intercompany loan receivables and payables, accounts receivable, other current assets and capital assets. Liabilities principally include accounts payable, accrued employee compensation and other accrued liabilities. To estimate the value of the developed technologies, we discounted the expected future cash flows attributable to all existing technology, taking into account risks related to the characteristics and applications of the technology, existing and future markets and assessments of the life cycle stage of the technology. We estimated the value of trademarks by considering, among other factors, the assumption that in lieu of ownership of a trademark, a company would be willing to pay a royalty in order to exploit the related benefits of such trademark. We estimated the value of the assembled workforce as the costs to replace the existing employees, including recruiting, hiring and training costs for each category of employee. We charged the value allocated to projects identified as in-process technology for the minority interest acquired to expense. These write-offs were necessary because the acquired technologies had not reached technological feasibility at the date of purchase and had no future alternative uses. We expect that the acquired in-process research and development will be successfully developed, but we cannot assure that commercial viability of these products will be achieved. The nature of the efforts required to develop the purchased in-process technology into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities necessary to establish that the product can be produced to meet its design specifications, including functions, features and technical performance requirements. We estimated the value of our purchased in-process technology as the projected net cash flows related to such products, including costs to complete the development of the technology 102 and the future revenues to be earned upon commercialization of the products, excluding revenues attributable to future development efforts. We then discounted these cash flows back to their net present value. The projected net cash flows from such projects were based on our estimates of revenues and operating profits related to such projects. Goodwill is calculated as the residual difference between the estimated amount of excess purchase price allocated to us and the values assigned to identifiable tangible and intangible assets and liabilities. THE OCTOBER 1999 SEAGATE TECHNOLOGY EXCHANGE OF SHARES On October 20, 1999, the minority stockholders of Seagate Software Holdings approved the merger of Seagate Daylight Merger Corp., a wholly owned subsidiary of Seagate Technology, with and into Seagate Software Holdings. Seagate Software Holdings assets consisted of the assets of the information management business and its investment in the common stock of VERITAS. The merger was effected on October 20, 1999. Upon the closing of the merger, Seagate Software Holdings became a wholly owned subsidiary of Seagate Technology. All outstanding options to purchase Seagate Software Holdings common stock were accelerated immediately prior to the merger. In connection with the merger, Seagate Software Holdings minority stockholders and optionees received payment in the form of 3.23 shares of Seagate Technology's common stock per share of Seagate Software Holdings common stock, less any amounts due for the payment of the exercise price of unexercised options. Seagate Technology issued 9,124,046 shares of its common stock from treasury shares to optionees and minority stockholders of Seagate Software Holdings in connection with the merger. Seagate Technology accounted for the exchange of shares of its common stock as the acquisition of a minority interest for Seagate Software Holdings common stock outstanding and vested more than six months held by employees and all stock held by former employees and consultants. The fair value of the shares of Seagate Technology issued was $19.4 million and was recorded as purchase price and allocated to all the identifiable tangible and intangible assets and liabilities of Seagate Software Holdings. Seagate Technology accounted for the exchange of shares of its common stock for stock options in Seagate Software Holdings held by employees and stock held and vested by employees less than six months as the settlement of an earlier stock award. Seagate Technology recorded compensation expense of $283.6 million, plus $2.1 million of the employer's portion of payroll taxes, related to the purchase of the minority interest in Seagate Software Holdings. Our consolidated and combined statement of operations for fiscal 2000 includes an allocation of compensation expense arising from the October 1999 Seagate Technology exchange of shares attributable to us. Compensation expense was allocated to us on the basis of employees specifically identified with our business and for those employees that performed services for us on the basis of time estimates. Accordingly, we recorded $239.6 million of the $283.6 million compensation expense related to the October 1999 Seagate Technology Exchange of Shares as a capital contribution from Seagate Technology. In addition, the $2.1 million of payroll taxes paid in relation to our employees was recorded as an expense for fiscal 2000. In addition, $877,000 of legal and accounting costs were incurred by us in connection with our recapitalization and reorganization. Our consolidated and combined financial statements for fiscal 2000 also include an allocation of $1.2 million of the $19.4 million purchase price allocation described above. The allocation was based on the fair value of our assets relative to the fair value of Seagate Software Holdings. We consulted with financial advisors and considered a number of factors in determining our estimated fair value, including historical and projected revenues, earnings and cash flows, as well as other factors. 103 The allocation of the purchase price to our intangible assets as at October 20, 1999 was as follows: Developed technologies ...................... $ 156,000 Trademark ................................... 36,000 Assembled workforce ......................... 47,000 In-process research and development ......... 25,000 Goodwill .................................... 1,071,000 Deferred tax liability ...................... (94,000) ---------- Total purchase price allocated .............. $1,241,000 ==========
The excess purchase price attributable to us was allocated to intangible and tangible assets based on their fair market values in the same manner described above for the June 1999 Seagate Technology Exchange Offer. REVENUE RECOGNITION We derive most of our revenues from the sale of licenses for our software products. We also generate revenues from services that support our products such as technical support, training, consulting and maintenance. We recognize revenues in accordance with Statement of Position, or SOP, 97-2, "Software Revenue Recognition," as amended by SOP 98-4 "Deferral of the Effective Date of a Provision of SOP 97-2" and by SOP 98-9 "Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions." These amendments deferred and then clarified, respectively, the specification of what was considered vendor specific objective evidence, or VSOE, of fair value for the various elements in a multiple element arrangement. We adopted the provisions of SOP 97-2 and SOP 98-4 as of the beginning of fiscal year 1999 and adopted SOP 98-9 as of the beginning of fiscal year 2000. SOP 97-2 requires that the total arrangement fee from software arrangements that include rights to multiple software products, post contract customer support and/or other services be allocated to each element of the arrangement based on their relative fair values. Under SOP 97-2, the determination of fair value is based on VSOE. Fair value is established for each element based on its individual sales prices consistent with our pricing strategy. Our pricing strategy is established by our pricing group, consisting of representatives from our marketing, sales, finance and product development departments. We typically can establish VSOE for all elements of our multi-element arrangements, and accordingly, revenues are allocated to the individual elements on the basis of VSOE. During the second quarter of fiscal year 2001, we adopted a new sales model that limits the sale of certain software license products sold on an individual basis and, as a result, are not able to establish sufficient VSOE for these license products. As a result, when these products are included in bundled arrangements with technical support and maintenance services, we now apply the residual method of accounting as specified in SOP 98-9 such that the total fair value of the undelivered elements, as indicated by VSOE, is deferred and subsequently recognized in accordance with SOP 97-2 and the difference between the total arrangement fee and the amount deferred for the undelivered elements is accounted for as revenue related to the delivered elements. The impact on revenues of applying the residual method of accounting for the six months ended December 29, 2000 was not material. Although not typical, some OEM arrangements contain end-user maintenance elements for which VSOE has not been established as sufficient evidence of consistent pricing and renewal rates have not been present. In such arrangements, we have recognized the arrangement fee ratably over the maintenance period in accordance with the provisions set forth in SOP 97-2. We generally recognize licensing revenues, whether sold directly or through resellers, upon product delivery, provided persuasive evidence of an arrangement exists, fees are fixed or 104 determinable and the resulting receivable is deemed collectible by management. In instances where payments are subject to extended payment terms, we do not recognize revenues until the date payments become due. When an acceptance period is specified in an arrangement, we recognize revenues upon the earlier of customer acceptance or the expiration of the acceptance period. Our policy is not to recognize revenues on sales to distributors or resellers if resale contingencies exist. Some of the factors that we consider in determining the existence of resale contingencies include payment terms, collectibility and our history with the distributor or reseller. We recognize revenues when these contingencies are resolved and the criteria for revenue recognition in SOP 97-2 are met. We recognize revenues for sales to distributors and resellers with rights of returns when the criteria for recognizing revenues, as outlined in SFAS 48, are met. However, we make estimates of future returns and reduce the revenues and related receivables accordingly by the amount of our estimates. Where rights of return exist and the criteria of SFAS 48 are not met, we do not recognize revenues until such time as all of the criteria are met. We consider factors including historical experience, nature of the product, fixed or determinable fees, arms length contract terms, the level of inventory in the distribution channels and the ability to reasonably estimate returns. We recognize revenues from technical support and maintenance ratably over the term of the arrangement, generally one year. We recognize revenues from training and consulting as the services are performed. Where our software arrangements require us to provide consulting services for significant production, modification or customization of software, or where these services are essential to the functionality of the software, we recognize revenues in accordance with the provisions of SOP 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts." In these arrangements, we recognize both the licensing revenues and consulting services revenues on the percentage of completion method based on cost inputs. ALLOCATION OF PURCHASE PRICE TO US PURSUANT TO THE APPLICATION OF PUSH DOWN ACCOUNTING The transactions described in this prospectus constituted a purchase business transaction of Seagate Technology and resulted in a change in control of us. Under purchase accounting rules, the net purchase price under this transaction has been allocated to the assets and liabilities of Seagate Technology and its subsidiaries, including us, based on their estimated fair values at the date of the transaction. However, the estimated fair values of identifiable tangible and intangible assets and liabilities of Seagate Technology and subsidiaries at the date of the transactions were greater than the amount paid, resulting in negative goodwill. The negative goodwill has been allocated to the long-lived tangible and intangible assets, including our assets, on the basis of relative fair values. The fair values of tangible and intangible assets, including in-process research and development, have been determined based upon independent appraisals. The accounting for the purchase transaction has been pushed down to our financial statements. Our December 29, 2000 consolidated and combined condensed financial statements reflect our historical results of operations and financial position up to the date of the transaction, November 22, 2000, and the restatement of assets and liabilities at that date to reflect the pushed down purchase accounting adjustments, followed by our results of operations and financial position for the period from November 23, 2000 to December 29, 2000, reflecting the effects of restated balances from the date of the transactions. As a result of the transactions and the push down accounting, our results of operations following the transactions, particularly the depreciation and amortization charges, are not necessarily comparable to our results of operations prior to the transactions. The actual allocation of the amounts may differ from those reflected below after finalization of the purchase price allocation and post closing transactions. 105 The following describes the impact of push down accounting on our results: Revenue -- Deferred revenue was revalued at the transaction date and reduced by $1.3 million. Consequently, revenues were lower by $300,000 during the six months ended December 29, 2000 than the amount that would have been recorded had the push down adjustments not been made. Amortization and depreciation -- As a result of the allocation of negative goodwill to our long-lived tangible assets, our capital assets were reduced by $4.3 million. Consequently, depreciation expense for the six months ended December 29, 2000 is approximately $224,000 less than what it would have been had the push down adjustments not been made. In addition, we recorded additional amortization expense of approximately $473,000 during the six months ended December 29, 2000 resulting from the recording of incremental fair value of intangibles in the push down adjustments. In-process research and development -- We wrote off in-process research and development of $7.1 million as an expense during the six months ended December 29, 2000. RESULTS OF OPERATIONS We list in the table below our consolidated statements of operations data as a percentage of revenues for the fiscal years 1998, 1999 and 2000, the six months ended December 31, 1999 and the six months ended December 29, 2000. In the six months ended December 29, 2000, we operated until November 22, 2000 as an indirect subsidiary of Seagate Technology and after November 22, 2000 as an indirect subsidiary of New SAC. In the table and the discussion below, we have combined our operations from July 1, 2000 to November 22, 2000 under Seagate Technology and our operations from November 23, 2000 to December 29, 2000 under New SAC for easier comparison with the results for the six months ended December 31, 1999.
SIX MONTHS SIX MONTHS FISCAL YEAR ENDED ENDED ------------------------------ DECEMBER 29, DECEMBER 31, 1998 1999 2000 1999 2000 Revenues: -------- -------- -------- -------------- ------------- Licensing revenues ........................ 70% 65% 59% 54% 63% Maintenance, support and services revenues ................................ 30 35 41 46 37 -- -- -- -- -- Total revenues .......................... 100 100 100 100 100 === === === === === Cost of revenues: Cost of licensing revenues ................ 3 3 3 3 3 Cost of maintenance, support and services revenues ....................... 23 25 31 36 26 Amortization of developed technologies..... 5 3 -- -- 1 Write-off of developed technologies ....... -- 3 -- -- -- --- --- --- --- --- Total cost of revenues .................. 31 34 34 39 30 Gross profit margin ........................ 69 66 66 61 70 --- --- --- --- --- Operating expenses: Sales and marketing ....................... 44 46 52 56 45 Research and development .................. 14 15 20 22 18 General and administrative ................ 13 10 17 17 12 Amortization of goodwill and other intangibles ............................. 3 3 2 3 1 Write-off of in-process research and development ............................. -- -- -- -- 9 Unusual items ............................. -- 61 192 417 2 Restructuring costs ....................... -- -- 1 2 1 --- --- --- --- --- Total operating expenses ................ 74% 135% 284% 517% 88% === === === === ===
106 SIX MONTHS ENDED DECEMBER 29, 2000 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 1999 REVENUES Total revenues increased by 32% from $58.2 million for the six months ended December 31, 1999 to $77.0 million for the six months ended December 29, 2000. The increase in total revenues was primarily attributable to increased productivity of our sales force, which resulted in increases in licensing revenues and maintenance, support and services revenues. We adopted a new sales model during the six months ended December 29, 2000, which has resulted in our applying the residual method of accounting for certain multi-element arrangements as specified in SOP 98-9. The impact of applying the residual method of accounting was not material for the six months ended December 29, 2000. During the six months ended December 29, 2000 and December 31, 1999, revenues from a third-party customer, Ingram Micro, Inc., accounted for more than 10% of our consolidated revenues for a total of $16.5 million and $11.0 million, respectively. LICENSING REVENUES. Licensing revenues consist of license fees for our products. Licensing revenues increased 55% from $31.4 million for the six months ended December 31, 1999 to $48.5 million for the six months ended December 29, 2000. The increase in licensing revenues was primarily attributable to increased productivity of our sales force and an overall increase in our direct sales force, resulting in an increase in our customer base, as well as additional sales to our existing customers. The increase in licensing revenues compared to the prior period is also a result of increased sales of an upgraded and enhanced version of Crystal Reports, one of our products released in February 2000. MAINTENANCE, SUPPORT AND SERVICES REVENUES. Our maintenance, support and services revenues were comprised of revenues from technical support, training activities, consulting services and maintenance related to licenses of our products. Maintenance, support and services revenues increased by 6% from $26.8 million for the six months ended December 31, 1999 to $28.5 million for the six months ended December 29, 2000. The increase in maintenance, support and services revenues was attributable to our higher cumulative installed customer base, which resulted in increased sales of maintenance agreements and training and consulting services. Licensing revenues as a percentage of total revenues, which increased from 53% for the six months ended December 31, 1999 to 63% for the six months ended December 29, 2000, grew in comparison to maintenance, support, and services revenues as a percentage of total revenues, which decreased from 46% for the six months ended December 31, 1999 to 37% for the six months ended December 29, 2000, primarily due to the acquisition of new customers with related licensing revenues and related deferral of post contract services. Revenues by geographic location were as follows:
FOR THE SIX MONTHS ENDED ------------------------------ DECEMBER 31, DECEMBER 29, 1999 2000 -------------- ------------- (IN THOUSANDS) United States .......... $ 37,262 $ 53,959 Europe ................. 14,065 14,170 Other .................. 6,848 8,919 -------- -------- Total revenues ......... $ 58,175 $ 77,048 ======== ========
Revenues from sales in Europe and other regions outside of the United States represented 36% and 30% of total revenues for the six months ended December 31, 1999 and December 29, 2000, respectively. Sales in Europe and other regions outside of the United States declined as a 107 percentage of total revenues because sales productivity increased more significantly in the United States for the six months ended December 29, 2000 compared to Europe and other regions outside of the United States. To date, seasonal reductions in business activity in the summer months in Europe and certain other regions have not had a material impact on our operating results. A majority of our revenues are denominated in U.S. dollars, the currency in which we report our operating results. We also collect a portion of our revenues in currencies other than U.S. dollars such as Canadian Dollars, German Marks, British Pounds Sterling, French Francs, Australian Dollars and Japanese Yen. We expect a portion of our revenues to be denominated and collected in the Euro in the future. For the six months ended December 29, 2000, approximately 4% of our revenues were denominated and collected in currencies that will, in the future, be denominated and collected in the Euro. To date, the foreign exchange gains and losses on transactions and revenues reported by our foreign subsidiaries have not been significant nor have any costs related to the Euro conversion. In addition, since most of our foreign operations conduct business in their local currency, our earnings are not significantly impacted by fluctuations in exchange rates. Translation adjustments from consolidation of such foreign operations are presented within comprehensive income. COST OF REVENUES Cost of revenues increased by 1% from $22.5 million, or 39% of total revenues, for the six months ended December 31, 1999 to $22.7 million, or 29% of total revenues, for the six months ended December 29, 2000. The slight absolute dollar increase in cost of revenues is attributable to an increase in the amortization of developed technologies as a result of push down accounting. Excluding the effect of the increase in amortization of developed technologies, the cost of revenues was relatively unchanged. Our gross margins, as a percentage of revenue, have increased from 61% for the six months ended December 31, 1999 to 70% for the six months ended December 29, 2000. The increase in our gross margins is largely attributable to a corporate-wide initiative to manage costs, while supporting revenue growth. For the six months ended December 29, 2000, our revenues increased 32% compared to the six months ended December 31, 1999 while our number of employees grew by approximately 10%. COST OF LICENSING REVENUES. Cost of licensing revenues consists primarily of materials, packaging and distribution of software, related fulfillment personnel and third party royalties. Cost of licensing revenues increased by 36% from $1.6 million, or 5% of licensing revenues, for the six months ended December 31, 1999 to $2.2 million, or 5% of licensing revenues, for the six months ended December 29, 2000. The absolute dollar increase in cost of licensing revenues is due primarily to the increased volume of shipments during the applicable periods. We expect cost of licensing revenues to increase in absolute dollars and as a percentage of revenues in future periods, and to vary as a percentage of revenues from licensing revenues because of costs incurred with new product releases, increased order fulfillment costs, costs related to new packaging of our products and printing costs associated with revised documentation materials. COST OF MAINTENANCE, SUPPORT AND SERVICES REVENUES. Cost of maintenance, support and services revenues consists of personnel and related overhead costs for technical support, training, consulting, maintenance services and the cost of materials delivered with enhancement releases. Cost of maintenance, support and services revenues decreased by 4% from $20.8 million, or 78% of maintenance, support and services revenues for the six months ended December 31, 1999 to $20.0 million, or 70% of maintenance, support and services revenues, for the six months ended December 29, 2000. The decline in cost of maintenance, support and services revenues as a percentage of maintenance, support and services revenues is primarily attributable to an increased use of company personnel rather than sub-contracted consultants to perform our services. Cost of maintenance, support and services revenues may vary between periods because of the mix of services we provide and the extent to which we use outside consultants to assist us. AMORTIZATION OF DEVELOPED TECHNOLOGIES. Amortization of developed technologies increased by $418,000 from $93,000, or less than 1% of revenues, for the six months ended December 31, 1999 to $511,000, or 1% of revenues, for the six months ended December 29, 2000. The increase in 108 amortization of developed technologies is attributable to the push down of the net fair value of our intangibles assets of $29.4 million acquired by New SAC on November 22, 2000, which included $15.2 million related to developed technology. Since November 22, 2000 developed technology is being amortized over its estimated remaining useful life of three years. OPERATING EXPENSES SALES AND MARKETING. Sales and marketing expenses include salaries, commissions and bonuses earned by sales and marketing personnel, advertising and product promotional activities and related facilities and other costs. Sales and marketing expenses increased 7% from $32.4 million, or 56% of total revenues for the six months ended December 31, 1999 to $34.8 million, or 45% of total revenues, for the six months ended December 29, 2000. The absolute dollar increase in sales and marketing expenses was primarily due to the expansion of our sales force. The decrease as a percentage of revenues was primarily attributable to the increase in productivity of our sales force and the resultant increase in revenues. In addition, there was an approximately $104,000 reduction in depreciation included in sales and marketing related to the allocation and push down of negative goodwill to the fair values of our tangible long-lived assets and intangible assets acquired by New SAC effective November 22, 2000. We expect the reduction in depreciation expense included in sales and marketing expenses to continue for the average remaining useful lives of tangible long-lived assets acquired of 1 to 2 years. We expect this reduction to be offset over time by depreciation expense on future capital additions. In addition, we expect sales and marketing expenses to increase in absolute dollars and to vary as a percentage of revenues as we continue to increase our direct sales force and promote our products and services. RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of personnel and related costs associated with the development of new products, the enhancement and localization of existing products, quality assurance and testing. Research and development expenses increased 7% from $12.8 million, or 22% of total revenues, for the six months ended December 31, 1999 to $13.8 million, or 18% of total revenues, for the six months ended December 29, 2000. In addition, there was an approximately $66,000 reduction in depreciation included in research and development expenses related to the allocation and push down of negative goodwill to the fair values of our tangible long-lived assets acquired by New SAC effective November 22, 2000. We expect the reduction in depreciation expense included in research and development expenses to continue for the average remaining useful lives of tangible long-lived assets acquired of 1 to 2 years. We expect this reduction to be offset over time by depreciation expense on future capital additions. The increases in research and development expenses in absolute dollars were primarily due to increases in personnel and related expenses. We expect research and development expenses to continue to increase in absolute dollars as we continue to invest in our products. GENERAL AND ADMINISTRATIVE. General and administrative expenses consist primarily of personnel costs for finance, legal, human resources, information systems and other administrative costs. General and administrative expenses decreased 5% from $10.0 million, or 17% of total revenues for the six months ended December 31, 1999 to $9.5 million, or 12% of total revenues for the six months ended December 29, 2000. The decrease was primarily attributable to a decline in bad debt expense because of a reduced accounts receivable balance and significantly improved days sales outstanding. This decline is partially offset by increases in personnel and other costs related to meeting our public reporting requirements. We expect general and administration expenses to vary in absolute dollars and as a percentage of revenues as we continue to develop. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill and other intangibles decreased 58% from $2.0 million, or 3% of total revenues, for the six months ended December 31, 1999 to $844,000, or 1% of total revenues, for the six months ended December 29, 2000. The decrease in amortization of goodwill and other intangibles was attributable to intangible assets that were fully amortized by the end of the six month period ended December 31, 1999. WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT. Write-off of in-process research and development was $7.1 million, or 9% of total revenues, for the six months ended December 29, 109 2000. As part of the push down of the purchase price allocation of the transactions, the net fair value of in-process research and development, as determined by an independent valuation, was $7.1 million. As the basis for identifying the in-process research and development, our developmental projects were evaluated in the context of FASB Interpretation 4 and paragraph 11 of FASB Statement No. 2 and FASB Statement No. 86. This write-off of in-process research and development during the six months ended December 29, 2000 was necessary because the acquired technologies have not yet reached technological feasibility and have no future alternative uses. At the valuation date, we were in the process of developing three next generation versions of existing technologies which were estimated to be about 85%, 70%, and 75% complete based on total man-hours and absolute time. We expect these three projects to be completed in fiscal 2002, at an estimated cost of $20 million. The nature of the efforts required to develop the purchased in-process research and development into commercially viable products principally relates to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the product can be produced to meet its design specifications, including functions, features and technical performance requirements. We expect that the acquired in-process research and development will be successfully developed, but we cannot ensure that commercial viability of these products will be achieved. The value of the purchased in-process research and development was determined by estimating the projected net cash flows related to such products, including costs to complete the development of the technology and the future revenues to be earned on commercialization of the products. These cash flows were then discounted back to their net present value. The projected net cash flows from such projects were based on management's estimates of revenues and operating profits related to these projects. UNUSUAL ITEMS. Unusual items for the six months ended December 29, 2000 of approximately $1.9 million, or 2% of total revenues, consisted of the push down of compensation expense attributable to our employees arising from the acceleration and net exercise of Seagate Technology options held by our employees on November 22, 2000. Unusual items for the six months ended December 31, 1999 of $242.6 million, or 417% of total revenues, consisted of the compensation expense and associated expenses attributable to our employees related to the October 1999 Seagate Technology Exchange of Shares. RESTRUCTURING COSTS. Restructuring costs were $573,000, representing 1% of total revenues, for the six months ended December 29, 2000. The charges relate to the closure of eight offices in Europe and are part of a restructuring plan announced in September 2000 to consolidate the European sales organization into fewer office locations. The charges primarily comprised costs related to the termination of office leases and other related office closure costs, as well as severance and benefits due to nine sales and marketing employees who were terminated in September 2000. At December 29, 2000, $375,000 was included in accrued expenses and is expected to be paid by the end of fiscal 2001. Management believes that this restructuring is not significant and it will not have a material impact on our future revenues, operating costs or operating results. Restructuring costs were $1.3 million, representing 2% of total revenues, for the six months ended December 31, 1999. The charges resulted from a company-wide restructuring plan announced in October 1999 to realign resources to better manage and control our business. The charges were comprised of severance and benefits paid to approximately 125 employees from various locations and departments, including direct sales force personnel, who were terminated on October 23, 1999. The decline in our direct sales force as part of this restructuring contributed to the decline in revenues during fiscal 2000 compared to fiscal 1999. The restructuring charges were paid during fiscal 2000 and no amounts were outstanding as of June 30, 2000. We believe there are no further restructuring liabilities related to this plan. In addition, we believe that the future benefit of this plan, while not quantifiable, is a more focused and productive company. Any benefits in the form of cost reductions because of reduced salaries were realized by the end of fiscal 2000 and are not expected to continue. 110 INTEREST AND OTHER INCOME (EXPENSE), NET Interest and other income (expense), net consists of interest income, interest expense and net foreign currency exchange gains or losses. Interest and other income (expense), net, increased from expense of $1.3 million for the six months ended December 31, 1999 to income of $1.1 million for the six months ended December 29, 2000. Interest and other income (expense), net fluctuates on a year-to-year basis depending on fluctuations in Seagate Technology LLC's in-house portfolio rate, LIBOR, our net outstanding loan balance with Seagate Technology and, for the net foreign currency gains or losses, changes in foreign currency exchange rates. Interest is computed on the outstanding loan balance from Seagate Technology on a monthly basis at LIBOR plus 2% per annum. The outstanding loan balance fluctuates depending on working capital required to fund operations, offset by or in addition to amounts due or receivable from Seagate Technology under a tax allocation agreement we have with Seagate Technology. Interest income and expense fluctuate from year to year because of fluctuations in the net outstanding loan balance during the year. The net foreign currency exchange gain or loss represents the impact of foreign currency fluctuations on the translation of foreign currency transactions into U.S. dollars and varies depending upon currency exchange rates. INCOME TAXES The federal tax allocation agreement Crystal Decisions had with Seagate Technology was terminated on November 22, 2000, and the Company will no longer file federal income tax returns on a consolidated basis with Seagate Technology. The Company will enter into a state tax allocation agreement with affiliates of New SAC, as applicable. Therefore, Seagate Technology will not benefit from nor will it reimburse the Company pursuant to the tax allocation agreement for federal tax losses the Company sustains subsequent to consummation of the transactions. In prior periods, the Company has received substantial cash payments from its tax losses utilized by Seagate Technology, which it has used to reduce its obligations to Seagate Technology under the revolving loan agreement. As a result of the termination of the tax allocation agreement with Seagate Technology, the Company may not be able to convert any future tax losses into cash. The income tax benefit recorded by the Company for the six months ended December 29, 2000 of $2.5 million includes $4.0 million of tax benefit recorded pursuant to the tax allocation agreement through November 22, 2000 offset by other income tax expenses. The effective tax rate used to record the income tax benefit for the six months ended December 29, 2000 differs from the U.S. federal statutory rate primarily due to an increase in the valuation allowance for U.S. deferred tax assets arising subsequent to the termination of the tax allocation agreement on November 22, 2000 and push-down accounting charges that are nondeductible in foreign jurisdictions. The effective tax rate used to record the income tax benefit for the six months ended December 31, 1999 was less than the U.S. federal statutory rate primarily due to nondeductible expenses incurred in foreign jurisdictions in connection with the October 1999 recapitalization and reorganization of Crystal Decisions, including the October 1999 Seagate Exchange of Shares. FISCAL YEAR ENDED JUNE 30, 2000 COMPARED TO FISCAL YEAR ENDED JULY 2, 1999 AND FISCAL YEAR ENDED JULY 3, 1998 REVENUES Total revenues decreased 11% to $126.5 million in fiscal 2000 from $141.8 million in fiscal 1999 and increased 22% in fiscal 1999 from $116.0 million in fiscal 1998. In each year presented, a majority of our revenues were derived from license fees for our products. The decline in revenues in fiscal 2000 was due to a decline in licensing revenues. We also derive revenues from technical support, training activities, consulting services and maintenance related to the licensing of our products. The increase in revenues in fiscal 1999 as compared to fiscal 1998 was a result of increases in licensing revenues and maintenance, support and services revenues. In fiscal 2000, fiscal 1999 and fiscal 1998, revenues from a third-party customer, Ingram, accounted for more than 10% of consolidated revenues for a total of $25.3 million, $18.3 million and $16.8 million, respectively. 111 As a percentage of total revenues, our sales returns and allowances decreased to 1% in fiscal 2000 from 1.5% in fiscal 1999 and 2% in fiscal 1998. The decrease is primarily attributable to decreased distributor returns reflecting the maturity of our products. LICENSING REVENUES. Licensing revenues decreased 19% to $74.2 million, or 59% of revenues, in fiscal 2000 from $92.0 million, or 65% of revenues, in fiscal 1999 and increased 13% in fiscal 1999 from $81.2 million, or 70% of revenues, in fiscal 1998. The decline in fiscal 2000 was primarily attributable to significant voluntary and involuntary turnover of our direct sales force in the first half of the year. The time spent hiring and training new sales personnel resulted in lower productivity of the sales force in fiscal 2000 than prior years. This resulted in a decline in license sales of our direct sales dependent products, such as Seagate Info and Seagate Holos. We rebuilt our direct sales force throughout the year to near fiscal 1999 levels and intend to continue to invest in this area in fiscal 2001. The absolute dollar increase in fiscal 1999 license revenues was due primarily to increased sales of Crystal Reports and Seagate Info and an expansion of our direct and indirect sales channels. Our direct sales include corporate licensing and other direct sales to users while our indirect sales include distribution and OEM sales. MAINTENANCE, SUPPORT AND SERVICES REVENUES. Maintenance, support and services revenues increased 5% to $52.3 million in fiscal 2000 from $49.7 million in fiscal 1999 and increased 43% in fiscal 1999 from $34.7 million in fiscal 1998. As a percentage of total revenues, maintenance, support and services revenues increased to 41% of total revenues in fiscal 2000 from 35% in fiscal 1999 and 30% of total revenues in fiscal 1998. The year-over-year increases in maintenance, support and services revenues were attributable to the higher cumulative installed customer base, which resulted in increased sales of maintenance agreements and training and consulting services. We expect revenues from maintenance, support and services to continue to grow as our installed base of customers expands. Revenues by geographic location were as follows:
FISCAL YEAR ------------------------------------------ 1998 1999 2000 ------------ ------------ ------------ (IN THOUSANDS) Revenues by geography: United States ......... $ 78,932 $ 86,945 $ 83,080 Europe ................ 25,760 38,625 28,570 Other ................. 11,260 16,187 14,868 --------- --------- --------- $ 115,952 $ 141,757 $ 126,518 ========= ========= =========
Revenues from sales in Europe and other regions outside of the United States represented 34%, 39% and 32% of total revenues for the fiscal years ended 2000, 1999 and 1998, respectively. Combined revenues from sales in Europe and other regions outside of the United States declined in total by 21% to $43.4 million in fiscal 2000 from $54.8 million in fiscal 1999 because the turnover in our direct sales force was greater in Europe than in the United States. Revenues from sales in Europe and other regions outside of the United States increased by 48% in fiscal 1999 from $37.0 million in fiscal 1998 because of the expansion of our direct and indirect sales channels in Europe and other regions outside of the United States during fiscal 1999. To date, seasonal reductions in business activity in the summer months in Europe and certain other regions have not had a material impact on our operating results. COST OF REVENUES Cost of revenues decreased 10% to $44.0 million in fiscal 2000 from $48.7 million in fiscal 1999 and increased 36% in fiscal 1999 from $35.8 million in fiscal 1998. As a percentage of total revenues, cost of revenues was 34% in fiscal 2000, 34% in fiscal 1999 and 31% in fiscal 1998. The absolute dollar decrease in cost of revenues in fiscal 2000 was a result of a $9.0 million decline in amortization and write-off of developed technologies, offset by increased salaries and benefit 112 expenses related to increased technical support and professional services personnel. The increase in cost of revenues in fiscal 1999 compared to fiscal 1998 was a result of increases in technical support and consulting personnel to support revenues growth, and an increase in amortization and write-off of developed technologies in fiscal 1999. Our gross margins, as a percentage of total revenues, decreased from 69% for fiscal 1998 to 66% of total revenues for both fiscal 1999 and fiscal 2000 in response to increases in maintenance, support and service revenues which generally have lower margins than licensing revenues. COST OF LICENSING REVENUES. The cost of licensing revenues decreased 3% to $4.1 million in fiscal 2000 from $4.2 million in fiscal 1999, but increased 31% in fiscal 1999 from $3.2 million in fiscal 1998. As a percentage of licensing revenues, cost of licensing revenues increased to 6% in fiscal 2000 from 5% in fiscal 1999 and 4% in fiscal 1998. The increased cost of licensing revenues as a percentage of licensing revenues in fiscal 2000 was due in part to a write-down of obsolete product materials. The increase in cost of licensing revenues in absolute dollars in fiscal 1999 as compared to fiscal 1998 was due primarily to the increased volume of shipments during the year. COST OF MAINTENANCE, SUPPORT AND SERVICES REVENUES. The cost of maintenance, support and services revenues increased 13% to $39.7 million in fiscal 2000 from $35.2 million in fiscal 1999 and increased 33% in fiscal 1999 from $26.4 million in fiscal 1998. The increases in both periods were primarily due to expansion of our professional services workforce to support the growth in training and consulting revenues and an increased number of technical support representatives. As a percentage of maintenance, support and services revenues, cost of maintenance, support and services revenues were 76% in fiscal 2000, 71% in fiscal 1999 and 76% in fiscal 1998. The percentage increase in fiscal 2000 was due to increases in maintenance, support and services personnel and related salaries and benefits. The percentage decrease in fiscal 1999 compared to fiscal 1998 was due to increased maintenance, support and services revenues in fiscal 1999. AMORTIZATION AND WRITE-OFF OF DEVELOPED TECHNOLOGIES. Amortization and write-off of developed technologies decreased 98% to $198,000 in fiscal 2000 from $9.2 million in fiscal 1999, but increased 51% in fiscal 1999 from $6.1 million in fiscal 1998. As a percentage of total revenues, amortization and write-off of developed technologies were zero in fiscal 2000, 6% in fiscal 1999 and 5% in fiscal 1998. The decrease in the amortization and write-off of developed technologies in fiscal 2000 was primarily attributable to intangible assets that were fully amortized during fiscal 1999 and a $4.7 million write-off of various developed technologies that occurred during fiscal 1999. The increase in the amortization and write-off of developed technologies in fiscal 1999 compared to fiscal 1998 was primarily due to the $4.7 million write-off of certain developed technologies. OPERATING EXPENSES SALES AND MARKETING. Sales and marketing expenses increased 1% to $66.1 million in fiscal 2000 from $65.5 million in fiscal 1999 and increased 29% in fiscal 1999 from $50.7 million in fiscal 1998. As a percent of total revenues, sales and marketing expenses increased to 52% in fiscal 2000 from 46% in fiscal 1999 and 44% in fiscal 1998. The increases in sales and marketing expenses were primarily due to the rebuilding and expansion of our sales force and increases in marketing and promotion, including a free offer product campaign for Crystal Analysis and Seagate Info that was launched in late fiscal 1999 and continued throughout fiscal 2000. During the free offer product campaign, we provided former and potential customers, unconditionally, with a limited number of licenses for each promotional product free of charge, with no related purchase obligations or rights for additional products. As this campaign was strictly a marketing strategy and was not directly or indirectly connected with revenues or products and services to be provided to those receiving the free products, we expensed the cost of the program as incurred. Additionally, in fiscal 1999 these expenses included allocations from Seagate Technology for the proportional cost of television and newspaper advertisements. The increase in sales and marketing expenses as a percentage of revenues in fiscal 2000 was a result of the decline in productivity of the direct sales force due to the turnover of the direct sales force. We expect sales and marketing expenses to increase in fiscal 2001 as we continue to expand our sales force. 113 RESEARCH AND DEVELOPMENT. Research and development expenses increased 17% to $24.9 million in fiscal 2000 from $21.2 million in fiscal 1999 and increased 31% in fiscal 1999 from $16.2 million in fiscal 1998. As a percentage of total revenues, research and development expenses increased to 20% in fiscal 2000 from 15% in fiscal 1999 and 14% in fiscal 1998. The increases in research and development expenses were primarily due to increases in personnel and related expenses and occupancy costs for fiscal 2000 and fiscal 1999, partially offset by reductions in localization and equipment expenses during fiscal 2000. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 51% to $20.9 million in fiscal 2000 from $13.8 million in fiscal 1999 and decreased 8% in fiscal 1999 from $15.1 million in fiscal 1998. As a percent of total revenues, general and administrative expenses increased to 17% in fiscal 2000 from 10% in fiscal 1999 and decreased in fiscal 1999 from 13% in fiscal 1998. The increase in general and administrative expenses in fiscal 2000 was primarily attributable to increases in personnel costs, increased legal and accounting expenses associated with increased public reporting requirements during fiscal 2000 and an increase in bad debt expenses. The decrease in fiscal 1999 as compared to fiscal 1998 was primarily due to a provision for a legal action against us in fiscal 1998, partially offset by lower salaries and benefits and overhead costs in fiscal 1998 compared to fiscal 1999. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill and other intangibles decreased 36% to $3.0 million in fiscal 2000 from $4.8 million in fiscal 1999 and increased 51% in fiscal 1999 from $3.2 million in fiscal 1998. As a percentage of total revenues, amortization of goodwill and other intangibles decreased to 2% in fiscal 2000 from 3% in each of fiscal 1999 and fiscal 1998. The decrease in amortization of goodwill and other intangibles in fiscal 2000 was attributable to intangible assets that were fully amortized in fiscal 1999. The absolute dollar increase in fiscal 1999 compared to fiscal 1998 was primarily due to a write-off of the carrying value of intangibles of $1.5 million in fiscal 1999 due to asset values that had become impaired. UNUSUAL ITEMS. Unusual items represented the compensation expense and associated expenses attributable to our employees related to the June 1999 Seagate Technology Exchange Offer and the October 1999 Seagate Technology Exchange of Shares. Unusual items amounted to $242.6 million in fiscal 2000 and $86.7 million in fiscal 1999. There were no unusual items in fiscal 1998. As a percent of total revenues, unusual items increased to 192% in fiscal 2000 from 61% in fiscal 1999. Unusual items in fiscal 2000 were a result of the October 1999 Seagate Technology Exchange of Shares. In connection with the merger of Seagate Daylight Merger Corp. with and into Seagate Software Holdings, Seagate Software Holdings' minority stockholders and optionees received payment in the form of 3.23 shares of Seagate Technology common stock per share of Seagate Software Holdings common stock, less any amounts due for the payment of the exercise price of unexercised options. Seagate Technology accounted for the exchange of shares of its common stock for stock options in Seagate Software Holdings held by employees and stock held by employees and vested less than six months as the settlement of an earlier stock award. Seagate Technology recorded compensation expense of $283.6 million, plus $2.1 million of employer portion of payroll taxes related to the purchase of a minority interest in Seagate Software Holdings. Of the $283.6 million of compensation expense, $239.6 million of compensation expense was allocated to us on the basis of employees specifically identified with our business and employees that performed services for us on the basis of time estimates. In addition, the $2.1 million of the employer portion of payroll taxes paid related to our employees and therefore we recorded it as an expense. We also incurred legal and accounting costs of $877,000 with respect to this transaction. Unusual items in fiscal 1999 were a result of the June 1999 Seagate Technology Exchange Offer. Seagate Technology exchanged shares of its common stock for shares of Seagate Software Holdings common stock owned by employees, directors and consultants of Seagate Software Holdings and its parent and subsidiaries. For those shares outstanding and vested less than six months, Seagate Software Holdings recorded compensation expense of $102.5 million, which was 114 equal to the fair value of the shares purchased less the original purchase price paid by the employees, plus $630,000 of employer portion of payroll taxes. Of the $102.5 million of compensation expense, Seagate Software Holdings allocated $77.5 million of compensation expense to us on the basis of employees specifically identified with our business and employees that performed services for us on the basis of time estimates. In addition, the $630,000 of employer portion of payroll taxes paid, related to our employees and therefore we recorded it as an expense. We also expensed the $8.6 million of compensation expense for the purchase of unvested stock options related to certain of our continuing employees. We established new non-compensatory stock option plans in fiscal 2000 for participation by our employees, directors and consultants. We did not record any compensation expense under these plans in fiscal 2000. RESTRUCTURING COSTS. Restructuring charges were $1.3 million in fiscal 2000, representing 1% of total revenues. The charges resulted from a company-wide restructuring plan announced in October 1999 to realign resources to better manage and control our business. The charges were comprised of severance and benefits paid to approximately 125 employees from various locations and departments, including direct sales force personnel, who were terminated on October 23, 1999. The decline in our direct sales force as part of this restructuring contributed to the decline in revenues during fiscal 2000 compared to fiscal 1999. The restructuring charges were paid during fiscal 2000 and no amounts were outstanding as of June 30, 2000. Any benefits in the form of cost reductions because of reduced salary costs have been realized during the year and are not expected to continue. INTEREST AND OTHER INCOME (EXPENSE), NET Interest and other income (expense), net consists of interest income, interest expense and net foreign currency exchange gain. Interest and other income (expense), net decreased 64% to $20,000 in fiscal 2000 from $56,000 in fiscal 1999 and decreased 90% in fiscal 1999 from $534,000 in fiscal 1998. Interest and other income (expense), net fluctuates on a year-to year basis depending on fluctuations in Seagate Technology's in-house portfolio yield, LIBOR, our net outstanding loan balance with Seagate Technology and foreign currency exchange rates. Interest is computed on the outstanding loan balance from Seagate Technology on a monthly basis at LIBOR plus 2% per annum. The outstanding loan balance fluctuates depending on working capital required to fund operations, offset by or in addition to amounts due or receivable from Seagate Technology under a tax allocation agreement we have with Seagate Technology. Interest income and expense fluctuate from year to year because of fluctuations in the net outstanding loan balance during the year. The net foreign currency exchange gain or loss represents the impact of foreign currency fluctuations on the translation of foreign currency transactions into U.S. dollars and varies depending upon currency exchange rates. INCOME TAXES We recorded a $55.1 million benefit from income taxes at an effective rate of 20% in fiscal year 2000 compared with a $2.5 million benefit from income taxes at an effective rate of 3% in fiscal year 1999, and with an $8.8 million provision for income taxes at an effective rate of 197% in fiscal year 1998. The effective rate used to record the benefit from income taxes in fiscal year 2000 was less than the U.S. federal statutory tax rate primarily due to non-deductible compensation expense for certain employees related to the October 1999 Seagate Technology Exchange of Shares and foreign tax rates that were in excess of the U.S. federal statutory tax rate. The effective rate used to record the benefit from income taxes in fiscal year 1999 was less than the U.S. federal statutory tax rate primarily due to non-deductible compensation expense for certain employees associated with the June 1999 Seagate Technology Exchange Offer and increases in the valuation allowance for deferred tax assets. The effective rate used to record the provision for income taxes in fiscal year 1998 was greater than the U.S. federal statutory tax rate, primarily due to increases in the valuation allowance for deferred tax assets and due to foreign tax rates that were in excess of the U.S. federal statutory tax rate. 115 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. INTEREST RATE RISK. As of December 29, 2000 our cash balances were mostly held by our foreign operations. The remainder of our cash balances are centrally managed by New SAC. If cash from operations is not sufficient to fund working capital and operating activities, Seagate Technology LLC provides financing to us through a revolving loan agreement. The revolving loan agreement provides for maximum outstanding borrowings of up to $60.0 million and was renewed on July 4, 2000. As of December 29, 2000 and June 30, 2000, the revolving loan balance was a net receivable from Seagate Technology and its affiliates of $31.3 million and $25.7 million, respectively. Beginning in fiscal 2001, we earned interest income on a monthly basis on net receivable balances outstanding at a rate calculated to be Seagate Technology LLC's in-house portfolio yield (an average of 7.67% for the six months ended December 29, 2000) and were charged interest expense on a monthly basis on net amounts payable at LIBOR plus 2% (8.63% for the six months ended December 29, 2000). During fiscal 2000, we paid or earned interest at LIBOR plus 2% per annum on net outstanding balances payable or receivable. The average rate of interest was 7.85% for the year ended June 30, 2000. Our interest income or expense, therefore, will fluctuate depending on fluctuations in Seagate Technology LLC's in-house portfolio yield, LIBOR and fluctuations in the amounts borrowed from Seagate Technology to fund working capital and operating activities. Net interest income of $830,000 and net interest expense of $1,089,000 were incurred on the net receivable/loan balance for the six months ended December 29, 2000 and six months ended December 31, 1999, respectively. FOREIGN CURRENCY RISK. A majority of our sales are in the United States and therefore are recorded in U.S. dollars, the currency in which we report our operating results. We conduct a portion of our business in currencies other than the U.S. dollar. The functional currency of most of our foreign operations is the local currency. In such cases, assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Translation adjustments resulting from this process are charged or credited to other comprehensive income. Revenues and expenses are translated at average rates of exchange prevailing during the year. Gains and losses on foreign currency transactions are included in other expenses. For those foreign operations whose functional currency is the U.S. dollar, financial results are translated using a combination of current and historical exchange rates and any translation adjustments are included in net earnings, along with all transaction gains and losses for the period. Historically, we have generated revenues and incurred a significant proportion of our expenses in Canadian Dollars, Deutsche Marks, British Pounds Sterling, French Francs, Australian Dollars and Japanese Yen and we expect to generate a portion of our revenues and expenses in the Euro in the future. Certain European Union member states have fixed the value of their respective national currencies to the Euro, and our results of operations are affected by the U.S. dollar to Euro exchange rate. Since the adoption of the Euro in January 1999, the overall trend for the Euro has been a devaluation compared to the U.S. dollar. During the six months ended December 29, 2000, approximately 4% of our revenues were denominated in currencies for which a fixed value to the Euro has been established. Historically, none of our foreign operations have significant transactions in the Euro; however, we anticipate implementing Euro-based transactions before July 2001. To date, the foreign exchange gains and losses on transactions and revenues reported by our foreign subsidiaries have not been significant. In addition, since most of our foreign operations conduct business in their local currency, our earnings are not significantly impacted by fluctuations in exchange rates. Translation adjustments from consolidation of such foreign operations are presented within comprehensive income. However, we cannot provide any assurance that foreign currency denominated transactions will continue to be insignificant as revenues from the foreign operations increase or if there are significant exchange rate fluctuations. We cannot predict the effect of exchange rate fluctuations upon our future operating results. For the six months ended December 29, 2000, we did not engage in a foreign currency hedging program to reduce any exposure we may have had. For the six months ended December 29, 2000, a combined variation of 10% of the exchange rates of the main currencies in 116 which we conduct business, the Canadian Dollar, the Australian Dollar, the Euro, the British Pound Sterling and the Japanese Yen, would have generated a combined 1% variation of our revenues, offset by a 5% combined variation of expenses. 117 ADDITIONAL DISCUSSION -- RELEVANT TO ALL OF NEW SAC, SEAGATE TECHNOLOGY HOLDINGS, SEAGATE TECHNOLOGY SAN HOLDINGS, SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND CRYSTAL DECISIONS EFFECT OF ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138. SFAS 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133," which deferred the effective date of SFAS 133 until fiscal years beginning after June 15, 2000. We adopted SFAS 133, 137 and 138 on July 1, 2000. This adoption had no impact on our consolidated and combined results of operations, financial position and cash flows. In December 1999, the Securities and Exchange Commission issued SAB 101 "Revenue Recognition in Financial Statements." SAB 101 provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. SAB 101, will become effective for us for the fiscal year ending June 2001, was effective for years beginning after December 15, 1999. SAB 101 is not expected to have a significant effect on our consolidated results of operations, financial position, or cash flows. In March 2000, the FASB issued FIN No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of APB Opinion No. 25," or FIN 44. FIN 44 clarifies the application of APB Opinion No. 25 and, among other issues, clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequences of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The application of FIN 44 did not have a material impact on our results of operations, financial position, or cash flows. LIQUIDITY AND CAPITAL RESOURCES Following the closing of the transactions, our principal liquidity requirements are to service our debt and meet our working capital, research and development and capital expenditure needs. As a result of the transactions that closed on November 22, 2000, we are significantly leveraged. As of December 29, 2000, we had outstanding $904 million in aggregate debt, excluding unused commitments, with approximately $144 million of additional borrowing capacity available under the senior credit facilities and total shareholders' equity of $759 million. For fiscal year 2000 and the six months ended December 29, 2000, our ratio of earnings to fixed charges, would have been 2.8 to 1 and 5.0 to 1, respectively on a pro forma basis. As a result, our liquidity requirements have significantly increased, primarily due to increased debt service obligations. For fiscal year 2000 and the six months ended December 29, 2000, our interest expense on a combined basis was $52 million and $34 million, respectively. We believe that cash flow from operating activities, together with our existing cash and borrowings available under the senior credit facilities, will be sufficient to fund our currently anticipated capital, debt service and working capital and research and development requirements for at least the next two fiscal years. Following this period, our ability to fund these requirements and to comply with the financial covenants under our debt agreements will depend on our future operations, performance and cash flow. These are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond our control. In addition, as part of our strategy, we intend to selectively pursue strategic alliances, acquisitions and investments that are complementary to our business. Any material future acquisitions, alliances or investments will likely require additional capital. 118 In connection with the transactions, Seagate Technology redeemed its senior notes and senior debentures, with interest rates ranging from 7.125% to 7.875%, and $700 million aggregate principal amount and Seagate Technology International, a limited liability company organized under the laws of the Cayman Islands, and one of our wholly-owned subsidiaries, issued $210 million principal amount 12.5% senior subordinated notes due 2007 in a private offering and borrowed $200 million and $500 million under term loans that mature from March 31, 2001 to September 30, 2006. The proceeds from the sale of the notes and term loans, together with bank borrowings and equity contributions were used to fund the payment of the purchase price under the stock purchase agreement and to pay related fees and expenses At November 22, 2000, Seagate Technology's cash and cash equivalents totaled $2.144 billion. This balance was acquired by VERITAS in the merger transaction. At June 30, 2000, Seagate Technology's cash and cash equivalents totaled $875 million. The increase of $1.269 billion between June 30, 2000 and November 22, 2000 was primarily a result of $1.016 billion in cash received from maturities and sales of short-term investments in excess of purchases of short-term investments, $918 million for the sale of Seagate Technology's operating assets to New SAC and $105 million provided by operating activities. This increase was partially offset by $812 million for repayment of long-term debt. New SAC was incorporated on August 10, 2000, but operating activities did not commence until November 23, 2000. At December 29, 2000, our cash, cash equivalents and short-term investments totaled $850 million. The issuance of long-term debt, net of issuance costs, of $860 million and short-term investments acquired, of $118 million was partially offset by cash paid for Seagate Technology's operating assets, net of cash acquired, of $918 million and $89 million of cash used in operating activities. Until required for other purposes, our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. Our short-term investments consist primarily of readily marketable debt securities with remaining maturities of more than 90 days at the time of purchase. As of December 29, 2000, we had committed lines of credit of $200 million that can be used for standby letters of credit or bankers' guarantees. At December 29, 2000, $56 million of these lines of credit were utilized. In fiscal 2001, we invested approximately $238 million in property and equipment through November 22, 2000, and we invested $43 million through December 29, 2000. We anticipate investments of approximately $300 million in property and equipment for the remainder of fiscal 2001. We plan to finance these investments from existing cash balances and cash flows from operations. The combined $281 million year-to-date investment comprised: $143 million for manufacturing facilities and equipment related to our subassembly and disc drive final assembly and test facilities in the United States, Asia Pacific and the United Kingdom; $66 million for our manufacturing facilities and equipment for the recording head operations in the United States, Northern Ireland, Thailand and Malaysia; $33 million to upgrade the capabilities of our thin-film media operations in the United States, Singapore and Northern Ireland; and $39 million for other purposes. We expect to incur debt attributable to two sale/leaseback transactions which we expect to enter into by the end of fiscal year 2001 for our Longmont, Colorado and Shakopee, Minnesota research and development facilities. We expect that the debt attributable to these sale/leaseback transactions will be up to $120 million. We believe that our cash balances together with cash flows from operations and our borrowing capacity will be sufficient to meet our working capital needs for the foreseeable future. 119 INDUSTRY The amount of data stored and accessed electronically has been growing due to several factors which we believe will continue in the future. These factors principally include the expansion of the Internet, the increased volume of shared information made possible by the growth of high speed broadband communications, the development of sophisticated software applications to generate and manage increasing volumes of data and the development of new consumer applications incorporating high quality audio and video data, which require a substantially greater amount of storage capacity than text data. Rigid disc drives are the primary devices used for storing, managing and protecting electronic data. Storing, managing and protecting electronic data has become increasingly important to most businesses and large organizations and, we believe, will continue to be important to them in the future. According to Dataquest, the total storage capacity of all rigid disc drives shipped has grown by more than 114.8% on a compound basis each year between 1996 and 2000 and the annual total storage capacity of all rigid disc drives to be shipped is expected to grow at a compound annual rate of approximately 113.9% between 2001 and 2005. o THE INTERNET. The Internet has had a substantial impact on businesses worldwide. Its expansion has created access to new information at accelerated rates. Numerous companies have installed sophisticated websites, corporate intranets and e-mail systems as critical parts of their information technology systems, all of which require substantial storage capacity. In the emerging field of e-commerce, we expect that the volume of data of various kinds that will be distributed over the Internet among businesses' networked computer systems will grow rapidly to handle interactive, simultaneous exchanges of information among businesses and their customers and suppliers. o BROADBAND COMMUNICATIONS. The proliferation of high-speed, worldwide communications networks has substantially increased the amount of electronic information which is delivered and stored. New Internet-based businesses, such as application service providers and web hosting services, have emerged to deliver high performance applications over the Internet using broadband communications. Broadband connectivity will also facilitate the proliferation of highly data intensive applications, including video conferencing. High-speed communications enhances the need for high performance information storage. o SOPHISTICATED SOFTWARE APPLICATIONS. Many businesses and other applications have implemented sophisticated software, such as enterprise resource planning, e-mail, intranets and supply chain management tools, that are used on a daily basis to manage their operations. These applications generate substantial amounts of data, including text, video and voice data. o NEW CONSUMER APPLICATIONS. New types of data, such as graphic images and high-fidelity audio and video, are being converted into digital format that create a need for greater storage capacity. Emerging consumer devices, such as MP3 players, digital video recorders and next-generation television set top boxes, retrieve audio and video data through an Internet connection and store the data locally on the device for playback. These devices and other emerging applications, such as video conferencing, voice recognition and natural language processing, are highly data intensive. We primarily compete in the rigid disc drive sector of the information storage industry and also participate in the tape drive, intelligent storage solutions, consumer information storage devices through our recently formed joint venture with CacheVision and business intelligence software sectors. We provide a summary of each below. RIGID DISC DRIVES. Rigid disc drives comprise the largest sector of the information storage industry and are the leading medium for storing electronic data. Compared to other storage media, rigid disc drives offer a combination of high performance, as measured by storage/retrieval access times and data transfer rates, reliability and cost-per-megabyte of storage. Frequent improvements and incremental innovation in rigid disc drive technology have contributed to widespread use of rigid disc drives compared to alternative data storage devices such as semiconductor-based memory, tape storage and optical storage. Rigid disc drives are integrated in various products in the following three main markets: 120 o ENTERPRISE. The enterprise market includes Internet and e-commerce servers, mainframes, workstations, network file and enterprise/department servers and RAIDs, each of which use rigid disc drives as their primary storage medium. RAIDs are devices that combine multiple small rigid disc drives into an array that results in performance equal to or exceeding a single high performance rigid disc drive. Applications that run on enterprise systems are characterized by compute-intensive and data-intensive solutions, such as network management, large database management systems, scientific applications and small to medium-sized business applications such as materials requirement planning, payroll, general ledger systems and related management reports. Enterprise systems typically require rigid disc drive storage capacities of 18 gigabytes and greater per drive, average seek times of 8 milliseconds or less and rotation speeds of 7,200 rpm to 15,000 rpm. Due to the leading edge characteristics required by end-users of enterprise systems, manufacturers of these systems compete on the basis of performance and price. The enterprise market is characterized by higher value-added products than those that prevail in the desktop market. Dataquest estimates that total unit shipments of enterprise class rigid disc drives will grow at a compound annual rate of 5.4%, from 22.2 million in 1999 to 30.5 million in 2005. o DESKTOP COMPUTERS. The desktop market includes all desktop or deskside PCs, which are used in a number of environments, ranging from homes to small and large businesses. The PC is in the process of evolving from a traditional computing device into a computing and communications appliance. Desktop rigid disc drives are the primary storage devices in substantially all desktop PCs and, we expect, will be increasingly used in non-PC environments, such as new consumer audio and video applications. Dataquest estimates that total unit shipments of desktop class rigid disc drives will grow at a compound annual rate of 15.4%, from 130.2 million in 1999 to 307.9 million in 2005. o MOBILE COMPUTING. The mobile computing market includes portable notebook and laptop PCs, hand-held computers and personal digital assistants, which may use 1.0 inch, 1.8 inch or 2.5 inch rigid disc drives, and require rigid disc drives with low power consumption and high durability. Dataquest estimates that total unit shipments of rigid disc drives in this market will grow at a compound annual rate of 17.9%, from 22 million in 1999 to 59.2 million in 2006. Although we no longer manufacture products for the mobile computing market, we will continue our research and development in this area and may reenter the market at a future date. The rigid disc drive market is characterized by frequent technological change and resulting short product life cycles, increasing manufacturing efficiencies for a given product over time, price erosion, capital intensive manufacturing processes and consolidation among manufacturers. In response to customer demand and innovation by manufacturers, rigid disc drives have been subject to frequent technological change. Product cycles have been as short as six months, with most of the innovation centering around increasing areal density through refinements in key components, such as read/write heads and recording media. Areal density is a measure of storage capacity per square inch on the recording surface of a disc and represents the number of bits of information on a linear inch of the recording track, specified in bits per inch, multiplied by the number of recording tracks on a radial inch of the disc. Areal densities have increased dramatically to offer higher performance, more cost-effective rigid disc drives. At the same time, greater manufacturing efficiencies and cost improvements and competition within the rigid disc drive industry have caused the average selling prices of rigid disc drives to decrease. In response to customer demand for high quality, high volume and low cost rigid disc drives as subsystems for their computer and data communications equipment, manufacturers of rigid disc drives have had to develop large, in some cases global, production facilities with highly developed technological capability and internal controls. As a result, these manufacturing processes are capital intensive. Due to the factors discussed above, the industry has undergone consolidation. According to Dataquest, there were 58 rigid disc drive manufacturers in 1988 and only 10 that shipped significant product volumes in 2000. At the same time, unit shipment volume increased from 15.8 million rigid disc drives in 1988 to 199.6 million rigid disc drives in 2000. 121 TAPE DRIVES. Tape drives use removable tape cartridges that store and protect large volumes of data inexpensively and reliably. Tape drives take longer to retrieve data than rigid disc drives and, therefore, are generally used to store less frequently used data. Tape drives are used in both enterprise and desktop computer systems needing dedicated backup storage that combines high capacity, portability, low cost and reliability. The tape drive sector is mature and is characterized by increasing competition from alternative and next generation technologies. An example of a next generation technology is linear tape-open, an open tape architecture for midrange and enterprise-class servers. INTELLIGENT STORAGE SOLUTIONS. The growth of e-commerce data and the need for complex storage solutions have spurred the evolution of new storage and data management technologies. These new solutions combine high performance storage products, comprised principally of rigid disc drives, with sophisticated software and communications technologies. We expect that the market for these solutions will grow rapidly and will result in greater opportunities for the sale of rigid disc drives. Intelligent storage solutions include the following: o STORAGE AREA NETWORKS. Increasingly, businesses require large volumes of information stored on networks to be transferred at high speeds either for use with high performance software applications or for back-up purposes. To achieve this higher performance, businesses are offloading some network traffic to dedicated storage area networks, or SANs. SANs are a networking architecture that allows data to move efficiently and reliably between multiple storage devices and servers through a local area network. SANs connect a network of servers to a network of storage devices, reducing bottlenecks and increasing users' access to stored data. SANs require new generations of data communications equipment and data storage devices, which principally use rigid disc drives, to service the high data availability needs of enterprises. Dataquest estimates that the sales of external storage units used in SANs will grow at a compound annual rate of 136% from $370 million in 1998 to $27.1 billion in 2003. o NETWORK ATTACHED STORAGE. We believe that there is a trend away from the use of server attached storage to network attached storage, or NAS. In a server attached storage device, network information is primarily stored on rigid disc drives attached to general purpose servers. NAS is a storage architecture featuring an intelligent device that combines an array of rigid disc drives with some basic server functions which are specialized for storing and serving data files. NAS devices reduce demands on servers and are often a lower-cost alternative to buying general purpose servers or adding rigid disc drives to existing servers. Dataquest estimates that sales of NAS devices will grow at a compound annual rate of 65% from $591 million in 1999 to $7.3 billion in 2004. CONSUMER INFORMATION STORAGE DEVICES. High performance computing and communications functions and, increasingly, rigid disc drives are being incorporated into consumer appliances such as video games, digital video recorders and advanced television set-top boxes. In addition, faster connections to the Internet and increased broadband capacity have stimulated consumers to download greater amounts of text, video and audio data. These trends have expanded the market for rigid disc drives for use in new consumer and entertainment appliances. These trends have also created the potential for new consumer storage devices, such as a media tank, which enables consumers to store data downloaded from the Internet or other sources in a centralized location. BUSINESS INTELLIGENCE SOFTWARE. Business intelligence software provides users with the ability to access and analyze information, which is typically contained in a data warehouse, by using technologies such as enterprise reporting, on-line analytical processing, statistical analysis, forecasting and data searching. 122 BUSINESS OUR COMPANY We are a leading designer, manufacturer and marketer of products for storage, retrieval and management of electronic data on computer and data communications systems. Businesses, other organizations and individuals use rigid disc drives as the primary medium for storing electronic information in computer systems ranging from desktop computers to data centers delivering information over corporate networks and the Internet. We produce a broad range of rigid disc drive products and are a leader in both the enterprise (primarily Internet servers, mainframes and workstations) and desktop (personal computers, or PCs) sectors of the rigid disc drive industry. According to Dataquest, our shares of unit shipments for the enterprise and desktop sectors of the rigid disc drive industry, for calendar 2000, were 44.3% and 22.5%, respectively. We also design, manufacture and market tape drives and intelligent storage solutions and are a leading provider of business intelligence software. Our advanced research and development capabilities, combined with our vertically integrated manufacturing facilities, enable us to be a leader in bringing high quality, next generation information storage products to market. For the six months ended December 29, 2000, we generated combined revenue of approximately $3.46 billion and combined EBITDA of approximately $492 million. Our rigid disc drive operations accounted for 94% of our combined revenue and 76% of our combined gross profit for the six months ended December 29, 2000. We sell our rigid disc drives primarily to major OEMs, and also market to distributors under our globally recognized brand name. For the twelve months ended December 29, 2000, approximately 67% of our rigid disc drive revenue was from sales to OEMs, including customers such as Compaq, Dell, EMC, Hewlett Packard, International Business Machines and Sun Microsystems. We have longstanding relationships with many of these OEM customers, such as Compaq, our largest customer, which we have served for approximately 18 years. We also have key relationships with major distributors, who sell our rigid disc drive products to small OEMs, dealers, system integrators and retailers in most geographic areas of the world. For the twelve months ended December 29, 2000, approximately 42% of our revenue was from customers located in North America, approximately 33% was from customers located in Europe and approximately 25% was from customers located in Asia. Substantially all of our revenue is denominated in U.S. dollars. COMPETITIVE STRENGTHS According to Dataquest, we were the world's largest manufacturer of rigid disc drives during calendar 2000, with a market share of 21.5% of all rigid disc drive units shipped during that period. We expect to remain one of the largest manufacturers of rigid disc drives for the foreseeable future. We believe our leadership position is largely the result of our ability to deliver high quality product performance and reliability at low cost. We believe that the following competitive strengths enable us to consistently meet the needs of our customers. TECHNOLOGICAL LEADERSHIP. We believe that we invest substantially more in research and development than any of our independent competitors. Our size and market leadership enable us to make these investments over a broad product portfolio and to make timely improvements in product and component design, manufacturing techniques and efficiency. We have a long history of investing in future technologies, introducing innovative products to the market and increasing the capacity and performance of our products. For example, since 1989, we have been first to market with 5,400-rpm technology (our Elite families), 7,200-rpm technology (our Barracuda families) and 10,000-rpm technology (our Cheetah families). In June 2000, we became the first drive maker to introduce and ship 15,000-rpm technology with our 18GB Cheetah X15 drives. LOW COST PRODUCER. We believe that our ability to manufacture high volumes of rigid disc drives with rapid integration of design changes, together with the size and scale of our vertically integrated operations, give us important cost advantages over most of our competitors. In four of the last five calendar years, we believe that we have maintained the highest gross profit margin of any 123 manufacturer which produces rigid disc drives as a stand alone product rather than as a product integrated in complete computer or other systems. We are engaged, and expect in the future to engage, in cost reduction programs, primarily involving manufacturing facility reductions, work force reductions and increased use of automation and other manufacturing efficiencies. CONTROL OVER CRITICAL COMPONENTS. We internally design and/or manufacture several of the critical components of rigid disc drives that are essential to increasing performance and storage capacity. For example, we internally design and manufacture at least 80% of the read/write heads and recording media that we require in any given quarter and assemble almost all of our printed circuit boards. This vertical integration enables us to accelerate our time to market with new products and to offer greater value to our customers by reducing costs, controlling quality and ensuring availability of these components. We believe that we are the only vertically integrated independent manufacturer with research and design capability. BROAD PRODUCT OFFERING. We produce a broad range of enterprise and desktop rigid disc drive products. Our broad product range contributes to our market leadership and enables us to leverage our research and development efforts, global distribution channels and manufacturing capacity. We design and develop our product lines to meet the precise and changing requirements of our customers. We also build upon our disc drive expertise to deliver new products in high growth areas such as intelligent storage solutions and consumer storage devices, which use rigid disc drives as their primary storage medium. LONGSTANDING CUSTOMER RELATIONSHIPS. Our rigid disc drives are essential components of the personal computers, workstations, mainframe computers and Internet storage access and networking products manufactured by our customers. Our customers include many of the leading computer OEMs and distributors that sell our products in most geographic areas of the world. We have longstanding relationships with nearly all of the leading OEM customers for enterprise products and, according to Dataquest, during calendar year 2000 we had a 44.3% market share of unit shipments of enterprise rigid disc drives. In addition, we have longstanding relationships with most of the leading OEM customers for desktop products. We collaborate with many of our OEM customers in developing new and advanced storage solutions for their next generation products. EXPERIENCED MANAGEMENT TEAM. Our seven most senior executive officers have an average of 18 years of experience in the information storage industry. Our management team has successfully implemented manufacturing efficiency plans resulting in increased unit production per employee and has facilitated the acquisition and integration of complementary businesses, technologies and strategic component manufacturers. These executive officers, together with other officers, beneficially own approximately 21% of our outstanding ordinary shares on a fully diluted basis. BUSINESS STRATEGY To maintain our position as a leading manufacturer of rigid disc drives and to meet the growing unit volume and efficiency requirements of our customers, we intend to pursue the following business strategies. LEAD TECHNOLOGICAL INNOVATION. We intend to continue investing in technology, reducing costs and accelerating our time to market with new products to strengthen our market position. Through our commitment to research and development, we plan to continue to be an innovator in the design of new rigid disc drive and component technologies. Additionally, we intend to continue to leverage our vertically integrated operations to accelerate advancements in technology and to reduce manufacturing costs. For example, we introduced the low-cost U-Series rigid disc drive product family, which targets the market for desktop PCs costing less than $1,000. As evidence of our ability to lead technological innovation during calendar year 2000, we were the market share leader in the desktop and enterprise storage sectors of the rigid disc drive industry, according to Dataquest. CAPITALIZE ON EMERGING INFORMATION STORAGE DEMAND. We believe that the growth of electronic data will create the need for higher volumes of information storage products with greater 124 storage and other capabilities. We intend to leverage our leadership in the rigid disc drive industry to provide intelligent storage solutions for a wide range of commercial and consumer applications. We expect the demand for intelligent storage solutions, such as NAS and SAN devices, which use rigid disc drives as their primary storage medium, will increase as the need for greater network storage capacity expands. We believe that the increase in demand for these products will provide us with additional opportunities for rigid disc drive sales and will offer us greater opportunities for product differentiation and increased profit. We will also continue to target potential rigid disc drive customers in growth industries, such as consumer and entertainment appliances, Internet access and networking. We have shipped rigid disc drives for consumer electronic products, such as our U-Series drives which provide the storage capacity to enable users to pause, rewind and replay live television programming. EXPAND RELATIONSHIPS WITH CUSTOMERS. We intend to increase the strength and broaden the scope of our customer relationships by expanding our design and engineering services. Our goal is to leverage our design and engineering capabilities, together with our vertical integration, to become an integrated part of our customers' supply chains. To implement this strategy, we intend to continue to collaborate with our major customers at the design and development stage of next generation products and to seek to add value to their end-user applications. In addition, we have located just-in-time inventory centers near many of our largest customers' production facilities and have placed design engineers on-site with several of our largest OEM customers. INCREASE MANUFACTURING EFFICIENCY AND FLEXIBILITY. We expect that our ongoing manufacturing and efficiency programs will significantly reduce our physical plant and head count expenses while increasing productivity. Restructuring activities in fiscal years 1998 through 2000 included closures of some facilities, personnel reductions and deployment of more efficient manufacturing processes. From the beginning of fiscal year 1999 to the end of fiscal year 2000, we reduced the number of our manufacturing employees by approximately 6,000, or 35%, while increasing our unit shipments of rigid disc drives by 28% in fiscal year 2000 compared to fiscal year 1999. For fiscal year 2001, we plan to reduce our workforce by approximately 2,000 employees, primarily in manufacturing, and also plan capacity reductions, including closures of facilities or portions of facilities. Our objective is to implement greater integration of our manufacturing processes to allow us to manufacture any of our rigid disc drive models at any of our manufacturing facilities. We believe that these ongoing efficiency activities and the scale of our global operations will permit us to maintain our position as a low cost, high quality manufacturer. CONTINUE TO PURSUE ALLIANCES, ACQUISITIONS AND INVESTMENTS. We will continue to evaluate and selectively pursue strategic alliances, acquisitions and investments that are complementary to our business. We will continue to seek opportunities that provide us with enhanced technological expertise, new markets for rigid disc drive sales, a stronger product portfolio, increased market share, next generation products and a diversification of risk. For example, in July 2000, we and Thomson Multimedia, one of the world's largest manufacturers of consumer electronic products, formed CacheVision, a joint venture, to target the growing market for consumer and entertainment appliances with integrated storage devices. OVERVIEW OF RIGID DISC DRIVE TECHNOLOGY Rigid disc drives are used in a broad range of computer systems to manage, store and protect digital information. All rigid disc drives incorporate the same basic technology although individual products vary. One or more rigid discs are attached to a spindle assembly powered by a spindle motor that rotates the discs at a high constant speed around a hub. The discs, or recording media, are the components on which data is stored and from which it is retrieved. Each disc typically consists of a substrate of finely machined aluminum or glass with a magnetic layer of a thin-film metallic material. Read/write heads, mounted on an arm assembly similar in concept to that of a record player, fly extremely close to each disc surface and record data on and retrieve it from concentric tracks in the magnetic layers of the rotating discs. The read/write heads are mounted vertically on an e-block assembly. The e-block and the recording media are mounted inside a metal casing, called the base casting. Upon instructions 125 from the drive's electronic circuitry, a head positioning mechanism, or actuator, guides the heads to the selected track of a disc where the data is recorded or retrieved. Application specific integrated circuits, or ASICs, and ancillary electronic control chips are collectively mounted on printed circuit boards. The disc drive communicates with the host computer through an internal controller, or interface. Rigid disc drive manufacturers typically use one or more of several industry standard interfaces, such as advanced technology architecture, or ATA, and fiber channel. Rigid disc drive performance is commonly assessed by five key characteristics: o storage capacity, commonly expressed in megabytes, gigabytes or terabytes, which is the amount of data that can be stored on the disc; o spindle rotation speed, commonly expressed in revolutions per minute, which has an effect on speed of access to data; o interface transfer rate, commonly expressed in megabytes per second, which is the rate at which data moves between the rigid disc drive and the computer controller; o average seek time, commonly expressed in milliseconds, which is the time needed to position the heads over a selected track on the disc surface; and o media data transfer rate, commonly expressed in megabytes per second, which is the rate at which data is transferred to and from the disc. Areal density is a measure of storage capacity per square inch on the recording surface of a disc. Current areal densities are sufficient to meet the requirements of most applications today. We expect, however, the long-term demand for increased drive capacities to increase at an accelerating rate, as audio and visual data require many multiples of the storage capacity of simple text. We have pursued, and expect to continue to pursue, a range of technologies to increase areal densities across the entire range of our products to increase drive capacities and to allow the elimination of components at a stated capacity as areal density increases, thus reducing costs. PRODUCTS RIGID DISC DRIVES We offer a broad range of rigid disc drive products for both the enterprise and desktop sectors of the rigid disc drive industry. We offer more than one product within each product family and differentiate products on the basis of price/performance and form factor, or the dimensions of the rigid disc drive. Because of rapid advancements in rigid disc drive technology, product life cycles have been as short as six months. To address this issue, we introduce new products and enhancements to our product families as we develop new technology. We list in the table below our main rigid disc drive products. 126 ENTERPRISE RIGID DISC DRIVE PRODUCTS - --------------------------------------------------------------------------------
FISCAL QUARTER STORAGE PRODUCT NAME INTRODUCED CAPACITY ROTATION SPEED INTERFACE - ---------------- ---------------- ---------------- ---------------- -------------- Barracuda 18LP 3rd Qtr. 1999 18.0 gigabytes 7,200 rpm fiber channel Barracuda 36 4th Qtr. 1999 36.0 gigabytes 7,200 rpm fiber channel Barracuda 50 4th Qtr. 1999 50.0 gigabytes 7,200 rpm fiber channel Barracuda 18XL 2nd Qtr. 2000 18.0 gigabytes 7,200 rpm fiber channel Cheetah 18LP 4th Qtr. 1999 18.0 gigabytes 10,000 rpm fiber channel Cheetah 36 1st Qtr. 2000 36.0 gigabytes 10,000 rpm fiber channel Cheetah 18XL 4th Qtr. 2000 18.0 gigabytes 10,000 rpm fiber channel Cheetah 36LP 3rd Qtr. 2000 36.0 gigabytes 10,000 rpm fiber channel Cheetah X15 4th Qtr. 2000 18.0 gigabytes 15,000 rpm fiber channel Cheetah 73 3rd Qtr. 2000 73.0 gigabytes 10,000 rpm fiber channel
DESKTOP RIGID DISC DRIVE PRODUCTS - --------------------------------------------------------------------------------
FISCAL QUARTER STORAGE PRODUCT NAME INTRODUCED CAPACITY ROTATION SPEED INTERFACE - ---------------------- ---------------- ------------------------------------- ---------------- ---------- U-8 Series 2nd Qtr. 2000 4.3, 8.4, 13.0 and 17.2 gigabytes 5,400 rpm ATA U-10 Series 3rd Qtr. 2000 10.1, 15.2 and 20.3 gigabytes 5,400 rpm ATA U-5 Series 1st Qtr. 2001 15.0, 20.0, 30.0 and 40.0 gigabytes 5,400 rpm ATA Barracuda ATA: Barracuda ATA 28040 1st Qtr. 2000 28.0 gigabytes 7,200 rpm ATA Barracuda ATA 20430 1st Qtr. 2000 20.4 gigabytes 7,200 rpm ATA Barracuda ATA 13620 1st Qtr. 2000 13.6 gigabytes 7,200 rpm ATA Barracuda ATA 10220 1st Qtr. 2000 10.2 gigabytes 7,200 rpm ATA Barracuda ATA 6810 1st Qtr. 2000 6.8 gigabytes 7,200 rpm ATA - ---------------------- ---------------- ------------------------------------- ---------------- ----------
BARRACUDA FAMILY. Commercial uses for Barracuda rigid disc drives include high-performance desktop PCs and workstations, mainframes and supercomputers, network file servers and digital audio and video image processing. CHEETAH FAMILY. Commercial uses for Cheetah rigid disc drives include Internet and e-commerce servers, data mining and data warehousing, mainframes and supercomputers, department/enterprise servers and workstations, transaction processing, professional video and graphics and medical imaging. U-SERIES FAMILY. Commercial uses for the U-series rigid disc drives include entry-level desktop PCs running popular office applications, entry-level PCs for government and education environments and desktop PCs connected to a mainframe server. Consumer uses for the U-Series family include entry-level PCs, home PCs purchased as second or third systems and discounted PCs sold in conjunction with an Internet service provider or other service provider. The U-Series family of rigid disc drives are also used in new market uses, including television set-top boxes, printers, copiers and arcade and other dedicated gaming uses. 127 BARRACUDA ATA FAMILY. Commercial and consumer uses for the Barracuda ATA family include desktop PCs used in businesses and consumer PCs used for gaming, other entertainment applications, digital photo and video editing, viewing and capturing television images and advanced spreadsheet modeling and graphics. TAPE DRIVES Tape drives use removable tape cartridges that store and protect large volumes of data inexpensively and reliably. Tape drives take longer to retrieve data than rigid disc drives and, therefore, are generally used to store less frequently used data. We produce a broad range of tape drive products for a wide range of enterprise and desktop systems. In addition, we, Hewlett-Packard and IBM created linear tape-open technology, an open tape architecture that we expect will meet the growing storage demands of midrange to enterprise-class servers with up to 200 gigabytes of data storage capacity per cartridge. For fiscal year 2000 and the six months ended December 29, 2000, tape drive revenue was $263 million and $118 million, respectively. For fiscal year 2000 and the six months ended December 29, 2000, tape drive gross profit was $70 million and $13 million, respectively. BUSINESS INTELLIGENCE SOFTWARE Crystal Decisions, one of our majority-owned subsidiaries, develops and markets software products and provides related services enabling business users and information technology professionals to store, access and manage enterprise information. Crystal Decisions' product family is designed as an integrated platform that enables access, analysis, interpretation and distribution of data to allow its customers to make business decisions. The products are used for creating, implementing and deploying enterprise information solutions in an application, on a desktop or across an organization. Crystal Decisions products are designed to work in the most current e-business architectures and for flexible deployment using the Internet. Our business intelligence software products include Seagate Info, Crystal Reports, Crystal Analysis and Seagate Holos. For fiscal year 2000 and the combined six months ended December 29, 2000, software revenue was $127 million and $77 million. For fiscal year 2000 and the six months ended December 29, 2000, software gross profit was $83 million and $54 million. INTERNET, E-COMMERCE AND NEXT GENERATION STORAGE PRODUCTS As an extension of our core rigid disc drive business, to address Internet and e-commerce opportunities and to anticipate next generation storage products, we have taken the following steps: o INTELLIGENT STORAGE SOLUTIONS GROUP. In fiscal year 1999, we formed our Intelligent Storage Solutions Group, which focuses on developing products for new network devices, the Internet, high-performance servers and other information-centric computing applications. These solutions combine hardware, software and services to provide new products for our existing OEM and strategic distributor customers and address the needs of emerging markets for storage and storage-related applications. We expect the demand for intelligent storage solutions, such as SAN and NAS, to grow as the need for greater network storage capacity increases. As a result, we are expanding our presence in these sectors. In January 2000, we acquired XIOtech, a provider of virtual storage and storage area network solutions, to strengthen our capabilities in intelligent storage solutions. XIOtech is focused on designing solutions for information appliances, application-based servers and storage services to benefit users by delivering a greater range of online services, high networked-computing performance and a reduced information technology cost structure. Our intelligent storage operations did not contribute materially to our consolidated revenue or EBITDA in fiscal year 2000 and the six months ended December 29, 2000. o CACHEVISION. In July 2000, we formed CacheVision as a joint venture with Thomson Multimedia, one of the world's largest manufacturers of consumer electronics. Following the formation of CacheVision and the contribution by us and Thomson multimedia of $6 million, we and Thomson multimedia agreed to contribute to CacheVision an additional $9.25 million each 128 in three consecutive payments and, if necessary, make optional additional capital contributions. We expect our total capital contributions to CacheVision to be approximately $20 million. As of February 28, 2001, we had invested $9 million in the joint venture, for a 50% equity interest, without giving effect to the issuance of options to employees. We expect that CacheVision will combine our product development expertise and Thomson multiMedia's technological expertise and marketing presence to develop cost-efficient, time-to-market integrated systems to be incorporated into consumer and entertainment appliances for home consumer electronics, for which we believe there is a growing market. Specifically, we expect CacheVision will design, develop and customize consumer electronics systems that will combine technologies, such as rigid disc drives, compression hardware and software, analog to digital conversion and interface connectivity, to enable CacheVision's OEM customers to deliver what we believe will be tested, reliable and optimal consumer solutions to the market more quickly. We expect to sell rigid disc drive products to CacheVision as an OEM customer. o SEAGATE TECHNOLOGY INVESTMENTS HOLDINGS. Through our Seagate Technology Investments Holdings subsidiary, we promote the development of next generation storage technologies. Seagate Technology Investments Holdings acts as a venture fund by providing seed capital and early round financing to software, services and hardware companies creating and developing complementary technologies in storage-intensive applications. For example, in July 2000, we and our subsidiary, Quinta, made minority equity investments in Iolon, a private venture-financed company, by contributing some of our optical technology for use in telecommunications switching applications. As of February 28, 2001, Seagate Technology Investments Holdings has made total investments of approximately $45 million in 9 companies, including CacheVision. MARKETING AND CUSTOMERS We sell our rigid disc and tape drive products primarily to OEMs and distributors. OEM customers incorporate our rigid disc drives into computer systems for resale. Distributors typically sell our rigid disc drives to small OEMs, dealers, system integrators and other resellers. Shipments to OEMs were approximately 65%, 67% and 70% of our rigid disc drive revenue in fiscal years 1999 and 2000 and the six months ended December 29, 2000, respectively. Shipments to distributors were approximately 35%, 33% and 30% of our rigid disc drive revenue in fiscal years 1999 and 2000 and the six months ended December 29, 2000, respectively. Sales to Compaq accounted for approximately 17% of our revenue in each of the two fiscal years 1999 and 2000 and in the six months ended December 29, 2000, and sales to EMC Corporation accounted for approximately 14% of our revenue for the six months ended December 29, 2000. No other customer accounted for 10% or more of revenue in fiscal years 1999 or 2000 or the six months ended December 29, 2000. OEM customers typically enter into purchase agreements with us. These agreements provide for pricing, volume discounts, order lead times, product support obligations and other terms and conditions. The term of these agreements is usually 12 to 24 months, although product support obligations generally extend substantially beyond this period. These master agreements typically do not commit the customer to buy any minium quantity of products. Deliveries are scheduled only after receipt of purchase orders. In addition, with limited lead time, customers may cancel or defer most purchase orders without significant penalty. Anticipated orders from many of our customers have in the past failed to materialize or OEM delivery schedules have been deferred or altered as a result of changes in their business needs. In the third quarter of fiscal year 1999, we launched our distribution partnership program, under which we selected five key distributors, predominately in North America, with which we intended to jointly develop marketing programs targeted at value-added resellers, other resellers and systems integrators. Shipments to these key distributors are on a consignment basis whereby our inventory held by these distributors is still owned by us and our revenue recognition is delayed until the product is used by the distributor to fill an end-user order. 129 Our distributors outside North America generally enter into non-exclusive agreements for the redistribution of our products. They typically furnish us with a non-binding indication of their near-term requirements and product deliveries are generally scheduled based on a weekly confirmation by the distributor of its requirements for that week. The agreements typically provide the distributors with price protection with respect to their inventory of our rigid disc drives at the time of a reduction by us in our selling price for the rigid disc drives and also provide limited rights to return the product. In June 2000, together with Hitachi, IBM, LG Electronics, Lucent Technologies, Nortel Networks and Solectron, we invested in and founded e2open.com, an e-marketplace initiative where members can trade components and manage their supply chains online. We and the other founders of e2open.com are obligated to make capital contributions of up to $12.5 million in exchange for additional units of e2open.com. Through e2open.com, we are exploring alternative methods of marketing through electronic marketing. SERVICE AND WARRANTY We warrant our rigid disc drive and tape drive products against defects in design, material and workmanship generally for one to five years depending upon the capacity category of the rigid disc drive or tape drive. Our higher capacity products are warranted for longer periods. Our products are refurbished or repaired at our facilities located in Oklahoma, Malaysia, Mexico and Singapore. SALES OFFICES We maintain sales offices throughout the United States and in Australia, China, England, France, Germany, Ireland, Japan, Singapore, Spain, Sweden and Taiwan. Foreign sales are subject to foreign exchange controls and other restrictions, including, in the case of some countries, approval by the Office of Export Administration of the U.S. Department of Commerce and other United States governmental agencies. BACKLOG Our order backlog as of June 30, 2000 was approximately $1.2 billion. A significant portion of our shipments are made through just-in-time inventory locations. Under this arrangement, our customers consume products as needed, without committing to purchase specified volumes of product from us. Because our backlog includes only those orders for which a delivery schedule has been specified by the customer, we believe that the amount of our backlog for orders of our products may be misleadingly low. MANUFACTURING Our business objectives require us to establish manufacturing capacity in anticipation of market demand. The key elements of our manufacturing strategy are as follows: o high-volume and low-cost assembly and testing; o vertical integration through the design and/or manufacturing of some of the critical components for our products to allow us to maintain control as much as possible over the cost, quality and availability of these components; and o the establishment and maintenance of key vendor relationships. Succeeding in the highly competitive rigid disc drive industry requires that we manufacture significant volumes of high-quality rigid disc drives at low per unit costs. To accomplish this, we must rapidly achieve high manufacturing efficiency and obtain uninterrupted access to high-quality components in required volumes at competitive prices. Manufacturing of our rigid disc drives is a complex process, requiring a "clean room" environment, the assembly of precision components within narrow tolerances and extensive testing to ensure reliability. The first step in the manufacture of a rigid disc drive is the assembly of the actuator 130 arm, read/write heads, discs and spindle motor in a housing to form the head-disc assembly. The production of the head-disc assembly involves a combination of manual and semi-automated processes. After the head-disc assembly is produced, a pattern is magnetically recorded on the disc surfaces. Printed circuit boards are then mated to the head-disc assembly and the completed unit is tested prior to packaging and shipment. Final assembly and test operations of our rigid disc drives occur primarily at facilities located in China, Malaysia, Singapore and, in the United States, in Minnesota and Oklahoma. We perform subassembly and component manufacturing operations at our facilities in Indonesia, Malaysia, Mexico, Northern Ireland, Singapore, Thailand and, in the United States, in California and Minnesota. In addition, third parties manufacture and assemble components for us in various Asian countries, including China, Japan, Korea, Malaysia, The Philippines, Singapore, Taiwan and Thailand, and in Europe and the United States. The cost, quality and availability of some components for rigid disc drives and other information storage products are critical to the successful manufacture of these products. Particularly important components include read/write heads, recording media, ASICs, spindle motors, printed circuit boards, and resistors. Our design capabilities and vertical integration have allowed us to design, assemble and/or manufacture some of these components, namely read/write heads, recording media, printed circuit boards, spindle motors and ASICs, as we describe below. o READ/WRITE HEADS. We perform all primary stages of design and manufacture of read/write heads at our facilities. Although the percentage of our requirements for read/write heads that we produce internally varies from quarter to quarter, in each quarter we purchase up to 20% of our read/write heads from third party suppliers to afford us access to the widest possible technology. We plan to continue to manufacture at least 80% of our read/write head requirements for each quarter. o RECORDING MEDIA. We purchase aluminum substrate blanks for recording media production from third parties, mainly in Japan. These blanks are machined, plated and polished to produce finished substrates at our plant in Northern Ireland. Although the percentage of our requirements for recording media that we produce internally varies from quarter to quarter, in each quarter we purchase up to 20% of our recording media requirements from third party suppliers in Asia and the United States. We plan to continue to manufacture at least 80% of our recording media requirements for each quarter. o PRINTED CIRCUIT BOARDS. We assemble substantially all of the printed circuit boards we use to manufacture rigid disc drives. Printed circuit boards are the boards that contain the electronic circuitry and ASICs that provide the electronic controls of the rigid disc drive and on which the head-disc assembly is mounted. We assemble printed circuit boards at our facilities in Indonesia, Malaysia and Singapore. o SPINDLE MOTORS. We design all of our spindle motors and purchase them principally from outside vendors in Asia. o ASICS. We participate in the design of many of the ASICs used for motor and actuator control used in our rigid disc drive products, such as interface controllers, read/write channels and pre-amplifiers. We do not manufacture any ASICs but, rather, buy them from third party suppliers. We purchase the components for our products that we do not manufacture internally from outside suppliers. Some of these components, such as the read/write heads and recording media which we do not manufacture, ASICs, spindle motors and printed circuit boards, we purchase from either sole suppliers or a limited number of suppliers. In the past, we have experienced increased costs and production delays when we were unable to obtain sufficient quantities of some components and have been forced to pay higher prices for some components that were in short supply in the industry in general. For example, in the fourth quarter of fiscal year 2000 and in the first quarter of fiscal year 2001, we and other rigid disc drive manufacturers experienced shortages and delays in the receipt of ASICs, a critical component in the manufacture of rigid disc drives which we believe 131 was caused by a consolidation among the manufacturers of these components and the use of ASIC manufacturing capacity to produce semiconductor chips for other applications, including wireless communications devices. Based on current information, we believe that this shortage has abated and further believe that the shortage of ASICs in the fourth quarter of fiscal year 2000 and in the first quarter of 2001 did not have a material adverse effect on our financial condition or results of operations. However, if there is further consolidation among ASIC manufacturers or any other factors should cause us to experience renewed shortages or delays in the receipt of ASICs in the future, our financial condition and results of operations, as well as those of our competitors, could be materially adversely affected. In addition, Maxtor's recent acquisition of Quantum's disc drive operations may enable Maxtor to obtain a proportionately greater supply of critical components from third-party manufacturers than we may be able to because of the increased size and negotiating leverage of Maxtor, which could adversely affect our ability to source a sufficient number of these components for our operations. See "Risk Factors -- Risks Related to Our Business -- Dependence on Supply of Components." Because of the significant fixed costs associated with the manufacture of our products and components and the competition and the price erosion in our industry, we must continue to produce and sell our rigid disc drives in significant volume, continue to lower manufacturing costs, carefully monitor inventory levels and increase the availability and sourcing of product components. During the past three years, we have undertaken extensive efforts to centralize and rationalize our manufacturing operations, including the closure of facilities and reductions in our work force. In the future, we plan to continue to evaluate the availability and sourcing of components and our manufacturing processes as well as the desirability of transferring volume production of rigid disc drives and related components between facilities, including transferring production overseas to countries where labor costs and other manufacturing costs are significantly lower than in the United States, principally China, Indonesia, Malaysia, Singapore and Thailand. In addition, from time to time, we support our vendors' production efforts by making advances or loans to them to finance capital expenditures relating to the manufacture of components to be sold to us. COMPETITION The rigid disc drive industry is intensely competitive, with manufacturers competing for a limited number of major customers. The principal competitive factors in the rigid disc drive market are product quality and reliability, form factor, storage capacity, price per unit, price per megabyte, production volume capability and responsiveness to customer preferences and demands. We believe that our products are generally competitive as to these factors. We summarize below our principal competitors, the effect of competition on price erosion for our products and product life cycles and technology. PRINCIPAL COMPETITORS We have experienced and expect to continue to experience intense competition from a number of domestic and foreign companies, some of which have greater financial and other resources than us. These competitors include the other independent rigid disc drive manufacturers and large integrated manufacturers, such as:
INTEGRATED INDEPENDENT - ---------------------------------------------------- ---------------------------- Fujitsu Limited Maxtor Corporation International Business Machines Corporation Western Digital Corporation NEC Corporation Samsung Electronics Co. Ltd. Toshiba Corporation
The term "independent" in this context refers to manufacturers that primarily produce rigid disc drives as a stand-alone product, and the term "integrated" refers to manufacturers that produce complete computer or other systems which contain rigid disc drives or other information storage 132 products. Integrated manufacturers are formidable competitors because they have the ability to determine pricing for complete systems without regard to the margins on individual components. Because components other than rigid disc drives generally contribute a greater portion of the operating margin on a complete computer system than do rigid disc drives, integrated manufacturers do not necessarily need to realize a profit on the rigid disc drives included in a computer system and, as a result, may be willing to sell rigid disc drives to third parties at very low margins. Many integrated manufacturers are also formidable competitors because they have more substantial resources and greater access to customers than we do. We also face indirect competition from present and potential customers, including several of the computer manufacturers listed above, that evaluate whether to manufacture their own rigid disc drives and other information storage products or purchase them from outside sources. These manufacturers also sell rigid disc drives to third parties, which results in direct competition with us. In addition, Maxtor's recent acquisition of Quantum's disc drive operations makes Maxtor the largest manufacturer of rigid disc drives in terms of the units of rigid disc drives shipped, according to Dataquest, and may make it a more formidable competitor. We also compete with manufacturers of products that use alternative data storage and retrieval technologies. Products using alternative technologies could be a significant source of competition. For example, high-speed semiconductor memory could compete with our products in the future. Semiconductor memory is much faster than rigid disc drives, but currently is volatile, or subject to loss of data in the event of power failure, and much more costly. Flash EE prom, a nonvolatile semiconductor memory, is currently much more costly and, while it has higher read performance than rigid disc drives, it has lower write performance. Flash EE prom could become competitive in the near future for applications requiring less storage capacity, such as that for less than 200 megabytes, than is required in traditional markets for our products. The introduction of products using alternative technologies could be a significant source of competition. PRICE EROSION Even during periods when demand is stable, the rigid disc drive industry is intensely competitive and vendors experience price erosion over the life of a product. Historically, our competitors have offered new or existing products at lower prices as part of a strategy to gain or retain market share and customers. We expect these practices to occur again in the future. We also expect that price erosion in the rigid disc drive industry will continue for the foreseeable future. To remain competitive, we believe it will be necessary to continue to reduce our prices. Our establishment of production facilities in China, Malaysia, Singapore and Thailand have been directed toward achieving cost reductions. PRODUCT LIFE CYCLES AND CHANGING TECHNOLOGY Competition and changing customer preference and demand in the rigid disc drive industry have also shortened product life cycles and caused an acceleration in the development and introduction of new technology. We believe that our future success will depend upon our ability to develop, manufacture and market products of high quality and reliability which meet changing user needs and which successfully anticipate or respond to changes in technology and standards on a cost-effective and timely basis. RESEARCH AND DEVELOPMENT We believe that our success depends on our ability to develop products that meet changing user needs and to anticipate and respond to changes in technology on a cost-effective and timely basis. Accordingly, we are committed to developing new component technologies and new products and to continually evaluating alternative technologies. During fiscal years 1999 and 2000 we spent $655 million and $725 million on product development. Including product development allocated compensation expense related to the transactions, we had combined product development expenses of $504 million for the six months ended December 29, 2000. We develop new rigid disc drive products and the processes to produce them at four locations: Longmont, Colorado; Oklahoma City, Oklahoma; Shakopee, Minnesota; and Singapore. 133 Our goal is to bring new products to market through predictable and repeatable methodologies. In addition, we believe that vertical integration in strategic technologies is a key competitive advantage to maintaining a leadership position in the information storage industry. As a result, we also conduct component research and development. Our major emphasis is on obtaining higher capacity, reduced size and power consumption, improved performance and reliability and reduced cost. This research and development is conducted in four main areas: read/write heads, recording media, spindle motors and ASICs. We have established the following dedicated research groups: o SEAGATE RESEARCH. Seagate Research concentrates on extending the limits of magnetic and optical recording and exploring alternative data storage technologies. o ADVANCED CONCEPTS GROUP. The Advanced Concepts Group focuses our disc drive and component research efforts into three areas that specialize in developing and staging advanced technologies for future data storage products. The three areas are recording subsystems including read/write heads and recording media, market specific product technology, and technology geared towards new business opportunities. The primary mission of the Advanced Concepts Group is to ensure timely availability of mature component and subsystem technologies for our product development teams and allow us to leverage and coordinate those technologies across products. o ADVANCED MANUFACTURING GROUP. The Advanced Manufacturing Group concentrates on best-in-class operational performance. This group focuses the efforts of the process development groups within our company on one process capable of building all of our rigid disc drives on any of our rigid disc drive assembly lines. In addition, the group focuses on benchmarking best-in-class performance, evaluation of new materials and state of the art process control systems. We believe that our future success is linked to our ability to reduce supply lines, respond to demand changes, and ultimately provide the highest quality products to our customers. PATENTS AND LICENSES We have approximately 1,495 U.S. patents and 648 patents issued in various foreign jurisdictions, as well as approximately 1,161 U.S. and 1,146 foreign patent applications pending. Due to the rapid technological change that characterizes the information storage industry, we believe that the improvement of existing products, reliance upon trade secret law, the protection of unpatented proprietary know-how and development of new products are generally more important than patent protection in establishing and maintaining a competitive advantage. Nevertheless, we believe that patents are valuable to our business and intend to continue our efforts to obtain patents, where available, in connection with our research and development program. The information storage industry is characterized by significant litigation relating to patent and other intellectual property rights. Because of rapid technological development in the information storage industry, some of our products have been, and in the future could be, alleged to infringe existing patents of third parties. From time to time, we receive claims that our products infringe patents of third parties. Although we have been able to resolve some such claims or potential claims by obtaining licenses or rights under the patents in question without a material adverse affect on us, other such claims have resulted in adverse decisions or settlements. In addition, other claims are pending which if resolved unfavorably to us could have a material adverse effect on our business. See "-- Legal Proceedings." The costs of engaging in intellectual property litigation may be substantial regardless of the validity of the claim or the outcome. We have patent cross-licenses with a number of companies in the computer industry. Additionally, we have agreements in principle with other major rigid disc drive companies. Some of our license agreements have change of control or anti-assignment provisions which provide that the licenses would terminate upon closing of the 134 transactions. As of March 31, 2001, no licenses were terminated due to the transactions. We intend to enter into replacement licenses, although we cannot assure you that we will be able to do so. See "Risk Factors -- Potential Loss of Material Licensed Technology." EMPLOYEES As of March 31, 2001, we employed approximately 56,000 persons worldwide. As of March 31, 2001, approximately 44,000 of our employees were located in our Asia Pacific operations. In addition, we make use of supplemental employees, principally in manufacturing, who are hired on an as-needed basis. We believe that our future success will depend in part on our ability to attract and retain qualified employees at all levels. We believe that our employee relations are good. FACILITIES We have executive offices in Scotts Valley, California. Our principal manufacturing facilities are located in Malaysia, Northern Ireland, China, Singapore, Thailand and, in the United States, in California, Minnesota and Oklahoma. A portion of our facilities are occupied under leases which expire at various times through 2015. The following is a summary of square footage owned or leased by us as of December 29, 2000 for the categories listed in the columns below.
MANUFACTURING PRODUCT AND ADMINISTRATIVE DEVELOPMENT WAREHOUSE TOTAL ---------------- ------------- -------------- --------------- NORTH AMERICA California Central California ................ 12,800 1,030 16,768 30,598 Northern California ............... 387,319 284,521 228,136 899,976 Southern California ............... 33,700 -- 347,890 381,590 Colorado ............................ 11,608 333,774 -- 345,382 Minnesota ........................... 142,340 414,644 773,675 1,330,659 Oklahoma ............................ 87,082 110,097 240,841 438,020 Northeastern states ................. 8,881 226 -- 9,107 Southeastern states ................. 26,773 -- -- 26,773 Other U.S. states ................... 13,797 65,584 11,427 90,808 Canada and Mexico ................... 114,963 59,879 417,126 591,968 ------- ------- ------- --------- Total North America .............. 839,263 1,269,755 2,035,863 4,144,881 ======= ========= ========= ========= EUROPE England ............................. 28,602 18,444 3,972 51,018 Ireland ............................. 1,200 -- -- 1,200 Northern Ireland .................... 68,200 4,900 494,900 568,000 Netherlands ......................... 28,955 -- 92,234 121,189 Scotland ............................ -- -- 42,824 42,824 Other European countries ............ 44,578 -- -- 44,578 ------- --------- --------- --------- Total Europe ..................... 171,535 23,344 633,930 828,809 ------- --------- --------- --------- ASIA China ............................... 25,972 -- 197,476 223,448 Malaysia ............................ 183,486 -- 1,257,796 1,441,282 Singapore ........................... 273,317 35,519 1,126,769 1,435,605 Thailand ............................ 145,888 -- 1,059,174 1,205,062 Other Pacific Rim countries ......... 47,495 -- 48,047 95,542 ------- --------- --------- --------- Total Asia ....................... 676,158 35,519 3,689,262 4,400,939 ------- --------- --------- --------- Total ............................ 1,686,956 1,328,618 6,359,055 9,374,629* ========= ========= ========= =========
- ---------- (*) Includes 7,273,780 square feet owned by us and 5,037,364 square feet leased by us but excludes 2,936,515 square feet of property that is unoccupied, subleased or under construction. ENVIRONMENTAL MATTERS Our operations are subject to comprehensive U.S. and foreign laws and regulations relating to the protection of the environment, including those governing discharges of pollutants into the air and 135 water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated sites. Some of our operations require environmental permits and controls to prevent and reduce air and water pollution, and these permits are subject to modification, renewal and revocation by issuing authorities. We believe that our operations are currently in substantial compliance with all environmental laws, regulations and permits. We incur operating and capital costs on an ongoing basis to comply with environmental laws. We spent approximately $8 million and $18 million on these matters in fiscal years 1999 and 2000, respectively, and expect to spend similar amounts in fiscal year 2001. However, additional operating costs and capital expenditures could be incurred if additional or more stringent requirements relevant to our operations are imposed. Some environmental laws, such as the U.S. federal superfund law and similar state statutes, can impose liability for the entire cost of cleanup of contaminated sites upon any of the current or former site owners or operators or upon parties who sent waste to these sites, regardless of whether the owner or operator owned the site at the time of the release of hazardous substances or the lawfulness of the original disposal activity. We have been identified as a potentially responsible party at a number of superfund sites. Generally, where there are multiple potentially responsible parties, liability has been apportioned based on the type and amount of hazardous substances disposed of by each party at the site and the number of financially viable parties. We cannot assure you that this will be the method of apportioning liability with respect to any particular site. While our ultimate costs in connection with these sites is difficult to predict, based on our current estimates of cleanup costs and our expected allocation of these costs, we do not expect costs in connection with these superfund sites to be material. Many of our current and former sites have a history of commercial and industrial operations, including the use of hazardous substances. Groundwater and soil contamination resulting from historical operations has been identified at some of our current and former facilities. For example, at our former Omaha, Nebraska facility, under a consent order with the U.S. Environmental Protection Agency, we are addressing soil and groundwater contaminated with chlorinated solvents, which extends off-site beneath several neighboring commercial and industrial properties. LEGAL PROCEEDINGS SECURITIES CLASS ACTIONS Following our announcement of the transactions, a number of our stockholders filed lawsuits against us, the individual members of our board of directors, some of our executive officers, VERITAS and Silver Lake. The complaints filed in Delaware were consolidated into one action on April 18, 2000. On May 22, 2000, the Delaware Chancery Court certified the Delaware action as a class action. The Delaware plaintiffs filed an amended complaint and moved for a preliminary injunction on September 11, 2000. In California, three complaints were filed in Santa Clara County Superior Court and two complaints were filed in Santa Cruz County Superior Court. The complaints in both jurisdictions all essentially allege that the members of our board of directors breached their fiduciary duties to our shareholders by entering into the transactions. The complaints also allege that the directors and executive officers have conflicting financial interests and did not secure the highest possible price for our shares. All the complaints were styled as class actions, and sought to enjoin the transactions and secure damages from all defendants. Between March 30 and October 27, 2000, one of the California complaints was voluntarily dismissed and the others were coordinated in Santa Clara County. On October 13, 2000, a Memorandum of Understanding, or MOU, was signed regarding settlement with all defendants on behalf of the shareholder class. The shareholders approved the transactions on November 21, 2000 and the transactions closed on November 22, 2000. After the transactions closed in November 2000, three of the remaining California actions were dismissed with prejudice. 136 A final stipulation of settlement was executed in early January 2001. The Delaware Chancery Court approved the settlement and entered an order of judgment on April 12, 2001. If no appeal is filed within 30 days, the judgment will be final. The primary elements of the stipulation of settlement are the following: o We and the investor group agreed to increase the cash purchase price under the stock purchase agreement by $50 million. This amount: - was funded by the investor group on the closing of the transactions into an escrow account held by VERITAS, pending its distribution to our shareholders, if specified conditions are satisfied as discussed below; - will be paid to our shareholders as additional consideration if the order of judgment by the Delaware Chancery Court is not appealed and becomes final and the Delaware lawsuit and the California lawsuits are dismissed with prejudice; and - plus interest, will be returned to us in the event that VERITAS determines, in its reasonable judgment, that the conditions to the release of the amount have become incapable of being satisfied. o We paid into an escrow account $15.25 million in attorneys' fees awarded to plaintiffs' counsel by the Delaware Chancery Court. That amount will be paid from escrow to plaintiffs' counsel when the judgment is final. o The merger agreement was amended to (1) reduce the maximum amount that may be required to be held in escrow to cover our potential tax liabilities from $300 million to $150 million, and (2) change some provisions regarding VERITAS' payment of the consideration for the merger. INTELLECTUAL PROPERTY LITIGATION Papst Licensing, GmbH -- Papst has given us notice that it believes various of our former Conner Peripherals, Inc. rigid disc drives infringe several of its patents covering the use of spindle motors in rigid disc drives. We believe that the accused former Conner disc drives do not infringe any valid and/or enforceable claims of the Papst patents. We believe that subsequent to the merger with Conner, our earlier paid-up license under Papst's patents extinguished any ongoing liability. We also believe we enjoy the benefit of licenses granted by Papst to motor vendors of Conner. After closing of the transactions, Papst indicated that it could not consent to the assignment of the 1993 Papst-Seagate license to the new entity until it receives further information about the new business structure and that any of our drives would be assumed to be unlicensed. We are providing Papst with additional information regarding the new business structure. Convolve, Inc. -- On July 13, 2000, Convolve, Inc., and Massachusetts Institute of Technology filed a lawsuit, captioned Convolve, Inc. and Massachusetts Institute of Technology v. Compaq Computer Corp. and Seagate Technology, Inc. against Compaq Computer Corporation and Seagate Technology in the U.S. District Court for the Southern District of New York. It alleged patent infringement, misappropriation of trade secrets, breach of contract, tortious interference with contract and fraud relating to Convolve's Input Shaping (Registered Trademark) and Quick and QuietTM technology. The plaintiffs claim their technology is incorporated in our sound barrier technology, which was publicly announced on June 7, 2000. The complaint seeks injunctive relief, $800 million in compensatory damages and punitive damages. We answered the complaint on August 2, 2000 and filed cross-claims for declaratory judgment that two Convolve/MIT patents are invalid and not infringed and that we own any intellectual property based on the information that we disclosed to Convolve. Plaintiffs' motion for expedited discovery was denied by the court. The court ordered plaintiffs to identify their trade secrets to defendants before discovery can begin. Convolve served a trade secrets disclosure on August 4, 2000, and Seagate Technology has challenged that disclosure as not containing any trade secrets. The court will appoint a Special Master to review the trade secret issues, and the parties have presented candidates to the court. We believe this matter is without merit and intend to defend it vigorously. 137 Storage Computer Corporation -- On March 22, 2001, Storage Computer Corporation filed suit in the U.S. District Court for the Northern District of Texas, Civil Action No. 3-01CV0555-M, entitled Storage Computer Corporation v. XIOtech Corporation and Seagate Technology, Inc. The complaint alleges that XIOtech's MAGNITUDETM product infringes U.S. Patent No. 5,893,919 and that Seagate Technology induces infringement of the patent by promoting and marketing XIOtech's MAGNITUDETM product, particularly through a hyperlink on Seagate Technology's internet website to XIOtech's internet website. The plaintiff alleges willful infringement and seeks unspecified damages and an injunction. We have engaged counsel and are evaluating the claims. LABOR LITIGATION White -- On March 15, 2000 Royston White filed a breach of contract action against Seagate Technology in Oklahoma State Court. The complaint is styled as a class action, and White, as the sole named defendant, alleges that some 600 former employees have been damaged through breach of separation and release agreements entered into in connection with a work force reduction. Discovery is ongoing and a trial date has not yet been set. We have filed a summary judgment motion, although the court has not set a hearing date yet. We believe we have substantive defenses and will pursue such defenses vigorously. OTHER MATTERS We are involved in a number of other judicial and administrative proceedings incidental to our business. Although occasional adverse decisions or settlements may occur, we believe that the final disposition of such matters will not have a material adverse effect on our financial position or results of operations. 138 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS Our executive officers and members of our board of directors and their ages and positions are as follows:
NAME AGE POSITION David J. Roux ............... 44 Chairman of the Board of Directors and Director Stephen J. Luczo ............ 44 Chief Executive Officer and Director William D. Watkins .......... 48 President, Chief Operating Officer and Director Charles C. Pope ............. 46 Executive Vice President, Finance and Chief Financial Officer William L. Hudson ........... 48 Senior Vice President, General Counsel and Corporate Secretary Donald L. Waite ............. 68 Executive Vice President and Chief Administrative Officer Jeremy Tennenbaum ........... 46 Executive Vice President, Business and Corporate Development David Bonderman ............. 58 Director James G. Coulter ............ 41 Director James A. Davidson ........... 41 Director Glenn H. Hutchins ........... 45 Director David F. Marquardt .......... 52 Director John W. Thompson ............ 51 Director
Mr. Roux became the Chairman of our board of directors on the closing of the transactions. Mr. Roux is a founder and managing member of Silver Lake Partners, a private equity firm founded in January 1999. From February 1998 to November 1998, he served as the Chief Executive Officer and President of Liberate Technologies, a software platform provider. From September 1994 until December 1998, Mr. Roux held various management positions with Oracle Corporation, a software provider for information management, most recently as Executive Vice President of Corporate Development. Before joining Oracle, Mr. Roux served as Senior Vice President of Marketing and Business Development at Central Point Software, a software provider, from April 1992 to July 1994. Mr. Roux currently serves as Chairman of the board of directors of Liberate Technologies and is also a member of the boards of directors of SubmitOrder.com, Inc. and Xoriant Corporation. Mr. Luczo became a member of our board of directors on the closing of the transactions. Mr. Luczo joined us in October 1993 as Senior Vice President of Corporate Development. In March 1995, he was appointed Executive Vice President of Corporate Development and Chief Operating Officer of Seagate Software Holdings. In July 1997, he was appointed Chairman of the board of directors of Seagate Software Holdings. In September 1997, Mr. Luczo was promoted to President and Chief Operating Officer of Seagate Technology and, in July 1998, he was promoted to Chief Executive Officer. Mr. Luczo resigned from the office of President of Seagate Technology, and Mr. Watkins was elected to that office in May 2000. Prior to joining us, Mr. Luczo was Senior Managing Director of the Global Technology Group of Bears, Stearns & Co. Inc., an investment banking firm, from February 1992 to October 1993. He serves as a member of the boards of directors of VERITAS Software Corporation and e2open.com. Mr. Watkins became a member of our board of directors on the closing of the transactions. Mr. Watkins, our President, Chief Operating Officer and Director, joined us as Executive Vice President of our Recording Media Group in February 1996 with our merger with Conner Peripherals Inc. In October 1997, Mr. Watkins took on additional responsibility as Executive Vice President of the Disc Drive Operations and, in August 1998, he was appointed to the position of Chief Operating Officer, with responsibility for our disc drive manufacturing, recording media and recording head operations. Prior to joining us, he was President and General Manager of the Disc Division at Conner 139 Peripherals Inc., an information storage solutions company, from January 1990 until December 1992. In January 1993, Mr. Watkins was promoted to Senior Vice President of Manufacturing Operations at Conner Peripherals Inc. Mr. Watkins is a member of the boards of directors of Iolon, Inc., CacheVision, Inc. and Candescent Technologies Corporation. Mr. Pope, our Executive Vice President of Finance since April 1999 and our Chief Financial Officer since February 1998, joined us as Director of Budgets and Analysis in 1985 with our acquisition of Grenex, Inc. From January 1997 to April 1999, Mr. Pope was our Senior Vice President of Finance. He has held a variety of positions in his 14-year executive experience with us, including as Director of Finance of the Thailand operations, Vice President of Finance of the Asia Pacific operations, Vice President of Finance and Treasurer of Seagate Technology, Vice President and General Manager of Seagate Magnetics and, most recently, Senior Vice President of Finance of the Storage Products Group. Mr. Waite, our Executive Vice President and Chief Administrative Officer since 1998, joined us as our Vice President and Chief Financial Officer in 1983. He was promoted to Senior Vice President in 1984. Prior to joining us, Mr. Waite was Chief Financial Officer of Measurex Corporation and Memorex Corporation. After beginning his professional career with Arthur Andersen, Mr. Waite spent 12 years with Bell & Howell and, most recently, held the position of Vice President and Chief Financial Officer. Mr. Tennenbaum, our Executive Vice President of Business and Corporate Development, joined us in January 2001. Prior to joining us, Mr. Tennenbaum worked as vice president of Wellington Management Company for nine years. Prior to Wellington, Mr. Tennenbaum worked as a new business specialist in corporate finance at Salomon Brothers. Mr. Hudson, our Senior Vice President, General Counsel and Corporate Secretary, joined us in January 2000. Prior to joining us, Mr. Hudson was a partner of the law firm Gibson Dunn & Crutcher, LLP from August 1997 to December 1999 and, from October 1984 to July 1997, he was a partner of the law firm Brobeck, Phleger & Harrison, LLP. Mr. Bonderman became a member of our board of directors on the closing of the transactions. Mr. Bonderman is a principal of Texas Pacific Group, a private investment firm he co-founded in 1993. Prior to forming Texas Pacific Group, Mr. Bonderman was Chief Operating Officer and Chief Investment Officer of Robert M. Bass Group, now doing business as Keystone Inc., a private investment firm, from 1983 to August 1992. Mr. Bonderman is a member of the boards of directors of Bell & Howell Company, Continental Airlines, Inc., Co-Star Realty Information Group, Denbury Resources Inc., Ducati Motorcycles S.p.A., J. Crew Group, Inc., Korea First Bank, Magellan Health Services, Inc., ON Semiconductor Corporation, Oxford Health Plans, Inc., Paradyne Networks, Inc., Ryanair plc, Washington Mutual, Inc. and a number of private companies. Mr. Coulter became a member of our board of directors on the closing of the transactions. Mr. Coulter is a principal of the Texas Pacific Group, a private investment firm he co-funded in 1993. From 1986 to 1992, Mr. Coulter was a Vice President of Keystone, Inc. From 1986 to 1988, Mr. Coulter was also associated with SPO Partners, an investment firm that focuses on public market and private minority investments. Mr. Coulter is a member of the boards of directors of Genesis Health Ventures, Inc., GlobeSpan, Inc., J. Crew Group, Inc., Northwest Airlines Inc., Oxford Health Plans, Inc., Zhone Technologies, Inc. and a number of private companies. Mr. Davidson became a member of our board of directors on the closing of the transactions. Mr. Davidson is a founder and managing member of Silver Lake Partners, a private equity firm founded in January 1999. From June 1990 to January 1999, Mr. Davidson was an investment banker with Hambrecht & Quist LLC, most recently serving as a Managing Director and Head of Technology Investment Banking. He is also a member of the boards of directors of Cabletron Systems, Inc. and a number of private companies. Mr. Hutchins became a member of our board of directors on the closing of the transactions. Mr. Hutchins is a founder and managing member of Silver Lake Partners, a private equity firm founded in 140 January 1999. From 1994 to 1999, Mr. Hutchins was a Senior Managing Director of The Blackstone Group L.P., where he focused on its private equity investing. Mr. Hutchins is a member of the boards of directors of Gartner Group, Inc., Datek Online Holdings, Island ECN and CARE, Inc. Mr. Marquardt became a member of our board of directors on the closing of the transactions. Mr. Marquardt was a co-founder of August Capital, a California based venture capital firm, in 1995. Prior to August Capital, Mr. Marquardt was a partner of Technology Venture Investors, a venture capital firm which he co-founded in 1980. Mr. Marquardt is a member of the boards of directors of Microsoft Corporation, Netopia, Inc., Tumbleweed Communications Corp. and a number of private companies. Mr. Thompson became a member of our board of directors on the closing of the transactions. Mr. Thompson is Chairman of the Board of Directors, President and Chief Executive Officer of Symantec Corporation, an Internet security technology provider. Before joining Symantac in April 1999, Mr. Thompson held various executive and management positions with International Business Machines Corporation, an information technology provider, since 1971. Mr. Thompson is a member of the boards of directors of NiSource, Inc., Parago, Inc. and United Parcel Service Inc. Our rigid disc drive business is also managed, in addition to the executive officers listed above, by the following officers: o Brian S. Dexheimer, Executive Vice President, Worldwide Sales, Marketing, Product Line Management and Customer Service Operations; o Townsend H. Porter, Jr., Executive Vice President, Product Technology Development and Chief Technology Officer; o Donald L. Waite, Executive Vice President, Chief Administrative Officer; and o David Wickersham, Executive Vice President, Global Disc Drive Operations. Officers are elected annually by the board of directors and serve at the discretion of the board of directors. Except as described under "Certain Relationships and Related Transactions -- Shareholders Agreement," there are no arrangements or understandings between any member of our board of directors or executive officer or any other person under which that person was elected or appointed to his position. BOARD OF DIRECTORS COMPENSATION All members of our board of directors will be reimbursed for their reasonable out-of-pocket expenses incurred in attending meetings of the board of directors and its committees but will receive no other compensation or fees for their service. These provisions are subject to change by our board of directors. COMMITTEES OF THE BOARD OF DIRECTORS Our board of directors, and each of the boards of directors of Seagate Technology Holdings and Seagate Removable Storage Solutions Holdings, has a compensation committee, an audit committee and an executive committee. The composition, function and duties for these committees are as follows: COMPENSATION COMMITTEE The compensation committee for each of these three companies is to consist of at least three members of the board of directors, of which one is a non-management member designated by Silver Lake Partners and one is a non-management member designated by Texas Pacific Group. The chief executive officer of the company is to participate in the committee as an ex officio member. The compensation committee is responsible for: 141 o reviewing the company's policies and procedures on attracting, retaining, developing and motivating personnel for senior management positions; o developing, approving and recommending to the board of directors the compensation plans for the company's directors, chief executive officer and senior management members; and o approving and authorizing awards under the company's long-term incentive plans. AUDIT COMMITTEE The audit committee of each of these three companies is to consist of at least three non-management members of the board of directors, of which one is designated by Silver Lake Partners and one is designated by Texas Pacific Group. According to the audit committee charter, all members of the audit committees are to be financially literate and independent of the management of the company. Furthermore, they are to be appointed and removed by the non-management members of the board of directors. An audit committee member is considered to be independent if the member does not have a relationship that may interfere with exercising his or her independence from the management of the company. The audit committee is responsible for: o reviewing the company's financial statements with the management and the independent auditors; o selecting and confirming the independence of the company's independent auditors; o meeting with the independent auditors to review the auditors' audit results, reports and recommendations; o monitoring the company's policies and procedures for the review of expenses and perquisites of selected members of senior management; o performing reviews, investigations or oversight responsibilities required by the board of directors, such as investment policies, and budgetary measures; o addressing conflicts of interest and unethical, questionable or illegal activities by the company's employees; and o periodically reviewing legal matters with the company's general counsel. EXECUTIVE COMMITTEE The executive committee of each of these three companies is to consist of at least four members of the board of directors, of which one is to be a non-management member designated by Silver Lake Partners and one is to be a non-management member designated by Texas Pacific Group. The chief executive officer of the company will serve as the chairman of the committee until a new chairman is selected. The compensation committee is responsible for: o reviewing and managing the company's business and affairs, including the issuance of the company's capital stock, provided that the committee may not authorize transactions that are not in the company's ordinary course of business and involve consideration of more than $25 million; o reviewing and monitoring the company's corporate governance issues; and o reviewing the company's strategic planning process, proposed acquisitions, investments, organization and management succession. 142 COMPENSATION OF EXECUTIVE OFFICERS SUMMARY COMPENSATION TABLE We list in the following table information regarding the compensation of our Chief Executive Officer and President, the former Chief Executive Officer of Seagate Technology and the four most highly compensated executive officers of New SAC and its subsidiaries, to whom we refer, together with the current and former chief executive officers, as the named officers, whose compensation each exceeded $100,000 in the fiscal year ended June 30, 2000. This table does not include any options or restricted shares granted after the end of fiscal year 2000 including those granted in connection with and following the transactions that closed on November 22, 2000.
ANNUAL COMPENSATION -------------------------------------------------------------- OTHER FISCAL ANNUAL NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION - ------------------------------------- -------- ----------- --------------------- ------------------- Stephen J. Luczo (2) ................ 2000 $907,814 $ 1,100,000 (6) $ 20,584 Chief Executive Officer and 1999 $834,434 $ 850,000 (7) $ 247,344(8) President of Seagate 1998 $618,272 -- $ 19,804 Technology and Chairman of the Board of Directors of Crystal Decisions Alan F. Shugart (3) ................. 2000 $750,000 -- $ 387,000(9) Former Chairman of the 1999 $750,000 -- $ 597,275(9) Board of Directors and 1998 $750,000 -- $ 13,919 Former Chief Executive Officer of Seagate Technology William D. Watkins (4) .............. 2000 $676,938 $ 850,000 (6) $ 15,085 President and Chief 1999 $605,787 $ 575,000 (7) $ 61,505 Operating Officer 1998 $500,011 -- $ 13,922 Bernardo A. Carballo (5) ............ 2000 $575,016 $ 400,000 (6) $ 23,272 Former Executive Vice President, Worldwide Sales, 1999 $560,592 $ 295,000 (7) $ 259,665(10) Marketing, Product Line 1998 $500,011 -- $ 67,735 Management and Customer Service Operations Donald L. Waite ..................... 2000 $500,011 $ 400,000 (6) $ 9,090 Executive Vice President and 1999 $500,011 $ 300,000 (7) $ 233,001(11) Chief Administrative Officer 1998 $500,011 $ $ 12,121 Townsend H. Porter, Jr. ............. 2000 $500,011 $ 350,000 (6) $ 35,204(12) Executive Vice President, 1999 $415,390 $ 250,000 (7) -- Product, Technology 1998 $396,138 -- -- Development and Chief Technical Officer LONG-TERM COMPENSATION AWARDS -------------------------------------------------------- SECURITIES UNDERLYING OPTIONS GRANTED (#) (1) ---------------------------------- RESTRICTED SEAGATE STOCK SEAGATE SOFTWARE CRYSTAL NAME AND PRINCIPAL POSITION AWARDS TECHNOLOGY HOLDINGS DECISIONS - ------------------------------------- --------------------- ------------ ---------- ---------- Stephen J. Luczo (2) ................ -- -- 275,000 Chief Executive Officer and -- 1,100,000 -- President of Seagate $ 2,974,150(13) 450,000 150,000 -- Technology and Chairman of the Board of Directors of Crystal Decisions Alan F. Shugart (3) ................. -- -- -- -- Former Chairman of the -- -- -- -- Board of Directors and -- 290,000 70,000 -- Former Chief Executive Officer of Seagate Technology William D. Watkins (4) .............. -- -- -- -- President and Chief $ 1,079,600(14) 480,000 -- -- Operating Officer -- 225,000 -- -- Bernardo A. Carballo (5) ............ -- -- -- -- Former Executive Vice President, Worldwide Sales, -- 260,000 -- -- Marketing, Product Line -- 140,000 -- -- Management and Customer Service Operations Donald L. Waite ..................... -- -- 50,000 Executive Vice President and -- 260,000 -- -- Chief Administrative Officer -- 120,000 -- -- Townsend H. Porter, Jr. ............. -- -- -- -- Executive Vice President, -- 260,000 -- -- Product, Technology -- 195,000 -- -- Development and Chief Technical Officer
- ---------- (1) The stock options listed in the table above include (a) options to purchase Seagate Technology common stock, a portion of which was exchanged by Messrs. Luczo, Watkins, Waite and Porter under the rollover agreement relating to the management rollover and a portion of which were exchanged for cash and VERITAS common stock in connection with the merger, and (b) options to purchase Seagate Software Holdings and Crystal Decisions common stock. The options to purchase Crystal Decisions common stock and shares of Crystal Decisions common stock that have been granted prior to the closing of the transactions remained outstanding following the closing of the transactions. For more information, see "-- Employment and Other Agreements -- Option Plans -- 1999 Stock Option Plan and 2000 Stock Option Plan of Crystal Decisions." For more information regarding the rollover agreement, see "The Transactions -- Overview -- Management Group." (2) Mr. Luczo was President of Seagate Technology until May 2000. (footnotes continue on next page) 143 (3) In connection with Mr. Shugart's departure as our Chief Executive Officer on July 19, 1998, we entered into a separation agreement and release with Mr. Shugart, under which he agreed to provide us with consulting services during the three-year period ending July 19, 2001. In consideration for these services, we agreed to pay Mr. Shugart $750,000 per year during the same three-year period. (4) Mr. Watkins became President of Seagate Technology in May 2000. (5) Mr. Carballo resigned as Executive Vice President effective July 31, 2000. (6) These payments under Seagate Technology's performance-based executive compensation plan were earned in fiscal year 2000 and paid in fiscal year 2001. (7) These payments under Seagate Technology's performance-based executive compensation plan were earned in fiscal year 1999 and paid in fiscal year 2000. (8) Includes deferred payments of $216,672 under Seagate Technology's performance-based executive compensation plan earned in fiscal year 1999. (9) Represents deferred payments under Seagate Technology's performance-based executive compensation plan earned in fiscal year 1999 and paid in fiscal year 2000. (10) Includes deferred payments of $245,650 under Seagate Technology's performance-based executive compensation plan earned in fiscal year 1999. (11) Includes deferred payments of $214,075 under Seagate Technology's performance-based executive compensation plan earned in fiscal year 1999. (12) Includes a travel allowance of $22,391 and car allowance/benefit of $12,813. (13) Under Seagate Technology's executive stock plan, in September 1997, Seagate Technology granted rights to purchase 85,000 shares of Seagate Technology common stock at an exercise price of $0.01 per share to Mr. Luczo. Mr. Luczo exercised these rights in November 1997. The amount shown in the table represents the dollar value, net of the consideration paid, of the award of restricted stock, calculated by multiplying the closing market price of our common stock on the date of grant by the number of shares awarded. As of September 29, 2000, Mr. Luczo held 238,000 unvested shares of Seagate Technology common stock having a value of $16,422,000 based upon the fair market value of the common stock on September 29, 2000 of $69.00 per share. These shares were either vested on the closing of the transactions contemplated by the merger agreement and exchanged for the related merger consideration or were rolled into the deferred compensation account that was established for Mr. Luczo. (14) Under Seagate Technology's executive stock plan, Seagate Technology granted rights to purchase 40,000 shares of its common stock at an exercise price of $0.01 per share to Mr. Watkins in August 1998. Mr. Watkins exercised these rights in November 1998. The amount shown in the table represents the dollar value, net of the consideration paid, of the award of restricted stock, calculated by multiplying the closing market price of Seagate Technology's common stock on the date of grant by the number of shares awarded. As of September 29, 2000, Mr. Watkins held 183,724 unvested shares of stock having a value of $12,676,956 based upon the fair market value of the common stock on September 29, 2000 of $69.00 per share. These shares were either vested on the closing of the transactions contemplated by the merger agreement and exchanged for the related merger consideration or were rolled into the deferred compensation account that was established for Mr. Watkins. 144 OPTION GRANTS IN FISCAL YEAR 2000 No stock options to purchase Seagate Technology's common stock were granted in fiscal year 2000. The following table provides information concerning each grant of options to purchase Crystal Decisions' common stock made during fiscal year 2000 to the named officers:
INDIVIDUAL GRANTS ----------------------------------------------------- POTENTIAL REALIZABLE VALUE AT NUMBER OF ASSUMED ANNUAL RATES OF SECURITIES % OF TOTAL STOCK UNDERLYING OPTIONS PRICE APPRECIATION FOR OPTIONS GRANTED TO EXERCISE OR OPTION TERM (1) GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ------------------------- NAME (#) (2) FISCAL YEAR ($/SH) (3) DATE 5% 10% - -------------------------- ------------ -------------- ------------ ------------ ----------- ------------- Stephen J. Luczo ......... 100,000 1.0524 $ 4.00 11/18/2009 $251,558 $ 637,497 175,000 1.8417 $ 4.00 11/18/2009 $440,226 $1,115,620 Donald L. Waite .......... 50,000 .5262 $ 4.00 11/18/2009 $125,779 $ 318,748
(1) Potential realizable value was based on the assumption that the common stock of Crystal Decisions appreciates at the annual rate shown, compounded annually, from the date of grant until the expiration of the ten year option term, without giving effect to the transactions. These amounts were calculated based on the requirements promulgated by the SEC and do not reflect the estimate of future price growth. (2) Represents options to purchase shares of Crystal Decisions common stock granted in fiscal year 2000. Options representing 25% of the shares issuable upon the exercise of all options granted on any date in fiscal year 2000 vest on the first anniversary of the date of grant. Options to purchase the remaining 75% of shares vest over the next three years according to a monthly schedule providing for the vesting of options. (3) There is no public trading market for shares of Crystal Decisions common stock. On each date of grant, the board of directors of Crystal Decisions determined the fair market value of a share of Crystal Decisions common stock to be no greater than $4 per share. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES We list in the table below information regarding the exercise of options to purchase Seagate Technology common stock and options to purchase Crystal Decisions common stock in fiscal year 2000 by the named officers listed in the table above, under "-- Compensation of Executive Officers -- Summary Compensation Table," and the value of options held by these individuals at the end of the fiscal year ended June 30, 2000. 145
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT JUNE 30, 2000 JUNE 30, 2000 (2) ------------------------------- ------------------------------ SHARES ACQUIRED ON VALUE EXERCISE (#) REALIZED (1) SEAGATE SEAGATE EXERCISABLE/ EXERCISABLE/ EXERCISABLE/ EXERCISABLE/ TECHNOLOGY/ TECHNOLOGY/ UNEXERCISABLE UNEXERCISABLE UNEXERCISABLE UNEXERCISABLE CRYSTAL CRYSTAL SEAGATE CRYSTAL SEAGATE CRYSTAL NAME DECISIONS DECISIONS TECHNOLOGY DECISIONS TECHNOLOGY DECISIONS - -------------------------------- -------------- ------------- --------------- --------------- --------------- -------------- Stephen J. Luczo ............... 0/ $ 0/ 672,500/ 0/ $20,226,406/ $0/ 145,211 $12,538,278 1,125,000 275,000 $35,163,281 $0 Alan F. Shugart ................ 375,000/ $ 6,666,250/ 95,000/ 0/ $ 3,076,250/ $0/ 0 $ 0 95,000 0 $ 1,955,625 $0 William D. Watkins ............. 0/ $ 0/ 436,884/ 0/ $11,898,029/ $0/ 5,000 $ 454,079 480,000 0 $15,107,344 $0 Bernardo A. Carballo ........... 30,000/ $ 555,938/ 489,500/ 0/ $18,216,781/ $0/ 5,000 $ 454,079 300,000 0 $ 9,716,719 $0 Donald L. Waite ................ 0/ $ 0/ 290,000/ 0/ $ 7,769,219/ $0/ 0 $ 0 300,000 50,000 $ 9,716,719 $0 Townsend H. Porter Jr. ......... 0/ $ 0/ 220,000/ 0/ $ 5,491,563/ $0/ 12,250 $ 1,080,494 320,000 0 $10,312,500 $0
- ---------- (1) Market value of Seagate Technology common stock or Crystal Decisions's common stock, as the case may be, on the exercise date minus the exercise price. (2) Market value of Seagate Technology common stock or Crystal Decisions's common stock, as the case may be, at June 30, 2000, which in the case of Seagate Technology was $55.00, minus the exercise price. No public market exists for the common stock of Crystal Decisions. The fair market value of Crystal Decisions common stock on June 30, 2000 as determined by the Crystal Decisions board of directors, was $4.00 per share. EMPLOYMENT AND OTHER AGREEMENTS EMPLOYMENT AGREEMENTS In connection with the transactions, we and each of Messrs. Luczo, Watkins, Pope, Porter, Waite and other senior executives of Seagate Technology entered into an employment agreement on February 2, 2001. Each of the employment agreements has a three-year term, subject to automatic, successive one year renewals after that first term. We and each of these officers have agreed that, under the employment agreements, the officers have the respective titles and positions as follows: o Mr. Luczo serves as (1) Chief Executive Officer of New SAC, Seagate Technology Holdings and Seagate Removable Storage Solutions Holdings and (2) Chief Executive Officer, President and Chief Operating Officer of Seagate Software (Cayman) Holdings; o Mr. Pope serves as Executive Vice President of Finance and Chief Financial Officer of New SAC, Seagate Technology Holdings, Seagate Removable Storage Solutions Holdings and Seagate Software (Cayman) Holdings; o Mr. Watkins serves as President and Chief Operating Officer of New SAC and Seagate Technology Holdings; o Mr. Porter serves as Executive Vice President of Product Technology Development and Chief Technical Officer of Seagate Technology LLC; and 146 o Mr. Waite serves as (1) Executive Vice President and Chief Technology Officer of New SAC, Seagate Technology Holdings and Seagate Software (Cayman) Holdings and (2) President and Chief Operating Officer of Seagate Removable Storage Solutions Holdings. We list below a chart showing these executives' initial base salaries and maximum possible bonuses if specified target performance goals are met under these employment agreements.
EXECUTIVE BASE SALARY TARGET BONUS - -------------------------------- ------------- -------------------- Stephen J. Luczo ............ $1,000,000 125% of Base Salary William D. Watkins .......... $ 850,000 125% of Base Salary Charles C. Pope ............. $ 550,000 100% of Base Salary Townsend H. Porter .......... $ 500,000 100% of Base Salary Donald L. Waite ............. $ 500,000 100% of Base Salary
An executive may elect to defer the payment of all or a portion of his bonus. The executives also will be entitled to participate in employee benefits programs comparable, in the aggregate, to those employee benefit programs made available to senior executives of Seagate Technology immediately prior to the closing of the transactions. These programs will include health, life and disability insurance and retirement and fringe benefits. Under the employment agreements, in the event an executive's employment is terminated by us without cause or by the executive with good reason, as each term is defined in the employment agreements, the executive will receive, subject to compliance with the restrictive covenants described below, the following: o continued payment of base salary and target bonus and o continued participation in their employer's health, dental and life insurance programs, for one to two years and, in the case of Mr. Luczo, two to three years following the termination of employment, depending on when the termination occurs. In addition, under the management retention agreements, which are summarized below, if the executive's employment is terminated by their employer without cause or by the executive with good reason within two years following the closing of the transactions, the executive will be entitled to the additional severance benefits under these management retention agreements. Under the employment agreements, the executives will be subject to customary confidentiality and nondisclosure covenants and noncompete and nonsolicitation covenants during the term of employment and for the period in which the executive would receive severance in the event that the executive's employment is terminated. MANAGEMENT RETENTION AGREEMENTS Between November 2, 1998 and December 1, 1999, Seagate Technology entered into management retention agreements with Messrs. Luczo, Watkins, Pope, Porter, Waite and a number of other key executive officers. The management retention agreements provide that Seagate Technology may terminate the executive's employment at any time with or without cause. The management retention agreements also provide that, if within 24 months following a change of control, as defined in the management retention agreements, an executive's employment is: o involuntarily terminated by Seagate Technology other than for cause, as defined in the management retention agreements; o voluntarily terminated by the employee for good reason, as defined in the management retention agreements; o terminated due to the executive's disability or death, as defined in the management retention agreements, then the executive would be entitled to receive the following severance benefits: 147 o a cash payment equal to between 150% and 300% of the executive's annual compensation, with annual compensation defined to be the sum of the executive's annual salary at the highest rate in effect during the immediately preceding 12 months and the highest annual bonus awarded during the past three fiscal years; o acceleration of vesting of the unvested portion of the executive's outstanding stock options; o acceleration of vesting of a percentage of the executive's restricted Seagate Technology common stock, which is determined by dividing the number of months that have elapsed from the restricted stock grant date to the date of employment termination by the number of months between the grant date and the date when all restricted shares would otherwise have vested based on the executive's continued employment with Seagate Technology; o continued coverage in Seagate Technology's health, dental and life insurance coverage at Seagate Technology's expense for the executive, and the executive's dependents if the dependents were covered immediately prior to the executive's termination, until either three years, in the case of Messrs. Luczo and Watkins, or two years, in the case of other executives, from the date of termination or the date that the executive and his dependents became covered under another employer's group health, dental or life insurance plans that provide comparable coverage and benefits; o a bonus payment equal to a pro rata share, based on the number of days elapsed during the fiscal year in which termination occurs, of the executive's targeted bonus under Seagate Technology's executive bonus plan for the fiscal year in which termination occurs; and o at the executive's option, the executive may purchase the automobile owned by Seagate Technology in his possession at the vehicle's wholesale Kelly Blue Book value. The management retention agreements also provide that if, on the effective date of a change of control, a successor to Seagate Technology fails to assume any stock option or restricted stock held by the executive, all of the unvested portion of any stock option issued by Seagate Technology or an affiliate to the executive will automatically become fully vested and all of the executive's unvested restricted shares will vest pro rata as of the change of control. In addition, some management retention agreements require Seagate Technology to pay the excise tax, as well as the federal, state and excise tax on Seagate Technology's payment for the excise tax, on any benefit received under the management retention agreements if that benefit were to qualify as a "parachute payment" within the meaning of section 280G and would be subject to the excise tax imposed by Section 4999, in each case, of the Internal Revenue Code of 1986. In consideration of the payments to be made by Seagate Technology under the management retention agreements, each executive agreed to customary non-compete and non-solicitation agreements. At the closing of the transactions, we assumed all obligations and liabilities under the management retention agreements. In consideration of these assumptions, Messrs. Luczo, Watkins, Pope, Porter, Waite and several other executives of Seagate Technology agreed to the following modifications of their management retention agreements: o the closing of the transactions will be deemed to be a change of control, as defined in these agreements, for purposes of the management retention agreements, provided, that no further transactions will constitute a change of control; o the transactions will not constitute a termination of employment for purposes of the management retention agreements; o modification of the definition of good reason; and o the provisions relating to the accelerated vesting of restricted shares of New SAC and options to purchase these shares will apply only to restricted shares of New SAC and options to 148 purchase these shares granted to Messrs. Luczo, Watkins, Pope, Porter and Waite in substitution for restricted shares of Seagate Technology and unvested stock options to acquire Seagate Technology common stock in connection with the management rollover, as described below. ROLLOVER AGREEMENTS AND DEFERRED COMPENSATION PLANS By the closing of the transactions, we and each of the members of the management group entered into a rollover agreement. Under these rollover agreements, members of the management group with titles of senior vice president or higher agreed to defer, or roll, at least 50%, and other members of the management group agreed to defer, or roll, at least 25%, of their shares of Seagate Technology common stock and options to purchase these shares into (1) deferred compensation that was credited to deferred compensation accounts established and maintained by either Seagate Technology HDD Holdings or Seagate Technology SAN Holdings and (2) our ordinary and preferred shares. The value of the rolled securities was approximately $184 million. The rolled securities were exchanged on the closing of the transactions for deferred compensation, representing approximately 97.4% of the value of the rolled securities, our preferred shares, representing approximately 2.6% of the value of the rolled securities, and our ordinary shares, representing the portion of the total ordinary shares that will be outstanding equal to the value of the rolled securities divided by the sum of the cash contributions by the sponsor group plus the value of the rolled securities. In addition, members of the management group contributed approximately $41 million in cash in exchange for our ordinary and preferred shares. The companies establishing the deferred compensation accounts established and maintain them as separate book entry accounts. The value of each deferred compensation account may decrease if the fair market value of our ordinary and preferred shares decreases. The deferred compensation accounts will vest as follows: o According to each plan's vesting schedule: -- one-third of the account will vest on the first anniversary of the closing of the transactions; -- one-third will vest proportionately each month over the next 18 months; and -- the final one-third will vest on the date that is 30 months after that first anniversary of the closing of the transactions. o The companies establishing the deferred compensation plans may accelerate the vesting of all or a portion of a deferred compensation account at any time. o The unvested portion of a deferred compensation account will vest on the participant's termination of employment. But, if the employment is terminated for cause or the participant resigns without good reason, as these terms are defined in the deferred compensation plans, then any unvested portion will be forfeited. If a change of control of the subsidiary sponsoring a deferred compensation plan occurs, and the successor (which, in the case of a sale or disposition of assets, means the acquiror of the assets) assumes the obligations under the deferred compensation plan, then: o the deferred compensation account of each participant will be recalculated to equal the lesser of (A) the deferral amount less the distribution made to the participant and (B) the fair market value of Suez Acquisition Company immediately prior to the change of control multiplied by the deferral percentage; o the deferred compensation account of each participant will be paid if and when such account vests in accordance with the vesting provision of the deferred compensation plan; and o the payment of each deferred compensation account will be made in cash. 149 In the event a change of control occurs whereby (A) a sale or distribution of all of the assets of the subsidiary to any person or entity (other than us or any of our subsidiaries or any plan or trust established by any of the foregoing) occurs or (B) a person or group (other than us or any of our subsidiaries or any plan or trust established by any of the foregoing) becomes the beneficial owner of 100% of the capital stock of the subsidiary sponsoring the plan, the payments under the deferred compensation plan will only be subject to the subordination provisions of the deferred compensation plan to the extent the plan sponsor is subject to the prior obligations. In the event of a sale of substantially all of our assets or a liquidation of us, all outstanding account balances will become fully vested, and following the distributions to the sponsor group and a payment to the participant pursuant to these distributions as provided in the deferred compensation plan, the plan will terminate and all remaining balances in each participant's deferred compensation account will be forfeited without consideration. The subsidiaries sponsoring the deferred compensation plans will make distributions to the participants, when vested, only when the sponsor group receives distributions or returns on their initial cash contributions to us in proportion to these distributions. These companies may make the distributions, at their option, in cash or the same securities or other property distributed to the sponsor group, with a fair market value equal to the amount of the account distributed. Until a change of control of the company sponsoring the plan, if any of these companies has insufficient assets to make the distributions, it may demand that we loan or contribute all or a portion of the amount needed to it, limited by its net worth. If a change of control occurs, then the participants will be entitled to either a payment in cash or securities, subject to restrictions in agreements governing the financing of us or the subsidiary in question. Regardless of the above provisions, our and our subsidiaries' obligations under the deferred compensation plans to make any distribution or other payment to the participants are expressly subordinated in right of payment to the prior payment in full in cash of (1) all obligations under the senior credit facilities, whether as primary obligor or as a guarantor, and (2) all obligations under the notes and the indenture, whether as primary obligor or as a guarantor. Until the payment in full of the amounts listed in clauses (1) and (2) above and the termination of the commitments under the senior credit facilities, we and our subsidiaries may not make any payments under these deferred compensation plans unless permitted by the terms of the senior credit facilities and the indenture. NEW SAC 2000 RESTRICTED SHARE PLAN At the closing of the transactions, our board of directors adopted our 2000 restricted share plan. The plan provides for the grant of restricted ordinary and preferred shares as incentive compensation. We will not make grants under the plan after the tenth anniversary of the effective date of the plan, which may be adjusted for customary anti-dilutive effects. Grant recipients under the plan will be required to become a party to the management shareholders' agreement and will be subject to other customary terms specified in the plan. The compensation committee of our board of directors will administer the plan. During the period determined by the compensation committee up to ten years from the date of a grant, participants will not be permitted to sell, transfer or otherwise dispose of restricted shares awarded under the plan, except as modified by the compensation committee in the event of a change in control. Plan participants will have, regarding the shares granted under the plan, all of the rights of a shareholder, including the right to vote the shares and receive dividends and other distributions including during the restricted period referred to above. If a participant's employment terminates for any reason during that restricted period, the participant will be required to forfeit the restricted shares subject to modification by the compensation committee. As of the closing of the transactions, under the rollover agreements, we granted Messrs. Luczo, Watkins, Pope, Porter, Waite and some of our other officers and senior employees, our ordinary shares. According to the restricted stock agreements, these shares will vest as follows: o one-third of the shares will vest on the first anniversary of the closing of the transactions; o one-third will vest proportionately each month over the next 18 months; and 150 o the final one-third will vest on the date which is 30 months after the closing of the transactions. NEW SAC 2001 RESTRICTED SHARE PLAN On February 2, 2001, our board of directors approved the 2001 restricted share plan. Unlike the 2000 restricted share plan, the 2001 restricted share plan only provides for the grant of restricted ordinary shares and does not provide for the grant of restricted preferred shares. Moreover, according to the restricted share agreements that accompany the 2001 restricted share plan, shares granted under the plan will become transferable according to the following vesting schedule: o 1/4 of the shares will vest on the first anniversary of the date of grant; and o 1/48 of the shares will vest each month after the first anniversary of the date of grant. Generally, if a senior manager who is participating in the plan terminates his employment during the restricted period, the senior manager will forfeit his unvested shares. That participant, however, would not forfeit his unvested shares if: o he terminates his employment for good reason; o he is terminated without cause; or o his employment is terminated because we sell or dispose of the entity that employs him. Under any of these three circumstances, the senior manager's unvested shares will vest and will become free of transfer restrictions. The restricted share agreement for senior managers describes what the terms "good reason" and "cause" mean when these terms are used in the agreement. With regard to other employees participating in the plan, if the employee participant terminates his employment during the restricted period, he will forfeit his unvested shares. The employee participant, however, will not forfeit his unvested shares if he is terminated without cause within two years following a change in control; instead, his unvested shares will vest and will become free of transfer restrictions. The restricted share agreement for the employee participants describes what the term "cause" means, and the restricted share plan describes what the term "change in control" means as those terms are applied to the employee participants. Other than as discussed above, the provisions of the 2001 restricted share plan are identical to those of the 2000 restricted share plan. DIRECTOR AND OFFICER INDEMNIFICATION AND INSURANCE Under the stock purchase agreement, we agreed to the following: o to fulfill the indemnification obligations of Seagate Technology and all of its subsidiaries acquired by us to their respective directors and officers under Seagate Technology's charter documents and any indemnification agreements between Seagate Technology or any of these subsidiaries and their respective directors and officers; o to include exculpation and indemnification clauses in its charter documents that are at least as favorable to the covered persons as the indemnification and exculpation clauses in Seagate Technology's certificate of incorporation and bylaws in effect on the date of the stock purchase agreement; and o to use our best efforts to maintain the directors' and officers' liability insurance policies currently maintained by Seagate Technology for six years following the closing of the stock purchase, provided that we will not be required to spend more than 150% of the annual premium currently paid for the policy to maintain it during that six year period. Under the merger agreement, VERITAS agreed to the following: o to fulfill and honor in all respects the obligations of Seagate Technology under any indemnification agreements between Seagate Technology and any of it directors and officers 151 in effect prior to the date of the merger agreement, but only to the extent that the obligations under the indemnification agreements relate to approval and adoption of the merger; o for a period of six years after the merger, VERITAS will cause Seagate Technology to maintain the indemnification obligations, and the exculpation, expense advancement and elimination of liability provisions, contained in Seagate Technology's certificate of incorporation and bylaws immediately prior to the merger to the extent that the provisions apply to the adoption and approval of the merger; o for six years after the merger, VERITAS will not permit Seagate Technology to amend, repeal or otherwise modify these provisions in a manner that adversely affects the rights of any directors, officers, employees or agents of Seagate Technology, except as otherwise required by applicable law; and o VERITAS will use its commercially reasonable efforts to maintain in effect, for a period of six years following the merger, a policy of directors' and officers' liability insurance for the benefit of the directors and officers of Seagate Technology who are currently covered under Seagate Technology's directors' and officers' liability insurance on terms that are comparable to those of Seagate Technology's current directors' and officers' insurance coverage. OPTION PLANS 1999 Stock Option Plan and 2000 Stock Option Plan of Crystal Decisions Following the closing of the transactions, the Crystal Decisions 1999 stock option plan and 2000 stock option plan continued and options granted under them and shares that were issued following the exercise of options granted under them remained outstanding. Each of the plans provides for grants of incentive stock options to employees, including officers and employee directors, and nonstatutory stock options to employees and consultants, including nonemployee directors of Crystal Decisions and its parent and subsidiary companies. The term of the options granted under these plans is listed in the individual option agreements that Crystal Decisions enters into with the recipient of the grant. Under each of the plans, the term of an incentive stock option may not exceed ten years and, in the case of an incentive stock option granted to an optionee who owns more than 10% of the voting power of all classes of stock of Crystal Decisions at the time of grant, the term of an option may not exceed five years. The plans have these additional provisions regarding the terms of the grants: o Under the 1999 plan, options granted under the 1999 plan are granted at fair market value and vest over 48 months, with one-fourth vesting upon completion of one year from the date of the initial grant and the remaining options vesting at the rate of 1/48th per month after that. o Under the 2000 plan, options granted under the 2000 plan are granted at fair market value and become fully vested and exercisable immediately prior to a merger or asset sale, excluding the transactions, or on the date upon which an initial public offering is declared effective by the SEC. In addition, in the event of a merger or the sale of substantially all of Crystal Decisions' assets, any option that is not assumed or substituted for by a successor entity will fully vest, and then, if not exercised during the specified notice period, will terminate upon the expiration of such period. The compensation committee of the board of directors of Crystal Decisions administers the plans and determines the optionees and the terms of options granted, including the exercise price, number of shares subject to the option and the exercisability of the option. The 1999 plan will terminate in November 2009, unless the board of directors of Crystal Decisions terminates it sooner. The maximum number of shares that may be issued subject to grants of options under this plan is 22.5 million shares. As of June 30, 2000, Crystal Decisions had issued 152 1,050 shares of common stock upon the exercise of options granted under the 1999 plan and had 8,626,879 options to purchase shares of Crystal Decisions common stock outstanding. The 2000 Plan will terminate in June 2010, unless the board of directors of Crystal Decisions terminates it sooner. The maximum number of shares that may be issued subject to grants of options under this plan is 200,000 shares. As of June 30, 2000, Crystal Decisions had granted 161,450 options to purchase shares of Crystal Decisions common stock. However, no shares had been issued upon the exercise of options under the 2000 plan. Crystal Decisions has adopted versions of the 1999 plan for its U.K. and Canadian participants. The U.K. version differs from the 1999 plan in that it covers a more limited group of eligible optionees and in some other respects. We own all of the outstanding share capital of Seagate Software (Cayman) Holdings, which owns approximately 99.6% of the outstanding share capital of Crystal Decisions. Other Stock Option Plans On February 2, 2001, the boards of directors of Seagate Technology Holdings and Seagate Removable Storage Solutions Holdings adopted stock option plans for the grant of options to purchase their ordinary shares. These plans provide for grants of non-qualified and incentive stock options to key employees, directors and consultants of these subsidiaries and their affiliates. These plans are administered by the board of directors of each subsidiary or any committee or sub-committee designated to administer it. The boards or committees that administer the plans will determine the participants and the terms of options granted, including the exercise price, number of shares subject to the option and the exercisability of them. Options granted under these plans will be subject to the management shareholders agreement, which is summarized under "Certain Relationships and Related Transactions -- Management Shareholders Agreement." The boards or committees that administer the plans determine the price of the options granted under the plans at the time of grant. The board or committees also establish the vesting schedules for the options, provided that the boards or committees may not set a vesting schedule that is more restrictive than 20% per year. If a transaction occurs that would have a dilutive effect on the value of the options granted under the plans, the boards or committees that will administer the plans will have, in their sole discretion, the right to make a substitution or adjustment, as they deem to be equitable, regarding the number or kind of shares or other securities issued or reserved for issuance pursuant to the plans or pursuant to outstanding options, the option price and/or any other affected terms of the options. In the event of a change in control, the boards or committees administering the plans, may, in their sole discretion, take action, as they deems necessary or desirable regarding any option, including the following: o acceleration of the vesting of an option; o the payment of a cash amount in exchange for the cancellation of an option equal to the product of (a) the excess, if any, of the fair market value per share at the time over the option price multiplied by (b) the number of shares then subject to the option; and o requiring the assumption of the outstanding options by the successor activity or the issuance of substitute options or other equity based awards that will substantially preserve the value, rights and benefits of any affected options previously granted. If the option is not assumed, substituted, cashed-out or otherwise continued following the change in control, the plans provide that the option will become immediately vested and exercisable immediately prior to the change in control. The board of directors of Seagate Technology SAN Holdings is also expected to adopt a stock option plan in fiscal 2001. 153 The indenture limits the maximum number of shares of common stock that may be issued pursuant to exercises of options under the stock option plan of: o Seagate Technology Holdings to 20% of its total outstanding shares of common stock on a fully-diluted basis; o Seagate Removable Storage Solutions Holdings to 25% of its total outstanding shares of common stock on a fully-diluted basis; and o Seagate Technology SAN Holdings to 20% of its total outstanding shares of common stock on a fully-diluted basis. 154 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 29, 2000, New SAC indirectly owned all of the outstanding share capital of the Issuer and all of the outstanding share capital of the subsidiary guarantors, with the exception of less than 1% of the shares of Crystal Decisions that are held by employees and were purchased under the 1999 and 2000 Crystal Decisions Stock Option Plans. We provide below information concerning the beneficial ownership of the outstanding ordinary and preferred shares of us by the following: o each person known to us is the beneficial owner of 5% or more of our outstanding ordinary or preferred shares; o each of our executive officers and members of our board of directors who owns our outstanding ordinary or preferred shares; and o the officers and members of our board of directors as a group. The number and percentage of our shares beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the regulations, a person is considered to be a "beneficial owner" of a security if that person has or shares "voting power," which includes the power to vote or to direct the voting of that security, or "investment power," which includes the power to dispose of or to direct the disposition of that security. A person is also considered to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these regulations, more than one person may be considered a beneficial owner of the same securities and a person may be considered to be a beneficial owner of securities as to which he has no economic interest.
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF NAME AND ADDRESS OF BENEFICIAL OWNER ORDINARY SHARES (a) ORDINARY SHARES PREFERRED SHARES (a) PREFERRED SHARES - ------------------------------------------- --------------------- ----------------- ---------------------- ----------------- 5% HOLDERS: (In millions) (In millions) Affiliates of Silver Lake Partners, L.P. (b) ....................... 3.82 34.7% 3.82 41.5% c/o Silver Lake Partners, L.P. 2725 Sand Hill Road Menlo Park, California 94025 TPG SAC Advisors Corp. .................... 2.52 22.9% 2.52 27.4% c/o Texas Pacific Group 301 Commerce Street -- Suite 3300 Fort Worth, Texas 76102 August Capital III, L.P. .................. 1.3 11.8% 1.3 14.1% 2480 Sand Hill Road -- Suite 101 Menlo Park, California 94025 Chase Equity Associates, L.P. (c) ......... 0.75 6.8% 0.75 8.1% 50 California Street -- Suite 2940 San Francisco, California 94111 Affiliates of The Goldman Sachs Group, Inc. (d) .......................... 0.25 2.3% 0.25 2.7% 85 Broad Street New York, New York 10004 EXECUTIVE OFFICERS AND MEMBERS OF THE BOARD OF DIRECTORS: Stephen J. Luczo (e) ...................... 0.41 3.8% * * William D. Watkins (e) .................... 0.14 1.2% * * Charles C. Pope (e) ....................... * * * * Townsend H. Porter, Jr. (e) ............... * * * * Donald L. Waite (e) ....................... * * * *
* Represents less than 1%. (table continues and footnotes appear on next page) 155
NAME AND ADDRESS OF NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF BENEFICIAL OWNER ORDINARY SHARES (a) ORDINARY SHARES PREFERRED SHARES (b) PREFERRED SHARES - ----------------------------------- --------------------- ----------------- ---------------------- ----------------- (IN MILLIONS) (IN MILLIONS) William L. Hudson (e) ............. * * * * David Bonderman (f) ............... -- -- -- -- James G. Coulter (f) .............. -- -- -- -- James A. Davidson (g) ............. -- -- -- -- Glenn H. Hutchins (g) ............. -- -- -- -- David F. Marquardt (h) ............ -- -- -- -- David J. Roux (g) ................. -- -- -- -- John W. Thompson (e) .............. * * * * ALL OFFICERS AND MEMBERS OF THE BOARD OF DIRECTORS AS A GROUP (13 PERSONS): .................... 0.98 8.9% * *
- ---------- * Represents less than 1% (a) Each member of the sponsor group and each member of the management group owns ordinary shares, par value $0.0001 per share, with voting rights and preferred shares, liquidation preference $0.0001 per share, of us and some members of the sponsor group own ordinary shares, par value $0.0001 per share, without voting rights. The voting ordinary shares are the only class of our outstanding share capital that have voting rights. Under our organizational documents, the non-voting ordinary shares are convertible at any time, at the option of their holders, into voting ordinary shares. In addition, we have made and may in the future make grants of ordinary shares under New SAC's 2001 restricted share plan. Moreover, each of Seagate Technology Holdings, Seagate Technology SAN Holdings, Seagate Removable Storage Solutions Holdings and Crystal Decisions may in the future grant its employees options to purchase its ordinary shares under new or existing share option plans. Crystal Decisions currently has options outstanding under its 1999 and 2000 Stock Option Plans. For more information, see "Management -- Employment and Other Agreements -- New SAC 2001 Restricted Share Plan" and "-- Option Plans." (b) The affiliates of Silver Lake Partners, L.P. that own our ordinary and preferred shares are Silver Lake Partners Caymans, L.P., Silver Lake Investors Caymans, L.P. and Silver Lake Investors Technology Caymans, L.P. In addition, the affiliates of Integral Capital Partners own directly our ordinary and preferred shares and own indirectly, through their investment in these investment funds of Silver Lake Partners, L.P. our ordinary and preferred shares, which together represent more than a 5% interest in our ordinary shares. (c) Chase Capital Partners is the sole general partner of Chase Equity Associates, L.P. (d) The affiliates of The Goldman Sachs Group, Inc. that own our ordinary and preferred shares are GS Capital Partners III, L.P., GS Capital Partners III Offshore, L.P., Goldman Sachs & Co. Verwaltungs GmbH, Stone Street Fund 2000, L.P. and Bridge Street Special Opportunities Fund 2000, L.P., which we refer to collectively as the Goldman funds. The Goldman Sachs Group, Inc. and Goldman, Sachs & Co., Inc. may be deemed to own beneficially and indirectly the ordinary and preferred shares that the Goldman funds will own. Affiliates of The Goldman Sachs Group, Inc. and Goldman, Sachs & Co., Inc. are the general partner, managing general partner or investment manager of the Goldman funds and an investment committee of Goldman, Sachs & Co., Inc. have voting and dispositive authority over the ordinary and preferred shares to be owned by the Goldman funds. The Goldman Sachs Group, Inc. and Goldman, Sachs & Co., Inc. each disclaim beneficial ownership of these ordinary and preferred shares that are owned by the Goldman funds to the extent attributable to partnership interests in them held by persons other than The Goldman Sachs Group, Inc. and its affiliates. (e) The business address of each of these individuals is our address at 920 Disc Drive, Scotts Valley, California 95067-0360. (footnotes continue on next page) 156 (f) Messrs. Bonderman and Coulter are shareholders of TPG SAC Advisors Corp., which is the sole general partner of TPG SAC GenPar, L.P., which is the sole general partner of SAC Investments, L.P., which own our ordinary and preferred shares. Messrs. Bonderman and Coulter are also shareholders of each of TPG Advisors III, Inc. and T3 Advisors, Inc., each of which control the investment funds which are the limited partners of SAC Investments, L.P. In addition, David Bonderman, James G. Coulter, Justin T. Chang, John W. Marren and William S. Price are principals of Texas Pacific Group and are shareholders of TPG SAC Advisors Corp. As a result of the above, each of these individuals may be deemed to share beneficial ownership of the shares owned by SAC Investments, L.P. Each of them disclaims this beneficial ownership. The business address of each of the individuals is c/o TPG SAC Advisors Corp at the address listed in the table. (g) Messrs. Davidson, Hutchins and Roux are (1) Managing Directors of Silver Lake (Offshore) AIV GP Ltd., which is the sole general partner of Silver Lake Technology Associates Caymans, L.P., which is the sole general partner of each of Silver Lake Technology Associates Caymans, L.P., Silver Lake Investors Caymans, L.P. and Silver Lake Technology Investors Caymans, L.P., which we refer to as the Silver Lake funds, which own our ordinary and preferred shares and (2) limited partners of Silver Lake Technology Associates Caymans, L.P. Messrs. Hutchins and Roux are also limited partners of Silver Lake Technology Associates Caymans, L.P. In addition, each of Messrs. Davidson, Hutchins and Roux are founders and partners of Silver Lake Partners, L.P., an affiliate of each of the Silver Lake funds. As a result of the above, Messrs Davidon, Hutchins and Roux may be deemed to share beneficial ownership of the shares to be owned by the Silver Lake funds. Each of them disclaims this beneficial ownership. The business address of each of these individuals is c/o Silver Lake Partners, L.P. at the address listed in the table. (h) Mr. Marquardt is an Investment Member of August Capital Management, L.L.C., which is the sole general partner of August Capital III, L.P. As a result, he may be deemed to share beneficial ownership of August Capital III, L.P.'s ownership of our ordinary and preferred shares. He disclaims this beneficial ownership. The business address of Mr. Marquardt is c/o August Capital Management, L.L.C. at the address listed in the table. 157 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS SHAREHOLDERS AGREEMENT As of November 22, 2000, the date of the closing of the transactions, we entered into a shareholders agreement with the sponsor group. The shareholders agreement provides for our corporate governance following the closing of the transactions, preemptive rights, transfer restrictions and registration rights relating to our shares and related matters. We summarize the principal terms of the shareholders agreement below. CORPORATE GOVERNANCE The board of directors consists of nine members. Under the shareholders agreement, these members are designated as follows: o Silver Lake Partners have the right to designate three members, who initially are James A. Davidson, Glenn H. Hutchins and David J. Roux; o Texas Pacific Group has the right to designate two members, who initially are David Bonderman and James G. Coulter; o an executive officer of New SAC reasonably acceptable to a majority of the board of directors, who initially is William D. Watkins; o one member is designated by, but cannot be a partner, controlling person or employee of, Silver Lake Partners, subject to approval by Texas Pacific Group and is reasonably acceptable to a majority of the board of directors, who initially is John Thompson; o one member is the chief executive officer of New SAC, who is Stephen J. Luczo; and o the final member, David F. Marquardt, was chosen by the above directors. The shareholders agreement provides that the consent of seven members of our board of directors is required to be able to take the following actions: o voluntarily commence a bankruptcy proceeding; o merge or consolidate with any other entity if either the book value of the assets of that entity would exceed $100 million or the fair market value of the consideration to be paid would exceed $100 million; o sell or transfer, directly or indirectly, any assets, in one or a series of related transactions, if either the book value of the assets would exceed $100 million or the fair market value of the consideration to be received would exceed $100 million; o enter into any contract or become obligated to engage in any transaction or series of related transactions with Silver Lake Partners, Texas Pacific Group, August Capital or any of their affiliates involving more than $1 million in any calendar year, provided that any of these contracts or transactions will be required to be on an arm's length basis regardless of its size; o authorize, issue or sell any share capital, options, warrants or rights to acquire our share capital, other than issuances of share capital to members of management and options to purchase share capital issued with the approval of our board of directors; o pay dividends on or redeem any shares of our share capital or any warrants, options or rights to purchase these shares or other of our equity securities, other than purchases from employees pursuant to employee benefit plans or arrangements; and o amend, modify or repeal any provisions of our memorandum and articles of association. The consent of eight members of the board of directors is also required to increase or decrease the number of members of the board of directors. In addition, the consent of seven members of the 158 board of directors is required for the exercise of the drag-along rights described below. Also, consent of at least five directors, with no management directors participating, is required to terminate our chief executive officer or appoint a replacement for that position. PREEMPTIVE RIGHTS The sponsor group members have preemptive rights allowing them to acquire for cash, in proportion to their respective shareholdings, additional securities proposed to be issued and sold by us, excluding shares issued upon exercise of outstanding options granted under employee benefit plans or similar arrangements. If a shareholder fails to exercise its preemptive rights, we have the right to close the sale of these additional securities. TRANSFER RESTRICTIONS; TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS No party to the shareholders agreement is permitted to sell, transfer or otherwise dispose of any of our shares, until the earlier of November 22, 2003 or 180 days after an initial public offering, without the prior consent of both Silver Lake Partners and Texas Pacific Group, except for customary exceptions for transfers to affiliates, heirs, beneficiaries, spouses and lineal descendants, among others. After the third anniversary of the closing of the transactions, each member of the sponsor group will have a right of first offer to acquire any shares proposed to be sold or otherwise transferred by another member of the sponsor group and any third party buyer will be subject to approval of the board of directors, excluding those members affiliated with the transferring shareholder. Each member of the sponsor group and member of the management group has customary tag-along rights, which are the rights to include its shares, on the same terms and conditions, in any sale by a member of the sponsor group to a third party, on a proportional basis based on relative ownership levels at that time. In addition, after the earlier of November 22, 2003 or 180 days after an initial public offering, if any shareholder or shareholders representing a majority of our then outstanding ordinary shares receives an offer from a third party to purchase a majority of the outstanding shares, then the shareholder or shareholders will have the right to cause the other shareholders to join the sale, on the same terms and conditions. Similarly, the majority shareholder or shareholders have similar rights to cause the other shareholders to vote in favor of mergers, consolidations or similar business combinations. REGISTRATION RIGHTS Subject to specified limitations, we agreed in the shareholders agreement to include our shares owned by the members of the sponsor group, on a proportional basis, in any public offering, other than the initial public offering of our shares, through piggyback registration rights and to undertake a registered offering of shares upon demand by any member of the sponsor group through their demand registration rights. Under the shareholders agreement, at any time after the earlier of the 180th day following the initial public offering or the fourth anniversary of the closing of the transactions, members of the sponsor group holding at least 20% of our outstanding shares will have three demand registration rights and members of the sponsor group holding at least 10% of our outstanding shares will have one demand registration right. The sponsor group will have unlimited piggyback registration rights in any public offering other than the initial public offering. We have agreed to pay all registration expenses relating to these registrations. We will agree to indemnify the sellers of securities pursuant to any registration described above. TERMINATION The shareholders agreement will terminate when 50% or more of our shares have been sold or distributed to the public or are actively traded on a national securities exchange. MANAGEMENT SHAREHOLDERS AGREEMENT On the closing of the transactions, we entered into a management shareholders agreement with members of the management group. After the closing of the transactions, other senior officers and 159 employees of New SAC who were granted shares or options to purchase shares, were required to join the management shareholders agreement. We refer to the members of the management group and these other persons as management shareholders. TRANSFER RESTRICTIONS Under the management shareholders agreement, each management shareholder agreed, subject to customary exceptions, not to transfer any of our shares acquired in connection with the transactions prior to the earliest of: o the sale of at least 15% of the outstanding ordinary shares in an initial public offering or pursuant to a public offering which results in gross proceeds to us of at least $250 million, which we refer to as a qualified public offering; o a change of control, as defined in the management shareholders agreement; and o the fifth anniversary of the closing of the transactions regarding several specified management shareholders and the second anniversary of the closing of the transactions regarding other management shareholders, which we refer to collectively as the lapse date. TAG-ALONG RIGHTS Prior to a qualified public offering, management shareholders will have the tag-along rights that are provided in the shareholders agreement, which we describe under "-- Shareholders Agreement -- Transfer Restrictions; Tag-Along Rights; Drag-Along Rights," but only regarding their unrestricted and vested ordinary shares. DRAG-ALONG RIGHTS If any member of the sponsor group holding, in the aggregate, at least a majority of our outstanding ordinary shares receives an offer from a third party to purchase at least a majority of the outstanding ordinary shares, management shareholders will be required to transfer a percentage of their preferred and vested ordinary shares equal to that being sold by that member of the sponsor group. RIGHT OF FIRST REFUSAL If, following the earlier of a qualified public offering, change of control and the appropriate anniversary of the closing of the transactions, but prior to an initial public offering, a management shareholder receives an offer from a third party to purchase any of his unrestricted and vested ordinary or preferred shares, we will have the right of first refusal to purchase all of these shares on substantially the same terms and conditions as the initial offer from the third party. CALL RIGHTS If the employment of a management shareholder terminates for any reason prior to the lapse date, we will have the option, for 60 days, to purchase any ordinary or preferred shares held by that individual. If we do not exercise our option within the 60 day period, then the members of the sponsor group and the management shareholders who are our senior managers will have that same call right. If more than one member of the sponsor group or management shareholder seeks to exercise its call rights, then each will be allowed to purchase the shares of the terminated employee according to its or his proportionate ownership of the ordinary or preferred shares at that time. The purchase price of any purchase under these call rights provisions will be as follows: 160 o in the case of a termination for cause, as defined in the management shareholders agreement, the purchase price will be the lower of (1) the fair market value of the shares, as defined in the management shareholders agreement, and (2) the original cost at which the shares were acquired or their liquidation preference, as applicable; o in the case of a termination without cause or for good reason of a member of the management group which becomes a management shareholder the purchase price will be the higher of (1) the fair market value of the shares and (2) the original cost at which the shares were acquired or their liquidation preference, as applicable; and o in the case of a termination for any other reason other than as described above, the purchase price will be the fair market value of the shares. PIGGYBACK REGISTRATION RIGHTS Each management shareholder will have the piggyback registration rights contained in the shareholders agreement, as summarized under "-- Shareholders Agreement -- Registration Rights." In addition, after both an initial public offering of ordinary shares and the sale by the sponsor group to third parties of 15% or more of its ordinary shares, management shareholders will have the demand registration rights as provided in the shareholders agreement as summarized under "-- Shareholders Agreement -- Registration Rights." OTHER MATTERS The management shareholders agreement will terminate when at least 50% of the number of our issued and outstanding ordinary shares have been sold or distributed to the public or are actively traded on a national securities exchange or interdealer quotation system, provided that piggyback rights will survive the termination of the agreement until all shares held by the management shareholders are registered, sold or eligible for transfer to the public. MONITORING, CONSULTING AND FINANCIAL SERVICE FEES On the closing of the transactions, we paid the sponsor group a consulting and financial advisory fee of $40 million. In addition, we agreed to pay an annual fee of $2 million to Silver Lake, Texas Pacific Group and August Capital in exchange for the monitoring, management, business strategy, consulting and financial services that they provide. Silver Lake, Texas Pacific Group and August Capital will share the $2 million annual fee among themselves in the manner provided in the shareholders agreement. Silver Lake owns approximately 35% of our outstanding ordinary shares. Texas Pacific Group owns approximately 23% of our outstanding ordinary shares. August Capital owns approximately 12% of our outstanding ordinary shares. SPECIAL DIRECTOR COMPENSATION In connection with the closing of the transactions contemplated by the stock purchase agreement and the merger agreement, the board of directors of Seagate Technology paid $100,000 to each of Lawrence Perlman and Gary B. Filler, the co-chairmen of the Seagate Technology board of directors at the time of the approval of the stock purchase agreement and the merger agreement, as compensation for their additional supervisory efforts in connection with these agreements. In addition, Seagate Technology's board of directors agreed to pay an additional $75,000 to each of Messrs. Perlman and Filler, payable in three $25,000 monthly installments commencing in October 2000, for ongoing supervisory efforts in connection with the closing of the transactions. Messrs. Perlman and Filler each also received a payment of $2,000 per week during the pendency of the stock purchase and the merger. In addition, we issued 1,000 ordinary shares to one of our directors, John Thompson, under the New SAC 2001 restricted share plan. 161 OTHER RELATED MATTERS Shortly after the transactions, in November 2000, we made interest-free payments on behalf of a number of our employees for state and federal taxes payable by them in connection with the early exercise of options. All relevant employees have since reimbursed us for these advances. In particular, payments were made on behalf of Stephen J. Luczo in the amount of $1,672,327, William D. Watkins in the amount of $452,265, Charles C. Pope in the amount of $467,892, William L. Hudson in the amount of $108,048, Brian S. Dexheimer in the amount of $291,541, Townsend H. Porter in the amount of $338,323, Donald L. Waite in the amount of $359,402 and David A. Wickersham in the amount of $200,908. Each of these individuals repaid us at some point between December 19, 2000 and January 5, 2001. In addition, in connection with the transactions that closed on November 22, 2000, we entered into transactions relating to the following agreements and benefit and compensation plans: o employment agreements and management retention agreements with our senior management team; o rollover agreements and related deferred compensation plans; o grants to some employees under the New SAC 2000 and New SAC 2001 restricted stock plans; o grants under stock option plans of Crystal Decisions; and o an assumption of indemnification and insurance obligations of Seagate Technology regarding our directors and officers. In addition, we have adopted stock option plans at Seagate Technology Holdings and Seagate Removable Storage Solutions Holdings and we expect options to be issued under these plans in the future. We also expect to adopt a stock option plan at Seagate Technology SAN Holdings during fiscal 2001. We describe the principal terms of these agreements and plans under "The Transactions" and "Management -- Employment and Other Agreements." INDEMNIFICATION AGREEMENT In connection with the stock purchase agreement and the merger agreement, on March 29, 2000, we entered into an indemnification agreement with Seagate Technology and VERITAS. Under the indemnification agreement, we and our subsidiaries have jointly and severally agreed to indemnify Seagate Technology and VERITAS and their affiliates from and against losses, claims, damages, fines, expenses and other costs, including reasonable attorneys' fees and disbursements, relating to: o all liabilities, other than designated liabilities, which are described below, and liabilities relating to taxes, for which we have agreed to indemnify Seagate Technology and VERITAS and their affiliates arising out of the ownership, operations or conduct by Seagate Technology and its predecessors or affiliates, other than VERITAS and its subsidiaries, of their businesses, properties, assets or liabilities on or prior to the closing of the transactions; o all liabilities, other than designated liabilities, arising out of the ownership, operations or conduct by us or any of our subsidiaries of our businesses, properties, assets or liabilities after the closing of the transactions; o the enforcement by Seagate Technology and VERITAS and their affiliates of their rights under the indemnification agreement; o any breach by us of our agreements contained in the indemnification agreement, the stock purchase agreement or other agreements relating to the indemnification agreement or the stock purchase agreement to which we are a party; 162 o all liabilities for taxes of Seagate Technology and the portion of Seagate Software Holdings that was not sold to VERITAS relating to periods ending on the closing of the transactions; and o all liabilities for taxes, whenever arising, of the subsidiaries sold to us or attributable to the assets of Seagate Technology transferred to these subsidiaries. The term designated liabilities refers to liabilities that we will not assume in connection with the stock purchase. These liabilities include: o all liabilities relating to the shares of common stock of VERITAS owned by Seagate Software Holdings, and the shares of Gadzoox Networks and LHSP owned by Seagate Technology; o all liabilities arising from the closing of the transactions contemplated by the merger agreement and the other transactions under the merger agreement; o all obligations of Seagate Technology to VERITAS regarding the software business that Seagate Technology sold to VERITAS in May 1999 in exchange for shares of VERITAS common stock; o all employee benefit plans of Seagate Technology that will not be assumed by us; and o all liabilities relating to Seagate Technology's employee stock purchase plan. Seagate Technology, VERITAS and their affiliates have agreed to indemnify us and our subsidiaries from and against all losses, claims, damages, fines, expenses and other costs, including reasonable attorneys' fees and disbursements, suffered by us or our subsidiaries relating to: o the designated liabilities; o the ownership, operations or conduct by Seagate Technology or Crystal Decisions of their businesses, properties, assets or liabilities after the closing of the transactions contemplated by the merger agreement; o the enforcement by us and our subsidiaries of our rights under the indemnification agreement; o any breach by VERITAS of its agreements, obligations, covenants, representations or warranties contained in the indemnification agreement, the merger agreement or other agreements entered into by VERITAS in connection with the indemnification agreement or the merger agreement; o all taxes of Seagate Technology for which we are not obligated to indemnify VERITAS and its affiliates as described in the last two bullet points of the second preceding paragraph of this section; and o any taxes payable by VERITAS or its affiliates arising out of the breach by VERITAS of any of its representations or covenants in the indemnification agreement. On the closing of the transactions, VERITAS deposited $150 million of cash into an escrow account. The escrow agreement permits us to withdraw all or a portion of the escrowed funds, to satisfy tax liabilities which we assumed and which will become liable, if at all, on completion of the tax audits of Seagate Technology for those taxable periods beginning on or after July 1, 1999 and ending on or before the closing of the transactions contemplated by the merger agreement. The amount required to be deposited was reduced from $300 million to $150 million as a result of the memorandum entered into on October 13, 2000 relating to the shareholder litigation, as described under "Business -- Legal Proceedings -- Securities Class Actions." 163 DESCRIPTION OF THE SENIOR CREDIT FACILITIES We summarize below the principal terms of the agreements that govern the senior credit facilities. For further information regarding the terms and provisions of these senior credit facilities, please refer to the agreements themselves which we have filed as exhibits to the registration statement of which this prospectus is a part. OVERVIEW On the closing of the transactions, the Issuer and Seagate Technology (US) Holdings, Inc., which we refer to collectively as the "borrowers," entered into the senior credit facilities with a syndicate of banks and other financial institutions led by The Chase Manhattan Bank, as administrative agent and an issuing bank, and Goldman Sachs Credit Partners L.P., as a documentation agent, The Bank of Nova Scotia as a documentation agent, and Merrill Lynch Capital Corporation, as a documentation agent. The senior credit facilities provide senior secured financing of up to $900 million, consisting of: o a $200 million revolving credit facility for general corporate purposes, with a sublimit of $100 million for letters of credit, which will terminate on November 22, 2005; o a $200 million term loan A facility maturing on November 22, 2005; and o a $500 million term loan B facility maturing on November 22, 2006. As of December 29, 2000, we did not borrow under the revolving credit facility. At that time, approximately $144 million of the revolving credit facility was available because approximately $56 million of existing letters of credit was outstanding and reduced availability under it. We drew the full amount of the term loan A facility and the term loan B facility on the closing of the transactions. The Issuer borrowed $600 million of the term loan facilities and Seagate Technology (US) Holdings, Inc. borrowed $100 million of the term loan facilities. The borrowers' obligations under the senior credit facilities are guaranteed on a senior basis by New SAC and the Issuer, in respect of the obligations of Seagate Technology (US) Holdings, Inc. only, and the same subsidiaries of the Issuer and of us which will be guaranteeing the Issuer's obligations under the notes. In addition, borrowings under the senior credit facilities are secured by the following: o substantially all of the real and personal property that is located in the Cayman Islands, the Netherlands (with the exception of intellectual property), Northern Ireland, Scotland, Singapore and the United States and that is owned by the Issuer and each of our other existing subsidiaries that guaranteed the senior credit facility; 164 o some real property located in Thailand; o some personal property located in the United Kingdom; and o a pledge of the capital stock held by the Issuer or any guarantor of the borrowers and each of our other subsidiaries which is organized under the laws of the Cayman Islands, Northern Ireland, Scotland, Singapore and the United States and some other subsidiaries, other than various insignificant subsidiaries. In addition, borrowings under the senior credit facilities will be secured by substantially all the real and personal property of any newly formed subsidiary of ours organized under the laws of the above jurisdictions, or of another jurisdiction if the newly formed subsidiary accounts for 10% or more of our consolidated assets or EBITDA, and all the capital stock in our subsidiaries held directly by such newly formed subsidiary. INTEREST RATES AND FEES The revolving credit facility, the term loan A facility and the term loan B facility initially bear interest, subject to performance-based stepdowns applicable to the revolving credit facility and the term loan A facility, at a rate equal to: o in the case of the revolving credit facility and the term loan A facility, LIBOR plus 2.50% or, at our option, the greater of (1) the prime rate of The Chase Manhattan Bank and (2) the federal funds rate plus 0.50%, plus 1.50%; or o in the case of the term loan B facility, LIBOR plus 3.00% or, at our option, the greater of (1) the prime rate of The Chase Manhattan Bank and (2) the federal funds rate plus 2.50%. In addition to paying interest on outstanding principal under the senior credit facilities, the borrowers are required to pay a commitment fee to the lenders under the revolving credit facility in respect of the unused commitments thereunder at a rate equal to 0.50% per year. AMORTIZATION SCHEDULE AND PREPAYMENTS Principal amounts outstanding under the revolving credit facility will be due and payable in full at maturity, five years from the date of the closing of the senior credit facilities. The amortization schedule for the term loan A facility and the term loan B facility for the borrowers contemplates semi-annual payments until the maturity of each facility. We list below the amortization for each facility for each borrower on an annual basis.
SEAGATE TECHNOLOGY HOLDINGS, ISSUER INC. ------------------------------- ---------------------------- TERM LOAN A TERM LOAN B TERM LOAN A TERM LOAN B DATES FACILITY FACILITY FACILITY FACILITY - --------------------------- --------------- --------------- ------------- -------------- November 22, 2001. ..... $ 4,285,500 $ 4,285,500 $ 714,500 $ 714,500 November 22, 2002 ...... 25,713,000 4,285,500 4,287,000 714,500 November 22, 2003 ...... 34,284,000 4,285,500 5,716,000 714,500 November 22, 2004 ...... 42,855,000 4,285,500 7,145,000 714,500 November 22, 2005 ...... 64,282,500 4,285,500 10,717,500 714,500 November 22, 2006 ...... 0 407,122,500 0 67,877,500 ------------ ------------ ----------- ----------- TOTAL ................. $171,420,000 $428,550,000 $28,580,000 $71,450,000 ============ ============ =========== ===========
The term loans are subject to mandatory prepayment with, in general: o 100% of the proceeds of specified asset sales that are not reinvested in the business within a one-year period; o 75%, subject to performance-based stepdowns, of the excess cash flow, as defined in the senior credit facilities, of us and our subsidiaries; and 165 o 75% of the proceeds of specified debt incurrences. We will not be required to make, however, mandatory prepayments of the term loans with the proceeds of some asset sales in circumstances specified in the agreement governing the senior credit facilities, including the following principal exceptions: o the issuance and sale by Seagate Technology Holdings of its equity interests pursuant to an initial public offering and, following an initial public offering, pursuant to any other offering; o following an initial public offering by Seagate Technology Holdings, the sale by us of equity interests in Seagate Technology Holdings for cash or publicly traded equity securities; o the issuance and sale by Seagate Technology HDD Holdings of equity interests pursuant to an initial public offering and, following an initial public offering, pursuant to any other offering; o subsequent to an initial public offering of Seagate Technology HDD Holdings, the sale by Seagate Technology Holdings of equity interests in Seagate Technology HDD Holdings for cash or publicly traded equity securities; o specified sales of equity interests in the designated subsidiaries or of all or substantially all the assets of the designated subsidiaries; and o specified sales of equity interests in, or all or substantially all of the assets of, some subsidiaries of Seagate Technology Investment Holdings LLC, and specified sales of assets received as consideration for these equity interests or assets. The agreement governing the senior credit facilities requires that the proceeds of the asset sales referred to above must be retained to fund the operations of New SAC, subject to specified permitted exceptions, including the following: o proceeds received in connection with asset sales described under the second and fourth bullet points listed above may be distributed to the sponsor group if no default or event of default under the senior credit facilities has occurred and is continuing or would result from the distribution; o so long as the long-term senior unsecured debt of either the Issuer or Seagate Technology HDD Holdings is rated investment grade by both Moody's Investors Service, Inc. and Standard and Poor's Rating Service, the borrowers under the senior credit facilities have repaid 50% of the term loan facilities and some financial ratios are met, proceeds received in connection with asset sales described under the fifth bullet point listed above may be distributed to the sponsor group to the extent these proceeds are in excess of the sponsor group's historical investment in the relevant subsidiary if no default or event of default under the senior credit facilities has occurred and is continuing or would result from the distribution; and o proceeds received in connection with asset sales described under the final bullet point listed above may be distributed to the sponsor group to the extent these proceeds are in excess of the sponsor group's historical investment in the relevant subsidiary if no default or event of default under the senior credit facilities has occurred and is continuing or would result from the distribution. We may voluntarily repay outstanding loans under the senior credit facilities without penalty, other than breakage costs. COVENANTS AND OTHER MATTERS The agreements governing the senior credit facilities contain a number of covenants that, among other things, restrict the ability of the borrowers, us and our other subsidiaries to: o dispose of assets; o incur additional debt or issue preferred stock; 166 o incur guarantee obligations; o repay other debt; o make specified restricted payments and dividends; o create liens on assets; o make investments, loans or advances; o engage in mergers or consolidations; o engage to any material extent in businesses other than our current businesses; o make capital expenditures; o enter into sale and leaseback transactions; or o engage in specified transactions with affiliates. In addition, under the senior credit facilities, we will be required to comply with specified financial covenants, including: o a minimum interest coverage ratio; o a minimum ratio of adjusted earnings to fixed charges; and o a maximum net leverage ratio. The senior credit facilities also contain customary representations and warranties, affirmative covenants and events of default, including cross default, material judgments and change in control. The commitment of the lenders to provide financing to the borrowers under the senior credit facilities was subject to a number of conditions, including our depositing at the closing of the transactions $750 million in cash and permitted investments into one or more locations where that cash and permitted investments are subject to a security interest securing the senior credit facilities. 167 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Issuer has entered into an exchange and registration rights agreement with the initial purchasers of the outstanding notes in which it agreed, under specified circumstances, to file a registration statement relating to an offer to exchange the outstanding notes for exchange notes. The Issuer also agreed to use its reasonable best efforts to cause such offer to be consummated within 300 days following the original issue of the outstanding notes. The exchange notes will have terms substantially identical to the outstanding notes except that the exchange notes will not contain terms with respect to transfer restrictions, registration rights and liquidated damages for failure to observe specified obligations in the exchange and registration rights agreement. The outstanding notes were issued on November 22, 2000. Under the circumstances set forth below, the Issuer will use its reasonable best efforts to cause the SEC to declare effective a shelf registration statement with respect to the resale of the outstanding notes and keep the statement effective for up to two years after the effective date of the shelf registration statement. These circumstances include: o if any changes in law or applicable interpretations of the law by the staff of the SEC do not permit the Issuer to effect the exchange offer as contemplated by the exchange and registration rights agreement; o if any outstanding notes validly tendered in the exchange offer are not exchanged for exchange notes within 300 days after the original issue of the outstanding notes; o if any initial purchaser of the outstanding notes so requests, but only with respect to any outstanding notes not eligible to be exchanged for exchange notes in the exchange offer and held by it following the consummation of the exchange offer; o if any applicable law or interpretation does not permit any holder of the outstanding notes to participate in the exchange offer; o if any holder that participates in the exchange offer does not receive freely transferable exchange notes in exchange for tendered outstanding notes; or o if the Issuer so elects. If the Issuer fails to comply with specified obligations under the exchange and registration rights agreement, it will be required to pay liquidated damages to holders of the outstanding notes. Please see "Exchange and Registration Rights Agreement" for more details regarding the exchange and registration rights agreement. Each holder of outstanding notes that wishes to exchange such outstanding notes for transferable exchange notes in the exchange offer will be required to make the following representations: o any exchange notes will be acquired in the ordinary course of its business; o such holder has no arrangement with any person to participate in the distribution of the exchange notes; and o such holder is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Issuer or if it is an affiliate, that it will comply with applicable registration and prospectus delivery requirements of the Securities Act. RESALE OF EXCHANGE NOTES Based on interpretations of the SEC staff set forth in no action letters issued to unrelated third parties, the Issuer believes that exchange notes issued under the exchange offer in exchange for outstanding notes may be offered for resale, resold and otherwise transferred by any exchange note holder without compliance with the registration and prospectus delivery provisions of the Securities Act, if: 168 o such holder is not an "affiliate" as defined in Rule 405 under the Securities Act, of the Issuer, or if such holder is an "affiliate," that it will comply with the applicable registration and prospectus delivery requirements of the Securities Act; o such exchange notes are acquired in the ordinary course of the holder's business; and o the holder does not intend to participate in the distribution of such exchange notes. Any holder who tenders in the exchange offer with the intention of participating in any manner in a distribution of the exchange notes: o cannot rely on the position of the staff of the SEC enunciated in "Exxon Capital Holdings Corporation" or similar interpretive letters; and o must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. This prospectus may be used for an offer to resell, for the resale or for other retransfer of exchange notes only as specifically set forth in this prospectus. With regard to broker-dealers, only broker-dealers that acquired the outstanding notes as a result of market-making activities or other trading activities may participate in the exchange offer. Each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes, where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. Please see "Plan of Distribution" for more details regarding the transfer of exchange notes. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, the Issuer will accept for exchange any outstanding notes properly tendered and not withdrawn prior to the expiration date. The Issuer will issue $1,000 principal amount of exchange notes in exchange for each $1,000 principal amount of outstanding notes surrendered under the exchange offer. Outstanding notes may be tendered only in integral multiples of $1,000. The form and terms of the exchange notes will be substantially identical to the form and terms of the outstanding notes except the exchange notes will be registered under the Securities Act, will not bear legends restricting their transfer and will not provide for any liquidated damages upon failure of the Issuer to fulfill its obligations under the exchange and registration rights agreement to file, and cause to be effective, a registration statement. The exchange notes will evidence the same debt as the outstanding notes. The exchange notes will be issued under and entitled to the benefits of the same indenture that authorized the issuance of the outstanding notes. Consequently, both series will be treated as a single class of debt securities under that indenture. For a description of the indenture, see "Description of the Notes" below. The exchange offer is not conditioned upon any minimum aggregate principal amount of outstanding notes being tendered for exchange. As of the date of this prospectus, $210 million aggregate principal amount of the outstanding notes are outstanding. This prospectus and the letter of transmittal are being sent to all registered holders of outstanding notes. There will be no fixed record date for determining registered holders of outstanding notes entitled to participate in the exchange offer. Holders do not have any appraisal rights or dissenters' rights under the indenture in connection with the exchange offer. The Issuer intends to conduct the exchange offer in accordance with the provisions of the exchange and registration rights agreement, the applicable requirements of the Securities Act and the Securities Exchange Act of 1934 and the rules and regulations of the SEC. Outstanding notes that are not tendered for exchange in the exchange offer will remain outstanding and continue to accrue interest and will be entitled to the rights and benefits such holders have under the indenture relating to the outstanding notes. 169 The Issuer will be deemed to have accepted for exchange properly tendered outstanding notes when it has given written notice or oral notice that is later confirmed in writing of the acceptance to the exchange agent. The exchange agent will act as agent for the tendering holders for the purposes of receiving the exchange notes from the Issuer and delivering exchange notes to such holders. Subject to the terms of the exchange and registration rights agreement, the Issuer expressly reserves the right to amend or terminate the exchange offer, and not to accept for exchange any outstanding notes not previously accepted for exchange, upon the occurrence of any of the conditions specified below under "-- Certain Conditions to the Exchange Offer." Holders who tender outstanding notes in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of outstanding notes. The Issuer will pay all charges and expenses, other than certain applicable taxes described below, in connection with the exchange offer. It is important that you read the section "-- Fees and Expenses" below for more details regarding fees and expenses incurred in the exchange offer. EXPIRATION DATE; EXTENSIONS; AMENDMENTS The exchange offer will expire at 5:00 p.m., New York City time on , 2001, unless in its sole discretion, the Issuer extends it. In order to extend the exchange offer, the Issuer will give the exchange agent written notice or oral notice that is later confirmed in writing of any extension. The Issuer will notify the registered holders of outstanding notes of the extension no later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date. The Issuer reserves the right, in its sole discretion: o to delay accepting for exchange any outstanding notes; o to extend the exchange offer or to terminate the exchange offer and to refuse to accept outstanding notes not previously accepted if any of the conditions set forth below under "-- Certain Conditions to the Exchange Offer" have not been satisfied, by giving written notice or oral notice that is later confirmed in writing of such delay, extension or termination to the exchange agent; or o subject to the terms of the exchange and registration rights agreement, to amend the terms of the exchange offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders of outstanding notes. If the Issuer amends the exchange offer in a manner that it determines to constitute a material change, it will promptly disclose such amendment in a manner reasonably calculated to inform the holders of outstanding notes of such amendment. Without limiting the manner in which it may choose to make public announcements of any delay in acceptance, extension, termination or amendment of the exchange offer, the Issuer shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to a financial news service. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Despite any other term of the exchange offer, the Issuer will not be required to accept for exchange, or exchange any exchange notes for, any outstanding notes, and it may terminate the exchange offer as provided in this prospectus before accepting any outstanding notes for exchange if in its reasonable judgment: o the exchange notes to be received will not be tradable by the holder, without restriction under the Securities Act, the Securities Exchange Act of 1934 and without material restrictions under the blue sky or securities laws of substantially all of the states of the United States; 170 o the exchange offer, or the making of any exchange by a holder of outstanding notes, would violate applicable law or any applicable interpretation of the staff of the SEC; or o any action or proceeding has been instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer that, in the Issuer's judgment, would reasonably be expected to impair the ability of the Issuer to proceed with the exchange offer. In addition, the Issuer will not be obligated to accept for exchange the outstanding notes of any holder that has not made to the Issuer: o the representations described under "-- Purpose and Effect of the Exchange Offer," "-- Procedures for Tendering" and "Plan of Distribution"; and o such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to make available to it an appropriate form for registration of the exchange notes under the Securities Act. The Issuer expressly reserves the right, at any time or at various times, to extend the period of time during which the exchange offer is open. Consequently, the Issuer may delay acceptance of any outstanding notes by giving oral or written notice of such extension to their holders. During any such extensions, all outstanding notes previously tendered will remain subject to the exchange offer, and the Issuer may accept them for exchange. The Issuer will return any outstanding notes that it does not accept for exchange for any reason without expense to their tendering holder as promptly as practicable after the expiration or termination of the exchange offer. The Issuer expressly reserves the right to amend or terminate the exchange offer, and to reject for exchange any outstanding notes not previously accepted for exchange, upon the occurrence of any of the conditions of the exchange offer specified above. The Issuer will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the outstanding notes as promptly as practicable. In the case of any extension, such notice will be issued no later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date. These conditions are for the sole benefit of the Issuer and the Issuer may assert them regardless of the circumstances that may give rise to them or waive them in whole or in part at any or at various times in its sole discretion. If the Issuer fails at any time to exercise any of the foregoing rights, this failure will not constitute a waiver of such right. Each such right will be deemed an ongoing right that the Issuer may assert at any time or at various times. In addition, the Issuer will not accept for exchange any outstanding notes tendered, and will not issue exchange notes in exchange for any such outstanding notes, if at such time any stop order will be threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture under the Trust Indenture Act of 1939. PROCEDURES FOR TENDERING Only a holder of outstanding notes may tender such outstanding notes in the exchange offer. To tender in the exchange offer, a holder must: o complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal; have the signature on the letter of transmittal guaranteed if the letter of transmittal so requires; and mail or deliver such letter of transmittal or facsimile to the exchange agent prior to the expiration date; or o comply with DTC's Automated Tender Offer Program procedures described below. In addition, either: o the exchange agent must receive outstanding notes along with the letter of transmittal; or o the exchange agent must receive, prior to the expiration date, a timely confirmation of book-entry transfer of such outstanding notes into the exchange agent's account at DTC according to the procedures for book-entry transfer described below or a properly transmitted agent's message; or 171 o the holder must comply with the guaranteed delivery procedures described below. To be tendered effectively, the exchange agent must receive any physical delivery of the letter of transmittal and other required documents at the address set forth below under "-- Exchange Agent" prior to the expiration date. The tender by a holder that is not withdrawn prior to the expiration date will constitute an agreement between such holder and the Issuer in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal. The method of delivery of outstanding notes, the letter of transmittal and all other required documents to the exchange agent is at the holder's election and risk. Rather than mailing these items, the Issuer recommends that holders use an overnight or hand delivery service. In all cases, holders should allow sufficient time to assure delivery to the exchange agent before the expiration date. Holders should not send the letter of transmittal or outstanding notes to the Issuer. Holders may request their respective brokers, dealers, commercial banks, trust companies or other nominees to effect the above transactions for them. Any beneficial owner whose outstanding notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct it to tender on the owner's behalf. If such beneficial owner wishes to tender on its own behalf, it must, prior to completing and executing the letter of transmittal and delivering its outstanding notes, either: o make appropriate arrangements to register ownership of the outstanding notes in such owner's name; or o obtain a properly completed bond power from the registered holder of outstanding notes. The transfer of registered ownership may take considerable time and may not be completed prior to the expiration date. Signatures on a letter of transmittal or a notice of withdrawal described below must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or another "eligible institution" within the meaning of Rule 17Ad-15 under the Exchange Act, unless the outstanding notes tendered pursuant thereto are tendered: o by a registered holder who has not competed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal; or o for the account of an eligible institution. If the letter of transmittal is signed by a person other than the registered holder of any outstanding notes listed on the outstanding notes, such outstanding notes must be endorsed or accompanied by a properly completed bond power. The bond power must be signed by the registered holder as the registered holder's name appears on the outstanding notes and an eligible institution must guarantee the signature on the bond power. If the letter of transmittal or any outstanding notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing. Unless waived by the Issuer, they should also submit evidence satisfactory to the Issuer of their authority to deliver the letter of transmittal. The exchange agent and DTC have confirmed that any financial institution that is a participant in DTC's system may use DTC's Automated Tender Offer Program to tender. Participants in the program may, instead of physically completing and signing the letter of transmittal and delivering it to the exchange agent, transmit their acceptance of the exchange offer electronically. They may do so 172 by causing DTC to transfer the outstanding notes to the exchange agent in accordance with its procedures for transfer. DTC will then send an agent's message to the exchange agent. The term "agent's message" means a message transmitted by DTC, received by the exchange agent and forming part of the book-entry confirmation, to the effect that: o DTC has received an express acknowledgment from a participant in its Automated Tender Offer Program that is tendering outstanding notes that are the subject of such book-entry confirmation; o such participant has received and agrees to be bound by the terms of the letter of transmittal (or, in the case of an agent's message relating to guaranteed delivery, that such participant has received and agrees to be bound by the applicable notice of guaranteed delivery); and o the agreement may be enforced against such participant. The Issuer will determine in its sole discretion all questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered outstanding notes and withdrawal of tendered outstanding notes. The Issuer's determination will be final and binding. The Issuer reserves the absolute right to reject any outstanding notes not properly tendered or any outstanding notes the acceptance of which would, in the opinion of the Issuer's counsel, be unlawful. The Issuer also reserves the right to waive any defects, irregularities or conditions of tender as to particular outstanding notes. The Issuer's interpretation of the terms and conditions of the exchange offer (including the instructions in the letter of transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of outstanding notes must be cured within such time as the Issuer shall determine. Although the Issuer intends to notify holders of defects or irregularities with respect to tenders of outstanding notes, neither the Issuer, the exchange agent nor any other person will incur any liability for failure to give such notification. Tenders of outstanding notes will not be deemed made until such defects or irregularities have been cured or waived. Any outstanding notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned to the exchange agent without cost to the tendering holder, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date. In all cases, the Issuer will issue exchange notes for outstanding notes that it has accepted for exchange under the exchange offer only after the exchange agent timely receives: o outstanding notes or a timely book-entry confirmation of such outstanding notes into the exchange agent's account at DTC; and o a properly completed and duly executed letter of transmittal and all other required documents or a properly transmitted agent's message. By signing the letter of transmittal, each tendering holder of outstanding notes will represent to the Issuer that, among other things: o any exchange notes that the holder receives will be acquired in the ordinary course of its business; o the holder has no arrangement or understanding with any person or entity to participate in the distribution of the exchange notes; o if the holder is not a broker-dealer, that it is not engaged in and does not intend to engage in the distribution of the exchange notes; o if the holder is a broker-dealer that will receive exchange notes for its own account in exchange for outstanding notes that were acquired as a result of market-making activities, that it will deliver a prospectus, as required by law, in connection with any resale of such exchange notes; and o the holder is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Issuer or, if the holder is an affiliate, it will comply with any applicable registration and prospectus delivery requirements of the Securities Act. 173 BOOK-ENTRY TRANSFER The exchange agent will make a request to establish an account with respect to the outstanding notes at DTC for purposes of the exchange offer promptly after the date of this prospectus; and any financial institution participating in DTC's system may make book-entry delivery of outstanding notes by causing DTC to transfer such outstanding notes into the exchange agent's account at DTC in accordance with DTC's procedures for transfer. Holders of outstanding notes who are unable to deliver confirmation of the book-entry tender of their outstanding notes into the exchange agent's account at DTC or all other documents required by the letter of transmittal to the exchange agent on or prior to the expiration date must tender their outstanding notes according to the guaranteed delivery procedures described below. GUARANTEED DELIVERY PROCEDURES Holders wishing to tender their outstanding notes but whose outstanding notes are not immediately available or who cannot deliver their outstanding notes, the letter of transmittal or any other required documents to the exchange agent or comply with the applicable procedures under DTC's Automated Tender Offer Program prior to the expiration date may tender if: o the tender is made through an eligible institution; o prior to the expiration date, the exchange agent receives from such eligible institution either a properly completed and duly executed notice of guaranteed delivery (by facsimile transmission, mail or hand delivery) or a properly transmitted agent's message and notice of guaranteed delivery: o setting forth the name and address of the holder, the registered number(s) of such outstanding notes and the principal amount of outstanding notes tendered; o stating that the tender is being made thereby; and o guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the letter of transmittal, or facsimile of the letter of transmittal, together with the outstanding notes or a book-entry confirmation, and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and o the exchange agent receives such properly completed and executed letter of transmittal, or facsimile of the letter of transmittal, as well as all tendered outstanding notes in proper form for transfer or a book-entry confirmation, and all other documents required by the letter of transmittal, within three New York State Exchange trading days after the expiration date. Upon request to the exchange agent, a notice of guaranteed delivery will be sent to holders who wish to tender their outstanding notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided in this prospectus, holders of outstanding notes may withdraw their tenders at any time prior to the expiration date. For a withdrawal to be effective: o the exchange agent must receive a written notice by telegram, telex, facsimile transmission or letter of withdrawal at one of the addresses set forth below under "-- Exchange Agent," or o holders must comply with the appropriate procedures of DTC's automated tender offer program system. Any such notice of withdrawal must: o specify the name of the person who tendered the outstanding notes to be withdrawn; 174 o identify the outstanding notes to be withdrawn, including the principal amount of such outstanding notes; and o where certificates for outstanding notes have been transmitted, specify the name in which such outstanding notes were registered, if different from that of the withdrawing holder. If certificates for outstanding notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates, the withdrawing holder must also submit: o the serial numbers of the particular certificates to be withdrawn; and o a signed notice of withdrawal with signatures guaranteed by an eligible institution unless such holder is an eligible institution. If outstanding notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn outstanding notes and otherwise comply with the procedures of such facility. The Issuer will determine all questions as to the validity, form and eligibility, including time of receipt, of such notices, and our determination shall be final and binding on all parties. The Issuer will deem any outstanding notes so withdrawn not to have been validly tendered for exchange for purposes of the exchange offer. Any outstanding notes that have been tendered for exchange but that are not exchanged for any reason will be returned to their holder without cost to the holder, or, in the case of outstanding notes tendered by book-entry transfer into the exchange agent's account at DTC according to the procedures described above the outstanding notes will be credited to an account maintained with DTC for outstanding notes, as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn outstanding notes may be retendered by following one of the procedures described under "-- Procedures for Tendering" above at any time on or prior to the expiration date. EXCHANGE AGENT The Bank of New York has been appointed as exchange agent for the exchange offer. You should direct questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for the notice of guaranteed delivery to the exchange agent addressed as follows: By Registered or Certified Mail: Facsimile Transmission Number: By Hand or Over Night Delivery (Eligible Institutions Only) The Bank of New York Attention: The Bank of New York 101 Barclay Street, Floor 7E Reorganization Unit 7E 101 Barclay Street New York, New York 10286 (212) 815-6339 Corporate Trust Services Window Attention: Carolle Montreuil Confirmation by telephone: Ground Level Reorganization Unit, 7E (212) 815-5920 New York, New York 10286 Attention: Carolle Montreuil
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL. FEES AND EXPENSES The Issuer will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, the Issuer may make additional solicitations by telegraph, telephone or in person by its officers and regular employees and those of our affiliates. The Issuer has not retained any dealer-manager in connection with the exchange offer and will not make any payments to broker-dealers or others soliciting acceptances of the exchange offer. The 175 Issuer will, however, pay the exchange agent reasonable and customary fees for its services and reimburse it for its related reasonable out-of-pocket expenses. The Issuer will pay the cash expenses to be incurred in connection with the exchange offer. They include: o SEC registration fees; o fees and expenses of the exchange agent and trustee; o accounting and legal fees and printing costs; and o related fees and expenses. The expenses are estimated in the aggregate to be approximately $3,000,000. TRANSFER TAXES The Issuer will pay all transfer taxes, if any, applicable to the exchange of outstanding notes under the exchange offer. The tendering holder, however, will be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if: o certificates representing outstanding notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of outstanding notes tendered; o tendered outstanding notes are registered in the name of any person other than the person signing the letter of transmittal; or o a transfer tax is imposed for any reason other than the exchange of outstanding notes under the exchange offer. If satisfactory evidence of payment of such taxes is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed to that tendering holder. Holders who tender their outstanding notes for exchange will not be required to pay any transfer taxes. However, holders who instruct the Issuer to register exchange notes in the name of, or request that outstanding notes not tendered or not accepted in the exchange offer be returned to, a person other than the registered tendering holder will be required to pay any applicable transfer tax. CONSEQUENCES OF FAILURE TO EXCHANGE Holders of outstanding notes who do not exchange their outstanding notes for exchange notes under the exchange offer will remain subject to the restrictions on transfer of such outstanding notes: o as set forth in the legend printed on the notes as a consequence of the issuance of the outstanding notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws; and o otherwise as set forth in the prospectus distributed in connection with the private offering of the outstanding notes. In general, you may not offer or sell the outstanding notes unless they are registered under the Securities Act, or if the offer or sale is exempt from registration under the Securities Act and applicable state securities laws. Except as required by the exchange and registration rights agreement, the Issuer does not intend to register resales of the outstanding notes under the Securities Act. Based on interpretations of the SEC staff, exchange notes issued pursuant to the exchange offer may be offered for resale, resold or otherwise transferred by their holders, other than to any holder that is our "affiliate" within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the holders acquired the exchange notes in the ordinary course of the holders' business and the holders have no arrangement or understanding with respect to the distribution of the exchange notes 176 to be acquired in the exchange offer. Any holder who tenders in the exchange offer for the purpose of participating in a distribution of the exchange notes: o could not rely on the applicable interpretations of the SEC; and o must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. ACCOUNTING TREATMENT The Issuer will record the exchange notes in its accounting records at the same carrying value as the outstanding notes, which is the aggregate principal amount, as reflected in our accounting records on the date of exchange. Accordingly, the Issuer will not recognize any gain or loss for accounting purposes in connection with the exchange offer. The Issuer will record the expenses of the exchange offer as incurred. OTHER Participation in the exchange offer is voluntary, and you should carefully consider whether to accept. You are urged to consult your financial and tax advisors in making your own decision on what action to take. The Issuer may in the future seek to acquire untendered outstanding notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. The Issuer has no present plans to acquire any outstanding notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any untendered outstanding notes. 177 DESCRIPTION OF THE NOTES The Issuer issued the notes, and will issue the exchange notes, under an indenture, dated November 22, 2000, among the Issuer, the Note Guarantors and The Bank of New York, as Trustee. The indenture contains provisions which define your rights under the notes. In addition, the indenture governs the obligations of the Issuer and of each Note Guarantor under the notes. The terms of the notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939. Definitions of certain terms used in this Description of the Notes may be found below under "--Certain Definitions." In addition, we note that, for purposes of this section only: (1) the term "Issuer" refers only to Seagate Technology International and not to any of its Subsidiaries; (2) the term "HDD Holdings" refers to Seagate Technology HDD Holdings, the parent company of the Issuer and not to any of its Subsidiaries; (3) the term "Intermediate Holdings" refers to Seagate Technology Holdings, the parent company of HDD Holdings and not to any of its Subsidiaries; and (4) the term "Company" refers to New SAC, the parent company of Intermediate Holdings and not to any of its Subsidiaries. The Company and various subsidiaries of the Company will guarantee the notes and therefore will be subject to many of the provisions contained in this Description of the Notes. Each company which guarantees the notes is referred to in this section as a "Note Guarantor." Each such guarantee is termed a "Note Guarantee." The following description is meant to be only a summary of various provisions of the indenture. It does not restate the terms of the indenture in their entirety. For further information regarding the terms and provisions of the indenture and the exchange notes please refer to the indenture and form of exchange note, which we have filed as exhibits to the registration statement of which this prospectus is a part. We urge you to carefully read these documents. OVERVIEW OF THE NOTES AND THE NOTE GUARANTEES The notes: o are general unsecured obligations of the Issuer; o rank equally in right of payment with any future Senior Subordinated Indebtedness of the Issuer; o are subordinated in right of payment to all existing and future Senior Indebtedness of the Issuer; o are senior in right of payment to any future Subordinated Obligations of the Issuer; o are effectively subordinated to any Secured Indebtedness of the Company and its Subsidiaries to the extent of the value of the assets securing such Indebtedness; and o are effectively subordinated to all liabilities, including Trade Payables, and Preferred Stock of each Subsidiary of the Company that is not a Note Guarantor. The Note Guarantors Initially, the notes are guaranteed by the Company, Intermediate Holdings, HDD Holdings and all of the other Subsidiaries of the Company other than the Unrestricted Subsidiaries and those Subsidiaries which will not be guarantors under the Credit Agreement, which will initially include those Subsidiaries organized under the laws of Australia, Barbados, China, Denmark, France, Germany, Hong Kong, Indonesia, Italy, Malaysia, the Netherlands, Sweden, Switzerland, Taiwan and the U.S. Virgin Islands, which we refer to collectively as the "Non-Guarantor Subsidiaries". Under 178 circumstances specified below, specified Subsidiaries of the Company, including those Subsidiaries that are Designated Subsidiaries, may be released from their Note Guarantees, as described below. The Note Guarantee of each Note Guarantor: o is a general unsecured obligation of the Note Guarantor; o ranks equally in right of payment with any future Senior Subordinated Indebtedness of the Note Guarantor; o is subordinated in right of payment to all existing and future Senior Indebtedness of the Note Guarantor (including any guarantee of the Bank Indebtedness); o is senior in right of payment to any future Subordinated Obligations of the Note Guarantor; and o is effectively subordinated to any Secured Indebtedness of the Company and its Subsidiaries to the extent of the value of the assets securing such Indebtedness. Initially, the notes are not guaranteed by any of the Non-Guarantor Subsidiaries. After eliminating intercompany activity, as of December 29, 2000, the Non-Guarantor Subsidiaries would have had total assets of $ million or % of the Company's consolidated assets and total liabilities of $ million. After eliminating intercompany activity, for fiscal year 2000 and the combined results for the six months ended December 29, 2000, the Non-Guarantor Subsidiaries would have generated total revenue of $ million and $ million or % and % of the Company's consolidated revenue. After eliminating intercompany activity, for fiscal year 2000, the Non-Guarantors generated EBITDA of $ million or % of the Company's consolidated EBITDA. On a pro forma basis and after eliminating intercompany activity, for the combined results for the six months ended December 29, 2000, the Non-Guarantors did not generate material EBITDA. Seagate Technology Investments Holdings LLC is an Unrestricted Subsidiary of the Company. Under certain circumstances, the Company will be able to designate other current or future direct or indirect Subsidiaries of the Company as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be Note Guarantors or be subject to any of the restrictive covenants set forth in the indenture. After eliminating intercompany activity, as of December 29, 2000, the Unrestricted Subsidiary would have had assets of $137 million or 4% of the Company's consolidated assets and no liabilities. After eliminating intercompany activity, for fiscal year 2000 and the combined results for the six months ended December 29, 2000, the Unrestricted Subsidiary would have generated no revenue, and would not have generated material EBITDA. Each of Seagate Technology SAN Holdings, Seagate Removable Storage Solutions Holdings and Crystal Decisions and each of their Subsidiaries will be a Designated Subsidiary of the Company on the Closing Date. Designated Subsidiaries will be Restricted Subsidiaries and initially will be Note Guarantors, however upon certain transactions involving the sale of Capital Stock of a Designated Subsidiary, the Designated Subsidiary (and each of its Subsidiaries) will be released from its Note Guarantee. A Designated Subsidiary will continue to be a Restricted Subsidiary after the release of its Note Guarantee until it may be designated as an Unrestricted Subsidiary by the Board of Directors of the Company or until it is no longer a Subsidiary. See "-- Certain Definitions -- `Unrestricted Subsidiary'." After eliminating intercompany activity, as of December 29, 2000, the Designated Subsidiaries would have had total assets of $209 million or 6% of the Company's consolidated assets and total liabilities of $109 million or 4% of our consolidated liabilities. After eliminating intercompany activity, for fiscal year 2000 and the combined results for the six months ended December 29, 2000, the Designated Subsidiaries would have generated total revenue of $410 million and $228 million or 6% and 7% of the Company's consolidated revenue. After eliminating intercompany activity, for fiscal year 2000, the Designated Subsidiaries generated EBITDA of $ million or % of the Company's consolidated EBITDA. After eliminating intercompany activity, for the combined results for the six months ended December 29, 2000, the Designated Subsidiaries would not have generated material EBITDA. 179 PRINCIPAL, MATURITY AND INTEREST The Issuer issued notes in an aggregate principal amount of $210 million. The notes will mature on November 15, 2007. The Issuer will issue the exchange notes in fully registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. Each note the Issuer issues will bear interest at a rate of 12 1/2% per annum beginning on November 22, 2000, or from the most recent date to which interest has been paid or provided for. The Issuer will pay interest semiannually to Holders of record at the close of business on the May 1 or November 1 immediately preceding the interest payment date on May 15 and November 15 of each year. The Issuer will begin paying interest to Holders on May 15, 2001. The Issuer will also pay liquidated damages to Holders if it fails to file a registration statement relating to the notes or if the registration statement is not declared effective on a timely basis or if certain other conditions are not satisfied. These liquidated damage provisions are more fully explained under the heading "Exchange and Registration Rights Agreement." INDENTURE MAY BE USED FOR FUTURE ISSUANCES The Issuer may from time to time issue additional notes having identical terms to the notes it is currently offering, which we refer to as the Additional Notes. The Issuer will be permitted to issue such Additional Notes only if at the time of, and after giving effect to, such issuance the Issuer is in compliance with the covenants contained in the indenture. Any Additional Notes will be part of the same series as the notes that the Issuer is currently offering for all purposes under the indenture, including regarding any vote on any matter under the indenture. PAYING AGENT AND REGISTRAR The Issuer will pay the principal of, premium, if any, interest and liquidated damages, if any, on the notes at any office of the Issuer or any agency designated by the Issuer which is located in the Borough of Manhattan, The City of New York. The Issuer has initially designated the corporate trust office of the Trustee to act as the agent of the Issuer in such matters. The location of the principal corporate trust office is 101 Barclay Street, Floor 21 West, New York, New York 10286. The Issuer, however, reserves the right to pay interest to Holders by check mailed directly to Holders at their registered addresses. Holders may exchange or transfer their notes at Floor 7 East of the same location given in the preceding paragraph. No service charge will be made for any registration of transfer or exchange of notes. The Issuer, however, may require Holders to pay any transfer tax or other similar governmental charge payable in connection with any such transfer or exchange. OPTIONAL REDEMPTION Except as set forth in the following paragraph, the Issuer may not redeem the notes prior to November 15, 2004. After this date, the Issuer may redeem the notes, in whole or in part on one or more occasions, on not less than 30 nor more than 60 days' prior notice, at the following redemption prices, expressed as percentages of principal amount, plus accrued and unpaid interest and liquidated damages thereon, if any, to the redemption date, subject to the right of Holders of record on the relevant record date to receive interest and liquidated damages, if any, due on the relevant interest payment date, if redeemed during the 12-month period and liquidated damages, if any, commencing on November 15 of the years set forth below:
REDEMPTION YEAR PRICE - ---------------------------------------- ------------- 2004 ................................. 106.250% 2005 ................................. 103.313% 2006 and thereafter .................. 100.000%
180 Prior to November 15, 2003, the Issuer may, on one or more occasions, also redeem up to a maximum of 35% of the aggregate principal amount of the notes, calculated after giving effect to any issuance of Additional Notes, with the Net Cash Proceeds of one or more Equity Offerings (1) by the Issuer or (2) by the Company, Intermediate Holdings or HDD Holdings to the extent the Net Cash Proceeds from the Equity Offering are contributed to the Issuer or used to purchase Capital Stock, other than Disqualified Stock, of the Issuer from the Issuer, at a redemption price equal to 112.5% of the principal amount thereof, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date, subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date; provided, however, that after giving effect to any such redemption: o at least 65% of the aggregate principal amount of the notes, calculated after giving effect to any issuance of Additional Notes, remains outstanding; and o any redemption must be made within 90 days of the Equity Offering and must be made in accordance with specified procedures set forth in the indenture. At any time prior to November 15, 2004, the notes may be redeemed, as a whole but not in part, at the option of the Issuer upon the occurrence of a, or if applicable each, Change of Control, as more fully defined in "--Change of Control," upon not less than 30 or more than 60 days' prior notice, but in no event may any such redemption occur more than 90 days after the occurrence of such Change of Control, mailed by first-class mail to each Holder's registered address, at a redemption price equal to the sum of (1) the principal amount thereof and (2) the Applicable Premium as of, and accrued and unpaid interest, if any, to, the redemption date, subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date. "Applicable Premium" means, with respect to a Note at any redemption date, the greater of (1) 1.0% of the principal amount of such note and (2) the excess of (A) the present value of (1) the redemption price of such note at November 15, 2004, as set forth in the table above plus (2) all required interest payments due on such note through November 15, 2004, computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the then-outstanding principal amount of such note. "Treasury Rate" means the yield to maturity at the time of computation of U.S. Treasury securities with a constant maturity, as compiled by, and published in, the most recent Federal Reserve Statistical Release H.15(519) which has become publicly available at least two Business Days prior to the date fixed for redemption of the notes following a Change of Control (or, if such Statistical Release is no longer published, any publicly available source of similar market data), most nearly equal to the period from the redemption date to November 15, 2004; provided, however, that if the period from the redemption date to November 15, 2004 is not equal to the constant maturity of a U.S. Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation, calculated to the nearest one-twelfth of a year, from the weekly average yields of U.S. Treasury securities for which such yields are given, except that if the period from the redemption date to November 15, 2004, is less than one year, the weekly average yield on actually traded U.S. Treasury securities adjusted to a constant maturity of one year shall be used. SELECTION If the Issuer partially redeems notes, the Trustee will select the notes to be redeemed on a pro rata basis, by lot or by another method as the Trustee in its sole discretion shall deem to be fair and appropriate, although no note of $1,000 in original principal amount or less will be redeemed in part. If the Issuer redeems any note in part only, the notice of redemption relating to the note shall state the portion of the principal amount to be redeemed. A new note in principal amount equal to the unredeemed portion of the note will be issued in the name of the Holder of the note upon cancellation of the original note. On and after the redemption date, interest will cease to accrue on notes or portions of notes called for redemption so long as the Issuer has deposited with the Paying Agent funds sufficient to pay the principal of, plus accrued and unpaid interest and liquidated damages, if any, on the notes to be redeemed. 181 RANKING The notes are unsecured Senior Subordinated Indebtedness of the Issuer, are subordinated in right of payment to all existing and future Senior Indebtedness of the Issuer, rank equally in right of payment with any future Senior Subordinated Indebtedness of the Issuer and are senior in right of payment to any future Subordinated Obligations of the Issuer. The notes also are effectively subordinated to any Secured Indebtedness of the Company and its Subsidiaries, including the Issuer, to the extent of the value of the assets securing such Indebtedness. However, payment from the money or the proceeds of U.S. Government Obligations held in any defeasance trust described below under the caption "-- Defeasance" will not be subordinated to any Senior Indebtedness or subject to the restrictions described herein. The Note Guarantees are unsecured Senior Subordinated Indebtedness of the applicable Note Guarantor, are subordinated in right of payment to all existing and future Senior Indebtedness of the Note Guarantor, rank equally in right of payment with any future Senior Subordinated Indebtedness of the Note Guarantor and are senior in right of payment to any future Subordinated Obligations of the Note Guarantor. The Note Guarantees are also effectively subordinated to any Secured Indebtedness of the Company and its Subsidiaries to the extent of the value of the assets securing such Secured Indebtedness. The Company currently conducts all of its operations through its Subsidiaries, and the Issuer currently conducts substantially all of its operations through its Subsidiaries. To the extent the Subsidiaries of the Company are not Note Guarantors, creditors of the Non-Guarantor Subsidiaries, including trade creditors, and preferred stockholders, if any, of the Non-Guarantor Subsidiaries will have priority with respect to the assets and earnings of the Non-Guarantor Subsidiaries over the claims of creditors of the Issuer or the Note Guarantors, including the Holders. The notes, therefore, will be effectively subordinated to the claims of creditors, including trade creditors, and preferred stockholders, if any, of the Non-Guarantor Subsidiaries. After eliminating intercompany activity, as of December 29, 2000, the Non-Guarantor Subsidiaries would have had total assets of $ million or % of the Company's consolidated assets and total liabilities of $ million. As of December 29, 2000: o the Issuer had $101 million of Senior Indebtedness, excluding its guarantee and unused commitments under the Senior credit facilities, all of which were Secured Indebtedness. In addition, the Issuer had $700 million of Senior Indebtedness in respect of its guarantee of debt under the senior credit facilities, all of which was Secured Indebtedness. o the Issuer had no Senior Subordinated Indebtedness other than the notes and no indebtedness that is subordinate or junior in right of payment to the notes; o the Note Guarantors had $103 million of Senior Indebtedness, excluding their guarantees under the senior credit facilities, all of which was Secured Indebtedness; and o the Note Guarantors had no Senior Subordinated Indebtedness (other than the Note Guarantees) and no Indebtedness that is subordinate or junior in right of payment to the Note Guarantees. Although the amount of additional Indebtedness we can incur is limited by the indenture, we may be able to incur substantial amounts of additional Indebtedness in certain circumstances. Such Indebtedness may be Senior Indebtedness. See "-- Certain Covenants -- Limitation on Indebtedness" below. "Senior Indebtedness" of the Issuer or any Note Guarantor means the principal of, premium, if any, and accrued and unpaid interest on, including interest accruing on or after the filing of any petition in bankruptcy or for reorganization of the Issuer or any Note Guarantor, regardless of whether or not a claim for post-filing interest is allowed in such proceedings, and fees and other amounts, including expenses, reimbursement obligations under letters of credit and indemnities, 182 owing in respect of, Bank Indebtedness and all other Indebtedness of the Issuer or any Note Guarantor, as applicable, whether outstanding on the Closing Date or thereafter Incurred, unless in the instrument creating or evidencing the same or pursuant to which the same is outstanding it is provided that such obligations are not superior in right of payment to the notes or such Note Guarantor's Note Guarantee, as applicable; provided, however, that Senior Indebtedness of the Issuer or any Note Guarantor shall not include: o any obligation of the Issuer to the Company or any other Subsidiary of the Company or any obligation of the Note Guarantor to the Company or any other Subsidiary of the Company; o any liability for U.S. Federal, state, local or other taxes owed or owing by the Issuer or such Note Guarantor, as applicable; o any accounts payable or other liability to trade creditors arising in the ordinary course of business, including Guarantees or instruments evidencing the liabilities; o any Indebtedness or obligation of the Issuer or the Note Guarantor, as applicable, and any accrued and unpaid interest in respect thereof, that by its terms is subordinate or junior in any respect to any other Indebtedness or obligation of the Issuer or such Note Guarantor, as applicable, including any Senior Subordinated Indebtedness and any Subordinated Obligations of the Issuer or such Note Guarantor, as applicable; o any obligations with respect to any Deferred Compensation Plan; o any obligations with respect to any Capital Stock; or o any Indebtedness Incurred in violation of the indenture. If any Senior Indebtedness is disallowed, avoided or subordinated pursuant to Section 548 of Title 11 of the United States Bankruptcy Code or any applicable state fraudulent conveyance law, such Senior Indebtedness will nevertheless constitute Senior Indebtedness. Only Indebtedness of the Issuer or a Note Guarantor that is Senior Indebtedness will rank senior to the notes. The notes will rank equally in all respects with all other Senior Subordinated Indebtedness of the Issuer. The Issuer will not Incur, directly or indirectly, any Indebtedness which is subordinate or junior in ranking in any respect to Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is not deemed to be subordinate or junior to Secured Indebtedness merely because it is unsecured. The Issuer may not pay principal of, any premium, any liquidated damages or interest on the notes, or make any deposit pursuant to the provisions described under "-- Defeasance" below, and may not otherwise purchase, repurchase, redeem or otherwise acquire or retire for value any notes, which we describe collectively as "pay the notes" if: (1) any principal of any premium or interest on, or any other amount owing in respect of any Designated Senior Indebtedness of the Issuer is not paid when due, or (2) any other default on Designated Senior Indebtedness of the Issuer occurs and the maturity of such Designated Senior Indebtedness is accelerated in accordance with its terms unless, in either case, o the default has been cured or waived and any such acceleration has been rescinded; or o such Designated Senior Indebtedness has been paid in full in cash; provided, however, that the Issuer may pay the notes without regard to the foregoing if the Issuer and the Trustee receive written notice approving the payment from the Representative of the Designated Senior Indebtedness with respect to which either of the events set forth in clause (1) or (2) above has occurred and is continuing. 183 During the continuance of any default, other than a default described in clause (1) or (2) of the immediately preceding paragraph, with respect to any Designated Senior Indebtedness of the Issuer pursuant to which the maturity thereof may be accelerated immediately without further notice, except such notice as may be required to effect the acceleration, or the expiration of any applicable grace periods, the Issuer may not pay the notes for a period, which we refer to as a "Payment Blockage Period", commencing upon the receipt by the Trustee, with a copy to the Issuer, of written notice, which we refer to as a "Blockage Notice", of such default from the Representative of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days later or earlier if the Payment Blockage Period is terminated: o by written notice to the Trustee and the Issuer from the Person or Persons who gave such Blockage Notice, o by repayment in full in cash of the Designated Senior Indebtedness, or o because the default giving rise to the Blockage Notice is no longer continuing. Notwithstanding the provisions described in the immediately preceding paragraph, but subject to the provisions contained in the second preceding and in the immediately succeeding paragraph, unless the holders of the Designated Senior Indebtedness or the Representative of the holders have accelerated the maturity of the Designated Senior Indebtedness, the Issuer may resume payments on the notes after the end of the Payment Blockage Period, including any missed payments. Not more than one Blockage Notice may be given in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during the 360-day period. However, if any Blockage Notice within the 360-day period is given by or on behalf of any holders of Designated Senior Indebtedness other than the Bank Indebtedness, the Representative of the Bank Indebtedness may give another Blockage Notice within the 360-day period. In no event, however, may the total number of days during which any Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate during any 360 consecutive day period. For purposes of this paragraph, no default or event of default that existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis of the commencement of a subsequent Payment Blockage Period by the Representative of such Designated Senior Indebtedness, whether or not within a period of 360 consecutive days, unless the default or event of default shall have been cured or waived for a period of not less than 90 consecutive days. Upon any payment or distribution of the assets of the Issuer to creditors upon a total or partial liquidation or a total or partial dissolution of the Issuer or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Issuer or its property: (1) the holders of Senior Indebtedness of the Issuer will be entitled to receive payment in full in cash of the Senior Indebtedness before the Holders are entitled to receive any payment of principal of, premium, if any, or interest on or any other amount owing in respect of the notes; and (2) until the Senior Indebtedness is paid in full in cash any payment or distribution to which Holders would be entitled but for the subordination provisions of the indenture will be made to holders of the Senior Indebtedness as their interests may appear, except that Holders may receive and retain (i) Permitted Junior Securities and (ii) payments made from the trust described under "-- Defeasance" provided, that on the date or dates the respective amounts were paid into the trust, such payments were made with respect to the notes without violating the subordination provisions described herein. If a distribution is made to Holders that due to the subordination provisions of the indenture should not have been made to them, the Holders will be required to hold it in trust for the holders of Senior Indebtedness of the Issuer and pay it over to them as their interests may appear. 184 If payment of the notes is accelerated because of an Event of Default, the Issuer or the Trustee, provided that the Trustee shall have received written notice from the Issuer, on which notice the Trustee shall be entitled to conclusively rely, shall promptly notify the holders of the Designated Senior Indebtedness of the Issuer or their Representative of the acceleration. If any Designated Senior Indebtedness of the Issuer is outstanding, the Issuer may not pay the notes until five Business Days after the holders or the Representative of the Designated Senior Indebtedness receive notice of the acceleration and, thereafter, may pay the notes only if the subordination provisions of the indenture otherwise permit payment at that time. By reason of the subordination provisions of the indenture, in the event of insolvency, creditors of the Issuer who are holders of Senior Indebtedness of the Company may recover more, ratably, than the Holders, and creditors of the Issuer who are not holders of Senior Indebtedness of the Issuer or of Senior Subordinated Indebtedness of the Issuer, including the notes, may recover less, ratably, than holders of Senior Indebtedness of the Issuer and may recover more, ratably, than the holders of Senior Subordinated Indebtedness of the Issuer. The indenture contains substantially identical subordination provisions relating to each Note Guarantor's obligations under its Note Guarantee. NOTE GUARANTEES The Company and each of its Subsidiaries, other than any Unrestricted Subsidiaries, that Guarantees the Bank Indebtedness on the Closing Date, and specified future Subsidiaries of the Company, as primary obligors and not merely as sureties, jointly and severally irrevocably and unconditionally Guaranteed on an unsecured senior subordinated basis the performance and full and punctual payment when due, whether at Stated Maturity, by acceleration or otherwise, of all obligations of the Issuer under the indenture, including obligations to the Trustee, and the notes, whether for payment of principal of or interest on or liquidated damages, if any, in respect of the notes, expenses, indemnification or otherwise. We refer to the obligations guaranteed by the Note Guarantors as the "Guaranteed Obligations". The Note Guarantors agreed to pay, in addition to the amount stated above, any and all costs and expenses, including reasonable counsel fees and expenses, incurred by the Trustee or the Holders in enforcing any rights under the Note Guarantees. Each Note Guarantee is limited in amount to an amount not to exceed the maximum amount that can be Guaranteed by the applicable Note Guarantor without rendering the Note Guarantee, as it relates to the Note Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. After the Closing Date, the Company will cause (1) at any time that any Bank Indebtedness is outstanding, each Subsidiary of the Company, other than the Issuer, that Incurs or enters into a Guarantee of any Bank Indebtedness and (2) at any time that no Bank Indebtedness is outstanding, each Subsidiary of the Company, other than the Issuer, that Incurs any Indebtedness, to execute and deliver to the Trustee a supplemental indenture pursuant to which such Subsidiary will Guarantee payment of the notes. See "-- Certain Covenants -- Future Note Guarantors" below. The obligations of a Note Guarantor under its Note Guarantee are senior subordinated obligations. As such, the rights of the Holders to receive payment by a Note Guarantor pursuant to its Note Guarantee will be subordinated in right of payment to the rights of holders of Senior Indebtedness of the Note Guarantor. The terms of the subordination provisions described above with respect to the Issuer's obligations under the notes apply equally to a Note Guarantor and the obligations of the Note Guarantor under its Note Guarantee. Each Note Guarantee is a continuing guarantee and shall (a) remain in full force and effect until payment in full of all the Guaranteed Obligations, (b) be binding upon each Note Guarantor and its successors and (c) inure to the benefit of, and be enforceable by, the Trustee, the Holders and their successors, transferees and assigns. Any Note Guarantee by a Subsidiary of the Company, other than Intermediate Holdings or HDD Holdings, will be automatically released upon the sale, including through merger or consolidation, of 185 the Capital Stock of such Subsidiary if (1) the sale is made in compliance with the covenants described under "-- Certain Covenants -- Limitation on Sales of Assets and Capital Stock" and, to the extent applicable, "Merger and Consolidation," and (2) after the sale, the Subsidiary is no longer a Subsidiary of the Company. In addition, at any time that Bank Indebtedness is outstanding, if any Subsidiary of the Company is released from its Guarantee of, and all pledges and security interests granted in connection with, the Credit Agreement, then the Subsidiary shall, at the option of the Company, be released and relieved of any obligations under its Note Guarantee. At any time that no Bank Indebtedness is outstanding, (1) each Subsidiary of the Company, other than Intermediate Holdings or HDD Holdings, that has no outstanding Indebtedness shall, at the option of the Company, be released from its Note Guarantee; provided, that following any such release the Company shall comply with the provisions of the covenant described under "-- Certain Covenants -- Future Note Guarantors" with respect to such Subsidiary and (2) each Designated Subsidiary, and each Subsidiary of the Designated Subsidiary, shall be released from its Note Guarantee upon the first Qualified Releasing Event with respect to the Designated Subsidiary. A Note Guarantee by a Subsidiary of the Company will be automatically released upon the Subsidiary ceasing to be a Subsidiary of the Company as a result of any foreclosure on any pledge or security interest securing Bank Indebtedness or other exercise of its remedies if such Subsidiary is released from its guarantee of, and all pledges and security interests granted in connection with, the Credit Agreement. CHANGE OF CONTROL Upon the occurrence of any, or if applicable, each of the following events, which we refer to as a "Change of Control", each Holder will have the right to require the Issuer to purchase all or any part of the Holder's notes at a purchase price in cash equal to 101% of the principal amount of the Holder's notes plus accrued and unpaid interest and liquidated damages, if any, to the date of purchase, subject to the right of Holders of record on the relevant record date to receive interest and liquidated damages, if any, due on the relevant interest payment date; provided, however, that notwithstanding the occurrence of a Change of Control, the Issuer shall not be obligated to purchase the notes pursuant to this section in the event that it has exercised its right to redeem all the notes under the terms of the section titled "Optional Redemption": (1) prior to the earliest to occur of (A) the first public offering of common stock of the Company, (B) the first public offering of common stock of Intermediate Holdings, (C) the first public offering of common stock of HDD Holdings or (D) the first public offering of common stock of the Issuer, the Permitted Holders cease to be the "beneficial owner", as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act, directly or indirectly, of a majority in the aggregate of the total voting power of the Voting Stock of the Company, Intermediate Holdings, HDD Holdings or the Issuer whether as a result of issuance of securities of the Company, Intermediate Holdings, HDD Holdings or the Issuer, any merger, consolidation, liquidation or dissolution of the Company, Intermediate Holdings, HDD Holdings or the Issuer, any direct or indirect transfer of securities by any Permitted Holder or otherwise, for purposes of this clause (1) and clause (2) below, the Permitted Holders shall be deemed to beneficially own any Voting Stock of an entity, which we refer to as the "specified entity", held by any other entity, which we refer to as the "parent entity", so long as the Permitted Holders beneficially own, directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent entity; (2) (A) any "person", as such term is used in Sections 13(d) and 14(d) of the Exchange Act, other than one or more Permitted Holders, is or becomes the beneficial owner, as defined in clause (1) above, except that for purposes of this clause (2) the person shall be deemed to have "beneficial ownership" of all shares that any person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, directly or indirectly, of more than 35% of the total voting power of the Voting Stock of the Company, Intermediate Holdings, HDD Holdings or the Issuer and (B) the Permitted Holders 186 "beneficially own", as defined in clause (1) above, directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Company, Intermediate Holdings, HDD Holdings or the Issuer than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be (for the purposes of this clause (2), the other person shall be deemed to beneficially own any Voting Stock of a specified entity held by a parent entity, if the other person is the beneficial owner, as defined in this clause (2), directly or indirectly, of more than 35% of the voting power of the Voting Stock of the parent entity and the Permitted Holders "beneficially own", as defined in clause (1) above, directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of the parent entity and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent entity); or (3) during any period of two consecutive years, individuals who at the beginning of such period constituted the board of directors of the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, together with any new directors whose election by such board of directors of the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, or whose nomination for election by the shareholders of the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, was approved by a vote of 662/3% of the directors of the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the board of directors of the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, then in office; or (4) the adoption of a plan relating to the liquidation or dissolution of the Company, Intermediate Holdings, HDD Holdings or the Issuer; or (5) the merger or consolidation of the Company, Intermediate Holdings, HDD Holdings or the Issuer with or into another Person or the merger of another Person with or into the Company, Intermediate Holdings, HDD Holdings or the Issuer, or the sale of all or substantially all the assets of the Company, Intermediate Holdings, HDD Holdings or the Issuer to another Person, other than a Person that is controlled by the Permitted Holders, and, in the case of any such merger or consolidation, the securities of the Company, Intermediate Holdings, HDD Holdings or the Issuer that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Company, Intermediate Holdings, HDD Holdings or the Issuer are changed into or exchanged for cash, securities or property, unless pursuant to the transaction the securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving Person or transferee that represent immediately after the transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving Person or transferee. In the event that at the time of a Change of Control the terms of the Bank Indebtedness restrict or prohibit the repurchase of notes pursuant to this covenant, then prior to the mailing of the notice to Holders provided for in the immediately following paragraph but in any event within 30 days following any Change of Control, the Issuer shall: (1) repay in full all Bank Indebtedness or, if doing so will allow the purchase of notes, offer to repay in full all Bank Indebtedness and repay the Bank Indebtedness of each lender who has accepted the offer to repay, or (2) obtain the requisite consent under the agreements governing the Bank Indebtedness to permit the repurchase of the notes as provided for in the immediately following paragraph. If the Issuer does not obtain the consents or repay the Bank Indebtedness, the Issuer will remain prohibited from repurchasing the notes pursuant to this covenant. In this event the Issuer's failure to 187 make an offer to purchase notes pursuant to this covenant would constitute an Event of Default under the indenture, which would in turn constitute a default under the Credit Agreement. In these circumstances, the subordination provisions of the indenture would likely prohibit payments to Holders of the notes. Within 30 days following any Change of Control, the Issuer shall mail a notice to each Holder with a copy to the Trustee, which we refer to as the "Change of Control Offer", stating: (1) that a Change of Control has occurred and that the Holder has the right to require the Issuer to purchase all or a portion of the Holder's notes at a purchase price in cash equal to 101% of the principal amount of the notes, plus accrued and unpaid interest and liquidated damages, if any, to the date of purchase, subject to the right of Holders of record on the relevant record date to receive interest and liquidated damages, if any, on the relevant interest payment date; (2) the circumstances and relevant facts and financial information regarding the Change of Control; (3) the purchase date, which shall be no earlier than 30 days nor later than 60 days from the date the notice is mailed; and (4) the instructions determined by the Issuer, consistent with this covenant, that a Holder must follow in order to have its notes purchased. The Issuer will not be required to make a Change of Control Offer upon a Change of Control if it has exercised its rights under the terms of the section titled "Optional Redemption" or if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control Offer made by the Issuer and purchases all notes validly tendered and not withdrawn under the Change of Control Offer. The Issuer will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the purchase of notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Issuer will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue of its compliance with applicable securities laws and regulations. The Change of Control purchase feature is a result of negotiations between the Issuer and the Initial Purchasers. Management has no present intention to engage in a transaction involving a Change of Control, although it is possible that we would decide to do so in the future. Subject to the limitations discussed below, we could, in the future, enter into various transactions, including acquisitions, refinancings or recapitalizations, that would not constitute a Change of Control under the indenture, but that could increase the amount of indebtedness outstanding at the time or otherwise affect our capital structure or credit ratings. Restrictions on our ability to Incur additional Indebtedness are contained in the covenant described under "Certain Covenants - -- Limitation on Indebtedness." These restrictions can only be waived with the consent of the Holders of a majority in principal amount of the notes then outstanding. Except for the limitations contained in that covenant, however, the indenture will not contain any covenants or provisions that may afford Holders protection in the event of a highly leveraged transaction. The occurrence of some events which would constitute a Change of Control would constitute a default under the Credit Agreement. Future Senior Indebtedness of the Company and its Subsidiaries may prohibit specified events which would constitute a Change of Control or require the Senior Indebtedness to be repurchased or repaid upon a Change of Control. Moreover, the exercise by the Holders of their right to require the Issuer to purchase the notes could cause a default under the Senior Indebtedness, even if the Change of Control itself does not, due to the financial effect of the purchase on the Company and its Subsidiaries. Finally, the Issuer's ability to pay cash to the Holders upon a purchase may be limited by the Issuer's then existing financial resources. There can be no 188 assurance that sufficient funds will be available when necessary to make any required purchases. The provisions under the indenture relating to the Issuer's obligation to make an offer to purchase the notes as a result of a Change of Control may be waived or modified with the written consent of the Holders of a majority in principal amount of the notes. The definition of Change of Control includes a phrase relating to the sale, lease or transfer of "all or substantially all" of the assets of the Company, Intermediate Holdings, HDD Holdings or the Issuer. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of notes to require the Issuer to purchase the notes as a result of a sale, lease or transfer of less than all of the assets of the Company, Intermediate Holdings, HDD Holdings or the Issuer to another Person or group may be uncertain. ADDITIONAL AMOUNTS The Issuer, which shall include any Successor Company, which we define in the first paragraph of the covenant described under "-- Merger and Consolidation" below, is required to make all its payments under or with respect to the notes free and clear of and without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment or other governmental charge including penalties, interest and other liabilities related thereto, which we refer to as "Taxes", imposed or levied by or on behalf of the government of the Cayman Islands or any political subdivision or any authority or agency therein or thereof having power to tax, or within any other jurisdiction in which it is organized or is otherwise resident for tax purposes or any jurisdiction from or through which payment is made, each of which we refer to as a "Relevant Taxing Jurisdiction", unless the Issuer is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. If the Issuer is required to withhold or deduct any amount for or on account of Taxes imposed by a Relevant Taxing Jurisdiction from any payment made under or with respect to the notes, the Issuer will be required to pay the additional amounts, which we refer to as "Additional Amounts", as may be necessary so that the net amount received by each Holder, including Additional Amounts, after the withholding or deduction will not be less than the amount the Holder would have received if the Taxes had not been withheld or deducted; provided, however, that the foregoing obligation to pay Additional Amounts does not apply to (1) any Taxes that would not have been imposed but for the existence of any present or former connection between the relevant Holder, or between a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of power over the relevant Holder, if the relevant Holder is an estate, nominee, trust or corporation, and the Relevant Taxing Jurisdiction, (other than the mere receipt of the payment or the ownership or holding outside of the Cayman Islands of the note but including, without limitation, the relevant Holder, or the fiduciary, settlor, beneficiary, member or shareholder or possessor, being or having been a citizen or resident of the Cayman Islands or being or having been present or engaged in a trade or business in the Cayman Islands or having or having had a permanent establishment in the Cayman Islands; or (2) any estate, inheritance, gift, sales, excise, transfer, personal property tax or similar tax, assessment or governmental charge; (3) any tax, assessment or other governmental charge that is imposed or withheld by reason of the failure by the Holder or the beneficial owner of the note to comply with a request of the Issuer addressed to the Holder (x) to provide information, documents or other evidence concerning the nationality, residence or identity of the Holder or such beneficial owner or (y) to make and deliver any declaration or other similar claim, other than a claim for refund of a tax, assessment or other governmental charge withheld by the Issuer, or satisfy any information or reporting requirements, which, in the case of (x) or (y), is required or imposed by a statute, treaty, regulation or administrative practice of the taxing jurisdiction as a precondition to exemption from all or part of such tax, assessment or other governmental charge or (4) any tax, assessment or other governmental charge that is payable otherwise than by withholding from payment of principal of, premium, if any, or interest on such note; nor will we pay Additional Amounts (a) if the payment could have been made without such deduction or withholding if the beneficiary of the payment had presented the note for payment within 30 days after the date on which such payment or such note became due and payable 189 or the date on which payment thereof is duly provided for, whichever is later, except to the extent that the holder would have been entitled to Additional Amounts had the note been presented on the last day of such 30-day period, (b) if, at the election of the relevant Holder, the payment of principal of, or premium, if any, on, or interest on the note could have been made through another paying agent without the deduction or withholding, or (c) with respect to any payment of principal of, or premium, if any, on, or interest on the note to any Holder who is a fiduciary, partnership or limited liability company that is treated as a partnership for U.S. Federal income tax purposes or any person other than the sole beneficial owner of the payment, to the extent that a beneficiary or settlor with respect to the fiduciary, a member of the partnership or limited liability company that is treated as a partnership for U.S. Federal income tax purposes or the beneficial owner of the payment would not have been entitled to the Additional Amounts had the beneficiary, settlor, member or beneficial owner been the actual holder of the note. Upon request, the Issuer will provide the Trustee with official receipts or other documentation satisfactory to the Trustee evidencing the payment of the Taxes with respect to which Additional Amounts are paid. Whenever in the indenture there is mentioned, in any context: (1) the payment of principal; (2) purchase prices in connection with a purchase of notes; (3) interest; or (4) any other amount payable on or with respect to any of the notes, such reference shall be deemed to include payment of Additional Amounts as described under this heading to the extent that, in that context, Additional Amounts are, were or would be payable in respect thereof. The Issuer will pay any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies and other duties, including interest and penalties, that arise in any jurisdiction from the execution, delivery, enforcement or registration of the notes, the indenture or any other document or instrument relating to the notes, or the receipt of any payments with respect to the notes, excluding the taxes, charges or similar levies imposed by any jurisdiction outside of the Cayman Islands or the United States, or any political subdivision or taxing authority of either jurisdiction, the jurisdiction of incorporation of any successor of the Issuer, any jurisdiction through which payment is made or in which a paying agent is located or any jurisdiction in which the Issuer is organized or engaged in business for tax purposes, and the Issuer will agree to indemnify the Holders for any such taxes paid by the Holders. The obligations described under this heading will survive any termination, defeasance or discharge of the indenture and will apply mutatis mutandis to any jurisdiction in which any successor Person to the Issuer is organized or any political subdivision or taxing authority or agency of or in that jurisdiction. In addition, the obligations described under this heading shall apply to each Note Guarantor and its Note Guarantee as if each reference to the Issuer was a reference to the Note Guarantor and each reference to the notes was a reference to the Note Guarantor's Note Guarantee. REDEMPTION FOR CHANGES IN WITHHOLDING TAXES The Issuer, which shall include any Successor Company, which we define in the first paragraph of the covenant described under "-- Merger and Consolidation," is entitled to redeem the notes, at its option, at any time as a whole but not in part, upon not less than 30 nor more than 60 days' notice, at 100% of the principal amount of the notes, plus accrued and unpaid interest, if any, to the date of redemption, subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date, in the event the Issuer has become or would become obligated to pay, on the next date on which any amount would be payable with respect to the notes, any Additional Amounts as a result of: 190 (1) a change in or an amendment to the laws, including any regulations or ruling promulgated under the laws, of (x) the Cayman Islands, (y) any jurisdiction, other than the United States, from or through which payment on the notes is made or (z) any other jurisdiction, other than the United States, in which the Issuer or a Successor Company, as defined in the first paragraph of "-- Merger and Consolidation" below, is organized (or any political subdivision or taxing authority thereof or therein), which change or amendment is announced or becomes effective on or after November 17, 2000 (and, in the case of a Successor Company, becomes effective after the date of that entity's assumption of the Issuer's obligations under the notes); or (2) any change in or amendment to any official position regarding the application or interpretation of such laws, regulations or rulings, or any execution of or amendment to, any treaty or treaties affecting taxation to which such jurisdiction (or such political subdivision or taxing authority) is a party, which change or amendment is announced or becomes effective on or after November 17, 2000. and the Issuer or the Successor Company, if applicable, cannot avoid the obligation by taking reasonable measures available to it. Before the Issuer or the Successor Company, if applicable, publishes or mails notice of redemption of the notes as described above, the Issuer or the Successor Company, if applicable, will deliver to the Trustee an officers' certificate to the effect that the Issuer or the Successor Company, if applicable, cannot avoid its obligation to pay Additional Amounts by taking reasonable measures available to it. The Issuer or the Successor Company, if applicable, will also deliver an opinion of independent legal counsel of recognized standing stating that the Issuer or the Successor Company, if applicable, would be obligated to pay Additional Amounts as a result of a change in tax laws or regulations or the application or interpretation of such laws or regulations. CERTAIN COVENANTS The indenture contains covenants including, among others, the following: Limitation on Indebtedness. (a) The Company will not, and will not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness; provided, however, that the Issuer or any Note Guarantor may Incur Indebtedness if on the date of such Incurrence and after giving effect thereto the Consolidated Coverage Ratio would be at least 5.0:1. (b) Notwithstanding the foregoing paragraph (a), the Company and the Restricted Subsidiaries may Incur the following Indebtedness: (1) Bank Indebtedness Incurred pursuant to the Credit Agreement in an aggregate principal amount not to exceed $900 million; (2) Indebtedness of the Company owed to and held by any Note Guarantor or Wholly Owned Subsidiary or Indebtedness of a Note Guarantor or Wholly Owned Subsidiary owed to and held by the Company or another Note Guarantor or Wholly Owned Subsidiary; provided, however, that (A) any subsequent issuance or transfer of any Capital Stock or any other event that results in any Note Guarantor or Wholly Owned Subsidiary ceasing to be a Note Guarantor or Wholly Owned Subsidiary, as applicable, or any subsequent transfer of any Indebtedness, except to the Company or another Note Guarantor or Wholly Owned Subsidiary, shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the Issuer thereof, (B) if the Issuer is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all obligations with respect to the notes and (C) if a Note Guarantor is the obligor on such Indebtedness and such Indebtedness is owed to and held by a Restricted Subsidiary that is not a Note Guarantor, such Indebtedness is expressly subordinated to the prior payment in full in cash of all obligations of the Note Guarantor with respect to its Note Guarantee; 191 (3) Indebtedness (A) represented by the notes, not including any Additional Notes, and the Note Guarantees, (B) outstanding on the Closing Date, other than the Indebtedness described in clauses (1) and (2) above; provided, however, that all Indebtedness of the Company and its Subsidiaries in respect of the Existing Notes shall only be permitted to be outstanding under this clause (B) until 45 days or, if the date of redemption of the Existing Notes shall be reasonably extended by the Trustee under the indenture under which the Existing Notes were issued, the earlier of the extended date of redemption and 120 days following the Closing Date; provided, further, that Indebtedness under the Existing Notes shall only be permitted under this clause (B) to the extent that sufficient funds to effect the redemption of the Existing Notes remain deposited in trust for that purpose, on the terms described in the prospectus under "The Transactions -- Redemption of Existing Senior Notes," (C) consisting of Refinancing Indebtedness Incurred in respect of any Indebtedness described in this clause (3), including Indebtedness that is Refinancing Indebtedness, or the foregoing paragraph (a) and (D) consisting of Guarantees by the Issuer or a Note Guarantor of Indebtedness or other obligations of the Company or any of its Restricted Subsidiaries so long as the Incurrence of such Indebtedness Incurred by the Company or such Restricted Subsidiary is permitted under the terms of the indenture; provided that if such Indebtedness is by its express terms subordinated in right of payment to the notes or the Note Guarantee of such Restricted Subsidiary, as applicable, any such Guarantee of such Note Guarantor with respect to such Indebtedness or other obligations shall be subordinated in right of payment to the notes or such Note Guarantor's Note Guarantee with respect to the notes substantially to the same extent as such Indebtedness is subordinated to the notes or the Note Guarantee of such Restricted Subsidiary, as applicable; (4)(A) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or prior to the date on which such Restricted Subsidiary was acquired by the Company, other than Indebtedness Incurred in contemplation of, in connection with, as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Subsidiary of or was otherwise acquired by the Company; provided, however, that on the date that such Restricted Subsidiary is acquired by the Company, either (x) the Company would have been able to Incur $1.00 of additional Indebtedness pursuant to the foregoing paragraph (a) after giving effect to the Incurrence of such Indebtedness pursuant to this clause (4) or (y) the Consolidated Coverage Ratio after giving effect to such acquisition would be (i) greater than the Consolidated Coverage Ratio immediately prior to such acquisition and (ii) at least 4.5:1 and (B) Refinancing Indebtedness Incurred by a Restricted Subsidiary in respect of Indebtedness Incurred by such Restricted Subsidiary pursuant to this clause (4); (5) Indebtedness (A) in respect of performance bonds, workman's compensation, completion guarantees, bankers' acceptances, letters of credit and bid, surety or appeal bonds provided by the Company and the Restricted Subsidiaries in the ordinary course of their business, and (B) under Hedging Agreements entered into for bona fide hedging purposes of the Company in the ordinary course of business or entered into in connection with the redemption of the Existing Notes; provided, however, that such Hedging Agreements do not increase the Indebtedness of the Company outstanding at any time other than as a result of fluctuations in interest rates, exchange rates, commodity prices or by reason of fees, indemnities and compensation payable thereunder; (6) Purchase Money Indebtedness, mortgage financings, Capitalized Lease Obligations and Attributable Debt in respect of Sale/Leaseback Transactions in an aggregate principal amount not in excess of $125 million at any time outstanding; 192 (7) Indebtedness arising from agreements of the Company or a Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case Incurred in connection with the disposition of any business, assets or a subsidiary of the Company in accordance with the terms of the indenture, other than guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; (8) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, provided that such Indebtedness is extinguished within five Business Days of its Incurrence; (9) the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business; provided, however, that upon the drawing of such letters of credit, such obligations are reimbursed within 30 days following such drawing; (10) obligations arising from or representing deferred compensation to employees of the Company or its Subsidiaries that constitute or are deemed to be Indebtedness under GAAP and that are Incurred in the ordinary course of business; (11) Indebtedness, other than Indebtedness permitted to be Incurred pursuant to the foregoing paragraph (a) or any other clause of this paragraph (b), in an aggregate principal amount on the date of Incurrence that, when added to all other Indebtedness Incurred pursuant to this clause (11) and then outstanding, will not exceed $75 million. (c) Notwithstanding the foregoing, the Issuer or any Note Guarantor may not Incur any Indebtedness pursuant to paragraph (b) above if the proceeds of the Indebtedness are used, directly or indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any Subordinated Obligations unless such Indebtedness will be subordinated to the notes or such Note Guarantor's Note Guarantee, as applicable, to at least the same extent as such Subordinated Obligations. The Issuer may not Incur any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness. In addition, the Issuer may not Incur any Secured Indebtedness which is not Senior Indebtedness unless contemporaneously therewith effective provision is made to secure the notes equally and ratably with, or on a senior basis to, in the case of Indebtedness subordinated in right of payment to the notes, such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. A Note Guarantor may not Incur any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness of such Note Guarantor unless such Indebtedness is Senior Subordinated Indebtedness of such Note Guarantor or is expressly subordinated in right of payment to Senior Subordinated Indebtedness of such Note Guarantor. In addition, a Note Guarantor may not Incur any Secured Indebtedness that is not Senior Indebtedness of such Note Guarantor unless contemporaneously therewith effective provision is made to secure the Note Guarantee of such Note Guarantor equally and ratably with, or on a senior basis to, in the case of Indebtedness subordinated in right of payment to such Note Guarantee, such Secured Indebtedness for as long as such Secured Indebtedness is secured by a Lien. (d) Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that the Company or any Restricted Subsidiary may Incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in the exchange rates of currencies. For purposes of determining the outstanding principal amount of any particular Indebtedness Incurred pursuant to this covenant: 193 (1) Indebtedness Incurred pursuant to the Credit Agreement prior to or on the Closing Date shall be treated as Incurred pursuant to clause (1) of paragraph (b) above, (2) Indebtedness permitted by this covenant need not be permitted solely by reference to one provision permitting such Indebtedness but may be permitted in part by one such provision and in part by one or more other provisions of this covenant permitting such Indebtedness, (3) in the event that Indebtedness meets the criteria of more than one of the types of Indebtedness described in this covenant, the Issuer, in its sole discretion, shall classify such Indebtedness and only be required to include the amount of such Indebtedness in one of such clauses; provided, however, subject to clause (1) above, that at any time that the Company or a Note Guarantor is permitted to Incur at least $1.00 of additional Indebtedness pursuant to paragraph (a) of this covenant, the Issuer may reclassify Indebtedness originally Incurred pursuant to one or more clauses of paragraph (b) of this covenant as Indebtedness Incurred pursuant to such paragraph (a), and (4) for purposes of determining compliance with any U.S. dollar denominated restriction on the Incurrence of Indebtedness where the Indebtedness Incurred is denominated in a different currency, the amount of such Indebtedness will be the U.S. Dollar Equivalent determined on the date of the Incurrence of such Indebtedness, provided, however, that if any such Indebtedness denominated in a different currency is subject to a Currency Agreement with respect to the U.S. dollar covering all principal, premium, if any, and interest payable on such Indebtedness, the amount of such Indebtedness expressed in U.S. dollars will be as provided in such Currency Agreement. The principal amount of any Refinancing Indebtedness Incurred in the same currency as the Indebtedness being Refinanced will be the U.S. Dollar Equivalent of the Indebtedness Refinanced, except to the extent that (i) such U.S. Dollar Equivalent was determined based on a Currency Agreement, in which case the Refinancing Indebtedness will be determined in accordance with the preceding sentence, and (ii) the principal amount of the Refinancing Indebtedness exceeds the principal amount of the Indebtedness being Refinanced, in which case the U.S. Dollar Equivalent of such excess, will be determined on the date such Refinancing Indebtedness is Incurred. Limitation on Restricted Payments. (a) The Company will not, and will not permit any Restricted Subsidiary, directly or indirectly, to: (1) declare or pay any dividend, make any distribution on or in respect of its Capital Stock or make any similar payment, including any payment in connection with any merger or consolidation involving the Company or any Subsidiary of the Company, to the direct or indirect holders of its Capital Stock, except (x) dividends or distributions payable solely in its Capital Stock, other than Disqualified Stock or, except in the case of the Company, Intermediate Holdings or HDD Holdings, Preferred Stock, (y) dividends or distributions payable to the Company or a Restricted Subsidiary, and if such Restricted Subsidiary has shareholders other than the Company or other Restricted Subsidiaries, to its other shareholders on a pro rata basis and (z) following a bona fide underwritten initial public offering of Capital Stock, other than Disqualified Stock, of Intermediate Holdings or HDD Holdings, dividends or distributions consisting of Capital Stock of the same class and series of Intermediate Holdings or HDD Holdings, as applicable; (2) purchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the Company held by any Person or any Capital Stock of a Restricted Subsidiary held by any Affiliate of the Company, other than a Restricted Subsidiary; 194 (3) purchase, repurchase, redeem, retire, defease or otherwise acquire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment any Subordinated Obligations, other than (a) the purchase, repurchase, redemption, retirement, defeasance or other acquisition for value of Subordinated Obligations acquired in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition and (b) Indebtedness permitted under clause (b)(2) of the covenant described under "-- Limitation on Indebtedness"; (4) make any distribution or other payment, whether in cash, securities or other property or any combination thereof, under or in respect of any Deferred Compensation Plan; or (5) make any Investment, other than a Permitted Investment, in any Person, (we refer to any such dividend, distribution, payment, purchase, redemption, repurchase, defeasance, retirement, or other acquisition or Investment as a "Restricted Payment") if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (A) a Default will have occurred and be continuing, or would result therefrom; (B) the Company could not Incur at least $1.00 of additional Indebtedness under paragraph (a) of the covenant described under "-- Limitation on Indebtedness"; or (C) the aggregate amount of such Restricted Payment and all other Restricted Payments, including, if the amount so expended is other than in cash, the Fair Market Value of such Restricted Payments, declared or made subsequent to the Closing Date would exceed the sum, without duplication, of: (i) 50% of the Consolidated Net Income accrued during the period, treated as one accounting period, from the beginning of the fiscal quarter immediately following the fiscal quarter during which the Closing Date occurs to the end of the most recent fiscal quarter ending at least 45 days prior to the date of such Restricted Payment, or in case such Consolidated Net Income will be a deficit, minus 100% of such deficit; (ii) the aggregate Net Cash Proceeds received by the Company from contributions to its capital and from the issue or sale of its Capital Stock, other than Disqualified Stock, Excluded Contributions or Designated Preferred Stock, subsequent to the Closing Date (other than an issuance or sale to (x) a Subsidiary of the Company or (y) an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries); (iii) the amount by which Indebtedness of the Company or the Restricted Subsidiaries is reduced on the Company's balance sheet upon the conversion or exchange, other than by a Subsidiary of the Company, subsequent to the Closing Date of any Indebtedness of the Company or the Restricted Subsidiaries issued after the Closing Date which is convertible or exchangeable for Capital Stock, other than Disqualified Stock, of the Company (less the amount of any cash or the Fair Market Value of other property distributed by the Company or any Restricted Subsidiary upon such conversion or exchange); (iv) an amount equal to the sum of (x) the net reduction in Investments, other than Permitted Investments, made by the Company or any Restricted Subsidiary in any Person, other than the Company or a Restricted Subsidiary, resulting from (A) Net Cash Proceeds received from repurchases, repayments or redemptions of such Investments by such Person, Net Cash Proceeds 195 realized on the sale of such Investments, Net Cash Proceeds representing the return of capital, excluding dividends and distributions, and cash repayments of loans or advances which constituted Restricted Payments, in each case received by the Company or any Restricted Subsidiary or (B) to the extent such Person is an Unrestricted Subsidiary, the merger, consolidation or amalgamation of such Person with or into the Company or a Restricted Subsidiary; provided, that the surviving entity is the Company or a Restricted Subsidiary and (y) to the extent such Person is an Unrestricted Subsidiary, the portion, proportionate to the Company's equity interest in such Subsidiary, of the Fair Market Value of the net assets of such Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that the foregoing sum shall not exceed, in the case of any such Person or Unrestricted Subsidiary, the amount of Investments, excluding Permitted Investments, previously made and treated as a Restricted Payment, by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary; and (v) the aggregate Net Cash Proceeds received by the Company or a Restricted Subsidiary from the issue or sale of Capital Stock, other than Disqualified Stock, of Intermediate Holdings or HDD Holdings in a bona fide underwritten public offering subsequent to the Closing Date, other than an issuance or sale to (x) the Company or a Subsidiary or Affiliate of the Company or (y) an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries. (b) The provisions of the foregoing paragraph (a) will not prohibit: (1) any purchase, repurchase, redemption, retirement or other acquisition for value of Capital Stock of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company, other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries; provided, however, that: (A) such purchase, repurchase, redemption, retirement or other acquisition for value will be excluded in the calculation of the amount of Restricted Payments, and (B) the Net Cash Proceeds from such sale applied in the manner set forth in this clause (1) will be excluded from the calculation of amounts under clause (5)(C) of paragraph (a) above; (2) any prepayment, repayment, purchase, repurchase, redemption, retirement, defeasance or other acquisition for value of Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company that is permitted to be Incurred pursuant to paragraph (b) of the covenant described under "-- Limitation on Indebtedness"; provided, however, that such prepayment, repayment, purchase, repurchase, redemption, retirement, defeasance or other acquisition for value will be excluded in the calculation of the amount of Restricted Payments; (3) any prepayment, repayment, purchase, repurchase, redemption, retirement, defeasance or other acquisition for value of Subordinated Obligations from Net Available Cash to the extent permitted by the covenant described under "-- Limitation on Sales of Assets and Capital Stock"; provided, however, that such prepayment, repayment, purchase, repurchase, redemption, retirement, defeasance or other acquisition for value will be excluded in the calculation of the amount of Restricted Payments; 196 (4) dividends or distributions paid within 60 days after the date of declaration thereof if at such date of declaration such dividends or distributions would have complied with this covenant; provided, however, that such dividends or distributions will be included in the calculation of the amount of Restricted Payments; (5) any repurchase of Capital Stock deemed to occur upon exercise of stock options if such Capital Stock represents a portion of the exercise price of such options, provided, however, that such repurchase will be excluded in the calculation of the amount of Restricted Payments; (6) any purchase, repurchase, redemption, retirement or other acquisition for value of shares of, or options to purchase shares of, Capital Stock of the Company or any of its Subsidiaries from employees, former employees, directors or former directors of the Company or any of its Subsidiaries, or permitted transferees of such employees, former employees, directors or former directors, pursuant to the terms of agreements, including employment agreements, or plans, or amendments thereto, approved by the Board of Directors in good faith under which such individuals purchase or sell or are granted the option to purchase or sell, shares of such Capital Stock; provided, however, that the aggregate amount of such purchases, repurchases, redemptions, retirements and other acquisitions for value will not exceed $25 million in any calendar year (with unused amounts in any calendar year (together with any increase in such amounts for any calendar year permitted by the following proviso) being permitted to be carried over for the two succeeding calendar years); provided, further, that such amount in any calendar year may be increased by an amount not to exceed (i) the cash proceeds received by the Company or any of its Restricted Subsidiaries in such calendar year from the sale of Capital Stock of the Company or any of its Restricted Subsidiaries, other than Disqualified Stock or Preferred Stock, to members of management or directors of the Company or any of its Restricted Subsidiaries that occurs after the Closing Date (provided that the amount of such cash proceeds utilized for any such repurchase, retirement, other acquisition or dividend will not increase the amount available for Restricted Payments under clause (5)(C) of paragraph (a) of this covenant) plus (ii) the cash proceeds of key man life insurance policies received by the Company and its Restricted Subsidiaries in such calendar year after the Closing Date; provided further, however, that such purchases, repurchases, redemptions, retirements and other acquisitions for value shall be excluded in the calculation of the amount of Restricted Payments; (7) the declaration and payment of dividends or distributions to holders of any class or series of Disqualified Stock of the Company or its Restricted Subsidiaries issued or Incurred in accordance with the covenant described under "-- Limitation on Indebtedness"; provided, however, that such dividends or distributions shall be excluded in the calculation of the amount of Restricted Payments; (8) the payment of dividends on the Company's, Intermediate Holdings', HDD Holdings' or the Issuer's common stock following the first bona fide underwritten public offering of common stock of the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, after the Closing Date, of up to 6% per annum of the net proceeds received by the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, from such public offering; provided, however, that (A) the aggregate amount of all such dividends shall not exceed the aggregate amount of net proceeds received by the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, from such public offering and (B) such dividends will be included in the calculation of the amount of Restricted Payments; 197 (9) the payment of annual management, consulting, monitoring and advisory fees to any of the Sponsors; provided, that any such payment is permitted by the covenant described under "-- Limitation on Transactions with Affiliates"; provided, further, that any such payment will be excluded in the calculation of the amount of Restricted Payments; (10) the declaration and payment of dividends to holders of any class or series of Designated Preferred Stock issued after the Closing Date; provided, however, that (A) for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the declaration of any such dividend after giving effect to such dividend on a pro forma basis, the Consolidated Coverage Ratio would have been at least 5.0:1 and (B) the aggregate amount of dividends declared and paid pursuant to this clause (10) does not exceed the Net Cash Proceeds received by the Company from the sale of Designated Preferred Stock issued after the Closing Date; provided, further, that such dividends shall be excluded in the calculation of the amount of Restricted Payments; (11) payments which are contemplated by the Stock Purchase Agreement, the Indemnification Agreement and the Shareholders Agreement and the related transactions on the terms described in this prospectus, including the payment of retention bonuses to senior managers of the Company and its Subsidiaries; provided, however, that such payments shall be excluded in the calculation of the amount of Restricted Payments; (12) Investments that are made with Excluded Contributions; provided, however, that such Investments shall be excluded in the calculation of the amount of Restricted Payments; (13) the declaration and payment of dividends or distributions on the Company's Capital Stock or payments in respect of Deferred Compensation Plans (i) consisting of Capital Stock, other than Disqualified Stock or Preferred Stock, of an Existing Unrestricted Entity or (ii) with the Net Cash Proceeds, property, assets or other forms of consideration received by the Company or a Restricted Subsidiary from the issue or sale of Capital Stock, other than Disqualified Stock or Preferred Stock, of an Existing Unrestricted Entity (other than an issuance or sale to (x) the Company or a Subsidiary or Affiliate of the Company or (y) an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries); provided that (A) no Default has occurred and is continuing or would occur as a result of such dividend or distribution, (B) with respect to any dividend or distribution made with consideration received by the Company or a Restricted Subsidiary as described in clause (ii) above, if the consideration for such issue or sale consists, in whole or in part, of any property, assets or other form of consideration other than cash, such dividends or distributions shall be paid in the form of cash, property, assets or such other form of consideration such that the relative proportions of cash, property, assets and such other form of consideration comprising such dividend or distribution shall be the same as the relative proportions of cash, property, assets and such other form of consideration comprising the consideration received upon such issue or sale, (C) with respect to dividends or distributions in the form of Capital Stock, other than Disqualified Stock or Preferred Stock, of an Existing Unrestricted Entity as described in clause (i) above, such Existing Unrestricted Entity shall have previously consummated a bona fide underwritten initial public offering of Capital Stock, other than Disqualified Stock or Preferred Stock, of the same class and series registered under the Securities Act, (D) such dividends or distributions shall be excluded in the calculation of the amount of Restricted Payments and (E) the Net Cash Proceeds and any value attributable to any property, assets or other form of consideration received in connection with such issue or sale described in clause (ii) above shall be excluded from the calculation of amounts under clause (5)(C) of paragraph (a) above; 198 (14) the declaration and payment of dividends on the Company's Capital Stock within 30 days after the end of any calendar year for the purpose of providing the holders of the Company's Capital Stock, which we refer to as the "Equity Holders", with cash, or Publicly Traded Equity Securities, to pay United States income taxes attributable to taxable income of the Company and its Subsidiaries for such calendar year attributed to the Equity Holders, which dividends we refer to as "Tax Distributions"; provided that (A) on the date of each such declaration and payment the Company is treated as a pass-through entity for United States Federal income tax purposes or a controlled foreign corporation for United States Federal income tax purposes, (B) the maximum amount of Tax Distributions that may be declared and paid pursuant to this clause (14) in any calendar year shall be equal to (x)(a) if the Company is a pass-through entity for United States Federal income tax purposes, the amount of taxable income of the Company for such calendar year (for the purposes of the calculation made pursuant to this clause (B)(x)(a), the taxable income of the Company shall be assumed to be the taxable income the Company would have had if it were a corporation incorporated in the United States, including any "Subpart F income" (within the meaning of Section 952 of the Code, which for the purposes of this clause (14) shall include income includable under Section 951(a)(1)(B) of the Code) of its subsidiaries that it would be required to include in its taxable income if it were such a corporation), reduced by the amount of taxable loss allocated to the Equity Holders for all prior calendar years (except to the extent such taxable losses have been previously taken into account with respect to a prior calendar year under this clause (B)(x)(a)) or (b) if the Company is a controlled foreign corporation, the aggregate amount of the Company's Subpart F income for such calendar year (and, to the extent such Subpart F income would be attributed to the Equity Holders, the Subpart F income of the Company's subsidiaries for such calendar year), multiplied by (y) 40%, (C) the Company shall have delivered to the Trustee at least 30 calendar days prior to the declaration of such Tax Distribution or any interim Tax Distribution pursuant to clause (F) below, a notice, certified by the Chief Financial Officer of the Company, setting forth in detail reasonably satisfactory to the Trustee the basis for the determination of the amount of such Tax Distribution, (D) if any Tax Distribution is made pursuant to this clause (14) in respect of any taxable income realized on any sale of any asset or Capital Stock, the consideration for which consists in whole or in part of Publicly Traded Equity Securities, such Tax Distribution shall be made in the form of cash and Publicly Traded Equity Securities such that the ratio of cash to Publicly Traded Equity Securities comprising such Tax Distribution shall be the same as the ratio of cash to Publicly Traded Equity Securities comprising the consideration received upon such sale, to the extent that the Company is legally permitted to make such Tax Distribution in any form other than cash, (E) Tax Distributions in respect of any taxes attributable to the taxable income of an Unrestricted Subsidiary shall only be permitted if they are made with the proceeds of dividends or distributions from an Unrestricted Subsidiary that are received by the Company or a Restricted Subsidiary; provided, that the amount of such dividends and distributions will not increase the amount available for Restricted Payments under clause 5(C) of paragraph (a) of this covenant, (F)(i) interim Tax Distributions may be made during each calendar year on or shortly after April 10, June 10, September 10 and December 31 of such year for the purpose of providing the Equity Holders with cash to pay estimated United States income taxes attributable to taxable income of the Company and its Subsidiaries for such taxable year, based on good-faith estimates of such estimated tax liability made by the Company and (ii) if any such interim Tax Distributions are made by the Company during a taxable year, then within 30 calendar days after the end of such calendar year the Company shall deliver to the Trustee a determination of the maximum amount of Tax Distributions that may be made for such calendar year under clause (B) above, and if the aggregate interim Tax Distributions made for such 199 calendar year exceed such maximum, then such excess amount, which we refer to as "Excess Interim Tax Distributions", shall be applied to reduce amounts payable under any clause of paragraph (b) for the next calendar year and to the extent not so applied, shall be carried forward for application against such amounts in a future calendar year, and (G)(i) any Tax Distributions, excluding any Excess Interim Tax Distributions, paid pursuant to this clause (14) shall be excluded in the calculation of the amount of Restricted Payments and (ii) any Excess Interim Tax Distributions shall be included in the amount of Restricted Payments; (15) the declaration and payment of dividends or distributions on the Company's Capital Stock or payments in respect of Deferred Compensation Plans with the Net Cash Proceeds received by the Company or a Restricted Subsidiary, other than a Designated Subsidiary, from an issue or sale (other than an issuance or sale to (x) the Company or a Subsidiary or Affiliate of the Company or (y) an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries) of Capital Stock, other than Disqualified Stock or Preferred Stock, of a Designated Subsidiary in an amount equal to such Net Cash Proceeds from such issuance or sale less the aggregate amount of all Investments, other than Investments which may be deemed to have been made as a result of sevices performed in the ordinary course of business, in such Designated Subsidiary made by the Company or a Restricted Subsidiary that are outstanding at such time (with the amount of any Investment being measured at the time such Investment was made and not giving effect to any subsequent changes in value subject to the covenant described under "-- Designated Subsidiary Investments") (which aggregate amount we refer to as "Designated Subsidiary Investments"); provided, however, that (A) after giving effect to such dividend or distribution or payments, the Company would be able to Incur an additional $1.00 of Indebtedness under paragraph (a) of the covenant described under "-- Limitation on Indebtedness," (B) at least 50% of the term loans under the Credit Agreement outstanding on the Closing Date, and any Indebtedness Refinancing such term loans, shall have been repaid, (C) the long-term senior unsecured debt of the Issuer shall be rated at least (x) Baa3 by Moody's and (y) BBB- by S&P, and each of Moody's and S&P shall have reaffirmed its rating of the long-term senior unsecured debt of the Issuer after having been informed of such dividend, distribution or payment and (D) no Default has occurred and is continuing or will occur as a result of such dividend or distribution; provided, further, that (X) such Net Cash Proceeds shall be excluded from the calculation of amounts under clause 5(C) of paragraph (a) above and (Y) such dividends or distributions shall be excluded in the calculation of the amount of Restricted Payments; (16) the declaration and payment of dividends or distributions on the Company's Capital Stock or payments in respect of Deferred Compensation Plans (i) consisting of Capital Stock, other than Disqualified Stock or Preferred Stock, of a Designated Subsidiary or (ii) in the form of Publicly Traded Equity Securities received by the Company or a Restricted Subsidiary, other than a Designated Subsidiary, from the Issuer of such Publicly Traded Equity Securities as consideration for the issue or sale of Capital Stock, other than Disqualified Stock or Preferred Stock, of a Designated Subsidiary; provided, however, that (A) with respect to dividends or distributions in the form of Capital Stock, other than Disqualified Stock or Preferred Stock, of a Designated Subsidiary as described in clause (i) above, such Designated Subsidiary shall have previously consummated a bona fide underwritten initial public offering of Capital Stock, other than Disqualified Stock or Preferred Stock, of the same class and series registered under the Securities Act, (B) the Company or a Restricted Subsidiary, other than a Designated Subsidiary, retains a portion of (I) in the event of a dividend or distribution in the form of Capital Stock, other than Disqualified Stock or Preferred Stock, of a Designated Subsidiary as described in clause (i) above, the 200 Capital Stock of such Designated Subsidiary or (II) in the event of a dividend or distribution of Publicly Traded Equity Securities received as consideration for the sale of Capital Stock of a Designated Subsidiary as described in clause (ii) above, such Publicly Traded Equity Securities, in each case having a Fair Market Value at least equal to the amount of Designated Subsidiary Investments outstanding at such time, (C) after giving effect to such dividend or distribution the Company would be able to Incur an additional $1.00 of Indebtedness under paragraph (a) of the covenant described under "-- Limitation on Indebtedness," (D) at least 50% of the term loans under the Credit Agreement outstanding on the Closing Date, and any Indebtedness Refinancing such term loans, shall have been repaid, (E) the long-term senior unsecured debt of the Issuer shall be rated at least (x) Baa3 by Moody's and (y) BBB- by S&P, and each of Moody's and S&P shall have reaffirmed its rating of the long-term senior unsecured debt of the Issuer after having been informed of such dividend, distribution or payment and (F) no Default has occurred and is continuing or would occur as a result of such dividend or distribution; provided, further, that (X) that any value attributable to such Publicly Traded Equity Securities received as described in clause (ii) above shall be excluded from the calculation of amounts under clause 5(C) of paragraph (a) above and (Y) such dividends or distributions shall be excluded in the calculation of the amount of Restricted Payments; and (17) other Restricted Payments in an aggregate amount not to exceed $25 million; provided, however, that such Restricted Payments shall be excluded in the calculation of the amount of Restricted Payments. Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to the Company or any Restricted Subsidiary; (2) make any loans or advances to the Company or any Restricted Subsidiary; or (3) transfer any of its property or assets to the Company or any Restricted Subsidiary, except: (A) any encumbrance or restriction pursuant to applicable law, rule, regulation or order or an agreement in effect at or entered into on the Closing Date; (B) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, in contemplation of, or to provide all or any portion of the funds or credit support utilized to consummate the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was otherwise acquired by the Company) and outstanding on such date; (C) in the case of clause (3), any encumbrance or restriction (i) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract, or (ii) contained in security agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the extent such encumbrance or restriction restricts the transfer of the property subject to such security agreements or mortgages; (D) with respect to a Restricted Subsidiary, any restriction imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; 201 (E) any encumbrance or restriction on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; (F) customary provisions in joint venture agreements and other similar agreements entered into in the ordinary course of business; (G) any encumbrance or restriction contained in an agreement evidencing Indebtedness of a Restricted Subsidiary permitted to be Incurred subsequent to the Closing Date pursuant to the provisions of the covenant described under "-- Limitation on Indebtedness"; provided, however, that such encumbrance or restriction applies only in the event of and during the continuance of a default contained in such agreement; and (H) any encumbrances or restrictions of the type referred to in clauses (1), (2) and (3) above imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (A) through (G) above; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Board of Directors, no more restrictive with respect to such dividend and other payment restrictions than those contained in the dividend or other payment restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing. Limitation on Sales of Assets and Capital Stock. (a) The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless: (1) the Company or such Restricted Subsidiary receives consideration, including by way of relief from, or by any other Person assuming sole responsibility for, any liabilities, contingent or otherwise, at the time of such Asset Disposition at least equal to the Fair Market Value of the shares and assets subject to such Asset Disposition, (2) at least 75% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or Temporary Cash Investments, and (3) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company, or the Restricted Subsidiary, as the case may be, (A) to the extent the Company elects, or is required by the terms of any Indebtedness, to prepay, repay, purchase, repurchase, redeem, retire, defease or otherwise acquire for value Senior Indebtedness of the Company or a Note Guarantor or Indebtedness, other than obligations in respect of Preferred Stock, of a Wholly Owned Subsidiary other than the Issuer or a Note Guarantor, in each case other than Indebtedness owed to the Company or an Affiliate of the Company and other than obligations in respect of Disqualified Stock, within one year after the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) to the extent the Company or such Restricted Subsidiary elects, to reinvest in Additional Assets, including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by the Company or another Restricted Subsidiary, within one year from the later of such Asset Disposition or the receipt of such Net Available Cash; (C) to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an Offer, as defined in paragraph (b) of this covenant below, to purchase notes pursuant to and subject to the conditions set forth in paragraph (b) of this covenant; provided, however, that if the Issuer elects, or is required by the terms of any other Senior Subordinated Indebtedness, such Offer may be made ratably to purchase the notes and other Senior Subordinated Indebtedness of the Issuer; and 202 (D) to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), for any general corporate purpose permitted by the terms of the indenture; provided, however that (X) in connection with any prepayment, repayment, purchase, repurchase, redemption, retirement, defeasance or other acquisition for value of Indebtedness pursuant to clause (A), (C) or (D) above, the Company or such Restricted Subsidiary will retire such Indebtedness and will cause the related loan commitment, if any, to be permanently reduced in an amount equal to the principal amount so prepaid, repaid, purchased, repurchased, redeemed, retired, defeased or otherwise acquired for value and (Y) any Asset Disposition consisting of the sale of Capital Stock of a Designated Subsidiary shall not be subject to paragraph (a)(3) of this covenant. Notwithstanding the foregoing provisions of this covenant, the Company and the Restricted Subsidiaries will not be required to apply any Net Available Cash in accordance with this covenant except to the extent that the aggregate Net Available Cash from all Asset Dispositions that is not applied in accordance with this covenant exceeds $15 million. For the purposes of this covenant, the following are deemed to be cash: o the assumption of Indebtedness of (i) the Issuer, other than obligations in respect of Disqualified Stock of the Issuer, or (ii) the Company or any Restricted Subsidiary other than the Issuer, other than obligations in respect of Disqualified Stock and Preferred Stock of the Company or a Restricted Subsidiary that is a Note Guarantor, and the release of the Issuer, the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition, o securities received by the Company or any Restricted Subsidiary in an Asset Disposition from the transferee with respect to which the Company or such Restricted Subsidiary shall use its reasonable best efforts to convert into cash within 90 days after the later to occur of (i) the consummation of such Asset Disposition or (ii) the expiration of any lock-up or similar restriction on the right of the Company or such Restricted Subsidiary to dispose of such securities; provided, that all the cash received upon such conversion shall be Net Available Cash for the purposes of, and applied in accordance with, this covenant, o any assets related to a Permitted Business received in exchange for assets of comparable Fair Market Value in the good faith determination of the Board of Directors of the Company, and o Publicly Traded Equity Securities that are received in exchange for a sale of Capital Stock, other than Disqualified Stock or Preferred Stock, of a Designated Subsidiary. (b) In the event of an Asset Disposition that requires the purchase of notes pursuant to clause (a)(3)(C) of this covenant, the Issuer will be required (i) to purchase notes tendered pursuant to an offer by the Issuer for the notes, which we refer to as the "Offer", at a purchase price of 100% of their principal amount plus accrued and unpaid interest and liquidated damages thereon, if any, to the date of purchase (subject to the right of Holders of record on the relevant date to receive interest due on the relevant interest payment date) in accordance with the procedures (including prorating in the event of oversubscription), set forth in the indenture and (ii) to purchase other Senior Subordinated Indebtedness of the Issuer on the terms and to the extent contemplated thereby (provided that in no event shall the Issuer offer to purchase such other Senior Subordinated Indebtedness of the Issuer at a purchase price in excess of 100% of its principal amount, plus accrued and unpaid interest thereon). If the aggregate purchase price of notes, and other Senior Subordinated Indebtedness, tendered pursuant to the Offer is less than the Net Available Cash allotted to the purchase of the notes, and other Senior Subordinated Indebtedness, the Issuer will apply the remaining Net Available Cash in accordance with clause (a)(3)(D) of this covenant. The Issuer will not be required to make an Offer for notes, and other Senior Subordinated Indebtedness, pursuant to this covenant if the Net Available Cash available therefor (after application of the proceeds as provided in clauses (a)(3)(A) 203 and (B)) is less than $15 million for any particular Asset Disposition (which lesser amount will be carried forward for purposes of determining whether an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). (c) The Issuer will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Issuer will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue thereof. Limitation on Transactions with Affiliates. (a) The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or conduct any transaction or series of related transactions, including the purchase, sale, lease or exchange of any property or the rendering of any service, with any Affiliate of the Company, which we refer to as an "Affiliate Transaction", unless such transaction is on terms: (1) that are no less materially favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate, (2) that, in the event such Affiliate Transaction involves an aggregate amount in excess of $25 million, (A) are set forth in writing, and (B) have been approved by a majority of the members of the Board of Directors having no personal stake in such Affiliate Transaction and, (3) that, in the event such Affiliate Transaction involves an amount in excess of $50 million, have been determined by a nationally recognized appraisal or investment banking firm to be fair, from a financial standpoint, to the Company and its Restricted Subsidiaries. (b) The provisions of the foregoing paragraph (a) will not prohibit: (1) any Restricted Payment permitted to be paid pursuant to the covenant described under "-- Limitation on Restricted Payments," (2) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors in good faith, (3) the grant of stock options or similar rights to employees and directors of the Company or any of its Restricted Subsidiaries pursuant to plans approved by the Board of Directors in good faith, (4) loans or advances to employees, directors or consultants in the ordinary course of business, which are approved by the Board of Directors in good faith in an amount not to exceed $10 million outstanding at any one time, (5) the payment of reasonable and customary fees to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company and its Subsidiaries, (6) any transaction between the Company and a Restricted Subsidiary or between Restricted Subsidiaries, (7) the existence of, or the performance by the Company or any of its Restricted Subsidiaries of its obligations under the terms of, any stockholders agreement, including any registration rights agreement or purchase agreement related thereto, to which it is a party as of the Closing Date on the terms described in this prospectus and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or 204 the performance by the Company or any of its Restricted Subsidiaries of its obligations under, any future amendment to such existing agreement or under any similar agreement entered into after the Closing Date shall only be permitted by this clause (7) to the extent that the terms of any such amendment or new agreement are not disadvantageous to the Holders of the notes in any material respect, (8) the issuance or sale of Capital Stock, other than Disqualified Stock, of the Company, Intermediate Holdings, HDD Holdings or the Issuer to any Permitted Holder, (9) the payment by the Company or any of its Restricted Subsidiaries of (i) annual management, consulting, monitoring and advisory fees and any related and reasonable out-of-pocket expenses to any of the Sponsors in an aggregate amount, for all the Sponsors, not to exceed $5 million in any calendar year and (ii) fees to any of the Sponsors paid for any financial advisory, financing, underwriting or placement services including, without limitation, in connection with any acquisition transaction or divestiture entered into by the Company or any Restricted Subsidiary; provided, however, that the aggregate amount of fees paid to all of the Sponsors under this clause (ii) in respect of any transaction shall not exceed the lesser of (A) 25% of the total amount of such transaction and (B) the greater of 2% of the total amount of such transaction and $2 million, (10) transactions with customers, clients, suppliers or purchasers or sellers of goods or services in each case in the ordinary course of business and otherwise in compliance with the terms of the indenture which are fair to the Company or its Restricted Subsidiaries, in the good faith determination of the Board of Directors or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party, (11) any agreement as in effect as of the Closing Date on the terms described in this prospectus or any amendment thereto, so long as any such amendment is not disadvantageous to the Holders of the notes in any material respect, or any transaction contemplated thereby, (12) the payment of all fees and expenses related to the Transactions, including fees to each of the Sponsors, on the terms described in this prospectus, or (13) any licensing agreement or similar agreement entered into in the ordinary course of business relating to the use of technology or intellectual property between any of the Company and its Subsidiaries, on the one hand, and any company or other Person which is an Affiliate of the Company or its Subsidiaries by virtue of the fact that a Sponsor has made an Investment in or owns any Capital Stock of such company or other Person which are fair to the Company or its Restricted Subsidiaries, in the reasonable determination of the Board of Directors or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary to, sell or otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary, and will not permit any Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any shares of its Capital Stock except: (1) to the Company or a Wholly Owned Subsidiary; (2) if, immediately after giving effect to such issuance, sale or other disposition, neither the Company nor any of its Subsidiaries own any Capital Stock of such Restricted Subsidiary; provided, however, that if such Restricted Subsidiary is a Designated Subsidiary and if any of the proceeds of such issue, sale or other disposition are received by a Person other than the Company or a Restricted Subsidiary, other than a Designated Subsidiary, such Person shall dividend or distribute cash to the Company or a Restricted Subsidiary, other than a 205 Designated Subsidiary, in an amount at least equal to the amount of (x) the Designated Subsidiary Investments with respect to such Designated Subsidiary or (y) if the proceeds of such issue or sale received by such Person are less than the amount of such Designated Subsidiary Investments in such Designated Subsidiary, such proceeds; provided, further, that such dividend or distribution shall be excluded from the calculation of amounts under clause 5(C) of paragraph (a) of the covenant described under "-- Limitation on Restricted Payments"; or (3) in compliance with the covenant described under "-- Limitation on Sales of Assets and Capital Stock" and immediately after giving effect to such issuance, sale or other disposition, such Restricted Subsidiary either (A) continues to be a Restricted Subsidiary or (B) either (i) if such Restricted Subsidiary is not a Designated Subsidiary and would no longer be a Restricted Subsidiary, then the Investment of the Company in such Person, after giving effect to such issuance or sale, would have been permitted to be made in accordance with the covenant described under "-- Limitation on Restricted Payments" as if made on the date of such issuance or sale and such Investment will be deemed to be an Investment for the purposes of such covenant or (ii) if such Restricted Subsidiary is a Designated Subsidiary and would no longer be a Restricted Subsidiary, then if any of the proceeds of such issuance, sale, or other disposition are received by a Person other than the Company or a Restricted Subsidiary, other than a Designated Subsidiary, such Person shall dividend or distribute cash to the Company or a Restricted Subsidiary, other than a Designated Subsidiary, at least equal to the amount of (x) the Designated Subsidiary Investments with respect to such Designated Subsidiary or (y) if the proceeds of such issue or sale received by such Person are less than the amount of such Designated Subsidiary Investments in such Designated Subsidiary, such proceeds; provided, that (X) such dividend or distribution shall be excluded from the calculation of amounts under clause 5(C) of paragraph (a) of the covenant described under "-- Limitation on Restricted Payments" and (Y) the remaining Investment of the Company and the Restricted Subsidiaries in such Designated Subsidiary shall not be subject to the covenant described under "-- Limitation on Restricted Payments." The proceeds of any sale of such Capital Stock, other than a sale of Capital Stock of a Designated Subsidiary, permitted hereby will be treated as Net Available Cash from an Asset Disposition and must be applied in accordance with the terms of the covenant described under "-- Limitation on Sales of Assets and Capital Stock." SEC Reports. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the SEC and provide the Trustee and Holders and prospective Holders, upon request, within 15 days after it files them with the SEC, copies of its annual report and the information, documents and other reports that are specified in Sections 13 and 15(d) of the Exchange Act; provided, however, the Company shall not be so obligated to file such reports with the SEC if the SEC does not permit such filing, in which event the Company will make available such information to the trustee, Holders and prospective Holders, upon request, within 15 days after the time the Company would be required to file such information with the SEC if it were subject to Section 13 or 15(d) of the Exchange Act. In addition, following a public equity offering, the Company shall furnish to the Trustee and the Holders, promptly upon their becoming available, copies of the annual report to shareholders and any other information provided by the Company to its public shareholders generally. The Company also will comply with the other provisions of Section 314(a) of the TIA. Future Note Guarantors. The Company will cause (i) at any time that any Bank Indebtedness is outstanding, each Subsidiary of the Company, other than the Issuer, that Incurs or enters into a Guarantee of any Bank Indebtedness and (ii) at any time that no Bank Indebtedness is outstanding, each Subsidiary of the Company, other than the Issuer, that Incurs any Indebtedness, to become a Note Guarantor, and if applicable, execute and deliver to the Trustee a supplemental indenture in the form set forth in the indenture pursuant to which such Subsidiary will Guarantee payment of the 206 notes. Each Note Guarantee will be limited to an amount not to exceed the maximum amount that can be Guaranteed by that Note Guarantor, without rendering the Note Guarantee, as it relates to such Note Guarantor voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Designated Subsidiary Investments. For the purposes of the indenture, (1) the aggregate amount of Designated Subsidiary Investments on the Closing Date in each of Seagate Technology SAN Holdings and its Subsidiaries, Seagate Removable Storage Solutions Holdings and its Subsidiaries and Seagate Software Information Management Group Holdings, Inc. (the predecessor of Crystal Decisions, Inc.) and its Subsidiaries, will be deemed to be $189.4 million, $31.5 million and $71.5 million, respectively and (2) following the Closing Date the aggregate amount of Designated Subsidiary Investments in each of such entities shall be based on such amounts outstanding on the Closing Date as set forth in clause (1) as adjusted to reflect further Investments (other than Investments which may be deemed to have been made as a result of services performed in the ordinary course of business) made and reductions in such Investments resulting from repurchases, repayments or redemptions of, or other returns of capital from, such Investments, in each case after the Closing Date. The Company will provide to the Trustee and Holders and prospective Holders (upon request) a statement of the amount of Designated Subsidiary Investments in each Designated Subsidiary, as of the end of each fiscal quarter within 45 days of the end of such fiscal quarter. Rigid Disc Drive Operations. The Company will not permit any Designated Subsidiary to own any material assets used in the rigid disc drive operations of the Company and its Subsidiaries. Amendment of Deferred Compensation Plans. The Company will not, and will not permit any Restricted Subsidiary to, (i) amend, modify or waive any of its rights under any Deferred Compensation Plan, except to the extent that such amendments, modifications or waivers, individually and in the aggregate, (1) would not reasonably be expected to be materially adverse to the Holders and (2) would not require the Company or any of its Subsidiaries to make any distributions or other payments, whether in cash, securities or other property or any combination thereof, that would be in violation of the covenants set forth in the indenture, or (ii) adopt any Deferred Compensation Plan if the terms, including subordination terms, of such Deferred Compensation Plan that are material to the Holders are in any way less favorable to the indenture than the terms of the Deferred Compensation in effect on the Closing Date. Notwithstanding clause (i) above, the Company will not, and will not permit any Restricted Subsidiary to, amend, modify or waive any of the subordination terms of any Deferred Compensation Plan in effect on the Closing Date. Limitation on Lines of Business. The Company will not, and will not permit any Restricted Subsidiary to, engage in any business, other than a Permitted Business. MERGER AND CONSOLIDATION The Issuer will not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person, unless: (1) the resulting, surviving or transferee Person, which we refer to as the "Successor Company", will be a corporation, partnership or limited liability company organized and existing under the laws of the Cayman Islands or the laws of any political subdivision thereof or the laws of the United States of America, any State thereof or the District of Columbia and (i) the Successor Company, if not the Issuer, will expressly assume, by a supplemental indenture, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of the Issuer under the notes and the indenture and (ii) if the Successor Company is a partnership or limited liability company, the Successor Company and a Subsidiary of the Successor Company which is a corporation organized and existing under the laws of the Cayman Islands or the laws of any political subdivision thereof or the laws of the United States of America, any State thereof or the District of Columbia will execute and deliver to the Trustee, in form reasonably satisfactory 207 to the Trustee, a supplemental indenture pursuant to which each will jointly and severally assume all of the obligations of the Issuer under the notes and the indenture; (2) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company, the Company or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Company, the Company or such Restricted Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction, either (A) the Company would be able to Incur an additional $1.00 of Indebtedness under paragraph (a) of the covenant described under "-- Limitation on Indebtedness" or (B) the Consolidated Coverage Ratio for the Successor Company would be (i) greater than the Consolidated Coverage Ratio for the Company immediately prior to the such merger, conveyance or transfer and (ii) at least 4.5:1; and (4) the Issuer shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture, if any, comply with the indenture. The Successor Company will succeed to, and be substituted for, and may exercise every right and power of the Issuer under the indenture, but the predecessor Issuer in the case of a conveyance, transfer or lease of all or substantially all its assets will not be released from the obligation to pay the principal of and interest on the notes. In addition, none of the Note Guarantors will consolidate with or merge with or into, or convey, transfer or lease all or substantially all of its assets to any Person unless: (1) except in the case of a Note Guarantor that has been disposed of in its entirety to another Person, the resulting, surviving or transferee Person, which we refer to as the "Successor Guarantor", will be a corporation, partnership or limited liability company organized and existing under the laws of the jurisdiction under which such Note Guarantor was organized and existing or the laws of the United States of America, any State thereof or the District of Columbia, and such Person, if not such Note Guarantor, will expressly assume, by a supplemental indenture, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of such Note Guarantor under its Note Guarantee; (2) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Guarantor or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Guarantor or such Restricted Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; and (3) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture, if any, comply with the indenture. Notwithstanding the foregoing and subject to the following proviso: (A) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Issuer or any Note Guarantor and (B) the Company, Intermediate Holdings, HDD Holdings or the Issuer may merge with an Affiliate incorporated or organized solely for the purpose of reincorporating the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, in another jurisdiction to realize tax or other benefits; provided, however, that in the case of any merger or consolidation in which the Issuer is a party if the resulting or surviving Person is a partnership or limited liability company, such Person and a 208 Subsidiary of such Person which is a corporation organized and existing under the laws of the Cayman Islands or the laws of any political subdivision thereof or the laws of the United States of America, any State thereof or the District of Columbia will execute and deliver to the Trustee, in form reasonably satisfactory to the Trustee, a supplemental indenture pursuant to which each will jointly and severally assume all of the obligations of the Issuer under the notes and the indenture. DEFAULTS Each of the following is an Event of Default: (1) a default in any payment of interest on any Note when due and payable or in any payment of liquidated damages whether or not prohibited by the provisions described under "Ranking" above, continued for 30 days, (2) a default in the payment of principal of any Note when due and payable at its Stated Maturity, upon required redemption or repurchase, upon declaration or otherwise, whether or not such payment is prohibited by the provisions described under "Ranking" above, (3) the failure by the Company or any Subsidiary to comply with its obligations under the covenant described under "Merger and Consolidation" above, (4) the failure by the Company or any Subsidiary to comply for 45 days after notice with any of its obligations under the covenants described under "Change of Control" or "Certain Covenants" above (in each case, other than a failure to purchase notes), (5) the failure by the Company or any Subsidiary to comply for 60 days after notice with its other agreements contained in the notes or the indenture, (6) the failure by the Company, the Issuer or any Significant Subsidiary to pay any Indebtedness within any applicable grace period after final maturity or the acceleration of any such Indebtedness by the holders thereof because of a default if the total amount of such Indebtedness unpaid or accelerated exceeds $50 million or its foreign currency equivalent, which we refer to as the "cross acceleration provision", and such failure continues for 30 days after receipt of the notice specified in the indenture, (7) certain events of bankruptcy, insolvency or reorganization of the Company, Intermediate Holdings, HDD Holdings, the Issuer or a Significant Subsidiary, which we refer to as the "bankruptcy provisions", (8) the rendering of any judgment or decree for the payment of money (other than judgments which are covered by enforceable insurance policies issued by reputable and creditworthy insurance companies) in excess of $50 million or its foreign currency equivalent against the Company, the Issuer or a Significant Subsidiary if: (A) an enforcement proceeding thereon is commenced by any creditor or (B) such judgment or decree remains outstanding for a period of 60 days following such judgment and is not discharged, waived or stayed, which we refer to as the "judgment default provision", (9) any Note Guarantee ceases to be in full force and effect, except as contemplated by the terms thereof, or any Note Guarantor or Person acting by or on behalf of such Note Guarantor denies or disaffirms such Note Guarantor's obligations under the indenture or any Note Guarantee and such Default continues for 10 days after receipt of the notice specified in the indenture, or (10) the Company or any Subsidiary challenging in any proceeding before, or any filing with, any court, tribunal or governmental authority the subordination provisions of any Deferred Compensation Plan or asserting in any proceeding before, or any filing with, any court, tribunal or governmental authority that such provisions are invalid or unenforceable or that the obligations of the Issuer and the Note Guarantors in respect of the notes and the Note 209 Guarantees are not senior obligations under the subordination provisions of any Deferred Compensation Plan, or any court, tribunal or government authority of competent jurisdiction shall judge the subordination provisions of any Deferred Compensation Plan to be invalid or unenforceable or such obligations to be not senior obligations under such subordination provisions. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. However, a default under clauses (4), (5), (6) or (9) will not constitute an Event of Default until the Trustee notifies the Issuer or the Holders of at least 25% in principal amount of the outstanding notes notify the Issuer and the Trustee of the default and the Company or the Subsidiary, as applicable, does not cure such default within the time specified in clauses (4), (5), (6) or (9) hereof after receipt of such notice. If an Event of Default (other than an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company, Intermediate Holdings, HDD Holdings or the Issuer) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the outstanding notes by notice to the Issuer, may declare the principal of and accrued but unpaid interest on all the notes to be due and payable. Upon such a declaration, such principal and interest will be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company, Intermediate Holdings, HDD Holdings or the Issuer occurs, the principal of and interest on all the notes will become immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in principal amount of the outstanding notes may rescind any such acceleration with respect to the notes and its consequences. Subject to the provisions of the indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee indemnity or security satisfactory to it against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest when due, no Holder may pursue any remedy with respect to the indenture or the notes unless: (1) such Holder has previously given the Trustee notice that an Event of Default is continuing, (2) Holders of at least 25% in principal amount of the outstanding notes have requested the Trustee in writing to pursue the remedy, (3) such Holders have offered the Trustee security or indemnity satisfactory to it against any loss, liability or expense, (4) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity and (5) the Holders of a majority in principal amount of the outstanding notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount of the outstanding notes will be given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with applicable law or the indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability. Prior to taking any action under the indenture, the Trustee will be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. 210 If a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each Holder notice of the Default within the earlier of 90 days after it occurs or 30 days after it is actually known to a Trust Officer or written notice of it is received by the Trustee. Except in the case of a Default in the payment of principal of, premium, if any, or interest on any note (including payments pursuant to the redemption provisions of such note), the Trustee may withhold notice if and so long as a committee of its Trust Officers in good faith determines that withholding notice is in the interests of the Holders. In addition, the Issuer will be required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. The Issuer will also be required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event which would constitute certain Events of Default, their status and what action the Issuer is taking or proposes to take in respect thereof. AMENDMENTS AND WAIVERS Subject to certain exceptions, the indenture or the notes may be amended with the written consent of the Holders of a majority in principal amount of the notes then outstanding and any past default or compliance with any provisions may be waived with the consent of the Holders of a majority in principal amount of the notes then outstanding. However, without the consent of each Holder of an outstanding note affected, no amendment may, among other things: (1) reduce the amount of notes whose Holders must consent to an amendment, (2) reduce the rate of or extend the time for payment of interest or any liquidated damages on any note, (3) reduce the principal of or extend the Stated Maturity of any note, (4) reduce the premium payable upon the redemption of any note or change the time at which any note may be redeemed as described under "Optional Redemption" or "Redemption for Changes in Withholding Taxes" above, (5) make any note payable in money other than that stated in the note, (6) make any change to the subordination provisions of the indenture that adversely affects the rights of any Holder, (7) impair the right of any Holder to receive payment of principal of, and interest or any liquidated damages on, such Holder's notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder's notes, (8) make any change in the amendment provisions which require each Holder's consent or in the waiver provisions, (9) modify the Note Guarantees in any manner adverse to the Holders, or (10) make any change in the provisions of the indenture described under "Redemption for Changes in Withholding Taxes" above, that adversely affects the rights of any Holder or amend the terms of the notes or the indenture in a way that would result in the loss of an exemption from any of the Taxes described thereunder. Without the consent of any Holder, the Issuer, the Note Guarantors and the Trustee may amend the indenture to: o cure any ambiguity, omission, defect or inconsistency, o provide for the assumption by (A) a successor corporation or (B) to the extent permitted under the covenant described under "-- Merger and Consolidation," a successor partnership or limited liability company and a Subsidiary of such successor partnership or limited liability company that is a corporation, of the obligations of the Issuer under the indenture, 211 o provide for the assumption by a successor corporation, partnership or limited liability company of the obligations of a Note Guarantor under the indenture, o provide for uncertificated notes in addition to or in place of certificated notes (provided, however, that the uncertificated notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated notes are described in Section 163(f)(2)(B) of the Code), o to make any change in the subordination provisions of the indenture that would limit or terminate the benefits available to any holder of Senior Indebtedness of the Issuer or a Note Guarantor, or any Representative thereof, under such subordination provisions, o add additional Guarantees with respect to the notes, o secure the notes, o add to the covenants of the Company and the Restricted Subsidiaries for the benefit of the Holders or to surrender any right or power conferred upon the Company or the Issuer, o make any change that does not adversely affect the rights of any Holder, subject to the provisions of the indenture, o provide for the issuance of the Exchange Notes or Additional Notes, in compliance with the covenant described under "-- Certain Covenants -- Limitation on Indebtedness," or o comply with any requirement of the SEC in connection with the qualification of the indenture under the TIA. However, no amendment may be made to the subordination provisions of the indenture that adversely affects the rights of any holder of Senior Indebtedness of the Issuer or a Note Guarantor then outstanding unless the holders of such Senior Indebtedness, or any group or Representative thereof authorized to give a consent, consent to such change. The consent of the Holders will not be necessary to approve the particular form of any proposed amendment. It will be sufficient if such consent approves the substance of the proposed amendment. After an amendment becomes effective, the Issuer is required to mail to Holders a notice briefly describing such amendment. However, the failure to give such notice to all Holders, or any defect therein, will not impair or affect the validity of the amendment. TRANSFER AND EXCHANGE A Holder will be able to transfer or exchange notes. Upon any transfer or exchange, the registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Issuer may require a Holder to pay any taxes required by law or permitted by the indenture. The Issuer will not be required to transfer or exchange any note selected for redemption or to transfer or exchange any Note for a period of 15 days prior to a selection of notes to be redeemed. The notes will be issued in registered form and the Holder will be treated as the owner of such note for all purposes. DEFEASANCE The Company and the Issuer may at any time terminate all their obligations under the notes and the indenture, which we refer to as "legal defeasance", except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the notes, to replace mutilated, destroyed, lost or stolen notes and to maintain a registrar and paying agent in respect of the notes. In addition, the Company and the Issuer may at any time terminate: (1) its obligations under the covenants described under "-- Certain Covenants", 212 (2) the operation of the cross acceleration provision, the bankruptcy provisions with respect to Significant Subsidiaries and the judgment default provision described under "Defaults" above and the limitations contained in clause (3) under the first paragraph and clause (3) under the third paragraph of "-- Merger and Consolidation" above, which we refer to as "covenant defeasance". In the event that the Company and the Issuer exercise their legal defeasance option or their covenant defeasance option, each Note Guarantor will be released from all of its obligations with respect to its Note Guarantee. The Company and the Issuer may exercise their legal defeasance option notwithstanding their prior exercise of their covenant defeasance option. If the Company and the Issuer exercise their legal defeasance option, payment of the notes may not be accelerated because of an Event of Default with respect thereto. If the Company and the Issuer exercise their covenant defeasance option, payment of the notes may not be accelerated because of an Event of Default specified in clause (4), (6) or (7) (with respect only to Significant Subsidiaries), (8) (with respect only to Significant Subsidiaries) under "Defaults" above or because of the failure of the Issuer to comply with clause (3) under the first paragraph and clause (3) under the third paragraph of "-- Merger and Consolidation" above. In order to exercise either defeasance option, the Company and the Issuer must irrevocably deposit in trust, which we refer to as the "defeasance trust", with the Trustee money in an amount sufficient or U.S. Government Obligations, the principal of and interest on which will be sufficient, or a combination thereof sufficient, to pay the principal of, premium, if any, and interest on, and liquidated damages, if any, in respect of the notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel, subject to customary exceptions and exclusions, to the effect that Holders will not recognize income, gain or loss for U.S. Federal income or Cayman Islands tax purposes as a result of such deposit and defeasance and will be subject to U.S. Federal income or Cayman Islands tax, including withholding taxes, on the same amounts and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable U.S. Federal income tax law). CONCERNING THE TRUSTEE The Bank of New York is the Trustee under the indenture and has been appointed by the Company as Registrar and Paying Agent with regard to the notes. GOVERNING LAW The indenture and the notes are governed by, and construed in accordance with, the laws of the State of New York. ENFORCEABILITY OF JUDGMENTS The Issuer and several of the Note Guarantors are incorporated under the laws of the Cayman Islands and other Note Guarantors are organized in various other jurisdictions outside the United States. Some of the directors and officers and assets of these companies are located outside the United States. Although the Issuer and the Note Guarantors which are located outside the United States have agreed to accept service of process within the United States by their agent designated for that purpose, it may be difficult for Holders to effect service of process within the United States upon these persons or to enforce against them, in courts outside the United States, judgments of courts of the United States predicated upon civil liabilities under the U.S. federal securities or other laws. The Issuer has been advised by its Cayman Islands legal counsel, Walkers, that there is doubt with respect to Cayman Islands law as to (a) whether a judgment of a U.S. court predicated solely 213 upon the civil liability provisions of the U.S. federal securities or other laws would be enforceable in the Cayman Islands against the Issuer or a Note Guarantor and (b) whether an action could be brought in the Cayman Islands against the Issuer or a Note Guarantor in the first instance on the basis of liability predicated solely upon the provisions of the U.S. federal securities or other laws. In addition, the Issuer has been advised by its counsel in the jurisdictions of organization of the Note Guarantors other than the Cayman Islands that there is similar doubt with respect to the laws of these other jurisdictions. In addition, other laws of these jurisdictions, such as those limiting a party's enforcement rights on the grounds of public policy of that jurisdiction, and the fact that a treaty may not exist between the United States and the governments of these jurisdictions regarding the enforcement of civil liabilities may also restrict the ability to enforce the Note Guarantors' obligations under their Note Guarantees. CONSENT TO JURISDICTION AND SERVICE The Issuer and each Note Guarantor has appointed CT Corporation System, 111 Eighth Avenue, 13th Floor, New York, New York 10011 as its agent for actions brought under U.S. Federal or state securities laws brought in any U.S. Federal or state court located in the Borough of Manhattan in The City of New York and will submit to such jurisdiction. CERTAIN DEFINITIONS "Additional Assets" means: (1) any property or assets, other than Indebtedness and Capital Stock, to be used by the Company or a Restricted Subsidiary in a Permitted Business; (2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (3) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; provided, however, that: any such Restricted Subsidiary described in clauses (2) or (3) above is primarily engaged in a Permitted Business. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the provisions described under "-- Certain Covenants -- Limitation on Transactions with Affiliates" and "-- Certain Covenants -- Limitation on Sales of Assets and Capital Stock" only, "Affiliate" shall also mean any beneficial owner of shares representing 10% or more of the total voting power of the Voting Stock, on a fully diluted basis, of the Company, HDD Holdings or the Issuer or of rights or warrants to purchase such Voting Stock, whether or not currently exercisable, and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Asset Disposition" means any sale, lease (other than an operating lease entered into in the ordinary course of business), transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger, consolidation, or similar transaction (we refer to each for the purposes of this definition as a "disposition"), of: (1) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary), (2) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary or 214 (3) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary other than, in the case of (1), (2) and (3) above, (A) disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Note Guarantor or a Wholly Owned Subsidiary, (B) for purposes of the covenant described under "-- Certain Covenants -- Limitation on Sales of Assets and Capital Stock" only, a disposition that constitutes a Restricted Payment permitted by the covenant described under "-- Certain Covenants -- Limitation on Restricted Payments," (C) the disposition of all or substantially all of the assets of the Company in a manner permitted pursuant to the provisions described under "-- Merger and Consolidation," (D) any sale of Capital Stock, other than Disqualified Stock, of Intermediate Holdings or HDD Holdings, (E) any sale of Capital Stock in, or Indebtedness or other securities of, an Unrestricted Subsidiary, (F) a disposition of Temporary Cash Investments, (G) sales of assets received by the Company or any Restricted Subsidiary upon the foreclosure of a lien, (H) issuances of (1) options, warrants or other rights to purchase common stock of a Restricted Subsidiary or (2) shares of common stock of such Restricted Subsidiary upon exercise of such options, warrants or other rights to officers, directors and employees of such Restricted Subsidiary pursuant to the terms of agreements, including employment agreements, or employee or director benefit plans, or amendments thereto, approved by the Board of Directors in good faith; provided, however, that shares of common stock of such Restricted Subsidiary issued pursuant to the exercise of such options, warrants or other rights to purchase such common stock which are subject this clause (H) shall not exceed 25%, in the case of Seagate Removable Storage Solutions (Cayman) Holdings, or 20%, in the case of any other Restricted Subsidiary, of the outstanding shares of common stock of such Restricted Subsidiary, on a fully-diluted basis, (I) any sale of Capital Stock in CacheVision, Inc., e2open.com LLC or Iolon, Inc., (J) transfers of patents for microactuator and flexure-related technology to Hutchinson Technology Incorporated in connection with an interference action; provided, that the Company and its Subsidiaries shall have received (a) a fully paid-up license to such patents and (b) a contractual right to receive royalties from the license by Hutchinson Technology Incorporated of such patents to third parties, and (K) a disposition of assets with a Fair Market Value of less than $1.0 million. "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value, discounted at the interest rate borne by the notes, compounded annually, of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction, including any period for which such lease has been extended. "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing: 215 (1) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or scheduled redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (2) the sum of all such payments. "Bank Indebtedness" means any and all amounts payable under or in respect of the Credit Agreement, the guarantees thereof, the collateral documents related thereto, any Hedging Agreements related thereto and any Refinancing Indebtedness with respect thereto, as amended from time to time, including principal, premium, if any, interest, including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Issuer or any Note Guarantor whether or not a claim for post-filing interest is allowed in such proceedings, fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof. It is understood and agreed that Refinancing Indebtedness in respect of the Credit Agreement may be Incurred from time to time after termination of the Credit Agreement. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of the Board of Directors of the Company. "Business Day" means each day which is not a Legal Holiday. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in, however designated, equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Capitalized Lease Obligations" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty. "Closing Date" means November 22, 2000. "Code" means the Internal Revenue Code of 1986, as amended. "Commodity Agreements" means with respect to any Person any agreement for the protection against fluctuations in commodity prices or similar agreements or arrangements to which such Person is a party or of which it is a beneficiary. "Consolidated Coverage Ratio" as of any date of determination means the ratio of: (1) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters ending at least 45 days prior to the date of such determination to (2) Consolidated Interest Expense for such four fiscal quarters; provided, however, that: (A) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, 216 (B) if the Company or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall be calculated on a pro forma basis as if such discharge had occurred on the first day of such period and as if the Company or such Restricted Subsidiary has not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness, (C) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA, if positive, directly attributable to the assets that are the subject of such Asset Disposition for such period or increased by an amount equal to the EBITDA, if negative, directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (D) if since the beginning of such period the Company or any Restricted Subsidiary, by merger or otherwise, shall have made an Investment in any Restricted Subsidiary (or any Person that becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period, and (E) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (C) or (D) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition of assets occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets or other Investment, the amount of income or earnings relating thereto, the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith and any operating expense reductions and other adjustments as described below, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of the Company and (i) shall, except as described below in clause (iii), comply with the requirements of Rule 11-02 of Regulation S-X of the SEC, (ii) may include adjustments for operating expense reductions that would be permitted by such Rule and (iii) in connection with acquisitions, purchases or mergers, may reflect adjustments not permitted by such Rule for the elimination of operating 217 expenses attributable to any terminated lease or contract, the related reduction in personnel or facility expenses as a result of such termination and the elimination of personnel expenses as a result of severance and of facilities expense as a result of the termination, closure or relocation of facilities, in each case if such termination, severance, closure or relocation has occurred at the time of such acquisition, purchase or merger or occurs within three months thereof. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term as at the date of determination in excess of 12 months). "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its Consolidated Restricted Subsidiaries, plus, to the extent Incurred by the Company and its Consolidated Restricted Subsidiaries in such period but not included in such interest expense, without duplication: (1) interest expense attributable to Capitalized Lease Obligations and the interest expense attributable to leases constituting part of a Sale/Leaseback Transaction, (2) amortization of debt discount and debt issuance costs (other than any such costs associated with the Incurrence of Indebtedness on the Closing Date in connection with the Transactions), (3) capitalized interest, (4) noncash interest expense, (5) commissions, discounts and other fees and charges attributable to letters of credit and bankers' acceptance financing, (6) interest accruing on any Indebtedness of any other Person to the extent such Indebtedness is Guaranteed by the Company or any Restricted Subsidiary, (7) net costs associated with Hedging Obligations, including amortization of fees, (8) dividends in respect of all Disqualified Stock of the Issuer and all Preferred Stock of the Company and any of the Subsidiaries of the Company, other than the Issuer, to the extent held by Persons other than the Company, a Note Guarantor or a Wholly Owned Subsidiary, other than dividends payable solely in Capital Stock (other than Disqualified Stock), (9) interest Incurred in connection with investments in discontinued operations and (10) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person, other than the Company, in connection with Indebtedness Incurred by such plan or trust. "Consolidated Net Income" means, for any period, the net income of the Company and its Consolidated Subsidiaries for such period; provided, however, that there shall not be included in such Consolidated Net Income: (1) any net income of any Person, other than the Company, if such Person is not a Restricted Subsidiary, except that: (A) subject to the limitations contained in clause (4) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution, subject, in the case of a dividend or other distribution made to a Restricted Subsidiary, to the limitations contained in clause (3) below, and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income; 218 (2) any net income, or loss, of any Person acquired by the Company or a Subsidiary of the Company in a pooling of interests transaction for any period prior to the date of such acquisition; (3) any net income, or loss, of any Restricted Subsidiary other than the Issuer if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, except that: (A) subject to the limitations contained in clause (4) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution made to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (4) any gain, or loss, realized upon the sale or other disposition of any asset of the Company or its Consolidated Restricted Subsidiaries, including pursuant to any Sale/Leaseback Transaction, that is not sold or otherwise disposed of in the ordinary course of business and any gain, or loss, realized upon the sale or other disposition of any Capital Stock of any Person; (5) the net after tax effect of any extraordinary gain or loss, including all fees and expenses related to such extraordinary gain or loss; and (6) the cumulative effect of a change in accounting principles. Notwithstanding the foregoing, for the purpose of the covenant described under "-- Certain Covenants -- Limitation on Restricted Payments" only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such covenant pursuant to clause (5)(C) of paragraph (a) thereof. "Consolidation" means the consolidation of the accounts of each of the Restricted Subsidiaries with those of the Company in accordance with GAAP consistently applied; provided, however, that "Consolidation" will not include consolidation of the accounts of any Unrestricted Subsidiary, but the interest of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary will be accounted for as an investment. The term "Consolidated" has a correlative meaning. "Credit Agreement" means the credit agreement dated as of November 22, 2000, as amended, restated, supplemented, waived, replaced (whether or not upon termination, and whether with the original lenders or otherwise), refinanced (in whole or in part), restructured, repaid, refunded or otherwise modified from time to time, among the Company, the Issuer, Seagate Technology (U.S.) Holdings, Inc., the financial institutions party thereto as lenders and The Chase Manhattan Bank, as administrative agent (except to the extent that any such amendment, restatement, supplement, waiver, replacement, refinancing, restructuring, repayment, refunding or other modification thereto would be prohibited by the terms of the indenture, unless otherwise agreed to by the Holders of at least a majority in aggregate principal amount of notes at the time outstanding). "Currency Agreement" means with respect to any Person any foreign exchange contract, currency swap agreements or other similar agreement or arrangement to which such Person is a party or of which it is a beneficiary. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. 219 "Deferred Compensation Plans" means: (1) the deferred compensation plan dated as of November 22, 2000, of HDD Holdings, as amended, waived, supplemented or otherwise modified from time to time; (2) the deferred compensation plan dated as of November 22, 2000, of Seagate Removable Storage Solutions Holdings, as amended, waived, supplemented or otherwise modified from time to time; (3) the deferred compensation plan dated as of November 22, 2000, of Seagate Technology SAN Holdings, as amended, waived, supplemented or otherwise modified from time to time; (4) any other plan established in lieu of, or to renew or replace, in whole or in part, any plan referred to in clause (1), (2) or (3) above or this clause (4) and any other similar plan the purpose or effect of which is to provide to the participants therein substantially the economic equivalent of an equity participation in the Company or any of its Subsidiaries in lieu of such an equity participation or to provide the participants therein the benefits that they are entitled to on the Closing Date under the Plans described in clauses (1), (2) (3) above or this clause (4); and (5) any Guarantee by the Company or any of its Subsidiaries of any obligation under any Deferred Compensation Plan referred to in clause (1), (2), (3) or (4) above. "Designated Preferred Stock" means Preferred Stock of the Company, other than Disqualified Stock, that is issued for cash, other than to a Subsidiary of the Company or an employee stock ownership plan or trust established by the Company or any of its Subsidiaries, and is so designated as Designated Preferred Stock, pursuant to an Officer's Certificate, on the issuance date thereof, the cash proceeds of which are excluded from the calculation set forth in clause (5)(C) of paragraph (a) of the covenant described under "-- Certain Covenants -- Limitation on Restricted Payments." "Designated Senior Indebtedness" of the Issuer means (1) the Bank Indebtedness and (2) any other Senior Indebtedness of the Issuer that, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $20 million and is specifically designated by the Issuer in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the indenture. "Designated Senior Indebtedness" of a Note Guarantor has a correlative meaning. "Designated Subsidiary" shall mean each of Seagate Technology SAN Holdings, Seagate Removable Storage Solutions Holdings and Seagate Software Information Management Group Holdings, Inc. (now Crystal Decisions, Inc.) and each of their Subsidiaries. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms, or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable, or upon the happening of any event: (1) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (2) is convertible or exchangeable for Indebtedness or Disqualified Stock (excluding Capital Stock convertible or exchangeable solely at the option of the Company or a Restricted Subsidiary; provided, however, that any such conversion or exchange shall be deemed an Incurrence of Indebtedness or Disqualified Stock, as applicable) or (3) is redeemable at the option of the holder thereof, in whole or in part, in the case of each of clauses (1), (2) and (3), on or prior to 91 days after the Stated Maturity of the notes; provided, however, that if such Capital Stock is issued to any employee or to any plan for the benefit of employees of the Company or its Subsidiaries or by any such plan to such employees, 220 such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Company in order to satisfy applicable statutory or regulatory obligations or as a result of such employee's death or disability; provided further, however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to 91 days after the Stated Maturity of the notes shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the provisions of the covenants described under "Change of Control" and "-- Certain Covenants -- Limitation on Sale of Assets and Capital Stock". "EBITDA" for any period means the Consolidated Net Income for such period, plus, without duplication, the following to the extent deducted in calculating such Consolidated Net Income: (1) income tax expense of the Company and its Consolidated Restricted Subsidiaries, (2) Consolidated Interest Expense, (3) depreciation expense of the Company and its Consolidated Restricted Subsidiaries, (4) amortization expense of the Company and its Consolidated Restricted Subsidiaries (excluding amortization expense attributable to a prepaid cash item that was paid in a prior period), (5) any annual management, consulting, monitoring and advisory fees paid by the Company and its Restricted Subsidiaries to any of the Sponsors, in an amount not to exceed $5 million in the aggregate in any calendar year, (6) any non-recurring charge relating to a restructuring plan of the Company and its Restricted Subsidiaries, and (7) all other noncash charges of the Company and its Consolidated Restricted Subsidiaries, excluding any such noncash charge to the extent it represents an accrual of or reserve for cash expenditures in any future period, less all noncash items of income of the Company and its Restricted Subsidiaries in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and non-cash charges of, a Restricted Subsidiary of the Company shall be added to Consolidated Net Income to compute EBITDA only to the extent, and in the same proportion, that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company or another Restricted Subsidiary by such Restricted Subsidiary without prior approval that has not been obtained, pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders. "Equity Offering" means any public or private sale of common stock or Preferred Stock of the Company, Intermediate Holdings, HDD Holdings or the Issuer, other than Disqualified Stock, other than (i) public offerings with respect to the Company's, Intermediate Holdings, HDD Holdings' or the Issuer's common stock registered on Form S-8, (ii) any such public or private sale that constitutes an Excluded Contribution and (iii) other issuances upon exercise of options by employees of the Company, Intermediate Holdings, HDD Holdings or the Issuer or any of their Restricted Subsidiaries. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Contributions" means the net cash proceeds received by the Company after the Closing Date from; (1) contributions, other than from a Subsidiary of the Company, to its common equity capital; and 221 (2) the sale (other than to a Subsidiary of the Company or to any Company or Subsidiary management equity plan or stock option plan or any other management or employee benefit plan or agreement) of Capital Stock, other than Disqualified Stock and Designated Preferred Stock, of the Company, in each case designated as Excluded Contributions pursuant to an Officers' Certificate executed by an Officer of the Company, the cash proceeds of which are excluded from the calculation set forth in clause (5)(C) of the covenant described under "-- Certain Covenants -- Limitation on Restricted Payments." "Existing Notes" means the debt securities of Seagate Technology Inc. issued under the indenture dated as of March 1, 1997, between Seagate Technology, Inc. and First Trust of California, National Association, as trustee, including any supplemental indentures thereto. "Existing Unrestricted Entity" means Seagate Technology Investments Holdings LLC and each of its Subsidiaries and entities in which it has made Investments, including CacheVision, Inc., e2open.com LLC and Iolon, Inc., as of the Closing Date; provided, however, that each of the foregoing Persons shall cease to be an Existing Unrestricted Entity at the time that such Person becomes a Restricted Subsidiary. "Fair Market Value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. For all purposes of the indenture, the Fair Market Value of property or assets which involve (a) an aggregate amount in excess of $25 million, shall be set forth in a resolution approved by the Board of Directors in good faith and (b) an aggregate amount in excess of $50 million, shall have been determined in writing by a nationally recognized appraisal or investment banking firm. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Closing Date, including those set forth in: (1) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (2) statements and pronouncements of the Financial Accounting Standards Board, (3) such other statements by such other entities as approved by a significant segment of the accounting profession, and (4) the rules and regulations of the SEC governing the inclusion of financial statements, including pro forma financial statements, in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC. All ratios and computations based on GAAP contained in the indenture shall be computed in conformity with GAAP. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person: (1) to purchase or pay, or advance or supply funds for the purchase or payment of, such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof, in whole or in part; provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing any obligation. 222 "Hedging Agreement" means any Currency Agreement, any Interest Rate Agreement and any Commodity Agreement. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Hedging Agreement. "Holder" means the Person in whose name a note is registered on the Registrar's books. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary, whether by merger, consolidation, acquisition or otherwise, shall be deemed to be Incurred by such Person at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall not be deemed the Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person on any date of determination, without duplication: (1) the principal of and premium, if any, in respect of indebtedness of such Person for borrowed money; (2) the principal of and premium, if any, in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (3) all obligations of such Person in respect of letters of credit or other similar instruments, including reimbursement obligations with respect thereto; (4) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, except Trade Payables, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services; (5) all Capitalized Lease Obligations and all Attributable Debt of such Person; (6) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of such Person, any Preferred Stock, but excluding, in each case, any accrued dividends; (7) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of Indebtedness of such Person shall be the lesser of: (A) the Fair Market Value of such asset at such date of determination and (B) the amount of such Indebtedness of such other Persons; (8) Hedging Obligations of such Person; and (9) all obligations of the type referred to in clauses (1) through (8) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date and in no event shall it include any liabilities incurred under the Deferred Compensation Plans. "Indemnification Agreement" means that Indemnification Agreement dated as of March 29, 2000 among Seagate Technology, Inc., VERITAS Software Corporation and Suez Acquisition Company (Cayman) Limited, as amended from time to time on or prior to the Closing Date. 223 "Interest Rate Agreement" means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement to which such Person is party or of which it is a beneficiary. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender) or other extension of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary" and the covenant described under "Certain Covenants - -- Limitation on Restricted Payments": (1) "Investment" shall include the portion, proportionate to the Company's equity interest in such Subsidiary, of the Fair Market Value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount, if positive, equal to: (A) the Company's "Investment" in such Subsidiary at the time of such redesignation less (B) the portion, proportionate to the Company's equity interest in such Subsidiary, of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation; and (2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its Fair Market Value at the time of such transfer. "Legal Holiday" means a Saturday, Sunday or other day on which banking institutions are not required by law or regulation to be open in the State of New York. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind, including any conditional sale or other title retention agreement or lease in the nature thereof. "Merger Agreement" means the Agreement and Plan of Merger and Reorganization dated as of March 29, 2000, by and among VERITAS Software Corporation, Victory Merger Sub, Inc. and Seagate Technology, Inc., as amended from time to time on or prior to the Closing Date. "Moody's" means Moody's Investors Service, Inc. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise and proceeds from the sale or other disposition of any securities received as consideration, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other noncash form) therefrom, in each case net of: (1) all legal, accounting, investment banking, title and recording tax expenses, commissions and other fees and expenses incurred, and all U.S. Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition, (2) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition, 224 (3) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (4) appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition. "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Note Guarantee" means each Guarantee of the obligations with respect to the notes issued by a Person pursuant to the terms of the indenture. "Note Guarantor" means any Person that has issued a Note Guarantee. "Officer" means the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, the President, any Vice President, the Treasurer or the Secretary of the Issuer. "Officer" of a Note Guarantor has a correlative meaning. "Officers' Certificate" means a certificate signed by two Officers. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Issuer, the Company or a Note Guarantor or the Trustee. "Permitted Business" means any business engaged in by the Company or any Restricted Subsidiary on the Closing Date and any Related Business. "Permitted Holders" means the Sponsors, members of management of the Company, Intermediate Holdings, HDD Holdings or the Issuer who own Capital Stock of the Company on the Closing Date and each of their Affiliates. "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in: (1) the Company, a Restricted Subsidiary or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Permitted Business; (2) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that such Person's primary business is a Permitted Business; (3) Temporary Cash Investments; (4) receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (5) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (6) loans or advances to employees and directors made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary and not exceeding $5 million at any one time outstanding; 225 (7) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; (8) any Person to the extent such Investment represents the noncash portion of the consideration received for an Asset Disposition that was made pursuant to and in compliance with the covenant described under "-- Certain Covenants -- Limitation on Sale of Assets and Capital Stock"; (9) any Person; provided, that such Investment exists on the Closing Date and any Investment that replaces or refunds such an Investment; provided, that the replacing or refunding Investment is in an amount that does not exceed the amount of the replaced or refunded Investment, valued at the time made and without giving effect to subsequent changes in value, and is made in the same Person as the replaced or refunded Investment; (10) Persons other than Restricted Subsidiaries, including, but not limited to, CacheVision, Inc., e2open.com LLC, Iolon, Inc. and Seagate Technology Investments Holdings LLC, having an aggregate Fair Market Value, taken together with all other Investments made pursuant to this clause (10) that are at that time outstanding, not to exceed $150 million at the time of such Investment, with the Fair Market Value of each Investment being measured at the time made and without giving effect to subsequent changes in value; provided, however, that not more than $75 million in aggregate Fair Market Value of such Investments may be made in any calendar year; (11) Hedging Agreements permitted under clause (b)(5) of the covenant described under "-- Certain Covenants -- Limitation on Indebtedness"; (12) any Person; provided, that the payment for such Investments consists solely of Capital Stock of the Company or its Subsidiaries, other than Disqualified Stock or, except in the case of the Company, Intermediate Holdings or HDD Holdings, Preferred Stock; (13) any Person; provided, that such Investment is acquired by the Company or any of its Restricted Subsidiaries (a) in exchange for any other Investment or accounts receivable held by the Company or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the Issuer of such other Investment or accounts receivable or (b) as a result of a foreclosure by the Company or any of its Restricted Subsidiaries on a lien; (14) any Person consisting of Guarantees issued in accordance with the covenant described under "-- Certain Covenants -- Limitation on Indebtedness"; (15) any Person consisting of the licensing of intellectual property pursuant to joint ventures, strategic alliances or joint marketing arrangements with such Person, in each case made in the ordinary course of business; and (16) a vendor or supplier consisting of loans or advances to such vendor or supplier in connection with any guarantees to the Company or any Restricted Subsidiary of supply by, or to fund the supply capacity of, such vendor or supplier, in any case not to exceed $50 million at any one time outstanding. "Permitted Junior Securities" shall mean debt or equity securities of the Issuer or any successor corporation issued pursuant to a plan of reorganization or readjustment of the Issuer that are subordinated to the payment of all then-outstanding Senior Indebtedness of the Issuer to at least the same extent that the notes are subordinated to the payment of all Senior Indebtedness of the Issuer on the Closing Date, so long as to the extent that any Senior Indebtedness of the Issuer outstanding on the date of consummation of any such plan or reorganization or readjustment is not paid in full in cash or Temporary Cash Investments on such date, the holders of any such Senior Indebtedness not so paid in full in cash or Temporary Cash Investments have consented to the terms of such plan or reorganization or readjustment. 226 "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any Person, means Capital Stock of any class or classes, however designated, that is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "principal" of a note means the principal of the note plus the premium, if any, payable on the Note which is due or overdue or is to become due at the relevant time. "Publicly Traded Equity Securities" means equity securities of companies, other than any Affiliate of the Company, which are listed on the New York Stock Exchange, the Nasdaq National Market, or another recognized national securities exchange. "Purchase Money Indebtedness" means Indebtedness: (1) consisting of the deferred purchase price of an asset, conditional sale obligations, obligations under any title retention agreement and other purchase money obligations, in each case where the maturity of such Indebtedness does not exceed the anticipated useful life of the asset being financed, and (2) Incurred to finance the acquisition by the Company or a Restricted Subsidiary of such asset, including additions and improvements; provided, however, that such Indebtedness is incurred within 180 days after the acquisition by the Company or such Restricted Subsidiary of such asset. "Qualified Releasing Event" means, with respect to any Designated Subsidiary, (a) a transfer by the Company or any Subsidiary of the Company of all the outstanding Capital Stock of such Designated Subsidiary, or (b) a bona fide underwritten initial public offering of shares of voting common stock of such Designated Subsidiary in which at least 10% of the aggregate outstanding shares of voting common stock of such Designated Subsidiary (calculated on a fully diluted basis after giving effect to all options to acquire voting common stock of such Designated Subsidiary then outstanding, regardless of whether such options are currently exercisable) is issued, in each case, to Persons other than (1) the Company, (2) any Affiliate of the Company, (3) any director, officer or employee of the Company or any Affiliate of the Company or (4) any employee stock ownership plan or other trust established by the Company or any of its Subsidiaries. "Refinance" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means Indebtedness that is Incurred to refund, refinance, replace, renew, repay or extend, including pursuant to any defeasance or discharge mechanism, any Indebtedness of the Company or any Restricted Subsidiary existing on the Closing Date or Incurred in compliance with the indenture, including Indebtedness of the Company that Refinances Refinancing Indebtedness; provided, however, that: (1) the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced, (2) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced, (3) such Refinancing Indebtedness is Incurred in an aggregate principal amount, or if issued with original issue discount, an aggregate issue price, that is equal to or less than the aggregate principal amount, or if issued with original issue discount, the aggregate accreted value, then outstanding of the Indebtedness being Refinanced and 227 (4) if the Indebtedness being Refinanced is subordinated in right of payment to the notes or a Note Guarantee, such Refinancing Indebtedness is subordinated in right of payment to the notes or such Note Guarantee at least to the same extent as the Indebtedness being Refinanced; provided, however, that clauses (1) and (2) will not apply to any refunding or refinancing of any Senior Indebtedness; provided further, however, that Refinancing Indebtedness shall not include: (A) Indebtedness of a Restricted Subsidiary, other than the Issuer, that Refinances Indebtedness of the Issuer or (B) Indebtedness of the Company or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary. "Related Business" means any business related, ancillary or complementary to the businesses of the Company and the Restricted Subsidiaries on the Closing Date or which constitutes a reasonable extension or expansion of their businesses. "Representative" means the trustee, agent or representative, if any, for an issue of Senior Indebtedness. "Restricted Subsidiary" means the Issuer, HDD Holdings, Intermediate Holdings and any other Subsidiary of the Company other than an Unrestricted Subsidiary. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired by the Company or a Restricted Subsidiary whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or such Restricted Subsidiary leases it from such Person, other than leases between (1) the Company and a Note Guarantor or a Wholly Owned Subsidiary, (2) Note Guarantors, (3) Wholly Owned Subsidiaries or (4) a Note Guarantor and a Wholly Owned Subsidiary. "S&P" means Standard & Poor's Rating Service. "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of the Issuer secured by a Lien. "Secured Indebtedness" of a Note Guarantor has a correlative meaning. "Senior Subordinated Indebtedness" of the Issuer means the notes and any other Indebtedness of the Issuer that specifically provides that such Indebtedness is to rank equally with the notes in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Issuer which is not Senior Indebtedness. "Senior Subordinated Indebtedness" of a Note Guarantor has a correlative meaning. "Shareholders Agreement" means each of (1) that Shareholders Agreement entered into as of the Closing Date among each of the Sponsors and the Company and (2) that Management Shareholders Agreement entered into as of the Closing Date among each of the members of the management group that held ordinary shares of the Company on the Closing Date and the Company, each as in effect on the Closing Date. "Significant Subsidiary" means any Restricted Subsidiary other than the Issuer that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "Sponsors" means Silver Lake Capital Partners, L.P., Integral Capital Partners, TPG Partners III, L.P., August Capital, Chase Capital Partners and GS Capital Partners III, L.P. and each of their respective Affiliates that is a party to the Shareholders Agreement. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision, but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the Issuer unless such contingency has occurred. 228 "Stock Purchase Agreement" means that certain Stock Purchase Agreement dated as of March 29, 2000 among the Company, the Issuer and Seagate Software Holdings, Inc., as amended from time to time on or prior to the Closing Date. "Subordinated Obligation" means any Indebtedness of the Issuer, whether outstanding on the Closing Date or thereafter Incurred, that is subordinate or junior in right of payment to the notes pursuant to a written agreement. "Subordinated Obligation" of a Note Guarantor has a correlative meaning. "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by: (1) such Person, (2) such Person and one or more Subsidiaries of such Person or (3) one or more Subsidiaries of such Person; provided, that HDD Holdings and Intermediate Holdings and their Subsidiaries shall each be deemed to be a Subsidiary of the Company at all times and for all purposes under the indenture. "Temporary Cash Investments" means any of the following: (1) any investment in direct obligations of the United States of America or any agency thereof or obligations Guaranteed by the United States of America or any agency thereof, (2) investments in time deposit accounts, certificates of deposit and money market deposits maturing within one year of the date of acquisition thereof issued by a bank or trust company that is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America having capital, surplus and undivided profits aggregating in excess of $250,000,000, or the foreign currency equivalent thereof, and whose long-term debt is rated "A", or such similar equivalent rating, or higher by at least one nationally recognized statistical rating organization, as defined in Rule 436 under the Securities Act, (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into with a bank meeting the qualifications described in clause (2) above, (4) investments in commercial paper, maturing not more than one year after the date of acquisition, issued by a corporation, other than an Affiliate of the Company, organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" or higher, according to Moody's Investors Service, Inc. or "A-1" or higher, according to Standard and Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc., (5) investments in securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's Investors Service, Inc., and (6) securities issued by any foreign government or any political subdivision of any foreign government or any public instrumentality thereof having maturities of not more than six months from the date of acquisition thereof and, at the time of acquisition, having one of the two highest credit ratings obtainable from Moody's Investors Service, Inc. or S&P. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Section Section 77aaa-77bbbb) as in effect on the Closing Date. 229 "Total Assets" means the total consolidated assets of the Company and its Restricted Subsidiaries, as shown on the most recent balance sheet of the Company. "Trade Payables" means, with respect to any Person, any accounts payable or any indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person arising in the ordinary course of business in connection with the acquisition of goods or services. "Transactions" means the transactions contemplated by the Stock Purchase Agreement, the Merger Agreement, the Credit Agreement and the Issuance of the notes including, in each case, the payment of fees and expenses in connection therewith, all on the terms described in the prospectus. "Trust Officer" means the Chairman of the Board, the President or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Trustee" means the party named as such in the indenture until a successor replaces it and, thereafter, means the successor. "Unrestricted Subsidiary" means Seagate Technology Investments Holdings LLC and: (1) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company but excluding the Issuer, HDD Holdings and Intermediate Holdings) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either: (A) the Subsidiary to be so designated has total Consolidated assets of $1,000 or less or (B) if such Subsidiary has Consolidated assets greater than $1,000, then such designation would be permitted under the covenant entitled "Limitation on Restricted Payments." The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation: (x) the Company could Incur $1.00 of additional Indebtedness under paragraph (a) of the covenant described under "-- Certain Covenants -- Limitation on Indebtedness" or the Consolidated Coverage Ratio would be greater than such ratio immediately prior to such designation and (y) no Default shall have occurred and be continuing. Any such designation of a Subsidiary as a Restricted Subsidiary or Unrestricted Subsidiary by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Dollar Equivalent" means with respect to any monetary amount in a currency other than U.S. dollars, at any time for determination thereof, the amount of U.S. dollars obtained by converting such foreign currency involved in such computation into U.S. dollars at the spot rate for the purchase of U.S. dollars with the applicable foreign currency as published in The Wall Street Journal in the "Exchange Rates" column under the heading "Currency Trading" on the date two Business Days prior to such determination. Except as described under "-- Certain Covenants -- Limitation on Indebtedness", whenever it is necessary to determine whether the Company or the Restricted Subsidiaries have complied with any 230 covenant in the indenture or a Default has occurred and an amount is expressed in a currency other than U.S. dollars, such amount will be treated as the U.S. Dollar Equivalent determined as of the date such amount is initially determined in such currency. "U.S. Government Obligations" means direct obligations, or certificates representing an ownership interest in such obligations, of the United States of America, including any agency or instrumentality thereof, for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the Issuer's option. "Voting Stock" of a Person means all classes of Capital Stock or other interests, including partnership interests, of such Person then outstanding and normally entitled, without regard to the occurrence of any contingency, to vote in the election of directors, managers or trustees thereof. "Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all the Capital Stock of which, other than directors' qualifying shares, is owned by the Company or another Wholly Owned Subsidiary. 231 CERTAIN INCOME TAX CONSIDERATIONS The exchange of outstanding notes for exchange notes in the exchange offer will not constitute a taxable event to holders. Consequently, no gain or loss will be recognized by you upon receipt of an exchange note, the holding period of the exchange notes will include the holding period of the outstanding note and the basis of the exchange notes will be the same as the basis of the outstanding note immediately before the exchange. IN ANY EVENT, YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF YOUR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION. 232 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT The Issuer, the initial purchasers and the note guarantors entered into the exchange and registration rights agreement in connection with the issuance of the notes. Pursuant to the exchange and registration rights agreement, the Issuer and the note guarantors agreed to: o file with the SEC on or prior to 150 days after the date of issuance of the notes a registration statement on an appropriate form relating to a registered exchange offer for the notes under the Securities Act of 1933 and o use their reasonable best efforts to cause the exchange offer registration statement to be declared effective under the Securities Act of 1933 within 270 days after the issuance of the outstanding notes. As soon as practicable after the effectiveness of the exchange offer registration statement, the Issuer will offer to the holders of Transfer Restricted Securities, which we define below, who are not prohibited by any law or policy of the SEC from participating in the exchange offer the opportunity to exchange their Transfer Restricted Securities for an issue of a second series of notes that are identical in all material respects to the notes, except that the exchange notes will not contain terms with respect to transfer restrictions, and that would be registered under the Securities Act of 1933. The Issuer and the note guarantors will keep the exchange offer open for not less than 20 business days, or longer, if required by applicable law, after the date on which notice of the exchange offer is mailed to the holders of the notes. If: o because of any change in law or applicable interpretations thereof by the staff of the SEC, the Issuer is not permitted to effect the exchange offer as contemplated by this prospectus, o any securities validly tendered pursuant to the exchange offer are not exchanged for exchange securities within 300 days after the issuance of the outstanding notes, o any initial purchaser so requests with respect to notes not eligible to be exchanged for exchange notes in the exchange offer, o any applicable law or interpretations do not permit any holder of notes to participate in the exchange offer, o any holder of notes that participates in the exchange offer does not receive freely transferable exchange notes in exchange for tendered notes or o the Issuer so elects, then the Issuer and the note guarantors will file with the SEC a shelf registration statement to cover resales of Transfer Restricted Securities by the holders who satisfy certain conditions relating to the provision of information in connection with the shelf registration statement. For purposes of the foregoing, "Transfer Restricted Securities" means each note until: o the date on which the note has been exchanged for a freely transferable exchange note in the exchange offer; o the date on which the note has been effectively registered under the Securities Act of 1933 and disposed of in accordance with the shelf registration statement; or o the date on which the note is distributed to the public pursuant to Rule 144 under the Securities Act of 1933 or is salable pursuant to Rule 144(k) under the Securities Act of 1933. The Issuer and each of the note guarantors will use their reasonable best efforts to have the exchange offer registration statement or, if applicable, the shelf registration statement declared effective by the SEC as promptly as practicable after the filing of this registration statement. Unless the exchange offer would not be permitted by a policy of the SEC, the Issuer will commence the exchange offer and will use its reasonable best efforts to consummate the exchange offer as promptly as practicable, but in any event prior to 300 days after the issuance of the outstanding notes. If applicable, the Issuer and each of the note guarantors will use their reasonable best efforts 233 to keep the shelf registration statement effective for a period ending on the earlier of two years after the issue date and the date on which all of the notes become eligible for resale without volume restrictions pursuant to Rule 144 under the Securities Act. If: o the applicable registration statement is not filed with the SEC on or prior to 150 days after the issuance of the outstanding notes; o the exchange offer registration statement or the shelf registration statement, as the case may be, is not declared effective within 270 days after the issuance of the outstanding notes; o the exchange offer is not consummated on or prior to 300 days after the issuance of the outstanding notes; or o the shelf registration statement is filed and declared effective within 270 days after the issuance of the outstanding notes but shall thereafter cease to be effective at any time that the Issuer and the note guarantors are obligated to maintain the effectiveness of the shelf registration statement without being succeeded within 45 days by an additional registration statement filed and declared effective (we refer to each of the events listed above as a "Registration Default"), the Issuer and the note guarantors will be obligated to pay liquidated damages to each holder of Transfer Restricted Securities, during the period of one or more Registration Defaults, in an amount equal to $0.192 per week per $1,000 principal amount of the notes constituting Transfer Restricted Securities held by the holder until the applicable registration statement is filed, the exchange offer registration statement is declared effective and the exchange offer is consummated or the shelf registration statement is declared effective or again becomes effective, as the case may be. All accrued liquidated damages shall be paid to holders in the same manner as interest payments on the notes on semi-annual payment dates which correspond to interest payment dates for the notes. Following the cure of all Registration Defaults, the accrual of liquidated damages will cease. Notwithstanding the above, the Issuer and the note guarantors may issue a notice that the shelf registration statement is unusable pending the announcement of a material corporate transaction and may issue any notice suspending use of the shelf registration statement required under applicable securities laws to be issued. In the event that the aggregate number of days in any consecutive twelve-month period for which all notices are issued and effective exceeds 60 days in total, then the Issuer will be obligated to pay liquidated damages to each holder of Transfer Restricted Securities in an amount equal to $0.192 per week per $1,000 principal amount of securities constituting Transfer Restricted Securities held by that holder. Upon the Issuer declaring that the shelf registration statement is usable after the period of time described in the preceding sentence, accrual of liquidated damages shall cease; provided, however, that if after any cessation of the accrual of liquidated damages the shelf registration statement again ceases to be usable beyond the period permitted above, liquidated damages will again accrue. The exchange and registration rights agreement also provides that the Issuer and the note guarantors: o shall make available for a period of not less than 90 days after the consummation of the exchange offer a prospectus meeting the requirements of the Securities Act of 1933 to any broker-dealer for use in connection with any resale of any exchange notes and o shall pay all expenses incident to the exchange offer, including the expense of one counsel to the holders of the notes, and will jointly and severally indemnify various holders of the notes, including any broker-dealer, against specified liabilities, including liabilities under the Securities Act of 1933. A broker-dealer which delivers a prospectus to purchasers in connection with resales will be subject to various civil liability provisions under the Securities Act and will be bound by the provisions of the exchange and registration rights agreement, including certain indemnification rights and obligations. 234 Each holder of the outstanding notes who wishes to exchange such notes for exchange notes in the exchange offer will be required to make specified representations, including representations that: o any exchange notes to be received by it will be acquired in the ordinary course of its business; o it has no arrangement or understanding with any person to participate in the distribution of the exchange notes; and o it is not an "affiliate", as defined in Rule 405 under the Securities Act of 1933, of the Issuer, or if it is an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act of 1933 to the extent applicable. If the holder is not a broker-dealer, it will be required to represent that it is not engaged in, and does not intend to engage in, the distribution of the exchange notes. If the holder is a broker-dealer that will receive exchange notes for its own account in exchange for notes that were acquired as a result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. Holders of the outstanding notes will be required to make certain representations to the Issuer, as described above, in order to participate in the exchange offer and will be required to deliver information to be used in connection with the shelf registration statement in order to have their notes included in the shelf registration statement and benefit from the provisions regarding liquidated damages set forth in the preceding paragraphs. A holder who sells notes pursuant to the shelf registration statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to various civil liability provisions under the Securities Act of 1933 in connection with such sales and will be bound by the provisions of the exchange and registration rights agreement which are applicable to the holder, including specified indemnification obligations. For so long as the outstanding notes are outstanding, the Issuer will continue to provide to holders of the notes and to prospective purchasers of the notes the information required by Rule 144A(d)(4) under the Securities Act of 1933. The foregoing description of the exchange and registration rights agreement is a summary only, does not purport to be complete and is qualified in its entirety by reference to all provisions of the exchange and registration rights agreement. For further information regarding the terms and provisions of the exchange and registration rights agreement, please refer to the agreement which we have filed as an exhibit to the registration statement of which this prospectus is a part. 235 BOOK-ENTRY; DELIVERY AND FORM The exchange notes will initially be represented in the form of one or more global notes in definitive, fully-registered book-entry form, without interest coupons that will be deposited with or on behalf of The Depository Trust Company, or DTC, and registered in the name of DTC or its participants. Except as set forth below, the global notes may be transferred, in whole and not in part, solely to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the global notes may not be exchanged for notes in physical, certificated form except in the limited circumstances described below. CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES The descriptions of the operations and procedures of DTC, Euroclear and Clearstream set forth below are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to change by them from time to time. Neither the Issuer nor the initial purchaser takes any responsibility for these operations or procedures, and investors are urged to contact the relevant system or its participants directly to discuss these matters. DTC has advised the Issuer that it is: o a limited purpose trust company organized under the laws of the State of New York, o a "banking organization" within the meaning of the New York Banking Law, o a member of the Federal Reserve System, o a "clearing corporation" within the meaning of the Uniform Commercial Code, as amended, and o a "clearing agency" registered pursuant to Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitates the clearance and settlement of securities transactions between participants through electronic book-entry changes to the accounts of its participants, thereby eliminating the need for physical transfer and delivery of certificates. DTC's participants include securities brokers and dealers, including the initial purchasers, banks and trust companies, clearing corporations and certain other organizations. Indirect access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly. Investors who are not participants may beneficially own securities held by or on behalf of DTC only through participants or indirect participants. The Issuer expects that pursuant to procedures established by DTC: o upon deposit of each global note, DTC will credit the accounts of participants designated by the initial purchaser with an interest in the global note and o ownership of the notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC, with respect to the interests of participants, and the records of participants and the indirect participants, with respect to the interests of persons other than participants. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Accordingly, the ability to transfer interests in the notes represented by a global note to such persons may be limited. In addition, because DTC can act only on behalf of its participants, who in turn act on behalf of persons who hold interests through participants, the ability of a person having an interest in notes represented by a global note to pledge or transfer such interest to persons or entities that do not participate in DTC's system, or to otherwise take actions in respect of such interest, may be affected by the lack of a physical definitive security in respect of such interest. 236 So long as DTC or its nominee is the registered owner of a global note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the notes represented by the global note for all purposes under the indenture. Except as provided below, owners of beneficial interests in a global note will not be entitled to have notes represented by such global note registered in their names, will not receive or be entitled to receive physical delivery of certificated notes, and will not be considered the owners or holders thereof under the indenture for any purpose, including with respect to the giving of any direction, instruction or approval to the trustee under the indenture. Accordingly, each holder owning a beneficial interest in a global note must rely on the procedures of DTC and, if such holder is not a participant or an indirect participant, on the procedures of the participant through which such holder owns its interest, to exercise any rights of a holder of notes under the indenture or such global note. The Issuer understands that under existing industry practice, in the event that the Issuer requests any action of holders of notes, or a holder that is an owner of a beneficial interest in a global note desires to take any action that DTC, as the holder of such global note, is entitled to take, DTC would authorize the participants to take such action and the participants would authorize holders owning through such participants to take such action or would otherwise act upon the instruction of such holders. Neither the Issuer nor the trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of notes by DTC, or for maintaining, supervising or reviewing any records of DTC relating to such notes. Payments with respect to the principal of, and premium, if any, liquidated damages, if any, and interest on, any notes represented by a global note registered in the name of DTC or its nominee on the applicable record date will be payable by the trustee to or at the direction of DTC or its nominee in its capacity as the registered holder of the global note representing such notes under the indenture. Under the terms of the indenture, the Issuer and the trustee may treat the persons in whose names the notes, including the global notes, are registered as the owners thereof for the purpose of receiving payment thereon and for any and all other purposes whatsoever. Accordingly, neither the Issuer nor the trustee has or will have any responsibility or liability for the payment of such amounts to owners of beneficial interests in a global note (including principal, premium, if any, liquidated damages, if any, and interest). Payments by the participants and the indirect participants to the owners of beneficial interests in a global note will be governed by standing instructions and customary industry practice and will be the responsibility of the participants or the indirect participants and DTC. Transfers between participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same-day funds. Transfers between participants in Euroclear or Clearstream will be effected in the ordinary way in accordance with their respective rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the notes, cross-market transfers between the participants in DTC, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of Euroclear or Clearstream, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant global notes in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositaries for Euroclear or Clearstream. Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a global note from a participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day, which must be a business day for Euroclear and Clearstream, immediately following the settlement date of DTC. Cash received in Euroclear or Clearstream as a 237 result of sales of interest in a global security by or through a Euroclear or Clearstream participant to a participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following DTC's settlement date. Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures to facilitate transfers of interests in the global notes among participants in DTC, Euroclear and Clearstream, they are under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Issuer nor the trustee will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. CERTIFICATED NOTES If: o the Issuer notifies the trustee in writing that DTC is no longer willing or able to act as a depositary or DTC ceases to be registered as a clearing agency under the Exchange Act and a successor depositary is not appointed within 90 days of this notice or cessation, o the Issuer, at its option, notifies the trustee in writing that it elects to cause the issuance of notes in definitive form under the indenture or o upon the occurrence of specified other events as provided in the indenture, then, upon surrender by DTC of the global notes, certificated notes will be issued to each person that DTC identifies as the beneficial owner of the notes represented by the global notes. Upon any issuance described above, the trustee is required to register the certificated notes in the name of, and cause the certificated notes to be delivered to, person or persons identified by DTC, or their nominee. Neither the Issuer nor the trustee shall be liable for any delay by DTC or any participant or indirect participant in identifying the beneficial owners of the related notes and each such person may conclusively rely on, and shall be protected in relying on, instructions from DTC for all purposes, including with respect to the registration and delivery, and the respective principal amounts, of the notes to be issued. 238 PLAN OF DISTRIBUTION Until , 2001, 90 days after the date of this prospectus, all dealers effecting transactions in the exchange notes, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. This prospectus, as it may be amended or supplemented, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for outstanding notes only where the outstanding notes were acquired as a result of market-making activities or other trading activities. We have agreed that we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any resale for a period of 180 days from the date on which the exchange offer is consummated, or such shorter period as will terminate when all outstanding notes acquired by broker-dealers for their own accounts as a result of market-making activities or other trading activities have been exchanged for exchange notes and the exchange notes have been resold by the broker-dealers. We will not receive any proceeds from any sale of exchange notes by broker-dealers. Exchange notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of these methods of resale, at market prices prevailing at the time of resale, at prices related to the prevailing market prices or negotiated prices. Any resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any broker-dealer or the purchasers of any exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of the exchange notes may be deemed to be an "underwriter" within the meaning of the Securities Act of 1933 and any profit on any resale of exchange notes and any commissions or concessions received by these persons may be deemed to be underwriting compensation under the Securities Act of 1933. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act of 1933. For a period of 180 days from the date on which the exchange offer is consummated, or a shorter period as will terminate when all outstanding notes acquired by broker-dealers for their own accounts as a result of market-making activities or other trading activities have been exchanged for exchange notes and the exchange notes have been resold by the broker-dealers, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests the documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer, including the expenses of one counsel for the holders of the outstanding notes, other than commissions or concessions of any brokers or dealers and the fees of any counsel or other advisors or experts retained by the holders of outstanding notes, except as expressly set forth in the registration rights agreement, and will indemnify the holders of outstanding notes, including any broker-dealers, against specified liabilities, including liabilities under the Securities Act of 1933. 239 LEGAL MATTERS Certain legal matters with respect to the validity of the exchange notes will be passed upon for us by Simpson Thacher & Bartlett, Palo Alto, California. Certain partners of Simpson Thacher & Bartlett, members of their families, related persons and others own through an investment vehicle less than 1% of the capital commitments of Silver Lake Partners. In addition, Simpson Thacher & Bartlett has in the past provided, and may continue to provide, legal services to Silver Lake Partners. EXPERTS Ernst & Young LLP, independent auditors, have audited the consolidated financial statements of New SAC and its predecessor, Seagate Technology, Inc., at December 29, 2000, June 30, 2000, July 2, 1999, the period from November 23, 2000 through December 29, 2000, and the period from July 1, 2000 through November 22, 2000 and for each of the three years in the period ended June 30, 2000, as set forth in their report. We have included these financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. Ernst & Young LLP, independent auditors, have audited the combined financial statements of Seagate Technology Hard Disc Drive Business, a division of Seagate Technology Inc. at June 30, 2000 and July 2, 1999, and for each of the three years in the period ended June 30, 2000, as set forth in their report. We have included these financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. Ernst & Young LLP, independent auditors, have audited the balance sheet of XIOtech Corporation at June 30, 2000, and the related consolidated statements of operations, changes in mandatorily redeemable convertible preferred stock and stockholders' equity, and consolidated cash flows for the period from January 29, 2000 to June 30, 2000. In addition, they have audited the balance sheet at December 31, 1999, and the related statements of operations, changes in mandatorily redeemable convertible preferred stock and stockholders' equity, and cash flows for the period from January 1, 2000 to January 28, 2000 and for the year ended December 31, 1999 as set forth in their report. We have included these financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. Ernst & Young LLP, independent auditors, have audited the combined financial statements of Seagate Removable Storage Solutions Business, a division of Seagate Technology Inc. at June 30, 2000 and July 2, 1999, and for each of the three years in the period ended June 30, 2000 as set forth in their report. We have included these financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. Ernst & Young LLP, independent auditors, have audited the consolidated and combined financial statements of Crystal Decisions, Inc. at June 30, 2000 and July 2, 1999, and for each of the three years in the period ended June 30, 2000 as set forth in their report. We have included these financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. The financial statements of XIOtech Corporation prior to being acquired by Seagate Technology, Inc. as of December 31, 1998 and for each of the two years in the period then ended, included in the prospectus, have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants given on the authority of said firm as experts in auditing and accounting. 240 WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement on Form S-4 under the Securities Act of 1933 with respect to the exchange notes. This prospectus, which forms a part of the registration statement, does not contain all of the information in the registration statement. You should refer to the registration statement for further information. Statements contained in this prospectus about the contents of any contract or other document are not necessarily complete, and, where a contract or other document is an exhibit to the registration statement, each of these statements is qualified by the provision in the exhibit to which the statement relates. We are not currently subject to the full informational requirements of the Securities Exchange Act of 1934. As a result of this offering, we will become subject to the informational requirements of the Securities Exchange Act of 1934. Accordingly, we will file reports and other information with the SEC unless and until we obtain an exemption from the requirement to do so. The registration statement and other reports or information can be inspected, and copies may be obtained, at the Public Reference Room of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates, and at the regional public reference facilities maintained by the SEC located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and Seven World Trade Center, Suite 1300, New York, New York 10048. Information on the operation of the Public Reference Room of the SEC may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information that we have filed electronically with the SEC. Furthermore, we agree that, even if we are not required to file periodic reports and information with the SEC, for so long as any exchange note remains outstanding, we will furnish to you the information that would be required to be furnished by New SAC under Section 13 of the Securities Exchange Act of 1934. 241 INDEX TO FINANCIAL STATEMENTS NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY, INC.
PAGE ---- CONSOLIDATED FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors ........................ F-6 Consolidated Balance Sheets at December 29, 2000, June 30, 2000 and July 2, 1999 .......................................... F-7 Consolidated Statements of Operations for the Period from November 23, 2000 to December 29, 2000, Period from July 1, 2000 to November 22, 2000, the six month period ended December 31, 1999 (unaudited) and the Fiscal Years Ended June 30, 2000, July 2, 1999 and July 3, 1998 ..... F-8 Consolidated Statements of Cash Flows for the Period from November 23, 2000 to December 29, 2000, the Period from July 1, 2000 to November 22, 2000, the six month period ended December 31, 1999 (unaudited) and the Fiscal Years Ended June 30, 2000, July 2, 1999 and July 3, 1998 ..... F-9 Consolidated Statements of Stockholders' Equity for the Period from November 23, 2000 to December 22, 2000, the Period from July 1, 2000 to November 22, 2000 and the Fiscal Years Ended June 30, 2000, July 2, 1999 and July 3, 1998 ..... F-11 Notes to Consolidated Financial Statements ............................... F-13
F-1 INDEX TO FINANCIAL STATEMENTS SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR, SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC.
PAGE ---- CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) Condensed Consolidated and Condensed Combined Balance Sheets as of December 29, 2000 and June 30, 2000 ......................................... F-87 Condensed Consolidated and Condensed Combined Statements of Operations for the Period from November 23, 2000 to December 29, 2000, the Period from July 1, 2000 to November 22, 2000, and the Six Months Ended December 31, 1999 .......................................... F-88 Condensed Consolidated and Condensed Combined Statements of Cash Flows for the Period from November 23, 2000 to December 29, 2000, the Period from July 1, 2000 to November 22, 2000, and the Six Months Ended December 31, 1999 .......................................... F-89 Notes to Condensed Consolidated and Condensed Combined Financial Statements .. F-90 COMBINED FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors ............................ F-109 Combined Balance Sheets at June 30, 2000 and July 2, 1999 ............................................................ F-110 Combined Statements of Operations for the Fiscal Years Ended June 30, 2000, July 2, 1999 and July 3, 1998 .................... F-111 Combined Statements of Cash Flows for the Fiscal Years Ended June 30, 2000, July 2, 1999 and July 3, 1998 .................... F-112 Combined Statement of Business Equity for the Fiscal Years Ended June 30, 2000, July 2, 1999 and July 3, 1998 .................... F-113 Notes to Combined Financial Statements ....................................... F-114
F-2 INDEX TO FINANCIAL STATEMENTS SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSORS, XIOTECH CORPORATION
PAGE ---- CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) Condensed Consolidated Balance Sheets as of December 29, 2000 and June 30, 2000 .................................................... F-155 Condensed Consolidated Statements of Operations for the Period from November 23, 2000 to December 29, 2000, the Period from July 1, 2000 to November 22, 2000, and the Six Months Ended December 31, 1999 ..................................................... F-156 Condensed Consolidated Statements of Cash Flows for the Period from November 23, 2000 to December 29, 2000, the Period from July 1, 2000 to November 22, 2000, and the Six Months Ended December 31, 1999 ..................................................... F-157 Notes to Condensed Consolidated Financial Statements .................................... F-158 FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors ....................................... F-170 Report of PricewaterhouseCoopers LLP, Independent Accountants ........................... F-171 Balance Sheets at June 30, 2000, December 31, 1999, and December 31, 1998 ............................................... F-172 Statements of Operations from January 29, 2000 to June 30, 2000, from January 1, 2000 to January 28, 2000, for the Six Month Period ended June 30, 1999 (unaudited), and for the Fiscal Years Ended December 31, 1999, 1998 and 1997 ........................................... F-173 Statements of Changes in Mandatorily Redeemable Convertible Preferred Stock and Stockholders' Equity (Net Capital Deficit) from January 29, 2000 to June 30, 2000, from January 1, 2000 to January 28, 2000, and for the Fiscal Years Ended December 31, 1999, 1998 and 1997 ........................................... F-174 Statements of Cash Flows from January 29, 2000 to June 30, 2000, from January 1, 2000 to January 28, 2000, for the Six Month Period ended June 30, 1999 (unaudited), and for the Fiscal Years Ended December 31, 1999, 1998 and 1997 .................................... F-176 Notes to Financial Statements ........................................................... F-177
F-3 INDEX TO FINANCIAL STATEMENTS SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR, SEAGATE REMOVABLE STORAGE SOLUTIONS BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC.
PAGE ---- CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) Condensed Consolidated and Condensed Combined Balance Sheets as of December 29, 2000 and June 30, 2000 ......................................... F-196 Consolidated Combined Condensed Statements of Operations for the Period from November 23, 2000 to December 29, 2000, the Period from July 1, 2000 to November 22, 2000, and the Six Months Ended December 31, 1999 .......................................... F-197 Condensed Consolidated and Condensed Combined Statements of Cash Flows for the Period from November 23, 2000 to December 29, 2000, the Period from July 1, 2000 to November 22, 2000, and the Six Months Ended December 31, 1999 .......................................... F-198 Notes to Condensed Consolidated and Condensed Combined Financial Statements .. F-199 COMBINED FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors ............................ F-221 Combined Balance Sheets at June 30, 2000 and July 2, 1999 ............................................................ F-222 Combined Statements of Income for the Fiscal Years Ended June 30, 2000, July 2, 1999 and July 3, 1998 .................... F-223 Combined Statements of Cash Flows for the Fiscal Years Ended June 30, 2000, July 2, 1999 and July 3, 1998 .................... F-224 Combined Statement of Business Equity for the Fiscal Years Ended June 30, 2000, July 2, 1999 and July 3, 1998 .................... F-225 Notes to Combined Financial Statements ....................................... F-226
F-4 INDEX TO FINANCIAL STATEMENTS CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.)
PAGE ---- CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Consolidated and Combined Condensed Balance Sheets as of December 29, 2000 and June 30, 2000 ....................................... F-252 Consolidated and Combined Condensed Statements of Operations for the Six Months Ended December 29, 2000 and December 31, 1999 .................. F-253 Consolidated and Combined Condensed Statements of Cash Flows for the Six Months Ended December 29, 2000 and December 31, 1999 .................. F-254 Notes to Condensed Consolidated and Condensed Combined Financial Statements F-255 CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Consolidated and Combined Balance Sheets at June 30, 2000 and July 2, 1999 .......................................................... F-278 Consolidated and Combined Statements of Operations for the Fiscal Years Ended June 30, 2000, July 2, 1999 and July 3, 1998 .................. F-279 Consolidated and Combined Statements of Cash Flows for the Fiscal Years Ended June 30, 2000, July 2, 1999 and July 3, 1998 .................. F-280 Consolidated and Combined Statements of Stockholders' Equity for the Fiscal Years Ended June 30, 2000, July 2, 1999 and July 3, 1998 .................. F-281 Notes to Consolidated and Combined Financial Statements .................... F-283 Report of Ernst & Young LLP, Independent Auditors .......................... F-315
F-5 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders New SAC We have audited the accompanying consolidated balance sheets of New SAC at December 29, 2000 and the related consolidated statements of operations, stockholders' equity and cash flows for the period from November 23, 2000 to December 29, 2000. We have also audited the accompanying consolidated balance sheets of Seagate Technology, Inc., the Predecessor to New SAC, as of June 30, 2000 and July 2, 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for the period from July 1, 2000 to November 22, 2000 and for each of the three years in the period ended June 30, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of New SAC at December 29, 2000, and Seagate Technology, Inc. at June 30, 2000 and July 2, 1999, and the consolidated results of operations and cash flows of New SAC for the period from November 23, 2000 to December 29, 2000, and for Seagate Technology, Inc. for each of the three years in the period ended June 30, 2000, and for the period from July 1, 2000 to November 22, 2000 in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP San Jose, California April 18, 2001 F-6 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEETS (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
NEW SAC SEAGATE TECHNOLOGY -------------- ------------------------- DECEMBER 29, JUNE 30, JULY 2, 2000 2000 1999 -------------- ---------- ------------ ASSETS (SEE NOTE 3) Cash and cash equivalents ............................. $ 732 $ 875 $ 396 Short-term investments ................................ 118 1,140 1,227 Accounts receivable, net .............................. 893 678 872 Inventories ........................................... 448 430 451 Deferred income taxes ................................. 38 219 252 Other current assets .................................. 216 167 114 ------ ------ ------ Total Current Assets ................................. 2,445 3,509 3,312 ------ ------ ------ Property, equipment and leasehold improvements, net .................................................. 789 1,608 1,687 Investment in VERITAS Software, net ................... -- 1,122 1,745 Goodwill and other intangibles, net ................... 169 353 144 Other assets........................................... 106 575 184 ------ ------ ------ Total Assets (See Note 3) ............................ $3,509 $7,167 $7,072 ====== ====== ====== LIABILITIES Accounts payable ...................................... $ 769 $ 707 $ 714 Accrued employee compensation ......................... 175 195 205 Accrued expenses ...................................... 553 365 414 Accrued warranty ...................................... -- 129 163 Accrued income taxes .................................. 193 81 43 Current portion of long-term debt ..................... 11 1 1 ------ ------ ------ Total Current Liabilities ............................ 1,701 1,478 1,540 ------ ------ ------ Deferred income taxes ................................. 38 1,020 1,103 Accrued warranty ...................................... -- 109 126 Other liabilities ..................................... 118 10 37 Long-term debt, less current portion .................. 893 703 703 ------ ------ ------ Total Liabilities .................................... 2,750 3,320 3,509 ------ ------ ------ Commitments and Contingencies SHAREHOLDERS' EQUITY Preferred shares, $.0001 par value -- 100 million authorized; 9,205,000 issued and outstanding at December 29, 2000, none in 2000 or 1999 liquidation preference $920.5 ........................ -- -- -- Preferred stock, $.01 par value -- 1,000,000 shares authorized; none issued or outstanding ............... -- -- -- Ordinary shares $.0001 par value -- 100 million voting shares authorized and 20 million nonvoting authorized; 9,409,000 voting shares issued and outstanding, 1,591,000 nonvoting shares issued and outstanding at December 29, 2000, none in 2000 or 1999 ......................................... -- -- -- Common stock, $.01 par value 600,000,000 shares authorized; shares issued 251,890,019 in 2000 and 1999 ............................................. -- 3 3 Additional paid-in capital ............................ 938 1,960 1,991 Retained earnings (accumulated deficit) ............... (153) 2,539 2,355 Accumulated other comprehensive income (loss) ......... (3) 86 (7) Deferred compensation ................................. (23) (33) (43) Treasury common stock at cost; none at December 29, 2000, 22,638,025 shares in 2000 and 23,172,130 shares in 1999 ............................ -- (708) (736) ------ ------ ------ Total Shareholders' Equity ........................... 759 3,847 3,563 ------ ------ ------ Total Liabilities and Shareholders' Equity ........... $3,509 $7,167 $7,072 ====== ====== ======
See notes to consolidated financial statements. F-7 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY, INC. (CONTINUED) CONSOLIDATED STATEMENTS OF OPERATIONS (IN MILLIONS)
SEAGATE TECHNOLOGY ------------------------------------------------------------ NEW SAC SIX FOR THE YEARS ENDED PERIOD FROM PERIOD FROM MONTHS ------------------------------- NOVEMBER 23, JULY 1, ENDED 2000 TO 2000 TO DECEMBER 31, DECEMBER 29, NOVEMBER 22, 1999 JUNE 30, JULY 2, JULY 3, 2000 2000 (UNAUDITED) 2000 1999 1998 ------------- -------------- ------------- ---------- --------- ---------- Revenue .................................. $1,017 $ 2,449 $3,327 $6,448 $6,802 $6,819 Cost of sales ............................ 896 2,130 2,665 5,056 5,176 5,788 Product development ...................... 73 442 359 725 655 627 Marketing and administrative ............. 101 490 243 515 534 502 Amortization of goodwill and other intangibles ............................. 5 26 17 51 39 40 In-process research and development ............................. 59 -- -- 105 2 223 Restructuring ............................ -- 20 135 207 60 347 Unusual items ............................ -- -- 325 350 78 (22) ------- -------- ------- ------ ------ ------ Total operating expenses ................ 1,134 3,108 3,744 7,009 6,544 7,505 ------- -------- ------- ------ ------ ------ Income (loss) from operations ........... (117) (659) (417) (561) 258 (686) Interest income .......................... 3 58 42 101 102 98 Interest expense ......................... (10) (24) (26) (52) (48) (51) Gain on contribution of NSMG to VERITAS, net ............................ -- -- -- -- 1,670 -- Activity related to equity interest in VERITAS ................................. -- (99) (183) (326) (119) -- Gain on sale of VERITAS stock ............ -- -- 537 537 -- -- Gain on sale of SanDisk stock ............ -- 102 62 679 -- -- Gain on sale of Veeco stock .............. -- 20 -- -- -- -- Gain on exchange of certain investments in equity securities ........ -- -- -- 231 -- -- Loss on LHSP investment .................. -- (138) -- -- -- -- Loss on sale of operating assets to New SAC ................................. -- (889) -- -- -- -- Other, net ............................... (8) (11) (2) -- 10 (65) ------- -------- ------- ------ ------ ------ Other income (expense), net ............. (15) (981) 430 1,170 1,615 (18) ------- -------- ------- ------ ------ ------ Income (loss) before income taxes......... (132) (1,640) 13 609 1,873 (704) Benefit (provision) for income taxes ................................... (21) 76 (70) (299) (697) 174 ------- -------- ------- ------ ------ ------ Net income (loss) ....................... $(153) $ (1,564) $ (57) $ 310 $1,176 $ (530) ======= ======== ======= ====== ====== ======
See notes to consolidated financial statements. F-8 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY, INC. (CONTINUED) CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)
SEAGATE TECHNOLOGY -------------------------------------------------------------- NEW SAC FOR THE YEARS ENDED PERIOD FROM PERIOD FROM SIX --------------------------------- NOVEMBER 23, JULY 1, MONTHS 2000 TO 2000 TO ENDED DECEMBER 29, NOVEMBER 22, DECEMBER 31, JUNE 30, JULY 2, JULY 3, 2000 2000 1999 2000 1999 1998 ------------- -------------- ------------- ---------- ----------- ---------- OPERATING ACTIVITIES Net income (loss) ...................... $(153) $(1,564) $ (57) $310 $1,176 $(530) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ......... 69 271 351 693 696 664 Deferred income taxes ................. (38) (320) (192) (121) 661 (33) In-process research and development ......................... 59 -- -- 105 2 223 Non-cash portion of restructuring charge .............................. -- 7 76 109 35 203 Gain on contribution of NSMG to VERITAS, net ........................ -- -- -- -- (1,670) -- Activity related to equity interest in VERITAS .......................... -- 99 183 326 119 -- Gain on sale of VERITAS stock ......... -- -- (537) (537) -- Gain on sale of SanDisk stock ......... -- (102) (62) (679) -- -- Loss on certain investments ........... -- 118 -- -- -- -- Gain on exchange of certain investments in equity securities .......................... -- -- -- (231) -- -- Loss on sale of operating assets to New SAC .......................... -- 889 -- -- -- -- Compensation expense related to accelerated vesting of stock options ............................. -- 584 -- -- -- -- Compensation expense related to SSI exchange offer ............... -- -- 284 284 -- -- Other, net ............................ (3) 33 53 55 36 41 Changes in operating assets and liabilities: Accounts receivable ................... (399) 183 85 190 (114) 242 Inventories ........................... 303 (201) 63 (15) 29 213 Accounts payable ...................... 49 37 (86) (54) 104 (278) Accrued expenses, employee compensation and warranty ........... (34) (222) (135) (222) (124) (262) Accrued income taxes .................. 62 355 (5) (154) 52 (37) Other assets and liabilities .......... (4) (62) 12 14 198 54 -------- ------- ------- ---- ------ ----- Net cash provided by (used in) operating activities .................. $ (89) $ 105 $ 33 $ 73 $1,200 $ 500 ------- ------- ------- ---- ------ -----
See notes to consolidated financial statements F-9 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY, INC. (CONTINUED) CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN MILLIONS)
SEAGATE TECHNOLOGY ---------------------------------------------------------------------- NEW SAC FOR THE YEARS ENDED PERIOD FROM PERIOD FROM SIX ----------------------------------------- NOVEMBER 23, JULY 1, MONTHS 2000 TO 2000 TO ENDED DECEMBER 29, NOVEMBER 22, DECEMBER 31, JUNE 30, JULY 2, JULY 3, 2000 2000 1999 2000 1999 1998 ------------- -------------- ------------- ------------- ------------- ------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................ $ (89) $ 105 $ 33 $ 73 $ 1,200 $ 500 INVESTING ACTIVITIES Acquisition of property, equipment and leasehold improvements .......... (34) (272) (279) (580) (603) (709) Purchases of short-term investments ......................... (129) (1,612) (1,639) (3,352) (6,596) (4,810) Maturities and sales of short-term investments ......................... 130 2,628 1,803 3,429 6,519 4,889 Purchase of Seagate operating assets and assumed liabilities, net of cash acquired of $897......... (918) -- -- -- -- -- Sale of Seagate operating assets to New SAC, net of cash sold of $897................................. -- 918 -- -- -- -- Restricted cash (TRA) ................ -- (150) -- -- -- -- Proceeds from sale of certain investments ......................... -- 234 -- -- -- -- Proceeds from sale of VERITAS stock ............................... -- -- 834 834 -- -- Proceeds from sale of SanDisk stock ............................... -- -- 67 680 -- -- Acquisitions of businesses, net of cash acquired ....................... -- -- -- -- -- (204) Merger with VERITAS .................. -- (2,144) -- -- -- -- Other, net ........................... (2) (6) (19) (18) (26) (14) -------- ---------- -------- ------- ------- ------- Net cash provided by (used in) investing activities .............. (953) (404) 767 993 (706) (848) FINANCING ACTIVITIES Issuance of long-term debt, net of issuance costs ...................... 860 -- 1 -- -- -- Repayment of long-term debt .......... -- (812) -- -- -- -- Short-term borrowings ................ 66 -- -- -- -- -- Repayment of short-term borrowings .......................... (66) -- -- -- -- -- Sale of common stock ................. -- 236 65 191 98 67 Purchase of treasury stock ........... -- -- (776) (776) (859) (105) Sale of ordinary and preferred shares .............................. 914 -- -- -- -- -- Other, net ........................... -- -- -- -- -- (1) ------- --------- -------- ------- ------- ---------- Net cash provided by (used in) financing activities .............. 1,774 (576) (710) (585) (761) (39) Effect of exchange rate changes on cash and cash equivalents ........... -- -- -- (2) (3) 6 ------- --------- -------- ---------- ---------- --------- Increase (decrease) in cash and cash equivalents .................... 732 (875) 90 479 (270) (381) Cash and cash equivalents at the beginning of the period ............. -- 875 396 396 666 1,047 ------- --------- -------- --------- --------- --------- Cash and cash equivalents at the end of the period ................... $ 732 $ -- $ 486 $ 875 $ 396 $ 666 ======= ========= ======== ========= ========= =========
See notes to consolidated financial statements. F-10 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY, INC. (CONTINUED) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 AND YEARS ENDED JUNE 30, 2000, JULY 2, 1999, AND JULY 3, 1998 (IN MILLIONS)
COMMON STOCK ADDITIONAL ----------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS -------- -------- ------------ ------------- Balance at June 27, 1997 ............ 252 $ 3 $ 1,903 $ 1,946 Comprehensive income Net loss ........................... (530) Unrealized gain on marketable securities ........................ Foreign currency translation ....... Comprehensive income (loss)......... Purchase of treasury stock at cost ............................... Stock options exercised and employee stock purchase plan........ (98) Issuance of restricted stock, net of cancellations ................... 6 (20) Amortization of deferred compensation ....................... Income tax benefit from stock options exercised .................. 12 Other stock-based compensation....... 8 ---- ---- ------- ------- Balance at July 3, 1998 ............. 252 3 1,929 1,298 Comprehensive income Net income ......................... 1,176 Unrealized loss on marketable securities ........................ Foreign currency translation ....... Comprehensive income ............... Purchase of treasury stock at cost ............................... Stock options exercised and employee stock purchase plan........ (106) Issuance of restricted stock, net of cancellations ................... (2) (6) Amortization of deferred compensation ....................... Income tax benefit from stock options exercised .................. 26 Other stock-based compensation....... 38 (7) ---- ---- ------- ------- Balance at July 2, 1999 ............. 252 3 1,991 2,355 Comprehensive income Net income ......................... 310 Unrealized gain on marketable securities ......................... Comprehensive income Purchase of treasury stock at cost ............................... Stock options exercised and employee stock purchase plan........ (5) (62) Exchange of SSI stock for SEG stock .............................. (249) (64) Acquisition of XIOtech .............. 137 Issuance of restricted stock, net of cancellations ................... (4) ACCUMULATED OTHER TREASURY COMPREHENSIVE DEFERRED COMMON INCOME COMPENSATION STOCK TOTAL --------------- -------------- --------- ------------ Balance at June 27, 1997 ............ $-- $(57) $ (319) $3,476 Comprehensive income Net loss ........................... (530) Unrealized gain on marketable securities ........................ 1 1 Foreign currency translation ....... (1) (1) -------- Comprehensive income (loss)......... (530) Purchase of treasury stock at cost ............................... (105) (105) Stock options exercised and employee stock purchase plan........ 166 68 Issuance of restricted stock, net of cancellations ................... (6) 20 -- Amortization of deferred compensation ....................... 8 8 Income tax benefit from stock options exercised .................. 12 Other stock-based compensation....... 8 ----- ------- ------- ------- Balance at July 3, 1998 ............. -- (55) (238) 2,937 Comprehensive income Net income ......................... 1,176 Unrealized loss on marketable securities ........................ (6) (6) Foreign currency translation ....... (1) (1) ------- Comprehensive income ............... 1,169 Purchase of treasury stock at cost ............................... (859) (859) Stock options exercised and employee stock purchase plan........ 204 98 Issuance of restricted stock, net of cancellations ................... 2 6 -- Amortization of deferred compensation ....................... 10 10 Income tax benefit from stock options exercised .................. 26 Other stock-based compensation....... 151 182 ----- ------- ------- ------- Balance at July 2, 1999 ............. (7) (43) (736) 3,563 Comprehensive income Net income ......................... 310 Unrealized gain on marketable securities ......................... 93 93 ------- Comprehensive income 403 Purchase of treasury stock at cost ............................... (776) (776) Stock options exercised and employee stock purchase plan........ 258 191 Exchange of SSI stock for SEG stock .............................. 324 11 Acquisition of XIOtech .............. 222 359 Issuance of restricted stock, net of cancellations ................... 4 --
F-11 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY, INC. (CONTINUED)
COMMON STOCK ADDITIONAL ----------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS -------- -------- ------------ ----------- Amortization of deferred compensation ......................... Compensation expense related to employee separations ................. 28 Income tax benefit from stock options exercised .................... 57 Other stock-based compensation......... 5 -- Balance at June 30, 2000 .............. 252 3 1,960 2,539 Comprehensive income Net loss ............................. (1,564) Unrealized gain on marketable securities .......................... Comprehensive income ................. Stock options exercised and employee stock purchase plan.......... 55 (78) Accelerated vesting of stock options .............................. 97 Amortization of deferred compensation ......................... Income tax benefit from stock options exercised .................... 115 Adjustment to tax liability related to Canadian reorganization ........... 185 Eliminate tax refund to VERITAS........ (50) Other stock-based compensation......... 13 Merger with VERITAS ................... (252) (3) (2,375) (897) ---- ---- ------ ------ Balance at November 22, 2000 .......... -- $ -- $ -- $ -- ==== ==== ====== ====== ACCUMULATED OTHER TREASURY COMPREHENSIVE DEFERRED COMMON INCOME COMPENSATION STOCK TOTAL --------------- -------------- --------- ----------- Amortization of deferred compensation ......................... 6 6 Compensation expense related to employee separations ................. 28 Income tax benefit from stock options exercised .................... 57 Other stock-based compensation......... 5 ------- ------ ------- ------- Balance at June 30, 2000 .............. 86 (33) (708) 3,847 Comprehensive income Net loss ............................. (1,564) Unrealized gain on marketable securities .......................... (102) (102) ------- ------ ------- ------- Comprehensive income ................. (1,666) Stock options exercised and employee stock purchase plan.......... 259 235 Accelerated vesting of stock options .............................. 5 280 382 Amortization of deferred compensation ......................... 4 4 Income tax benefit from stock options exercised .................... 115 Adjustment to tax liability related to Canadian reorganization ........... 185 Eliminate tax refund to VERITAS........ (50) Other stock-based compensation......... 13 Merger with VERITAS ................... 12 28 50 (2,946) ------- ------ ------- ------- Balance at November 22, 2000 .......... $ -- $ -- $ -- $ -- ======= ====== ======= =======
FOR THE PERIOD FROM NOVEMBER 23, 2000 THROUGH DECEMBER 29, 2000 (IN MILLIONS, EXCEPT SHARE DATA WHICH IS PRESENTED IN THOUSANDS)
ORDINARY SHARES PREFERRED SHARES ADDITIONAL ----------------- ------------------- PAID-IN SHARES AMOUNT SHARES AMOUNT CAPITAL ----------------- ---------- -------- ----------- Comprehensive income Net loss ............................ -- $-- $ -- $-- $ -- Unrealized loss on marketable securities ......................... Comprehensive income ................ Issuance of restricted ordinary and preferred shares related to management rollover ................. 1,843 48 23 Ordinary shares issued ............... 9,157 223 Preferred shares issued .............. -- 9,157 692 ------ --- ------- --- ---- Balance at December 29, 2000 ......... 11,000 $-- $ 9,205 $-- $938 ====== === ======= === ==== ACCUMULATED OTHER ACCUMULATED COMPREHENSIVE DEFERRED DEFICIT INCOME COMPENSATION TOTAL ------------- --------------- ------------- ------------ Comprehensive income Net loss ............................ $ (153) $-- $ -- $(153) Unrealized loss on marketable securities ......................... (3) (3) -------- Comprehensive income ................ (156) Issuance of restricted ordinary and preferred shares related to management rollover ................. (23) -- Ordinary shares issued ............... 223 Preferred shares issued .............. 692 ------- Balance at December 29, 2000 ......... $ (153) $(3) $ (23) $ 759 ====== ===== ===== =======
See notes to consolidated financial statements F-12 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES On November 22, 2000, Seagate Technology, Inc., which we refer to herein as Seagate Technology, Seagate Software Holdings, Inc. which we refer to herein as Seagate Software Holdings, a subsidiary of Seagate Technology, and Suez Acquisition Company (Cayman) Limited, which we refer to herein as SAC, completed the stock purchase agreement and Seagate Technology and VERITAS Software Corporation ("VERITAS") completed the agreement and plan of merger and reorganization, or the Merger Agreement. SAC was a limited liability company organized under the laws of the Cayman Islands and formed solely for the purpose of entering into the stock purchase agreement and related acquisitions. SAC assigned all of its rights under the stock purchase agreement to New SAC. Under the stock purchase agreement, SAC agreed to purchase for $1.840 billion cash, including transaction costs of $25 million, all of the operating assets of Seagate Technology and its consolidated subsidiaries, including Seagate Technology's rigid disc drive, storage area network, removable tape storage solutions, and enterprise management software businesses and operations and certain cash balances, but excluding the approximately 128 million shares of VERITAS common stock held by Seagate Software and Seagate's equity investments in Gadzoox Networks, Inc. and Lernout & Hauspie Speech Products N.V. ("LHSP"). Under the stock purchase agreement, SAC also agreed to assume substantially all of the operating liabilities of Seagate Technology and its consolidated subsidiaries. In addition, the SAC acquired Seagate Technology Investments, Inc., a subsidiary of Seagate Technology, which holds certain strategic equity investments in various companies. Immediately following the consummation of the stock purchase agreement, under the terms of a Merger Agreement, VERITAS acquired Seagate Technology and a wholly-owned subsidiary of VERITAS merged with and into Seagate Technology, with Seagate Technology becoming a wholly-owned subsidiary of VERITAS. We refer to this transaction as the VERITAS Merger. VERITAS did not acquire Seagate Technology's disc drive business or any other Seagate Technology operating business. In the VERITAS Merger, the Seagate Technology stockholders received merger consideration consisting of VERITAS stock and cash. We refer to the transactions relating to the stock purchase agreement, the Merger Agreement and the VERITAS Merger as the transactions. Seagate Technology is considered to be the Predecessor of New SAC because New SAC did not have significant operations or assets prior to consummation of the stock purchase agreement. We refer to New SAC and its Predecessor, Seagate Technology, as the Company in these financial statements. Nature of Operations -- Seagate Technology designs, manufactures and markets products for storage, retrieval and management of data on computer and data communications systems. The Company has three operating segments, rigid disc drives and Storage Area Networks (SAN), enterprise management software, and tape drives, however, only the rigid disc drive and SAN, and software businesses are reportable segments under the criteria of SFAS No. 131. The Company sells its products to original equipment manufacturers ("OEM") for inclusion in their computer systems or subsystems, and to distributors who typically sell to small OEMs, dealers, system integrators and other resellers. Accounting Estimates -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. F-13 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The actual results with regard to warranty expenditures could have a material unfavorable impact on the Company if the actual rate of unit failure or the cost to repair a unit is greater than what the Company has used estimating the warranty expense accrual. The actual results with regard to restructuring charges could have a material unfavorable impact on the Company if the actual expenditures to implement the restructuring plan are greater than what the Company estimated when establishing the restructuring accrual. Given the volatility of the markets in which the Company participates, the Company makes adjustments to the value of inventory based on estimates of potentially excess and obsolete inventory after considering forecasted demand and forecasted average selling prices. However, forecasts are subject to revisions, cancellations, and rescheduling. Actual demand will inevitably differ from such anticipated demand, and such differences may have a material effect on the financial statements. Basis of Consolidation -- The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries after eliminations. Total outstanding minority interests are not material for any period presented. The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 2000 ended on June 30, 2000, fiscal 1999 ended on July 2, 1999, and fiscal 1998 ended on July 3, 1998. Fiscal year 2000 comprised 52 weeks, fiscal year 1999 comprised 52 weeks and fiscal year 1998 comprised 53 weeks. All references to years in these notes to consolidated financial statements represent fiscal years unless otherwise noted. Reclassifications -- Certain costs aggregating $72 million in the period from July 1, 2000 to November 22, 2000, $138 million in fiscal 2000, $74 million in 1999, $42 million in 1998, and $73 million (unaudited) in the six months ended December 31, 1999, associated with: (1) searching for or evaluating product or process alternatives; (2) modifying the formulation or design of products or processes; and (3) activities required to advance the design of products that were previously classified by the Predecessor in cost of sales have been reclassified to product developement. Foreign Currency Translation -- The U.S. dollar is the functional currency for most of the Company's foreign operations. Gains and losses on the translation into U.S. dollars of amounts denominated in foreign currencies are included in net income for those operations whose functional currency is the U.S. dollar and as a separate component of stockholders' equity for those operations whose functional currency is the local currency. Derivative Financial Instruments -- On July 1, 2000, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." The standard requires that all derivatives be recorded on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. The cumulative effect of adopting SFAS 133 as of July 1, 2000 was not material to the Company's consolidated financial statements. The Company is exposed to foreign currency exchange rate risk inherent in forecasted sales, cost of sales, and assets and liabilities denominated in currencies other than the U.S. dollar, principally for cash flows in Asia and in certain European countries. The Company is also exposed to interest rate risk inherent in its debt and investment portfolios. The Company's risk management strategy considers the use of derivative financial instruments, including forwards, swaps and purchased options, to hedge certain foreign currency and interest rate exposures. The Company's intent is to offset gains and losses that occur on the underlying exposures, with gains and losses on the derivative contracts hedging these exposures. The Company does not enter into any speculative F-14 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) positions with regard to derivative instruments. The Company may enter into foreign exchange contracts, primarily forwards and purchased options, to hedge against exposure to changes in foreign currency exchange rates. Such contracts are designated at inception to the related foreign currency exposures being hedged, which include sales by subsidiaries, and assets and liabilities that are denominated in currencies other than the U.S. dollar. Interest rate swaps are used to modify the market risk exposures in connection with any long term debt issued to achieve primarily U.S. dollar LIBOR-based floating interest expense. The swap transactions generally involve the exchange of fixed for floating interest payment obligations. Under SFAS 133 the Company records all derivatives on the balance sheet at fair value. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is recorded in accumulated other comprehensive income as a separate component of stockholders' equity and reclassified into earnings in the period during which the hedged transaction affects earnings. For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative instrument, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in earnings in the current period. For derivative instruments not designated as hedging instruments, changes in their fair values are recognized in earnings in the current period. For foreign currency forward contracts, hedge effectiveness is measured by comparing the cumulative change in the hedged contract with the cumulative change in the hedged item, both of which are based on forward rates. For foreign currency option contracts, only the intrinsic value of the option based on spot rates is used in assessing hedge effectiveness. Accordingly, the time value of the option is excluded in calculating effectiveness and reported in earnings immediately. For interest rate swaps, the critical terms of the interest rate swap and hedged item are designed to match up when possible, enabling the short-cut method of accounting as defined by SFAS 133. To the extent that the critical terms of the hedged item and the derivative are not identical, hedge ineffectiveness is reported in earnings immediately. The Company reports hedge ineffectiveness from foreign currency derivatives for both options and forward contracts in other income or expense. Ineffectiveness related to interest rate swaps is reported in interest income or expense. The effective portion of all derivatives is reported in the same financial statement line item as the changes in the hedged item. During 1998 the Company employed a foreign currency hedging program utilizing foreign currency forward exchange contracts and purchased currency options to hedge local currency cash flows for payroll, inventory, other operating expenditures and fixed assets purchases in Singapore, Thailand, Malaysia, and Northern Ireland. These local currency cash flows were designated as either firm commitments or as anticipated transactions depending upon the contractual or legal nature of local currency commitments in Singapore, Thailand, Malaysia, and Northern Ireland. Anticipated transactions were hedged with purchased currency options and with foreign currency forward exchange contracts; firm commitments were hedged with foreign currency forward exchange contracts. The Company discontinued the use of its foreign currency hedging program at the end of fiscal 1998. Premiums on foreign currency option contracts used to hedge firm commitments and anticipatory transactions are amortized on a straight-line basis over the life of the contract. Forward points on foreign currency forward exchange contracts which qualify as hedges of firm commitments are recognized in income as adjustments to the carrying amount when the hedged transaction occurs. The Company may, from time to time, adjust its foreign currency hedging position by taking out additional contracts or by terminating or offsetting existing foreign currency forward exchange and F-15 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) option contracts. These adjustments may result from changes in the Company's underlying foreign currency exposures or from fundamental shifts in the economics of particular exchange rates, as occurred in the first and second quarters of fiscal 1998 with respect to the Thai baht, Malaysian ringgit and Singapore dollar. For foreign currency forward exchange and option contracts qualifying as accounting hedges, gains or losses on terminated contracts and offsetting contracts are deferred and are recognized in income as adjustments to the carrying amount of the hedged item in the period the hedged transaction occurs. For foreign currency forward exchange and option contracts not qualifying as accounting hedges, gains and losses on terminated contracts, or on contracts that are offset, are recognized in income in the period of contract termination or offset. Revenue Recognition and Product Warranty -- Revenue from sales of products is recognized when persuasive evidence of an arrangement exists including a fixed price to the buyer, title and risk of loss has passed to the buyer (typically at the time of shipment) and collectibility is reasonably assured. Estimated product returns are provided for in accordance with SFAS 48. The Company warrants its products against defects in design, materials and workmanship generally for two to five years depending upon the capacity category of the disc drive, with the higher capacity products being warranted for the longer periods. A provision for estimated future costs relating to warranty expense is recorded when revenue is recorded. The Company's software revenue is primarily derived from the sale of product licenses, software maintenance, technical support, training and consulting. During the first quarter of fiscal 1999, the Company began recognizing license revenue in accordance with the American Institute of Certified Public Accountant's Statement of Position 97-2, "Software Revenue Recognition." Revenue from software license agreements is primarily recognized at the time of product delivery, provided that fees are fixed or determinable, evidence of an arrangement exists, collectibility is probable and the Company has vendor-specific objective evidence of fair value. Revenue from resellers, including VARs, OEMs and distributors, are primarily recognized at the time of product delivery to the reseller. The Company's policy is to defer such revenue if resale contingencies exist. Some of the factors that are considered to determine the existence of such contingencies include payment terms, collectibility and past history with the customer. Product returns are reserved for in accordance with SFAS 48. Such returns are estimated based on historical return rates. The Company considers other factors such as fixed and determinable fees, resale contingencies, arms length contract terms and the ability to reasonably estimate returns to ensure compliance with SFAS 48. Service revenue from customer maintenance fees for ongoing customer support and product updates is recognized ratably over the maintenance term, which is typically 12 months. Service revenue from training and consulting is recognized when such services are performed. In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions. SOP 98-9 amends SOP 97-2 Software Revenue Recognition to require recognition of revenue using the "residual method" when certain criteria are met. The Company implemented the provisions of SOP 98-9 during its fiscal year ending June 30, 2000. The adoption of this pronouncement did not have a material impact on the Company's financial statements and results of operations. Inventories -- Inventories are valued at the lower of standard cost (which approximates actual cost using the first-in, first-out method) or market. Market value is based upon an estimated average selling price reduced by estimated cost of completion. Property, Equipment, and Leasehold Improvements -- Land, equipment, buildings and leasehold improvements are stated at cost. Equipment and buildings are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated life of the asset or the remaining term of the lease. F-16 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Advertising Expense -- The cost of advertising is expensed as incurred. Advertising costs were approximately $2 million and $8 million for the period from November 23, 2000 to December 29, 2000 and July 1, 2000 to November 22, 2000, and $12 million for the six months ended December 31, 1999 (unaudited). Advertising costs were $21 million, $56 million and $68 million in 2000, 1999 and 1998, respectively. Stock-Based Compensation -- The Company accounts for employee stock-based compensation under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APBO 25") and related interpretations. Pro forma net income and net income per share are disclosures required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and are included in the Stock-Based Benefit Plans -- Pro Forma Information note to the consolidated financial statements. Compensation expense for fixed awards granted with an exercise price at less than fair value is amortized on a straight line basis, using the multiple grant approach, over the vesting period. Impact of Recently Issued Accounting Standards -- Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") is effective for all fiscal quarters beginning after June 15, 2000 and will be adopted by the Company in its fiscal year 2001. This statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that derivatives be recognized in the balance sheet at fair value and specifies the accounting for changes in fair value. The adoption of SFAS 133 did not have a material impact on the Company's consolidated results of operations, financial position and cash flows. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. All registrants are expected to apply the accounting and disclosures described in SAB 101. The adoption of SAB 101 is not expected to have a material impact on the Company's consolidated results of operations, financial position and cash flows. The Company is required to adopt SAB 101 in the fourth quarter of fiscal 2001, retroactive to the beginning of the year. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB Opinion No. 25 and, among other issues, clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000. The adoption of FIN 44 did not have a material impact on the Company's consolidated results of operations, financial position, and cash flows. Cash, Cash Equivalents and Short-Term Investments -- The Company considers all highly liquid investments with a remaining maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value. The Company's short-term investments primarily comprise readily marketable debt securities with remaining maturities of more than 90 days at the time of purchase. The Company has classified its entire investment portfolio as available-for-sale. Available-for-sale securities are classified as cash equivalents or short-term investments and are stated at fair value with unrealized gains and losses included in accumulated other comprehensive income which is a component of stockholders' equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts F-17 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) to maturity. Such amortization and accretion are included in interest income. Realized gains and losses are included in other income (expense). The cost of securities sold is based on the specific identification method. Equity Investments -- The Company enters into certain equity investments for the promotion of business and strategic objectives, and typically does not attempt to reduce or eliminate the inherent market risks on these investments. Both marketable and non-marketable investments are included in other assets. A substantial majority of the Company's marketable investments are classified as available-for-sale as of the balance sheet date and are reported at fair value, with unrealized gains and losses, net of tax, recorded in stockholders' equity. The cost of securities sold is based on the specific identification method. Realized gains or losses and declines in value, if any, judged to be other than temporary on available-for-sale securities are reported in other income or expense. Non-marketable investments are recorded at cost. Concentration of Credit Risk -- The Company's customer base for disc drive products is concentrated with a small number of systems manufacturers and distributors. Financial instruments which potentially subject the Company to concentrations of credit risk are primarily accounts receivable, cash equivalents and short-term investments. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The allowance for noncollection of accounts receivable is based upon the expected collectibility of all accounts receivable. The Company places its cash equivalents and short-term investments in investment grade, short-term debt instruments and limits the amount of credit exposure to any one commercial issuer. Supplier Concentration -- Certain of the raw materials used by the Company in the manufacture of its products are available from a limited number of suppliers. Shortages could occur in these essential materials due to an interruption of supply or increased demand in the industry. For example, all of the Company's disc drive products require ASIC chips which are produced by a limited number of manufacturers. During the fourth quarter of fiscal 2000 and through the first half of fiscal 2001 the Company experienced shortages and delays with regards to receipt of such chips and expects similar delays and shortages may continue in fiscal 2001. If the Company were unable to procure certain of such materials, it would be required to reduce its manufacturing operations which could have a material adverse effect upon its results of operations. F-18 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. BALANCE SHEET INFORMATION FINANCIAL INSTRUMENTS The following is a summary of the fair value of available-for-sale securities at December 29, 2000:
AMORTIZED GROSS COST UNREALIZED LOSS FAIR VALUE ----------- ----------------- ----------- (IN MILLIONS) Money market mutual funds ........................... $ 28 $-- $ 28 U.S. government and agency obligations .............. 28 -- 28 Auction rate preferred stock ........................ 75 -- 75 Corporate securities ................................ 486 -- 486 Mortgage-backed and asset-backed securities ......... 4 -- 4 ---- --- ---- Subtotal ............................................ 621 -- 621 Marketable equity securities ........................ 39 (5) 34 ---- --- ---- Total available-for-sale securities ................. $660 $(5) $655 ==== === ==== Included in other assets ............................ $ 34 Included in cash and cash equivalents ............... 503 Included in short-term investments .................. 118 ---- $655 ====
The following is a summary of the fair value of available-for-sale securities at June 30, 2000:
AMORTIZED GROSS GROSS COST UNREALIZED GAIN UNREALIZED LOSS FAIR VALUE ----------- ----------------- ----------------- ----------- (IN MILLIONS) Money market mutual funds ................... $ 266 $ -- $ -- $ 266 U.S. government and agency obligations ............................... 323 -- (6) 317 Repurchase agreements ....................... 16 -- -- 16 Auction rate preferred stock ................ 374 -- -- 374 Municipal bonds ............................. 1 -- -- 1 Corporate securities ........................ 733 -- (2) 731 Mortgage-backed and asset-backed securities ................................ 218 -- (4) 214 Euro/Yankee time deposits ................... 12 -- -- 12 ------ ---- ----- ------ Subtotal .................................... 1,943 -- (12) 1,931 Marketable equity securities ................ 334 471 (376) 429 ------ ---- ----- ------ Total available-for-sale securities ......... $2,277 $471 $(388) $2,360 ====== ==== ===== ====== Included in other assets .................... $ 429 Included in cash and cash equivalents ............................... 791 Included in short-term investments .......... 1,140 ------ $2,360 ======
F-19 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. BALANCE SHEET INFORMATION (CONTINUED) The following is a summary of the fair value of available-for-sale securities at July 2, 1999:
AMORTIZED GROSS COST UNREALIZED LOSS FAIR VALUE ----------- ----------------- ----------- (IN MILLIONS) Money market mutual funds .................. $ 74 $ -- $ 74 U.S. government and agency obligations .............................. 314 (4) 310 Repurchase agreements ...................... -- -- -- Auction rate preferred stock ............... 222 -- 222 Municipal bonds ............................ 109 -- 109 Corporate securities ....................... 515 (1) 514 Mortgage-backed and asset-backed securities ............................... 302 (2) 300 Euro/Yankee time deposits .................. 48 -- 48 ------ ---- ------ $1,584 $ (7) $1,577 ====== ==== ====== Included in cash and cash equivalents .............................. $ 350 Included in short-term investments ......... 1,227 ------ $1,577 ======
F-20 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. BALANCE SHEET INFORMATION (CONTINUED) The fair value of the Company's investment in debt securities, by contractual maturity, is as follows:
NEW SAC SEAGATE TECHNOLOGY ------------------- ------------------------------- DECEMBER 29, 2000 JUNE 30, 2000 JULY 2, 1999 ------------------- --------------- ------------- (IN MILLIONS) Due in less than 1 year ......... $736 $ 939 $ 486 Due in 1 to 3 years ............. -- 352 794 ---- ------ ------ $736 $1,291 $1,280 ==== ====== ======
Fair Value Disclosures -- The carrying value of cash and cash equivalents approximates fair value. The fair values of short-term investments, notes, debentures (see Long-Term Debt and Credit Facilities and foreign currency forward exchange and option contracts are estimated based on quoted market prices. The carrying values and fair values of the Company's financial instruments are as follows:
NEW SAC SEAGATE TECHNOLOGY ----------------------- ---------------------------------------------- DECEMBER 29, 2000 JUNE 30, 2000 JULY 2, 1999 ----------------------- ----------------------- ---------------------- CARRYING ESTIMATED CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE AMOUNT FAIR VALUE ---------- ------------ ---------- ------------ ---------- ----------- (IN MILLIONS) Cash equivalents ........................... $503 $503 $ 791 $ 791 $ 350 $ 350 Short-term investments ..................... 118 118 1,140 1,140 1,227 1,227 Marketable equity securities ............... 34 34 429 429 -- -- 121/2% senior subordinated notes, due 2007 ................................. 210 201 -- -- -- -- Senior Credit Facilities Libor plus 2.5% Term Loan A ............... 200 200 -- -- -- -- Libor plus 3% Term Loan B ................. 500 500 -- -- -- -- 7.125% senior notes, due 2004 .............. -- -- (200) (187) (200) (194) 7.37% senior notes, due 2007 ............... -- -- (200) (180) (200) (189) 7.45% senior debentures, due 2037 .......... -- -- (200) (177) (200) (188) 7.875% senior debentures, due 2017 ......... -- -- (100) (85) (100) (92)
Derivative Financial Instruments -- The Company may enter into foreign currency forward exchange and option contracts to manage exposure related to certain foreign currency commitments, certain foreign currency denominated balance sheet positions and anticipated foreign currency denominated expenditures. The Company does not enter into derivative financial instruments for trading purposes. Based on uncertainty in the Southeast Asian foreign currency markets, beginning in the second quarter of 1998 the Company temporarily suspended its hedging program. At July 3, 1998, the Company had effectively closed out all of its foreign currency forward exchange contracts by purchasing offsetting contracts. As of December 29, 2000, the Company had no outstanding foreign currency forward exchange or purchased currency option contracts. Net foreign currency transaction gains and losses included in the determination of net income (loss) were a gain of $1 million for the period from July 1, 2000 to November 22, 2000, $1 million for fiscal 2000 and losses of $1 million and $252 million for fiscal 1999, and fiscal 1998, respectively. The Company transacts business in various foreign countries. Its primary foreign currency cash flows F-21 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. BALANCE SHEET INFORMATION (CONTINUED) are in emerging market countries in Asia and in certain European countries. During fiscal 1998, the Company employed a foreign currency hedging program utilizing foreign currency forward exchange contracts and purchased currency options to hedge local currency cash flows for payroll, inventory, other operating expenditures and fixed asset purchases in Singapore, Thailand and Malaysia. During fiscal 1998 the Singapore dollar, Thai baht, and Malaysian ringgit declined in value relative to the U.S. dollar. The transaction loss of $252 million for fiscal 1998 primarily included losses incurred on closing out these foreign currency forward exchange contracts. ACCOUNTS RECEIVABLE Accounts receivable are summarized below:
NEW SAC SEAGATE TECHNOLOGY ------------- ------------------ DECEMBER 29, 2000 2000 1999 ------------- -------- ------- (IN MILLIONS) Accounts receivable .......................... $ 973 $ 752 $ 925 Less allowance for doubtful accounts ......... (80) (74) (53) ----- ----- ----- $ 893 $ 678 $ 872 ===== ===== =====
Activity in the allowance for doubtful accounts is as follows:
ADDITIONS ---------------------------------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER ACCOUNTS-- DEDUCTIONS-- END OF PERIOD EXPENSES DESCRIBE DESCRIBE(1) PERIOD -------------- ------------ ------------------ -------------- ----------- (IN MILLIONS) Period from November 23, to December 29, 2000: ........... $79 $ 1 $ -- $-- $ 80 === === ==== === ==== Period from July 1, 2000 to November 22, 2000 ............ $74 $ 6 $ -- $ 1 $ 79 === Year Ended June 30, 2000: ..... $53 $24 $ -- $ 3 $ 74 === === ==== === ==== Year Ended July 2, 1999: ...... $54 $-- $ -- $ 2 $ 53 === === ==== === ==== Year Ended July 3, 1998: ...... $60 $ 1 $ -- $ 7 $ 54 === === ==== === ====
- ---------- (1) Uncollectible accounts written off, net of recoveries. F-22 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. BALANCE SHEET INFORMATION (CONTINUED) INVENTORIES Inventories are summarized below:
NEW SAC SEAGATE TECHNOLOGY -------------- --------------------- DECEMBER 29, JUNE 30, JULY 2, 2000 2000 1999 -------------- ---------- -------- (IN MILLIONS) Components .............. $136 $142 $143 Work-in-process ......... 62 51 54 Finished goods .......... 250 237 254 ---- ---- ---- $448 $430 $451 ==== ==== ====
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold improvements consisted of the following:
NEW SAC SEAGATE TECHNOLOGY -------------- ---------------------- DECEMBER 29, JUNE 30, JULY 2, USEFUL LIFE IN YEARS 2000 2000 1999 ---------------------- -------------- ---------- ----------- (IN MILLIONS) Land .................................. $ 23 $ 48 $ 40 Equipment ............................. 3 - 4 438 2,472 2,365 Building and leasehold improvements.... Life of lease - 30 246 982 932 Construction in progress .............. 114 252 196 ----- -------- -------- 821 3,754 3,533 Less accumulated depreciation and amortization ........................ (32) (2,146) (1,846) ----- -------- -------- $ 789 $ 1,608 $ 1,687 ===== ======== ========
Equipment and leasehold improvements include assets under capitalized leases. Amortization of leasehold improvements is included in depreciation expense. Depreciation expense was $242 million for the period from July 1, 2000 to November 22, 2000, $47 million for the period from November 23, 2000 to December 29, 2000 and $597 million, $574 million and $549 million in fiscal year 2000, 1999 and 1998, respectively. GOODWILL AND OTHER INTANGIBLES Goodwill represents the excess of the purchase price of acquired companies over the estimated fair value of the tangible and specifically identified intangible net assets acquired. Other intangible assets consist of trademarks, assembled workforces, distribution networks, developed technology, and customer bases related to acquisitions accounted for by the purchase method. Amortization of purchased intangibles, other than acquired developed technology, is provided on the straight-line basis over the respective useful lives of the assets ranging from 36 to 60 months for trademarks, 24 to 48 months for assembled workforces and distribution networks, and 12 to 36 months for customer bases. In-process research and development without alternative future use is expensed when acquired. In accordance with SFAS 121, the carrying value of other intangibles and related goodwill is reviewed if the facts and circumstances suggest that they may be permanently impaired. If this F-23 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. BALANCE SHEET INFORMATION (CONTINUED) review indicates these assets' carrying value will not be recoverable, as determined based on the undiscounted net cash flows of the entity acquired over the remaining amortization period, the Company's carrying value is reduced to its estimated fair value, first by reducing goodwill, and second by reducing long-term assets and other intangible assets (generally based on an estimate of discounted future net cash flows). Prior to November 22, 2000, goodwill and other intangibles were generally amortized on a straight-line basis over periods ranging from two to fifteen years. Subsequent to November 22, 2000, intangible assets are being amortized over periods ranging from 4 months to 10 years. Accumulated amortization was $7 million, $205 million and $177 million as of December 29, 2000, June 30, 2000 and July 2, 1999, respectively. 3. LONG-TERM DEBT AND CREDIT FACILITIES The Seagate Technology 7.125% senior notes due 2004, 7.37% senior notes due 2007 and 7.875% senior debentures due 2017 were redeemable at the option of Seagate Technology at any time, at a redemption price equal to the greater of (i) 100% of their principal amount plus accrued interest or (ii) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the date of redemption at a discount rate (the "discount rate") as set forth in the indenture governing the notes and debentures plus 10 basis points. The Seagate Technology 7.45% senior debentures due 2037 were redeemable at the option of Seagate Technology at any time, at a redemption price equal to or the greater of (i) 100% of their principal amount plus accrued interest, (ii) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the date of redemption at the discount rate plus 10 basis points, calculated as if the principal amount were payable in full on March 1, 2009, or (iii) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the date of redemption at the discount rate plus 10 basis points. In addition, the Seagate Technology 7.45% senior debentures due 2037 would have been redeemable on March 1, 2009, at the option of the holders thereof, at 100% of their principal amount, together with interest payable to the date of redemption. The Seagate Technology 7.125% senior notes due 2004, 7.37% senior notes due 2007 and 7.875% senior debentures due 2017 would not be redeemable at the option of the holders thereof prior to maturity. These securities were issued in February 1997 in an offering registered under the Securities Act of 1933, as amended. Under the stock purchase agreement, Seagate Technology was required to call the four series of its outstanding debt and to redeem these existing senior notes at the closing of the transactions. The irrevocable notice of redemption Seagate Technology and the deposit of funds sufficient to redeem the existing senior notes was a condition to the closing of the transactions and the issuance of the outstanding notes to New SAC. Upon the closing of the transactions, New SAC entered into senior credit facilities with a syndicate of banks and other financial institutions. The senior credit facilities provide senior secured financing of up to $900 million, consisting of: o a $200 million revolving credit facility for general corporate purposes, with a sublimit of $100 million for letters of credit, which will terminate in five years; o a $200 million term loan A facility with a maturity of five years; and o a $500 million term loan B facility with a maturity of six years. At the closing of the transactions, New SAC did not borrow under the revolving credit facility. At that time approximately $155 million of the revolving credit facility was available because F-24 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. LONG-TERM DEBT AND CREDIT FACILITIES (CONTINUED) approximately $45 million of existing letters of credit were outstanding and reduced availability under it. New SAC drew the full amount of the term loan A facility and the term loan B facility on the closing of the transactions to finance the acquisition of Seagate Technology's operating assets. Long-term debt consisted of the following:
NEW SAC SEAGATE TECHNOLOGY -------------- --------------------- DECEMBER 29, JUNE 30, JULY 2, 2000 2000 1999 -------------- ---------- -------- (IN MILLIONS) LIBOR plus 2.5% term loan A ......................... $200 -- -- LIBOR plus 3% term loan B ........................... 500 -- -- 12.5% Senior subordinated notes ..................... 201 -- -- 7.125% senior notes, due 2004 ....................... -- $200 $200 7.37% senior notes, due 2007 ........................ -- 200 200 7.45% senior debentures, due 2037 ................... -- 200 200 7.875% senior debentures, due 2017 .................. -- 100 100 Capitalized lease obligations with interest at 14% to 19.25% collateralized by certain manufacturing equipment and buildings ........................... 3 4 4 ---- ---- ---- 904 704 704 Less current portion ................................ 11 1 1 ---- ---- ---- $893 $703 $703 ==== ==== ====
At December 29, 2000, future minimum principal payments on long-term debt and capital lease obligations were as follows:
(IN MILLIONS) -------------- 2001 ........................ $ 5 2002 ........................ 23 2003 ........................ 40 2004 ........................ 50 2005 ........................ 60 After 2005 .................. 726 ---- $904 ====
New SAC loans bear interest at variable rates dependent upon market interest rates and the nature of the borrowings, as well as the Company's consolidated financial position at applicable measurement dates. The average interest rates being charged under these borrowings from the date of the transactions ranged from 9.18% (LIBOR plus 2.5%) to 9.6875% (LIBOR plus 3%). New SAC, and certain of its subsidiaries are guarantors on a joint and several, whole and unconditional basis under the senior credit facilities (see Note 18 Condensed Consolidating Financial Information). New SAC, and certain of its subsidiaries have agreed to certain covenants under the loan agreements including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. In connection with the closing and financing of the transactions, Seagate Technology International, a subsidiary of Seagate Technology Holdings, which is a subsidiary of New SAC, F-25 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. LONG-TERM DEBT AND CREDIT FACILITIES (CONTINUED) issued unsecured senior subordinated notes under an Indenture Agreement dated November 22, 2000, at a discount to the aggregate principal amount of $210 million, for gross proceeds of approximately $201 million. The notes mature on November 15, 2007 and bear interest payable semi-annually at a rate of 12.5% per annum. New SAC and certain of its subsidiaries are guarantors on a joint and several, whole and unconditional basis, of the notes. In addition, New SAC, and certain of its subsidiaries have agreed to certain restrictive covenants under the terms of these notes including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. As of December 29, 2000, the Company had committed lines of credit of $200 million that can be used for standby letters of credit or bankers' guarantees. At December 29, 2000, $56 million of these lines of credit were utilized. 4. COMPENSATION TAX-DEFERRED SAVINGS PLAN The Company has a tax-deferred savings plan, the Seagate 401(k) Plan ("the 401(k) plan"), for the benefit of qualified employees. The 401(k) plan is designed to provide employees with an accumulation of funds at retirement. Qualified employees may elect to make contributions to the 401(k) plan on a monthly basis. The Company may make annual contributions to the 401(k) plan at the discretion of the Board of Directors. For the period from November 23, 2000 to December 29, 2000 and the period from July 1, 2000 to November 22, 2000 the Company made contributions of $1 million and $5 million, respectively. During the fiscal years ended June 30, 2000 and July 2, 1999, the Company made contributions totaling approximately $14 million to the 401(k) plan in each year. No material contributions were made by the Company during fiscal year 1998. STOCK-BASED BENEFIT PLANS Stock Option Plans -- Options granted under Seagate Technology's stock option plans were granted at fair market value, expired ten years from the date of the grant and generally vested in four equal annual installments, commencing one year from the date of the grant. F-26 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. COMPENSATION (CONTINUED) The following is a summary of stock option activity for the three years ended June 30, 2000 and the period from July 1, 2000 to November 22, 2000:
OPTIONS OUTSTANDING ---------------------------------- NUMBER WEIGHTED AVERAGE OF SHARES EXERCISE PRICE -------------- ----------------- (IN MILLIONS) Balance June 27, 1997 ................. 22.0 $ 22.92 Granted ............................. 18.3 27.10 Exercised ........................... (2.4) 13.34 Canceled ............................ (11.9) 32.62 ------ Balance July 3, 1998 .................. 26.0 22.30 Granted ............................. 14.1 23.98 Exercised ........................... (4.3) 15.15 Canceled ............................ (1.9) 25.49 ------ Balance July 2, 1999 .................. 33.9 23.73 Granted ............................. 8.3 30.97 Exercised ........................... (7.3) 21.48 Canceled ............................ (2.0) 26.12 ------ Balance June 30, 2000 ................. 32.9 25.80 ------ Exercised ........................... (9.0) 23.54 Canceled ............................ (.1) 31.16 ------ -------- Balance November 22, 2000 (prior to the transactions) ....................... 23.8 $ 26.63 ====== ========
In fiscal 1998, the Company offered to all optionees below the level of Senior Vice President, who held options with an exercise price higher than the prevailing fair market value of the Company's common stock, the right to exchange their options for new options exercisable at such fair market value. In connection with this transaction, 8.4 million options were exchanged. The number of options shown as granted and canceled in the above table reflects this exchange of options. Such options had a weighted average exercise price before repricing of $34.20 and the new options were granted at a weighted average price of $24.45. Options available for grant were 12.6 million at November 22, 2000, 13.0 million at June 30, 2000, 5.0 million at July 2, 1999, and 13.6 million at July 3, 1998. On October 30, 1997, the stockholders approved an amendment to the 1991 Incentive Stock Option Plan to increase the number of shares of common stock reserved for issuance thereunder by 15 million. On November 22, 2000, in connection with the VERITAS merger Seagate Technology accelerated the vesting on 11.7 million options to purchase Seagate Technology stock. In addition, options representing 10.7 million shares were exercised on a cashless basis, net of the exercise price and employee withholding taxes. Seagate Technology recorded $584 million of compensation expense in connection with this net exercise of stock options. Executive Stock Plan -- Seagate Technology had an Executive Stock Plan under which senior executives of the Company were granted the right to purchase shares of Seagate Technology common stock at $.01 per share. The difference between the fair market value of the shares on the measurement date and the exercise price was recorded as deferred compensation and was charged to operations over the vesting period of four to seven years. The Company had the right to repurchase the restricted stock from an executive upon his or her voluntary or involuntary termination of employment with the Company for any reason at the same price paid by the executive. If an F-27 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. COMPENSATION (CONTINUED) executive voluntarily resigned at or above age 65, the Company could release from the repurchase option, or if his or her employment terminated as a result of death, disability, termination by the Company other than for cause or constructive termination within the two-year period following a change of control, the Company would release from the repurchase option a pro rata number of shares based on the number of months that have passed since the grant date divided by the number of months in the vesting period. The following is a summary of restricted stock activity under the Executive Stock Plan for the three years ended June 30, 2000 and period from July 1, 2000 to November 22, 2000:
RESTRICTED SHARES OUTSTANDING ------------------------------ (IN THOUSANDS) Balance June 27, 1997 ................. 2,185 Granted .............................. 454 Repurchased .......................... (254) Released from restrictions ........... (44) ----- Balance July 3, 1998 .................. 2,341 Granted .............................. 145 Repurchased .......................... (216) Released from restrictions ........... (357) ----- Balance July 2, 1999 .................. 1,913 Granted .............................. 30 Repurchased .......................... (135) Released from restrictions ........... (53) ----- Balance June 30, 2000 ................. 1,755 Granted .............................. -- Repurchased .......................... (15) Released from restrictions ........... (150) ----- Balance November 22, 2000 (prior to the transactions) ....................... 1,590 =====
In addition, Seagate Technology had a Restricted Stock Plan which also had a deferred compensation component. Under this plan the deferred compensation was amortized over a period of seven years. At November 22, 2000, there were two employees remaining in the plan and no shares were available for future grant. The aggregate amount charged to operations for amortization of deferred compensation under both plans was $6 million, $10 million, and $8 million in 2000, 1999 and 1998, respectively. On November 22, 2000, and in connection with the merger with VERITAS, Seagate Technology accelerated vesting on 207,000 restricted shares and recorded $3.4 million compensation expense in connection with the exchange of such shares for merger consideration. All remaining restricted stock was cancelled and holders of such stock received the participation in a deferred cash compensation plan and ordinary and preferred shares of New SAC. (See Note 17, Equity) Stock Purchase Plan -- Seagate Technology also maintained an Employee Stock Purchase Plan. A total of 19,600,000 shares of common stock were authorized for issuance under the Purchase Plan. The Purchase Plan permitted eligible employees who had completed thirty days of employment prior to the inception of the offering period to purchase common stock through payroll deductions generally at the lower of 85% of the fair market value of the common stock at the F-28 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. COMPENSATION (CONTINUED) beginning or at the end of each six-month offering period. Under the plan, 1,515,000; 1,604,000; and 1,348,000 shares of common stock were issued from treasury shares in fiscal 2000, 1999, and 1998, respectively. The stock purchase plan was terminated in October 2000. Treasury Shares -- During fiscal 2000, 1999, and 1998, Seagate Technology repurchased 25 million, 27 million, and 4 million shares of common stock at an average price of $30.76, $31.82, and $28.31 per share, respectively. Pro Forma Information -- The Company follows APBO 25 and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APBO 25, Seagate Technology generally recognized no compensation expense with respect to such options. Pro forma information regarding net income and earnings per share is required by SFAS 123 for stock options granted after June 30, 1995 as if the Company had accounted for its stock options under the fair value method of SFAS 123. The fair value of the Company's stock options was estimated using a Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, the Black-Scholes model requires the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's stock options granted to employees have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options granted to employees. The fair value of the Company's stock options granted to employees was estimated assuming no expected dividends and the following weighted average assumptions:
2000 1999 1998 Stock Option Plan Shares Expected life (in years) ......... 3.9 3.8 3.2 Risk-free interest rate .......... 6.0% 5.3% 5.5% Volatility ....................... .60 .56 .45 Employee Stock Purchase Plan Shares Expected life (in years) ......... .5 .5 .6 Risk-free interest rate .......... 5.9% 4.6% 5.5% Volatility ....................... .78 .68 .63
F-29 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. COMPENSATION (CONTINUED) The weighted average fair value of stock options granted under the Company's Stock Option Plans was $16.66, $11.09, and $10.05 per share in 2000, 1999, and 1998, respectively. The weighted average fair value of shares granted under the Company's Employee Stock Purchase Plan was $11.47, $10.18, and $12.03 per share in fiscal 2000, 1999, and 1998, respectively. The weighted average purchase price of shares granted under the Company's Employee Stock Purchase Plan was $23.38, $22.72, and $26.99 per share in 2000, 1999, and 1998, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the options' vesting period (for stock options) and the six month purchase period for stock purchases under the Stock Purchase Plan. The Company's pro forma information follows:
PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 2000 1999 1998 ------------------- -------- --------- ---------- Pro forma net income (loss) ......... $ (1,523) $ 217 $1,018 $ (600)
The effects on pro forma disclosures of applying SFAS 123 may not be representative of the effects on pro forma disclosures of future years. Because SFAS 123 is applicable only to options granted subsequent to June 30, 1995, the pro forma effect was not fully reflected in fiscal years prior to 1999. POST-RETIREMENT HEALTH CARE PLAN In fiscal 2000, the Company adopted a post-retirement health care plan which offers medical coverage to eligible U.S. retirees and their eligible dependents. Substantially all U.S. employees become eligible for these benefits after 15 years of service and attaining age 60 and older. The following table provides a reconciliation of the changes in the post-retirement health care plan's benefit obligation and a statement of the funded status as of December 29, 2000:
NEW SAC SEAGATE TECHNOLOGY -------------- ------------------- DECEMBER 29, JUNE 30, 2000 2000 Change in Benefit Obligation Benefit obligation at beginning of year (period) ........... $-- $-- Acquired benefit obligation ................................ 30 -- Service cost ............................................... -- 4 Amortization of unrecognized prior service cost ............ -- 2 --- --- Benefit obligation at end of year .......................... $30 $ 6 === === Funded Status of the Plan Fair value of plan assets at end of year ................... $-- $-- Unrecognized prior service cost ............................ -- 22 Accrued benefit liability recognized in the balance sheet at end of year (period) ..................................... 30 6 --- --- Accrued benefit cost ....................................... $30 $28 === ===
F-30 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. COMPENSATION (CONTINUED) Net periodic benefit cost for the period from July 1, 2000 to November 22, 2000 and for fiscal 2000 as follows:
SEAGATE TECHNOLOGY ------------------------- PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 2000 ------------------- ----- (IN MILLIONS) Service cost ............................... $-- $2 Interest cost .............................. 1 2 Amortization of prior service cost ......... 1 2 --- -- Net periodic benefit cost .................. $ 2 $6 === ==
Net periodic benefit cost for the period from November 23, 2000 to December 29, 2000 was immaterial. WEIGHTED-AVERAGE ACTUARIAL ASSUMPTIONS A discount rate of 7.0% was used in the determination of the accumulated benefit obligation. The Company's future medical benefit costs were estimated to increase at an annual rate of 10% during 2000, decreasing to an annual growth rate of 5% in 2010 and thereafter. The Company's cost is capped at 200% of the fiscal 1999 employer cost and, therefore, will not be subject to medical and dental trends after the capped cost is attained. A 1% change in these annual trend rates would not have a significant impact on the accumulated post-retirement benefit obligation at December 29, 2001, 2000, or benefit expense for the period July 1, 2000 to December 29, 2000. Claims are paid as incurred. F-31 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. INCOME TAXES NEW SAC INCOME TAX FOOTNOTE The provision for (benefit from) income taxes consisted of the following:
PRE- PREDECESSOR PREDECESSOR ---------------------------------- ------------- PERIOD FROM PERIOD FROM NOVEMBER 23, 2000 JULY 1, 2000 SIX MONTHS TO TO ENDED DECEMBER 29, NOVEMBER 22, DECEMBER 31, 2000 2000 1999 ------------------- -------------- ------------- (IN MILLIONS) Current Tax Expense (Benefit) Federal $16 $ 74 $ 226 State 4 2 32 Foreign 1 7 7 --- ------ ------ 21 83 265 --- ------ ------ Deferred Tax Expense (Benefit) Federal -- (175) (174) State -- 16 (21) --- ------ ------ Foreign -- 0 0 --- ------ ------ 0 (159) (159) --- Provision for (Benefit from) Income Taxes $21 $ (76) $ 70 --- ------ ------
Income (loss) before income taxes consisted of the following
PERIOD FROM JULY 1, 2000 SIX MONTHS FOR THE PERIOD TO ENDED ENDED NOVEMBER 22, DECEMBER 31, DECEMBER 29, 2000 2000 1999 ------------------- -------------- ------------- (IN MILLIONS) Domestic $ (33) $ (410) $11 Foreign (99) (1,230) 2 ------ -------- --- $ (132) $ (1,640) $13 ------ -------- ---
The proforma information assuming a tax provision/(benefit) based on a separate return basis is as follows:
FOR THE PERIOD ENDED DECEMBER 29, 2000 ------------------ Loss before income taxes $ (132) Provision (benefit) for income taxes 21 ------ Net Loss $ (153) ------
The income tax benefits related to the exercise of certain employee stock options decreased accrued income taxes and were credited to additional paid-in capital. Such amounts approximated $136.4 million for the period ended November 22, 2000. F-32 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. INCOME TAXES (CONTINUED) At December 29, 2000, accrued income taxes includes $125 million for tax indemnification amounts due to Seagate Technology pursuant to the Indemnification Agreement between Seagate Technology, Suez Acquisition Company and VERITAS Software Corporation. The tax indemnification amount was recorded by the Company in connection with the purchase of the operating assets of Seagate Technology and represents tax liabilities of Seagate Technology for periods prior to the acquisition date of the operating assets. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's deferred tax assets and liabilities were as follows:
FOR THE PERIOD ENDED FOR THE YEAR ENDED DECEMBER 29, 2000 JUNE 30, 2000 ---------------------- ------------------- (IN MILLIONS) DEFERRED TAX ASSETS Accrued warranty $ 100 $ 97 Inventory valuation accounts 27 35 Receivable reserves 25 26 Accrued compensation and benefits 33 45 Depreciation 150 20 Restructuring reserve 20 27 Other reserves and accruals 29 28 Acquisition related items 19 32 Net operating losses and tax credit carryforwards 5 5 Other assets 2 13 ------ -------- Total Deferred Tax Assets 410 328 Valuation allowance (372) (38) ------ -------- Net Deferred Tax Assets 38 290 DEFERRED TAX LIABILITIES Unremitted income of foreign subsidiaries -- (543) Acquisition related items (38) (170) Deferred gain on VERITAS -- (378) Other Liabilities -- -- -------- Total Deferred Tax Liabilities (38) (1,091) ------ -------- Net Deferred Tax Assets/(Liabilities) $ -- $ (801) ------ --------
In connection with the purchase of the operating assets of Seagate Technology, we recorded a $338 million valuation allowance for deferred tax assets. The $338 million of deferred tax assets subject to the valuation allowance arose primarily as a result of the excess of tax basis over the fair values of acquired property, plant and equipment, and liabilities assumed for which we expect to receive tax deductions in our federal and state returns in future periods. We also recorded $38 million of deferred tax liabilities as a result of the excess of the fair market value of inventory, long-term investments, and acquired intangible assets over their related tax bases. Our realization of the tax benefits for the federal and state deferred tax assets subject to the valuation allowance will depend primarily on our ability to generate sufficient taxable income in the United States in future periods, the timing and amount of which are uncertain. We anticipate that the tax benefits of the deferred tax assets when realized, will first result in an increased adjustment to the amount of unamortized F-33 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. INCOME TAXES (CONTINUED) negative goodwill that has been allocated on a pro rata basis to the long-lived assets. Any excess tax benefit would then be realized as a reductions of future income tax expense. The reconciliation between the provision for (benefit from) income taxes at the U.S. federal statutory rate and the effective rate are summarized as follows:
PRE- PREDECESSOR PREDECESSOR --------------------------------- ------------- PERIOD FROM FOR THE PERIOD JULY 1, 2000 SIX MONTHS ENDED TO ENDED DECEMBER 29, NOVEMBER 22, DECEMBER 31, 2000 2000 1999 ---------------- -------------- ------------- (IN MILLIONS) Provision (benefit) at U.S. statutory rate $(46) $ (574) $ 4 State income tax provision (benefit), net of federal income tax benefit 2 11 7 Foreign taxes in excess of U.S. statutory rate -- -- (2) Compensation expense for SSI exchange offer -- -- 56 Nondeductible acquisition related items 33 -- -- Sale of operating assets -- 488 -- Valuation reserve 34 -- Non-deductible goodwill 9 3 Foreign losses not benefited 13 3 Benefit from net earnings of foreign subsidiaries considered to be permanently reinvested in non-U.S. operations -- (31) -- Other individually immaterial items (2) 8 (1) ------- ------ --- Provision for (benefit from) income taxes $ 21 $ (76) $70 ====== ====== ===
A substantial portion of the Company's Asia Pacific manufacturing operations in Singapore and Malaysia operate under various tax holidays which expire in whole or in part during fiscal years 2001 through 2010. Certain tax holidays may be extended if specific conditions are met. As of November 22, 2000, Seagate Technology's foreign manufacturing subsidiaries had approximately $3.050 billion of undistributed foreign earnings of which approximately $1.722 billion were considered permanently reinvested offshore. In connection with sale of the operating assets of Seagate Technology, approximately $1.650 billion of foreign earnings were deemed to be distributed for U.S. tax purposes to Seagate Technology's U.S. parent. Seagate Technology had previously recorded deferred income taxes for these foreign earnings. As a result of sale of the operating assets of Seagate Technology and the ensuing corporate structure, the Company now has a foreign parent holding company with various foreign and U.S. subsidiaries. The remaining unremitted earnings of the Company's foreign subsidiaries will no longer be subject to U.S. tax when remitted to the parent holding company. 6. BUSINESS COMBINATIONS (SEE NOTE 16 PURCHASE ACCOUNTING) The Company has a history of business combinations and during the three most recent fiscal years these included the acquisition of XIOtech Corporation in fiscal 2000, the contribution of NSMG to VERITAS in fiscal 1999, and the acquisition of Quinta Corporation and Eastman Storage Software Management Group in fiscal 1998. In connection with certain business combinations, the Company has recognized significant write-offs of in-process research and development. The completion of the F-34 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS COMBINATIONS (CONTINUED) underlying in-process projects acquired within each business combination was the most significant and uncertain assumption utilized in the valuation of the in-process research and development. Such uncertainties could give rise to unforseen budget over runs and/or revenue shortfalls in the event that the Company is unable to successfully complete a certain R&D project. The Company is primarily responsible for estimating the fair value of the purchased R&D in all business combinations accounted for under the purchase method. The nature of research and development projects acquired, the estimated time and costs to complete the projects and significant risks associated with the projects are described below. VALUATION METHODOLOGY In accordance with the provisions of APB Opinion 16, all identifiable assets, including identifiable intangible assets, were assigned a portion of the cost of the acquired enterprise (purchase price) on the basis of their respective fair values. This included the portion of the purchase price properly attributed to incomplete research and development projects expensed according to the requirements of Interpretation 4 of SFAS No. 2. Valuation of acquired intangible assets -- Intangible assets were identified through (i) analysis of the acquisition agreement, (ii) consideration of the Company's intentions for future use of the acquired assets, and (iii) analysis of data available concerning XIOtech's, Quinta's and Eastman's (collectively referred to as the "Targets") products, technologies, markets, historical financial performance, estimates of future performance and the assumptions underlying those estimates. The economic and competitive environment in which the Company and the Targets operate was also considered in the valuation analysis. To determine the value of in-process research and development, the Company considered, among other factors, the state of development of each project, the time and cost needed to complete each project, expected income, associated risks which included the inherent difficulties and uncertainties in completing each project and thereby achieving technological feasibility and risks related to the viability of and potential changes to future target markets. This analysis resulted in amounts assigned to in-process research and development for projects that had not yet reached technological feasibility and which did not have alternative future uses. The Income Approach, which includes analysis of markets, cash flows, and risks associated with achieving such cash flows, was the primary technique utilized in valuing each in-process research and development project. The underlying in-process projects acquired were the most significant and uncertain assumptions utilized in the valuation analysis of in-process research and development projects. To determine the value of developed technologies, the expected future cash flows of existing product technologies were evaluated, taking into account risks related to the characteristics and applications of each product, existing and future markets and assessments of the life cycle stage of each product. Based on this analysis, the existing technologies that had reached technological feasibility were capitalized. To determine the value of the distribution networks and customer bases, the Company considered, among other factors, the size of the current and potential future customer bases, the quality of existing relationships with customers, the historical costs to develop customer relationships, the expected income and associated risks. Associated risks included the inherent difficulties and uncertainties in transitioning the business relationships from the acquired entity to the Company and risks related to the viability of and potential changes to future target markets. To determine the value of trademarks, the Company considered, among other factors, the assumption that in lieu of ownership of a trademark, the Company would be willing to pay a royalty in order to exploit the related benefits of such trademark. F-35 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS COMBINATIONS (CONTINUED) To determine the value of assembled workforces, the Company considered, among other factors, the costs to replace existing employees including search costs, interview costs and training costs. Goodwill is determined based on the residual difference between the amount paid and the values assigned to identified tangible and intangible assets. If the values assigned to identified tangible and intangible assets exceed the amounts paid, including the effect of deferred taxes, the values assigned to long-term assets were reduced proportionately. The underlying in-process projects acquired within each acquisition was the most significant and uncertain assumption utilized in the valuation analysis. Such uncertainties could give rise to unforeseen budget over runs and/or revenue shortfalls in the event that the Company is unable to successfully complete a certain research and development project. The Company's management recognizes that the Company is primarily responsible for estimating the fair value of the purchased research and development in all acquisitions accounted for under the purchase method. The following details specific information about significant acquisitions including related assumptions used in the purchase price allocation. ACQUISITION OF XIOTECH CORPORATION: In January 2000, the Company acquired XIOtech, for 8,031,804 shares of Seagate common stock, issued from treasury shares, and options, with a combined fair value of $359 million. XIOtech designs, manufactures and markets a centralized data storage system. This system is based on an exclusive set of sophisticated data management and data movement tools. It offers storage virtualization, multi-node server clustering, and zero backup window solutions. The main component of the system is MAGNITUDE, a fully implemented storage area network ("SAN"). MAGNITUDE is sold in a cabinet containing software-based architecture that allows the incorporation of all of the components of a SAN in one centralized configuration. XIOtech also designs, develops and produces software, namely the REDI suite of software, which runs MAGNITUDE's software based architecture. The REDI software suite is application specific and gives customers the capability of better managing their data. XIOtech is currently developing the next generation technologies for both products, named Thunderbolt and REDI 7.0, respectively. At the time of completing the XIOtech acquisition, the Company estimated the cost to complete both Thunderbolt and REDI 7.0 at approximately $1 million. The anticipated release date for the Thunderbolt is the first half of fiscal 2002 and for the REDI 7.0 is in the second half of fiscal 2001. Assumptions used in estimating the fair value of intangible assets: Revenue Future revenue estimates were generated for the following technologies: (i) MAGNITUDE, (ii) REDI, (iii) Thunderbolt, the next generation development of MAGNITUDE and (iv) REDI 7.0, the next generation development of REDI. Aggregate revenue was estimated to be approximately $47.6 million in fiscal 2000 and to increase to approximately $230 million for fiscal year 2001 when the in-process projects were expected to be complete and shipping. Revenue was estimated to increase to approximately $650 million and $1,060 million in fiscal years 2002 and 2003, respectively. Estimated revenues decreased 29% in fiscal 2004 to $750 million. The estimated revenue growth is consistent with the introduction of new technology. Revenue estimates were based on (i) aggregate revenue growth rates for the business as a whole, (ii) individual product revenue, (iii) growth rates for F-36 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS COMBINATIONS (CONTINUED) the storage management software market, (iv) the aggregate size of the storage management software market, (v) anticipated product development and introduction schedules, (vi) product sales cycles, and (vii) the estimated life of a product's underlying technology. Operating expenses Estimated operating expenses used in the valuation analysis of XIOtech included (i) cost of goods sold, (ii) general and administrative expense, (iii) selling and marketing expense, and (iv) research and development expense. In developing future expense estimates, an evaluation of Seagate and XIOtech's overall business model, specific product results, including both historical and expected direct expense levels (as appropriate), and an assessment of general industry metrics was conducted. Cost of goods sold -- Estimated cost of goods sold, expressed as a percentage of revenue, for the developed and in-process technologies ranged from approximately 46% to 55%. General and administrative ("G&A") -- expense. Estimated G&A expense, expressed as a percentage of revenue, for the developed and in-process technologies ranged from 5% in fiscal 2000 to less than 1% in fiscal 2004 declining as production levels and related revenue increased and thus efficiencies in production are assumed to be attained. Selling and marketing ("S&M") expense. -- Estimated S&M expense, expressed as a percentage of revenue, for the developed and in-process technologies ranged from 20% in fiscal 2001 to a sustainable 15% in fiscal 2002 and beyond. For fiscal 2000, however, when the Thunderbolt and REDI 7.0 technology was estimated to become commercially available, S&M expense was estimated to be 45% due to the relatively low revenue expectation in the initial commercialization period. Research and development ("R&D") expense -- Estimated R&D expense consists of the costs associated with activities undertaken to correct errors or keep products updated with current information (also referred to as "maintenance" R&D). Maintenance R&D includes all activities undertaken after a product is available for general release to customers to correct errors or keep the product updated with current information. These activities include routine changes and additions. The maintenance R&D expense was estimated to be 2% of revenue for the developed and in-process technologies in fiscal 2000 and 3% throughout the remainder of the estimation period. In addition, as of the date of the acquisition, Seagate's management and XIOtech's management anticipated the costs to complete the in-process technologies at approximately $0.95 million. Effective tax rate The effective tax rate utilized in the analysis of the in-process technologies was 40%, which reflects the Company's combined federal and state statutory income tax rates, exclusive of non-recurring charges at the time of the acquisition and estimated for future years. Discount rate The discount rates selected for XIOtech's developed and in-process technologies was 16% and 23%, respectively. In the selection of the appropriate discount rates, consideration was given to the Weighted Average Cost of Capital ("WACC") of approximately 16% at the date of acquisition. The discount rate utilized for the in-process technology was determined to be higher than Seagate's WACC due to the fact that the technology had not yet reached technological feasibility as of the date of valuation. In utilizing a discount rate greater than the Company's WACC, management has reflected the risk premium associated with achieving the forecasted cash flows associated with these projects. F-37 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS COMBINATIONS (CONTINUED) As a result of this acquisition, the Company incurred a one-time write-off of in-process research and development of approximately $105 million. This acquisition was accounted for as a purchase and, accordingly, the results of operations of Quinta have been included in the Company's consolidated financial statements from the date of acquisition. The following is a summary of the purchase price allocation:
(IN MILLIONS) Tangible assets less liabilities assumed .......... $ 12 Developed technology .............................. 37 Tradenames ........................................ 5 Assembled workforce ............................... 2 Customer list ..................................... 2 In-process research and development ............... 105 Goodwill .......................................... 214 Deferred tax liability ............................ (18) ----- $ 359 =====
ACQUISITION OF QUINTA CORPORATION: In April and June 1997, the Company invested an aggregate of $20 million to acquire approximately ten percent (10%) of the outstanding stock of Quinta Corporation ("Quinta"), a developer of ultra-high capacity disc drive technologies, including a new optically-assisted Winchester ("OAW") technology. In August 1997, the Company completed the acquisition of Quinta. Pursuant to the purchase agreement with Quinta, the shareholders of Quinta, other than the Company, received cash payments aggregating $230 million upon the closing of the acquisition and were eligible to receive additional cash payments aggregating $96 million upon the achievement of certain product development and early production milestones. Of the $96 million, $19 million was charged to operations in fiscal 1998. Of the $19 million charged to operations, $5 million was paid in fiscal 1998 In July 1998, the Company and Quinta amended the purchase agreement to eliminate the product development and early production milestones and provide that the former shareholders of Quinta will be eligible to receive the remaining $77 million and the $14 million that had been accrued but unpaid in fiscal 1998. In the first quarter of fiscal 1999, the Company recorded a charge to operations for the remaining $77 million. Quinta's research and development project revolves around an OAW technology. OAW refers to Quinta's newly designed recording technology that, upon completion, would be implemented into Winchester hard disk drives. OAW combines traditional magnetic recording technology with Winchester hard disc drives and optical recording capabilities; optical recording technology enables greater data storage capacity. By integrating advanced optical features along with a highly fine and sophisticated tracking and delivery system within the head design, OAW would multiply the real density of disc drives. Through August 8, 1997, the acquisition date, Quinta had demonstrated significant achievements in developing its technology. However, further technological milestones were required before technological feasibility could be achieved. Quinta's development process consists of the following development milestones: (i) route light (optical fiber), (ii) flying head use, (iii) recording media, (iv) mirror creation and demonstration (two stage servo), (v) complete assembly, (vi) form factor containment, (vii) design verification test, (viii) customer qualification, and (ix) delivery. F-38 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS COMBINATIONS (CONTINUED) ASSUMPTIONS USED IN ESTIMATING THE FAIR VALUE OF INTANGIBLE ASSETS: Revenue Future revenue estimates were generated for the following product that the OAW technology would be utilized in: (i) fixed drives, (ii) removable drive, (iii) fixed/removable drives, and (iv) cartridges. No revenue was expected through fiscal 1998 since the underlying technology was anticipated not to be technologically feasible until fiscal 1999. Revenue was estimated to be approximately $26.6 million in fiscal 1999 and to increase to approximately $212 million for fiscal year 2000 when the in-process project was expected to be complete and shipping. Revenue growth was expected to decline to a sustainable 20% growth by fiscal 2005. The estimated revenue growth is consistent with the introduction of new technology. Revenue estimates were based on (i) aggregate revenue growth rates for the business as a whole, (ii) individual product revenue, (iii) growth rates for the disc drive market, (iv) the aggregate size of the disc drive market, (v) anticipated product development and introduction schedules, (vi) product sales cycles, and (vii) the estimated life of a product's underlying technology. Quinta's development cycle, in total, was expected to take approximately 18 to 24 months. Operating expenses Estimated operating expenses used in the valuation analysis of Quinta included (i) cost of goods sold, (ii) general and administrative expense, (iii) selling and marketing expense, and (iv) research and development expense. In developing future expense estimates, an evaluation of the Company's overall business model, specific product results, including both historical and expected direct expense levels (as appropriate), and an assessment of general industry metrics was conducted. Due to Quinta's limited operating history, an analysis of Quinta's historical performance was not meaningful. Cost of goods sold -- Estimated cost of goods sold, expressed as a percentage of revenue, for the in-process technologies ranged from approximately 65% to 80%. General and administrative ("G&A") expense -- Estimated G&A expense, expressed as a percentage of revenue, for the in-process technologies ranged from 2.6% in fiscal 2000 to a sustainable 3.5% in fiscal 2001 and beyond. For fiscal 1999, however, when the OAW technology would become commercially available, G&A expense was estimated to be 6.4% due to the relatively low revenue expectation in the initial commercialization period. Selling and marketing ("S&M") expense -- Estimated S&M expense, expressed as a percentage of revenue, for the in-process technologies ranged from 3.3% in fiscal 2000 to a sustainable 3.5% in fiscal 2001 and beyond. For fiscal 1999, however, when the OAW technology would become commercially available, S&M expense was estimated to be 8.7% due to the relatively low revenue expectation in the initial commercialization period. Research and development ("R&D") expense -- Estimated R&D expense consists of the costs associated with activities undertaken to correct errors or keep products updated with current information (also referred to as "maintenance" R&D). Maintenance R&D includes all activities undertaken after a product is available for general release to customers to correct errors or keep the product updated with current information. These activities include routine changes and additions. The maintenance R&D expense was estimated to be 0.5% of revenue for the in-process technologies throughout the estimation period. Effective tax rate The effective tax rate utilized in the analysis of the in-process technologies was 38%, which reflects the Company's combined federal and state statutory income tax rates, exclusive of non-recurring charges at the time of the acquisition and estimated for future years. F-39 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS COMBINATIONS (CONTINUED) Discount rate The discount rates selected for Quinta's in-process technology was 25%. In the selection of the appropriate discount rates, consideration was given to (i) the WACC of approximately 15% at the date of acquisition and (ii) the Weighted Average Return on Assets of approximately 25%. The discount rate utilized for the in-process technology was determined to be higher than Seagate's WACC due to the fact that the technology had not yet reached technological feasibility as of the date of valuation. In utilizing a discount rate greater than the Company's WACC, management has reflected the risk premium associated with achieving the forecasted cash flows associated with these projects. As a result of this acquisition, the Company incurred a one-time write-off of in-process research and development of approximately $214 million. Intangible assets arising from the acquisition of Quinta are being amortized on a straight-line basis over two years. This acquisition was accounted for as a purchase and, accordingly, the results of operations of Quinta have been included in the Company's consolidated financial statements from the date of acquisition. The following is a summary of the purchase price allocation (in millions): Tangible assets less liabilities assumed ......... $ 34 In-process research and development .............. 214 Assembled workforce .............................. 2 ---- $250 ====
CONTRIBUTION OF NSMG TO VERITAS AND THE PURCHASE OF OUTSTANDING SHARES OF SEAGATE SOFTWARE HOLDINGS BY SEAGATE TECHNOLOGY: Contribution of NSMG to VERITAS On May 28, 1999, Seagate Technology and Seagate Software Holdings closed and consummated an Agreement and Plan of Reorganization dated as of October 5, 1998 with VERITAS. The transaction provided for the contribution by Seagate Technology, Seagate Software Holdings, and certain of their respective subsidiaries to VERITAS of (a) the outstanding stock of NSMG and certain other subsidiaries of Seagate Software Holdings and (b) those assets used primarily in the NSMG business of Seagate Software Holdings, in consideration for the issuance of shares of common stock of VERITAS to Seagate Software Holdings and the offer by VERITAS to grant options to purchase common stock of VERITAS to certain of Seagate Software Holding's employees who become employees of VERITAS or its subsidiaries. As part of the transaction, VERITAS assumed certain liabilities of the NSMG business. The transaction was structured to qualify as a tax-free exchange. Subsequent to the transaction, all outstanding securities of VERITAS Operating Corporation were assumed and converted into common stock of VERITAS with identical rights, preferences and privileges, on a share for share basis. As a result of the contribution of the NSMG business to VERITAS, Seagate Software Holdings received a total of 155,583,468 shares of VERITAS common stock and former employees of the NSMG business received options to purchase an aggregate of 15,626,358 shares of VERITAS common stock. Share and option amounts for VERITAS have been adjusted to reflect the two-for-one stock split effective July 9, 1999 by VERITAS, and the subsequent three-for-two stock splits on November 22, 1999 and March 6, 2000. Seagate Technology accounted for the contribution of NSMG to VERITAS as a non-monetary transaction using the fair value of the assets and liabilities exchanged. Immediately after the F-40 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS COMBINATIONS (CONTINUED) transaction, Seagate Software Holdings owned approximately 41.63% (155,583,468 shares) of the outstanding shares of VERITAS. Because Seagate Technology still owns a portion of the NSMG business through its ownership of VERITAS, Seagate Technology did not recognize 100% of the gain on the exchange. The gain recorded is equal to the difference between 58.37% of the fair value of the VERITAS common stock received and 58.37% of Seagate Technology's basis in the NSMG assets and liabilities exchanged. Seagate Technology is accounting for its ongoing investment in VERITAS using the equity method. The difference between the recorded amount of Seagate Technology's investment in VERITAS and the amount of its underlying equity in the net assets of VERITAS was allocated based upon the fair value of the underlying tangible and intangible assets and liabilities of VERITAS. The intangible assets included amounts allocated to in-process research and development and resulted in a $85 million write-off in 1999 included in activity related to equity interest in VERITAS in the accompanying statement of operations. Intangible assets including goodwill are being amortized over four years. Seagate Technology includes in its financial results its share of the net income or loss of VERITAS, excluding certain NSMG purchase accounting related amounts recorded by VERITAS, but including Seagate Technology's amortization of the difference between its recorded investment and the underlying assets and liabilities of VERITAS. Because of practicality considerations, the net income or loss of VERITAS is included in the results of Seagate Technology on a one quarter lag basis. Thus, the results of VERITAS for the period from May 29, 1999 to June 30, 1999, the period subsequent to the contribution of NSMG to VERITAS, and for the period from July 1, 1999 through March 31, 2000 were included in the Company's results for the fiscal year ended June 30, 2000. The Company eliminates from VERITAS" income (loss) the effect of VERITAS" accounting for the NSMG business contribution, including VERITAS" amortization expenses related to intangible assets. Excluding amortization of intangibles, the total equity income recorded by Seagate Technology related to VERITAS in fiscal 2000 was $30 million. Seagate exchange offer In a separate but related transaction to the NSMG contribution to VERITAS, on June 9, 1999, the Company exchanged 5,275,772 shares of its common stock for 3,267,255 of the outstanding shares of Seagate Software Holdings common stock owned by employees, directors and consultants of Seagate Software Holdings. The exchange ratio was determined based on the estimated value of Seagate Software Holdings common stock divided by the fair market value of Seagate common stock. The estimated value of Seagate Software Holdings common stock exchanged into Seagate Technology common stock was determined based upon the sum of the fair value of the NSMG business, as measured by the fair value of the shares received from VERITAS, plus the estimated fair value of the Information Management Group of Seagate Software Holdings as determined by Seagate Technology's Board of Directors, plus the assumed proceeds from the exercise of all outstanding Seagate Software Holdings stock options, divided by the number of fully converted shares of Seagate Software Holdings. The Board of Directors of Seagate Technology considered a number of factors in determining the estimated fair value of the IMG business, including historical and projected revenues, earnings and cash flows, as well as other factors and consultations with financial advisors. The fair value of the Seagate Software Holdings shares acquired less the original purchase price paid by the employees was recorded as compensation expense for those shares outstanding and vested less than six months. The purchase of Seagate Software Holdings shares outstanding and vested more than six months was accounted for as the purchase of a minority interest and, F-41 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS COMBINATIONS (CONTINUED) accordingly, the fair value of the shares exchanged has been allocated to all of the identifiable tangible and intangible assets and liabilities of Seagate Software Holdings. In connection with the acquisition, Seagate Software Holdings recorded the acquisition of the minority interest. Seagate Technology recorded compensation expense amounting to approximately $124 million and wrote off purchased research and development amounting to $2 million in the fourth quarter of fiscal 1999. Associated intangible assets and goodwill are being amortized to operations over three to four years. Computation of pro rata gain on contribution of NSMG to VERITAS
(IN MILLIONS) ------------- Fair value of shares received ................................... $ 3,151 Times: pro rata percentage accounted for at fair value .......... 58.37% -------- Adjusted fair value of securities received ...................... $ 1,839 -------- Book value of NSMG .............................................. $ 57 Times: pro rate percentage accounted for at fair value .......... 58.37% -------- Book value exchanged ............................................ 33 -------- Pro rata gain ................................................... $ 1,806 ========
Computation of original investment in VERITAS
(IN MILLIONS) ------------- Book value of NSMG ................................................. $ 57 Times: pro rata percentage accounted for at fair value ............. 41.63% -------- Portion of investment in VERITAS with no step up in basis .......... 24 Plus: Adjusted fair value of securities received ................... 1,839 -------- Investment in VERITAS .............................................. $ 1,863 ========
Allocation of original investment in VERITAS
(IN MILLIONS) ------------- Allocation of investment to VERITAS assets and liabilities: Net tangible assets ...................................... $ 114 Intangible assets: Distribution channel ................................... 9 Developed technology ................................... 46 Trademark and workforce ................................ 16 In-process research and development .................... 40 Allocation of investment to NSMG assets and liabilities: Net tangible assets ...................................... 24 Intangible assets: Distribution channel ................................... 66 Developed technology ................................... 92 Trademark and workforce ................................ 14 In-process research and development .................... 45 Goodwill .................................................. 1,397 ------- Total original investment in VERITAS ...................... $ 1,863 =======
F-42 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS COMBINATIONS (CONTINUED) Value of minority interest acquired in October 1999
(IN MILLIONS, EXCEPT PER SHARE DATA) ---------------------- Number of Seagate Software Holdings shares and options exchanged for Seagate Technology stock held by former employees, consultants and shares held more than six months by employees ....................................... 1,010,010 Times: Exchange ratio into Seagate Technology stock ......... 1.699 --------- Number of Seagate Technology shares issued .................. 1,716,007 Value per share of Seagate Technology common stock as of June 9, 1999 .............................................. $ 30.75 ---------- Total value Seagate Technology shares issued ................ $ 53 Less: Proceeds from assumed exercise of Seagate Software Holdings stock options .................................... (1) ---------- Total value of minority interest ............................ $ 52 ==========
Allocation of minority interest purchase price to the intangible assets of Seagate Software Holdings
(IN MILLIONS) ------------- Distribution channel ......................... $ 2 Developed technology ......................... 4 Trademark and workforce ...................... 1 In-process research and development .......... 2 Goodwill ..................................... 45 --- Subtotal .................................... 54 Deferred tax liability ....................... (2) --- Total ....................................... $52 ===
Compensation relating to stock purchased from employees
(IN MILLIONS, EXCEPT PER SHARE DATA) ----------------------- Seagate Software Holdings options exercised and exchanged for Seagate stock ........................................... 2,240,470 Plus: Seagate Software Holdings stock held for less than 6 months and exchanged for Seagate Technology stock ........... 16,775 --------- Total Seagate Software Holdings shares exchanged .............. 2,257,245 Times: Exchange ratio into Seagate Technology stock ........... 1.699 ---------- Number of Seagate Technology shares issued .................... 3,835,060 ---------- Value per share of Seagate Technology common stock on June 9, 1999 ................................................ $ 30.75 Less: Average price paid per Seagate Technology share ......... $ (4.01) ------------ Average compensation expense per Seagate Technology share issued ...................................................... $ 26.74 ------------ Total compensation expense .................................... $ 103 ============
F-43 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS COMBINATIONS (CONTINUED) Reconciliation of amounts included in Gain on contribution of NSMG to VERITAS, net
(IN MILLIONS) -------------- Pro rata gain ......................................... $1,806 Less: Compensation expense ................................. 124 Transaction costs .................................... 12 ------ Gain on contribution of NSMG to VERITAS, net .......... $1,670 ======
Activity related to equity interest in VERITAS
2000 1999 -------- ------- (IN MILLIONS) Write-off of in-process research and development ............. $ -- $ 85 Equity interest in VERITAS net income/loss ................... (30) -- Amortization of intangible assets including goodwill ......... 356 34 ----- ---- Activity related to equity interest in VERITAS ............... $ 326 $119 ===== ====
All activity related to the equity interest in VERITAS in 1999 was recorded in the fourth quarter of that year. ALLOCATION OF TANGIBLE AND INTANGIBLE ASSETS AND LIABILITIES RELATED TO NSMG AND VERITAS OVERVIEW NSMG offers network and storage management software solutions, which focus on the information availability component of Enterprise Information Management ("EIM") by enabling IT professionals to manage distributed network resources and to secure and protect enterprise data. NSMG's products include features such as system backup, disaster recovery, migration, replication, automated client protection, storage resource management, scheduling, event correlation and desktop management. VERITAS develops, markets and supports advanced storage management and high availability products for open system environments. VERITAS' products provide performance improvement and reliability enhancement features that are critical for many commercial applications. Some of the key features of storage management products include protection against data loss and file corruption, rapid recovery after disk or system failure, the ability to process large files efficiently and the ability to manage the storage systems without interrupting users. The high availability products provide an automated failover between computer systems organized in clusters sharing disk resources. In accordance with the provisions of Accounting Principles Board ("APB") Opinions No. 16 and 17, all identifiable assets acquired were analyzed to determine their Fair Market Values. As the basis for identifying the in-process research and development ("R&D"), the development projects were evaluated in the context of Interpretation 4 of Financial Accounting Standards Board Statement No. 2. In accordance with these provisions, the developmental projects were examined to determine if there were any alternative future uses. Such evaluation consisted of a specific review of the efforts, including the overall objectives of the project, progress toward the objectives, and the uniqueness of the developments of these objectives. Further, each in-process R&D project was reviewed to determine if technological feasibility had been achieved. F-44 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS COMBINATIONS (CONTINUED) DESCRIPTION OF METHODOLOGY Tangible net assets of VERITAS principally include cash and investments, accounts receivable, fixed assets and other current assets. Liabilities principally include accounts payable, accrued compensation, and other accrued liabilities. To estimate the value of the developed technology, the expected future cash flows attributable to all existing technology was discounted, taking into account risks related to the characteristics and applications of the technology, existing and future markets, and assessments of the life cycle stage of the technology. The developed technology is being amortized on the straight-line basis over its estimated useful life (four years) which is expected to exceed the ratio of current revenues to the total of current and anticipated revenues. The value of the distribution networks and original equipment manufacturer agreements was estimated by considering, among other factors, the size of the current and potential future customer bases, the quality of existing relationships with customers, the historical costs to develop customer relationships, the expected income and associated risks. Associated risks included the inherent difficulties and uncertainties in transitioning business relationships and risks related to the viability of and potential changes to future target markets. The value of trademarks was estimated by considering, among other factors, the assumption that in lieu of ownership of a trademark, a company would be willing to pay a royalty in order to exploit the related benefits of such trademark. The value of the assembled workforce was estimated as the costs to replace the existing employees, including recruiting, hiring, and training costs for each category of employee. The value allocated to projects identified as in-process technology at VERITAS and Seagate Software Holdings, for the minority interest acquired, were charged to expense in the fourth quarter of fiscal 1999. These write-offs were necessary because the acquired technologies had not reached technological feasibility at the date of purchase and have no future alternative uses. Seagate Software Holdings expects that the acquired in-process research and development will be successfully developed, but there can be no assurance that commercial viability of these products will be achieved. The nature of the efforts required to develop the purchased in-process technology into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the product can be produced to meet its design specifications, including functions, features and technical performance requirements. The value of the purchased in-process technology for VERITAS was estimated as the projected net cash flows related to such products, including costs to complete the development of the technology and the future revenues to be earned upon commercialization of the products, excluding revenues attributable to future development efforts. These cash flows were then discounted back to their net present value. The projected net cash flows from such projects were based on management's estimates of revenues and operating profits related to such projects. Goodwill is calculated as the residual difference between the estimated amount paid and the values assigned to identified tangible and intangible assets and liabilities. F-45 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS COMBINATIONS (CONTINUED) VALUATION ASSUMPTIONS Revenue Revenue estimates were based on (i) aggregate revenue growth rates for the businesses as a whole, (ii) growth rates for the storage management software market, (iii) the aggregate size of the storage management software market, (iv) anticipated product development and introduction schedules, (v) product sales cycles, and (vi) the estimated life of a product's underlying technology. Future revenue estimates were generated based on the worldwide storage management software market and the backup, restore and archive market. The overall storage management software market is forecasted to increase at a compound annual growth rate of 14.2%, from a 1997 value of $2.543 billion to a 2002 value of $4.941 billion. The backup, restore and archive software sector of storage management software, in which NSMG competes, is expected to grow much faster than other sectors. NSMG is positioned for continued growth in its backup, restore, and archive software products. The backup, restore, and archive segment is the fastest growing in the storage management software market. Moreover, NSMG competes, and is one of the leaders in providing this type of software for the Windows NT operating environment. Revenue for Windows 95 and Windows NT is projected to grow at a 43.3% compound annual growth rate (1997 through 2002), higher than for any other operating environment. Revenue for NSMG was forecasted by product line for the years 1999 through 2001. Revenue was expected to be $350 million for the 1999 calendar year. Thereafter, NSMG is expected to grow slightly greater than the 43.3% industry average through 2003. The revenue by product was allocated between existing, in-process, and future technology; indicating a four-year life cycle (revenue contribution from technology), which is consistent with NSMG's past experience with technology life cycles. VERITAS is an open systems supplier. The market for open systems suppliers grew 101.2% between 1996 and 1997. In addition, VERITAS looks to grow and increase its market share through positioning itself as a provider of software services in the Windows NT operating environment. As above, revenue for Windows NT is projected to grow at a 43.3% compound annual growth rate (1997 through 2002). Revenue for VERITAS was forecasted by product line for the years 1999 through 2001. Revenue was expected to be $270 million for the 1999 calendar year. Thereafter, VERITAS is expected to grow at 67.9% and 58.4% for years 2000 and 2001, respectively, a rate greater than the 43.3% industry average. For years 2002 through 2005, revenues are expected to level off at a 40% growth rate. The revenue by product was allocated between existing, in-process, and future technology indicating a four-year life cycle (revenue contribution from technology) for Windows NT based products and a three-year life cycle for Unix based products which is consistent with VERITAS' past experience with technology life cycles. OPERATING EXPENSES Estimated operating expenses used in the valuation analysis of NSMG and VERITAS included (i) cost of goods sold, (ii) general and administrative expense, (iii) sales and marketing expense, and (iv) research and development expense. In developing future expense estimates, an evaluation of both NSMG and VERITAS's overall business models, specific product results, including both historical and expected direct expense levels (as appropriate), and an assessment of general industry metrics was conducted. F-46 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS COMBINATIONS (CONTINUED) Cost of goods sold. Cost of goods sold, for the developed and in-process technologies was estimated to be approximately 8.6% of revenues from 2000 to 2006 for NSMG. Cost of goods sold, for the developed and in-process technologies was estimated to be approximately 14.7% of revenues from 2000 to 2005 for VERITAS. General and administrative ("G&A") expense. G&A expense, expressed as a percentage of revenue, for the developed and in-process technologies was estimated to be 9.2% in 1999 and expected to be reduced to 6.7% by 2002 for NSMG. G&A expense for VERITAS, expressed as a percentage of revenue, for the developed and in-process technologies was held constant at 4.4% of revenues for the forecast period of 2000 to 2005. Selling and marketing ("S&M") expense. S&M expense, expressed as a percentage of revenue, for the developed and in-process technologies was estimated to be 37.4% for years 2000 to 2006 related to NSMG. S&M expense for VERITAS, expressed as a percentage of revenue, for the developed and in-process technologies was estimated to be 34.7% for years 2000 to 2005. Research and development ("R&D") expense. R&D expense consists of the costs associated with activities undertaken to correct errors or keep products updated with current information (also referred to as "maintenance" R&D). Maintenance R&D includes all activities undertaken after a product is available for general release to customers to correct errors or keep the product updated with current information. These activities include routine changes and additions. The maintenance R&D expense was estimated to be 2% of revenue for the developed and in-process technologies for the years 2000 to 2006 for NSMG. R&D expense for VERITAS was estimated as 18.2% of revenue in 1999 and was reduced to 16% by 2002, continuing at that rate until 2005. In addition, as of the date of the contribution of NSMG to VERITAS, Seagate Software's management and VERITAS' management anticipated the costs to complete the in-process technologies at approximately $5.8 million and $44.2 million, respectively. EFFECTIVE TAX RATE The effective tax rate utilized in the analysis of developed and in-process technologies was 33%, which reflects VERITAS' combined effective federal and state statutory income tax rates, exclusive of non-recurring charges at the time of the contribution and estimated for future years. DISCOUNT RATE The discount rates selected for the developed and in-process technologies were 12% and 17%, respectively. In the selection of the appropriate discount rates, consideration was given to (i) the Weighted Average Rate of Return (approximately 14% at the date of acquisition) and (ii) the Weighted Average Return on Assets (approximately 18% at the end of contribution) that investors expect for companies with similar anticipated growth rates and other characteristics as the NSMG and VERITAS businesses. The discount rate utilized for the in-process technology was determined to be higher than the WARR due to the fact that the technology had not yet reached technological feasibility as of the date of valuation. In utilizing a discount rate greater than the WARR, management has reflected the risk premium associated with achieving the forecasted cash flows associated with these projects. The discount rate was adjusted downward from the WARR for the developed technologies to reflect less technological and/or market risk associated with forecasted sales of the existing products. ALLOCATION OF TANGIBLE AND INTANGIBLE ASSETS AND LIABILITIES RELATED TO THE SEAGATE SOFTWARE MINORITY INTEREST ACQUIRED BY SEAGATE TECHNOLOGY Seagate Software Holdings' investment in VERITAS comprises over 85% of the fair value of Seagate Software Holdings. Accordingly, the assumptions utilized in the allocation of the purchase F-47 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS COMBINATIONS (CONTINUED) price of the minority interest of Seagate Software Holdings acquired by Seagate Technology were materially the same as those used in the allocation of the tangible and intangible assets and liabilities of NSMG and VERITAS. PRO FORMA FINANCIAL INFORMATION The pro forma financial information presented below is presented as if the contribution of NSMG to VERITAS and the purchase of the Seagate Software Holdings minority interest by Seagate Technology had occurred at the beginning of fiscal 1998. The pro forma statements of operations for the twelve months ended July 2, 1999 and July 3, 1998, include the historical results of Seagate Technology less the historic results of the NSMG business, plus Seagate Technology's equity interest in the pro forma results of VERITAS, including recurring amortization of related goodwill and intangibles plus recurring amortization of goodwill and intangibles associated with the purchase of shares of Seagate Software Holdings stock by Seagate Technology. Non-recurring transactions, such as the gain on the NSMG contribution to VERITAS, compensation expense relating to the acquisition of stock held less than six months by employees of Seagate Software Holdings, transaction costs and the write-off of in-process research and development are excluded from the pro forma presentation. The pro forma financial results are as follows:
FOR THE YEARS ENDED ------------------------------ JULY 2, 1999 JULY 3, 1998 -------------- ------------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenue ......................................... $ 6,600 $ 6,644 Loss before income taxes ........................ (110) (1,127) Net loss ........................................ (34) (789) Net loss per share -- basic and diluted ......... $ (0.14) $ (3.27)
As of June 30, 2000, the Company held approximately 32% of the outstanding common stock of VERITAS. The Company accounts for its investment in VERITAS under the equity method and records its equity interest in VERITAS' net income (loss) on a one-quarter lag. The Company's recorded equity in the net income of VERITAS for the year ended June 30, 2000 was $30 million, and differs from the Company's proportionate share of VERITAS' reported net loss for the twelve months ended March 31, 2000. This difference is primarily because the Company eliminates from VERITAS' net income (loss) the effect of VERITAS' accounting for the NSMG business contribution, including VERITAS' amortization expense related to intangible assets. The Company was not required to record its equity interest in VERITAS' net income (loss) in fiscal 1999 because the NSMG business contribution occurred late in the fourth quarter. The Company's activity related to equity interest in VERITAS for the year ended June 30, 2000 consisted of recorded equity in the net income of VERITAS of $30 million, as described above, and the Company's amortization expense for goodwill and other intangible assets relating to the investment in VERITAS amounting to $356 million. The Company's activity related to equity interest in VERITAS for the year ended July 2, 1999 consisted of amortization of goodwill and other intangible assets relating to the investment in VERITAS of $34 million and in-process research and development of $85 million. 7. SEAGATE SOFTWARE HOLDINGS REORGANIZATION On October 20, 1999, the stockholders of Seagate Software Holdings, then a majority-owned subsidiary of the Company, approved the merger of Seagate Daylight Merger Corp., a wholly-owned subsidiary of the Company, with and into Seagate Software Holdings. Seagate Software Holdings' F-48 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. SEAGATE SOFTWARE HOLDINGS REORGANIZATION (CONTINUED) assets consisted of the assets of IMG and its investment in the common stock of VERITAS Software Corporation. The merger was effected on October 20, 1999. As a result of the merger, Seagate Software Holdings became a wholly-owned subsidiary of the Company. In connection with the merger, Seagate Software Holdings' stockholders and optionees received payment in the form of 3.23 shares of the Company's common stock per share of Seagate Software Holdings common stock less any amounts due for the payment of the exercise price for such options. All outstanding Seagate Software Holdings stock options were accelerated immediately prior to the merger. Seagate Technology issued 9,124,046 shares of its common stock from treasury shares to optionees and minority stockholders of Seagate Software Holdings. In connection with the reorganization, Seagate Software Holdings also formed [Seagate Software Information Management Group Holdings, Inc., or IMG], a wholly-owned subsidiary. Seagate Software Holdings transferred the IMG assets into Crystal Decisions. This new company, Crystal Decisions, is now the operating entity for the IMG business. Crystal Decisions has established stock option plans. Total shares available for issuance under these plans are 22,700,000. As of June 30, 2000, Crystal Decisions had granted 9,501,899 options to purchase common stock to employees of Crystal Decisions at an average exercise price of $4 per share, and 1,050 shares had been exercised. Seagate Software Holdings accounted for the exchange of shares of its common stock as the acquisition of a minority interest for Seagate Software Holdings common stock outstanding and vested more than six months held by employees and all stock held by former employees and consultants. The fair value of the shares of Seagate Technology issued was $19 million and was recorded as purchase price and allocated to the assets and liabilities received. The Company accounted for the exchange of shares of its common stock for stock options in Seagate Software Holdings held by employees and stock held and vested by employees less than six months as the settlement of an earlier stock award. During the quarter ended December 31, 1999, the Company recorded compensation expense of $284 million, plus $2 million in payroll taxes, related to the purchase of minority interest in Seagate Software. Allocation of minority interest purchase price to the intangible assets of Seagate Software
(IN MILLIONS) ------------- Distribution channel ............ $ 1 Developed technology ............ 1 Goodwill ........................ 18 --- Subtotal ....................... 20 Deferred tax liability .......... (1) Total .......................... $19 ===
F-49 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. SEAGATE SOFTWARE HOLDINGS REORGANIZATION (CONTINUED) Compensation relating to stock purchased from employees
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA) -------------------------------- Seagate Software options exercised and exchanged for Seagate stock ................................................ 3,723,015 Plus: Seagate Software stock held for less than 6 months and exchanged for Seagate stock .............................. 17,952 --------- Total Seagate Software shares exchanged ....................... 3,740,967 Times: Exchange ratio into Seagate stock ...................... 3.23 --------- Number of Seagate shares issued ............................... 12,083,323 ---------- Value per share of Seagate common stock on October 20, 1999 ............................................. $ 29.00 Less: Average price paid per Seagate share .................... $ (5.50) ----------- Average compensation expense per Seagate share issued ......... $ 23.50 ----------- Total compensation expense ................................... $ 284 ===========
8. RESTRUCTURING As part of the transactions, the Company assumed all restructuring liabilities previously recorded by Seagate Technology including $41 million related to restructuring activities announced in fiscal 2000 and $3 million related to restructuring activities announced in fiscal 2001. During the period from July 1, 2000 to November 22, 2000, Seagate Technology recorded restructuring charges totaling $20 million. Of the $20 million, $11 million was a result of a restructuring plan established to continue the alignment of Seagate Technology's global workforce and manufacturing capacity with existing and anticipated future market requirements, specifically in its recording head operations in Thailand (the "fiscal 2001 restructuring plan"). The remaining $9 million consisted of a $3 million employee termination benefit adjustment to the original estimate related to the fiscal 2000 restructuring plan and $6 million in additional restructuring charges for adjustments to original estimates to the fiscal 1998 restructuring plan. The fiscal 2001 restructuring plan includes workforce reductions, capacity reductions including closure of facilities or portions of facilities, write-off of excess equipment and consolidation of operations. The restructuring charges were comprised of $3 million for employee termination costs; $6 million for the write-off of owned facilities located in Thailand; $1 million for the write-off of excess manufacturing, assembly and test equipment; and $1 million in other expenses. Prior to these restructuring activities, there was no indication of permanent impairment of the assets associated with the closure and consolidation of facilities. In the third fiscal quarter of 2001, the Company announced restructuring activities at disc drive plants in Perai and Ipoh, Malaysia and the customer service operations in Oklahoma City. The Company estimates these restructuring activities will include $23 million in severance, $12 million in excess equipment, $17 million in lease termination and residual rental payments, and $2 million in other costs. The Company believes these activities will be substantially complete by December 28, 2001. In connection with the fiscal 2001 restructuring plan, the Company plans to reduce its workforce by approximately 6,000 employees, primarily in manufacturing. Approximately 100 of the 6,000 employees had been terminated as of December 29, 2000. As a result of employee terminations and the write-off of equipment and facilities in connection with the fiscal 2001 restructuring plan, the Company estimates that after completion of these restructuring activities, annual salary and F-50 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. RESTRUCTURING (CONTINUED) depreciation expense will be reduced by approximately $7 million and $2 million, respectively. However, the Company expects that reduction in annual salary expense will be substantially offset by increases of headcount in certain other recording head operations facilities. The Company intends to implement additional actions pursuant to the fiscal 2001 restructuring plan, and, when such additional actions are implemented, the Company anticipates that additional charges would be taken related to these actions. The Company expects the fiscal 2001 restructuring plan will be substantially complete by June 29, 2001. In connection with the fiscal 2000 restructuring plan, Seagate Technology recorded an adjustment of $3 million in the quarter ended September 29, 2000 as a result of an increase in the estimated number of employees to be terminated. The Company now plans to reduce its workforce by approximately 24,000 employees primarily in manufacturing. Approximately 22,000 of the 24,000 employees had been terminated as of December 29, 2000. As a result of employee terminations and the write-off of equipment and facilities in connection with the fiscal 2000 restructuring plan, the Company estimates that after completion of these restructuring activities, annual salary and depreciation expense will be reduced by approximately $151 million and $48 million, respectively. The fiscal 2000 restructuring plan was substantially complete as of December 29, 2000. In connection with the restructuring plan implemented in fiscal 1998, Seagate Technology revised its original lease termination cost estimates on certain of its facilities and recorded an additional $6 million in restructuring charges. In fiscal 2000, the Company recorded restructuring charges of $218 million. The $218 million restructuring charge was a result of a restructuring plan established to align the Company's global workforce and manufacturing capacity with existing and anticipated future market requirements and necessitated by the Company's improved productivity and operating efficiencies (the "fiscal 2000 restructuring plan"). These actions included workforce reductions, capacity reductions including closure of facilities or portions of facilities, write-off of excess equipment and consolidation of operations in the Company's recording media operations, disc drive assembly and test facilities, printed circuit board assembly manufacturing, recording head operations, software operations, customer service operations, sales and marketing activities, and research and development activities. The restructuring charges were comprised of $81 million for the write-off of excess manufacturing, assembly and test equipment formerly utilized in Singapore, Thailand and Northern California; $90 million for employee termination costs; $29 million for the write-off of owned facilities located in Singapore; $11 million in lease termination and holding costs; $5 million in renovation costs to restore facilities in Singapore and Northern California to their pre-lease condition; and $2 million in contract cancellations associated with one of the Singapore facilities. Prior to this period, there was no indication of permanent impairment of the assets associated with the closure and consolidation of facilities. In connection with the fiscal 2000 restructuring plan, the Company plans to reduce its workforce by approximately 23,000 employees primarily in manufacturing. Approximately 18,300 of the 23,000 employees had been terminated as of June 30, 2000. As a result of employee terminations and the write-off of equipment and facilities in connection with the restructuring charges recorded during the year ended June 30, 2000 related to the fiscal 2000 restructuring plan, the Company estimates that after the completion of these restructuring activities, annual salary and depreciation expense will be reduced by approximately $151 million and $88 million, respectively. The Company anticipates that the implementation of the fiscal 2000 restructuring plan will be substantially complete by December 29, 2000. In fiscal 2000, the Company reversed $11 million of its restructuring accruals comprised of $2 million of restructuring reserves recorded in the same period, $5 million of restructuring reserves recorded in fiscal 1999 and $4 million of restructuring reserves recorded in fiscal 1998. This reversal F-51 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. RESTRUCTURING (CONTINUED) included $3 million of valuation reserves classified elsewhere on the balance sheet and the reversal of amounts included in the restructuring reserve for facility lease costs. In addition, reclassifications between cost categories within the restructuring reserve were made as a result of differences between original estimates and amounts actually incurred or expected to be incurred. During the third quarter of fiscal 1999, the Company recorded a restructuring charge of $72 million as a result of steps the Company is taking to further improve the efficiency of its operations. These actions included closure of the Company's microchip manufacturing facility in Scotland; discontinuance of the Company's recording head suspension business located in Malaysia and Minnesota; consolidation of global customer service operations by relocating such operations in Singapore, Scotland and Costa Mesa, California to Reynosa, Mexico; and closure of the Company's recording media substrate facility in Mexico. The restructuring charges were comprised of $37 million for the write-off or write-down of excess manufacturing, assembly and test equipment formerly utilized in Scotland, Malaysia and Minnesota; $16 million for lease termination and holding costs for facilities located in Scotland and Singapore; $10 million for employee termination costs; $3 million for the write-off of goodwill associated with the recording media substrate operation in Mexico; $2 million for the write-down of owned facilities located in Malaysia; $1 million for the write-down of leasehold improvements in Singapore; $1 million for the write-off of tooling; $1 million for contract cancellations associated with the suspension business; and $1 million for repayment of various grants previously received from the Scottish government. Prior to this period, there was no indication of permanent impairment of the assets associated with the closure and consolidation of facilities. Evaluations of the resale market for certain assets were used to estimate fair value. As of July 2, 1999, all of the equipment located at the microchip facility in Scotland had been sold and the lease on this facility had been terminated The Company is in the final stages of disposing all of the assets for its suspension business. The facility that was previously occupied by the suspension operations is currently being used for other operations. In connection with the fiscal 1999 restructuring, the Company's planned workforce reduction had been completed as of March 31, 2000 and the other restructuring activities were substantially complete as of March 31, 2000. In fiscal 1999, the Company reversed $12 million of its restructuring accruals originally recorded in fiscal year 1998 as a result of the Company abandoning its plan to seek an agreement with an external vendor to supply parts currently manufactured at a facility in Thailand. This reversal included $10 million of valuation reserves classified elsewhere on the balance sheet and reversal of amounts included in the restructuring reserve of $1 million for facility lease costs and $1 million for contract cancellations. In addition, reclassifications between cost categories within the restructuring reserve were made as a result of differences between original estimates and amounts actually incurred or expected to be incurred. This was primarily a result of an increase in the period of time estimated to obtain a suitable sub-lessee for certain leased buildings located at the former San Jose, California design facility offset by lower severance and benefits costs than originally estimated. In the second and third quarters of fiscal 1998, the Company recorded restructuring charges aggregating $347 million. The Company had experienced reductions in revenue from the third quarter of fiscal year 1997 to the fourth quarter of fiscal year 1997 of 21%, from the fourth quarter of fiscal year 1997 to the first quarter of fiscal year 1998 of 4% and from the first quarter of fiscal year 1998 to the second quarter of fiscal year 1998 of an additional 12%. During the second quarter of fiscal 1998, forecasted production needs were much lower than the current capacity of the Company and the Company recognized that the recent oversupply in the marketplace was not a short-term F-52 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. RESTRUCTURING (CONTINUED) anomaly. In this period, the Company also decided to discontinue production of several products, rendering test and manufacturing equipment unique to those products obsolete. Prior to this period, there was no indication of permanent impairment of these assets associated with the recent excess capacity of the Company or the products to be discontinued These charges reflect steps the Company is taking to align worldwide operations with current market conditions by reducing existing capacity in all areas of the Company and improving the productivity of its operations and the efficiency of its development efforts by consolidating manufacturing and R&D operations. Actions include exiting production of mobile products; early discontinuation of several other products; closing and selling the Clonmel, Ireland drive manufacturing facility; closing and subleasing the San Jose and Moorpark, California design center facilities; aborting production expansion projects in Cork, Ireland; and divesting the Company of the new Philippines manufacturing facility, which was nearing completion. Included in the restructuring charge are the write-down and write-off of tangible assets comprised of manufacturing, assembly and test equipment and tooling formerly utilized in California, Singapore, Thailand, Ireland and facilities located in California, the Philippines and Thailand totaling $200 million and intangible assets totaling $2.5 million for goodwill associated with permanently impaired media manufacturing equipment. The majority of the tangible assets have been disposed of or sold including the disposal of the Clonmel, Ireland facility in May 1998 and the sublease of one of the five buildings at the San Jose, California design center. The Company is marketing three additional buildings in the San Jose, California design center for sublease. The fifth building has a remaining lease term so short as to make a sublease impractical. Equipment formerly utilized at these facilities, in addition to equipment associated with restructuring actions in Singapore and Thailand, has been relocated to other sites or scrapped. Of the $137 million in write-offs and write-downs of equipment, $109 million was scrapped and $28 million is awaiting final disposition. In addition, $10 million of equipment was transferred at net book value for use in operations at other sites. Subsequent to the recording of the restructuring reserve, depreciation related to certain assets that continued in use, was included in operations. At the time these assets were identified as available for sale no further depreciation was recorded. The write-off of intangibles and other assets includes capital equipment deposits and goodwill associated with permanently impaired equipment. Costs associated with aborting production expansion projects in Cork, Ireland include primarily architect costs, lease termination costs associated with equipment leased by contractors, and lease termination costs for temporary housing used by contractor personnel. Certain facilities including design centers in California, as well as manufacturing facilities in Thailand continued in use after restructuring amounts were recorded. The Moorpark, California product design center remained in use for six months after the write-down of leasehold improvements and equipment totaling $9 million. This facility has been subleased for a portion of the remaining minimum lease term. One Thailand manufacturing facility continues to be utilized until a satisfactory agreement can be made with an external vendor to supply parts currently manufactured at this location. At the time the decision to exit this facility was made, the Company believed that it had identified a supplier for parts. It was subsequently determined that the supplier could not meet the Company's quality standards. As of January 1, 1999, the Company's planned workforce reduction associated with the fiscal 1998 restructuring had been completed. The implementation of the 1998 restructuring plan was substantially complete as of July 2, 1999. F-53 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. RESTRUCTURING (CONTINUED) The following table summarizes the Company's restructuring activities:
SEVERANCE INTANGIBLES & AND EXCESS OTHER CONTRACT BENEFITS FACILITIES EQUIPMENT ASSETS CANCELLATIONS OTHER TOTAL ----------- ------------ ----------- -------------- --------------- ---------- ----------- (IN MILLIONS) FY1998 restructuring charge ..................... $ 57 $ 78 $ 137 $ 11 $ 43 $ 21 $ 347 FY1999 restructuring charge ..................... 10 19 37 4 1 1 72 Cash charges ................ (60) (23) -- -- (38) (12) (133) Non-cash charges ............ -- (59) (174) (15) -- -- (248) Adjustments and reclassifications .......... (3) 3 -- -- (3) 1 (2) ---- ---- ----- ----- ---- ---- ----- Reserve balances, July 2, 1999 ....................... 4 18 -- -- 3 11 36 FY2000 restructuring charge ..................... 90 40 81 -- 2 5 218 Cash charges ................ (69) (11) -- -- -- (2) (82) Non-cash charges ............ -- (29) (81) -- -- -- (110) Adjustments and reclassifications .......... (2) (8) -- -- -- 2 (8) ---- ---- ----- ----- ---- ---- ----- Reserve balances, June 30, 2000 .............. 23 10 -- -- 5 16 54 ---- ---- ----- ----- ---- ---- ----- FY2001 restructuring charge ..................... 3 6 1 -- 1 11 Cash charges ................ (14) (5) -- -- (3) (22) Non-cash charges ............ -- (6) (1) -- -- (7) Adjustments ................. 3 6 -- -- -- 9 ---- ---- ----- ----- ---- ---- ----- Reserve balances, November 22, 2000 .......... 15 11 -- 5 13 44 NEW SAC Cash charges ................ (3) (1) -- -- -- (4) ---- ---- ----- ----- ---- ---- ----- Reserve balances, December 29, 2000 .......... $ 12 $ 10 $ -- $ -- $ 5 $ 13 $ 40 ==== ==== ===== ===== ==== ==== =====
The Company may not be able to realize all of the expected savings from its restructuring activities and cannot insure that the restructuring activities and transfers will be implemented on a cost-effective basis without delays or disruption in its production and without adversely affecting its results of operations. 9. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION The Company designs, manufactures and markets products for storage, retrieval and management of data on computer and data communications systems. These products include rigid disc drives and disc drive components, tape drives and software. The Company has three operating segments: disc drives, software and tape drives, however, only the disc drive and software businesses are reportable segments under the criteria of SFAS No. 131. The "other" category in the following revenue and gross profit tables consists of tape drives and out-of-warranty repair. The CEO F-54 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED) evaluates performance and allocates resources based on revenue and gross profit from operations. Gross profit from operations is defined as revenue less cost of sales. The Company does not evaluate or allocate assets or depreciation by operating segment, nor does the CEO evaluate segments on these criteria. The CEO has been identified as the Chief Operating Decision Maker as defined by SFAS No. 131. The following table summarizes the Company's operations by business segment:
NEW SAC SEAGATE TECHNOLOGY -------------- --------------------------------------------------------- PERIOD FROM PERIOD FROM SIX NOVEMBER 23, JULY 1, MONTHS 2000 2000 ENDED TO TO DECEMBER 31, DECEMBER 29, NOVEMBER 22, 1999 2000 2000 (UNAUDITED) 2000 1999(1) 1998(1) -------------- -------------- ------------- --------- --------- -------- (IN MILLIONS) Revenue: Disc Drives .......... $ 962 $2,286 $3,100 $6,013 $6,101 $6,152 Software ............. 20 57 58 127 343 293 Other ................ 35 106 169 308 358 374 ----- ------ ------ ------ ------ ------ Consolidated ......... $1,017 $2,449 $3,327 $6,448 $6,802 $6,819 ====== ====== ====== ====== ====== ====== Gross Profit: Disc Drives .......... $ 107 $ 257 $ 582 $1,238 $1,244 $ 730 Software ............. 12 42 35 82 291 242 Other ................ 2 50 45 72 91 59 -------- ------ ------ ------ ------ ------ Consolidated ......... $ 121 $ 319 $ 662 $1,392 $1,626 $1,031 ======= ====== ====== ====== ====== ======
NEW SAC SEAGATE TECHNOLOGY ------------- ------------------------------------------ DECEMBER 29, 2000 2000 1999 1998 ------------- ------------ ------------ ------------ Total Assets: Disc Drives ................... $ 21,469 $ 19,900 $ 16,553 $ 16,685 Software(2) ................... 345 Other ......................... 187 1,066 586 292 --------- --------- --------- --------- Operating Segments............. 22,001 20,966 17,139 16,977 Investment in VERITAS ......... -- 1,122 1,745 -- Eliminations .................. (18,478) (14,921) (11,812) (11,332) --------- --------- --------- --------- Consolidated .................. $ 3,523 $ 7,167 $ 7,072 $ 5,645 ========= ========= ========= =========
- ---------- (1) Includes results of operations of Seagate Software Holdings, NSMG, and Crystal Decisions. (2) Includes assets of Seagate Software Holdings and Crystal Decisions. For the period from November 23, 2000 to December 29, 2000, Compaq Computer Corporation and EMC Corporation accounted for more than 10% of consolidated revenue for a total of $147 million and $145 million, respectively. For the period from July 1, 2000 to November 22, 2000, Compaq Computer Corporation and EMC Corporation accounted for more than 10 % of consolidated revenue for a total of $429 million and $328 million, respectively. Sales to Compaq Computer Corporation and EMC Corporation were primarily from the Company's disk drive segment In fiscal 2000, 1999 and 1998, Compaq Computer Corporation accounted for more than 10% of consolidated revenue for a total of $1.100 billion, $1.144 billion, and $873 million, respectively. Sales to Compaq Computer Corporation were from the Company's disc drive segment. F-55 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED) Enterprise-wide information is provided in accordance with SFAS No. 131. Long-lived assets consist of property, equipment and leasehold improvements, capital leases, equity investments, goodwill and other intangibles, and other non-current assets as recorded by the Company's operations in each area. The following table summarizes the Company's operations by geographic area:
NEW SAC SEAGATE TECHNOLOGY -------------- ---------------------------------------------------------- PERIOD FROM PERIOD FROM SIX MONTHS NOVEMBER 23, JULY 1, 2000 ENDED 2000 TO TO DECEMBER 31, DECEMBER 29, NOVEMBER 22, 1999 2000 2000 (UNAUDITED) 2000 1999 1998 -------------- -------------- ------------- --------- --------- --------- (IN MILLIONS) Revenue from external customers: (1) United States ................. $ 396 $1,199 $1,521 $2,917 $3,440 $3,641 The Netherlands ............... 271 465 674 1,312 1,361 1,447 Singapore ..................... 245 456 635 1,378 1,194 1,119 Other ......................... 105 329 497 841 807 612 ------ ------ ------ ------ ------ ------ Consolidated .................. $1,017 $2,449 $3,327 $6,448 $6,802 $6,819 ====== ====== ====== ====== ====== ====== Long-lived Assets: (2) United States ................. $ 556 $1,521 $ 826 $ 771 Singapore ..................... 196 392 546 607 Malaysia ...................... 146 285 303 304 Investment in VERITAS ......... -- 1,122 1,745 -- Other ......................... 166 338 340 348 ------ ------ ------ ------ Consolidated .................. $1,064 $3,658 $3,760 $2,030 ====== ====== ====== ======
- ---------- (1) Revenue is attributed to countries based on the shipping location. (2) All assets belonging to Seagate Technology, Inc. were acquired by New SAC as of November 22, 2000. 10. ACCUMULATED OTHER COMPREHENSIVE INCOME The Company records unrealized gains and losses on the mark-to-market of its investments as a component of accumulated other comprehensive income. As of June 30, 2000 and July 2, 1999, total accumulated other comprehensive income (loss) was $86 million and $(7) million, respectively. During fiscal 2000, several marketable equity securities held by the Company including SanDisk Corporation, Gadzoox Networks, Inc., Veeco Instruments, Inc., and Lernout & Hauspie Speech Products N.V. were included in this mark-to-market calculation resulting in a $95 million unrealized gain, net of taxes. No such similar amounts were recorded in fiscal 1999. Such investments are subject to changes in valuation based upon the market price of their common stock. Between June 30, 2000 and August 9, 2000, these investments, excluding the investment in SanDisk which was sold during the same period, had temporarily decreased in fair value by $56 million, net of taxes. In July 2000, the Company sold its remaining investment in SanDisk for net proceeds of approximately $105 million. Accumulated other comprehensive loss as of December 29, 2000, represents the temporary loss on mark-to-market of marketable securities. F-56 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. ACCUMULATED OTHER COMPREHENSIVE INCOME (CONTINUED) The components of accumulated other comprehensive income (loss), net of related tax, at December 29, 2000, June 30, 2000 and July 2, 1999 were as follows:
NEW SAC SEAGATE TECHNOLOGY -------------- ----------------------- DECEMBER 29, JUNE 30, JULY 2, 2000 2000 1999 -------------- ---------- ---------- (IN MILLIONS) Unrealized gain (loss) on securities .................. $ (3) $88 $(5) Foreign currency translation adjustments .............. -- (2) (2) ---- --- --- Accumulated other comprehensive income (loss) ......... $ (3) $86 $(7) ==== === ===
- ---------- Accumulated other comprehensive income as of June 30, 2000 includes deferred tax liabilities of $57 million. 11. SEAGATE TECHNOLOGY, INC.'S PREVIOUSLY HELD EQUITY INVESTMENT IN VERITAS SOFTWARE CORPORATION In connection with the transactions, the investment in VERITAS was not acquired by the Company. It was acquired by VERITAS in connection with the merger. Seagate Technology accounted for its investment in VERITAS under the equity method and recorded its equity interest in VERITAS' net income (loss) on a one-quarter lag. Summarized income statement information for VERITAS for the six months ended September 29, 2000 is as follows:
SIX MONTHS ENDED SEPTEMBER 29, 2000 -------------- (IN MILLIONS) Revenue .............. $ 593 Gross profit ......... 502 Net loss ............. (320)
Seagate Technology's recorded equity in the net income of VERITAS for the period from July 1, 2000 through November 22, 2000 was $30 million, and differs from Seagate Technology's proportionate share of VERITAS' reported net loss for the six months ended September 29, 2000. This difference is primarily because Seagate eliminated from VERITAS' net income (loss) the effect of VERITAS' purchase accounting for the Network & Storage Management Group business contribution, including VERITAS' amortization expense related to intangible assets. As this investment was not acquired by the Company under the terms of the stock purchase agreement, no further accounting of the investment occurred after November 22, 2000. Seagate Technology's activity related to equity interest in VERITAS for the period from July 1, 2000 to November 22, 2000 consisted of Seagate Technology's amortization expense for goodwill and other intangible assets relating to the investment in VERITAS of $129 million partially offset by recorded equity in the net income of VERITAS of $30 million as described above. 12. EXCHANGE OF INVESTMENTS IN EQUITY SECURITIES During fiscal 2000, several marketable equity securities held by the Company including Dragon Systems, CVC and iCompression were exchanged for other investments in publicly traded companies. The Company's equity investment in Dragon Systems was exchanged for a 2.5% F-57 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. EXCHANGE OF INVESTMENTS IN EQUITY SECURITIES (CONTINUED) ownership in Lernout & Hauspie. The Company's equity investment in CVC was exchanged for an approximate 6% ownership in Veeco Instruments and equity investment in iCompression was exchanged for shares of Globespan Semiconductor. These exchanges were accounted for under APB 29, Accounting for Nonmonetary Transactions. As a result, the Company recognized a $231 million gain on the exchange of shares in those companies for the shares in the new companies. In November 2000, Lernout & Hauspie declared bankruptcy after a substantial deterioration in its financial condition. As a result, the Company wrote-off its entire investment in Lernout & Hauspie in November 2000, amounting to $138 million. 13. COMMITMENTS Leases -- The Company leases certain property, facilities and equipment under non-cancelable lease agreements. Land and facility leases expire at various dates through 2015 and contain various provisions for rental adjustments including, in certain cases, a provision based on increases in the Consumer Price Index. All of the leases require the Company to pay property taxes, insurance and normal maintenance costs. Future minimum lease payments for operating leases with initial or remaining terms of one year or more were as follows at December 29, 2000:
OPERATING LEASES -------------- (IN MILLIONS) 2001 ......................... $ 18 2002 ......................... 34 2003 ......................... 31 2004 ......................... 25 2005 ......................... 19 2006 ......................... 15 After 2006 ................... 117 ---- $259 ====
Total rent expense for all land, facility and equipment operating leases was approximately $3 million, $16 million and $22 million for the period from November 23, 2000 to December 29, 2000, July 1, 2000 to November 22, 2000 and for the six months ended December 31, 1999, respectively. Total rent expense for all land, facility and equipment operating leases was approximately $44 million, $56 million, and $58 million for 2000, 1999 and 1998, respectively. Capital Expenditures -- The Company's commitments for construction of manufacturing facilities and equipment approximated $18 million at December 29, 2000. Joint Venture -- In July 2000, the Company and Thomson Multimedia formed an independent company called CacheVision. CacheVision brings together the Company's product development activities and Thomson Multimedia's A/V technologies expertise and marketing presence to develop cost-optimized, time-to-market integrated systems to be incorporated into consumer electronic products such as televisions, set-top boxes, personal video recorders, and DVD players. The Company expects to sell rigid disc drive products to CacheVision as an OEM customer. This information is unaudited. F-58 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. SUPPLEMENTAL CASH FLOW INFORMATION
NEW SAC SEAGATE TECHNOLOGY -------------- -------------------------------------------------------- PERIOD FROM PERIOD FROM NOVEMBER 23, JULY 1, SIX 2000 2000 MONTHS TO TO ENDED DECEMBER 29, NOVEMBER 22, DECEMBER 31, 2000 2000 1999 2000 1999 1998 -------------- -------------- ------------- ------ --------- ---------- (IN MILLIONS) Cash Transactions: Cash paid for interest .......... $-- $ 26 $ 26 $ 52 $ 52 $ 52 Cash paid (received) for income taxes, net of refunds ......... -- (125) 261 577 (109) (1) Non-Cash Transactions: Contribution of NSMG to VERITAS ......................... $-- $ -- $ -- $ -- $1,806 $-- Acquisition of minority interest -- -- 19 19 52 -- Acquisition of XIOtech Corporation ..................... -- -- -- 359 -- --
The components of depreciation and amortization expense are as follows:
NEW SAC SEAGATE TECHNOLOGY -------------- ---------------------------------------------------------- PERIOD FROM PERIOD FROM SIX NOVEMBER 23, JULY 1, MONTHS 2000 2000 ENDED TO TO DECEMBER 31, DECEMBER 29, NOVEMBER 22, 1999 2000 2000 (UNAUDITED) 2000 1999 1998 -------------- -------------- ------------- ------ ------ ------- (IN MILLIONS) Depreciation ...................... $47 $242 $298 $597 $574 $549 Amortization: Goodwill and intangibles ......... 7 30 19 52 51 56 Deferred compensation ............ 1 4 3 6 10 8 Other assets ..................... 14 (5) 31 38 61 51 --- --- ---- ---- ---- ---- $69 $271 $351 $693 $696 $664 === === ==== ==== ==== ====
15. LITIGATION LEGAL PROCEEDINGS SECURITIES CLASS ACTIONS Following our announcement of the transactions, a number of our stockholders filed lawsuits against us, the individual members of our board of directors, some of our executive officers, VERITAS and Silver Lake. The complaints filed in Delaware were consolidated into one action on April 18, 2000. On May 22, 2000, the Delaware Chancery Court certified the Delaware action as a class action. The Delaware plaintiffs filed an amended complaint and moved for a preliminary injunction on September 11, 2000. In California, three complaints were filed in Santa Clara County Superior Court and two complaints were filed in Santa Cruz County Superior Court. The complaints in both jurisdictions all essentially allege that the members of our board of directors breached their fiduciary duties to our shareholders by entering into the transactions. The complaints also allege that the directors and executive officers have conflicting financial interests and did not secure the highest possible price for our shares. All the complaints were styled as class actions, and sought to enjoin the transactions and secure damages from all defendants. Between March 30 and October 27, 2000, one of the California complaints was voluntarily dismissed and the others were coordinated in Santa F-59 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. LITIGATION (CONTINUED) Clara County. On October 13, 2000, a Memorandum of Understanding, or MOU, was signed regarding settlement with all defendants on behalf of the shareholder class. The shareholders approved the transactions on November 21, 2000 and the transactions closed on November 22, 2000. After the transactions closed in November 2000, the four remaining California actions were dismissed with prejudice. A final Stipulation of Settlement was executed in early January 2001. The Delaware Chancery Court approved the settlement and entered an order of judgement on April 12, 2001. If no appeal is filed within 30 days, the judgment will be final. The primary elements of the Stipulation of Settlement are the following: o Suez Acquisition Company and the investor group agreed to increase the cash purchase price under the stock purchase agreement by $50 million. This amount: - was funded by the investor group on the closing of the transactions into an escrow account held by VERITAS, pending its distribution to our shareholders, if specified conditions are satisfied as discussed below; - will be paid to our shareholders as additional consideration if the order of judgment by the Delaware Chancery Court is not appealed and becomes final and the Delaware lawsuit and the California lawsuits are dismissed with prejudice; and - - plus interest, will be returned to New SAC in the event that VERITAS determines, in its reasonable judgment, that the conditions to the release of the amount have become incapable of being satisfied. o New SAC paid $15.25 million in attorneys' fees awarded to plaintiffs' counsel by the Delaware Chancery Court into an escrow account. That amount will be paid from escrow to plaintiffs' counsel when the judgment is final. o The merger agreement was amended to 1) reduce the maximum amount that may be required to be held in escrow to cover our potential tax liabilities from $300 million to $150 million, and 2) change some provisions regarding VERITAS' payment of the consideration for the merger. o The settlement is binding on all members of the shareholder class. INTELLECTUAL PROPERTY LITIGATION Papst Licensing, GmbH -- Papst has given us notice that it believes various of our former Conner Peripherals, Inc. rigid disc drives infringe several of its patents covering the use of spindle motors in rigid disc drives. We believe that the accused former Conner disc drives do not infringe any valid and/or enforceable claims of the Papst patents. We believe that subsequent to the merger with Conner, our earlier paid-up license under Papst's patents extinguished any ongoing liability. We also believe we enjoy the benefit of licenses granted by Papst to motor vendors of Conner. After closing of the transactions, Papst indicated that it could not consent to the assignment of the 1993 Papst-Seagate license to the new entity until it receives further information about the new business structure and that any of our drives would be assumed to be unlicensed. We are providing Papst with additional information regarding the new business structure. Convolve, Inc. -- On July 13, 2000, Convolve, Inc., and Massachusetts Institute of Technology filed a lawsuit, captioned Convolve, Inc. and Massachusetts Institute of Technology v. Compaq Computer Corp. and Seagate Technology, Inc. against Compaq Computer Corporation and Seagate Technology in the U.S. District Court for the Southern District of New York. It alleged patent infringement, misappropriation of trade secrets, breach of contract, tortious interference with contract F-60 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. LITIGATION (CONTINUED) and fraud relating to Convolve's Input Shaping (Registered Trademark) and Quick and QuietTM technology. The plaintiffs claim their technology is incorporated in our sound barrier technology, which was publicly announced on June 7, 2000. The complaint seeks injunctive relief, $800 million in compensatory damages and punitive damages. We answered the complaint on August 2, 2000 and filed cross-claims for declaratory judgment that two Convolve/MIT patents are invalid and not infringed and that we own any intellectual property based on the information that we disclosed to Convolve. Plaintiffs' motion for expedited discovery was denied by the court. The court ordered plaintiffs to identify their trade secrets to defendants before discovery can begin. Convolve served a trade secrets disclosure on August 4, 2000, and Seagate Technology has challenged that disclosure as not containing any trade secrets. The court will appoint a Special Master to review the trade secret issues, and the parties have presented candidates to the court. We believe this matter is without merit and intend to defend it vigorously. Storage Computer Corporation -- On March 22, 2001, Storage Computer Corporation filed suit in the U.S. District Court for the Northern District of Texas, Civil Action No. 3-01CV0555-M, entitled Storage Computer Corporation v. XIOtech Corporation and Seagate Technology, Inc. The complaint alleges that XIOtech's MAGNITUDETM product infringes U.S. Patent No. 5,893,919 and that Seagate Technology induces infringement of the patent by promoting and marketing XIOtech's MAGNITUDETM product, particularly through a hyperlink on Seagate Technology's internet website to XIOtech's internet website. The plaintiff alleges willfull infringement and seeks unspecified damages and an injunction. We have engaged outside counsel to evaluate the claims in the suit. LABOR LITIGATION White -- On March 15, 2000 Royston White filed a breach of contract action against Seagate Technology in Oklahoma State Court. The complaint is styled as a class action, and White, as the sole named defendant, alleges that some 600 former employees have been damaged through breach of separation and release agreements entered into in connection with a work force reduction. Discovery is ongoing and a trial date has not yet been set. We have filed a summary judgment motion, although the court has not set a hearing date yet. We believe we have substantive defenses and will pursue such defenses vigorously. OTHER MATTERS We are involved in a number of other judicial and administrative proceedings incidental to our business. Although occasional adverse decisions or settlements may occur, we believe that the final disposition of such matters will not have a material adverse effect on our financial position or results of operations. 16. PURCHASE ACCOUNTING On November 22, 2000, under the stock purchase agreement, New SAC completed the purchase of all of the operating assets and assumption of operating liabilities of Seagate Technology and its consolidated subsidiaries. The net purchase price was $1.840 billion in cash, including transaction costs of approximately $25 million. Immediately thereafter, in a separate and independent transaction, Seagate Technology and VERITAS completed their merger under the Merger Agreement. At the time of the merger, Seagate Technology's assets included a specified amount of cash, an investment in VERITAS, and certain specified investments and liabilities. In connection with the Merger Agreement, Seagate Technology, VERITAS and New SAC entered into an Indemnification F-61 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. PURCHASE ACCOUNTING (CONTINUED) Agreement, pursuant to which these entities and certain other subsidiaries of Seagate Technology, including RSS, agreed to certain indemnification provisions regarding tax and other matters that may arise in connection with the stock purchase agreement and Merger Agreement. We accounted for the transactions as a purchase in accordance with Accounting Principles Board, or APB, Opinion No. 16, "Business Combinations." All acquired tangible assets, identifiable intangible assets as well as assumed liabilities were valued based on their relative fair values and reorganized into the following businesses: (1) the rigid disc drive business (HDD, which is now Seagate Technology Holdings), which includes the storage area networks business (SAN, which is now Seagate Technology SAN Holdings), (2) the removable storage solutions business (RSS, which is now Seagate Removable Storage Solutions Holdings), (3) the software business (Crystal Decisions), and (4) an investment holding company (STI). The fair value of the net assets exceeded the net purchase price by approximately $909 million. Accordingly, the resultant negative goodwill was allocated on a pro rata basis to the acquired long-lived assets and reduced the recorded amounts by approximately 46%. Seagate Technology recorded a loss on the sale of its operating assets of $889 million related to this transaction on November 22, 2000. The table below summarizes the allocation of net purchase price by business. Amounts for HDD include SAN.
ESTIMATED FAIR VALUE -------------------------------------------------------------------- (IN MILLIONS) USEFUL TOTAL LIFE NEW CRYSTAL DESCRIPTION IN YEARS SAC HDD SAN RSS DECISIONS STI - ----------------------------------------- --------- ---------- --------- -------- --------- ----------- ------ Net current assets (1) (4) .............. $ 939 $ 873 $ 27 $32 $ 9 $25 Long-term investments (2) ............... 42 -- -- -- -- 42 Other long-lived assets ................. 42 42 -- -- -- -- Property, plant & equipment (3) 3.5 778 764 2 9 5 -- Identified intangibles: Trade names (5) ......................... 10 47 47 1 -- -- -- Developed technologies (5) .............. 3-7 76 50 5 11 15 -- Assembled workforces (5) ................ 1-3 53 43 1 3 7 -- Other ................................... 5 1 1 1 -- -- -- ------ ------ ----- ---- --- --- Total identified intangibles ......... 177 141 8 14 22 -- Long-term deferred taxes (4) ............ (75) (70) -- (3) (2) -- Long term liabilities ................... (122) (122) (10) -- -- -- ------ ------ ----- --- --- --- Net assets ........................... 1,781 1,628 27 52 34 67 In-process research & development (4) ........................ 59 52 25 -- 7 -- ------ ------ ----- --- --- --- Net Purchase Price ................... $1,840 $1,680 $ 52 $52 $41 $67 ====== ====== ===== === === ===
- ---------- (1) Acquired current assets included cash and cash equivalents, accounts receivable, inventories and other current assets. The fair values of current assets generally approximated the recorded historic book values of Seagate Technology. Short-term investments were valued based on quoted market prices. Inventory values were estimated based on the current market value of the inventories less completion costs and less a normal profit margin based on activities remaining to be completed until the inventory is sold. Valuation allowances were established for current deferred tax assets in excess of long-term deferred tax liabilities. F-62 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. PURCHASE ACCOUNTING (CONTINUED) Assumed current liabilities included accounts payable, accrued compensation and expenses and accrued income taxes. The fair values of current liabilities generally approximated the historic recorded book values of Seagate Technology because of the monetary nature of most of the liabilities. Details of the net current assets are as follows (in millions): Cash and cash equivalents $1,116 Accounts receivable, net 494 Inventories 766 Other current assets 202 Accounts payable (711) Accrued employee compensation (180) Accrued expenses (576) Accrued income taxes (168) ------ Total tangible assets acquired $ 943 ======
(2) The value of individual long-term equity investments was based upon quoted market prices, where available, and when such market prices were not available an independent appraisal was performed to estimate the fair values of the individual investments. (3) New SAC obtained an independent valuation of the acquired property, plant and equipment. In arriving at the determination of market value for the assets, the appraisers considered the estimated cost to construct or acquire comparable property. Machinery and equipment was assessed using replacement cost estimates reduced by depreciation factors representing the condition, functionality and operability of the assets. The sales comparison approach was used for office and data communication equipment. Land, land improvements, buildings, and building and leasehold improvements were valued based upon discussions with knowledgeable personnel. (4) Long-term deferred tax liabilities arose as a result of the excess of the fair values of inventory, long-term investments, and acquired intangible assets over their related tax basis. New SAC has $350 million of federal and state deferred tax assets for which a full valuation allowance has been established. (5) New SAC obtained an independent valuation of acquired identified intangibles. The significant assumptions relating to each category are discussed in the following paragraphs. Also, these assets are being amortized on the straight-line basis over their estimated useful life and resultant amortization is included in amortization of goodwill and other intangibles. Trade names -- The value of the trade names was based upon discounting to their net present value the licensing income that would arise by charging the operating businesses that use the trade names. Developed technologies -- The value of this asset for each operating business was determined by discounting the expected future cash flows attributable to all existing technologies which had reached technological feasibility, after considering risks relating to: 1) the characteristics and applications of the technology, 2) existing and future markets, as well as 3) life cycles of the technologies. Estimates of future revenues and expenses used to determine the value of developed technology was consistent with the historical trends in the industry and expected outlooks. Assembled workforces -- The value of the assembled work force was determined by estimating the recruiting, hiring and training costs to replace each group of existing employees. F-63 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. PURCHASE ACCOUNTING (CONTINUED) In-process research & development (IPR&D) -- The value of IPR&D was based on an evaluation of all developmental projects using the guidance set forth in Interpretation No. 4 of Financial Accounting Standards Board Statement FAS No. 2, "Accounting for Research and Development Costs" and FAS No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed". The amount was determined by: 1) obtaining management estimates of future revenues and operating profits associated with existing developmental projects 2) projecting the cash flows and costs to complete of the underlying technologies and resultant products, and 3) discounting these cash flows to their net present value. Estimates of future revenues and expenses used to determine the value of IPR&D was consistent with the historical trends in the industry and expected outlooks. The entire amount was charged to operations because related technologies had not reach technological feasibility and they had no alternative future use. PRO FORMA FINANCIAL INFORMATION The pro forma financial information presented below is presented as if the acquisition of substantially all of the operating assets of Seagate Technology had occurred at the beginning of fiscal 1999. The pro forma statements of operations for the six months ended December 29, 2000 and December 31, 1999 and for the fiscal years ended June 30, 2000 and July 2, 1999 are adjusted to reflect the new accounting basis for the assets and liabilities of New SAC, and exclude acquisition related charges for recurring amortization of goodwill and intangibles related to Seagate Technology's prior acquisitions, as well as charges recorded by Seagate Technology to reflect the loss on sale to New SAC and compensation expense related to option accelerations associated with the transactions. The pro forma financial results are as follows:
SIX MONTHS ENDED FISCAL YEAR ------------------------------ ----------------------- DECEMBER 31, DECEMBER 29, 1999 JUNE 30, JULY 2, 2000 (UNAUDITED) 2000 1999 -------------- ------------- ---------- ---------- (IN MILLIONS) Revenue ................................... $3,466 $3,327 $ 6,448 $ 6,600 Income (loss) before income taxes ......... 262 (22) 176 464 Net income (loss) ......................... 210 (29) 176 (233)
17. EQUITY CAPITAL STOCK New SAC's authorized share capital is $22,000 and consists of 100 million ordinary shares, par value $0.0001, of which 9,409,000 shares (including 1,843,000 unvested shares) were outstanding as of December 29, 2000, 20 million non-voting ordinary shares, par value $0.0001, of which 1,591,000 were outstanding as of December 29, 2000, and 100 million preferred shares, par value $0.0001, of which 9,205,000 shares (including 48,500 unvested shares) were outstanding as of December 29, 2000. Ordinary Shares -- Holders of ordinary shares are entitled to receive dividends and distributions when and as declared by New SAC's Board of Directors, subject to the rights of holders of New SAC's preferred shares. Upon any liquidation, dissolution, or winding up of New SAC, after required payments are made to holders of preferred shares, any remaining assets of New SAC will be F-64 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. EQUITY (CONTINUED) distributed ratably to holders of the ordinary shares. Holders of ordinary shares are entitled to one vote per share on all matters presented to New SAC's shareholders. Non-Voting Ordinary Shares -- Holders of non-voting ordinary shares have the same rights as holders of New SAC's ordinary shares except they have no voting rights. Holders of non-voting ordinary shares can convert their shares, on a share-for-share basis, into New SAC's ordinary shares. Specified entities, however, cannot exercise this conversion option if, in the aggregate, they would hold more than 9.6% of the shares in New SAC that are entitled to vote or they would be subject to specified tax liabilities. Preferred Shares -- New SAC's Board of Directors may issue one or more series of preferred shares, at the time and for the consideration determined by the Board of Directors. Holders of preferred shares are entitled to receive dividends and distributions when and as declared by New SAC's Board of Directors in preference to holders of New SAC's ordinary shares. Upon any liquidation, dissolution, or winding up of New SAC, the holders of preferred shares shall receive, out of any remaining, legally available assets of SAC, a liquidation preference of $100.00 per preferred share, less the aggregate amount of any distributions or dividends already made per preferred share. To the extent there are not sufficient remaining assets of New SAC to pay the liquidation preference, holders of preferred shares shall share ratably in the distribution of New SAC's remaining assets. Upon payment of the liquidation preference on each preferred share, the preferred shares shall be redeemed in full and cancelled. Holders of preferred shares have no voting rights. NEW SAC 2000 AND 2001 RESTRICTED SHARE PLANS AND DEFERRED COMPENSATION PLANS At the closing of the transactions, the Board of Directors of New SAC adopted the New SAC 2000 Restricted Share Plan (2000 Restricted Share Plan). The 2000 Restricted Share Plan allows for grants of ordinary and preferred shares awards to key employees, directors, and consultants. The Company has authorized 1,843,000 ordinary shares and 48,500 preferred shares to be granted under the 2000 Restricted Share Plan. Members of the management group entered into rollover agreements in connection with the transactions. Under these agreements, members of the management group agreed not to receive the merger consideration for a portion of their Seagate Technology restricted common stock and options to purchase shares of Seagate Technology common stock, valued at approximately $184 million. In exchange for the management rollover, the members of the management group received the right to participate in a deferred compensation plan and receive unvested ordinary and preferred shares of New SAC granted under the 2000 Restricted Share Plan. The unvested preferred and ordinary shares vest as follows: o one-third will vest on the first anniversary of the closing of the transactions; o one-third will vest proportionately each month over the next 18 months; and o the final one-third will vest on the date which is 30 months after the closing of the transactions. Of the total value of the management rollover, approximately $179 million relates to the restricted award grants. With respect to the restricted ordinary and preferred shares received in connection with the rollover agreements, New SAC will recognize compensation expense of approximately $23 million, based on the fair value of the ordinary and preferred shares at the date of issuance, amortized over the 30 month vesting period using the graded vesting method. In connection with the management rollover, members of the management group also received interests in deferred compensation plans adopted at Seagate Technology Holdings, Seagate SAN Holdings, and Seagate Removable Storage Solutions Holdings, depending on which subsidiary F-65 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. EQUITY (CONTINUED) employed the individual. Under the terms of the deferred compensation plans the employee vests in certain deferred compensation at the same rate as vesting in the ordinary and preferred shares. However, such vesting can be accelerated at any time at the election of the subsidiary. Payments, if any, under the deferred compensation plan are contingent and will be made only when distributions are made to preferred shareholders and only to the extent of vesting. New SAC's ability to make distributions is subject to limitations under the debt agreement. As a result, compensation expense for the deferred cash compensation plan will be deferred until distributions are made to preferred shareholders. Payment will be made in cash, securities or other property at the discretion of the Company. In February 2000, the Board of Directors approved the adoption of the New SAC 2001 Restricted Share Plan (the 2001 Restricted Share Plan). Under the terms of the 2001 Restricted Share Plan key employees, directors, and consultants, may be awarded restricted ordinary shares. Such shares are subject to vesting provisions to be defined at the date of grant and are subject to repurchase by the Company. 500,000 ordinary shares are available for grant under the plan. The Board of Directors also approved the grant of up to 440,830 restricted ordinary shares to various key employees and directors under this plan. SUBSIDIARY STOCK OPTION PLANS In December 2000, the Board of Directors of Seagate Technology Holdings, a subsidiary of New SAC, adopted the Seagate Technology Holdings Stock Option Plan (the HDD Option Plan). Under the terms of the HDD Option Plan eligible employees, directors, and consultants can be awarded options to purchase shares of common stock of Seagate Technology Holdings under vesting terms to be determined at the date of grant. Seventy-two (72) million common shares have been reserved for issuance under the HDD Option Plan. The HDD Option Plan is subject to approval by the senior subordinated noteholders. In February 2001, the Board of Directors approved the issuance of up to approximately 17 million options to purchase common stock of Seagate Technology Holdings. In December 2000, the Board of Directors of Removable Storage Solutions Holdings, a subsidiary of New SAC, adopted the Removable Storage Solutions Holdings Stock Option Plan (the RSS Option Plan). Under the terms of the RSS Option Plan eligible employees, directors, and consultants can be awarded options to purchase shares of common stock of Removable Storage Solutions Holdings under vesting terms to be determined at the date of grant. Seventy-two (72) million common shares have been reserved for issuance under the RSS Option Plan. In February 2001, the Board of Directors approved the issuance of up to approximately 1 million options to purchase common stock of Removable Storage Solutions Holdings 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION New SAC is a holding company and has no independent operations or assets. New SAC holds investments in four primary subsidiaries as follows: o Seagate Technology Holdings, (which we refer to as "STH") is a subsidiary and is comprised of the disc drive operating business and storage area network operating business of the Company. o Seagate Removable Storage Solutions Holdings, (which we refer to as "RSS") is a subsidiary and is comprised of the tape drive operating business of the Company. o Crystal Decisions, Inc., formerly Seagate Software Information Management Group Holdings, Inc., (which we refer to as "Crystal Decisions") is a subsidiary comprised of the software operating business of the Company. F-66 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) o Seagate Technology Investment Holdings LLC, (which we refer to as "STIH") is a subsidiary that manages certain strategic equity security investments. New SAC currently owns all of the currently outstanding shares of STH, RSS and STIH, and over 99 percent of the outstanding shares of Crystal Decisions. The senior subordinated notes mentioned in Note 3 are wholly and unconditionally guaranteed on a joint and several basis by STH, RSS and Crystal Decisions. The senior subordinated notes are not guaranteed by STIH. The following tables present the condensed consolidating financial position of New SAC and its Predecessor, Seagate Technology, at December 29, 2000, June 30, 2000, and July 1, 1999, and the condensed consolidating results of their operations and their cash flows for the period from November 23, 2000 to December 29, 2000, the period from July 1, 2000 to November 22, 2000, and the six months ended December 31, 1999 (unaudited), and for each of the years in the three year period ended June 30, 2000. The information is presented with separate columns for each of the parent, the non-wholly owned guarantor (Crystal Decisions), the wholly owned guarantor subsidiaries (RSS and STH), and the wholly owned non-guarantor subsidiary (STIH). In addition, the historical operating results of Seagate Technology include the operations of the non-wholly owned NSMG business, prior to its contribution to VERITAS in June 1999. Subsequent to the contribution of NSMG to VERITAS, the investment in VERITAS was accounted for on the equity method. Seagate Technology's investment in VERITAS was not purchased by New SAC and all amounts relating to NSMG and the investment in VERITAS are presented in a separate column. The information classifies the historic businesses of the hard disc drive operations, the removable storage solutions business, the software business, and the strategic equity investments business, and their subsidiaries, based upon the current classification of those subsidiaries and their successors under the current provisions of the Senior Subordinated Notes. The condensed consolidating financial information is included below for New SAC, and then separately for each of Seagate Technology Holdings (STH), Seagate Removable Storage Solutions Holdings (RSS) and Crystal Decisions, Inc (Crystal). Separate condensed consolidating financial information for Seagate Technology SAN Holdings is not provided because all of its subsidiaries have guaranteed the senior subordinated debt on a joint and several, whole and unconditional basis. In addition, Seagate Technology SAN Holdings is a subsidiary of, and is consolidated with all financial information of Seagate Technology Holdings. F-67 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 29, 2000 (IN MILLIONS)
NON- WHOLLY WHOLLY-OWNED OWNED WHOLLY OWNED GUARANTORS GUARANTOR NON-GUARANTOR ----------------- CRYSTAL -------------- STH RSS DECISIONS STIH ELIMINATIONS NEW SAC --------- ------- ---------- -------------- -------------- -------- ASSETS Cash and cash equivalents ............... $ 689 $ 11 $ 7 $25 $ -- $ 732 Intercompany loan receivable ............ 31 (31) -- Short-term investments .................. 118 118 Accounts receivable, net. ............... 851 21 21 893 Affiliate accounts receivable ........... 1 6 (7) -- Inventories ............................. 424 24 448 Deferred income taxes ................... 72 2 2 76 Other current assets .................... 209 4 3 216 ------ ---- --- ---- ------ Total Current Assets ................... 2,364 62 65 30 (38) 2,483 ------ ---- ---- --- ---- ------ Property, equipment, and leasehold improvements, net ...................... 772 11 6 789 Goodwill and other intangibles, net ..... 133 14 22 169 Other assets ............................ 69 37 106 ------ --- ------ Total Assets ........................... $3,338 $ 87 $ 93 $67 $(38) $3,547 ====== ==== ==== === ==== ====== LIABILITIES Accounts payable ........................ $ 739 $ 20 $ 10 $ $ $ 769 Affiliate accounts payable .............. 37 1 (38) -- Accrued employee compensation ........... 162 4 9 175 Accrued expenses ........................ 507 13 36 (3) 553 Accrued income taxes .................... 231 231 Current portion of long-term debt ....... 10 1 11 ------ ---- ------ Total Current Liabilities .............. 1,686 38 55 (2) (37) 1,740 Deferred income taxes ................... 35 2 37 Other liabilities ....................... 117 2 119 Long-term debt, less current portion..... 893 893 ------ ------ Total Liabilities ...................... 2,731 40 57 (2) (37) 2,788 ------ ---- ---- ---- ---- ------ Commitments and Contingencies SHAREHOLDERS' EQUITY .................... 607 47 36 169 -- 759 ------ ---- ---- ---- ---- ------ Total Liabilities and Shareholders' Equity ............................... $3,338 $ 87 $ 93 $167 $(37) $3,547 ====== ==== ==== ==== ==== ======
F-68 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS PERIOD FROM NOVEMBER 23, 2000 TO DECEMBER 29, 2000 (IN MILLIONS)
NON- WHOLLY WHOLLY-OWNED OWNED WHOLLY OWNED GUARANTORS GUARANTOR NON-GUARANTOR -------------------------- CRYSTAL -------------- STH RSS DECISIONS STIH NEW SAC ------------- ---------- ---------- -------------- ------------- Revenue .............................. $ 969 $ 28 $ 20 $ -- $ 1,017 Cost of revenue ...................... 862 29 5 896 Product development .................. 68 2 3 73 Marketing and administrative ......... 88 3 9 1 101 Amortization of goodwill and other intangibles ......................... 5 5 Restructuring ........................ -- Unusual items ........................ 52 7 59 ------ ---- ---- ------- Total operating expenses ............ 1,075 34 24 1 1,134 ------ ---- ---- ---- ------- (Loss) from operations .............. (106) (6) (4) (1) (117) Interest income ...................... 3 3 Interest expense ..................... (10) (10) Other, net ........................... (8) (8) --------- --------- Other income (expense), net ......... (15) _ (15) -------- ------ -------- (Loss) before income taxes. .......... (121) (6) (4) (1) (132) -------- ------- ------- ------- -------- (Provision) for income taxes ......... (20) (1) (21) -------- ------- -------- Net (loss) .......................... $ (141) $ (6) $ (5) $ (1) $ (153) ======== ====== ====== ====== ========
F-69 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS PERIOD FROM NOVEMBER 23, 2000 TO DECEMBER 29, 2000 (IN MILLIONS)
NON-WHOLLY WHOLLY-OWNED OWNED WHOLLY OWNED GUARANTORS GUARANTOR NON-GUARANTOR ---------------------- CRYSTAL -------------- PARENT STH RSS DECISIONS STIH NEW SAC -------- ----------- ------------- ------------- -------------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ............... $ -- $ (88) $ (3) $ 3 $ (1) $ (89) INVESTING ACTIVITIES Acquisition of property, equipment and leasehold improvements ......... (32) (1) (1) (34) Purchases of short-term investments ........................ (129) (129) Maturities and sales of short-term investments ........................ 130 130 Purchase of Seagate operating assets ............................. (918) (918) Other, net .......................... (2) (2) -------- ------ ------ ----- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ............. (918) (33) (1) (1) -- (953) FINANCING ACTIVITIES Issuance of long-term debt, net of issuance costs ..................... 860 860 Short-term borrowings ............... 66 66 Repayment of short-term borrowings ......................... (66) (66) Sale of ordinary and preferred shares ............................. 914 914 Net change in investment by New SAC ............................ 4 (51) 15 6 26 -- Other, net .......................... 1 (1) -- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ............. 918 810 15 5 26 1,774 Increase (decrease) in cash and cash equivalents ................... -- 689 11 7 25 732 Cash and cash equivalents at the beginning of the year .............. -- -- -- -- -- -- ------ ------- ------ ------ ----- -------- Cash and cash equivalents at the end of the year .................... $ -- $(818) $ 11 $ 7 $ 25 $ 732 ====== ======= ====== ====== ===== ========
F-70 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 (IN MILLIONS)
WHOLLY-OWNED WHOLLY OWNED GUARANTORS NON- NON-GUARANTOR ------------------------ WHOLLY -------------- OWNED GUARANTOR CRYSTAL NSMG PARENT STH RSS DECISIONS STIH AND VERITAS NEW SAC ------------ ------------- ---------- ---------- -------------- ------------- ------------- Revenue ...................... $ -- $ 2,302 $ 90 $ 57 $ -- $ -- $ 2,449 Cost of revenue .............. 2,034 77 18 1 2,130 Product development .......... 408 23 11 442 Marketing and administrative .............. 440 13 35 2 490 Amortization of goodwill and other intangibles........ 20 6 26 Restructuring ................ 19 1 20 Unusual items ................ (2) 2 -- --------- ---- --------- Total operating expenses .................. 2,919 113 67 2 7 3,108 -------- ------ ---- ----- ----- --------- Income (loss) from operations ................ (617) (23) (10) (2) (7) (659) Interest income .............. 58 58 Interest expense ............. (24) (24) Gain on sale of Veeco stock ....................... 20 20 Gain on sale of SanDisk stock ............... 102 102 Loss on LHSP investment .................. (138) (138) Activity related to equity interest in VERITAS ......... (99) (99) Loss on sale of operating assets to New SAC ..................... (889) (889) Other, net ................... (12) 1 1 (1) -- (11) -------- ------ ---- -------- ------- --------- Other income (expense), net ............ (889) 6 1 1 (1) (99) (981) -------- -------- ------ ---- -------- ------- --------- Income (loss) before income taxes ................ (889) (611) (22) (9) (3) (106) (1,640) Benefit (provision) for income taxes ................ (190) 206 9 4 47 76 -------- -------- ------ ------ ------- --------- Net income (loss) ........... $ (1,079) $ (405) $ (13) $ (5) $ (3) $ (59) $ (1,564) ======== ======== ====== ====== ======= ======= =========
F-71 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) NEW SAC AND ITS PREDECESSOR CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 (IN MILLIONS)
NON-WHOLLY OWNED WHOLLY-OWNED GUARANTORS GUARANTORS ----------------------------------------- CRYSTAL PARENT STH RSS DECISIONS NEW SAC ----------- ------------- ----------- ----------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES .................. $ $ (128) $(26) $ 3 $ 105 INVESTING ACTIVITIES Acquisition of property, equipment and leasehold improvements .......................... -- (265) (5) (2) (272) Purchases of short-term investments ........................... -- (1,612) (1,612) Maturities and sales of short-term investments. ............... -- 2,628 2,628 Purchase of Seagate operating assets and assumed liabilites ......... 918 918 Restricted Cash ........................ -- (150) (150) Proceeds from sale of certain investments ........................... -- 234 234 Merger with VERITAS .................... (2,144) -- -- -- (2,144) Other, net ............................. -- (6) (6) -------- ---------- ---------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES .............. (1,226) 829 (5) (2) (404) FINANCING ACTIVITIES -- Sale of common stock ................... 236 236 Repayment of long term debt ............ -- (812) -- (812) Net change in investment by New SAC and its predecessor 990 (1,014) 28 (4) (37) Other, net ............................. -- 1 (1) -- -------- --------- ------ --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .................. 1,226 (1,825) 28 (1) (576) Increase (decrease) in cash and cash equivalents ...................... -- (868) (3) (4) (875) Cash and cash equivalents at the beginning of the year ............. -- 868 3 4 875 -------- --------- ------ ----- --------- Cash and cash equivalents at the end of the year ................... $ -- $ -- $ -- $-- $ -- ======== ========= ====== ===== =========
F-72 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1999 (IN MILLIONS) (UNAUDITED)
WHOLLY-OWNED WHOLLY OWNED GUARANTORS NON- NON-GUARANTOR ------------------------- WHOLLY -------------- OWNED GUARANTOR CRYSTAL NSMG SEAGATE STH RSS DECISIONS STIH AND VERITAS TECHNOLOGY ------------- ----------- ------------- -------------- ------------- ------------- Revenue .................................. $ 3,117 $ 152 $ 58 $ $ $ 3,327 Cost of revenue .......................... 2,534 108 23 2,665 Product development ...................... 328 18 13 359 Marketing and administrative ............. 187 12 42 2 243 Amortization of goodwill and other intangibles ............................. 9 2 6 17 Restructuring ............................ 134 1 135 Unusual items ............................ 82 243 325 -------- ----- --------- ------ ------- -------- Total operating expenses ................ 3,274 138 324 2 6 3,744 Income (loss) from operations ........... (157) 14 (266) (2) (6) (417) Interest income .......................... 42 42 Interest expense ......................... (26) (26) Gain on sale of SanDisk stock ............ 62 62 Gain on sale of VERITAS stock ............ -- 537 537 Activity related to equity interest in VERITAS ................................. -- (183) (183) Other, net ............................... (1) (1) (2) -------- ----- --------- ------ ------- -------- Other income (expense), net ............. 77 -- (1) -- 354 430 -------- ----- --------- ------ ------- -------- Income (loss) before income taxes ................................... (80) 14 (267) (2) 348 13 Benefit (provision) for income taxes ................................... 23 (5) 49 (137) (70) -------- ----- --------- ------ ------- -------- Net income (loss) ....................... $ (57) $ 9 $ (218) $ (2) $ 211 $ (57) ======== ====== ======== ====== ======= ========
F-73 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED DECEMBER 31, 1999 (IN MILLIONS) (UNAUDITED)
WHOLLY-OWNED GUARANTORS --------------------------- PARENT STH RSS --------- ------------- ------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ....................................... $ -- $ 181 $ 14 INVESTING ACTIVITIES Acquisition of property, equipment and leasehold improvements ........................... (274) (4) Purchases of short-term investments ............... (1,639) Maturities and sales of short-term investments ...................................... 1,803 Proceeds from sale of certain investments ......... 67 Other, net ........................................ (19) -------- ------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ........................... -- (62) (4) FINANCING ACTIVITIES Issuance of long-term debt, net of issuance costs ............................................ -- 1 Sale of common stock .............................. 65 Purchase of treasury stock ........................ (776) Other, net ........................................ -- (11) (7) Net change in investment by New SAC and its predecessor .................................. 711 (4) ------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ........................... -- (14) (7) Increase in cash and cash equivalents ............. -- 105 3 Cash and cash equivalents at the beginning of the period .................................... -- 368 2 ------- ---------- ------- Cash and cash equivalents at the end of the period ........................................... $ -- $ 473 $ 5 ======= ========== ======= WHOLLY OWNED NON- NON-GUARANTOR WHOLLY -------------- OWNED GUARANTOR CRYSTAL NSMG DECISIONS STIH AND VERITAS NEW SAC ------------ -------------- ------------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ....................................... $(17) $ (2) $ (143) $ 33 INVESTING ACTIVITIES Acquisition of property, equipment and leasehold improvements ........................... (1) (279) Purchases of short-term investments ............... (1,639) Maturities and sales of short-term investments ...................................... 1,803 Proceeds from sale of certain investments ......... 834 901 Other, net ........................................ (19) ------ ----- ------ --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ........................... (1) -- 834 767 FINANCING ACTIVITIES Issuance of long-term debt, net of issuance costs ............................................ 1 Sale of common stock .............................. 65 Purchase of treasury stock ........................ (776) Other, net ........................................ 18 -- Net change in investment by New SAC and its predecessor .................................. 2 (709) -- ------ ----- ------ --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ........................... 18 2 (709) (710) Increase in cash and cash equivalents ............. -- (18) 90 Cash and cash equivalents at the beginning of the period .................................... 8 18 396 ------ ----- ------ --------- Cash and cash equivalents at the end of the period ........................................... $ 8 $ -- $ -- $ 486 ====== ===== ====== =========
F-74 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET JUNE 30, 2000 (IN MILLIONS)
WHOLLY-OWNED WHOLLY OWNED GUARANTORS NON- NON-GUARANTOR ------------------ WHOLLY -------------- OWNED GUARANTOR NSMG SEAGATE STH RSS CRYSTAL STIH AND VERITAS ELIMINATIONS TECHNOLOGY ---------- ------- DECISIONS -------------- ------------- -------------- ----------- ASSETS Cash and cash equivalents ............ $ 868 $ 3 $ 4 $ -- $ -- $ -- $ 875 Short-term investments ............... 1,140 1,140 Accounts receivable, net ............. 642 19 17 678 Affiliate accounts receivable ........ -- 26 10 (36) -- Inventories .......................... 413 17 430 Deferred income taxes ................ 282 8 290 Other current assets ................. 156 1 10 167 ------- ---- ---- ------- Total Current Assets ................ 3,430 48 57 10 (36) 3,509 ------- ---- ---- ------- ------ ------- Property, equipment, and leasehold improvements, net ......... 1,585 14 9 1,608 Investments .......................... -- 1,122 1,122 Goodwill and other intangibles, net ................................. 294 3 5 51 353 Other assets ......................... 509 66 575 ------- ---- ------- Total Assets ........................ $ 5,818 $ 65 $ 71 $ 66 $ 1,183 $ (36) $ 7,167 ======= ==== ==== ==== ======= ====== ======= LIABILITIES Accounts payable ..................... $ 679 $ 18 $ 10 $ -- $ -- $ -- $ 707 Affiliate accounts payable ........... 36 (36) -- Accrued employee compensation ........................ 182 7 6 195 Accrued expenses ..................... 325 7 33 365 Accrued warranty ..................... 124 5 129 Accrued income taxes. ................ 71 10 81 Current portion of long-term debt..... 1 1 1 ------- ---- ------- Total Current Liabilities ........... 1,418 42 49 -- 10 (36) 1,478 ------- ---- ---- ---- ------- ------ ------- Deferred income taxes ................ 711 380 1,091 Accrued warranty ..................... 106 3 109 Other liabilities .................... 9 1 10 Long-term debt, less current portion ............................. 703 703 ------- ------- Total Liabilities ................... 2,876 41 49 -- 390 (36) 3,320 ------- ---- ---- ---- ------- ------ ------- Commitments and Contingencies STOCKHOLDERS' EQUITY ................. 2,942 24 22 66 793 -- 3,847 ------- ---- ---- ---- ------- ------ ------- Total Liabilities and Stockholders' Equity ............... $ 5,818 $ 65 $ 71 $ 66 $ 1,183 $ (36) $ 7,167 ======= ==== ==== ==== ======= ====== =======
F-75 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2000 (IN MILLIONS)
WHOLLY-OWNED WHOLLY-OWNED GUARANTORS NON-WHOLLY- NON-GUARANTOR --------------------------- OWNED -------------- GUARANTOR CRYSTAL NSMG SEAGATE STH RSS DECISIONS STIH AND VERITAS TECHNOLOGY ------------- ----------- ------------ -------------- ------------- ----------- Revenue ......................... $ 6,058 $ 263 $ 127 $ -- $ -- $ 6,448 Cost of revenue ................. 4,820 192 44 5,056 Product development ............. 663 37 25 725 Marketing and administrative..... 409 19 87 515 Amortization of goodwill and other intangibles. ............. 33 1 3 14 51 In-process research and development .................... 105 105 Restructuring ................... 206 1 207 Unusual items ................... 107 243 350 -------- ----- ------- ---- ------ ------- Total operating expenses ....... 6,343 249 403 -- 14 7,009 Income (loss) from operations ................... (285) 14 (276) (14) (561) Interest income ................. 101 101 Interest expense ................ (52) (52) Activity related to equity interest in VERITAS ............ (326) (326) Gain on sale of VERITAS stock .......................... 537 537 Gain on sale of SanDisk stock. ......................... 679 679 Gain on exchange of certain investments in equity securities ..................... 199 32 231 Other, net ...................... (1) 1 -------- ----- ------- ---- ------ ------- Other income (expense), net .......................... 926 1 -- 32 211 1,170 -------- ----- ------- ---- ------ ------- Income (loss) before income taxes .......................... 641 15 (276) 32 197 609 Benefit (provision) for income taxes .......................... (275) (4) 55 (75) (299) -------- ----- ------- ---- ------ ------- Net income (loss) .............. $ 366 $ 11 $ (221) $ 32 $ 122 $ 310 ======== ====== ======= ==== ====== =======
F-76 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2000 (IN MILLIONS)
WHOLLY-OWNED GUARANTORS NON- ------------------------------------ WHOLLY OWNED GUARANTOR CRYSTAL NSMG SEAGATE PARENT STH RSS DECISIONS AND VERITAS TECHNOLOGY -------- ------------- --------- ---------- ------------- ------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ............ $ -- $ 226 $ 18 $(21) $ (150) $ 73 INVESTING ACTIVITIES Acquisition of property, equipment and leasehold improvements .................... (565) (8) (7) (580) Purchases of short-term investments ..................... (3,352) (3,352) Maturities and sales of short-term investments .......... 3,429 3,429 Proceeds from sale of VERITAS stock ........................... 834 834 Proceeds from sale of SanDisk stock ........................... 680 680 Other, net ....................... (19) 1 (18) ------ --------- ------ ------ ------ --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ....... -- 173 (7) (7) 834 993 FINANCING ACTIVITIES Sale of common stock ............. 191 191 Purchase of treasury stock ....... (776) (776) Net change in investment by Seagate Technology .............. 585 117 (702) -- Other, net ....................... (14) (10) 24 -- ------ --------- ------ ------ ------ --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ....... -- 103 (10) 24 (702) (585) Effect of exchange rate changes on cash and cash equivalents..... (2) (2) ------ --------- ------ ------ ------ --------- Increase (decrease) in cash and cash equivalents ................ -- 500 1 (4) (18) 479 Cash and cash equivalents at the beginning of the year ....... -- 368 2 8 18 396 ------ --------- ------ ------ ------ --------- Cash and cash equivalents at the end of the year ............. $ -- $ 868 $ 3 $ 4 $ -- $ 875 ====== ========= ====== ====== ====== =========
F-77 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED BALANCE SHEETS JULY 2, 1999 (IN MILLIONS)
WHOLLY-OWNED GUARANTORS NON- -------------------- WHOLLY OWNED GUARANTORS CRYSTAL NSMG SEAGATE STH RSS DECISIONS AND VERITAS ELIMINATIONS TECHNOLOGY ---------- ------- ----------- ------------- -------------- ----------- ASSETS Cash and cash equivalents .......... $ 368 $ 2 $ 8 $ 18 $ -- $ 396 Short-term investments ............. 1,227 1,227 Accounts receivable, net ........... 794 36 42 872 Accounts receivable from affiliates ........................ 12 5 (17) -- Inventories ........................ 439 11 1 451 Deferred income taxes .............. 240 12 252 Other current assets ............... 102 1 14 (3) 114 ------- ---- ---- -------- ------ ------ Total Current Assets .............. 3,182 62 65 20 (17) 3,312 ------- ---- ---- -------- ------ ------ Property, equipment, and leasehold improvements, net ............................... 1,668 12 7 1,687 Investment in VERITAS Software, net ..................... 1,745 1,745 Goodwill and other intangibles, net .................. 88 4 8 44 144 Other assets ....................... 184 184 ------- ---- ---- -------- ------ ------ Total Assets. ..................... $ 5,122 $ 78 $ 80 $1,809 $ (17) $7,072 ======= ==== ==== ======== ====== ====== LIABILITIES Accounts payable. .................. $ 667 $ 25 $ 12 10 $ 714 Accounts payable with affiliates ........................ 17 (17) -- Accrued employee compensation ...................... 171 7 19 8 205 Accrued expenses ................... 373 13 28 414 Accrued warranty ................... 157 6 163 Accrued income taxes. .............. 43 43 Current portion of long-term debt .............................. 1 -- 1 ------- ---- ---- -------- ------ ------ Total Current Liabilities ......... 1,412 51 76 18 (17) 1,540 ------- ---- ---- -------- ------ ------ Deferred income taxes .............. 486 617 1,103 Accrued warranty ................... 123 3 126 Other liabilities .................. 36 1 37 Long-term debt, less current portion ........................... 703 703 ------- ---- ---- -------- ------ ------ Total Liabilities ................. 2,760 54 77 635 (17) 3,509 ------- ---- ---- -------- ------ ------ STOCKHOLDERS' EQUITY 2,362 24 3 1,174 -- 3,563 ------- ---- ---- -------- ------ ------ Total Liabilities and Stockholders' Equity ............ $ 5,122 $ 78 $ 80 $ 1,809 $ (17) $7,072 ======= ==== ==== ======== ====== ======
F-78 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 2, 1999 (IN MILLIONS)
WHOLLY-OWNED GUARANTORS NON- --------------------- WHOLLY OWNED GUARANTOR CRYSTAL NSMG SEAGATE STH RSS DECISIONS AND VERITAS TECHNOLOGY ---------- -------- ---------- ------------- ----------- Revenue ......................... $ 6,152 $ 314 $ 142 $ 194 $ 6,802 Cost of revenue ................. 4,902 225 49 5,176 Product development ............. 566 36 21 32 655 Marketing and administrative..... 317 23 79 115 534 Amortization of goodwill and other intangibles. ............. 20 3 5 11 39 In-process research and development .................... 2 2 Restructuring ................... 59 1 60 Unusual items ................... 75 87 (84) 78 ------- ----- ------ ------- ------- Total operating expenses........ 5,941 288 241 74 6,544 Income (loss) from operations ................... 211 26 (99) 120 258 Interest income ................. 102 102 Interest expense ................ (48) (48) Gain on contribution of NSMG to VERITAS, net ........... 1,670 1,670 Activity related to equity interest in VERITAS ............ (119) (119) Other, net ...................... 10 10 ------- ----- ------ ------- ------- Other income (expense), net .......................... 64 -- -- 1,551 1,615 Income (loss) before income taxes .......................... 275 26 (99) 1,671 1,873 Benefit (provision) for income taxes .......................... (61) (10) 3 (629) (697) ------- ----- ------ ------- ------- Net income (loss) .............. $ 214 $ 16 $ (96) $ 1,042 $ 1,176 ======= ===== ====== ======= =======
F-79 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS YEAR ENDED JULY 2, 1999 (IN MILLIONS)
NON- WHOLLY WHOLLY-OWNED OWNED GUARANTORS GUARANTOR ------------------------- CRYSTAL PARENT STH RSS DECISIONS --------- ------------- ----------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES ................ $ 1,853 $ 39 $-- INVESTING ACTIVITIES Acquisition of property, equipment and leasehold improvements ........................ (591) (7) (5) Purchases of short-term investments ......................... (6,596) Maturities and sales of short-term investments .............. 6,519 Proceeds from sale of VERITAS stock ............................... Proceeds from sale of SanDisk stock ............................... Intangibles and goodwill ............. -- Acquisitions of businesses, net of cash acquired ....................... Other, net ........................... (27) 1 -- -------- -------- ------- ----- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ........... (695) (6) (5) FINANCING ACTIVITIES Sale of common stock ................. 98 -- Purchase of treasury stock ........... (859) -- Net change in investment by Seagate Technology .................. 761 (1,469) Other, net ........................... 26 (29) 3 -------- -------- ------- ----- NET CASH USED IN FINANCING ACTIVITIES ......................... (1,443) (29) 3 Effect of exchange rate changes on cash and cash equivalents......... (3) -- -------- -------- ------- ----- Increase (decrease) in cash and cash equivalents .................... (288) 4 (2) Cash and cash equivalents at the beginning of the year ........... 656 (2) 10 -------- -------- ------- ----- Cash and cash equivalents at the end of the year ................. $ 368 $ 2 $ 8 ======== ========== ======= ===== WHOLLY-OWNED NON-GUARANTOR -------------- NSMG SEAGATE STIH AND VERITAS ELIMINATIONS TECHNOLOGY -------------- ------------- -------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES ................ $ -- $ (692) $ -- $ 1,200 INVESTING ACTIVITIES Acquisition of property, equipment and leasehold improvements ........................ (603) Purchases of short-term investments ......................... (6,596) Maturities and sales of short-term investments .............. 6,519 Proceeds from sale of VERITAS stock ............................... -- Proceeds from sale of SanDisk stock ............................... -- Intangibles and goodwill ............. Acquisitions of businesses, net of cash acquired ....................... -- Other, net ........................... (26) ----- ------ ----- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ........... -- -- -- (706) FINANCING ACTIVITIES Sale of common stock ................. 98 Purchase of treasury stock ........... (859) Net change in investment by Seagate Technology .................. Other, net ........................... -- -- ----- ------ ----- -------- NET CASH USED IN FINANCING ACTIVITIES ......................... -- -- -- (761) Effect of exchange rate changes on cash and cash equivalents......... (3) ----- ------ ----- -------- Increase (decrease) in cash and cash equivalents .................... -- 16 -- (270) Cash and cash equivalents at the beginning of the year ........... 2 666 ----- ------ ----- -------- Cash and cash equivalents at the end of the year ................. $ -- $ 18 $ -- $ 396 ===== ====== ===== ========
F-80 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 3, 1998 (IN MILLIONS)
WHOLLY-OWNED GUARANTORS NON- ------------------------ WHOLLY OWNED GUARANTOR CRYSTAL NSMG SEAGATE STH RSS DECISIONS AND VERITAS TECHNOLOGY ----------- ---------- ------------ ------------- ----------- Revenue ......................... $ 6,245 $286 $ 116 $172 $6,819 Cost of revenue ................. 5,523 229 36 5,788 Product development ............. 555 25 16 31 627 Marketing and administrative..... 308 27 66 101 502 Amortization of goodwill and other intangibles .............. 21 2 3 14 40 In-process research and development .................... 216 -- 7 223 Restructuring ................... 347 -- 347 Unusual items ................... (22) -- (22) ------- --- ----- --- ------ Total operating expenses ....... 6,948 283 121 153 7,505 ------- --- ----- --- ------ Income (loss) from operations ................... (703) 3 (5) 19 (686) Interest income ................. 98 98 Interest expense ................ (51) (51) Other, net ...................... (66) 1 (65) ------- --- ----- --- ------ Other income (expense), net .......................... (19) 1 -- -- (18) ------- --- ----- --- ------ Income (loss) before income taxes .......................... (722) 4 (5) 19 (704) Benefit (provision) for income taxes .......................... 191 (2) (9) (6) 174 ------- --- ----- --- ------ Net income (loss) .............. $ (531) $ 2 $ (14) $13 $ (530) ======= === ===== === ======
F-81 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS YEAR ENDED JULY 3, 1998 (IN MILLIONS)
NON- WHOLLY WHOLLY-OWNED OWNED GUARANTORS GUARANTORS ----------------------- CRYSTAL PARENT STH RSS DECISIONS --------- ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES .............. $ 432 $ 25 $ (3) INVESTING ACTIVITIES Acquisition of property, equipment and leasehold improvements ...................... (693) (7) (5) Purchases of short-term investments ....................... (4,810) Maturities and sales of short-term investments ............ 4,889 Purchase of intangibles and goodwill .......................... Proceeds from sale of SanDisk stock ..................... Acquisitions of businesses, net of cash acquired .............. (194) Other, net ......................... (12) 2 (2) ---- --------- ------ ----- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ...................... (820) (5) (7) FINANCING ACTIVITIES Sale of common stock ............... 67 Purchase of treasury stock ......... (105) Other, net ......................... 38 28 (22) 8 ---- --------- ------ ----- Net cash used in financing activities ...................... (10) (22) 8 Effect of exchange rate changes on cash and cash equivalents ....................... 6 ---- --------- ------ ----- Increase (decrease) in cash and cash equivalents .............. (392) (2) (2) Cash and cash equivalents at the beginning of the year. ............................. 1,034 1 11 ---- --------- ------ ----- Cash and cash equivalents at the end of the year ............ $ 642 $ (1) $ 9 ==== ========= ====== ===== WHOLLY-OWNED NON-GUARANTOR -------------- NSMG SEAGATE STIH AND VERITAS ELIMINATIONS TECHNOLOGY -------------- ------------- -------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES .............. $ -- $ 46 $ 500 INVESTING ACTIVITIES Acquisition of property, equipment and leasehold improvements ...................... (4) (709) Purchases of short-term investments ....................... (4,810) Maturities and sales of short-term investments ............ 4,889 Purchase of intangibles and goodwill .......................... -- Proceeds from sale of SanDisk stock ..................... -- Acquisitions of businesses, net of cash acquired .............. (10) (204) Other, net ......................... (2) (14) ------ ------- ---- ---------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ...................... -- (16) (848) FINANCING ACTIVITIES Sale of common stock ............... 67 Purchase of treasury stock ......... (105) Other, net ......................... (15) (1) ------ ------- ---- ---------- Net cash used in financing activities ...................... -- (15) -- (39) Effect of exchange rate changes on cash and cash equivalents ....................... 6 ------ ------- ---- ---------- Increase (decrease) in cash and cash equivalents .............. 15 (381) Cash and cash equivalents at the beginning of the year. ............................. 1 1,047 ------ ------- ---- ---------- Cash and cash equivalents at the end of the year ............ $ -- $ 16 $ $ 666 ====== ======= ==== ==========
F-82 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE TECHNOLOGY HOLDINGS The following tables present guarantor and non-guarantor condensed consolidating financial information for Seagate Technology to Seagate Technology Holdings and Its Predecessor, at December 29, 2000, June 30, 2000 and July 2, 1999, and the condensed consolidating results of its operations and its cash flows for the period from November 23, 2000 to December 29, 2000. The period from July 1, 2000 to November 22, 2000, and the six months ended December 31, 1999 (unaudited), and for each of the years ended July 3, 1998, July 2, 1999, and June 30, 2000. The information classifies the historic subsidiaries of Seagate Technology Hard Disc Drive Business, an Operating Business of Seagate Technology, Inc., into parent, issuer, other guarantors, and other non-guarantors based upon the current classification of those subsidiaries and their successors under the provisions of the Senior Subordinated Debentures. F-83 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE TECHNOLOGY HOLDINGS CONSOLIDATING CONDENSED BALANCE SHEETS DECEMBER 29, 2000 (IN MILLIONS)
GUARANTORS ------------------------------------- WHOLLY-OWNED SUBSIDIARY - HDD ------------------------------------- WHOLLY WHOLLY OWNED OWNED SUBSIDIARY SUBSIDIARY - NON- CONSOLIDATION ISSUER OTHER SAN GUARANTORS ELIMINATION TOTAL ------------ --------- -------------- ------------ -------------- -------- Cash and cash equivalents .................... $ 389 $ 253 $23 $ 24 $ -- $ 689 Marketable Securities ........................ 118 -- -- -- -- 118 Accounts Receivable, net ..................... 8,289 929 16 5,749 (14,132) 851 Accounts Receivable from affiliates .......... (1) 1 -- 1 -- 1 Inventories .................................. 172 113 10 129 -- 424 Deferred Income Taxes ........................ -- 72 -- -- -- 72 Other Current Assets ......................... 198 3 -- 8 -- 209 -------- ------ --- ------ --------- ------ Total Current Assets ........................ 9,165 1,371 49 5,911 (14,132) 2,364 -------- ------ --- ------ --------- ------ Property, equipment, and leasehold Improvements, net ........................... 345 291 5 131 -- 772 Intercompany investments ..................... 744 2,301 -- 28 (3,073) -- Affiliates Investments ....................... -- -- -- -- -- -- Goodwill and other intangibles ............... -- 125 8 -- -- 133 Other assets ................................. 48 3 -- 18 -- 69 -------- ------ --- ------ --------- ------ TOTAL ASSETS ................................. $10,302 $4,091 $62 $6,088 $ (17,205) $3,338 ======== ====== === ====== ========= ====== Accounts Payable ............................. $7,598 $1,376 $ 1 $5,896 $ (14,132) $ 739 Accounts payable with affiliates ............. 1 37 -- (1) -- 37 Accrued employee compensation ................ 55 91 3 13 -- 162 Accrued Expenses ............................. 91 393 8 15 -- 507 Accrued Income Taxes ......................... 41 188 -- 2 -- 231 Current portion of long-term debt ............ 9 1 -- 44 -- 10 -------- ------ --- ------- --------- ------ Total Current Liabilities ................... 7,795 2,086 12 5,925 (14,132) 1,686 Deferred Income Taxes ........................ -- 35 -- -- -- 35 Long-term debt, less current portion ......... 793 100 -- -- -- 893 Other liabilities ............................ (24) 115 25 1 -- 117 -------- ------ --- ------- --------- ------ Total Liabilities ........................... 8,564 2,336 37 5,926 (14,132) 2,731 -------- ------ --- ------- --------- ------ Commitments and Contingencies ................ -- -- -- -- -- -- SHAREHOLDERS' EQUITY ......................... 1,738 1,755 25 162 (3,073) 607 -------- ------ --- ------- --------- ------ Total Liabilities and Shareholders' Equity ...................................... $10,302 $4,091 $62 $6,088 $ (17,205) $3,338 ======== ====== === ======= ========= ======
F-84 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE TECHNOLOGY HOLDINGS CONSOLIDATED COMBINED STATEMENTS OF OPERATIONS PERIOD FROM NOVEMBER 23, 2000 TO DECEMBER 29, 2000 (IN MILLIONS)
GUARANTORS ---------------------------------------- WHOLLY-OWNED SUBSIDIARY - HDD ---------------------------------------- WHOLLY OWNED WHOLLY SUBSIDIARY SUBSIDIARY - OWNED CONSOLIDATION ISSUER OTHER SAN NON-GUARANTOR ELIMINATION TOTAL ------------ ------------ -------------- --------------- -------------- ----------- Revenue $1,186 $ 429 $ 11 $689 $ (1,346) $ 969 Cost of Sales 1,014 555 6 633 (1,346) 862 Product development 3 64 1 -- 68 Marketing and administrative 5 72 7 4 88 Amortization of goodwill and other intangibles -- 5 -- -- 5 In-process research and development -- -- Restructuring 3 (4) -- 1 $ -- Unusual items 27 25 52 ------- ------- ----- ----- -------- ------- Total Operating Expenses 1,025 719 39 638 (1,346) 1,075 ------- ------- ----- ----- -------- ------- Income (Loss) from Operations 161 (290) (28) 51 (106) Interest Income -- 2 -- 2 Interest Expense (6) (4) (10) Gain on contribution of NSMG to VERITAS, net -- Activity related to equity interest in VERITAS -- Gain on sale of VERITAS stock -- Gain on sale of SanDisk stock -- Gain on exchange of certain investments in equity securities -- Other, net (1) (6) (1) (8) ------- ------- ----- ----- -------- ------- Other Income (Expense), net (7) (8) -- (1) -- (16) ------- ------- ----- ----- -------- ------- Income (loss) before income taxes 154 (298) (28) 50 -- (122) Benefit (provision) for income taxes (1) (20) 1 -- (20) ------- ------- ----- ----- -------- ------- Net Income (Loss) $ 153 $(322) $ (27) $50 $ -- $(142) ======= ======= ===== ===== ======== =======
F-85 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE TECHNOLOGY HOLDINGS CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS PERIOD FROM NOVEMBER 23, 2000 TO DECEMBER 29, 2000 (IN MILLIONS)
GUARANTORS ----------------------------------------- WHOLLY-OWNED SUBSIDIARY - HDD ----------------------------------------- WHOLLY OWNED WHOLLY SUBSIDIARY SUBSIDIARY - OWNED CONSOLIDATION ISSUER OTHER SAN NON-GUARANTOR ELIMINATION TOTAL ------------ ------------- -------------- --------------- -------------- ----------- Net Cash Provided by (Used in) Operating Activities ................ $(824) $ 446 $ 6 $284 $ -- $ (88) -- -- INVESTING ACTIVITIES: ................ -- -- Acquisition of property, equipment and leasehold improvements .......... (17) (0) (7) (9) (33) Purchases of short-term investments ......................... (129) -- -- -- -- (129) Maturities and sales of short-term investments ......................... 130 -- -- -- -- 130 Other, net ........................... 3 (3) -- (2) -- (2) ------ ---------- ----- ------- ----- -------- Net Cash Provided by (Used in) Investing Activities ................ (13) (3) (7) (10) -- (33) -- -- FINANCING ACTIVITIES: ................ -- -- Issuance of long-term debt ........... 772 88 -- -- -- 860 Short term borrowings ................ (0) 66 (0) -- -- 66 Repayment of short term borrowings .......................... -- (66) -- -- -- (66) Net charge in investment by New SAC and its predecessor ............. 847 (1,151) 72 236 (55) (51) Other, net ........................... -- 1 -- -- -- 1 ------- --------- ----- ------ ----- ------- Net Cash Provided by (Used in) Financing Activities ................ 1,619 (1,062) 72 236 (55) 810 Effect of exchange rate changes on cash and cash equivalents ........... -- -- -- -- -- -- Increase (Decrease) in Cash and Cash Equivalents .................... 782 (619) 71 510 (55) 689 Cash and Cash equivalents at the ..... Beginning of the Period .............. -- -- -- -- -- -- ------- --------- ----- ------ ----- ------- End of the Period .................... $ 782 $ (619) $71 $510 $ (55) $ 689 ======= ========= ===== ====== ===== =======
F-86 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE TECHNOLOGY HOLDINGS CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 (IN MILLIONS)
GUARANTORS ------------------------------------------ WHOLLY-OWNED SUBSIDIARY - HDD ------------------------------------------ NON-WHOLLY OWNED SUBSIDIARY SUBSIDIARY - ISSUER OTHER SAN ------------ -------------- -------------- REVENUE ................................... $3,532 $ 1,412 $ 21 Cost of Goods Sold ........................ 3,386 1,318 9 Product development ....................... 12 405 3 Marketing and administrative .............. 18 379 28 Amortization of Goodwill .................. 2 4 14 Restructuring Costs ....................... 11 (1) 0 Unusual Items ............................. 0 (2) 0 ------ ---------- ----- OPERATING EXPENSES ........................ 3,429 2,103 54 ------ --------- ----- INCOME (LOSS) FROM OPERATIONS ............. 103 (691) (33) Interest (Income) ......................... 43 14 Interest Expense .......................... (24) Gain on sale of Veeco ..................... 20 Gain on sale of SanDisk stock ............. 102 Loss on LHSP investment ................... (138) Other, net ................................ (43) (2,278) 0 ------ --------- ----- OTHER (INCOME) EXPENSE .................... 0 (2,304) 0 -- -- INCOME (LOSS) BEFORE TAXES ................ 103 (2,995) (33) Benefit (provision) for taxes ............. (35) 295 9 NET INCOME ................................ $ 68 $(2,700) $ (24) ====== ========= ===== WHOLLY OWNED CONSOLIDATION NON-GUARANTOR ELIMINATION TOTAL --------------- -------------- ------------ REVENUE ................................... $1,439 $ (4,102) $2,302 Cost of Goods Sold ........................ 1,423 (4,102) 2,045 Product development ....................... (12) 397 Marketing and administrative .............. 15 408 Amortization of Goodwill .................. 0 20 Restructuring Costs ....................... 9 19 Unusual Items ............................. 0 (2) ------ -------- ------- OPERATING EXPENSES ........................ 1,435 (4,102) 2,919 ------ -------- ------- INCOME (LOSS) FROM OPERATIONS ............. 4 0 (617) Interest (Income) ......................... 1 58 Interest Expense .......................... 0 (24) Gain on sale of Veeco ..................... 20 Gain on sale of SanDisk stock ............. 102 Loss on LHSP investment ................... (138) Other, net ................................ 4 2,305 (12) ------ -------- ------- OTHER (INCOME) EXPENSE .................... 5 2,305 6 INCOME (LOSS) BEFORE TAXES ................ 9 2,305 (611) Benefit (provision) for taxes ............. (63) 206 ------ -------- ------- NET INCOME ................................ $ (54) $ 2,305 $(405) ====== ======== =======
See notes to consolidated condensed financial statements. F-87 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE TECHNOLOGY HOLDINGS CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 (IN MILLIONS)
GUARANTORS ---------------------------------------- WHOLLY-OWNED SUBSIDIARY - HDD ---------------------------------------- NON-WHOLLY OWNED SUBSIDIARY SUBSIDIARY - ISSUER OTHER SAN ------------ ------------ -------------- Net Cash Provided by (Used in) Operating Activities ...................... $ (2,981) $ (1,470) $(5) INVESTING ACTIVITIES: ...................... Acquisition of property, equipment and leasehold improvements .................... (69) (152) (2) Purchases of short-term investments ........ (1,457) (155) -- Maturities and sales of short-term investments ............................... 2,442 186 -- Restricted cash (TRA) ...................... -- (150) -- Proceeds from sale of certain investments ............................... -- 234 -- Other, net ................................. 1 5 -- -------- -------- ----- Net Cash Provided by (Used in) Investing Activities ................................ 917 (32) (2) -------- -------- ------ FINANCING ACTIVITIES: ...................... Issuance of long-term debt ................. -- -- -- Repayment of long-term debt ................ -- (812) -- Net change in investment by New SAC and its predecessor ....................... 1,398 2,126 -- Other, net ................................. -- 1 -- -------- -------- ----- Net Cash Provided by (Used in) Financing Activities ...................... 699 251 -- -------- -------- ----- Effect of exchange rate changes on cash and cash equivalents ................. -- -- -- Increase (Decrease) in Cash and Cash Equivalents .......................... (666) (188) -- Cash and Cash equivalents at the Beginning of the Period ................... 666 188 7 -------- -------- ----- End of the Period ending balances ........................... $ -- $ -- $-- -------- -------- ----- WHOLLY OWNED CONSOLIDATION NON-GUARANTOR ELIMINATION TOTAL --------------- -------------- ------------- Net Cash Provided by (Used in) Operating Activities ...................... $ 2 $ 4,592 $ 138 - INVESTING ACTIVITIES: ...................... - Acquisition of property, equipment and leasehold improvements .................... (42) -- (265) Purchases of short-term investments ........ -- -- (1,612) Maturities and sales of short-term investments ............................... -- -- 2,628 Restricted cash (TRA) ...................... -- -- (150) Proceeds from sale of certain investments ............................... -- -- 234 Other, net ................................. (12) -- (6) ----- --------- ----------- Net Cash Provided by (Used in) Investing Activities ................................ (54) 0 829 ----- --------- ---------- - FINANCING ACTIVITIES: ...................... - Issuance of long-term debt ................. 44 (44) -- Repayment of long-term debt ................ -- -- (812) Net change in investment by New SAC and its predecessor ....................... -- (4,548) (1,024) Other, net ................................. 1 -- 1 ----- --------- ---------- Net Cash Provided by (Used in) Financing Activities ...................... 45 (2,830) (1,835) ----- --------- ---------- Effect of exchange rate changes on cash and cash equivalents ................. -- -- -- Increase (Decrease) in Cash and Cash Equivalents .......................... (9) (868) Cash and Cash equivalents at the Beginning of the Period ................... 7 -- 868 ------- --------- ---------- End of the Period ending balances ........................... $ -- $ -- $ -- ------- --------- ----------
F-88 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE TECHNOLOGY HOLDINGS CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1999 (IN MILLIONS)
GUARANTORS ------------------------------ WHOLLY OWNED SUBSIDIARY - HDD ----------------------------- WHOLLY SUBSIDIARY OWNED CONSOLIDATION ISSUER OTHER NON-GUARANTOR ELIMINATIONS TOTAL ------------ ------------ --------------- -------------- ------------ Revenue .................................. $4,546 $2,095 $1,990 $(5,514) $3,117 Cost of Sales ............................ 4,450 1,641 1,957 (5,514) 2,534 Product development ...................... 13 315 328 Marketing and administrative ............. 17 157 13 187 Amortization of goodwill and other intangibles ............................. 2 7 9 Restructuring ............................ 77 46 11 134 Unusual items ............................ -- 82 82 ------- ------- ------- --------- ------- Total Operating Expenses ................ 4,559 2,248 1,981 (5,514) 3,274 Income (Loss) from Operations ........... (13) (153) 9 -- (157) Interest Income .......................... 38 7 (3) 42 Interest Expense ......................... (2) (27) 3 (26) Activity related to equity interest in VERITAS ................................. -- Gain on sale of VERITAS stock ............ -- Gain on sale of SanDisk stock ............ 62 62 Other, net ............................... 4 (4) (1) (1) ------- ------- ------- --------- ------- Other Income (Expense), net ............. 40 38 (1) 77 ------- ------- ------- --------- ------- Income (loss) before income taxes ........ 27 (115) 8 -- (80) Benefit (provision) for income taxes ..... -- 19 4 23 ------- ------- ------- --------- ------- Net Income (Loss) ....................... $ 27 $ (96) $ 12 $ -- $ (57) ======= ======= ======= ========= =======
F-89 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE TECHNOLOGY HOLDINGS CONDENSED CONSOLIDATING BALANCE SHEET AT JUNE 30, 2000 (IN MILLIONS)
GUARANTORS ------------------------- SUBSIDIARY NON-WHOLLY OWNED OTHER ISSUER OTHER SUBSIDIARY-SAN NON-GUARANTORS ELIMINATIONS TOTAL ------------ ------------ ------------------ ---------------- -------------- ----------- ASSETS Cash and cash equivalents .......... $ 665 $ 187 $ 7 $ 9 $ -- $ 868 Short Term-Investments ............. 1,109 31 0 0 0 1,140 Accounts Receivable, net ........... 144 246 6 246 0 1,792 Inter Company Accounts Receivable ........................ 6,034 617 0 4,728 (11,378) 0 Affiliate accounts receivable ...... 28 (99) 0 71 0 (0) Inventories ........................ 165 127 5 116 0 413 Deferred Income Taxes .............. 5 208 6 (8) 0 211 Other Current Assets ............... 111 37 0 8 0 156 ------ ------ ---- ------- -------- ------- Current Assets ..................... 8,260 1,354 24 5,170 0 3,430 Property, plant and equipment, net ............................... 712 600 3 270 0 1,585 Investments ........................ 699 1,562 0 0 (2,261) 0 Goodwill and other intangibles ..... 18 44 234 (2) 0 294 Other Non Cur Assets ............... 34 445 0 30 0 509 ------ ------ ---- ------- -------- ------- TOTAL ASSETS ....................... $9,723 $4,005 $261 $5,468 $(13,639) $5,818 ====== ====== ==== ======= ======== ======= LIABILITIES Accounts Payable ................... $ 429 $ 163 $ 1 $ 86 $ 0 $ 679 Inter Company accounts payable ........................... 5,819 779 0 4,778 (11,376) 0 Affiliate Accounts Payable ......... 1 54 0 (19) 0 36 Accrued employee compensation ...................... 34 125 8 15 0 182 Accrued warranty ................... 124 0 124 Accrued Expenses ................... 71 226 3 25 0 325 Accrued Income Taxes ............... 1 71 0 (1) 0 71 Current portion Long-Term debt...... 0 (3) 0 4 0 1 ------ -------- ---- ------- -------- ------- Current Liabilities ................ 6,355 1,539 12 4,888 (11,376) 1,418 Deferred Income Taxes .............. 0 626 14 0 0 $ 648 Inter Company Accounts Payable ........................... 0 0 2 0 (2) 0 Long Term Debt, less current portion ........................... 1 702 0 0 0 703 Accrued warranty ................... 106 0 106 Other Non Current Liabilities ...... 1 9 0 (1) 0 9 ------ ------- ---- -------- ---------- ------- TOTAL LIABILITY .................... 6,357 2,982 28 4,887 (11,378) 2,876 Shareholders' Equity ............... 3,366 1,023 233 581 (2,261) 2,942 0 0 0 Total Shareholders' Equity and Liabilities ....................... $9,723 $4,005 $261 $5,468 $(13,639) $5,818
F-90 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2000 (IN MILLIONS)
GUARANTORS ---------------------------- NON-WHOLLY SUBSIDIARY OWNED SUBSIDIARY OTHER ISSUER OTHER SAN NON-GUARANTORS ELIMINATIONS TOTAL -------------- ----------- -------------- ---------------- ------------- ---------- Revenue ............................... $ 6,360 $ 3,368 13 $ 3,472 $(7,149) $ 6,058 Cost of sales ......................... 6.285 2,502 9 3,173 (7,149) 4,820 Cost of sales from affiliates ......... 8 12 (20) -- Product development ................... 18 478 2 165 663 Marketing and administrative .......... 34 294 15 66 409 Amortization of goodwill and other intangibles .......................... 4 12 17 -- 33 In-process research and development ... -- -- 105 -- -- Restructuring ......................... 113 80 13 206 Unusual items ......................... -- 64 43 107 --------- -------- ----- --------- ------- -------- Total operating expenses ............. 6,462 3,442 148 3,440 (7,149) 6,343 Income (loss) from operations ........ (102) (80) (135) 32 (285) Interest income ....................... 59 21 101 Interest expense ...................... 2 (54) -- (52) Gain on sale of SanDisk stock ......... -- 679 -- 679 Gain on exchange of certain investments in equity securities ..... -- 199 -- 199 Other, net ............................ 2 (3) -- -- (1) --------- -------- ----- --------- ------- -------- Other income (expense), net .......... 63 842 -- 926 --------- -------- ----- --------- ------- -------- Income (loss) before income taxes ..... (39) 762 (135) 32 641 Benefit (provision) for income taxes .. (2) (261) 7 (19) (275) --------- -------- ----- --------- ------- -------- Net income (loss) .................... $ (41) $ 501 $(128) $ 13 $ -- $ 366 ========= ======== ===== ========= ======= ========
F-91 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR YEAR ENDED JUNE 30, 2000
GUARANTORS -------------------------- OTHER NON-WHOLLY SUBSIDIARY OWNED GUARANTOR ISSUER OTHER SAN ------------ ------------- ----------------- Net Cash Provided by (Used in) Operating Activities .................... $ 545 $ (401) $(2) INVESTING ACTIVITIES: Acquisition of property, equipment and leasehold improvements .................. (186) (294) (2) Purchases of short-term investments ...... (3,069) (283) --- Maturities and sales of short-term investments ............................. 3,054 375 -- Proceeds from sale of VERITAS stock ...... -- -- Proceeds from sale of SanDisk stock ...... -- 681 -- Equity investments ....................... -- -- -- Intercompany investments ................. (40) (1,408) -- Other, net ............................... 6 (16) (2) ---------- ---------- ----- Net Cash Provided by (Used in) Investing Activities ................... (235) (945) (2) ---------- ---------- ----- FINANCING ACTIVITIES: Issuance of long-term debt ............... -- -- -- Repayment of long-term debt .............. -- -- -- Sale of common stock ..................... -- -- Purchase of treasury stock ............... -- -- Net change in investment by Seagate Technology, Inc. ........................ -- 117 -- Other Equity ............................. 239 Other, net ............................... -- (6) 2 ---------- ---------- ----- Net Cash Provided by (Used In) Financing Activities ................... -- 111 2 ---------- ---------- ----- Effect of exchange rate changes in cash and cash equivalents ............... (2) -- -- Increase (Decrease) in Cash and Cash Equivalents ............................. 308 (1,235) (2) Cash and Cash equivalents at the Beginning of the Period ................. 185 158 -- ---------- ---------- ----- End of the Period ....................... $ 493 $ (1,077) $(2) ========== ========== ===== OTHER NON-GUARANTORS ELIMINATIONS TOTAL ---------------- -------------- ------------- Net Cash Provided by (Used in) Operating Activities .................... $ 84 $ -- $ 226 INVESTING ACTIVITIES: Acquisition of property, equipment and leasehold improvements .................. (83) -- (565) Purchases of short-term investments ...... --- (3,352) Maturities and sales of short-term investments ............................. -- 3,429 Proceeds from sale of VERITAS stock ...... -- Proceeds from sale of SanDisk stock ...... (1) 680 Equity investments ....................... -- -- Intercompany investments ................. 51 1,397 -- Other, net ............................... (9) 2 (19) ------ ---------- -------- Net Cash Provided by (Used in) Investing Activities ................... (43) 1,398 173 ------ ---------- -------- FINANCING ACTIVITIES: Issuance of long-term debt ............... -- -- -- Repayment of long-term debt .............. -- -- -- Sale of common stock ..................... -- -- Purchase of treasury stock ............... -- -- Net change in investment by Seagate Technology, Inc. ........................ 117 -------- Other Equity ............................. -- Other, net ............................... (5) (5) (14) --------- ----------- -------- Net Cash Provided by (Used In) Financing Activities ................... (5) (5) (103) -------- ---------- -------- Effect of exchange rate changes in cash and cash equivalents ............... -- -- (2) Increase (Decrease) in Cash and Cash Equivalents ............................. 36 1,393 500 Cash and Cash equivalents at the Beginning of the Period ................. 25 -- 368 -------- ---------- ---------- End of the Period ....................... $ 61 $ -- $ 868 ======== ========== ==========
F-92 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR CONDENSED CONSOLIDATING BALANCE SHEETS JULY 2, 1999 (IN MILLIONS)
GUARANTORS ----------------------- SUBSIDIARY OTHER ISSUER OTHER NON-GUARANTORS ELIMINATIONS TOTAL ----------- --------- ---------------- ------------- -------- ASSETS Cash and cash equivalents .................... $ 185 $ 158 $ 25 $ -- $ 368 Short-term investments ....................... 1,103 123 1 -- 1,227 Accounts receivable, net ..................... 5,236 734 2,812 (7,988) 794 Accounts receivable from affiliates .......... 71 (88) 171 -- 12 Inventories .................................. 162 188 89 -- 439 Deferred income taxes ........................ 3 249 (12) -- 240 Other current assets ......................... 22 76 4 -- 102 ------ ------ ----- -------- ------ Total Current Assets ........................ 6,640 1,440 3,090 (7,988) 3,182 ------ ------ ----- -------- ------ Property, equipment, and leasehold improvements, net ........................... 846 543 279 -- 1,668 Investments .................................. 659 893 37 (1,589) -- Goodwill and other intangibles, net .......... 23 65 -- -- 88 Other assets ................................. 50 112 22 -- 184 ------ ------ ----- -------- ------ Total Assets ................................ $ 8,48 $3,053 $3,428 $ (9,577) $5,122 ====== ====== ====== ======== ====== LIABILITIES Accounts payable ............................. $5,210 $1,114 $2,331 $ (7,988) $ 667 Accounts payable with affiliates ............. -- -- -- -- 667 Accrued employee compensation ................ 40 127 4 -- 171 Accrued expenses ............................. 59 268 46 -- 373 Accrued warranty ............................. -- 157 -- -- 157 Accrued income taxes ......................... 1 44 (2) -- 43 Current portion of long-term debt ............ -- -- 1 -- 1 ------ ------ ------- -------- ------ Total Current Liabilities ................... 5,310 1,710 2,380 (7,988) 1,412 ------ ------ ------- -------- ------ Deferred income taxes ........................ -- 488 (2) -- 486 Accrued warranty ............................. -- 123 -- -- 123 Other liabilities ............................ 1 10 25 -- 36 Long-term debt, less current portion ......... 1 702 -- -- 703 ------ ------ ------- -------- ------ Total Liabilities ........................... 5,312 3,033 2,403 (7,988) 2,760 ------ ------ ------- -------- ------ Commitments and Contingencies ................ 2,906 20 1,025 (1,059) 2,362 STOCKHOLDERS' EQUITY Total Liabilities and Stockholders' Equity ..................................... $8,218 $3,053 $3,428 $ (7,988) $5,122 ====== ====== ======= ======== ======
F-93 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 2, 1999 (IN MILLIONS)
GUARANTORS -------------------------- SUBSIDIARY OTHER ISSUER OTHER NON-GUARANTORS ELIMINATIONS TOTAL ----------- ------------ ---------------- ------------- --------- Revenue .................................. $6,448 $4,019 $3,727 $ (8,046) $6,148 Revenue from affiliates .................. 2 2 4 ------- ------- ------- -------- ------ Total Revenue ........................... 6,450 4,021 3,727 (8,046) 6,152 Cost of Sales ............................ 6,187 3,169 3,592 (8,046) 4,902 Cost of Sales from affiliates ............ 13 (13) -- -- ------- ------- ------- -------- ------ 6,200 3,156 3,592 (8,046) 4,902 Product development ...................... 17 549 -- 566 Marketing and administrative ............. 33 248 36 317 Amortization of goodwill and other intangibles ............................. 3 15 2 20 In-process research and development ...... -- 2 -- 2 Restructuring ............................ 36 11 12 59 Unusual items ............................ -- 75 -- 75 ------- ------- ------- -------- ------ Total Operating Expenses ................ 6,289 4,056 3,642 (8,046) 5,941 Income (Loss) from Operations ........... 161 (35) 85 -- 211 Interest Income .......................... 65 31 6 102 Interest Expense ......................... (48) (48) Gain on contribution of NSMG to VERITAS, net ............................ -- Activity related to equity interest in VERITAS ................................. -- Other, net ............................... (1) 11 10 ------- ------- ------- -------- ------ Other Income (Expense), net ............. 64 (6) 6 -- 64 ------- ------- ------- -------- ------ Income (loss) before income taxes ........ 225 (41) 91 -- 275 Benefit (provision) for income taxes ..... (53) (8) (61) ------- ------- ------- -------- ------ Net Income (Loss) ....................... $ 225 $ (94) $ 83 $ -- $ 214 ======= ======= ======= ======== ======
F-94 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR YEAR ENDED JULY 2, 1999
GUARANTORS ----------------------------- SUBSIDIARY OTHER ISSUER OTHER NON-GUARANTORS ELIMINATIONS TOTAL ------------- ------------- ---------------- ------------- ------------- Net Cash Provided by (Used in) Operating Activities ....................... $ 2 $ 364 $ 838 $ 649 $ 1,853 INVESTING ACTIVITIES: Acquisition of property, equipment and leasehold improvements ..................... (303) (83) (205) -- (591) Purchases of short-term investments ......... (4,793) -- (1,803) -- (6,596) Maturities and sales of short-term investments ................................ 4,747 -- 1,772 -- 6,519 Equity investments .......................... -- -- (5) 5 -- Intercompany investments .................... 630 (18) (575) (37) -- Other, net .................................. (3) 1 (25) -- (27) ---------- ------- --------- ------ ------- Net Cash Provided by (Used in) Investing Activities ...................... 278 (100) (841) (32) (695) ========= ======= ========= ====== ======= FINANCING ACTIVITIES: Issuance of long-term debt .................. --- -- -- -- -- Net change in investment by Seagate Technology, Inc. ........................... --- (1,469) -- -- (1,469) Sale of common stock ........................ -- Purchase of treasury stock .................. -- Intercompany loans .......................... -- -- 34 (34) -- Other Equity ................................ (553) (279) 1,449 (617) -- Other, net .................................. (5) -- (3) 34 26 ---------- ------- ---------- ------ ------- Net Cash Provided by (Used In) Financing Activities ...................... (558) (1,748) 1,480 (617) (1,443) ========= ======= ========= ====== ======= Effect of exchange rate changes on cash and cash equivalents .................. (2) (1) -- -- (3) Increase (Decrease) In Cash and Cash Equivalents ................................ (280) (1,485) 1,477 -- (288) Cash and Cash equivalents at the Beginning of the Period .................... 466 43 147 -- 656 --------- --------- --------- ------ --------- End of Period .............................. $ 186 $(1,442) $ 1,624 $ -- $ 368 ========= ========= ========= ====== =========
F-95 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 3, 1998 (IN MILLIONS)
GUARANTORS ----------------------- SUBSIDIARY OTHER ISSUER OTHER NON-GUARANTORS ELIMINATIONS TOTAL ----------- --------- ---------------- ------------- --------- Revenue .................................. $6,314 $4,612 $4,031 $ (8,729) $6,228 Revenue from affiliates .................. 2 15 17 ------ ------ ------- -------- ------ Total revenue ........................... 6,316 4,627 4,031 (8,729) 6,245 Cost of Sales ............................ 6,249 4,082 3,900 (8,729) 5,502 Cost of Sales from affiliates ............ -- 12 9 21 ------ ------ ------- -------- ------ 6,249 4,094 3,909 (8,729) 5,523 Product development ...................... 25 487 43 555 Marketing and administrative ............. 55 212 41 308 Amortization of goodwill and other intangibles ............................. 5 14 2 21 In-process research and development ...... -- -- 216 216 Restructuring ............................ 64 259 24 347 Unusual items ............................ (16) 210 (216) (22) ------ ------ ------- -------- ------ Total Operating Expenses ................ 6,382 5,276 4,019 (8,729) 6,948 Income (Loss) from Operations ........... (66) (649) 12 -- (703) Interest Income .......................... (40) 50 88 98 Interest Expense ......................... 12 (49) (14) (51) Other, net ............................... (98) (65) 97 (66) ------ ------ ------- -------- ------ Other Income (Expense), net ............. (126) (64) 171 -- (19) ------ ------ ------- -------- ------ Income (loss) before income taxes ........ (192) (713) 183 -- (722) Benefit (provision) for income taxes ..... 193 (2) 191 ------ ------ ------- -------- ------ Net Income (loss) ....................... $ (192) $ (520) $ 181 $ -- $ (531) ====== ====== ======= ======== ======
F-96 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR YEAR ENDED JULY 3, 1998
GUARANTORS ------------------------- SUBSIDIARY OTHER ISSUER OTHER NON-GUARANTORS ELIMINATIONS TOTAL ----------- ----------- ---------------- ------------- ----------- Net Cash Provided by (Used in) Operating Activities ....................... $ 304 $ 433 $ (231) $ (74) $ 432 INVESTING ACTIVITIES: Acquisition of property, equipment and leasehold improvements ..................... (115) (306) (272) -- (693) Purchases of short-term investments ......... (455) (2,713) (1,642) -- (4,810) Maturities and sales of short-term investments ................................ 382 2,481 2,026 -- 4,889 Acquisition of Quinta ....................... -- -- (194) -- (194) Equity investments .......................... -- -- (27) 27 -- Intercompany investments .................... 211 (443) (48) 280 -- Other, net .................................. 2 -- 22 (36) (12) Net Cash Provided by (Used in) Investing Activities ....................... 25 (981) (135) 271 (820) ====== ======== ======== ====== ======== FINANCING ACTIVITIES: Issuance of long-term debt .................. -- -- -- -- -- Net change in investing by Seagate Technology, Inc. ........................... -- (38) -- -- (38) Sale of common stock ........................ -- -- Purchase of treasury stock .................. -- -- -- Intercompany loans .......................... -- -- -- -- -- Other Equity ................................ (353) 473 105 (225) -- Other, net .................................. -- (14) -- 42 28 ------ -------- -------- ------ -------- Net Cash Provided by (Used In) Financing Activities ...................... (353) 421 105 (183) (10) ====== ======== ======== ====== ======== Effect of exchange rate changes on cash and cash equivalents .................. -- 6 -- -- 6 Increase (Decrease) In Cash and Cash Equivalents ................................ (24) (121) (261) 14 (392) Cash and Cash equivalents at the Beginning of the Period .................... 43 549 442 -- 1,034 ------ -------- -------- ------ -------- End of the Period .......................... $ 19 $ 428 $ 181 $ 14 $ 642 ====== ======== ======== ====== ========
F-97 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS The following tables present guarantor and non-guarantor condensed consolidating financial information for the subsidiaries of Seagate Removable Storage Solutions Holdings, at December 29, 2000 condensed consolidating results of its operations and its cash flows for the one month ended December 29, 2000, the five months ended November 22, 2000 and six months ended December 31, 1999 (unaudited) and for each of the three years in the period ended June 30, 2000. The information is based on the guarantor and non-guarantor classification of RSS's subsidiaries under the current provisions of the senior subordinated notes. SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 29, 2000 (IN THOUSANDS)
GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------------ ---------------- -------------- ------------- ASSETS Cash and cash equivalents .................. $10,150 $ 647 $ -- $10,797 Accounts receivable, net ................... 17,587 5,838 (2,129) 21,296 Affiliate accounts receivable .............. 9,195 (3,601) -- 5,594 Inventories ................................ 21,611 2,320 -- 23,931 Other current assets ....................... 649 21 -- 670 ------- --------- -------- ------- Total Current Assets ...................... 59,192 5,225 (2,129) 62,288 Property, equipment, leasehold improvements, net ......................... 7,625 3,084 -- 10,709 Other assets ............................... 14,173 358 -- 14,531 ------- --------- -------- ------- Total Assets .............................. $80,990 $ 8,667 $ (2,129) $87,528 ======= ========= ======== ======= LIABILITIES Accounts payable ........................... $17,359 $ 4,589 $ (2,129) $19,819 Affiliate accounts payable ................. 20,175 (20,175) -- -- Accrued employee compensation .............. 4,238 389 -- 4,627 Accrued expenses ........................... 8,467 284 -- 8,751 Accrued Warranty ........................... 4,425 -- -- 4,425 Current portions of long-term debt ......... 666 -- -- 666 ------- --------- -------- ------- Total Current Liabilities ................. 55,330 (14,913) (2,129) 38,288 Other liabilities .......................... 2,555 -- -- 2,555 ------- --------- -------- ------- Shareholders' Equity ...................... 17,263 23,580 -- 40,843 ------- --------- -------- ------- Total Liabilities and Shareholders' Equity .................................. $80,990 $ 8,667 $ (2,129) $87,528 ======= ========= ======== =======
F-98 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS PERIOD FROM NOVEMBER 23, 2000 TO DECEMBER 29, 2000 (IN THOUSANDS)
GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------------ ---------------- -------------- ------------- Revenues ...................................... $ 36,209 $4,340 $ (4,178) $ 28,371 Costs of revenues ............................. 36,346 5,057 (7,078) 29,225 Product development ........................... 2,372 -- -- 2,372 Marketing and administrative .................. 2,420 136 -- 2,556 Amortization of goodwill and other intangibles 91 -- -- 91 Restructuring ................................. -- -- -- -- -------- ------ -------- -------- Total operating expenses ................... 41,229 5,193 (7,078) 34,244 -------- ------ -------- -------- Income (loss) from operations .............. (7,920) (853) 2,900 (5,873) Other income (expense), net ................... (31) -- -- (31) -------- ------ -------- -------- Income (loss) before income taxes ............. (7,951) (853) 2,900 (5,904) -------- ------ -------- -------- Benefit (provision) for income taxes .......... 366 -- -- 366 -------- ------ -------- -------- Net Income (loss) .......................... $ (7,585) $ (853) $ 2,900 $ (5,538) ======== ====== ======== ========
SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR CONDENSED COMBINING STATEMENT OF OPERATIONS PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 (IN THOUSANDS)
GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------------ ---------------- -------------- ------------- Revenues ...................................... $ 124,252 $ 8,225 $ (6,490) $ 89,987 Costs of sales ................................ 110,271 8,739 (6,490) 76,520 Product development ........................... 22,578 -- 22,578 Marketing and administrative .................. 12,507 724 13,231 Amortization of goodwill and other intangibles .................................. 323 -- 323 Restructuring ................................. 755 21 776 --------- -------- --------- Total operating expense .................... 146,434 9,484 (6,490) 113,428 Income (loss) from operations .............. (22,183) (1,259) -- (23,442) Other income (expense), net ................... 830 4 -- 834 --------- -------- -------- --------- Income (loss) before income taxes ............. (21,352) (1,255) -- (22,607) Benefit (provision) for income taxes .......... 9,132 -- -- 9,132 --------- -------- -------- --------- Net income (loss) .......................... $ (12,220) $ (1,255) $ -- $ (13,475) ========= ======== ======== =========
F-99 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR CONDENSED COMBINING STATEMENT OF CASH FLOWS FOR THE PERIOD FROM NOVEMBER 23, 2000 TO DECEMBER 29, 2000 (IN THOUSANDS)
GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------------ ---------------- -------------- ------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................... $ (3,788) $ 659 $ -- $ (3,129) INVESTING ACTIVITIES Acquisition of property, equipment, and leasehold improvements, net ............ (995) (260) -- (1,255) Proceeds from sale of property, equipment and leasehold improvements ............. 334 -- -- 334 Other, net .............................. 2 -- -- 2 -------- ------ ----- -------- Net cash provided by (used in) investing activities ........................... (659) (260) -- (919) FINANCING ACTIVITIES NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ................. -- -- -- -- Increase (decrease) in cash and cash equivalents ............................ (4,447) 399 -- (4,048) Cash and cash equivalents at the beginning of the year .................. 14,597 248 -- 14,845 -------- ------ ----- -------- Cash and cash equivalents at the end of the year ............................... $ 10,150 $ 647 $ -- $ 10,797 ======== ====== ===== ========
F-100 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR CONDENSED COMBINING STATEMENT OF CASH FLOWS PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 (IN THOUSANDS)
GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED --------------- ---------------- -------------- --------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................... $ (25,085) $ (621) $ -- $ (25,706) INVESTING ACTIVITIES Acquisition of property, equipment, and leasehold improvements, net ............ (3,507) (1,480) -- (4,987) Profit on disposal of property equipment and leasehold improvements ............. 402 -- -- 402 Other, net .............................. (251) -- -- (251) ----------- -------- ----- ----------- Net cash provided by (used in) investing activities ........................... (3,356) (1,480) -- (4,836) FINANCING ACTIVITIES Other, net .............................. 40,656 2,322 -- 42,978 ----------- -------- ----- ----------- Net cash provided by (used in) financing activities ........................... 40,656 2,322 -- 42,978 Effect of exchange rate changes on cash and cash equivalents ................... -- -- -- -- Increase (decrease) in cash and cash equivalents ............................ 12,122 221 -- 12,343 Cash and cash equivalents at the beginning of the year .................. 2,475 27 -- 2,502 ----------- -------- ----- ----------- Cash and cash equivalents at the end of the year ............................... $ 14,597 $ 248 $ -- $ 14,845 =========== ======== ===== ===========
F-101 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR CONDENSED COMBINING STATEMENT OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1999 (IN THOUSANDS) (UNAUDITED)
GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ----------- Revenues ...................................... $201,402 $26,430 $ (29,761) $152,071 Costs of sales ................................ 158,943 24,344 (29,766) 107,521 Product development ........................... 17,799 -- -- 17,799 Marketing and administrative .................. 11,230 525 -- 11,755 Amortization of goodwill and other intangibles .................................. 438 -- -- 438 Restructuring ................................. 128 241 -- 369 -------- ------- --------- -------- Total operating expense .................... 142,538 25,110 (29,766) 137,882 Income (loss) from operations .............. 12,864 1,320 5 14,189 Other income (expense), net ................... 33 5 38 -------- ------- -------- Income (loss) before income taxes ............. 12,897 1,325 5 14,227 Benefit (provision) for income taxes .......... (4,674) (218) -- (4,892) -------- ------- --------- -------- Net income (loss) .......................... $ 8,223 $ 1,107 $ 5 $ 9,335 ======== ======= ========= ========
F-102 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR CONDENSED COMBINING BALANCE SHEET JULY 2, 1999 (IN THOUSANDS)
TOTAL GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ----------- ASSETS Cash and cash equivalents ........................ $ 2,389 $ 22 $ -- $ 2,411 Accounts receivable, net ......................... 88,297 12,419 (65,030) 35,686 Inventories ...................................... 10,124 998 -- 11,122 Other current assets ............................. 823 135 -- 958 Deferred income taxes ............................ 12,373 -- -- 12,373 -------- ------- ---------- -------- Total Current Assets .......................... 114,006 13,574 (65,030) 62,550 Property, equipment, leasehold improvements, net ............................................. 9,176 2,996 -- 12,172 Other assets ..................................... 3,612 -- -- 3,612 -------- ------- ---------- -------- Total Assets .................................. $126,794 $16,570 $ (65,030) $ 78,334 ======== ======= ========== ======== LIABILITIES Accounts payable ................................. $ 84,264 $ 5,460 $ (65,030) $ 24,694 Accrued employee compensation .................... 6,711 582 -- 7,293 Accrued expenses ................................. 12,994 423 -- 13,417 Accrued warranty ................................. 5,951 -- -- 5,951 -------- ------- ---------- -------- Total Current Liabilities ..................... 109,920 6,465 (65,030) 51,355 Other liabilities ................................ 2,267 -- -- 2,267 -------- ------- ---------- -------- BUSINESS EQUITY .................................. 11,883 12,829 -- 24,712 -------- ------- ---------- -------- Total Liabilities and Business Equity ......... $124,070 $19,294 $ (65,030) $ 78,334 ======== ======= ========== ========
F-103 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS CONDENSED COMBINING STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2000 (IN THOUSANDS)
TOTAL GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................................. $ 10,320 $ 7,266 $ -- $ 17,586 INVESTING ACTIVITIES Acquisition of property, equipment, and leasehold improvements, net ................ (6,086) (2,997) -- (9,083) Proceeds from sale of property, equipment and leasehold improvements ..................... 670 -- -- 670 Net cash provided by (used in) investing activities .............................. (8,510) 97 -- (8,413) FINANCING ACTIVITIES Net cash change in investments by Seagate Technology, Inc. ........................... (7,358) (2,724) -- (9,082) -------- -------- ---- -------- Net cash provided by (used in) financing activities ................................. (1,724) (7,358) -- (9,082) Increase (decrease) in cash and cash equivalents ................................ 86 5 -- 91 Cash and cash equivalents at the beginning of the year ................................... 2,389 22 -- 2,411 -------- -------- ---- -------- Cash and cash equivalents at the end of the year ....................................... $ 2,475 $ 27 $ -- $ 2,502 ======== ======== ==== ========
F-104 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS CONDENSED COMBINING BALANCE SHEET JUNE 30, 2000 (IN THOUSANDS)
TOTAL GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ----------- ASSETS Cash and cash equivalents ........................ $ 2,475 $ 27 $ -- $ 2,502 Accounts receivable, net ......................... 20,554 6,719 (8,056) 19,217 Inventories ...................................... 14,833 2,033 -- 16,866 Deferred income taxes ............................ 7,675 -- -- 7,675 Other current assets ............................. 1,590 186 -- 1,776 -------- -------- --------- -------- Total Current Assets .......................... 47,127 8,965 (8,056) 48,036 Property, equipment, leasehold improvements, net ............................................. 12,328 2,104 -- 14,432 Goodwill and other intangibles ................... 3,170 -- -- 3,170 -------- -------- --------- -------- Total Assets .................................. $ 62,625 $ 11,069 $ (8,056) $ 65,638 ======== ======== ========= ======== LIABILITIES Accounts payable ................................. $ 23,577 $ 2,457 $ (8,056) $ 17,978 Accrued employee compensation .................... 6,270 463 -- 6,733 Accrued expenses ................................. 6,646 631 -- 7,277 Accrued warranty ................................. 5,276 -- -- 5,276 Current portions of long-term debt ............... 666 -- -- 666 -------- -------- --------- -------- Total Current Liabilities ..................... 42,435 3,551 (8,056) 37,930 Other liabilities ................................ 2,839 -- -- 2,839 -------- -------- --------- -------- BUSINESS EQUITY .................................. 17,351 7,518 -- 24,869 -------- -------- --------- -------- Total Liabilities and Business Equity ......... $ 62,625 $ 11,069 $ (8,056) $ 65,638 ======== ======== ========= ========
F-105 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS CONDENSED COMBINING STATEMENT OF OPERATIONS JUNE 30, 2000 (IN THOUSANDS)
TOTAL GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ------------ Revenues ............................................... $ 262,095 $ 47,532 $ (46,813) $ 262,814 Cost of sales .......................................... 278,431 43,575 (46,813) 193,193 Product development .................................... 37,444 -- -- 37,444 Marketing and administrative ........................... 17,338 1,240 -- 18,578 Amortization of goodwill and other intangibles ......... 877 -- -- 877 Restructuring .......................................... 627 -- -- 627 --------- -------- ---------- --------- Total operating expense ............................. 255,717 44,815 (128,813) 250,719 Income (loss) from operations ....................... 6,378 2,717 -- 12,095 Other, net ............................................. 1,576 -- -- 1,576 --------- -------- ---------- --------- Income (loss) before income taxes ...................... 7,954 2,717 -- 13,671 Benefit (provision) for income taxes ................... (3,762) (670) -- (4,432) --------- -------- ---------- --------- Net income (loss) ................................... $ 7,192 $ 2,047 $ -- $ 9,239 ========= ======== ========== =========
F-106 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS CONDENSED COMBINING BALANCE SHEET JULY 2, 1999 (IN THOUSANDS)
TOTAL GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ----------- ASSETS Cash and cash equivalents ........................ $ 2,389 $ 22 $ -- $ 2,411 Accounts receivable, net ......................... 88,297 12,419 (65,030) 35,686 Inventories ...................................... 10,124 998 -- 11,122 Other current assets ............................. 823 135 -- 958 Deferred income taxes ............................ 12,373 -- -- 12,373 -------- ------- ---------- -------- Total Current Assets .......................... 114,006 13,574 (65,030) 62,550 Property, equipment, leasehold improvements, net ............................................. 9,176 2,996 -- 12,172 Other assets ..................................... 3,612 -- -- 3,612 -------- ------- ---------- -------- Total Assets .................................. $126,794 $16,570 $ (65,030) $ 78,334 ======== ======= ========== ======== LIABILITIES Accounts payable ................................. $ 84,264 $ 5,460 $ (65,030) $ 24,694 Accrued employee compensation .................... 6,711 582 -- 7,293 Accrued expenses ................................. 12,994 423 -- 13,417 Accrued warranty ................................. 5,951 -- -- 5,951 -------- ------- ---------- -------- Total Current Liabilities ..................... 109,920 6,465 (65,030) 51,355 Other liabilities ................................ 2,267 -- -- 2,267 -------- ------- ---------- -------- BUSINESS EQUITY .................................. 11,883 12,829 -- 24,712 -------- ------- ---------- -------- Total Liabilities and Business Equity ......... $124,070 $19,294 $ (65,030) $ 78,334 ======== ======= ========== ========
F-107 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS CONDENSED COMBINING STATEMENT OF OPERATIONS JULY 2, 1999 (IN THOUSANDS)
TOTAL GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ------------ Revenues ............................................... $325,265 $ 64,792 $ (76,051) $ 314,006 Cost of sales .......................................... 311,172 59,030 (76,051) 225,151 Product development .................................... 36,081 -- -- 36,081 Marketing and administrative ........................... 22,651 273 -- 22,924 Amortization of goodwill and other intangibles ......... 3,207 -- -- 3,207 Restructuring .......................................... 711 -- -- 711 -------- -------- ---------- --------- Total operating expense ............................. 304,822 59,303 (76,051) 288,074 Income (loss) from operations ....................... 20,443 5,489 -- 25,932 Other, net ............................................. 2 -- -- 2 -------- -------- ---------- --------- Income (loss) before income taxes ...................... 20,445 5,489 -- 25,934 Benefit (provision) for income taxes ................... (9,307) (249) -- (9,556) -------- -------- ---------- --------- Net income (loss) ................................... $ 11,138 $ 5,240 $ -- $ 16,378 ======== ======== ========== =========
F-108 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS CONDENSED COMBINING STATEMENT OF CASH FLOWS YEAR ENDED JULY 2, 1999 (IN THOUSANDS)
GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................................. $ 68,063 $ (827) $ (28,545) $ 38,691 INVESTING ACTIVITIES Acquisition of property, equipment, and leasehold improvements ..................... 5,484 (1,526) -- (6,573) Proceeds from sale of property, equipment and leasehold improvements ..................... 958 -- -- 958 Net cash provided by (used in) investing activities .............................. 7,141 (1,526) -- (5,615) FINANCING ACTIVITIES Net change in investments by Seagate Technology ................................. (59,919) 2,313 28,545 (29,061) --------- -------- --------- --------- Net cash provided by (used in) financing activities .............................. (59,919) 2,313 28,545 29,061 Increase (decrease) in cash and cash equivalents ................................ (3,975) (40) -- 4,015 Cash and cash equivalents at the beginning of the year ................................ (1,666) 62 -- (1,604) --------- -------- --------- --------- Cash and cash equivalents at the end of the year ................................ $ 2,389 $ 22 $ -- $ 2,411 ========= ======== ========= =========
F-109 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS CONDENSED COMBINING STATEMENT OF OPERATIONS JULY 3, 1998 (IN THOUSANDS)
TOTAL GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ------------ Revenues ............................................... $ 299,529 $ 53,755 $ (67,198) $ 286,086 Cost of sales .......................................... 246,950 49,149 (67,198) 228,901 Product development .................................... 24,981 -- -- 24,981 Marketing and administrative ........................... 26,757 418 -- 27,175 Amortization of goodwill and other intangibles ......... 2,181 -- -- 2,181 Restructuring .......................................... 686 -- -- 686 --------- -------- ---------- --------- Total operating expense ............................. 301,555 49,567 (67,198) 283,924 Income (loss) from operations ....................... (2,026) 4,188 -- 2,162 Other, net ............................................. 887 -- -- 887 --------- -------- ---------- --------- Income (loss) before income taxes ...................... (1,139) 4,188 -- 3,049 Benefit (provision) for income taxes ................... (1,571) -- -- (1,571) --------- -------- ---------- --------- Net income (loss) ................................... $ (2,710) $ 4,188 $ -- $ 1,478 ========= ======== ========== =========
F-110 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS CONDENSED COMBINING STATEMENT OF CASH FLOWS YEAR ENDED JULY 3, 1998 (IN THOUSANDS)
GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................................. $ 21,234 $ 3,431 $ (135) $ 24,530 INVESTING ACTIVITIES Acquisition of property, equipment, and leasehold improvements, net ................ (4,383) (2,840) -- (7,223) Proceeds from sale of property, equipment and leasehold improvements ..................... 1,949 -- -- 1,949 Net cash provided by (used in) investing activities .............................. (2,434) (2,840) -- (5,274) FINANCING ACTIVITIES Net change in investments by Seagate Technology ................................. (21,434) (529) 135 (21,828) --------- -------- ------ --------- Net cash provided by (used in) financing activities .............................. (21,434) (529) 135 (21,828) Effect of exchange rate changes on cash and cash equivalents ........................... -- Increase (decrease) in cash and cash equivalents ................................ (2,634) 62 -- (2,572) Cash and cash equivalents at the beginning of the year ................................... 968 -- -- 968 --------- -------- ------ --------- Cash and cash equivalents at the end of the year ....................................... $ (1,666) $ 62 $ -- $ (1,604) ========= ======== ====== =========
F-111 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CRYSTAL DECISIONS, INC. The following tables present guarantor and non-guarantor condensed consolidating financial information for the subsidiaries of Crystal Decisions, Inc., at December 29, 2000, June 30, 2000 and July 2, 1999 and the condensed consolidating results of its operations and its cash flows for the period from November 23, 2000 to December 29, 2000, period from July 1, 2000 to November 22, 2000, six months ended December 31, 1999 and for each of the years in the three year period ended June 30, 2000. The information is based on the guarantor and non-guarantor classification of the subsidiaries of Crystal Decisions, Inc., under the current provisions of the senior subordinating notes. CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED BALANCE SHEET DECEMBER 29, 2000 (IN THOUSANDS)
GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ------------ ---------------- -------------- --------- ASSETS Cash ................................................ $ 4,133 $ 2,411 $ -- $ 6,544 Loan receivable from Seagate Technology ............. 31,331 -- -- 31,331 Accounts receivable, net ............................ 24,795 9,754 (13,466) 21,083 Inventories ......................................... 357 -- -- 357 Current deferred income taxes ....................... -- 17 (17) -- Income tax receivable ............................... 1,599 -- -- 1,599 Other current assets ................................ 3,667 514 -- 4,181 ------- ------- --------- ------- Current assets ..................................... 65,882 12,696 (13,483) 65,095 Capital assets, net ................................. 5,684 271 -- 5,955 Investments ......................................... 1,781 -- (1,781) -- Intangibles ......................................... 21,687 -- -- 21,687 ------- ------- --------- ------- Total assets ....................................... 95,034 12,967 (15,264) 92,737 ------- ------- --------- ------- LIABILITIES Accounts payable .................................... 17,834 5,516 (13,286) 10,064 Accrued employee compensation ....................... 7,536 913 -- 8,449 Accrued expenses .................................... 8,967 2,036 -- 11,003 Deferred revenue .................................... 23,122 1,849 -- 24,971 Current deferred income taxes ....................... 17 -- (17) -- Accrued income taxes ................................ (665) 665 -- -- ------- ------- --------- ------- Current liabilities ................................ 56,811 10,979 (13,303) 54,487 Other liabilities ................................... 2,060 27 -- 2,087 ------- ------- --------- ------- STOCKHOLDERS' EQUITY ............................... 36,163 1,961 (1,961) 36,163 ------- ------- --------- ------- Total liabilities and stockholders' equity ......... $95,034 $12,967 $ (15,264) $92,737 ======= ======= ========= =======
F-112 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS PERIOD FROM NOVEMBER 23, 2000 TO DECEMBER 29, 2000 (IN THOUSANDS, EXCEPT PER SHARE DATA)
GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL ------------- --------------- -------------- ------------- Revenues ...................................... $ 18,673 $ 1,201 $ -- $ 19,874 Costs of revenues ............................. 4,404 233 -- 4,637 Research and development ...................... 2,754 31 -- 2,785 Sales, marketing and administrative ........... 8,653 881 -- 9,534 Amortization of goodwill and other intangibles .................................. 196 -- -- 196 Restructuring costs ........................... -- 14 -- 14 Unusual items ................................. 7,073 -- -- 7,073 --------- ------- ----- --------- Total operating expenses ..................... 23,080 1,159 -- 24,239 --------- ------- ----- --------- Income (loss) from operations ................ (4,407) 42 -- (4,365) Interest income (expense) ..................... 251 (22) -- 229 Intercompany charges, net ..................... (342) 342 -- -- Equity investment income (loss) ............... (139) -- 139 0 --------- ------- ----- --------- Other income (expense), net .................. (230) 320 139 229 --------- ------- ----- --------- Income (loss) before income taxes ............. (4,637) 362 139 (4,136) Benefit (provision) for income taxes .......... (898) (501) -- (1,399) --------- ------- ----- --------- Net income (loss) ............................ $ (5,535) $ (139) $ 139 $ (5,535) ========= ======= ===== =========
F-113 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS PERIOD FROM NOVEMBER 23, 2000 TO DECEMBER 29, 2000 (IN THOUSANDS)
GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ------------ ---------------- -------------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ..................................... $ 4,244 $ (620) $180 $ 3,804 INVESTING ACTIVITIES Acquisition of capital assets, net .............. (1,024) (41) -- (1,065) --------- ------ ---- --------- Net cash provided by (used in) investing activities ................................... (1,024) (41) -- (1,065) FINANCING ACTIVITIES Issuance of common stock ........................ 178 -- -- 178 Borrowings from Seagate Technology .............. 22,433 -- -- 22,433 Payments to Seagate Technology .................. (23,925) -- -- (23,925) --------- ------ ---- --------- Net cash provided by (used in) financing activities ................................... (1,314) -- -- (1,314) Effect of exchange rate changes on cash ......... (32) 236 -- 204 --------- ------ ---- --------- Increase (decrease) in cash ..................... 1,874 (425) 180 1,629 Cash at the beginning of the period ............. 2,259 2,656 0 4,915 --------- ------ ---- --------- Cash at the end of the period ................... $ 4,133 $2,231 $180 $ 6,544 ========= ====== ==== =========
F-114 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CRYSTAL DECISIONS, INC. CONSOLDIATING CONDENSED STATEMENT OF OPERATIONS PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 (IN THOUSANDS, EXCEPT PER SHARE DATA)
GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ------------ ---------------- -------------- ------------- Revenues ................................................ $ 52,914 $ 4,260 $ -- $ 57,174 Costs of revenues ....................................... 16,831 1,253 -- 18,084 Research and development ................................ 10,887 113 -- 11,000 Sales, marketing and administrative ..................... 30,319 4,478 (17) 34,780 Amortization of goodwill and other intangibles .......... 648 -- -- 648 Restructuring costs ..................................... (45) 604 -- 559 Unusual items ........................................... 1,851 -- -- 1,851 --------- -------- ------- --------- Total Operating Expenses ............................... 60,491 6,448 (17) 66,922 --------- -------- ------- --------- Income (Loss) from Operations .......................... (7,577) (2,188) 17 (9,748) Interest income (expense) ............................... 540 368 (17) 891 Intercompany charges, net ............................... (2,451) 2,451 -- -- Equity investment income (loss) ......................... 820 -- (820) -- --------- -------- ------- --------- Other Income (Expense), net ............................ (1,091) 2,819 (837) 891 --------- -------- ------- --------- Income (loss) before income taxes ....................... (8,668) 631 (820) (8,857) Benefit (provision) for income taxes .................... 3,716 189 -- 3,905 --------- -------- ------- --------- Net Income (Loss) ...................................... $ (4,952) $ 820 $ (820) $ (4,952) ========= ======== ======= =========
F-115 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 (IN THOUSANDS)
GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ------------ ---------------- -------------- ----------- Net cash provided by (used in) operating activities ..................................... $ 2,641 $ 179 $ -- $ 2,820 INVESTING ACTIVITIES Acquisition of capital assets, net .............. (1,916) 15 -- (1,901) --------- ------ ------ --------- Net cash provided by (used in) investing activities ................................... (1,916) 15 -- (1,901) FINANCING ACTIVITIES Issuance of common stock ........................ 949 -- -- 949 Borrowings from Seagate Technology .............. 54,279 -- -- 54,279 Payments to Seagate Technology .................. (54,459) -- -- (54,459) --------- ------ ------ --------- Net cash provided by (used in) financing activities ................................... 769 -- -- 769 Effect of exchange rate changes on cash ......... (79) (315) -- (394) --------- ------ ------ --------- Increase (decrease) in cash ..................... 1,415 (121) -- 1,294 Cash at the beginning of the period ............. 844 2,777 -- 3,621 --------- ------ ------ --------- Cash at the end of the period ................... $ 2,259 $2,656 $ -- $ 4,915 ========= ====== ====== =========
F-116 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA)
GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL --------------- --------------- -------------- --------------- Revenues ...................................... $ 50,541 $ 7,634 $ -- $ 58,175 Costs of revenues ............................. 20,384 2,127 -- 22,511 Research and development ...................... 12,841 -- -- 12,841 Sales, marketing and administrative ........... 35,274 7,161 -- 42,435 Amortization of goodwill and other intangibles .................................. 2,002 -- -- 2,002 Restructuring costs ........................... 838 463 -- 1,301 Unusual items ................................. 221,601 20,968 -- 242,569 ----------- ---------- -------- ----------- Total operating expenses ..................... 292,940 30,719 -- 323,659 ----------- ---------- -------- ----------- Income (loss) from operations ................ (242,399) (23,085) -- (265,484) Interest income (expense) ..................... (1,311) 28 -- (1,283) Intercompany Charges, net ..................... (2,692) 2,692 0 0 Equity investment income (loss) ............... (20,464) -- 20,464 0 ----------- ---------- -------- ----------- Other income (expense), net .................. (24,467) 2,720 20,464 (1,283) ----------- ---------- -------- ----------- Income (loss) before income taxes ............. (266,866) (20,365) 20,464 (266,767) Benefit (provision) for income taxes .......... 48,980 (99) -- 48,881 ----------- ---------- -------- ----------- Net income (loss) ............................ $ (217,886) $ (20,464) $ 20,464 $ (217,886) =========== ========== ======== ===========
F-117 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (IN THOUSANDS)
GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ------------ ---------------- -------------- ------------- Net cash provided by (used in) operating activities ..................................... $ (18,719) $1,345 $ -- $ (17,374) INVESTING ACTIVITIES Acquisition of capital assets, net .............. (1,359) (95) -- (1,454) --------- ------ ------ --------- Net cash provided by (used in) investing activities ................................... (1,359) (95) -- (1,454) FINANCING ACTIVITIES Issuance of common stock ........................ 1 -- -- 1 Borrowings from Seagate Technology .............. 94,895 -- -- 94,895 Payments to Seagate Technology .................. (77,075) -- -- (77,075) --------- ------ ------ --------- Net cash provided by (used in) financing activities ................................... 17,821 -- -- 17,821 Effect of exchange rate changes on cash ......... 596 18 -- 614 --------- ------ ------ --------- Increase (decrease) in cash ..................... (1,661) 1,268 -- (393) Cash at the beginning of the period ............. 4,895 2,524 -- 7,419 --------- ------ ------ --------- Cash at the end of the period ................... $ 3,234 $3,792 $ -- $ 7,026 ========= ====== ====== =========
F-118 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED BALANCE SHEET JUNE 30, 2000 (IN THOUSANDS)
ELIMINATION GUARANTOR NON-GUARANTOR ENTRIES TOTAL ----------- --------------- -------------- ----------- ASSETS: Cash ........................................... $ 844 $ 2,777 $ -- $ 3,621 Loan receivable from Seagate Technology......... 25,681 -- -- 25,681 Accounts Receivable, net ....................... 24,141 12,638 (20,201) 16,578 Inventories .................................... 674 -- 674 Deferred Income Taxes .......................... -- -- -- -- Income Tax Receivable .......................... 6,134 -- (63) 6,071 Other Current Assets ........................... 1,832 2,189 4,021 -------- -------- -------- Current Assets ................................. 59,306 17,604 (20,264) 56,646 Capital Assets, net ............................ 9,095 253 -- 9,348 Investments .................................... 1,436 -- (1,436) -- Goodwill and Other Intangible Assets ........... 5,286 -- -- 5,286 -------- -------- ---------- -------- TOTAL ASSETS ................................... $ 75,123 $ 17,857 $ (21,700) $ 71,280 ======== ======== ========== ======== LIABILITIES: Accounts Payable ............................... 20,677 9,714 (20,201) 10,190 Accrued Employee Compensation .................. 5,239 765 -- 6,004 Accrued Expenses ............................... 8,279 3,818 -- 12,097 Deferred Revenue ............................... 18,038 1,457 -- 19,495 Deferred income taxes .......................... -- 63 (63) -- Accrued Income Taxes ........................... (573) 573 -- -- -------- -------- ---------- -------- Current Liabilities ............................ 51,660 16,390 (20,264) 47,786 Deferred income taxes .......................... 350 31 -- 381 -------- -------- ---------- -------- TOTAL LIABILITIES .............................. 52,010 16,421 (20,264) 48,167 STOCKHOLDERS' EQUITY ........................... 23,113 1,436 (1,436) 23,113 ======== ======== ========== ======== Total Liabilities and Stockholders' Equity ..... $ 75,123 $ 17,857 $ (21,700) $ 71,280 ======== ======== ========== ========
F-119 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2000 (IN THOUSANDS)
ELIMINATION GUARANTORS NON-GUARANTORS ENTRIES TOTAL --------------- ---------------- ------------ --------------- Revenues ..................................... $ 113,094 $ 13,424 $ -- $ 126,518 Costs of revenues ............................ 40,417 3,558 43,975 Research and development ..................... 24,874 -- 24,874 Sales, marketing and administrative .......... 72,205 14,793 86,998 Amortization of goodwill and other intangibles ................................. 3,038 -- 3,038 Restructuring costs .......................... 855 446 1,301 Unusual items ................................ 221,601 20,968 242,569 ----------- ---------- ----------- Total operating expenses .................. 362,990 39,765 -- 402,755 ----------- ---------- -------- ----------- Loss from Operations ...................... (249,896) (26,341) -- (276,237) Equity Investment income (loss) .............. (21,513) -- 21,513 -- Other income (expense) ....................... (5,561) 5,581 -- 20 ----------- ---------- -------- ----------- Other Income (Expense), net ............... (27,074) 5,581 21,513 20 ----------- ---------- -------- ----------- Income (loss) before income taxes ............ (276,970) (20,760) 21,513 (276,217) Benefit (provision) for income taxes ......... 55,808 (753) 55,055 ----------- ---------- ----------- Net Income (Loss) ......................... $ (221,162) $ (21,513) $ 21,513 $ (221,162) =========== ========== ======== ===========
F-120 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2000 (IN THOUSANDS)
ELIMINATION GUARANTORS NON-GUARANTORS ENTRIES TOTAL ------------ ---------------- -------------- ------------- Net cash provided by (used in) operating activities ................................... $(21,717) $ 68 $ $ (21,649) -- INVESTING ACTIVITIES Acquisition of capital assets, net ............ (6,272) (84) -- (6,356) -------- ------ ------------ ---------- Net cash (used in) investing activities..... (6,272) (84) -- (6,356) FINANCING ACTIVITIES Issuance of common stock ...................... 5 -- -- 5 Borrowings from Seagate Technology ............ 176,714 -- -- 176,714 Payments to Seagate Technology ................ (152,667) -- -- (152,667) -------- ------ ------------ ---------- Net cash provided by (used in) financing activities ...................... 24,052 -- -- 24,052 Effect of exchange rate changes on cash ....... (114) 269 -- 155 -------- ------ ------------ ---------- Increase (decrease) in cash ................... (4,051) 253 -- (3,798) Cash at the beginning of the year ............. 4,895 2,524 -- 7,419 -------- ------ ------------ ---------- Cash at the end of the year ................... $ 844 $2,777 $ -- $ 3,621 ======== ====== ============ ==========
F-121 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED BALANCE SHEET JULY 2, 1999 (IN THOUSANDS)
ELIMINATION GUARANTOR NON-GUARANTOR ENTRIES TOTAL ----------- --------------- ------------ --------- ASSETS: Cash ............................................... $ 4,895 $ 2,524 $ -- $ 7,419 Accounts Receivable, net ........................... 46,910 8,343 (12,526) 42,727 Inventories ........................................ 981 -- 981 Deferred Income Taxes .............................. -- -- 11,655 Income Tax Receivable .............................. 11,655 -- -- -- Other Current Assets ............................... (1,747) 4,281 2,534 -------- ------- ------- Current Assets ..................................... 62,694 15,148 (12,526) 65,316 Capital Assets, net ................................ 6,933 360 -- 7,293 Investments ........................................ 1,702 -- (1,702) -- Goodwill and Other Intangible Assets ............... 7,212 -- -- 7,212 Other Assets ....................................... -- -- -- -- -------- ------- --------- ------- TOTAL ASSETS ....................................... $ 78,541 $15,508 $ (14,228) $79,821 ======== ======= ========= ======= LIABILITIES: Accounts Payable ................................... 15,752 9,005 (12,526) 12,231 Accrued Employee Compensation ...................... 18,393 906 -- 19,299 Accrued Expenses ................................... 24,673 4,090 (331) 28,432 Loan Payable to Seagate Technology ................. 16,517 -- -- 16,517 Accrued Other Taxes ................................ 89 (420) 331 -- -------- ------- --------- ------- Current Liabilities ................................ 75,424 13,581 (12,526) 76,479 -------- ------- --------- ------- Deferred income taxes .............................. 234 -- -- 234 Other Liabilities .................................. -- 225 -- 225 -------- ------- --------- ------- TOTAL LIABILITIES .................................. 75,658 13,806 (12,526) 76,938 STOCKHOLDERS' EQUITY ............................... 2,883 1,702 (1,702) 2,883 Total Liabilities and Stockholders' Equity ......... $ 78,541 $15,508 $ (14,228) $79,821 ======== ======= ========= =======
F-122 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 2, 1999 (IN THOUSANDS)
ELIMINATION GUARANTORS NON-GUARANTORS ENTRIES TOTAL -------------- ---------------- ------------ -------------- Revenues ..................................... $ 126,265 $ 15,492 $ -- $ 141,757 Costs of revenues ............................ 45,407 3,294 -- 48,701 Research and development ..................... 21,224 -- -- 21,224 Sales, marketing and administrative .......... 66,305 12,998 -- 79,303 Amortization of goodwill and other intangibles ................................. 4,772 -- -- 4,772 Restructuring costs .......................... -- -- -- -- Unusual items ................................ 79,157 7,557 86,714 ---------- --------- ---------- Total operating expenses .................. 216,865 23,849 -- 240,714 ---------- --------- ------- ---------- Income (Loss) from Operations ............. (90,600) (8,357) -- (98,957) Interest income (expense) .................... 816 (760) -- 56 Equity Investment income (loss) .............. (8,999) -- 8,999 -- ---------- --------- ------- ---------- Other Income (Expense), net ............... (8,183) (760) 8,999 56 ---------- --------- ------- ---------- Income (loss) before income taxes ............ (98,783) (9,117) 8,999 (98,901) Benefit (provision) for income taxes ......... 2,408 118 -- 2,526 ---------- --------- ------- ---------- Net Income (Loss) ......................... $ (96,375) $ (8,999) $ 8,999 $ (96,375) ========== ========= ======= ==========
F-123 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JULY 2, 1999 (IN THOUSANDS)
ELIMINATION GUARANTORS NON-GUARANTORS ENTRIES TOTAL ------------ ---------------- ------------ ------------- Net cash provided by (used in) operating activities ..................................... $ (2,322) $1,413 $ -- $ (909) INVESTING ACTIVITIES Acquisition of capital assets, net .............. (4,731) (125) -- (4,856) -------- ------ ----- ---------- Net cash provided by (used in) investing activities ........................ (4,731) (125) -- (4,856) FINANCING ACTIVITIES Borrowings from Seagate Technology .............. 131,194 -- -- 131,194 Payments to Seagate Technology .................. (128,233) -- -- (128,233) -------- ------ ----- ---------- Net cash provided by (used in) financing activities ........................ 2,961 -- -- 2,961 Effect of exchange rate changes on cash ......... -- -- -- -- -------- ------ ----- ---------- Increase (decrease) in cash ..................... (4,092) 1,288 -- (2,804) Cash at the beginning of the year ............... 8,987 1,236 10,223 -------- ------ ----- ---------- Cash at the end of the year ..................... $ 4,895 $2,524 $ -- $ 7,419 ======== ====== ===== ==========
F-124 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 3, 1998 (IN THOUSANDS)
ELIMINATION GUARANTORS NON-GUARANTORS ENTRIES TOTAL -------------- ---------------- ------------ -------------- Revenues ..................................... $ 103,955 $ 11,997 $ -- $ 115,952 Costs of revenues ............................ 35,067 689 35,756 Research and development ..................... 16,237 -- 16,237 Sales, marketing and administrative .......... 55,222 10,565 65,787 Amortization of goodwill and other intangibles ................................. 3,165 -- 3,165 Restructuring costs .......................... -- -- -- Unusual items ................................ -- -- -- ---------- -------- ------- ---------- Total operating expenses .................. 109,691 11,254 -- 120,945 ---------- -------- ------- ---------- Income (Loss) from Operations ............. (5,736) 743 -- (4,993) Interest income (expense) .................... 742 (208) 534 Equity Investment income (loss) .............. 291 -- (291) -- ---------- -------- ------- ---------- Other Income (Expense), net ............... 1,033 (208) (291) 534 ---------- -------- ------- ---------- Income (loss) before income taxes ............ (4,703) 535 (291) (4,459) Benefit (provision) for income taxes ......... (8,556) (244) (8,800) ---------- -------- ------- ---------- Net Income (Loss) ......................... $ (13,259) $ 291 $ (291) $ (13,259) ========== ======== ======= ==========
F-125 NEW SAC AND ITS PREDECESSOR, SEAGATE TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JULY 3, 1998 (IN THOUSANDS)
ELIMINATION GUARANTORS NON-GUARANTORS ENTRIES TOTAL ------------ ---------------- ------------ ------------ Net cash provided by (used in) operating activities ..................................... $ (4,235) $1,772 $ -- $ (2,463) INVESTING ACTIVITIES Acquisition of capital assets, net .............. (4,122) (643) -- (4,765) Acquisition of intangible assets ................ (1,950) -- -- (1,950) -------- ------ ----- -------- Net cash provided by (used in) investing activities ........................ (6,072) (643) -- (6,715) FINANCING ACTIVITIES Borrowings from Seagate Technology .............. 108,469 -- -- 108,469 Payments to Seagate Technology .................. (100,243) -- -- (100,243) -------- ------ ----- -------- Net cash provided by (used in) financing activities ........................ 8,226 -- -- 8,226 Effect of exchange rate changes on cash ......... -- 11 -- 11 -------- ------ ----- -------- Increase (decrease) in cash ..................... (2,081) 1,140 -- (941) Cash at the beginning of the year ............... 11,068 96 11,164 -------- ------ ----- -------- Cash at the end of the year ..................... $ 8,987 $1,236 $ -- $ 10,223 ======== ====== ===== ========
F-126 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR CONDENSED CONSOLIDATED AND CONDENSED COMBINED BALANCE SHEETS (IN MILLIONS)
SEAGATE TECHNOLOGY HOLDINGS PREDECESSOR -------------- ------------ DECEMBER 29, JUNE 30, 2000 2000 (1) -------------- ------------ (UNAUDITED) ASSETS (see Note 10) Cash and cash equivalents .................................... $ 689 $ 868 Short-term investments ....................................... 118 1,140 Accounts receivable, net ..................................... 851 642 Affiliate accounts receivable ................................ 1 -- Inventories .................................................. 424 413 Deferred income taxes ........................................ 34 211 Other current assets ......................................... 209 156 ------ ------ Total Current Assets ........................................ 2,326 3,430 Property, equipment and leasehold improvements, net .......... 772 1,585 Goodwill and other intangibles, net .......................... 133 294 Other assets ................................................. 69 509 ------ ------ Total Assets (see Note 10) .................................. $3,300 $5,818 ====== ====== LIABILITIES Accounts payable ............................................. $ 739 $ 679 Affiliate accounts payable ................................... 37 36 Accrued employee compensation ................................ 162 182 Accrued expenses ............................................. 381 325 Accrued warranty ............................................. 126 124 Accrued income taxes ......................................... 193 71 Current portion of long-term debt ............................ 10 1 ------ ------ Total Current Liabilities ................................... 1,648 1,418 Deferred income taxes ........................................ 35 640 Accrued warranty ............................................. 107 106 Other liabilities ............................................ 10 9 Long-term debt, less current portion ......................... 893 703 ------ ------ Total Liabilities ........................................... 2,693 2,876 ------ ------ SHAREHOLDER'S/BUSINESS EQUITY Contributed capital .......................................... 748 -- Accumulated deficit .......................................... (141) -- ------ ------ Total Shareholder's/Business Equity ......................... 607 2,942 ------ ------ Total Liabilities and Shareholder's/Business Equity ......... $3,300 $5,818 ====== ======
- ---------- (1) The information in this column was derived from the Seagate Technology Hard Disc Drive Business, an operating business of Seagate Technology, Inc. audited consolidated combined balance sheet as of June 30, 2000. See notes to condensed consolidated and condensed combined financial statements. F-127 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR CONDENSED CONSOLIDATED AND CONDENSED COMBINED STATEMENTS OF OPERATIONS (IN MILLIONS)
SEAGATE TECHNOLOGY HOLDINGS PREDECESSOR ---------------------- --------------------------------- PERIOD FROM PERIOD FROM SIX MONTHS NOVEMBER 23, 2000 TO JULY 1, 2000 TO ENDED DECEMBER 29, NOVEMBER 22, DECEMBER 31, 2000 2000 1999 ---------------------- ----------------- ------------- Revenue ................................................ $ 969 $2,302 $3,117 Cost of revenue ........................................ 862 2,034 2,534 Product development .................................... 68 408 328 Marketing and administrative ........................... 88 440 187 Amortization of goodwill and other intangibles ......... 5 20 9 Restructuring costs .................................... -- 19 134 Unusual items .......................................... 52 (2) 82 ----- --------- ------ Total operating expenses .............................. 1,075 2,919 3,274 ----- -------- ------ Loss from operations .................................. (106) (617) (157) Interest income ........................................ 3 58 42 Interest expense ....................................... (10) (24) (26) Gain on sale of SanDisk stock .......................... -- 102 62 Gain on sale of Veeco stock ............................ -- 20 -- Loss on LHSP investment ................................ -- (138) -- Other, net ............................................ (8) (12) (1) -------- -------- -------- Other Income (expense), net ............................ (15) 6 77 ------- -------- ------- Loss before income taxes ............................... (121) (611) (80) Benefit (provision) for income taxes ................... (20) 206 23 ------- -------- ------- Net loss .............................................. $(141) $ (405) $ (57) ======= ======== =======
See notes to condensed consolidated and condensed combined financial statements F-128 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR CONDENSED CONSOLIDATED AND CONDENSED COMBINED STATEMENTS OF CASH FLOWS (IN MILLIONS)
SEAGATE TECHNOLOGY HOLDINGS PREDECESSOR ---------------------- ------------------------------- PERIOD FROM PERIOD FROM SIX MONTHS NOVEMBER 23, 2000 TO JULY 1, 2000 TO ENDED DECEMBER 29, NOVEMBER 22, DECEMBER 31, 2000 2000 1999 ---------------------- ----------------- ------------- OPERATING ACTIVITIES: Net loss ................................................ $(141) $ (405) $ (57) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization .......................... 68 271 344 In-process research and development .................... 59 -- Deferred income taxes .................................. (38) (320) (195) Non-cash portion of restructuring charge ............... -- 7 76 (Gain) loss on certain investments, net ................ -- 18 (62) Compensation expense related to accelerated vesting of stock options ............................. -- 584 -- Compensation expense for SSI exchange offer ............ -- 44 Other, net ............................................. (5) 24 50 Changes in operating assets and liabilities: Accounts receivable .................................... (399) 181 61 Inventories ............................................ 296 (195) 65 Accounts payable ....................................... 48 40 (78) Accrued income taxes ................................... 62 212 51 Accrued expenses and employee compensation and warranty ......................................... (59) (218) (137) Other assets and liabilities, net ...................... 21 (61) 19 ------- ------- --------- Net cash provided by (used in) operating activities..... (88) 138 181 INVESTING ACTIVITIES: Acquisition of property, equipment and leasehold improvements, net ...................................... (32) (265) (274) Purchases of short-term investments ..................... (129) (1,612) (1,639) Maturities and sales of short-term investments .......... 130 2,628 1,803 Restricted cash (TRA) ................................... -- (150) -- Proceeds from sale of certain investments ............... -- 234 67 Other, net .............................................. (2) (6) (19) -------- ---------- --------- Net cash provided by (used in) investing activities..... (33) 829 (62) FINANCING ACTIVITIES: Issuance of long-term debt, net of issuance costs ....... 860 -- 1 Repayment of long-term debt ............................. -- (812) -- Short-term borrowings ................................... 66 -- -- Repayment of short-term borrowings ...................... (66) -- -- Net change in investment by New SAC and its predecessor ............................................ (51) (1,024) (4) Other, net .............................................. 1 1 (11) ------- --------- --------- Net cash provided by (used in) financing activities..... 810 (1,835) (14) Increase (decrease) in cash and cash equivalents ........ 689 (868) 105 Cash and cash equivalents at the beginning of the period ................................................. -- 868 368 ------- --------- --------- Cash and cash equivalents at the end of the period ...... $ 689 $ -- $ 473 ======= ========= =========
See notes to condensed consolidated and condensed combined financial statements. F-129 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION Seagate Technology Holdings (the "Company") was formed in August 2000, to be a holding company for the rigid disc drive operating business and the storage area networks operating business of Seagate Technology, Inc. (which we refer to as Seagate Technology). Prior to November 22, 2000, the Company did not have significant operations. As a result, the Company's Predecessor, Seagate Technology Hard Disc Drive Business, an operating business of Seagate Technology, Inc. ("HDD" or "Predecessor") is the combined rigid disc drive and storage area networks operating businesses of Seagate Technology, and the combined financial position, results of operations, and cash flows of HDD are presented in these financial statements on a comparative basis. On November 22, 2000, Seagate Technology, Seagate Software Holdings, Inc., which we refer to herein as Seagate Software Holdings, a subsidiary of Seagate Technology, and Suez Acquisition Company (Cayman) Limited, which we refer to herein as SAC, completed the stock purchase agreement, and Seagate and VERITAS Software Corporation, which we refer to as VERITAS, completed the agreement and plan of merger and reorganization, or the Merger Agreement. SAC was a limited liability company organized under the laws of the Cayman Islands and formed solely for the purpose of entering into the stock purchase agreement and related transactions. SAC assigned all of its rights under the stock purchase agreement to New SAC, the parent of the Company. In addition, the rigid disc drive operating business was formed as a subsidiary of the Company, and was named Seagate Technology HDD Holdings and the storage area networks business was formed also as a subsidiary of the Company and was named Seagate Technology SAN Holdings. The condensed consolidated and condensed combined financial statements have been prepared by the Company, without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Because New SAC acquired all the operating assets of Seagate Technology as of November 22, 2000, Seagate Technology is considered to be the predecessor of New SAC and HDD is considered to be the prececessor of the Company. Accordingly, for comparative purposes, the financial statement presentation includes the operations of HDD through November 22, 2000, and the Company's operations from November 23, 2000 to December 29, 2000. Prior to November 23, 2000, the Company's operations were not significant. The Company believes the disclosures included in the unaudited condensed consolidated and condensed combined financial statements, when read in conjunction with the combined financial statements of HDD as of June 30, 2000 and notes thereto, are adequate to make the information presented not misleading. The condensed consolidated and condensed combined financial statements reflect, in the opinion of management, all material adjustments necessary to summarize fairly the consolidated financial position, results of operations and cash flows for such periods. Such adjustments are of a normal recurring nature. The results of operations for HDD for the period from July 1, 2000 through November 22, 2000 and for the Company from November 23, 2000 through December 29, 2000 are not necessarily indicative of the results that may be expected for the entire fiscal year ending June 29, 2001. HDD operated and reported financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. The Company will operate and report financial results on the same basis. Fiscal 2001 will be 52 weeks for the combined Company and will end on June 29, 2001. F-130 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 2. BALANCE SHEET INFORMATION
SEAGATE TECHNOLOGY HOLDINGS PREDECESSOR -------------- ------------ DECEMBER 29, JUNE 30, 2000 2000 -------------- ------------ (IN MILLIONS) Accounts Receivable: Accounts receivable .................................... $ 929 $ 712 Allowance for non-collection ........................... (78) (70) ----- -------- $ 851 $ 642 ===== ======== Inventories: Components ............................................. $ 126 $ 139 Work-in-process ........................................ 61 48 Finished goods ......................................... 237 226 ----- -------- $ 424 $ 413 ===== ======== Property, Equipment and Leasehold Improvements: Property, equipment and leasehold improvements ......... $ 804 $ 3,686 Allowance for depreciation and amortization ............ (32) (2,101) ----- -------- $ 772 $ 1,585 ===== ========
3. INCOME TAXES The federal tax Allocation Agreement ("Tax Allocation Agreement") between the Company and Seagate Technology terminated on November 22, 2000. The Company will no longer file federal income tax returns on a consolidated basis with Seagate Technology and certain of the Company's affiliates. The Company will enter into a state tax allocation agreement with affiliates of New SAC, as applicable. There are no outstanding tax related intercompany balances relating to taxes between the Company and Seagate Technology or New SAC and its affiliates. F-131 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 3. INCOME TAXES (CONTINUED) The Provision for (Benefit from) income taxes consisted of the following:
PREDECESSOR PRE-PREDECESSOR CURRENT TAX EXPENSE (BENEFIT) ------------------- ------------------ PERIOD FROM PERIOD FROM NOVEMBER 23, 2000 JULY 1, 2000 SIX MONTHS TO TO ENDED DECEMBER 29, 2000 NOVEMBER 22, 2000 DECEMBER 31, 1999 ------------------- ------------------- ------------------ (IN MILLIONS) Federal ...................................... $ 2 $ (188) $ 142 State ........................................ 1 (75) 16 Foreign ...................................... 1 12 17 --- ------ ------ 4 (251) 175 Deferred Tax Expense (Benefit) ............... Federal ...................................... -- 7 (176) State ........................................ -- 38 (21) --- ------ ------ Foreign ...................................... -- 45 (197) Provision for (Benefit from) Income Taxes..... $ 4 $ (206) $ (22) === ====== ======
Income (loss) before income taxes consisted of the following:
PREDECESSOR PRE-PREDECESSOR ------------------- ------------------ PERIOD FROM PERIOD FROM NOVEMBER 23, 2000 JULY 1,2000 SIX MONTHS TO TO ENDED DECEMBER 29, 2000 NOVEMBER 22, 2000 DECEMBER 31, 1999 ------------------- ------------------- ------------------ (IN MILLIONS) Domestic $ (25) $ 630 $ (81) Foreign ......... (97) (1,227) 1 ------ -------- ----- $ (122) $ (597) $ (80) ------ -------- -----
The proforma information assuming a tax provision/(benefit) based on a seperate return basis is as follows:
FOR THE PERIOD ENDED DECEMBER 29, 2000 Loss before income taxes ...................... $ (122) Provisionn (benefit) for income taxes ......... 20 ------ Net Loss ...................................... $ (102) ------
The income tax benefits related to the exercise of certain employee stock options decreased accrued income taxes and were credited to additional paid-in capital. Such amounts approximated $133.8 million for the period ended November 22, 2000 At December 29, 2000, accrued income taxes includes $125 million for tax indemnification amounts due to Seagate Technology pursuant to the Indemnification Agreement between Seagate Technology, Suez Acquisition Company and VERITAS Software Corporation. The tax indemnification amount recorded by the Company in connection with the purchase of the operating assets of Seagate Technology and represents tax liabilities of Seagate Technology for periods prior to the acquisition date of the operating assets. F-132 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 3. INCOME TAXES (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's deferred tax assets and liabilities were as follows.
FOR THE PERIOD ENDED FOR THE YEAR ENDED DECEMBER 29, 2000 JUNE 30, 2000 ---------------------- ------------------- (IN MILLIONS) DEFERRED TAX ASSETS Accrued warranty .................................. $ 97 $ 97 Inventory valuation accounts ...................... 25 33 Receivable reserves ............................... 22 21 Accrued compensation and benefits ................. 31 44 Depreciation ...................................... 150 20 Restructuring reserve ............................. 19 28 Other reserves and accruals ....................... 22 25 Acquisition related items ......................... 10 -- Other assets ...................................... 6 14 Total Deferred Tax Assets ......................... 382 282 Valuation allowance ............................... (344) ------ ------ Net Deferred Tax Assets ........................... 38 282 DEFERRED TAX LIABILITIES .......................... Unremitted income of foreign subsidiaries ......... (542) Acquisition related items ......................... (36) (169) Other Liabilities ................................. Total Deferred Tax Liabilities .................... (36) (711) ------ ------ Net Deferred Tax Assets/ (Liabilities) ............ $ 2 $ (429) ====== ======
In connection with the purchase of the operating assets of Seagate Technology, we recorded a $314 million valuation allowance for deferred tax assets. The $314 million of deferred tax assets subject to the valuation allowance arose primarily as a result of the excess of tax basis over the fair values of acquired property, plant and equipment, and liabilities assumed for which we expect to recieve tax deductions in our federal and state returns in future periods. We also recorded $36 million of deferred tax liabilities as a result of the excess of the fair market value of inventory, long-term investments, and acquired intangable assets over their related tax bases. Our realization of the tax benefits for the federal and state deferred tax assets subject to the valuation allowance will depend primarily on our ability to generate sufficient taxable income in the United States in future periods, the timing and amount of which are uncertain. We anticipate that the tax benefits of the deferred tax assets when realized, will first result in an increased adjustment to the amount of unamortized negative goodwill that has been allocated on a pro rata basis to the long-lived assets. Any excess tax benefit would then be realized as a reduction of future income tax expense. F-133 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 3. INCOME TAXES (CONTINUED) The reconciliation between the provision for (benefit from) income taxes at the U.S. federal statutory rate and the effective rate are summarized as follows:
PREDECESSOR PRE-PREDECESSOR ------------------- ------------------ PERIOD FROM PERIOD FROM NOVEMBER 23, 2000 JULY 1, 2000 SIX MONTHS TO TO ENDED DECEMBER 29, 2000 NOVEMBER 22, 2000 DECEMBER 31, 1999 ------------------- ------------------- ------------------ (IN MILLIONS) Provision (benefit) at U.S. statutory rate ................ (43) (209) (28) State income tax provision (benifit), net of federal income 1 (24) (3) tax bennefit ............................................. Foreign income taxes (benefit) in excess of the U.S. -- -- (2) statutory rate ........................................... Foreign loses not benefited ............................... -- 13 3 Write-off of in-process research and development .......... 18 -- -- Sale of operating assets .................................. -- 28 -- Compensation expense for SSI exchange offer ............... -- -- 7 Valuation reserve ......................................... 30 -- -- Benefit from net earnings of foreign subsidiaries -- (30) -- considered to be permanently reinvested in non-US operations ............................................... Non-deductible goodwill ................................... -- 9 3 Other individually immaterial items ....................... (2) 7 (2) ------ ---- ------ Provision for (benefit from) income taxes ................. 4 (206) (22) ===== ==== =====
A substantial portion of the Company's Asia Pacific manufacturing operations in Singapore and Malaysia operate under various tax holidays which expire in whole or in part during fiscal years 2001 through 2010. Certain tax holidays may be extended if specific conditions are met. As of November 22, 2000, Seagate Technology Hard Disc Drive's foreign manufacturing subsidiaries had approximately $3,050 billion of undistributed foreign earnings of which approximately $1.722 billion were considered permanently reinvested offshore. In connection with the sale of the operating assets of Seagate Technology, approximately $1.650 billion of foreign earnings were deemed to be distributed for U.S. tax purposes to Seagate Technology's U.S. parent Seagate Technology had previously recorded deferred income taxes for these foreign earnings. As a result of the sale of the operating assets of Seagate Technology and the ensuing corporate structure, the Company now has a foreign parent holding company with various foreign U.S. subsidiaries. The remaining unremitted earnings of the Company's foreign subsidiaries will no longer be subject to U.S. tax when remitted to the parent holding company. F-134 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 4. SUPPLEMENTAL CASH FLOW INFORMATION
SEAGATE TECHNOLOGY HOLDINGS PREDECESSOR -------------- ---------------------------- PERIOD FROM NOVEMBER 23, PERIOD FROM SIX 2000 JULY 1, 2000 MONTHS TO TO ENDED DECEMBER 29, NOVEMBER 22, DECEMBER 31, 2000 2000 1999 -------------- -------------- ------------- (IN MILLIONS) Cash Transactions: Cash paid for interest .................................... $ -- $ 26 $ 26 Cash paid (received) for income taxes, net of refunds ..... -- (125) 261 Non-Cash Transactions: Acquisition of minority interest .......................... -- -- 19
5. RESTRUCTURING COSTS As part of the transactions, the Company assumed all restructuring liabilities previously recorded by Seagate Technology relating to HDD, including $41 million for restructuring activities announced in fiscal 2000 and $3 million for restructuring activities announced in fiscal 2001. During the period from July 1, 2000 to November 22, 2000, HDD recorded restructuring charges totaling $20 million. Of the $20 million, $11 million was a result of a restructuring plan established to continue the alignment of HDD's global workforce and manufacturing capacity with existing and anticipated future market requirements, specifically in its recording head operations in Thailand (the "fiscal 2001 restructuring plan"). The remaining $9 million consisted of a $3 million employee termination benefit adjustment to the original estimate related to the fiscal 2000 restructuring plan and $6 million in additional restructuring charges for adjustments to original estimates to the fiscal 1998 restructuring plan. The fiscal 2001 restructuring plan includes workforce reductions, capacity reductions including closure of facilities or portions of facilities, write-off of excess equipment and consolidation of operations. The restructuring charges were comprised of $3 million for employee termination costs; $6 million for the write-off of owned facilities located in Thailand; $1 million for the write-off of excess manufacturing, assembly and test equipment; and $1 million in other expenses. Prior to these restructuring activities, there was no indication of permanent impairment of the assets associated with the closure and consolidation of facilities. In connection with the fiscal 2001 restructuring plan, the Company plans to reduce its workforce by approximately 2000 employees, primarily in manufacturing. Approximately 100 of the 2000 employees had been terminated as of December 29, 2000. As a result of employee terminations and the write-off of equipment and facilities in connection with the fiscal 2001 restructuring plan, the Company estimates that after completion of these restructuring activities, annual salary and depreciation expense will be reduced by approximately $7 million and $2 million, respectively. However, the reduction in annual salary expense will be substantially offset by increases of headcount in certain other recording head operations facilities. The Company may implement additional actions pursuant to the fiscal 2001 restructuring plan, and, if such additional actions are implemented, the Company anticipates that additional charges would be taken related to these actions. The Company expects the fiscal 2001 restructuring plan will be substantially complete by June 29, 2001. F-135 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 5. RESTRUCTURING COSTS (CONTINUED) In connection with the fiscal 2000 restructuring plan, HDD recorded an adjustment of $3 million in the quarter ended September 29, 2000 as a result of an increase in the estimated number of employees to be terminated. The Company now plans to reduce its workforce by approximately 24,000 employees primarily in manufacturing. Approximately 22,000 of the 24,000 employees had been terminated as of December 29, 2000. As a result of employee terminations and the write-off of equipment and facilities in connection with the fiscal 2000 restructuring plan, the Company estimates that after completion of these restructuring activities, annual salary and depreciation expense will be reduced by approximately $151 million and $40 million, respectively. The fiscal 2000 restructuring plan was substantially complete as of December 29, 2000. In connection with the restructuring plan implemented in fiscal 1998, HDD revised its original lease termination cost estimates on certain of its facilities and recorded an additional $6 million in restructuring charges. F-136 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 5. RESTRUCTURING COSTS (CONTINUED) The following table summarizes the Company's and HDD's restructuring activities for the period from July 1, 2000 to November 22, 2000 and for the period from November 23, 2000 to December 29, 2000: and
SEVERANCE INTANGIBLES AND EXCESS & OTHER CONTRACT BENEFITS FACILITIES EQUIPMENT ASSETS CANCELLATIONS OTHER TOTAL ----------- ------------ ----------- ------------ --------------- --------- ---------- (IN MILLIONS) HDD Reserve balances, June 30, 2000 ............... $ 23 $10 $ -- $ -- $ 5 $15 $ 53 FY2001 restructuring ......... 3 6 1 -- -- 1 11 Cash charges ................. (14) (5) -- -- -- (3) (22) Non-cash charges ............. -- (6) (1) -- -- -- (7) Adjustments .................. 3 6 -- -- -- -- 9 ---- ----- ----- ---- --- ----- ------ Reserve balances, November 22, 2000 ........... $ 15 $11 $-- $ -- $ 5 $13 $ 44 SEAGATE TECHNOLOGY HOLDINGS Cash charges ................. (4) (1) -- -- -- -- (5) ------- ------ ----- ---- --- ----- ------- Reserve balances, December 29, 2000 ........... $ 11 $10 $-- $ -- $ 5 $13 $ 39 ====== ===== ===== ==== === ===== ======
6. BUSINESS SEGMENTS The Company designs, manufactures and markets products for storage, retrieval and management of data on computer and data communications systems. These products include disc drives and disc drive components. The Company operates in a single industry segment, disc drives. The CEO evaluates performance and allocates resources based on revenue and gross profit from operations. Gross profit from operations is defined as revenue less cost of sales. The Company does not evaluate or allocate assets or depreciation by operating segment, nor does the CEO evaluate segments on these criteria. The CEO has been identified as the Chief Operating Decision Maker as defined by Statement of financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information". F-137 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 7. COMPREHENSIVE INCOME (LOSS) The components of comprehensive income (loss), net of related tax, for the periods presented below were as follows:
SEAGATE TECHNOLOGY HOLDINGS PREDECESSOR -------------- ------------------------------ PERIOD FROM PERIOD FROM SIX NOVEMBER 23, JULY 1, MONTHS 2000 TO 2000 TO ENDED DECEMBER 29, NOVEMBER 22, DECEMBER 31, 2000 2000 1999 -------------- -------------- ------------- (IN MILLIONS) Net loss ..................................... $ (141) $ (405) $ (57) Unrealized gain (loss) on securities ......... -- (102) -- Foreign currency translation adjustment -- -- -- ------ ------ ----- Comprehensive income (loss) .................. $ (141) $ (507) $ (57) ====== ====== =====
The components of accumulated other comprehensive income (loss), net of related tax, at December 29, 2000 and June 30, 2000 were as follows:
SEAGATE TECHNOLOGY HOLDINGS PREDECESSOR -------------- ------------ DECEMBER 29, JUNE 30, 2000 2000 -------------- ------------ (IN MILLIONS) Unrealized gain (loss) on securities .................. $-- $88 Foreign currency translation adjustments .............. -- (2) --- --- Accumulated other comprehensive income (loss) ......... $-- $86 === ===
Components of accumulated other comprehensive income at June 30, 2000 are included in division equity. Accumulated other comprehensive income as of June 30, 2000 includes deferred tax liabilities of $57 million. 8. PURCHASE ACCOUNTING On November 22, 2000, under the stock purchase agreement, the Company's parent, New SAC, completed the purchase of all of the operating assets and assumption of operating liabilities of Seagate Technology and its consolidated subsidiaries. The net purchase price was $1.840 billion in cash, including transaction costs of approximately $25 million. Immediately thereafter, in a separate transaction, Seagate Technology and VERITAS completed their merger under the Merger Agreement. At the time of the merger, Seagate Technology's assets included a specified amount of cash, an investment in VERITAS, and certain specified investments and liabilities. In connection with the Merger Agreement, Seagate Technology, VERITAS and New SAC entered into an Indemnification Agreement, pursuant to which these entities and certain other subsidiaries of Seagate Technology agreed to certain indemnification provisions regarding tax and other matters that may arise in connection with the stock purchase agreement and merger. New SAC accounted for this transaction as a purchase in accordance with Account Principles Board Opinion No. 16 "Business Combinations." All acquired tangible assets, identifiable intangible assets as well as assumed liabilities were valued based on their relative fair values and reorganized F-138 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. PURCHASE ACCOUNTING (CONTINUED) into the following businesses: 1) the rigid disc drive business (HDD), which includes the storage area networks business, 2) the removable storage solutions business, 3) the software business, and 4) an investment holding company. The fair value of the net assets exceeded the net purchase price by approximately $909 million. Accordingly, the resultant negative goodwill was allocated on a pro rata basis to acquired long-lived assets of New SAC primarily property, plant and equipment, and identified intangible assets, and reduced the recorded fair value amounts by approximately 46% for all the acquired businesses. In accordance with Staff Accounting Bulletin (SAB) 73, Push Down Basis of Accounting, the Company has reflected its parent company's basis in the rigid disc drive and storage area networks operating businesses in the related balance sheet at the date of acquisition. The table below summarizes the preliminary allocation of net purchase price as it relates to HDD, which includes SAN.
LIFE ESTIMATED DESCRIPTION IN YEARS FAIR VALUE - ---------------------------------------------------------- ---------- ----------- (IN MILLIONS) Net current assets (1) (4) .................... $ 885 Other long-lived assets ....................... 42 Property, plant and equipment (3) ............. 764 Identified intangible assets: Trade names (5) ............................... 10 47 Developed technologies (5) .................... 3-7 50 Assembled workforces (5) ...................... 1-3 43 Other ......................................... 5 1 ------ Total identified intangibles ........................... 141 Long-term deferred taxes (4) .................. (71) Long term liabilities ......................... (122) ------ Net assets ............................................. 1,639 In-process research & development (5) ......... 52 ------ Net Purchase Price ..................................... $1,691 ======
- ---------- (1) Acquired current assets included cash and cash equivalents, accounts receivable, inventories and other current assets. The fair values of current assets generally approximated the recorded historic book values. Short-term investments were valued based on quoted market prices. Inventory values were estimated based on the current market value of the inventories less completion costs and less a normal profit margin based on activities remaining to be completed until the inventory is sold. Valuation allowances were established for current deferred tax assets in excess of long-term deferred tax liabilities (See Note 4 Income Taxes). Assumed current liabilities included accounts payable, accrued compensation and expenses and accrued income taxes. The fair values of current liabilities generally approximated the historic recorded book values because of the monetary nature of most of the liabilities. (2) Other long-lived assets consisted principally of security deposits and service repair inventories recorded with estimated fair values generally approximating the recorded historic book value. F-139 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. PURCHASE ACCOUNTING (CONTINUED) (3) The Company, through its parent, obtained an independent valuation of the acquired property, plant and equipment. In arriving at the determination of market value for the assets, the appraisers considered the estimated cost to construct or acquire comparable property. Machinery and equipment was assessed using replacement cost estimates reduced by depreciation factors representing the condition, functionality and operability of the assets. The sales comparison approach was used for office and data communication equipment. Land, land improvements, buildings, and building and leasehold improvements were valued considering location, size, expected use physical condition and current market conditions and discussions with knowledgeable company personnel. (4) Long-term deferred tax liabilities arose as a result of the excess of the fair values of inventory, long-term investments, and acquired intangible assets over their related tax basis. The Company has $350 million of federal and state deferred tax assets for which a full valuation allowance has been established. (5) The Company obtained an independent valuation of acquired identified intangibles. The significant assumptions relating to each category are discussed in the following paragraphs. Also, these assets are being amortized on the straight-line basis over their estimated useful life and resultant amortization is included in amortization of goodwill and other intangibles. Trade names -- The fair value of trade names was estimated based upon discounting to net present value the licensing income that would arise by charging the operating businesses that use the trade names. Developed technologies -- The value of this asset for each operating business was determined by discounting the expected future cash flows attributable to all existing technologies which had reached technological feasibility, after considering risks relating to: 1) the characteristics and applications of the technology, 2) existing and future markets, as well as 3) life cycles of the technologies. Estimates of future revenues and expenses used to determine the value of developed technology was consistent with the historical trends in the industry and expected outlooks. Assembled workforces -- The value of the assembled work force was determined by estimating the recruiting, hiring and training costs to replace each group of existing employees. In-process research & development (IPR&D) -- The value of IPR&D was based on an evaluation of all developmental projects using the guidance set forth in Interpretation No. 4 of Financial Accounting Standards Board Statement No. 2, "Accounting for Research and Development Costs and FAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed." The amount was determined by: 1) obtaining management estimates of future revenues and operating profits associated with existing developmental projects 2) projecting the cash flows and costs to complete of the underlying technologies and resultant products, and 3) discounting these cash flows to their net present value. Estimates of future revenues and expenses used to determine the value of IPR&D was consistent with the historical trends in the industry and expected outlooks. The entire amount was charged to operations because related technologies had not reach technological feasibility and they had no alternative future use. F-140 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. PURCHASE ACCOUNTING (CONTINUED) At the valuation date, the Company's Seagate Technology HDD Holdings subsidiary's developmental projects focused on increasing capacity, reducing size and power consumption, improving performance and reliability, and reducing production costs. They were grouped into three categories. Those included in category one had completed conceptualization and there was substantial progress in coding, building, simulating, and testing the technologies functionality and performance. For those included in category two, subsystem requirements had been identified, design plans had been completed, and substantial progress had been made in coding and/or building the technologies. Those included in category three had completed design plans and system requirements. Based upon an analysis of efforts to date, developmental projects in these three categories were 70%, 50%, and 30% complete, respectively, and were scheduled for completion through out the period ended in fiscal 2003 at an additional estimated cost of $107 million. At the valuation date, the Company's other subsidiary, Seagate Technology SAN Holdings ("SAN"), was in the process of developing two next generation versions of existing technologies, which, based on an effort to date, were 50% and 75% complete. Activities necessary to covert this IPR&D into commercially viable technologies include the writing and testing of code diagnostic software design development testing and system integration. SAN expects resultant products will be successfully developed in fiscal 2002 at an additional estimated cost of $1 million. PRO FORMA FINANCIAL INFORMATION The pro forma financial information presented below is presented as if the acquisition of substantially all of the operating assets of HDD had occurred at the beginning of fiscal 2000. The pro forma statements of operations for the six months ended December 29, 2000 and December 31, 1999, include the historical results of the Company in addition to the historical results of the Predecessor and are adjusted to reflect the new accounting basis for the assets and liabilities of the Company, and exclude acquisition related charges for recurring amortization of goodwill and intangibles related to the Predecessor's prior acquisitions. The pro forma financial results are as follows:
SIX MONTHS ENDED ------------------------------ DECEMBER 29, DECEMBER 31, 2000 1999 -------------- ------------- (IN MILLIONS) Revenue ................................... $3,279 $3,118 Income (loss) before income taxes ......... (308) (4) Net income (loss) ......................... (449) (11)
9. EQUITY INCENTIVE PLANS NEW SAC 2000 RESTRICTED SHARE PLAN At the closing of the transactions, the Board of Directors of New SAC adopted the New SAC 2000 Restricted Share Plan (2000 Restricted Share Plan). The 2000 Restricted Share Plan allows for grants of ordinary and preferred shares awards to key employees, directors, and consultants. The Company has authorized 1,843,000 ordinary shares and 48,500 preferred shares to be granted under the 2000 Restricted Share Plan. F-141 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 9. EQUITY INCENTIVE PLANS (CONTINUED) Members of the management group entered into rollover agreements in connection with the transactions. Under these agreements, members of the management group agreed not to receive the merger consideration for a portion of their Seagate Technology restricted common stock and options to purchase shares of Seagate Technology common stock, valued at approximately $184 million. In exchange for the management rollover, the members of the management group received the right to participate in a deferred compensation plan and receive unvested ordinary and preferred shares of New SAC granted under the 2000 Restricted Share Plan. The unvested preferred and ordinary shares vest as follows: o one-third will vest on the first anniversary of the closing of the transactions; o one-third will vest proportionately each month over the next 18 months; and o the final one-third will vest on the date which is 30 months after the closing of the transactions. Of the total value of the management rollover, approximately $179 million relates to the restricted award grants. With respect to the restricted ordinary and preferred shares received in connection with the rollover agreements, the Company will recognize a push-down of compensation expense from New SAC of approximately $23 million, based on the fair value of the ordinary and preferred shares at the date of issuance, amortized over the 30 month vesting period using the graded vesting method. In December 2000, the Board of Directors of the Company adopted the Seagate Technology Holdings Stock Option Plan (the HDD Option Plan). Under the terms of the HDD Option Plan eligible employees, directors, and consultants can be awarded options to purchase shares of common stock of Seagate Technology Holdings under vesting terms to be determined at the date of grant. Seventy-two million common shares have been reserved for issuance under the HDD Option Plan. The HDD Option Plan is subject to approval by the senior subordinated noteholders. In February 2001, the Board of Directors approved the issuance of up to approximately 17 million options to purchase common stock of Seagate Technology Holdings. NEW SAC 2001 RESTRICTED SHARE PLAN In February 2000, the Board of Directors approved the adoption of the New SAC 2001 Restricted Share Plan (the 2001 Restricted Share Plan). Under the terms of the 2001 Restricted Share Plan key employees, directors, and consultants, may be awarded restricted ordinary shares. Such shares are subject to vesting provisions to be defined at the date of grant and are subject to repurchase by the Company. 500,000 ordinary shares are available for grant under the plan. The Board of Directors also approved the grant of up to 440,830 restricted ordinary shares to various key employees and directors under this plan. In connection with the management rollover, members of the management group also received interests in deferred compensation plans adopted at Seagate Technology Holdings, Seagate SAN Holdings, and Seagate Removable Storage Solutions Holdings, depending on which subsidiary employed the individual. Under the terms of the deferred compensation plans the employee vests in certain deferred compensation at the same rate as vesting in the ordinary and preferred shares. However, such vesting can be accelerated at any time at the election of the subsidiary. Payments, if any, under the deferred compensation plan are contingent and will be made only when distributions F-142 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 9. EQUITY INCENTIVE PLANS (CONTINUED) are made to preferred shareholders and only to the extent of vesting. New SAC's ability to make distributions is subject to limitations under the debt agreement. As a result, compensation expense for the deferred cash compensation plan will be deferred until distributions are made to preferred shareholders. Payment will be made in cash, securities or other property at the discretion of the Company. DEFERRED COMPENSATION PLAN On January 1, 2001, the Company adopted a deferred compensation plan for the benefit of eligible employees. Company assets earmarked to pay benefits under the plan are held by a rabbi trust. The Company will be adopting the provisions of EITF Issue No. 97-14, "Accounting for Deferred Compensation Arrangements Where Amounts Earned are Held in a Rabbi Trust". As a result, the Company will be revising its consolidation of the assets and liabilities of the rabbi trust. The Company has classified the diversified assets held by the rabbi trust and recorded them at fair value. Under current accounting rules, assets of a rabbi trust must be accounted for as if they are assets of the Company; therefore, all earnings and expenses will be recorded in the Company's financial statements. This plan is designed to permit certain discretionary employer contributions in excess of the tax limits applicable to the 401(k) plan and to permit employee deferrals in excess of certain tax limits. The first contribution period will close at the end of May 2001. 10. LONG-TERM DEBT AND CREDIT FACILITIES Upon the closing of the transactions, the Company, through a wholly owned subsidiary, entered into senior credit facilities with a syndicate of banks and other financial institutions. The senior credit facilities provide senior secured financing of up to $900 million, consisting of: a. a $200 million revolving credit facility for general corporate purposes, with a sublimit of $100 million for letters of credit, which will terminate in five years; b. a $200 million term loan A facility with a maturity of five years; and c. a $500 million term loan B facility with a maturity of six years. At the closing of the transactions, the Company did not borrow under the revolving credit facility. At that time approximately $155 million of the revolving credit facility was available because approximately $45 million of existing letters of credit were outstanding and reduced availability under it. The Company drew the full amount of the term loan A facility and the term loan B facility on the closing of the transactions to finance the acquisition of Seagate Technology's operating assets by New SAC. The $700 million of outstanding loans under the term loan A and B facilities are repayable in semi-annual payments due as follows: F-143 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 10. LONG-TERM DEBT AND CREDIT FACILITIES (CONTINUED)
(IN MILLIONS) -------------- Fiscal 2001 ............ $ 5 2002 ..... ........... 23 2003 ..... ........... 40 2004 ..... ........... 50 2005 ..... ........... 60 Thereafter .......... 522 ---- Total .... ........... $700 ====
The loans bear interest at variable rates dependent upon market interest rates and the nature of the borrowings, as well as the Company's and its parent's consolidated financial position at applicable measurement dates. The average interest rates being charged under these borrowings from the date of the transactions ranged from 9.1875% (LIBOR plus 2.5%) to 9.6875% (LIBOR plus 3%). The Company, New SAC, and certain subsidiaries and affiliates, are guarantors under the senior credit facilities. In addition, New SAC's, the majority of the Company's, and certain subsidiaries' and affiliates' assets, have been pledged for the debt under this credit agreement, see Note 12, Condensed Consolidating Financial Information. The Company, New SAC, and certain subsidiaries and affiliates, have agreed to certain covenants under this agreement including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. In connection with the closing and financing of the transactions, Seagate Technology International, a wholly owned subsidiary of the Company, issued unsecured senior subordinated notes under an Indenture Agreement dated November 22, 2000 at a discount to the aggregate principal amount of $210 million, for gross proceeds of approximately $201 million. The notes mature on November 15, 2007 and bear interest payable semi-annually at a rate of 12.5% per annum. The Company, New SAC, and certain subsidiaries and affiliates, are guarantors of the notes on a joint and several, whole and unconditional basis. In addition, the Company, New SAC, and certain subsidiaries and affiliates including the Company, have agreed to certain restrictive covenants under the terms of these notes including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. 11. LITIGATION SECURITIES CLASS ACTIONS Following the announcement of the transactions, a number of stockholders of Seagate Technology Inc. filed lawsuits the individual members of our Board of Directors, certain executive officers, VERITAS and Silver Lake. The complaints filed in Delaware were consolidated into one action on April 18, 2000. On May 22, 2000, the Delaware Chancery Court certified the Delaware action as a class action. The Delaware plaintiffs filed an amended complaint and moved for a preliminary injunction on September 11, 2000. In California, three complaints were filed in Santa Clara County Superior Court and two complaints were filed in Santa Cruz County Superior Court. F-144 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 11. LITIGATION (CONTINUED) The complaints in both jurisdictions all essentially allege that the members of our Board of Directors breached their fiduciary duties to our shareholders by entering into the transactions. The complaints also allege that the directors and executive officers have conflicting financial interests and did not secure the highest possible price for our shares All the complaints are styled as class actions, and sought to enjoin the transactions and secure damages from all defendants. On October 13, 2000, a Memorandum of Understanding, or MOU, was signed regarding settlement with all defendants on behalf of the shareholders. The shareholders approved the transactions on November 21, 2000 and the transactions closed on November 22, 2000. A final Stipulation of Settlement was executed in early January 2001. A hearing on approval of the settlement by the Delaware Chancery Court is scheduled for April 9, 2001. The primary elements of the Stipulation of Settlement are the following: o Suez Acquisition Company and the investor group, agreed to increase the cash purchase price under the stock purchase agreement by $50 million. This amount: o was funded by the investor group on the closing of the transactions into an escrow account held by VERITAS, pending its distribution to our shareholders, if specified conditions are satisfied as discussed below; o will be paid to our shareholders as additional consideration on approval by the Delaware Chancery Court of the settlement and dismissal with prejudice of the Delaware lawsuit and the dismissal with prejudice of the California lawsuits; and o plus interest, will be returned to us in the event that VERITAS determines, in its reasonable judgment, that the conditions to the release of the amount have become incapable of being satisfied. o We, or the defendants jointly will pay any attorneys' fees that may be awarded to plaintiffs' counsel on approval of the Delaware Chancery Court of the settlement and dismissal with prejudice of the Delaware and California lawsuits. The Delaware plaintiffs' counsel will ask the Delaware Chancery Court to award $15.25 million in attorneys' fees. o The merger agreement was amended to 1) reduce the maximum amount that may be required to be held in escrow to cover our potential tax liabilities from $300 million to $150 million, and 2) change some provisions regarding VERITAS' payment of the consideration for the merger. The settlement is conditioned on, among other things, final court approval. Between March 30 and October 27, 2000, one of the California complaints was voluntarily dismissed and the others were coordinated, with the venue in Santa Clara County. After the transactions closed in November 2000, the two remaining actions originally filed in Santa Clara County filed for court approval of dismissal with prejudice. The two actions originally filed in Santa Cruz County are still pending. Defendants have not yet answered the complaints. INTELLECTUAL PROPERTY LITIGATION Papst Licensing, GmbH -- Papst has given us notice that it believes certain former Conner Peripherals, Inc. disc drives infringe several of its patents covering the use of spindle motors in disc drives. It is the opinion of our patent counsel that the former Conner disc drives do not infringe any valid claims of the patents. We also believe that subsequent to the merger with Conner, our earlier paid-up license under Papst's patents extinguishes any ongoing liability. We also believe we enjoy the benefit of a license under Papst's patents since Papst Licensing had granted a license to motor F-145 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 11. LITIGATION (CONTINUED) vendors of Conner. Papst is currently involved in litigation with other disc drive and disc drive motor manufacturers. After the closing of the transactions, Papst indicated that it could not consent to the assignment of the 1993 Papst-Seagate license to the new entity until it receives further information about the new business structure and that any Seagate disc drives would be assumed to be unlicensed. We have provided additional information regarding the new business structure. Convolve, Inc. -- On July 13, 2000, Convolve and Massachusetts Institute of Technology filed suit against Compaq Computer Corporation and Seagate in the U.S. District Court for the Southern District of New York, alleging patent infringement, misappropriation of trade secrets, breach of contract, tortious interference with contract and fraud relating to Convolve's Input Shaping (Registered Trademark) and Quick and Quiet (Trade Mark) technology. The plaintiffs claim their technology is incorporated in Seagate's sound barrier technology, which was publicly announced on June 7, 2000. The complaint seeks injunctive relief, $800 million in compensatory damages and punitive damages. We answered the complaint on August 2, 2000 and filed cross-claims for declaratory judgment that two Convolve/MIT patents are invalid and not infringed and that we own any intellectual property based on the information that was disclosed to Convolve. Plaintiffs' motion for expedited discovery was denied by the court. The court ordered plaintiffs to identify their trade secrets to defendants before discovery can begin. Convolve served a trade secrets disclosure on August 4, 2000. We filed a motion challenging Convolve's trade secrets disclosure statement and a hearing is expected to take place on March 9, 2001. We believe this matter is without merit and intend to defend it vigorously. LABOR LITIGATION White -- On March 15, 2000, Royston White filed a breach of contract action against Seagate in Oklahoma State Court. The complaint is styled as a class action, and White, as the sole named defendant, alleges that some 600 former employees have been damaged through Seagate's breach of separation and release agreements entered into in connection with a reduction in force. Discovery is ongoing and a trial date has not yet been set, but we believe we have substantive defenses and will pursue such defenses vigorously. OTHER MATTERS We are involved in a number of other judicial and administrative proceedings incidental to our business. Although occasional adverse decisions or settlements may occur, we believe that the final disposition of such matters will not have a material adverse effect on our financial position or results of operations. 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION Seagate Technology Holdings, ("STH"), is a subsidiary of New SAC. The senior subordinated notes, see Note 10 Long-Term Debt and Credit Facilities, were issued by Seagate Technology International (Cayman), a wholly owned subsidiary of STH. The senior subordinated notes are full and unconditional, and are made on a joint and several basis by the guarantering subsidiaries. F-146 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) The following tables present guarantor and non-guarantor condensed consolidating financial information for the combined rigid disc drive and storage area network operations of Seagate Technology, the predecessor to the Company, at December 29, 2000 and June 30, 2000, and the condensed consolidating results of its operations and its cash flows for the period from November 23, 2000 to December 29, 2000, the period from July 1, 2000 to November 22, 2000, and the six month period ending December 31, 1999. The information classifies the historic subsidiaries of the rigid disc drive operations and the storage area networks operations into issuer, other wholly and non-wholly owned guarantors, and other wholly owned non-guarantors based upon the current classification of those subsidiary guarantors and their successors under the provisions of the senior subordinated notes. F-147 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) CONSOLIDATING CONDENSED BALANCE SHEETS DECEMBER 29, 2000 (IN MILLIONS)
GUARANTORS -------------------------------------- WHOLLY-OWNED SUBSIDIARY - HDD -------------------------------------- NON-WHOLLY WHOLLY CONSOLIDATED OWNED OWNED SEAGATE SUBSIDIARY SUBSIDIARY - NON- CONSOLIDATION TECHNOLOGY ISSUER OTHER SAN GUARANTORS ELIMINATION HOLDINGS ------------- --------- -------------- ------------ --------------- ------------- Cash and cash equivalents ................ $ 389 253 23 24 -- 689 Marketable Securities .................... 118 -- -- -- -- 118 Accounts Receivable, net ................. 8,289 929 16 5,749 (14,132) 851 Accounts Receivable from affiliates ...... (1) 1 -- 1 -- 1 Inventories .............................. 172 113 10 129 -- 424 Deferred Income Taxes .................... -- 72 -- -- -- 72 Other Current Assets ..................... 198 3 -- 8 -- 209 -------- --- -- ------ ------- --- Total Current Assets .................... 9,165 1,371 49 5,911 (14,132) 2,364 -------- ----- -- ------ ------- ----- Property, equipment, and leasehold Improvements, net ....................... 345 291 5 131 -- 772 Intercompany investments ................. 744 2,301 -- 28 (3,073) -- Goodwill and other intangibles ........... -- 125 8 -- -- 133 Other assets ............................. 48 3 -- 18 -- 69 -------- ----- -- ------ ------- ----- TOTAL ASSETS ............................. 10,302 4,091 62 6,088 (17,205) 3,338 ======== ===== == ====== ======= ===== Accounts Payable ......................... $7,598 1,376 1 $5,896 (14,132) 739 Accounts payable with affiliates ......... 1 37 -- (1) -- 37 Accrued employee compensation ............ 55 91 3 13 -- 162 Accrued Expenses ......................... 91 393 8 15 -- 507 Accrued Income Taxes ..................... 41 188 -- 2 -- 231 Current portion of long-term debt ........ 9 1 -- 44 -- 10 -------- ----- -- ------- ------- ----- Total Current Liabilities ............... 7,795 2,086 12 5,925 (14,132) 1,686 Deferred Income Taxes .................... -- 35 -- -- -- 35 Long-term debt, less current portion ..... 793 100 -- -- -- 893 Other liabilities ........................ (24) 115 25 1 -- 117 -------- ----- -- ------- ------- ----- Total Liabilities ....................... 8,564 2,336 37 5,926 (14,132) 2,731 -------- ----- -- ------- ------- ----- Commitments and Contingencies ............ -- -- -- -- -- -- SHAREHOLDERS' EQUITY ..................... 1,738 1,755 25 162 (3,073) 607 -------- ----- -- ------- ------- ----- Total Liabilities and Shareholders' Equity .................................. $10,302 $4,091 $62 $6,088 $ (17,205) $3,338 ======== ====== === ======= ========= ======
F-148 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) CONSOLIDATED COMBINED STATEMENTS OF OPERATIONS PERIOD FROM NOVEMBER 23, 2000 TO DECEMBER 29, 2000 (IN MILLIONS)
GUARANTORS ---------------------------------------- WHOLLY-OWNED SUBSIDIARY - HDD ---------------------------------------- NON-WHOLLY CONSOLIDATED OWNED WHOLLY SEAGATE SUBSIDIARY SUBSIDIARY - OWNED CONSOLIDATION TECHNOLOGY ISSUER OTHER SAN NON-GUARANTOR ELIMINATION HOLDINGS ------------ ------------ -------------- --------------- --------------- ------------- Revenue $1,186 $ 429 $ 11 $689 $ (1,346) $ 969 Cost of Sales 1,014 555 6 633 (1,346) 862 Product development 3 64 1 -- 68 Marketing and administrative 5 72 7 4 88 Amortization of goodwill and other intangibles -- 5 -- -- 5 Restructuring 3 (4) -- 1 $ -- Unusual items 27 25 52 ------- ------- ----- ----- -------- ------- Total Operating Expenses 1,025 719 39 638 (1,346) 1,075 ------- ------- ----- ----- -------- ------- Income (Loss) from Operations 161 (290) (28) 51 (106) Interest Income -- 2 -- 3 Interest Expense (6) (4) (10) Gain on contribution of NSMG to VERITAS, net -- Activity related to equity interest in VERITAS -- Gain on sale of VERITAS stock -- Gain on sale of SanDisk stock -- Gain on exchange of certain investments in equity securities -- Other, net (1) (6) (1) (8) ------- ------- ----- ----- -------- ------- Other Income (Expense), net (7) (8) -- (1) -- (15) ------- ------- ----- ----- -------- ------- Income (loss) before income taxes 154 (298) (28) 50 -- (121) Benefit (provision) for income taxes (1) (20) 1 -- (20) ------- ------- ----- ----- -------- ------- Net Income (Loss) $ 153 $(322) $ (27) $50 $ -- $(141) ======= ======= ===== ===== ======== =======
F-149 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS PERIOD FROM NOVEMBER 23, 2000 TO DECEMBER 29, 2000 (IN MILLIONS)
GUARANTORS ----------------------------------------- WHOLLY-OWNED SUBSIDIARY - HDD ----------------------------------------- NON-WHOLLY CONSOLIDATED OWNED WHOLLY SEAGATE SUBSIDIARY SUBSIDIARY - OWNED CONSOLIDATION TECHNOLOGY ISSUER OTHER SAN NON-GUARANTOR ELIMINATION HOLDINGS ------------ ------------- -------------- --------------- --------------- ------------- Net Cash Provided by (Used in) Operating Activities ................ $(824) $ 446 $ 6 $284 $ -- $ (88) -- -- INVESTING ACTIVITIES: ................ -- -- Acquisition of property, equipment and leasehold improvements .......... (17) (0) (7) (9) (33) Purchases of short-term investments ......................... (129) -- -- -- -- (129) Maturities and sales of short-term investments ......................... 130 -- -- -- -- 130 Other, net ........................... 3 (3) -- (2) -- (2) ------ ---------- ----- ------- ----- -------- Net Cash Provided by (Used in) Investing Activities ................ (13) (3) (7) (10) -- (33) -- -- FINANCING ACTIVITIES: ................ -- -- Issuance of long-term debt ........... 772 87 -- -- -- 860 Short term borrowings ................ (0) 66 (0) -- -- 66 Repayment of short term borrowings .......................... -- (66) -- -- -- (66) Net charge in investment by New SAC and its predecessor ............. 847 (1,151) 72 236 (55) (51) Other, net ........................... -- 1 -- -- -- 1 ------- --------- ----- ------ ----- ------- Net Cash Provided by (Used in) Financing Activities ................ 1,619 (1,062) 72 236 (55) 810 Effect of exchange rate changes on cash and cash equivalents ........... -- -- -- -- -- -- Increase (Decrease) in Cash and Cash Equivalents .................... 782 (619) 71 510 (55) 689 Cash and Cash equivalents at the ..... Beginning of the Period .............. -- -- -- -- -- -- ------- --------- ----- ------ ----- ------- End of the Period .................... $ 782 $ (619) $71 $510 $ (55) $ 689 ======= ========= ===== ====== ===== =======
F-150 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 (IN MILLIONS)
GUARANTORS ------------------------------------------ WHOLLY-OWNED SUBSIDIARY - HDD ------------------------------------------ NON-WHOLLY OWNED SUBSIDIARY SUBSIDIARY - ISSUER OTHER SAN ------------ -------------- -------------- REVENUE ................................... 3,532 1,412 21 Cost of Goods Sold ........................ 3,386 1,329 9 Product development ....................... 12 394 3 Marketing and administrative .............. 18 379 28 Amortization of Goodwill .................. 2 4 14 Restructuring Costs ....................... 11 (1) 0 Unusual Items ............................. 0 (2) 0 ----- -------- -- OPERATING EXPENSES ........................ 3,429 2,103 54 ----- ------- -- INCOME (LOSS) FROM OPERATIONS ............. 103 (691) (33) Interest (Income) ......................... 43 14 0 Interest Expense .......................... 0 (24) 0 Gain on sale of Veeco Stock ............... 20 Gain on sale of SanDisk stock ............. 102 Loss on LHSP investment ................... (138) Other, net ................................ (43) (2,278) 0 ----- -------- --- OTHER (INCOME) EXPENSE .................... 0 (2,304) 0 INCOME (LOSS) BEFORE TAXES ................ 103 (2,995) (33) Benefit (provision) for taxes ............. (35) 295 9 NET INCOME ................................ $ 68 $(2,700) $ (24) ======= ========= ===== CONSOLIDATED WHOLLY SEAGATE OWNED CONSOLIDATION TECHNOLOGY NON-GUARANTOR ELIMINATION HOLDINGS --------------- --------------- ------------- REVENUE ................................... 1,439 (4,102) 2,302 Cost of Goods Sold ........................ 1,412 (4,102) 2,034 Product development ....................... (1) 0 408 Marketing and administrative .............. 15 0 440 Amortization of Goodwill .................. 0 0 20 Restructuring Costs ....................... 9 0 19 Unusual Items ............................. 0 0 (2) ----- ------ -------- OPERATING EXPENSES ........................ 1,435 (4,102) 2,919 ----- ------ ------- INCOME (LOSS) FROM OPERATIONS ............. 4 0 (617) Interest (Income) ......................... 1 0 58 Interest Expense .......................... 0 0 (24) Gain on sale of Veeco Stock................ 20 Gain on sale of SanDisk stock ............. 102 Loss on LHSP investment ................... (138) Other, net ................................ 4 2,305 (12) ----- ------ ------- OTHER (INCOME) EXPENSE .................... 5 2,305 6 INCOME (LOSS) BEFORE TAXES ................ 9 2,305 (611) Benefit (provision) for taxes ............. (63) 0 206 ------- NET INCOME ................................ $ (54) $ 2,305 $(405) ====== ========= =======
See notes to consolidated condensed financial statements. F-151 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 (IN MILLIONS)
GUARANTORS ---------------------------------------- WHOLLY-OWNED SUBSIDIARY - HDD ---------------------------------------- NON-WHOLLY OWNED SUBSIDIARY SUBSIDIARY - ISSUER OTHER SAN ------------ ------------ -------------- Net Cash Provided by (Used in) Operating Activities ...................... $ (2,981) $ (1,470) $(5) INVESTING ACTIVITIES: ...................... Acquisition of property, equipment and leasehold improvements .................... (69) (152) (2) Purchases of short-term investments ........ (1,457) (155) - Maturities and sales of short-term investments ............................... 2,442 186 - Restricted cash (TRA) ...................... - (150) - Proceeds from sale of certain investments ............................... - 234 - Other, net ................................. 1 5 - -------- -------- ----- Net Cash Provided by (Used in) Investing Activities ................................ 917 (32) (2) -------- -------- ------ FINANCING ACTIVITIES: ...................... Issuance of long-term debt ................. - - - Repayment of long-term debt ................ - (812) - Net change in investment by New SAC and its predecessor ....................... 1,398 2,126 -- Other, net ................................. - 1 - -------- -------- ----- Net Cash Provided by (Used in) Financing Activities ...................... 699 251 - -------- -------- ----- Effect of exchange rate changes on cash and cash equivalents ................. - - - Increase (Decrease) in Cash and Cash Equivalents .......................... (666) (188) - Cash and Cash equivalents at the Beginning of the Period ................... 666 188 7 -------- -------- ----- End of the Period ending balances ........................... - - - -------- -------- ----- CONSOLIDATED WHOLLY SEAGATE OWNED CONSOLIDATION TECHNOLOGY NON-GUARANTOR ELIMINATION HOLDINGS --------------- --------------- ------------- Net Cash Provided by (Used in) Operating Activities ...................... $ 2 $ 4,592 $ 138 - INVESTING ACTIVITIES: ...................... - Acquisition of property, equipment and leasehold improvements .................... (42) - (265) Purchases of short-term investments ........ - - (1,612) Maturities and sales of short-term investments ............................... - - 2,628 Restricted cash (TRA) ...................... - - (150) Proceeds from sale of certain investments ............................... - - 234 Other, net ................................. (12) - (6) ----- --------- ----------- Net Cash Provided by (Used in) Investing Activities ................................ (54) 0 829 ----- --------- ---------- - FINANCING ACTIVITIES: ...................... - Issuance of long-term debt ................. 44 (44) - Repayment of long-term debt ................ - - (812) Net change in investment by New SAC and its predecessor ....................... -- (4,548) (1,024) Other, net ................................. 1 - 1 ----- --------- ---------- Net Cash Provided by (Used in) Financing Activities ...................... 45 (2,830) (1,835) ----- --------- ---------- Effect of exchange rate changes on cash and cash equivalents ................. - - - Increase (Decrease) in Cash and Cash Equivalents .......................... (9) (868) Cash and Cash equivalents at the Beginning of the Period ................... 7 - 868 ------- --------- ---------- End of the Period ending balances ........................... - - - ------- --------- ----------
F-152 SEAGATE TECHNOLOGY HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1999 (IN MILLIONS)
GUARANTORS ------------------------- WHOLLY OWNED SUBSIDIARY - HDD ------------------------- SUBSIDIARY ISSUER OTHER ------------ ------------ Revenue .................................. $4,546 $2,095 Cost of Sales ............................ 4,450 1,641 Product development ...................... 13 315 Marketing and administrative ............. 17 157 Amortization of goodwill and other intangibles ............................. 2 7 Restructuring ............................ 77 46 Unusual items ............................ -- 82 ------ ------ Total Operating Expenses ................ 4,559 2,248 Income (Loss) from Operations ........... (13) (153) Interest Income .......................... 38 7 Interest Expense ......................... (2) (27) Activity related to equity interest in VERITAS ................................. Gain on sale of VERITAS stock ............ Gain on sale of SanDisk stock ............ 62 Other, net ............................... 4 (4) ------- -------- Other Income (Expense), net ............. 40 38 ------- ------- Income (loss) before income taxes ........ 27 (115) Benefit (provision) for income taxes ..... -- 19 ------- ------- Net Income (Loss) ....................... $ 27 $ (96) ======= ======= WHOLLY CONSOLIDATED SEAGATE OWNED CONSOLIDATION TECHNOLOGY NON-GUARANTOR ELIMINATIONS HOLDINGS --------------- --------------- --------------------- Revenue .................................. $1,990 $(5,514) $3,117 Cost of Sales ............................ 1,957 (5,514) 2,534 Product development ...................... 328 Marketing and administrative ............. 13 187 Amortization of goodwill and other intangibles ............................. 9 Restructuring ............................ 11 134 Unusual items ............................ 82 ------ Total Operating Expenses ................ 1,981 (5,514) 3,274 Income (Loss) from Operations ........... 9 -- (157) Interest Income .......................... (3) 42 Interest Expense ......................... 3 (26) Activity related to equity interest in VERITAS ................................. -- Gain on sale of VERITAS stock ............ -- Gain on sale of SanDisk stock ............ 62 Other, net ............................... (1) (1) -------- -------- Other Income (Expense), net ............. (1) 77 -------- ------- Income (loss) before income taxes ........ 8 -- (80) Benefit (provision) for income taxes ..... 4 23 ------- ------- Net Income (Loss) ....................... $ 12 $ -- $ (57) ======= ========= =======
F-153 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (IN MILLIONS)
SUBSIDIARY ISSUER OTHER GUARANTORS GUARANTORS NON-GUARANTORS ELIMINATIONS STH ------------ ------------ ---------------- -------------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ..................... 132 (74) (52) 71 181 INVESTING ACTIVITIES: Acquisition of property, equipment and leasehold improvements ................... (80) (151) (43) (274) Purchases of short-term investments ....... (1,602) (37) (1,639) Maturities and sales of short-term investments .............................. 1,647 155 1 1,803 Proceeds from sale of VERITAS stock ....... Proceeds from sale of SanDisk stock ....... 67 67 Equity investments ........................ Other, net ................................ 1 (20) (19) ------ ---- ------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ................... (34) 14 (42) (62) ====== ==== === ====== FINANCING ACTIVITIES: Issuance of long-term debt ................ 1 1 Repayment of long-term debt ............... Sale of common stock ...................... Purchase of treasury stock ................ Intercompany loans ........................ Net change in investment by New SAC ....... 138 (65) (8) (69) (4) Other, net ................................ (12) (1) (11) ---- --- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ................... 138 (76) (8) (68) (14) ====== ==== === === ====== Effect of exchange rate changes on cash and cash equivalents ..................... INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .............................. 236 (136) 3 3 105 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD .................. 186 158 24 368 ------ ---- --- ------ END OF THE PERIOD ........................ $ 422 $ 22 $ 26 3 473 ======== ====== ===== === ======
F-154 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Seagate Technology Holdings. We have audited the accompanying combined balance sheets of Seagate Technology Hard Disc Drive Business, an operating business of Seagate Technology, Inc. as of June 30, 2000 and July 2, 1999, and the related combined statements of operations, accumulated other comprehensive income (loss) and business equity, and cash flows for each of the three years in the period ended June 30, 2000. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Seagate Technology Hard Disc Drive Business, an operating business of Seagate Technology, Inc. at June 30, 2000 and July 2, 1999, and the combined results of its operations and its cash flows for each of the three years in the period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP San Jose, California April 18, 2001 F-155 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS COMBINED BALANCE SHEETS (In millions)
JUNE 30, JULY 2, 2000 1999 ---------- -------- ASSETS (see Note 12) Cash and cash equivalents ................................... $ 868 $ 368 Short-term investments ...................................... 1,140 1,227 Accounts receivable, net .................................... 642 794 Accounts receivable from affiliates ......................... -- 12 Inventories ................................................. 413 439 Deferred income taxes ....................................... 282 240 Other current assets ........................................ 156 102 ------ ------ Total Current Assets ....................................... 3,501 3,182 ------ ------ Property, equipment and leasehold improvements, net ......... 1,585 1,668 Goodwill and other intangibles, net ......................... 294 88 Other assets................................................. 509 184 ------ ------ Total Assets (see Note 12) ................................. $5,889 $5,122 ====== ====== LIABILITIES Accounts payable ............................................ $ 679 $ 667 Accounts payable to affiliates .............................. 36 -- Accrued employee compensation ............................... 182 171 Accrued expenses ............................................ 325 373 Accrued warranty ............................................ 124 157 Accrued income taxes ........................................ 71 43 Current portion of long-term debt ........................... -- 1 ------ ------ Total Current Liabilities .................................. 1,417 1,412 ------ ------ Deferred income taxes ....................................... 711 486 Accrued Warranty ............................................ 109 123 Other liabilities ........................................... 7 36 Long-term debt, less current portion ........................ 703 703 ------ ------ Total Liabilities .......................................... 2,947 2,760 Commitments and Contingencies BUSINESS EQUITY ............................................. 2,942 2,362 ------ ------ Total Liabilities and Business Equity ...................... $5,889 $5,122 ====== ======
See notes to combined financial statements. F-156 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS COMBINED STATEMENTS OF OPERATIONS (In millions)
FOR THE YEARS ENDED ------------------------------------- JUNE 30, JULY 2, JULY 3, 2000 1999 1998 ------------ --------- ---------- Revenue .............................................................. $6,058 $6,152 $6,245 Cost of revenue ...................................................... 4,820 4,902 5,523 Product development .................................................. 663 566 555 Marketing and administrative ......................................... 409 317 308 Amortization of goodwill and other intangibles ....................... 33 20 21 In-process research and development .................................. 105 2 216 Restructuring ........................................................ 206 59 347 Unusual items ........................................................ 107 75 (22) ------ ------ ------ Total operating expenses ............................................ 6,343 5,941 6,948 ------ ------ ------ Income (loss) from operations ....................................... (285) 211 (703) Interest income ...................................................... 101 102 98 Interest expense ..................................................... (52) (48) (51) Gain on sale of SanDisk stock ........................................ 679 -- -- Gain on exchange of certain investments in equity securities ......... 199 -- -- Other, net ........................................................... (1) 10 (66) -------- ------ ------ Other income (expense), net ......................................... 926 64 (19) ------- ------ ------ Income (loss) before income taxes .................................... 641 275 (722) Benefit (provision) for income taxes ................................. (275) (61) 191 ------- ------ ------ Net income (loss) ................................................... $ 366 $ 214 $ (531) ======= ====== ======
See notes to combined financial statements. F-157 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS COMBINED STATEMENTS OF CASH FLOWS (In millions)
FOR THE YEARS ENDED ------------------------------------------- JUNE 30, JULY 2, JULY 3, 2000 1999 1998 -------------- ------------- ---------- OPERATING ACTIVITIES Net income (loss) ............................................... $ 366 $ 214 $ (531) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ................................ 666 676 620 Deferred income taxes ........................................ (51) 661 (28) In-process research and development .......................... 105 2 216 Non-cash portion of restructuring charge ..................... 109 35 203 Gain on sale of SanDisk stock ................................ (679) -- -- Gain on exchange of certain investments in equity securities .................................................. (199) -- -- Compensation expense related to SSI exchange offer ........... 44 -- -- Other, net ................................................... 53 20 32 Changes in operating assets and liabilities: Accounts receivable .......................................... 150 (44) 252 Inventories .................................................. (9) 26 197 Accounts payable ............................................. (45) 91 (285) Accrued expenses, employee compensation and warranty ......... (206) (119) (261) Accrued income taxes ......................................... (154) 50 (38) Other assets and liabilities ................................. 76 241 55 --------- ------- -------- Net cash provided by operating activities ...................... 226 1,853 432 INVESTING ACTIVITIES Acquisition of property, equipment and leasehold improvements (565) (591) (693) Purchases of short-term investments ............................. (3,352) (6,596) (4,810) Maturities and sales of short-term investments .................. 3,429 6,519 4,889 Proceeds from sale of SanDisk stock ............................. 680 -- -- Acquisitions of businesses, net of cash acquired ................ -- -- (194) Other, net ...................................................... (19) (27) (12) --------- ------- -------- Net cash provided by (used in) investing activities .......... 173 (695) (820) FINANCING ACTIVITIES Net change in investment by Seagate Technology .................. 117 (1,469) (38) Other, net ...................................................... (14) 26 28 --------- ------- -------- Net cash used in financing activities .......................... 103 (1,443) (10) Effect of exchange rate changes on cash and cash equivalents (2) (3) 6 ---------- ---------- -------- Increase (decrease) in cash and cash equivalents ............... 500 (288) (392) Cash and cash equivalents at the beginning of the year .......... 368 656 1,034 --------- --------- -------- Cash and cash equivalents at the end of the year ................ $ 868 $ 368 $ 642 ========= ========= ========
See notes to combined financial statements. F-158 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS COMBINED STATEMENT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) AND BUSINESS EQUITY (IN MILLIONS)
ACCUMULATED OTHER COMPREHENSIVE BUSINESS INCOME (LOSS) EQUITY Balance at June 27, 1997 ...................................... $ -- $3,437 Comprehensive loss: Net loss ................................................... (531) Unrealized gain on marketable securities ................... 1 1 Foreign currency translation ............................... (1) (1) ------ -------- Comprehensive loss ........................................... (531) Net change in investment by Seagate Technology, Inc. ......... -- 67 ------ ------- Balance at July 3, 1998 ....................................... -- 2,839 Comprehensive income: Net income ................................................. 214 Unrealized loss on marketable securities ................... (5) (5) Foreign currency translation ............................... (2) (2) --------- -------- Comprehensive income ......................................... (7) 207 Net change in investment by Seagate Technology, Inc. ......... (684) ------- Balance at July 2, 1999 ....................................... (7) 2,362 Comprehensive income: Net income ................................................. 378 Unrealized gain on marketable securities ................... 93 93 -------- ------- Comprehensive income ....................................... 471 Net change in investment by Seagate Technology, Inc. ......... 109 ------- $ 86 $2,942 ======== =======
See notes to combined financial statements. F-159 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations -- Seagate Technology Hard Drive Disc Business (the "Company" or "HDD") operated as an operating business of Seagate Technology, Inc. ("Seagate Technology") during the three years ended June 30, 2000. On November 22, 2000, all the operating assets and liabilities of Seagate Technology, including all the operating assets and liabilities of the Company were acquired by Suez Acquisition Company and assigned to New SAC. New SAC is the parent company of Seagate Technology Holdings and the operating assets and liabilities of the Company are now organized into various subsidiaries of Seagate Technology Holdings. Seagate Technology Holdings had no operations prior to November 22, 2000, and the Company is considered the predecessor of Seagate Technology Holdings. See Note 12, Subsequent Events, for a further description of the current organizational structure of the Company. The Company designs, manufactures and markets products for storage, retrieval and management of data on computer and data communications systems. The Company sells its products to original equipment manufacturers ("OEM") for inclusion in their computer systems or subsystems, and to distributors who typically sell to small OEMs, dealers, system integrators and other resellers. HDD is an operating division of Seagate Technology, Inc., a data technology company that provides products for storing, managing, and accessing digital information on computer systems. Basis of Presentation -- These financial statements have been prepared using the historical basis of accounting and are presented as if HDD existed as an entity separate from Seagate Technology during the periods presented. These financial statements include the historical assets, liabilities, revenues and expenses that are directly related to HDD's operations. For certain assets and liabilities, revenues and expenses that are directly related to HDD's operations. For certain assets and liabilities that are not specifically identifiable with HDD, estimates have been used to allocate such assets and liabilities to HDD by applying methodologies management believes are appropriate. The statements of operations include all revenues and expenses attributable to HDD, including allocations of certain corporate administration, finance, and management costs. Such costs were proportionately allocated to HDD based on detailed inquiries and estimates of time incurred by Seagate Technology's corporate marketing and general administrative departmental managers. In addition, certain of Seagate Technology's operations are shared locations involving activities that pertain to HDD as well as to other businesses of Seagate Technology. Costs incurred in shared locations are allocated based on specific identification, or where specific identification is not possible, such costs are allocated between HDD and other businesses of Seagate Technology based on the volume of activity, head count, square footage, and other methodologies that management believes are reasonable. Transactions and balances between entitites and locations within HDD have been eliminated. Management believes that the foregoing allocations were made on a reasonable basis. Certain non-operating assets and related non-operating income and expense are included in the historical results of the Company but are not part of continuing assets of the Company subsequent to the transaction (see Note 12). These assets and non-operating income and expense relate to equity investments in SanDisk Corporation, Gadzoox Networks, Inc., Veeco Instruments, Inc. and Lernout & Hauspie Speech Products N.V. Basis of Consolidation -- The combined consolidated financial statements include the accounts of HDD and its wholly-owned subsidiary, XIOtech Corporation, after eliminations. F-160 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 2000 ended on June 30, 2000, fiscal 1999 ended on July 2, 1999, and fiscal 1998 ended on July 3, 1998. Fiscal year 2000 comprised 52 weeks, fiscal year 1999 comprised 52 weeks and fiscal year 1998 comprised 53 weeks. All references to years in these notes to combined consolidated financial statements represent fiscal years unless otherwise noted. Accounting Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. The actual results with regard to warranty expenditures could have a material unfavorable impact on the Company if the actual rate of unit failure or the cost to repair a unit is greater than what the Company has used in estimating the warranty expense accrual. The actual results with regard to restructuring charges could have a material unfavorable impact on the Company if the actual expenditures to implement the restructuring plan are greater than what the Company estimated when establishing the restructuring accrual. Given the volatility of the markets in which the Company participates, the Company makes adjustments to the value of inventory based on estimates of potentially excess and obsolete inventory after considering forecasted demand and forecasted average selling prices. However, forecasts are subject to revisions, cancellations, and rescheduling. Actual demand will inevitably differ from such anticipated demand, and such differences may have a material effect on the financial statements. Foreign Currency Translation -- The U.S. dollar is the functional currency for most of the Company's foreign operations. Gains and losses on the translation into U.S. dollars of amounts denominated in foreign currencies are included in net income for those operations whose functional currency is the U.S. dollar and as a separate component of business equity for those operations whose functional currency is the local currency. Derivative Financial Instruments -- HDD transacts business in various foreign countries. Its primary currency cash flows are in emerging market countries in Asia and in certain European countries. During 1998 and 1997, HDD employed a foreign currency hedging program utilizing foreign currency forward exchange contracts and purchased currency options to hedge local currency cash flows for payroll, inventory, other operating expenditures and fixed asset purchases in Singapore, Thailand, Malaysia and Northern Ireland. These local currency cash flows were designated as either firm commitments or as anticipated transactions depending upon the contractual or legal nature of local currency commitments in Singapore, Thailand, Malaysia and Northern Ireland. Anticipated transactions were hedged with purchased currency options and with foreign currency forward exchange contracts; firm commitments were hedged with foreign currency forward exchange contracts. The Company may enter into foreign currency forward exchange and option contracts to manage exposure related to certain foreign currency commitments; certain foreign currency denominated balance sheet positions and anticipated foreign currency denominated expenditures. The Company does not enter into derivative financial instruments for trading purposes. Foreign currency forward exchange contracts designated and effective as hedges of firm commitments and option contracts designated and effective as hedges of firm commitments or anticipated transactions are treated as F-161 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) hedges for accounting purposes. Gains and losses related to qualified accounting hedges of firm commitments or anticipated transactions are deferred and are recognized in income or as adjustments to the carrying amounts when the hedged transaction occurs. All other foreign currency forward exchange contracts are marked-to-market and unrealized gains and losses are included in current period net income as a component of other income (expense). Premiums on foreign currency option contracts used to hedge firm commitments and anticipated transactions are amortized on a straight-line basis over the life of the contract. Forward points on foreign currency forward exchange contracts which qualify as hedges of firm commitments are recognized in income as adjustments to the carrying amount when the hedged transaction occurs. The Company may, from time to time, adjust its foreign currency hedging position by taking out additional contracts or by terminating or offsetting existing foreign currency forward exchange and option contracts. These adjustments may result from changes in the Company's underlying foreign currency exposures or from fundamental shifts in the economics of particular exchange rates, as occurred in the first and second quarters of fiscal 1998 with respect to the Thai baht, Malaysian ringgit and Singapore dollar. For foreign currency forward exchange and option contracts qualifying as accounting hedges, gains or losses on terminated contracts and offsetting contracts are deferred and are recognized in income as adjustments to the carrying amount of the hedged item in the period the hedged transaction occurs. For foreign currency forward exchange and option contracts not qualifying as accounting hedges, gains and losses on terminated contracts, or on contracts that are offset, are recognized in income in the period of contract termination or offset. Revenue Recognition and Product Warranty -- Revenue from sales of products is recognized when persuasive evidence of an arrangement exists including a fixed price to the buyer, delivery has occurred, and collectibility is reasonably assured. Estimated product returns are provided for in accordance with Statements of Financial Accounting Standards No. 48 "Revenue Recognition when Right of Return Exists". The Company warrants its products against defects in design, materials and workmanship generally for two to five years depending upon the capacity category of the disc drive, with the higher capacity products being warranted for the longer periods. A provision for estimated future costs relating to warranty expense are recorded when revenue is recorded. Shipping and handling costs are included in cost of sales. Inventories -- Inventories are valued at the lower of standard cost (which approximates actual cost using the first-in, first-out method) or market. Market value is based upon an estimated average selling price reduced costs to complete. Property, Equipment, and Leasehold Improvements -- Land, equipment, buildings and leasehold improvements are stated at cost. Equipment and buildings are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated life of the asset or the remaining term of the lease. Advertising Expense -- The cost of advertising is expensed as incurred. Advertising costs were $9 million, $29 million and $45 million in 2000, 1999 and 1998, respectively. Stock-Based Compensation -- The Company accounts for employee stock-based compensation under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APBO 25") and related interpretations. Pro forma net income is a disclosure required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and are included in the Stock-Based Benefit Plans -- Pro Forma Information note to the combined consolidated financial statements. F-162 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impact of Recently Issued Accounting Standards -- Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") is effective for all fiscal quarters beginning after June 15, 2000 and will be adopted by the Company in its fiscal year 2001. This statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that derivatives be recognized in the balance sheet at fair value and specifies the accounting for changes in fair value. The Company does not expect that the adoption of SFAS 133 will have a material impact on its financial statements and related results. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. The Company is expected to apply the accounting and disclosures described in SAB 101. The Company does not expect the adoption of SAB 101 will have a material effect on its consolidated results of operations, financial position and cash flows. The Company is required to adopt SAB 101 in the fourth quarter of fiscal 2001, retroactive to the beginning of the year. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB Opinion No. 25 and, among other issues, clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000. The Company does not expect the adoption of FIN 44 will have a material effect on its combined consolidated results of operations, financial position, and cash flows. Cash, Cash Equivalents and Short-Term Investments -- The Company considers all highly liquid investments with a remaining maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value. The Company's short-term investments primarily comprise readily marketable debt securities with remaining maturities of more than 90 days at the time of purchase. The Company has classified its entire investment portfolio as available-for-sale. Available-for-sale securities are classified as cash equivalents or short-term investments and are stated at fair value with unrealized gains and losses included in accumulated other comprehensive income which is a component of stockholders' equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income. Realized gains and losses are included in other income (expense). The cost of securities sold is based on the specific identification method. Equity Investments -- The Company has historically entered into certain equity investments for the promotion of business and strategic objectives, and typically does not attempt to reduce or eliminate the inherent market risks on these investments. Both marketable and non-marketable investments are included in other assets. A substantial majority of the Company's marketable investments are classified as available-for-sale as of the balance sheet date and are reported at fair value, with unrealized gains and losses, net of tax, recorded in stockholders' equity. The cost of securities sold is based on the specific identification method. Realized gains or losses and declines in value, if any, judged to be other than temporary on available-for-sale securities are reported in other income or expense. Non-marketable investments are recorded at cost. F-163 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Concentration of Credit Risk -- The Company's customer base for disc drive products is concentrated with a small number of systems manufacturers and distributors. Financial instruments which potentially subject the Company to concentrations of credit risk are primarily accounts receivable, cash equivalents and short-term investments. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The allowance for noncollection of accounts receivable is based upon the expected collectibility of all accounts receivable. The Company places its cash equivalents and short-term investments in investment grade, short-term debt instruments and limits the amount of credit exposure to any one commercial issuer. Supplier Concentration -- Certain of the raw materials used by the Company in the manufacture of its products are available from a limited number of suppliers. Shortages could occur in these essential materials due to an interruption of supply or increased demand in the industry. For example, all of the Company's disc drive products require ASIC chips which are produced by a limited number of manufacturers. During the fourth quarter of fiscal 2000 the Company experienced shortages and delays with regards to receipt of such chips and similar delays and shortages continued in fiscal 2001. If the Company were unable to procure certain of such materials, it would be required to reduce its manufacturing operations which could have a material adverse effect upon its results of operations. 2. BALANCE SHEET INFORMATION FINANCIAL INSTRUMENTS The following is a summary of the fair value of available-for-sale securities at June 30, 2000:
AMORTIZED GROSS GROSS COST UNREALIZED GAIN UNREALIZED LOSS FAIR VALUE ----------- ----------------- ----------------- ----------- (IN MILLIONS) Money market mutual funds .................. $ 266 $ -- $ -- $ 266 U.S. government and agency obligations ..... 323 -- (6) 317 Repurchase agreements ...................... 16 -- -- 16 Auction rate preferred stock ............... 374 -- -- 374 Municipal bonds ............................ 1 -- -- 1 Corporate securities ....................... 733 -- (2) 731 Mortgage-backed and asset-backed securities ................................ 218 -- (4) 214 Euro/Yankee time deposits .................. 12 -- -- 12 ------ ---- ------- ------ Subtotal ................................... 1,943 -- (12) 1,931 Marketable equity securities* .............. 334 471 (376) 429 ------ ---- ------- ------ Total available-for-sale securities ........ $2,277 $471 $(388) $2,360 ====== ==== ======= ====== Included in other assets ................... $ 429 Included in cash and cash equivalents ...... 791 Included in short-term investments ......... 1,140 ------ $2,360 ======
- ---------- * No such similar amounts were recorded in fiscal 1999. F-164 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 2. BALANCE SHEET INFORMATION (CONTINUED) The following is a summary of the fair value of available-for-sale securities at July 2, 1999:
GROSS GROSS UNREALIZED GAIN UNREALIZED LOSS FAIR VALUE ----------------- ----------------- ----------- (IN MILLIONS) Money market mutual funds .................. $ 74 $-- $ 74 U.S. government and agency obligations ..... 314 (4) 310 Repurchase agreements ...................... -- -- -- Auction rate preferred stock ............... 222 -- 222 Municipal bonds ............................ 109 -- 109 Corporate securities ....................... 515 (1) 514 Mortgage-backed and asset-backed securities ............................... 302 (2) 300 Euro/Yankee time deposits .................. 48 -- 48 ------ ----- ------ $1,584 $(7) $1,577 ====== ===== ====== Included in cash and cash equivalents ...... $ 350 Included in short-term investments ......... 1,227 ------ $1,577 ======
The fair value of the Company's investment in debt securities, by contractual maturity, is as follows:
JUNE 30, 2000 JULY 2, 1999 --------------- ------------- (IN MILLIONS) Due in less than 1 year ......... $ 939 $ 486 Due in 1 to 3 years ............. 352 794 ------ ------ $1,291 $1,280 ====== ======
Fair Value Disclosures-- The carrying value of cash and cash equivalents approximates fair value. The fair values of short-term investments, notes, debentures (see Long-Term Debt and Lines of Credit footnote) and foreign currency forward exchange and option contracts are estimated based on quoted market prices. The carrying values and fair values of the Company's financial instruments are as follows:
JUNE 30, 2000 JULY 2, 1999 ------------------------- ------------------------ CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE ---------- ------------ ---------- ----------- (IN MILLIONS) Cash equivalents ........................... $ 791 $ 791 $ 350 $ 350 Short-term investments ..................... 1,140 1,140 1,227 1,227 Marketable equity securities ............... 429 429 -- -- 7.125% senior notes, due 2004 .............. (200) (187) (200) (194) 7.37% senior notes, due 2007 ............... (200) (180) (200) (189) 7.45% senior debentures, due 2037 .......... (200) (177) (200) (188) 7.875% senior debentures, due 2017 ......... (100) (85) (100) (92)
Derivative Financial Instruments -- The Company may enter into foreign currency forward exchange and option contracts to manage exposure related to certain foreign currency commitments, F-165 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 2. BALANCE SHEET INFORMATION (CONTINUED) certain foreign currency denominated balance sheet positions and anticipated foreign currency denominated expenditures. The Company does not enter into derivative financial instruments for trading purposes. Based on uncertainty in the Southeast Asian foreign currency markets, beginning in the second quarter of 1998 the Company temporarily suspended its hedging program. At July 3, 1998, the Company had effectively closed out all of its foreign currency forward exchange contracts by purchasing offsetting contracts. As of June 30, 2000, the Company had no outstanding foreign currency forward exchange or purchased currency option contracts. Net foreign currency transaction gains and losses included in the determination of net income (loss) were a gain of $1 million for fiscal 2000 and losses of $1 million and $252 million for fiscal 1999, and fiscal 1998, respectively. The Company transacts business in various foreign countries. Its primary foreign currency cash flows are in emerging market countries in Asia and in certain European countries. During fiscal 1998, the Company employed a foreign currency hedging program utilizing foreign currency forward exchange contracts and purchased currency options to hedge local currency cash flows for payroll, inventory, other operating expenditures and fixed asset purchases in Singapore, Thailand and Malaysia. During fiscal 1998 the Singapore dollar, Thai baht, and Malaysian ringgit declined in value relative to the U.S. dollar. The transaction loss of $252 million for fiscal 1998 primarily included losses incurred on closing out these foreign currency forward exchange contracts. ACCOUNTS RECEIVABLE Accounts receivable are summarized below:
2000 1999 -------- ------- (IN MILLIONS) Accounts receivable ...................... $ 712 $ 844 Less allowance for noncollection ......... (70) (50) ----- ----- $ 642 $ 794 ===== =====
Activity in the allowance for doubtful accounts is as follows:
BALANCE AT ADDITIONS CHARGED BALANCE AT BEGINNING TO COST END OF OF PERIOD AND EXPENSE DEDUCTIONS PERIOD ------------ ------------------- ------------ ----------- (IN MILLIONS) 2000 ......... $50 $20 $-- $70 1999 ......... 52 -- 2 50 1998 ......... 58 -- 6 52
INVENTORIES Inventories are summarized below:
2000 1999 ------ ------- (IN MILLIONS) Components .............. $139 $141 Work-in-process ......... 48 54 Finished goods .......... 226 244 ---- ---- $413 $439 ==== ====
F-166 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 2. BALANCE SHEET INFORMATION (CONTINUED) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold improvements consisted of the following:
ESTIMATED USEFUL LIFE 2000 1999 --------------------------- ----------- ----------- (IN MILLIONS) Land ........................................ $ 47 $ 39 Equipment ................................... 3 - 4 years 2,415 2,321 Building and leasehold improvements ......... Life of lease -- 30 years 974 924 Construction in progress .................... 250 193 -------- -------- 3,686 3,477 Less accumulated depreciation and amortization .............................. (2,101) (1,809) -------- -------- $ 1,585 $ 1,668 ======== ========
Equipment and leasehold improvements include assets under capitalized leases. Amortization of leasehold improvements is included in depreciation expense. Depreciation expense was $587 million, $558 million and $531 million in 2000, 1999 and 1998, respectively. GOODWILL AND OTHER INTANGIBLES Goodwill represents the excess of the purchase price of acquired companies over the estimated fair value of the tangible and specifically identified intangible net assets acquired. Other intangible assets consist of trademarks, assembled workforces, distribution networks, developed technology, and customer bases related to acquisitions accounted for by the purchase method. Amortization of purchased intangibles, other than acquired developed technology, is provided on the straight-line basis over the respective useful lives of the assets ranging from 36 to 60 months for trademarks, 24 to 60 months for assembled workforces and distribution networks, and 12 to 48 months for customer bases. In-process research and development without alternative future use is expensed when acquired. In accordance with the Statement of financial Accounting Standards No.121 "Acounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of", the carrying value of other intangibles and related goodwill is reviewed if the facts and circumstances suggest that they may be permanently impaired. If this review indicates these assets' carrying value will not be recoverable, as determined based on the undiscounted net cash flows of the entity acquired over the remaining amortization period, the Company's carrying value is reduced to its estimated fair value, first by reducing goodwill, and second by reducing long-term assets and other intangibles (generally based on an estimate of discounted future net cash flows). Goodwill and other intangibles are being amortized on a straight-line basis over periods ranging from two to fifteen years. Accumulated amortization was $173 million and $147 million as of June 30, 2000 and July 2, 1999, respectively. DEVELOPED TECHNOLOGY The Company applies Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed" ("SFAS 86"), to software technologies developed internally, acquired in business acquisitions, and purchased. Internal development costs are included in research and development and are expensed as incurred. SFAS 86 requires the capitalization of certain internal development costs once technological F-167 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 2. BALANCE SHEET INFORMATION (CONTINUED) feasibility is established, which based on the Company's development process generally occurs upon the completion of a working model. As the time period between the completion of a working model and the general availability of software has been short, capitalization of internal development costs has not been material to date. As of June 30, 2000 there are no capitalized internal development costs on the Company's balance sheet. Capitalized costs are amortized based on the greater of the straight-line basis over the estimated product life or the ratio of current revenue to the total of current and anticipated future revenue. Purchased developed technology is amortized based on the greater of the straight-line basis over the estimated useful life (30 to 48 months) or the ratio of current revenue to the total of current and anticipated future revenue. The recoverability of the carrying value of purchased developed technology is reviewed periodically. The carrying value of developed technology is compared to the estimated future gross revenue from that product reduced by the estimated future costs of completing and disposing of that product, including the costs of performing maintenance and customer support (net undiscounted cash flows) and to the extent that the carrying value exceeds the undiscounted cash flows the difference is written off. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on capitalization of the costs incurred for computer software developed or obtained for internal use. It also provides guidance for determining whether computer software is internal-use software and on accounting for the proceeds of computer software originally developed or obtained for internal use and then subsequently sold to the public. SOP 98-1 was adopted by the Company in fiscal 2000 and the adoption of this statement did not have a material impact on its financial statements. LONG-TERM DEBT AND LINES OF CREDIT (see Note 14 Subsequent Events) Long-term debt consisted of the following:
2000 1999 ------ ------- (IN MILLIONS) 7.125% senior notes, due 2004 ....................................... $200 $200 7.37% senior notes, due 2007 ........................................ 200 200 7.45% senior debentures, due 2037 ................................... 200 200 7.875% senior debentures, due 2017 .................................. 100 100 Capitalized lease obligations with interest at 14% to 19.25% collateralized by certain manufacturing equipment and buildings.... 4 4 ---- ---- 704 704 Less current portion ................................................ 1 1 ---- ---- $703 $703 ==== ====
F-168 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 2. BALANCE SHEET INFORMATION (CONTINUED) At June 30, 2000, future minimum principal payments on long-term debt and capital lease obligations were as follows:
(IN MILLIONS) -------------- 2001 .......................... $ 1 2002 .......................... 1 2003 .......................... 1 2004 .......................... 201 2005 .......................... -- After 2005 .................... 500 ---- $704 ====
The Company's 7.125% senior notes due 2004, 7.37% senior notes due 2007 and 7.875% senior debentures due 2017 are redeemable at the option of the Company at any time, at a redemption price equal to the greater of (i) 100% of their principal amount plus accrued interest or (ii) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the date of redemption at a discount rate (the "discount rate") as set forth in the indenture governing the notes and debentures plus 10 basis points. The Company's 7.45% senior debentures due 2037 are redeemable at the option of the Company at any time, at a redemption price equal to the greater of (i) 100% of their principal amount plus accrued interest, (ii) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the date of redemption at the discount rate plus 10 basis points, calculated as if the principal amount were payable in full on March 1, 2009, or (iii) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the date of redemption at the discount rate plus 10 basis points. In addition, the Company's 7.45% senior debentures due 2037 will be redeemable on March 1, 2009, at the option of the holders thereof, at 100% of their principal amount, together with interest payable to the date of redemption. The Company's 7.125% senior notes due 2004, 7.37% senior notes due 2007 and 7.875% senior debentures due 2017 will not be redeemable at the option of the holders thereof prior to maturity. These securities were issued in February 1997 in an offering registered under the Securities Act of 1933, as amended. See Note 12, the senior notes of $700 million were repaid as part of the transaction. As of June 30, 2000, the Company had committed lines of credit of $71 million that can be used for standby letters of credit or bankers' guarantees. At June 30, 2000, $42 million of these lines of credit were utilized. In addition, the Company has a $300 million credit facility that can be used for borrowings. As of June 30, 2000, this facility was unutilized. 3. COMPENSATION TAX-DEFERRED SAVINGS PLAN Qualified employees of the Company participate in a tax-deferred savings plan, the Seagate Technology, Inc. Savings and Investment Plan ("the 401(k) plan"). The 401(k) plan is designed to provide employees with an accumulation of funds at retirement. Qualified employees may elect to make contributions to the 401(k) plan on a monthly basis. Seagate Technology may make annual contributions to the 401(k) plan at the discretion of the Board of Directors. During the fiscal years F-169 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 3. COMPENSATION (CONTINUED) ended June 30, 2000 and July 2, 1999, Seagate Technology made contributions totaling approximately $13 million and $12 million to the 401(k) plan in each year, respectively. No material contributions were made by Seagate Technology during fiscal year 1998. STOCK-BASED BENEFIT PLANS Stock Option Plans -- Employees are eligible to participate in Seagate Technology's stock option plans. Options granted under Seagate Technology's stock option plans are granted to employees of the Company at fair market value, expire ten years from the date of the grant and generally vest in four equal annual installments, commencing one year from the date of the grant. As of June 30, 2000, 22 million options were outstanding. Executive Stock Plan -- Seagate Technology has an Executive Stock Plan under which senior executives of the Company were granted the right to purchase shares of the Seagate Technology's common stock at $.01 per share. The difference between the fair market value of the shares on the measurement date and the exercise price is recorded as deferred compensation by Seagate Technology and was charged to operations of the Company over the vesting period of four to seven years. Seagate Technology has the right to repurchase the restricted stock from an executive upon his or her voluntary or involuntary termination of employment with the Company for any reason at the same price paid by the executive. If an executive voluntarily resigns at or above age 65, Seagate Technology may release from the repurchase option, or if his or her employment terminates as a result of death, disability, termination by the Company other than for cause or constructive termination within the two-year period following a change of control, the Company will release from the repurchase option a pro rata number of shares based on the number of months that have passed since the grant date divided by the number of months in the vesting period. At June 30, 2000, 1,755,000 restricted shares were outstanding to employees of the Company. In addition, Seagate Technology has a Restricted Stock Plan which also has a deferred compensation component. Under this plan the deferred compensation is amortized over a period of seven years. There are two employees remaining in the plan and no shares are available for future grant. The aggregate amount charged to operations for amortization of deferred compensation under both plans was $6 million, $10 million, and $8 million in 2000, 1999 and 1998, respectively. Stock Purchase Plan -- Seagate Technology also maintained an Employee Stock Purchase Plan in which employees of HDD were eligible to participate. The Purchase Plan permitted eligible employees who have completed thirty days of employment prior to the inception of the offering period to purchase common stock through payroll deductions generally at the lower of 85% of the fair market value of the common stock at the beginning or at the end of each six-month offering period. Under the plan, 1,515,000; 1,604,000; and 1,348,000 shares of Seagate Technology common stock were issued to employees of the Company in fiscal 2000, 1999, and 1998, respectively. Pro Forma Information --The Company has elected to follow APBO 25 and related interpretations in accounting for employee stock options granted by Seagate Technology because, as discussed below, the alternative fair value accounting provided for under SFAS 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APBO 25, the Company generally recognized no compensation expense with respect to options granted by Seagate Technology. As a result of the consummation of the transactions, all stock options other than stock options included in the management rollover, were accelerated and exercised. The full fair value of their stock options amounting to $16.9 million was recorded as compensation in the period from F-170 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 3. COMPENSATION (CONTINUED) November 22, 2000. In these circumstances and because of the significant change in the Company's ownership and equity structure, the Company believes the pro forma net income (loss) information as required by SFAS 123, Accounting for Stock Based Stock Compensation, is not meaningful and such information has not been provided. POST-RETIREMENT HEALTH CARE PLAN In fiscal 2000, Seagate Technology adopted a post-retirement health care plan which offers medical coverage to eligible U.S. retirees and their eligible dependents including eligible employees of HDD. Substantially all U.S. employees become eligible for these benefits after 15 years of service and attaining age 60 and older. F-171 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 3. COMPENSATION (CONTINUED) The following table provides a reconciliation of the changes in the post-retirement health care plan's benefit obligation and a statement of the funded status as it relates to employees of the Company as of June 30, 2000:
(IN MILLIONS) -------------- Change in Benefit Obligation Benefit obligation at beginning of year .................... $ -- Service cost ............................................... 4 Amortization of unrecognized prior service cost ............ 2 ---- Benefit obligation at end of year .......................... $ 6 ==== Funded Status of the Plan Fair value of plan assets at end of year ................... $ -- Unrecognized prior service cost ............................ (22) Accrued benefit liability recognized in the balance sheet at June 30, 2000 ............................................. (6) ------- Accrued benefit cost ....................................... $(28) ======
Net periodic benefit cost for the year ended June 30, 2000 was as follows:
(IN MILLIONS) -------------- Service cost ................................ $ 2 Interest cost ............................... 2 Amortization of prior service cost .......... 2 ---- Net periodic benefit cost ................... $ 6 ====
WEIGHTED-AVERAGE ACTUARIAL ASSUMPTIONS A discount rate of 7.0% was used in the determination of the accumulated benefit obligation. The Company's future share of medical benefit costs were estimated to increase at an annual rate of 10% during 2000, decreasing to an annual growth rate of 5% in 2010 and thereafter. The Company's cost is capped at 200% of the fiscal 1999 employer cost and, therefore, will not be subject to medical and dental trends after the capped cost is attained. A 1% change in these annual trend rates would not have a significant impact on the accumulated post-retirement benefit obligation at June 30, 2000, or 2000 benefit expense. Claims are paid as incurred. F-172 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 4. INCOME TAXES SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS INCOME TAX FOOTNOTE The Seagate Technology Hard Disc Drive Business is included in the consolidated federal and certain combined and consolidated foreign and state income tax returns of Seagate Technology. Seagate Technology Hard Disc Drive Busines has entered into a tax sharing agreement (the "Tax Allocation Agreement") pursuant to which Seagate Technology Hard Disc Drive Business computes hypothetical tax returns as if Seagate Technology Hard Disc Drive Business was not joined in consolidated or combined returns with non-HDD affiliates of Seagate Technology. Seagate Technology Hard Disc Drive Business must pay Seagate Technology the positive amount of any such hypothetical taxes. If the hypothetical tax returns show entitlement to refunds, including any refunds attributable to a carryback, then Seagate Technology will pay Seagate Technology Hard Disc Drive Business the amount of such refunds. At the end of fiscal 2000, there were no inter-company tax related balances due from Seagate Technology Hard Disc Drive Business to Seagate Technology. The provision for (benefit from) income taxes consisted of the following:
JULY 30, JULY 2, JULY 3, 2000 1999 1998 ---------- --------- ------------- (IN MILLIONS) Current Tax Expense (Benefit) Federal ..................................... $ 128 $ 29 $ (164) State ....................................... 19 (12) (5) Foreign ..................................... 3 12 7 ----- ----- -------- $ 150 $ 29 $ (162) ----- ----- -------- Deferred Tax Expense (Benefit) Federal$..................................... $ 88 $ 10 (14) State ....................................... 25 20 (19) Foreign ..................................... 2 6 ----- -------- 113 32 (27) ----- ----- -------- Provision for (Benefit from) Income Taxes..... $ 263 $ 61 $ (189) ----- ----- --------
Income (loss) before income taxes consisted of the following:
JUNE 30, JULY 2, JULY 3, 2000 1999 1998 ---------- --------- ----------- (IN MILLIONS) Domestic .............. $ 562 $ (42) $ (758) Foreign ............... 79 308 50 ----- ------ ------- $ 641 $ 266 $ (708) ===== ====== =======
The proforma information assuming a tax provision (benefit) calculated on a separate return basis is as follows: F-173 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 4. INCOME TAXES (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 2000 -------------- Income before income taxes ................... 641 Provision (benefit) for income taxes ......... 263 --- Net Income ................................... 378 ---
The income tax benefits related to the exercise of certain employee stock options decreased income taxes payable and were credited to additional paid-in capital. Such amounts approximated for $54,992,000, $24,193,000 and $11,754,000 in fiscal 2000, 1999, and 1998 respectively. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's deferred tax assets and liabilities were as follows:
JUNE 30, JULY 2, JULY 3, 2000 1999 1998 ---------- ----------- ---------- (IN MILLIONS) DEFERRED TAX ASSETS Accrued warranty ......................................... $ 97 $ 113 151 Inventory valuation accounts ............................. 33 29 35 Receivable reserves ...................................... 21 23 23 Accrued compensation and benefits ........................ 44 29 25 Depreciation ............................................. 20 32 37 Restructuring reserves ................................... 28 17 25 Other reserves and accruals .............................. 25 38 35 Acquisition related items ................................ Net operating loss and tax credit carry-forwards ......... 3 58 65 Other assets.............................................. 11 1 4 ------ ----- --- Total Deferred Tax Assets ............................... 282 340 400 ------ ----- --- Valuation allowance ...................................... (4) (16) -------- --- Net Deferred Tax Assets ................................. 282 336 384 DEFERRED TAX LIABILITIES Unremitted income of foreign subsidiaries ................ (542) (558) (549) Acquisition related items ................................ (169) (12) (17) Other liabilities ........................................ (12) (21) ------- ---- Total Deferred Tax Liabilities .......................... (711) (582) (587) ------ ------- ---- Net Deferred Tax Assets/(Liabilities) ................... $ (429) $(246) $ (203) ------ ------- ------
A valuation allowance has been provided for deferred tax assets as of the end of fiscal 1999 and fiscal 1998 related to certain foreign net operating loss carryforwards. The valuation allowance decreased by $4 million and $12 million in 2000 and 1999, respectively, and increased by $16 million in 1998. The reconciliation between the provision for (benefit from) income taxes at the U.S. federal statutory rate and the effective rate are summarized as follows: F-174 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 4. INCOME TAXES (CONTINUED)
JUNE 30, JULY 2, JULY 3, 2000 1999 1998 ----------- --------- ------------ (IN MILLIONS) Provision (benefit) at U.S. statutory rate ......... $224 $ 93 $(247) State income tax provision (benefit), net of federal income tax benefit ....................... 29 5 (15) Foreign income taxes (benefit) in excess of the U.S. statutory rate .............................. 2 Write-off of in-process research and development ...................................... 37 21 75 Valuation reserve .................................. (4) 3 17 Use of R&D credit carryforwards .................... (16) -- (5) Benefit from net earnings of foreign subsidiaries considered to be permanently reinvested in non-U.S. operations .............................. (67) Non-deductible goodwill ............................ 2 ------- ----- ------- Other .............................................. (7) 6 (12) ------- ----- ------- Provision for (benefit from) income taxes .......... $263 $ 61 $(189) ------ ----- -------
A substantial portion of the Company's Asia Pacific manufacturing operations in Singapore, Thailand, Malaysia and China operate under various tax holidays which expire in whole or in part during fiscal years 2001 through 2010. Certain tax holidays may be extended if specific conditions are met. The tax holidays had no impact on net income in 2000. The net impact of these tax holidays was to increase net income by approximately $34.3 million in 1999. The tax holidays had no impact on the net income in 1998. Cumulative undistributed earnings of the Company's Asia Pacific subsidiaries for which no income taxes have been provided aggregated approximately $1.631 billion at June 30, 2000. These earnings are considered to be permanently invested in non-U.S. operations. As of June 30, 2000, additional federal and state taxes of approximately $584 million would have to be provided if these earnings were repatriated to the U.S. 5. BUSINESS COMBINATIONS The Company has a history of business combinations and during the three most recent fiscal years these included the acquisition of XIOtech Corporation in fiscal 2000 and the acquisition of Quinta Corporation in fiscal 1998. In connection with these business combinations, the Company has recognized significant write-offs of in-process research and development. The completion of the underlying in-process projects acquired within each business combination was the most significant and uncertain assumption utilized in the valuation of the in-process research and development. Such uncertainties could give rise to unforseen budget over runs and/or revenue shortfalls in the event that the Company is unable to successfully complete a certain R&D project. The Company is primarily responsible for estimating the fair value of the purchased R&D in all business combinations accounted for under the purchase method. The nature of research and development projects acquired, the estimated time and costs to complete the projects and significant risks associated with the projects are described below. VALUATION METHODOLOGY In accordance with the provisions of Accounting Principles Board Opinion No. 16, "Business Combinations" (APB 16), all identifiable assets, including identifiable intangible assets, were assigned F-175 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 5. BUSINESS COMBINATIONS (CONTINUED) a portion of the cost of the acquired enterprise (purchase price) on the basis of their respective fair values. This included the portion of the purchase price properly attributed to incomplete research and development projects expensed according to the requirements of Interpretation 4 of Statements of Financial Accounting Standards No. 2 "Accounting for Research and Developments Costs" No. 2. Valuation of acquired intangible assets -- Intangible assets were identified through (i) analysis of the acquisition agreement, (ii) consideration of the Company's intentions for future use of the acquired assets, and (iii) analysis of data available concerning XIOtech's and Quinta's (collectively referred to as the "Targets") products, technologies, markets, historical financial performance, estimates of future performance and the assumptions underlying those estimates. The economic and competitive environment in which the Company and the Targets operate was also considered in the valuation analysis. To determine the value of in-process research and development, the Company considered, among other factors, the state of development of each project, the time and cost needed to complete each project, expected income, associated risks which included the inherent difficulties and uncertainties in completing each project and thereby achieving technological feasibility and risks related to the viability of and potential changes to future target markets. This analysis resulted in amounts assigned to in-process research and development for projects that had not yet reached technological feasibility and which did not have alternative future uses. The Income Approach, which includes analysis of markets, cash flows, and risks associated with achieving such cash flows, was the primary technique utilized in valuing each in-process research and development project. The underlying in-process projects acquired were the most significant and uncertain assumptions utilized in the valuation analysis of in-process research and development projects. To determine the value of developed technologies, the expected future cash flows of existing product technologies were evaluated, taking into account risks related to the characteristics and applications of each product, existing and future markets and assessments of the life cycle stage of each product. Based on this analysis, the existing technologies that had reached technological feasibility were capitalized. To determine the value of the distribution networks and customer bases, the Company considered, among other factors, the size of the current and potential future customer bases, the quality of existing relationships with customers, the historical costs to develop customer relationships, the expected income and associated risks. Associated risks included the inherent difficulties and uncertainties in transitioning the business relationships from the acquired entity to the Company and risks related to the viability of and potential changes to future target markets. To determine the value of trademarks, the Company considered, among other factors, the assumption that in lieu of ownership of a trademark, the Company would be willing to pay a royalty in order to exploit the related benefits of such trademark. To determine the value of assembled workforces, the Company considered, among other factors, the costs to replace existing employees including search costs, interview costs and training costs. Goodwill is determined based on the residual difference between the amount paid and the values assigned to identified tangible and intangible assets. If the values assigned to identified tangible and intangible assets exceed the amounts paid, including the effect of deferred taxes, the values assigned to long-term assets were reduced proportionately. The underlying in-process projects acquired within each acquisition was the most significant and uncertain assumption utilized in the valuation analysis. Such uncertainties could give rise to F-176 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 5. BUSINESS COMBINATIONS (CONTINUED) unforeseen budget over runs and/or revenue shortfalls in the event that the Company is unable to successfully complete a certain research and development project. The following details specific information about significant acquisitions including related assumptions used in the purchase price allocation. ACQUISITION OF XIOTECH CORPORATION: In January 2000, the Company through its parent Seagate Technology, acquired XIOtech, for 8,031,804 shares of Seagate Technology common stock, issued from treasury shares, and options, with a combined fair value of $359 million. XIOtech designs, manufactures and markets a centralized data storage system. This system is based on an exclusive set of sophisticated data management and data movement tools. It offers storage virtualization, multi-node server clustering, and zero backup window solutions. The main component of the system is MAGNITUDE, a fully implemented storage area network ("SAN"). MAGNITUDE is sold in a cabinet containing software-based architecture that allows the incorporation of all of the components of a SAN in one centralized configuration. XIOtech also designs, develops and produces software, namely the REDI suite of software, which runs MAGNITUDE's software based architecture. The REDI software suite is application specific and gives customers the capability of better managing their data. XIOtech is currently developing the next generation technologies for both products, named Thunderbolt and REDI 7.0, respectively. At the time of completing the XIOtech acquisition, the Company estimated the cost to complete both Thunderbolt and REDI 7.0 at approximately $1 million. The anticipated release date for the Thunderbolt is the first half of fiscal 2002 and for the REDI 7.0 is in the second half of fiscal 2001. F-177 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 5. BUSINESS COMBINATIONS (CONTINUED) Assumptions used in estimating the fair value of intangible assets: Revenue Future revenue estimates were generated for the following technologies: (i) MAGNITUDE, (ii) REDI, (iii) Thunderbolt, the next generation development of MAGNITUDE and (iv) REDI 7.0, the next generation development of REDI. Aggregate revenue was estimated to be approximately $47.6 million in fiscal 2000 and to increase to approximately $230 million for fiscal year 2001 when the in-process projects were expected to be complete and shipping. Revenue was estimated to increase to approximately $650 million and $1,060 million in fiscal years 2002 and 2003, respectively. Estimated revenues decreased 29% in fiscal 2004 to $750 million. The estimated revenue growth is consistent with the introduction of new technology. Revenue estimates were based on (i) aggregate revenue growth rates for the business as a whole, (ii) individual product revenue, (iii) growth rates for the storage management software market, (iv) the aggregate size of the storage management software market, (v) anticipated product development and introduction schedules, (vi) product sales cycles, and (vii) the estimated life of a product's underlying technology. Operating expenses Estimated operating expenses used in the valuation analysis of XIOtech included (i) cost of goods sold, (ii) general and administrative expense, (iii) selling and marketing expense, and (iv) research and development expense. In developing future expense estimates, an evaluation of Seagate and XIOtech's overall business model, specific product results, including both historical and expected direct expense levels (as appropriate), and an assessment of general industry metrics was conducted. Cost of goods sold -- Estimated cost of goods sold, expressed as a percentage of revenue, for the developed and in-process technologies ranged from approximately 46% to 55%. General and administrative ("G&A") expense -- Estimated G&A expense, expressed as a percentage of revenue, for the developed and in-process technologies ranged from 5% in fiscal 2000 to less than 1% in fiscal 2004 declining as production levels and related revenue increased and thus efficiencies in production are assumed to be attained. Selling and marketing ("S&M") expense -- Estimated S&M expense, expressed as a percentage of revenue, for the developed and in-process technologies ranged from 20% in fiscal 2001 to a sustainable 15% in fiscal 2002 and beyond. For fiscal 2000, however, when the Thunderbolt and REDI 7.0 technology was estimated to become commercially available, S&M expense was estimated to be 45% due to the relatively low revenue expectation in the initial commercialization period. Research and development ("R&D") expense -- Estimated R&D expense consists of the costs associated with activities undertaken to correct errors or keep products updated with current information (also referred to as "maintenance" R&D). Maintenance R&D includes all activities undertaken after a product is available for general release to customers to correct errors or keep the product updated with current information. These activities include routine changes and additions. The maintenance R&D expense was estimated to be 2% of revenue for the developed and in-process technologies in fiscal 2000 and 3% throughout the remainder of the estimation period. In addition, as of the date of the acquisition, Seagate Technology's management and XIOtech's management anticipated the costs to complete the in-process technologies at approximately $0.95 million. F-178 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 5. BUSINESS COMBINATIONS (CONTINUED) Effective tax rate. The effective tax rate utilized in the analysis of the in-process technologies was 40%, which reflects Seagate Technology's combined federal and state statutory income tax rates, exclusive of non-recurring charges at the time of the acquisition and estimated for future years. Discount rate The discount rates selected for XIOtech's developed and in-process technologies was 16% and 23%, respectively. In the selection of the appropriate discount rates, consideration was given to the Weighted Average Cost of Capital ("WACC") of Seagate Technology of approximately 16% at the date of acquisition. The discount rate utilized for the in-process technology was determined to be higher than Seagate Technology's WACC due to the fact that the technology had not yet reached technological feasibility as of the date of valuation. In utilizing a discount rate greater than Seagate Technology's WACC, management has reflected the risk premium associated with achieving the forecasted cash flows associated with these projects. As a result of this acquisition, the Company incurred a one-time write-off of in-process research and development of approximately $105 million. This acquisition was accounted for as a purchase and, accordingly, the results of operations of XIOtech have been included in the Company's combined consolidated financial statements from the date of acquisition. The following is a summary of the purchase price allocation (in millions): Tangible assets less liabilities assumed ......... $ 12 Developed technology ............................. 37 Tradenames ....................................... 5 Assembled workforce .............................. 2 Customer list .................................... 2 In-process research and development .............. 105 Goodwill ......................................... 214 Deferred tax liability ........................... (18) ----- $ 359 =====
ACQUISITION OF QUINTA CORPORATION: In April and June 1997, the Company invested an aggregate of $20 million to acquire approximately ten percent (10%) of the outstanding stock of Quinta Corporation ("Quinta"), a developer of ultra-high capacity disc drive technologies, including a new optically-assisted Winchester ("OAW") technology. In August 1997, the Company completed the acquisition of Quinta. Pursuant to the purchase agreement with Quinta, the shareholders of Quinta, other than the Company, received cash payments aggregating $230 million upon the closing of the acquisition and were eligible to receive additional cash payments aggregating $96 million upon the achievement of certain product development and early production milestones. Of the $96 million, $19 million was charged to operations in fiscal 1998. Of the $19 million charged to operations, $5 million was paid in fiscal 1998 In July 1998, the Company and Quinta amended the purchase agreement to eliminate the product development and early production milestones and provide that the former shareholders of Quinta will be eligible to receive the remaining $77 million and the $14 million that had been accrued but unpaid in fiscal 1998. In the first quarter of fiscal 1999, the Company recorded a charge to operations for the remaining $77 million. F-179 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 5. BUSINESS COMBINATIONS (CONTINUED) Quinta's research and development project revolves around an OAW technology. OAW refers to Quinta's newly designed recording technology that, upon completion, would be implemented into Winchester hard disk drives. OAW combines traditional magnetic recording technology with Winchester hard disc drives and optical recording capabilities; optical recording technology enables greater data storage capacity. By integrating advanced optical features along with a highly fine and sophisticated tracking and delivery system within the head design, OAW would multiply the real density of disc drives. Through August 8, 1997, the acquisition date, Quinta had demonstrated significant achievements in developing its technology. However, further technological milestones were required before technological feasibility could be achieved. Quinta's development process consists of the following development milestones: (i) route light (optical fiber), (ii) flying head use, (iii) recording media, (iv) mirror creation and demonstration (two stage servo), (v) complete assembly, (vi) form factor containment, (vii) design verification test, (viii) customer qualification, and (ix) delivery. Assumptions used in estimating the fair value of intangible assets: Revenue Future revenue estimates were generated for the following product that the OAW technology would be utilized in: (i) fixed drives, (ii) removable drive, (iii) fixed/removable drives, and (iv) cartridges. No revenue was expected through fiscal 1998 since the underlying technology was anticipated not to be technologically feasible until fiscal 1999. Revenue was estimated to be approximately $26.6 million in fiscal 1999 and to increase to approximately $212 million for fiscal year 2000 when the in-process project was expected to be complete and shipping. Revenue growth was expected to decline to a sustainable 20% growth by fiscal 2005. The estimated revenue growth is consistent with the introduction of new technology. Revenue estimates were based on (i) aggregate revenue growth rates for the business as a whole, (ii) individual product revenue, (iii) growth rates for the disc drive market, (iv) the aggregate size of the disc drive market, (v) anticipated product development and introduction schedules, (vi) product sales cycles, and (vii) the estimated life of a product's underlying technology. Quinta's development cycle, in total, was expected to take approximately 18 to 24 months. Operating expenses Estimated operating expenses used in the valuation analysis of Quinta included (i) cost of goods sold, (ii) general and administrative expense, (iii) selling and marketing expense, and (iv) research and development expense. In developing future expense estimates, an evaluation of Seagate's overall business model, specific product results, including both historical and expected direct expense levels (as appropriate), and an assessment of general industry metrics was conducted. Due to Quinta's limited operating history, an analysis of Quinta's historical performance was not meaningful. Cost of goods sold -- Estimated cost of goods sold, expressed as a percentage of revenue, for the in-process technologies ranged from approximately 65% to 80%. General and administrative ("G&A") expense -- Estimated G&A expense, expressed as a percentage of revenue, for the in-process technologies ranged from 2.6% in fiscal 2000 to a sustainable 3.5% in fiscal 2001 and beyond. For fiscal 1999, however, when the OAW technology would become commercially available, G&A expense was estimated to be 6.4% due to the relatively low revenue expectation in the initial commercialization period. F-180 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 5. BUSINESS COMBINATIONS (CONTINUED) Selling and marketing ("S&M") expense -- Estimated S&M expense, expressed as a percentage of revenue, for the in-process technologies ranged from 3.3% in fiscal 2000 to a sustainable 3.5% in fiscal 2001 and beyond. For fiscal 1999, however, when the OAW technology would become commercially available, S&M expense was estimated to be 8.7% due to the relatively low revenue expectation in the initial commercialization period. Research and development ("R&D") expense -- Estimated R&D expense consists of the costs associated with activities undertaken to correct errors or keep products updated with current information (also referred to as "maintenance" R&D). Maintenance R&D includes all activities undertaken after a product is available for general release to customers to correct errors or keep the product updated with current information. These activities include routine changes and additions. The maintenance R&D expense was estimated to be 0.5% of revenue for the in-process technologies throughout the estimation period. Effective tax rate The effective tax rate utilized in the analysis of the in-process technologies was 38%, which reflects Seagate Technology's combined federal and state statutory income tax rates, exclusive of non-recurring charges at the time of the acquisition and estimated for future years. Discount rate The discount rates selected for Quinta's in-process technology was 25%. In the selection of the appropriate discount rates, consideration was given to (i) the WACC of Seagate Technology of approximately 15% at the date of acquisition and (ii) the Weighted Average Return on Assets of approximately 25%. The discount rate utilized for the in-process technology was determined to be higher than Seagate Technology's WACC due to the fact that the technology had not yet reached technological feasibility as of the date of valuation. In utilizing a discount rate greater than Seagate Technology of WACC, management has reflected the risk premium associated with achieving the forecasted cash flows associated with these projects. As a result of this acquisition, the Company incurred a one-time write-off of in-process research and development of approximately $214 million. Intangible assets arising from the acquisition of Quinta are being amortized on a straight-line basis over two years. This acquisition was accounted for as a purchase and, accordingly, the results of operations of Quinta have been included in the Company's combined consolidated financial statements from the date of acquisition. F-181 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 5. BUSINESS COMBINATIONS (CONTINUED) The following is a summary of the purchase price allocation:
(IN MILLIONS) -------------- Tangible assets less liabilities assumed .......... $ 34 In-process research and development ............... 214 Assembled workforce ............................... 2 ---- $250 ====
6. RESTRUCTURING In fiscal 2000, the Company recorded restructuring charges of $214 million. The restructuring charge was a result of a restructuring plan established to align the Company's global workforce and manufacturing capacity with existing and anticipated future market requirements and necessitated by the Company's improved productivity and operating efficiencies (the "fiscal 2000 restructuring plan"). These actions included workforce reductions, capacity reductions including closure of facilities or portions of facilities, write-off of excess equipment and consolidation of operations in the Company's recording media operations, disc drive assembly and test facilities, printed circuit board assembly manufacturing, recording head operations, customer service operations, sales and marketing activities, and research and development activities. The restructuring charges were comprised of $81 million for the write-off of excess manufacturing, assembly and test equipment formerly utilized in Singapore, Thailand and Northern California; $88 million for employee termination costs; $29 million for the write-off of owned facilities located in Singapore; $11 million in lease termination and holding costs; $5 million in renovation costs to restore facilities in Singapore and Northern California to their pre-lease condition; and $2 million in contract cancellations associated with one of the Singapore facilities. Prior to this period, there was no indication of permanent impairment of the assets associated with the closure and consolidation of facilities. In connection with the fiscal 2000 restructuring plan, the Company plans to reduce its workforce by approximately 23,000 employees primarily in manufacturing. Approximately 18,300 of the 23,000 employees had been terminated as of June 30, 2000. As a result of employee terminations and the write-off of equipment and facilities in connection with the restructuring charges recorded during the year ended June 30, 2000 related to the fiscal 2000 restructuring plan, the Company estimates that after the completion of these restructuring activities, annual salary and depreciation expense will be reduced by approximately $151 million and $40 million, respectively. The Company anticipates that the implementation of the fiscal 2000 restructuring plan will be substantially complete by December 29, 2000. In fiscal 2000, the Company reversed $11 million of its restructuring accruals comprised of $2 million of restructuring reserves recorded in the same period, $5 million of restructuring reserves recorded in fiscal 1999 and $4 million of restructuring reserves recorded in fiscal 1998. This reversal included $3 million of valuation reserves classified elsewhere on the balance sheet and the reversal of amounts included in the restructuring reserve for facility lease costs. In addition, reclassifications between cost categories within the restructuring reserve were made as a result of differences between original estimates and amounts actually incurred or expected to be incurred. During the third quarter of fiscal 1999, the Company recorded a restructuring charge of $71 million as a result of steps the Company is taking to further improve the efficiency of its operations. These actions included closure of the Company's microchip manufacturing facility in Scotland; discontinuance of the Company's recording head suspension business located in Malaysia and Minnesota; consolidation of global customer service operations by relocating such operations in Singapore, Scotland and Costa Mesa, California to Reynosa, Mexico; and closure of the Company's F-182 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 6. RESTRUCTURING (CONTINUED) recording media substrate facility in Mexico. The restructuring charges were comprised of $37 million for the write-off or write-down of excess manufacturing, assembly and test equipment formerly utilized in Scotland, Malaysia and Minnesota; $16 million for lease termination and holding costs for facilities located in Scotland and Singapore; $9 million for employee termination costs; $3 million for the write-off of goodwill associated with the recording media substrate operation in Mexico; $2 million for the write-down of owned facilities located in Malaysia; $1 million for the write-down of leasehold improvements in Singapore; $1 million for the write-off of tooling; $1 million for contract cancellations associated with the suspension business; and $1 million for repayment of various grants previously received from the Scottish government. Prior to this period, there was no indication of permanent impairment of the assets associated with the closure and consolidation of facilities. Evaluations of the resale market for certain assets were used to estimate fair value. As of July 2, 1999, all of the equipment located at the microchip facility in Scotland had been sold and the lease on this facility had been terminated The Company is in the final stages of disposing all of the assets for its suspension business. The facility that was previously occupied by the suspension operations is currently being used for other operations. In connection with the fiscal 1999 restructuring, the Company's planned workforce reduction had been completed as of March 31, 2000 and the other restructuring activities were substantially complete as of March 31, 2000. In fiscal 1999, the Company reversed $12 million of its restructuring accruals originally recorded in fiscal year 1998 as a result of the Company abandoning its plan to seek an agreement with an external vendor to supply parts currently manufactured at a facility in Thailand. This reversal included $10 million of valuation reserves classified elsewhere on the balance sheet and reversal of amounts included in the restructuring reserve of $1 million for facility lease costs and $1 million for contract cancellations. In addition, reclassifications between cost categories within the restructuring reserve were made as a result of differences between original estimates and amounts actually incurred or expected to be incurred. This was primarily a result of an increase in the period of time estimated to obtain a suitable sub-lessee for certain leased buildings located at the former San Jose, California design facility offset by lower severance and benefits costs than originally estimated. In the second and third quarters of fiscal 1998, the Company recorded restructuring charges aggregating $347 million. The Company had experienced reductions in revenue from the third quarter of fiscal year 1997 to the fourth quarter of fiscal year 1997 of 21%, from the fourth quarter of fiscal year 1997 to the first quarter of fiscal year 1998 of 4% and from the first quarter of fiscal year 1998 to the second quarter of fiscal year 1998 of an additional 12%. During the second quarter of fiscal 1998, forecasted production needs were much lower than the current capacity of the Company and the Company recognized that the recent oversupply in the marketplace was not a short-term anomaly. In this period, the Company also decided to discontinue production of several products, rendering test and manufacturing equipment unique to those products obsolete. Prior to this period, there was no indication of permanent impairment of these assets associated with the recent excess capacity of the Company or the products to be discontinued These charges reflect steps the Company is taking to align worldwide operations with current market conditions by reducing existing capacity in all areas of the Company and improving the productivity of its operations and the efficiency of its development efforts by consolidating manufacturing and R&D operations. Actions include exiting production of mobile products; early discontinuation of several other products; closing and selling the Clonmel, Ireland drive manufacturing facility; closing and subleasing the San Jose F-183 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 6. RESTRUCTURING (CONTINUED) and Moorpark, California design center facilities; aborting production expansion projects in Cork, Ireland; and divesting the Company of the new Philippines manufacturing facility, which was nearing completion. Included in the restructuring charge are the write-down and write-off of tangible assets comprised of manufacturing, assembly and test equipment and tooling formerly utilized in California, Singapore, Thailand, Ireland and facilities located in California, the Philippines and Thailand totaling $200 million and intangible assets totaling $2.5 million for goodwill associated with permanently impaired media manufacturing equipment. The majority of the tangible assets have been disposed of or sold including the disposal of the Clonmel, Ireland facility in May 1998 and the sublease of one of the five buildings at the San Jose, California design center. The Company is marketing three additional buildings in the San Jose, California design center for sublease. The fifth building has a remaining lease term so short as to make a sublease impractical. Equipment formerly utilized at these facilities, in addition to equipment associated with restructuring actions in Singapore and Thailand, has been relocated to other sites or scrapped. Of the $137 million in write-offs and write-downs of equipment, $109 million was scrapped and $28 million is awaiting final disposition. In addition, $10 million of equipment was transferred at net book value for use in operations at other sites. Subsequent to the recording of the restructuring reserve, depreciation related to certain assets that continued in use, was included in operations. At the time these assets were identified as available for sale no further depreciation was recorded. The write-off of intangibles and other assets includes capital equipment deposits and goodwill associated with permanently impaired equipment. Costs associated with aborting production expansion projects in Cork, Ireland include primarily architect costs, lease termination costs associated with equipment leased by contractors, and lease termination costs for temporary housing used by contractor personnel. Certain facilities including design centers in California, as well as manufacturing facilities in Thailand continued in use after restructuring amounts were recorded. The Moorpark, California product design center remained in use for six months after the write-down of leasehold improvements and equipment totaling $9 million. This facility has been subleased for a portion of the remaining minimum lease term. One Thailand manufacturing facility continues to be utilized until a satisfactory agreement can be made with an external vendor to supply parts currently manufactured at this location. At the time the decision to exit this facility was made, the Company believed that it had identified a supplier for parts. It was subsequently determined that the supplier could not meet the Company's quality standards. As of January 1, 1999, the Company's planned workforce reduction associated with the fiscal 1998 restructuring had been completed. The implementation of the 1998 restructuring plan was substantially complete as of July 2, 1999. F-184 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 6. RESTRUCTURING (CONTINUED) The following table summarizes the Company's restructuring activities:
SEVERANCE INTANGIBLES AND EXCESS & OTHER CONTRACT BENEFITS FACILITIES EQUIPMENT ASSETS CANCELLATIONS OTHER TOTAL ----------- ------------ ----------- ------------ --------------- ---------- ----------- (IN MILLIONS) FY1998 restructuring charge ................ $ 56 $ 78 $ 137 $ 11 $ 43 $ 21 $ 346 FY1999 restructuring charge ................ 9 19 37 4 1 1 71 Cash charges ........... (58) (23) -- -- (38) (12) (131) Non-cash charges ....... -- (59) (174) (15) -- -- (248) Adjustments and reclassifications ..... (3) 3 -- -- (3) 1 (2) ------- ---- ------ ----- ------- ---- -------- Reserve balances, July 2, 1999 .......... $ 4 $ 18 -- $ -- $ 3 $ 11 $ 36 FY2000 restructuring charge ................ 88 40 81 -- 2 5 216 Cash charges ........... (67) (11) -- -- -- (2) (80) Non-cash charges ....... -- (29) (81) -- -- -- (110) Adjustments and reclassifications ..... (2) (8) -- -- -- 1 (9) ------- ------- ------ ----- ------ ------ -------- Reserve balances, June 30, 2000 ......... $ 23 $ 10 $ -- $ -- $ 5 $ 15 $ 53 ====== ====== ====== ===== ====== ====== =======
7. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION The Company designs, manufactures and markets products for storage, retrieval and management of data on computer and data communications systems. These products include disc drives and disc drive components. The Company operates in a single industry segment, disc drives. The CEO evaluates performance and allocates resources based on revenue and gross profit from operations. Gross profit from operations is defined as revenue less cost of sales. The Company does not evaluate or allocate assets or depreciation by operating segment, nor does the CEO evaluate segments on these criteria. The CEO has been identified as the Chief Operating Decision Maker as defined by Statement of Financial Accounting Standards No. 131 (SFAS 131) "Disclosures about Segments of an Enterprise and related Information". In fiscal 2000, 1999 and 1998, Compaq Computer Corporation accounted for more than 10% of combined consolidated revenue for a total of $1.100 billion, $1.144 billion, and $873 million, respectively. Enterprise-wide information is provided in accordance with SFAS No. 131. Long-lived assets consist of property, equipment and leasehold improvements, capital leases, equity investments, goodwill and other intangibles, and other non-current assets as recorded by the Company's operations in each area. F-185 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 7. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED) The following table summarizes the Company's operations by geographic area:
2000 1999 1998 --------- --------- --------- (IN MILLIONS) Revenue from external customers: (1) United States .................... $2,637 $2,988 $3,225 The Netherlands .................. 1,302 1,291 1,445 Singapore ........................ 1,376 1,192 1,063 Other ............................ 743 681 512 ------ ------ ------ Combined consolidated ............ $6,058 $6,152 $6,245 ====== ====== ====== Long-lived Assets: United States .................... $1,391 $ 754 $ 712 Singapore ........................ 392 546 607 Other ............................ 605 640 616 ------ ------ ------ Combined consolidated ............ $2,388 $1,940 $1,935 ====== ====== ======
- ---------- (1) Revenue is attributed to countries based on the shipping location. 8. ACCUMULATED OTHER COMPREHENSIVE INCOME The Company records unrealized gains and losses on the mark-to-market of its investments as a component of accumulated other comprehensive income. As of June 30, 2000 and July 2, 1999, total accumulated other comprehensive income (loss) was $86 million and $(7) million, respectively. During fiscal 2000, several marketable equity securities held by the Company including SanDisk Corporation, Gadzoox Networks, Inc., Veeco Instruments, Inc., and Lernout & Hauspie Speech Products N.V. were included in this mark-to-market calculation resulting in a $95 million unrealized gain, net of taxes. No such similar amounts were recorded in fiscal 1999. Such investments are subject to changes in valuation based upon the market price of their common stock. Between June 30, 2000 and August 9, 2000, these investments, excluding the investment in SanDisk which was sold during the same period, had temporarily decreased in fair value by $56 million, net of taxes. In July 2000, the Company sold its remaining investment in SanDisk for net proceeds of approximately $105 million. The components of accumulated other comprehensive income (loss), net of related tax, at June 30, 2000 and July 2, 1999 were as follows:
JUNE 30, JULY 2, 2000 1999 ---------- ---------- (IN MILLIONS) Unrealized gain (loss) on securities .................. $88 $(5) Foreign currency translation adjustments .............. (2) (2) ------ ------ Accumulated other comprehensive income (loss) ......... $86 $(7) ===== =====
Accumulated other comprehensive income as of June 30, 2000 includes deferred tax liabilities of $57 million. F-186 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 9. COMMITMENTS Leases -- The Company leases certain property, facilities and equipment under non-cancelable lease agreements. Land and facility leases expire at various dates through 2019 and contain various provisions for rental adjustments including, in certain cases, a provision based on increases in the Consumer Price Index. All of the leases require the Company to pay property taxes, insurance and normal maintenance costs. Future minimum lease payments for operating leases with initial or remaining terms of one year or more were as follows at June 30, 2000:
(IN MILLIONS) 2001 .......................... $ 36 2002 .......................... 29 2003 .......................... 23 2004 .......................... 20 2005 .......................... 17 After 2005 .................... 129 ---- $254 ====
Total rent expense for all land, facility and equipment operating leases was approximately $36 million, $42 million, and $48 million for 2000, 1999 and 1998, respectively. Capital Expenditures -- The Company's commitments for construction of manufacturing facilities and equipment approximated $51 million at June 30, 2000. 10. SUPPLEMENTAL CASH FLOW INFORMATION
2000 1999 1998 ------ --------- --------- (IN MILLIONS) Cash Transactions: Cash paid for interest ..................... $ 52 $ 52 $52 Cash paid for income taxes, net of refunds .................................. 577 (109) (1) Non-Cash Transactions: Acquisition of XIOtech Corporation ......... $359 $ -- $--
The components of depreciation and amortization expense are as follows:
2000 1999 1998 ------ ------ ------- (IN MILLIONS) ------------------------- Depreciation ...................... $587 $558 $531 Amortization: Goodwill and intangibles ......... 36 20 21 Deferred compensation ............ 6 10 8 Other assets ..................... 38 61 51 ---- ---- ---- $667 $649 $611 ==== ==== ====
11. LITIGATION The following discussion contains forward-looking statements. These statements relate to our legal proceedings described below. Litigation is inherently uncertain and may result in adverse rulings F-187 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 11. LITIGATION (CONTINUED) or decisions. Additionally, we may enter into settlements or be subject to judgments that may, individually or in the aggregate, have a material adverse effect on our results of operations. Accordingly, actual results could differ materially from those projected in the forward-looking statements. Following our announcement of the transactions, a number of our stockholders filed lawsuits against us, the individual members of our board of directors, some of our executive officers, VERITAS and Silver Lake. The complaints filed in Delaware were consolidated into one action on April 18, 2000. On May 22, 2000, the Delaware Chancery Court certified the Delaware action as a class action. The Delaware plaintiffs filed an amended complaint and moved for a preliminary injunction on September 11, 2000. In California, three complaints were filed in Santa Clara County Superior Court and two complaints were filed in Santa Cruz County Superior Court. The complaints in both jurisdictions all essentially allege that the members of our board of directors breached their fiduciary duties to our shareholders by entering into the transactions. The complaints also allege that the directors and executive officers have conflicting financial interests and did not secure the highest possible price for our shares. All the complaints were styled as class actions, and sought to enjoin the transactions and secure damages from all defendants. Between March 30 and October 27, 2000, one of the California complaints was voluntarily dismissed and the others were coordinated in Santa Clara County. On October 13, 2000, a Memorandum of Understanding, or MOU, was signed regarding settlement with all defendants on behalf of the shareholder class. The shareholders approved the transactions on November 21, 2000 and the transactions closed on November 22, 2000. After the transactions closed in November 2000, the four remaining California actions were dismissed with prejudice. A final Stipulation of Settlement was executed in early January 2001. The Delaware Chancery Court approved the settlement and entered an order of judgement on April 12, 2001. If no appeal is filed within 30 days, the judgment will be final. The primary elements of the Stipulation of Settlement are the following: o Suez Acquisition Company and the investor group agreed to increase the cash purchase price under the stock purchase agreement by $50 million. This amount: - was funded by the investor group on the closing of the transactions into an escrow account held by VERITAS, pending its distribution to our shareholders, if specified conditions are satisfied as discussed below; - will be paid to our shareholders as additional consideration if the order of judgment by the Delaware Chancery Court is not appealed and becomes final and the Delaware lawsuit and the California lawsuits are dismissed with prejudice; and - - plus interest, will be returned to New SAC in the event that VERITAS determines, in its reasonable judgment, that the conditions to the release of the amount have become incapable of being satisfied. o New SAC paid $15.25 million in attorneys' fees awarded to plaintiffs' counsel by the Delaware Chancery Court into an escrow account. That amount will be paid from escrow to plaintiffs' counsel when the judgment is final. o The merger agreement was amended to 1) reduce the maximum amount that may be required to be held in escrow to cover our potential tax liabilities from $300 million to $150 million, and 2) change some provisions regarding VERITAS' payment of the consideration for the merger. o The settlement is binding on all members of the shareholder class. F-188 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 11. LITIGATION (CONTINUED) INTELLECTUAL PROPERTY LITIGATION Papst Licensing, GmbH -- Papst has given us notice that it believes various of our former Conner Peripherals, Inc. rigid disc drives infringe several of its patents covering the use of spindle motors in rigid disc drives. We believe that the accused former Conner disc drives do not infringe any valid and/or enforceable claims of the Papst patents. We believe that subsequent to the merger with Conner, our earlier paid-up license under Papst's patents extinguished any ongoing liability. We also believe we enjoy the benefit of licenses granted by Papst to motor vendors of Conner. After closing of the transactions, Papst indicated that it could not consent to the assignment of the 1993 Papst-Seagate license to the new entity until it receives further information about the new business structure and that any of our drives would be assumed to be unlicensed. We are providing Papst with additional information regarding the new business structure. Convolve, Inc. -- On July 13, 2000, Convolve, Inc., and Massachusetts Institute of Technology filed a lawsuit, captioned Convolve, Inc. and Massachusetts Institute of Technology v. Compaq Computer Corp. and Seagate Technology, Inc. against Compaq Computer Corporation and Seagate Technology in the U.S. District Court for the Southern District of New York. It alleged patent infringement, misappropriation of trade secrets, breach of contract, tortious interference with contract and fraud relating to Convolve's Input Shaping (Registered Trademark) and Quick and QuietTM technology. The plaintiffs claim their technology is incorporated in our sound barrier technology, which was publicly announced on June 7, 2000. The complaint seeks injunctive relief, $800 million in compensatory damages and punitive damages. We answered the complaint on August 2, 2000 and filed cross-claims for declaratory judgment that two Convolve/MIT patents are invalid and not infringed and that we own any intellectual property based on the information that we disclosed to Convolve. Plaintiffs' motion for expedited discovery was denied by the court. The court ordered plaintiffs to identify their trade secrets to defendants before discovery can begin. Convolve served a trade secrets disclosure on August 4, 2000, and Seagate Technology has challenged that disclosure as not containing any trade secrets. The court will appoint a Special Master to review the trade secret issues, and the parties have presented candidates to the court. We believe this matter is without merit and intend to defend it vigorously. Storage Computer Corporation -- On March 22, 2001, Storage Computer Corporation filed suit in the U.S. District Court for the Northern District of Texas, Civil Action No. 3-01CV0555-M, entitled Storage Computer Corporation v. XIOtech Corporation and Seagate Technology, Inc. The complaint alleges that XIOtech's MAGNITUDETM product infringes U.S. Patent No. 5,893,919 and that Seagate Technology induces infringement of the patent by promoting and marketing XIOtech's MAGNITUDETM product, particularly through a hyperlink on Seagate Technology's internet website to XIOtech's internet website. We have engaged outside counsel to evaluate the claims in the suit. The ultimate outcome of this litigation is fact intensive and cannot be determined and remains uncertain. The ultimate resolution of this matter could have a material adverse impact on New SAC's financial condition, results of operations, and cash flows. LABOR LILTIGATION White -- On March 15, 2000 Royston White filed a breach of contract action against Seagate Technology in Oklahoma State Court. The complaint is styled as a class action, and White, as the sole named defendant, alleges that some 600 former employees have been damaged through breach of separation and release agreements entered into in connection with a work force reduction. Discovery is ongoing and a trial date has not yet been set. We have filed a summary judgment motion, although the court has not set a hearing date yet. We believe we have substantive defenses and will pursue such defenses vigorously. F-189 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 11. LITIGATION (CONTINUED) OTHER MATTERS We are involved in a number of other judicial and administrative proceedings incidental to our business. Although occasional adverse decisions or settlements may occur, we believe that the final disposition of such matters will not have a material adverse effect on our financial position or results of operations. 12. SUBSEQUENT EVENTS On November 22, 2000, under the stock purchase agreement, New SAC, the successor to Seagate Technology, completed the purchase of all of the operating assets and assumption of operating liabilities of Seagate Technology and its consolidated subsidiaries. The net purchase price was $1.840 billion in cash, including transaction costs of approximately $25 million. Seagate Technology designed, developed and manufactured rigid disk drives, enterprise management software, storage area networks, and removable tape storage solutions. Immediately thereafter, in a separate transaction, Seagate Technology and VERITAS completed their merger under the Merger Agreement. At the time of the merger, Seagate Technology's assets included a specified amount of cash, an investment in VERITAS, and certain specified investments and liabilities. In connection with the Merger Agreement, Seagate Technology, VERITAS and New SAC entered into an Indemnification Agreement, pursuant to which these entities and certain other subsidiaries of Seagate Technology, including the Company, agreed to certain indemnification provisions regarding tax and other matters that may arise in connection with the stock purchase agreement and the Merger Agreement. We accounted for the transactions as a purchase in accordance with Accounting Principles Board, or APB, Opinion No. 16, "Business Combinations." All acquired tangible assets, identifiable intangible assets as well as assumed liabilities were valued based on their relative fair values and reorganized into the following businesses: (1) the rigid disc drive business (HDD, which is now Seagate Technology Holdings), which includes the storage area networks business (SAN, which is now Seagate Technology SAN Holdings), (2) the removable storage solutions business (RSS, which is now Seagate Removable Storage Solutions Holdings), (3) the software business (Crystal Decisions), and (4) an investment holding company (STI). The fair value of the net assets exceeded the net purchase price by approximately $909 million. Accordingly, the resultant negative goodwill was allocated on a pro rata basis to the acquired long-lived assets and reduced the recorded amounts by approximately 46%. The table below summarizes the allocation of net purchase price as it relates to the Company: F-190 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 12. SUBSEQUENT EVENTS (CONTINUED)
LIFE ESTIMATED DESCRIPTION IN YEARS FAIR VALUE - ------------------------------------------------- ---------- -------------- (IN MILLIONS) -------------- Net current assets (1) (5) ............... $ 873 Other long-lived assets (2) .............. 42 Property, plant & equipment (3) .......... 764 Identified intangibles: Trade names (5) .......................... 10 47 Developed technologies (5) ............... 3-7 50 Assembled workforces (5) ................. 1-3 43 Other .................................... 5 1 ------ Total identified intangibles ............ 141 Long-term deferred taxes (5) ............. (70) Long term liabilities .................... (122) ------ Net assets .............................. 1,628 In-process research & development (6) .... 52 ------ Net Purchase Price ...................... $1,680 ======
- ---------- (1) Acquired current assets included cash and cash equivalents, accounts receivable, inventories and other current assets. The fair values of current assets generally approximated the recorded historic book values. Short-term investments were valued based on quoted market prices. Inventory values were estimated based on the current market value of the inventories less completion costs and less a normal profit margin based on activities remaining to be completed until the inventory is sold. Valuation allowances were established for current deferred tax assets in excess of long-term deferred tax liabilities. Assumed current liabilities included accounts payable, accrued compensation and expenses and accrued income taxes. The fair values of current liabilities generally approximated the historic recorded book values because of the monetary nature of most of the liabilities. (2) Acquired other long-lived assets were principally comprised of security deposits and service repair inventories recorded with estimated fair values generally approximating the recorded historic book value. (3) New SAC obtained an independent valuation of the acquired property, plant and equipment. In arriving at the determination of market value for the assets, the appraisers considered the estimated cost to construct or acquire comparable property. Machinery and equipment was assessed using replacement cost estimates reduced by depreciation factors representing the condition, functionality and operability of the assets. The sales comparison approach was used for office and data communication equipment. Land, land improvements, buildings, and building and leasehold improvements were valued considering location, size, expected use, physical condition and current market conditions and discussions with knowledgeable company personnel. (4) Long-term deferred tax liabilities arose as a result of the excess of the fair values of inventory, long-term investments, and acquired intangible assets over their related tax basis. New SAC has $350 million of federal and state deferred tax assets for which a full valuation allowance has been established. (5) New SAC obtained an independent valuation of acquired identified intangibles. The significant assumptions relating to each category are discussed in the following paragraphs. Also, these assets are being amortized on the straight-line basis over their estimated useful life and resultant amortization is included in amortization of goodwill and other intangibles. F-191 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 12. SUBSEQUENT EVENTS (CONTINUED) Trade names -- The value of the trade names was based upon discounting to their net present value the licensing income that would arise by charging the operating businesses that use the trade names. Developed technologies -- The value of this asset for each operating business was determined by discounting the expected future cash flows attributable to all existing technologies which had reached technological feasibility, after considering risks relating to: 1) the characteristics and applications of the technology, 2) existing and future markets, as well as 3) life cycles of the technologies. Estimates of future revenues and expenses used to determine the value of developed technology was consistent with the historical trends in the industry and expected outlooks. Assembled workforces -- The value of the assembled work force was determined by estimating the recruiting, hiring and training costs to replace each group of existing employees. In-process research & development (IPR&D) -- The value of IPR&D was based on an evaluation of all developmental projects using the guidance set forth in Interpretation No. 4 of Financial Accounting Standards Board Statement FAS No. 2, "Accounting for Research and Development Costs" and FAS No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed". The amount was determined by: 1) obtaining management estimates of future revenues and operating profits associated with existing developmental projects 2) projecting the cash flows and costs to complete of the underlying technologies and resultant products, and 3) discounting these cash flows to their net present value. Estimates of future revenues and expenses used to determine the value of IPR&D was consistent with the historical trends in the industry and expected outlooks. The entire amount was charged to operations because related technologies had not reach technological feasibility and they had no alternative future use. At the valuation date, HDD's developmental projects focused on increasing capacity, reducing size and power consumption, improving performance and reliability, and reducing production costs. They were grouped into three categories. Those included in category one had completed conceptualization and there was substantial progress in coding, building, simulating, and testing the technologies functionality and performance. For those included in category two, subsystem requirements had been identified, design plans had been completed, and substantial progress had been made in coding and/or building the technologies. Those included in category three had completed design plans and system requirements. Based upon an analysis of efforts to date, developmental projects in these three categories were 70%, 50%, and 30% complete, respectively, and were scheduled for completion through out the period ended in fiscal 2003 at an additional estimated cost of $107 million. PRO FORMA FINANCIAL INFORMATION The pro forma financial information presented below is presented as if the acquisition of substantially all of the operating assets of Seagate Technology had occurred at the beginning of fiscal 1999. The pro forma statements of operations for the six months ended December 29, 2000 and December 31, 1999, include the historical results of the Company in addition to the historical results of Seagate and are adjusted to reflect the new accounting basis for the assets and liabilities of the Company, and exclude acquisition related charges for recurring amortization of goodwill and intangibles related to Seagate's prior acquisitions. The pro forma financial results are as follows: F-192 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 12. SUBSEQUENT EVENTS (CONTINUED)
FISCAL YEARS ENDED ------------------- JUNE 30, JULY 2, 2000 1999 ---------- -------- (IN MILLIONS) Revenue ............................ $6,058 $6,152 Income before income taxes ......... 182 482 Net income (loss) .................. 164 425
CAPITAL STOCK HDD's authorized share capital is $50,000 and consists of 50,000 ordinary shares, par value $1.00, of which 2,000 shares were outstanding as of December 29, 2000. Ordinary Shares--Holders of ordinary shares are entitled to receive dividends and distributions when and as declared by HDD's Board of Directors. Upon any liquidation, dissolution, or winding up of HDD, after required payments are made to holders of preferred shares, any remaining assets of HDD will be distributed ratably to holders of the ordinary shares. Holders of ordinary shares are entitled to one vote per share on all matters presented to HDD's shareholders. DEFERRED COMPENSATION PLAN Members of the management group entered into rollover agreements in connection with the transactions. Under these agreements, members of the management group agreed not to receive the merger consideration for a portion of their Seagate Technology restricted common stock and options to purchase shares of Seagate Technology common stock, valued at approximately $184 million. In exchange for the management rollover, the members of the management group received the right to participate in a deferred compensation plan and receive unvested ordinary and preferred shares of New SAC granted under the 2000 Restricted Share Plan. The unvested preferred and ordinary shares vest as follows: o one-third will vest on the first anniversary of the closing of the transactions; o one-third will vest proportionately each month over the next 18 months; and o the final one-third will vest on the date which is 30 months after the closing of the transactions. Of the total value of the management rollover, approximately $179 million relates to the restricted award grants. With respect to the restricted ordinary and preferred shares received in connection with the rollover agreements, New SAC will record and pushdown to the Company compensation expense of approximately $23 million, based on the fair value of the ordinary and preferred shares at the date of issuance, amortized over the 30 month vesting period using the graded vesting method. LONG-TERM DEBT AND CREDIT FACILITIES Upon the closing of the transactions, subsidiaries of the Company entered into senior credit facilities with a syndicate of banks and other financial institutions. The senior credit facilities provide senior secured financing of up to $900 million, consisting of: o a $200 million revolving credit facility for general corporate purposes, with a sublimit of $100 million for letters of credit, which will terminate in five years; o a $200 million term loan A facility with a maturity of five years; and o a $500 million term loan B facility with a maturity of six years. F-193 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 12. SUBSEQUENT EVENTS (CONTINUED) At the closing of the transactions, the Company did not borrow under the revolving credit facility. At that time approximately $155 million of the revolving credit facility was available because approximately $45 million of existing letters of credit were outstanding and reduced availability under it. The Company drew the full amount of the term loan A facility and the term loan B facility on the closing of the transactions to assist in financing the acquisition of Seagate Technology's operating assets. Additional financing for the acquisition was obtained by New SAC through the issuance of ordinary and preferred shares with proceeds aggregating approximately $915.7 million. The $700 million of outstanding loans under the term loan A and B facilities are repayable in semi-annual payments due as follows:
(IN MILLIONS) Fiscal 2001 ............ $ 5 2002 ..... ........... 23 2003 ..... ........... 40 2004 ..... ........... 50 2005 ..... ........... 60 Thereafter .......... 522 ----- Total .... ........... $ 700 =====
The loans bear interest at variable rates dependent upon market interest rates and the nature of the borrowings, as well as New SAC's consolidated financial position at applicable measurement dates. The average interest rates being charged under these borrowings from the date of the transactions ranged from 9.1875% (LIBOR plus 2.5%) to 9.6875% (LIBOR plus 3%). New SAC, and certain of its subsidiaries, including HDD, are guarantors under the senior credit facilities. In addition, the majority of New SAC's, and certain of its subsidiaries', including HDD, assets have been pledged against the debt under this credit agreement New SAC, and certain of its subsidiaries have agreed to certain covenants under this agreement including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. In connection with the closing and financing of the transactions, Seagate Technology International, a wholly owned subsidiary of the Company, issued unsecured senior subordinated notes under an Indenture Agreement dated November 22, 2000 at a discount to the aggregate principal amount of $210 million, for gross proceeds of approximately $201 million. The notes mature on November 15, 2007 and bear interest payable semi-annually at a rate of 12.5% per annum. The Company, and certain of its subsidiaries are guarantors of the notes on a joint and several, whole and unconditional basis. In addition, New SAC, and certain of its subsidiaries including the Company have agreed to certain restrictive covenants under the terms of these notes including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. F-194 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 13. RELATED PARTY TRANSACTIONS Historically, HDD has provided substantial services to other affiliated companies. Upon the closing of the stock purchase agreement by New SAC, these services continue to be provided by the Company through New SAC. The services provided generally include general management, treasury, tax, financial reporting, benefits administration, insurance, information technology, legal, accounts payable and receivable and credit functions, among others. HDD charges the Company for these services through corporate expense allocations. The amount of corporate expense allocations depends upon the total amount of allocable costs incurred by HDD on behalf of the Company less amounts charged as specific cost or expense rather than by allocation. Such costs have been proportionately allocated to the Company based on detailed inquiries and estimates of time incurred by HDD's corporate marketing and general administrative departmental managers. Management believes that the allocations charged to other affiliated companies are reasonable. Allocations charged to other affiliated company's marketing and administrative expenses were $3.5 million for each of the three years ended June 30, 2000, July 2, 1999 and July 3, 1998 respectively. Purchases and sales to other affiliated companies were not material for any of the period presented. 14. CONDENSED FINANCIAL INFORMATION Seagate Technology Holdings, ("STH" or "the Company"), is a holding company without operations or assets. The Subordinated Debentures, see Note 12, were issued by Seagate Technology International, a wholly owned subsidiary of STH. The Subordinated Debentures are fully and unconditionally guaranteed on a joint and several basis by the Company and certain, but not all of its subsidiaries. The following tables present guarantor and non-guarantor condensed consolidating financial information for Seagate Technology Hard Disc Drive Business, an Operating Business of Seagate Technology, Inc., the predecessor to Seagate Technology Holdings, at July 2, 1999 and June 30, 2000, and the condensed consolidating results of its operations and its cash flows for the years ended July 3, 1998, July 2, 1999, and June 30, 2000. The information classifies the historic subsidiaries of Seagate Technology Hard Disc Drive Business, an Operating Business of Seagate Technology, Inc., into parent, issuer, other guarantors, and other non-guarantors based upon the current classification of those subsidiaries and their successors under the provisions of the Subordinated Debentures. Seagate Technology Holdings Condensed Consolidating Financial Information F-195 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET AT JUNE 30, 2000 (IN MILLIONS)
GUARANTORS ------------------------------------------- TOTAL SUBSIDIARY NON-WHOLLY OWNED OTHER SEAGATE ISSUER OTHER SUBSIDIARY-SAN NON-GUARANTORS ELIMINATIONS TECHNOLOGY ------------ ----------- ------------------ ---------------- -------------- ----------- ASSETS Cash and Investments ............... $ 665 $ 187 $ 7 $ 9 $ -- $ 868 Short Term-Investments ............. 1,109 31 0 0 0 1,140 Accounts Receivable, net ........... 144 246 6 246 0 642 Inter Company A/R .................. 6,034 617 0 4,728 (11,378) 0 Affiliate A/R ...................... 28 (99) 0 71 0 (0) Inventories ........................ 165 127 5 116 0 413 Deferred Income Taxes .............. 5 279 6 (8) 0 282 Other Current Assets ............... 111 37 0 8 0 156 ------ ------- ---- ------- -------- ------- Current Assets ..................... 8,260 1,427 24 5,170 (11,378) 3,501 Net Fixed Assets ................... 712 600 3 270 0 1,585 Investments ........................ 699 1,562 0 0 (2,261) 0 Goodwill and Other Intangibles ..... 18 44 234 (2) 0 294 Other Non Cur Assets ............... 34 445 0 30 0 509 ------ ------- ---- ------- -------- ------- TOTAL ASSETS ....................... 9,723 4,078 261 5,468 (13,639) 5,889 ====== ======= ==== ======= ======== ======= LIABILITIES Accounts Payable ................... 429 163 1 86 0 679 Inter Company A/P .................. 5,819 779 0 4,778 (11,376) 0 Affiliate A/P ...................... 1 54 0 (19) 0 36 Accrued Employee Comp .............. 34 125 8 15 0 182 Accrued warranty ................... 124 0 124 Accrued Expenses ................... 71 226 3 25 0 325 Accrued Income Taxes ............... 1 71 0 (1) 0 71 Cur portion LT debt ................ 0 (4) 0 4 0 -- ------ -------- ---- ------- -------- ------- Current Liabilities ................ 6,355 1,538 12 4,888 (11,376) 1,417 Deferred Income Taxes .............. 0 697 14 0 0 711 Inter Company A/P .................. 0 0 2 0 (2) 0 Long Term Debt ..................... 1 702 0 0 0 703 Accrued warranty ................... 109 0 109 Other Non Cur Liabilities .......... 1 7 0 (1) 0 7 ------ ------- ---- -------- ---------- ------- TOTAL LIABILITY .................... 6,357 3,053 28 4,887 (11,378) 2,947 STOCKHOLDER'S EQUITY Shareholder Equity ................. 3,366 1,023 233 581 (2,261) 2,942 ------ ------- ---- ------- ---------- ------- 0 0 0 LIABILITY + EQUITY ................. $9,723 $4,076 $261 $5,468 $(13,639) $5,889 ====== ======= ==== ======= ========== =======
F-196 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2000 (IN MILLIONS)
NON-WHOLLY OWNED TOTAL SUBSIDIARY SUBSIDIARY OTHER NON- SEAGATE ISSUER OTHER - SAN GUARANTORS ELIMINATIONS TECHNOLOGY ------------ ------------ --------- --------- -------------- ----------- Revenue ........................... $6,360 $3,362 $ 13 $3,472 $ (7,149) $6,058 Cost of Sales ..................... 6,285 2,502 9 3,173 (7,149) 4,820 Cost of Sales from affiliates ..... 8 12 (20) -- -- Product development ............... 18 478 2 165 663 Marketing and administrative ...... 34 294 15 66 409 Amortization of goodwill and other intangibles ................ 4 12 17 -- 33 In-process research and development ...................... -- 105 -- 105 Restructuring ..................... 113 80 13 206 Unusual items ..................... 64 43 107 ------ ------ ------ Total Operating Expenses ......... 6,462 3,442 148 3,440 (7,149) 6,343 Income (Loss) from Operations ..................... (102) (80) (135) 32 -- (285) Interest Income ................... 59 21 101 Interest Expense .................. 2 (54) (52) Activity related to equity interest in VERITAS ....................... -- Gain on sale of VERITAS stock...... -- Gain on sale of SanDisk stock ..... 679 679 Gain on exchange of certain investments in equity securities ....................... 199 199 Other, net ........................ 2 (3) (1) ------ -------- -------- Other Income (Expense), net 63 842 -- -- -- 926 Income (loss) before income taxes ............................ (39) 762 (135) 32 -- 641 Benefit (provision) for income taxes ............................ (2) (261) 7 (19) (275) -------- ------- ------ ------ ------- Net Income (Loss) ................ $ (41) $ 501 $ (128) $ 13 $ -- $ 366 ======= ======= ====== ====== ======== =======
F-197 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR YEAR ENDED JUNE 30, 2000
GUARANTORS -------------------------- SUBSIDIARY ISSUER OTHER ------------ ------------- Net Cash Provided by (Used in) Operating Activities .................... 545 (401) INVESTING ACTIVITIES: Acquisition of property, equipment and leasehold improvements .................. (186) (295) Purchases of short-term investments ...... (3,069) (283) Maturities and sales of short-term investments ............................. 3,054 375 Proceeds from sale of VERITAS stock ...... -- Proceeds from sale of SanDisk stock ...... -- 681 Equity investments ....................... -- -- Intercompany investments ................. (40) (1,408) Other, net ............................... 6 (16) ------ ------ Net Cash Provided by (Used in) Investing Activities ................... (235) (945) ====== ====== FINANCING ACTIVITIES: Issuance of long-term debt ............... -- -- Repayment of long-term debt .............. -- -- Sale of common stock ..................... -- Purchase of treasury stock ............... -- Net change in investment by Seagate Technology, Inc. ........................ -- 117 Other, net ............................... -- (6) ------ --------- Net Cash Provided by (Used In) Financing Activities ................... -- 111 ====== ======== Effect of exchange rate changes in cash and cash equivalents ............... (2) -- Increase (Decrease) in Cash and Cash Equivalents ............................. 308 (1,235) Cash and Cash equivalents at the Beginning of the Period ................. 185 158 -------- -------- End of the Period ....................... $ 493 $ (1,077) ========== ========== GUARANTORS ----------------------------------- TOTAL CONSOLIDATED OTHER NON-WHOLLY SEAGATE OWNED GUARANTOR OTHER TECHNOLOGY SAN NON-GUARANTORS ELIMINATIONS HOLDINGS ------------------ ---------------- -------------- ------------- Net Cash Provided by (Used in) Operating Activities .................... (2) 84 -- 226 INVESTING ACTIVITIES: Acquisition of property, equipment and leasehold improvements .................. (2) (83) -- (565) Purchases of short-term investments ...... --- --- (3,352) Maturities and sales of short-term investments ............................. -- -- 3,429 Proceeds from sale of VERITAS stock ...... -- -- Proceeds from sale of SanDisk stock ...... -- (1) 680 Equity investments ....................... -- -- -- Intercompany investments ................. -- 51 1,397 -- Other, net ............................... (2) (9) 2 (19) ------ --- ------- ------ Net Cash Provided by (Used in) Investing Activities ................... (2) (43) 1,398 173 ====== === ======= ====== FINANCING ACTIVITIES: Issuance of long-term debt ............... -- -- -- -- Repayment of long-term debt .............. -- -- -- -- Sale of common stock ..................... -- -- -- Purchase of treasury stock ............... -- -- -- Net change in investment by Seagate Technology, Inc. ........................ -- 117 Other, net ............................... 2 (5) (5) (14) ----- ------ -------- ------ Net Cash Provided by (Used In) Financing Activities ................... 2 (5) (9) 103 ===== ====== ======== ====== Effect of exchange rate changes in cash and cash equivalents ............... -- -- -- (2) Increase (Decrease) in Cash and Cash Equivalents ............................. (2) 36 1,393 500 Cash and Cash equivalents at the Beginning of the Period ................. -- 25 -- 368 ----- ------ -------- -------- End of the Period ....................... $ (2) $ 61 1,393 868 ====== ======== ======== ========
F-198 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATED BALANCE SHEETS JULY 2, 1999 (IN MILLIONS)
TOTAL GUARANTORS CONSOLIDATED ----------------------- SEAGATE SUBSIDIARY OTHER TECHNOLOGY ISSUER OTHER NON-GUARANTORS ELIMINATIONS HOLDINGS ----------- --------- --------------- ------------- ------------- ASSETS Cash and cash equivalents .................... $ 185 $ 158 $ 25 -- $ 368 Short-term investments ....................... 1,103 123 1 -- 1,227 Accounts receivable, net ..................... 5,236 734 2,812 (7,988) 794 Accounts receivable from affiliates .......... 71 (88) 171 -- 12 Inventories .................................. 162 188 89 -- 439 Deferred income taxes ........................ 3 249 (12) -- 240 Other current assets ......................... 22 76 4 -- 102 ------ ------ ------ ------ ------ Total Current Assets ........................ 6,640 1,440 3,090 (7,988) 3,182 ------ ------ ------ ------ ------ Property, equipment, and leasehold improvements, net ........................... 846 543 279 -- 1,668 Investments .................................. 659 893 37 (1,589) -- Goodwill and other intangibles, net .......... 23 65 -- -- 88 Other assets ................................. 50 112 22 -- 184 ------ ------ ------ ------ ------ Total Assets ................................ $ 8,48 $3,053 $3,428 $ (9,577) $5,122 ====== ====== ====== ======== ====== LIABILITIES Accounts payable ............................. 5,210 1,114 2,331 (7,988) 667 Accounts payable with affiliates ............. -- -- -- -- 667 Accrued employee compensation ................ 40 127 4 -- 171 Accrued expenses ............................. 59 268 46 -- 373 Accrued warranty ............................. -- 157 -- -- 157 Accrued income taxes ......................... 1 44 (2) -- 43 Current portion of long-term debt ............ -- -- 1 -- 1 ------ ------ ------- -------- ------ Total Current Liabilities ................... 5,310 1,710 2,380 (7,988) 1,412 ------ ------ ------- -------- ------ Deferred income taxes ........................ -- 488 (2) -- 486 Accrued warranty ............................. -- 123 -- -- 123 Other liabilities ............................ 1 10 25 -- 36 Long-term debt, less current portion ......... 1 702 -- -- 703 ------ ------ ------- -------- ------ Total Liabilities ........................... 5,312 3,033 2,403 (7,988) 2,760 ------ ------ ------- -------- ------ Commitments and Contingencies ................ 2,906 20 1,025 (1,059) 2,362 STOCKHOLDERS' EQUITY Total Liabilities and Stockholders' Equity ..................................... $8,218 $3,053 $3,428 $ (7,988) $5,122 ====== ====== ======= ======== ======
F-199 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 2, 1999 (IN MILLIONS)
TOTAL SEAGATE GUARANTORS TECHNOLOGY --------------------------- HARD DISK SUBSIDIARY OTHER DRIVE ISSUER OTHER NON-GUARANTORS ELIMINATIONS BUSINESS ------------ ------------ ---------------- ------------- ----------- Revenue .................................. $6,448 $4,019 $3,727 $ (8,046) $6,148 Revenue from affiliates .................. 2 2 4 ------ ------ ------ Total revenue ........................... 6,450 4,021 3,727 (8,046) 6,152 Cost of sales ............................ 6,187 3,169 3,592 (8,046) 4,902 Cost of sales from affiliates ............ 13 (13) -- -- ------ ------ ------ ------ 6,200 3,156 3,592 (8,046) 4,902 Product development ...................... 17 549 -- 566 Marketing and administrative ............. 33 248 36 317 Amortization of goodwill and other intangibles ............................. 3 15 2 20 In-process research and development ...... -- 2 -- 2 Restructuring ............................ 36 11 12 59 Unusual items ............................ -- 75 -- 75 ------ ------ ------ ------ Total operating expenses ................ 6,289 4,056 3,642 (8,046) 5,941 Income (loss) from operations ........... 161 (35) 85 -- 211 Interest income .......................... 65 31 6 102 Interest expense ......................... (48) (48) Gain on contribution of NSMG to VERITAS, net ............................ -- Activity related to equity interest in VERITAS ................................. -- Other, net ............................... (1) 11 10 -------- ------ ------ Other income (expense), net ............. 64 (6) 6 -- 64 ------- -------- ------ -------- ------ Income (loss) before income taxes ........ 225 (41) 91 -- 275 Benefit (provision) for income taxes ..... (53) (8) (61) ------- -------- ------ Net income (loss) ....................... $ 225 $ (94) $ 83 $ -- $ 214 ======= ======= ======= ======== ======
F-200 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR YEAR ENDED JULY 2, 1999
TOTAL SEAGATE GUARANTORS TECHNOLOGY ---------------------------- HARD DISK SUBSIDIARY OTHER DRIVE ISSUER OTHER NON-GUARANTORS ELIMINATIONS BUSINESS ------------ ------------- ---------------- ------------- ------------- Net Cash Provided by (Used in) Operating Activities ....................... 2 364 838 649 1,853 INVESTING ACTIVITIES: Acquisition of property, equipment and leasehold improvements ..................... (303) (83) (205) -- (591) Purchases of short-term investments ......... (4,793) -- (1,803) -- (6,596) Maturities and sales of short-term investments ................................ 4,747 -- 1,772 -- 6,519 Equity investments .......................... -- -- (5) 5 -- Intercompany investments .................... 630 (18) (575) (37) -- Other, net .................................. (3) 1 (25) -- (27) --------- --- -------- --- ------ Net Cash Provided by (Used in) Investing Activities ...................... 278 (100) (841) (32) (695) ======== ==== ======== === ====== FINANCING ACTIVITIES: Issuance of long-term debt .................. --- -- -- -- -- Net change in investment by Seagate Technology, Inc. ........................... --- (1,469) -- -- (1,469) Sale of common stock ........................ -- Purchase of treasury stock .................. -- Intercompany loans .......................... -- -- 34 (34) -- Other Equity ................................ (553) (279) 1,449 (617) -- Other, net .................................. (5) -- (3) 34 26 --------- ------ --------- ---- ------ Net Cash Provided by (Used In) Financing Activities ...................... (558) (1,748) 1,480 (617) (1,443) ======== ====== ======== ==== ====== Effect of exchange rate changes on cash and cash equivalents .................. (2) (1) -- -- (3) Increase (Decrease) In Cash and Cash Equivalents ................................ (280) (1,485) 1,477 -- (288) Cash and Cash equivalents at the Beginning of the Period .................... 466 43 147 -- 656 -------- -------- -------- ---- -------- End of Period .............................. $ 186 (1,442) $ 1,624 -- 368 ========= ======== ========= ==== ========
See notes to consolidated condensed financial statements. F-201 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 3, 1998 (IN MILLIONS)
TOTAL SEAGATE GUARANTORS TECHNOLOGY ------------------------ HARD DISK SUBSIDIARY OTHER DRIVE ISSUER OTHER NON-GUARANTORS ELIMINATIONS BUSINESS ------------ --------- ---------------- ------------- ----------- Revenue .................................. $6,314 $4,612 $4,031 $ (8,729) $6,228 Revenue from affiliates .................. 2 15 17 ------ ------ ------ Total revenue ........................... 6,316 4,627 4,031 (8,729) 6,245 Cost of Sales ............................ 6,249 4,082 3,900 (8,729) 5,502 Cost of Sales from affiliates ............ -- 12 9 21 ------ ------ ------ ------ 6,249 4,094 3,909 (8,729) 5,523 Product development ...................... 25 487 43 555 Marketing and administrative ............. 55 212 41 308 Amortization of goodwill and other intangibles ............................. 5 14 2 21 In-process research and development ...... -- -- 216 216 Restructuring ............................ 64 259 24 347 Unusual items ............................ (16) 210 (216) (22) ------ ------ ------ ------ Total Operating Expenses ................ 6,382 5,276 4,019 (8,729) 6,948 Income (Loss) from Operations ........... (66) (649) 12 -- (703) Interest Income .......................... (40) 50 88 98 Interest Expense ......................... 12 (49) (14) (51) Other, net ............................... (98) (65) 97 (66) ------ ------ ------ ------ Other Income (Expense), net ............. (126) (64) 171 -- (19) ------ ------ ------ -------- ------ Income (loss) before income taxes ........ (192) (713) 183 -- (722) Benefit (provision) for income taxes ..... 193 (2) 191 ------ -------- ------ Net Income (loss) ....................... $ (192) $ (520) $ 181 $ -- (531) ====== ====== ======= ======== ======
F-202 SEAGATE TECHNOLOGY HARD DISC DRIVE BUSINESS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE TECHNOLOGY HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR YEAR ENDED JULY 3, 1998
TOTAL SEAGATE GUARANTORS TECHNOLOGY -------------------------- HARD DISK SUBSIDIARY OTHER DRIVE ISSUER OTHER NON-GUARANTORS ELIMINATIONS BUSINESS ------------ ----------- ---------------- ------------- ----------- Net Cash Provided by (Used in) Operating Activities ....................... 304 433 (231) (74) 432 INVESTING ACTIVITIES: Acquisition of property, equipment and leasehold improvements ..................... (115) (306) (272) -- (693) Purchases of short-term investments ......... (455) (2,713) (1,642) -- (4,810) Maturities and sales of short-term investments ................................ 382 2,481 2,026 -- 4,889 Acquisition of Quinta ....................... -- -- (194) -- (194) Equity investments .......................... -- -- (27) 27 -- Intercompany investments .................... 211 (443) (48) 280 -- Other, net .................................. 2 -- 22 (36) (12) Net Cash Provided by (Used in) Investing Activities ....................... 25 (981) (135) 271 (820) ==== ====== ====== === ====== FINANCING ACTIVITIES: Issuance of long-term debt .................. -- -- -- -- -- Net change in investing by Seagate Technology, Inc. ........................... -- (38) -- -- (38) Sale of common stock ........................ -- -- Purchase of treasury stock .................. -- -- -- Intercompany loans .......................... -- -- -- -- -- Other Equity ................................ (353) 473 105 (225) -- Other, net .................................. -- (14) -- 42 28 ---- ------ ------ ---- ------ Net Cash Provided by (Used In) Financing Activities ...................... (353) 421 105 (183) (10) ==== ====== ====== ==== ====== Effect of exchange rate changes on cash and cash equivalents .................. -- 6 -- -- 6 Increase (Decrease) In Cash and Cash Equivalents ................................ (24) (121) (261) 14 (392) Cash and Cash equivalents at the Beginning of the Period .................... 43 549 442 -- 1,034 ---- ------ ------ ---- ------ End of the Period .......................... $ 19 $ 428 $ 181 14 642 ====== ======== ======== ==== ======
F-203 SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSOR CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS)
SEAGATE TECHNOLOGY SAN HOLDINGS PREDECESSOR ------------------- ------------ DECEMBER 29, JUNE 30, 2000 (UNAUDITED) 2000(1) ------------------- ------------ ASSETS (SEE NOTE 5) Cash and cash equivalents .................................. $ 22,852 $ 6,968 Accounts receivable, net of allowance for bad debts of $1,055 and $905......................................... 16,264 6,027 Inventories ................................................ 10,167 4,893 Deferred income taxes ...................................... -- 5,984 Prepaid expenses and other assets .......................... 189 259 --------- ---------- Total current assets ...................................... 49,472 24,131 Restricted cash ............................................ 300 300 Property and equipment, net ................................ 4,578 2,613 Goodwill and purchased intangibles, net .................... 7,894 233,794 --------- ---------- Total assets (See Note 5) ................................. $ 62,244 $ 260,838 ========= ========== LIABILITIES Accounts payable ........................................... $ 1,213 $ 994 Accrued expenses ........................................... 4,925 2,517 Deferred revenue ........................................... 2,473 1,706 Accrued compensation and benefits .......................... 2,932 6,763 --------- ---------- Total current liabilities ................................. 11,543 11,980 Intercompany payable to New SAC or its Predecessor ......... 25,403 1,695 Deferred income taxes ...................................... -- 14,645 --------- ---------- Total liabilities ......................................... 36,946 28,320 --------- ---------- STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIT) Common stock ............................................... 2 -- Additional paid-in capital ................................. 52,856 359,413 Accumulated deficit ........................................ (27,560) (126,895) --------- ---------- Total stockholders' equity (net capital deficit) .......... 25,298 232,518 --------- ---------- Total liabilities and shareholders' equity ................ $ 62,244 $ 260,838 ========= ==========
- ---------- (1) Derived from audited financial statements. See notes to consolidated condensed financial statements. F-204 SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSORS CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
SEAGATE TECHNOLOGY SAN HOLDINGS PREDECESSOR PRE-PREDECESSOR ------------------- -------------- ---------------- PERIOD FROM PERIOD FROM NOVEMBER 23, JULY 1, 2000 SIX MONTHS 2000 TO TO ENDED DECEMBER 29, NOVEMBER 22, DECEMBER 31, 2000 2000 1999 ------------------- -------------- ---------------- Revenue ........................................... $ 11,183 $ 20,588 $ 6,675 Cost of goods sold (includes $113 and $3,462 of intangible amortization for the period from November 23, 2000 to December 29, 2000, and July 1, 2000 to November 22, 2000, respectively) .................................... 6,263 8,827 3,410 --------- --------- -------- Gross profit ...................................... 4,920 11,761 3,265 Operating expenses: Product development .............................. 969 3,011 1,133 Marketing and administrative ..................... 6,995 27,907 4,966 Amortization of goodwill and intangibles ......... 154 13,638 -- In-process research and development .............. 25,027 -- -- --------- --------- -------- Total operating expenses .......................... 33,145 44,556 6,099 --------- --------- -------- Loss from operations .............................. (28,225) (32,795) (2,834) Interest income ................................... 133 182 185 --------- --------- -------- Loss before benefit for income taxes .............. (28,092) (32,613) (2,649) Benefit for income taxes .......................... 532 8,464 -- --------- --------- -------- Net Loss .......................................... $ (27,560) $ (24,149) $ (2,649) ========= ========= ========
See notes to consolidated condensed financial statements. F-205 SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSORS CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SEAGATE TECHNOLOGY SAN HOLDINGS PREDECESSOR PRE-PREDECESSOR ------------------- -------------- ---------------- PERIOD FROM PERIOD FROM NOVEMBER 23, JULY 1, 2000 SIX MONTHS 2000 TO TO ENDED DECEMBER 29, NOVEMBER 22, DECEMBER 31, 2000 2000 1999 ------------------- -------------- ---------------- OPERATING ACTIVITIES Net loss ............................................. $(27,560) $ (24,149) $ (2,649) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ....................... 362 17,441 202 In-process research and development ................. 25,027 -- -- Deferred income taxes ............................... -- (3,227) -- Compensation expense related to accelerated vesting of stock options .......................... -- 7,009 -- Compensation expense related to options and warrants .......................................... -- -- 717 Changes in assets and liabilities: Accounts receivable ............................... (8,120) (2,118) (1,218) Inventory ......................................... 3,092 (5,953) (701) Prepaid expenses and other assets ................. 34 36 (32) Accounts payable and accrued expenses ............. (8,354) 7,142 1,251 Deferred revenue .................................. 525 242 78 -------- --------- -------- Net cash used in operating activities ................ (14,994) (3,577) (2,352) INVESTING ACTIVITIES Purchase of property and equipment, net ............. (2,261) (2,321) (429) FINANCING ACTIVITIES Repayment of capital lease obligations ............... (2) (10) -- Changes in intercompany payable to New SAC or its Predecessor ..................................... 15,752 8,230 -- Cash contribution from Seagate Technology ............ -- 15,067 -- Proceeds from issuance of common stock ............... -- -- 4 Proceeds from issuance of preferred stock ............ -- -- 9,892 ---------- --------- -------- Net cash provided by financing activities ............ 15,750 23,287 9,896 ---------- --------- -------- Net increase (decrease) in cash and cash equivalents ......................................... (1,505) 17,389 7,115 Cash and cash equivalents at beginning of period...... 24,357 6,968 2,093 ---------- --------- -------- Cash and cash equivalents at end of period ........... $ 22,852 $ 24,357 $ 9,208 ========== ========= ========
See notes to consolidated condensed financial statements. F-206 SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSORS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BUSINESS Seagate Technology SAN Holdings (the "Company") was incorporated on August 10, 2000 in the Cayman Islands. The Company is wholly owned on an outstanding share basis by Seagate Technology (Cayman) Holdings, which itself is wholly owned on an outstanding share basis by New SAC (see Basis of Presentation). On November 22, 2000, Seagate Technology SAN Holdings acquired the assets and operations of XIOtech Corporation (the "Predecessor"), which had previously become a wholly owned subsidiary of Seagate Technology, Inc. (Seagate Technology) when it was acquired on January 28, 2000. The operations of the Company prior to November 22, 2000, are not significant. Prior to the acquisition by Seagate Technology, XIOtech Corporation was a privately held independent company and is referred to as the "Pre-Predecessor". XIOtech was originally incorporated on October 5, 1995 in the state of Minnesota. The Company's Predecessor and Pre-Predecessor are jointly referred to as The Predecessors. The Company and its Predecessors design, manufacture and market a centralized data storage system. This system is based on an exclusive set of sophisticated data management and data movement tools. It offers storage virtualization, multi-node server clustering, and zero backup window solutions. The main component of the system is MAGNITUDE, a fully implemented SAN (Storage Area Network). SANs are high speed data storage units that attach to servers in a network environment. SANs enable users to store their data as a network instead of just one server. MAGNITUDE is sold in a cabinet containing software-based architecture that allows the incorporation of all of the components of a SAN in one centralized configurations. The Company and its Predecessors also design, develop, and produce software, namely the REDI suite of software, which runs MAGNITUDE's software based architecture. The REDI software suite is application specific and gives customers the capability of better managing their data. BASIS OF PRESENTATION On November 22, 2000, Seagate Technology; Seagate Software Holdings, Inc. ("Seagate Software"), a subsidiary of Old Seagate; and Suez Acquisition Company (Cayman) Limited ("SAC"), completed the stock purchase agreement and Seagate and VERITAS Software Corporation ("VERITAS") completed the agreement and plan of merger and reorganization, or the Merger Agreement. SAC was a limited liability company organized under the laws of the Cayman Islands and formed solely for the purpose of entering into the stock purchase agreement and related acquisitions. SAC assigned all of its rights under the stock purchase agreement to New SAC. New SAC owns all the outstanding shares of Seagate Technology (Cayman) Holdings, who in turn owns all the outstanding shares of the Company. Under the stock purchase agreement, SAC agreed to purchase for $1.840 billion cash, including transaction costs of $25 million, all of the operating assets of Seagate Technology and its consolidated subsidiaries, including Seagate Technology's disc drive, storage area networks tape drive and software businesses and operations and certain cash balances, but excluding the approximately 128 million shares of VERITAS common stock held by Seagate Software and Seagate Technology's equity investments in Gadzoox Networks, Inc. and Lernout & Hauspie Speech Products N.V. In addition, under the stock purchase agreement, SAC agreed to assume substantially all of the operating liabilities of Seagate Technology and its consolidated subsidiaries. In addition, the Company acquired Seagate Technology Investments, Inc., a subsidiary of Seagate Technology, which holds strategic equity investments in various companies. Immediately following the consummation of the SAC transaction, VERITAS acquired Seagate Technology and a wholly-owned subsidiary of VERITAS merged with and into Seagate Technology, F-207 SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSORS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) with Seagate Technology becoming a wholly-owned subsidiary of VERITAS. We refer to this transaction as the VERITAS Merger. VERITAS did not acquire Seagate Technology's disc drive business or any other Seagate Technology operating business. In the VERITAS Merger, the Seagate Technology stockholders received merger consideration consisting of VERITAS stock and cash. We refer to the transactions relating to the stock purchase agreement, the agreement and plan of merger and the VERITAS Merger as the Transactions. The consolidated condensed financial statements have been prepared by the Company, without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. For comparative purposes, the financial statement presentation includes the operations of the Predecessor through November 22, 2000 (the Pre-Predecessor before January 29, 2000), and the Company's operations from November 23, 2000 to December 29, 2000. Prior to November 23, 2000, the Company's operations were not significant. The Company and its Predecessors believe the disclosures included in the unaudited consolidated condensed financial statements, when read in conjunction with the financial statements of XIOtech as of June 30, 2000, and notes thereto, are adequate to make the information presented not misleading. The consolidated condensed financial statements reflect, in the opinion of management, all material adjustments necessary to summarize fairly the consolidated financial position, results of operations and cash flows for such periods. Such adjustments are of a normal recurring nature. The combined results of operations for the six-month period ended December 29, 2000 are not necessarily indicative of the results that may be expected for the entire fiscal year ending June 29, 2001. The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal year 2000 ended on June 30. The Pre-Predecessor's fiscal year ended on December 31. SUPPLIER AND CUSTOMER CONCENTRATIONS A limited number of customers historically have accounted for a substantial portion of the Company's revenues. Percentage revenues from customers with more than 10% of sales were as follows (as a percentage of net sales):
PRE-PREDECESSOR ----------------------------------------------- PERIOD FROM PERIOD FROM NOVEMBER 23, JULY 1, SIX MONTHS 2000 TO 2000 TO ENDED DECEMBER NOVEMBER 22, DECEMBER 31, 2000 2000(1) 1999 -------------- -------------- ------------- Forsythe Solutions Group, Inc. ......... 10% * * Bi-tech Solutions, Ltd. ................ * * 12%
- ---------- * Revenues from customers in these periods represent less than 10% of net sales. (1) There were no customers with revenues exceeding 10% of total revenues. Sales of the Company's products will vary as a result of fluctuations in market demand. Further, the SAN markets in which the Company competes are characterized by rapid technological change, evolving industry standards, declining average selling prices, and rapid technological obsolescence. F-208 SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSORS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) Certain of the raw materials and components used by the Company in the manufacture of its products are available from a limited number of suppliers. For example, all of the Company's SAN solution products require disk drives that are currently supplied by Seagate Technology (Cayman) Holdings. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from these estimates. Given the volatility of the markets in which the Company and its Predecessors participate, the Company and its Predecessors make adjustments to the value of inventory based on estimates of potentially excess and obsolete inventory after considering forecasted demand and forecasted average selling prices. However, forecasts are subject to revisions, cancelations, and rescheduling. Actual demand will inevitably differ from such anticipated demand, and such differences may have a material effect on the financial statements. CASH EQUIVALENTS Cash equivalents consist of short-term, highly liquid financial instruments with insignificant interest rate risk that are readily convertible to cash and have maturities of three months or less from the date of purchase. Cash equivalents consist of money market funds. The fair market value, based on quoted market prices, of cash equivalents is substantially equal to their carrying value at December 29, 2000 and June 30, 2000. CONCENTRATION OF CREDIT RISK The Company's concentration of credit risk consists principally of cash, cash equivalents, and trade receivables. The Company's investment policy restricts investments to high-credit quality investments and limits the amounts invested with any one issuer. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral. Reserves are maintained for potential credit losses. FAIR VALUE OF FINANCIAL INSTRUMENTS Financial instruments primarily consist of cash and cash equivalents and short-term trade receivables and payables for which current carrying amounts approximate fair market value. RESEARCH AND DEVELOPMENT Research and development expenditures are generally charged to operations as incurred. Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed," requires the capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company's and its Predecessors' product development process, technological feasibility is established upon the completion of a working model. To date, no costs have qualified for capitalization, and accordingly, the Company has charged all such costs to research and development expense in the accompanying statements of operations. COMPREHENSIVE INCOME The Company's and its Predecessors' comprehensive net loss was the same as its net loss for all periods presented. F-209 SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSORS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) STOCK-BASED COMPENSATION The Company and its Predecessors account for employee stock-based compensation under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APBO 25), and related interpretations. RESTRICTED CASH The Company and its Predecessor have cash which is restricted by an irrevocable standby letter of credit in the amount of $400,000. Beginning on May 31, 2001, the letter of credit will decrease by $100,000 annually, thereby relieving the restriction of cash at the same rate. Prepaid expenses and other assets on the consolidated condensed balance sheets include $100,000 of restricted cash at both December 29, 2000 and June 30, 2000. INVENTORIES Inventories are valued at the lower of cost or market. Cost is computed on a currently adjusted standard basis which approximates actual cost on a first-in, first-out basis. Inventory consists of the following at December 29, 2000 and June 30, 2000:
SEAGATE TECHNOLOGY SAN HOLDINGS PREDECESSOR ------------------- ------------ DECEMBER 29, JUNE 30 2000 2000(1) ------------------- ------------ (IN THOUSANDS) Inventories: Raw materials ........... $ 5,268 $1,885 Work-in-process ......... 724 566 Finished goods .......... 4,175 2,442 ------- ------ $10,167 $4,893 ======= ======
- ---------- (1) The information in this column was derived from XIOtech Corporation's audited financial statements as of June 30, 2000. LONG-LIVED ASSETS Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are generally two to seven years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the lease. F-210 SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSORS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
SEAGATE TECHNOLOGY SAN HOLDINGS PREDECESSOR ------------------- ------------ DECEMBER 29, JUNE 30, 2000 2000(1) ------------------- ------------ (IN THOUSANDS) Computer software ...................................... $ 574 $ 491 Computer equipment ..................................... 2,450 2,149 Tooling ................................................ 21 64 Leasehold improvements ................................. 612 35 Office furniture and equipment ......................... 1,015 180 ------ ------ 4,672 2,919 Less accumulated depreciation and amortization ......... (94) (306) ------ ------ $4,578 $2,613 ====== ======
- ---------- (1) The information in this column was derived from XIOtech Corporation's audited financial statements as of June 30, 2000. Purchased intangibles mainly represent developed technology, assembled workforce, trade names and customer relationships acquired in the business combinations. Purchased intangibles are being amortized on a straight-line basis over their estimated useful life. The Company reviews purchased intangibles to assess recoverability from future operations using undiscounted cash flows. In management's opinion, no material impairment exists at December 29, 2000. Accumulated amortization of goodwill and purchased intangibles was approximately $268,000 and $20,354,000 as of December 29, 2000 and June 30, 2000, respectively. ECONOMIC DEPENDENCE ON NEW SAC The Company and its Predecessors have incurred net losses since inception. To the extent future cash flows from operations are not sufficient to fund the Company's working capital needs and planned activities during the next twelve months, the company believes additional funding will be available from New SAC and Seagate Technology Holdings, an affiliated company and subsidiary of New SAC. PUSHDOWN AND CARVEOUT ACCOUNTING One of New SAC's key employees provided services to the Company (prior to November 22, 2000 this individual was an employee of Seagate, and he provided services to the Predecessor). These services included general management, administrative, and legal functions. Certain expenses related to these services have been pushed down to properly reflect the operations of the Company and the Predecessor. SEGMENT INFORMATION The Company and its Predecessors have applied SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or group, in deciding how to allocate resources and in assessing performance. F-211 SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSORS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The Company and its Predecessor operate in one segment, storage area network products. The Company markets its products in the United States and in foreign countries through its sales personnel, dealers, and resellers. The Chief Executive Officer has been identified as the Chief Operating Decision Maker ("CODM") because he has final authority over resource allocation decisions and performance assessment. The CODM does not receive discrete financial information about individual components of the market. 2. INCOME TAXES The federal Tax Allocation Agreement ("Tax Allocation Agreement") Xiotech had with Seagate Technology was terminated on November 22,2000 and we will no longer file federal income tax returns on a consolidated basis with Seagate Technology or U.S. affiliates of New SAC. We will enter into a state tax allocation agreement with affiliates of New SAC, as applicable. Therefore, the U.S. affiliates of New SAC will not benefit from nor will they reimburse us pursuant to the Tax Allocation Agreement for federal tax losses we sustain subsequent to consummation of the SAC Transaction. In prior periods, we have received substantial cash payments for our tax losses utilized by Seagate Technology that we have used to reduce our obligation due to New SAC or its predecessor under the revolving loan agreement. As a result of the termination of the Tax Allocation Agreement, the Company may not be able to convert any future tax losses into cash. The provision for (benefit from) income taxes consisted of the following:
SEAGATE TECHNOLOGY SAN HOLDINGS PREDECESSOR PRE-PREDECESSOR ------------------- -------------- ---------------- PERIOD FROM PERIOD FROM NOVEMBER 23, JULY 1, 2000 SIX MONTHS 2000 TO TO ENDED DECEMBER 29, NOVEMBER 22, DECEMBER 31, 2000 2000 1999 (IN THOUSANDS) ------------------- -------------- ---------------- Current: Federal ...................................... $ -- $ (2,382) $-- State ........................................ (532) (437) -- ------ -------- --- Total current tax expense/(benefit) .......... (532) (2,819) -- ------ -------- --- Deferred: Federal ...................................... -- (4,710) -- State ........................................ -- (935) -- ------ -------- --- Total deferred tax expense/(benefit) ......... -- (5,645) -- ------ -------- --- Benefit from income taxes .................... $ (532) $ (8,464) $-- ====== ======== ===
The proforma information assuming a tax provision/(benefit) based on a separate return basis is as follows:
SEAGATE TECHNOLOGY SAN HOLDINGS --------------------- FOR THE PERIOD FROM NOVEMBER 23, 2000 TO DECEMBER 29, 2000 --------------------- Loss before income taxes .......................... $ (28,092) Provision for (benefit from) income taxes ......... -- --------- Net Loss .......................................... $ (28,092) =========
F-212 SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSORS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The income tax benefits related to the exercise of certain employee stock options increased amounts due from Seagate Technology pursuant to the Tax Allocation Agreement and were credited to additional paid-in capital. Such amount approximated $68,000 for the period from July 1, 2000 to November 22, 2000. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's deferred tax assets and liabilities were as follows:
SEAGATE TECHNOLOGY SAN HOLDINGS PREDECESSOR ------------------- -------------- (IN THOUSANDS) DECEMBER 29, 2000 JUNE 30, 2000 - -------------------------------------------------- ------------------- -------------- DEFERRED TAX ASSETS Reserves and accrued expenses ............. $ 3,699 $ 2,787 Deferred revenue .......................... -- 300 Acquisition related items ................. 10,397 -- Net operating losses ...................... 3,394 2,556 Research and development credits .......... 58 397 --------- --------- Total deferred tax assets ................. 17,548 6,040 Valuation allowance ....................... (17,468) -- --------- --------- Net Deferred Tax Assets ................... 80 6,040 DEFERRED TAX LIABILITIES Acquisition related items ................. 0 (14,645) Depreciation .............................. (80) (56) --------- --------- Total deferred tax liabilities ............ (80) (14,701) --------- --------- Net Deferred Tax Assets/(Liabilities) ..... $ -- $ (8,661) ========= =========
In connection with the purchase of the operating assets of Seagate, approximately $10.4 million of the net deferred tax assets at December 29, 2000 represents the excess of tax basis over the fair values of the acquired property, plant and equipment, and liabilities assumed for which we expect to receive tax deductions in our federal and state returns in future periods. The realization of the Company's federal and state deferred tax assets will depend primarily on its ability to generate sufficient taxable income in the United States in future fiscal years, the timing and amount of which are uncertain. Due to these uncertainties the Company recorded a valuation allowance of $17.5 million for the deferred tax assets as of December 29, 2000. The Company anticipates that the tax benefits of $10.4 million of net deferred tax assets if realized, will result in an increased adjustment to the amount of unamortized negative goodwill that has been allocated on a pro rata basis to the long-lived assets. Any excess tax benefit would then be realized as a reduction of future income tax expense. In addition, the net operating loss and tax credit carryforwards are subject to further limitations on utilization due to the "change in ownership" provisions of Internal Revenue Code Section 382. As of December 29, 2000, Seagate Technology SAN Holdings has federal tax net operating loss carry-forwards of approximately $9.5 million that start expiring in fiscal 2010, if not used to offset future taxable income. F-213 SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSORS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The reconciliation between the provision for (benefit from) income taxes at the U.S. statutory rate and the effective rate are summarized as follows:
SEAGATE TECHNOLOGY PREDECESSOR PRE-PREDECESSOR SAN HOLDINGS ------------------- ------------------ PERIOD FROM PERIOD FROM NOVEMBER 23, 2000 JULY 1, 2000 TO SIX MONTHS ENDED TO DECEMBER 29, 2000 NOVEMBER 22, 2000 DECEMBER 31, 1999 (IN THOUSANDS) ---------------------- ------------------- ------------------ Provision (benefit) at U.S. statutory rate ......... $ (9,832) $ (11,414) $ (927) State income tax provision (benefit), net of federal income tax benefit ....................... (346) (892) -- Research and development credits ................... (58) (181) -- Non-deductible goodwill ............................ -- 3,955 -- Compensation expense ............................... -- -- 251 Valuation allowance ................................ 9,694 -- 662 Other .............................................. 10 68 14 -------- --------- ------ Provision for (benefit from) income taxes .......... $ (532) $ (8,464) $ -- ======== ========= ======
3. RELATED PARTY TRANSACTIONS The Company conducts transactions with a number of New SAC subsidiaries. The Predecessor conducted a number of transactions with Seagate Technology. In the periods from November 23, 2000 to December 29, 2000 and from July 1, 2000 to November 22, 2000, the Company and its predecessor sold SAN products to New SAC totaling approximately $118,000 and $1,752,000, respectively. In the periods from November 23, 2000 to December 29, 2000 and from July 1, 2000 to November 22, 2000, the Company and its predecessor purchased disc drives from New SAC totaling approximately $1,336,000 and $2,895,000, respectively. The Company does not settle its intercompany balances (receivables and payables) on a current basis, and all purchases and sales are netted into the intercompany payable to New SAC or its Predecessor. 4. SALE OF SEAGATE TECHNOLOGY New SAC was organized solely for the purpose of entering into the Stock Purchase Agreement with Seagate Technology and Seagate Software Holdings. Similar to SAC, New SAC is controlled by Silver Lake Partners and Texas Pacific Group. Silver Lake Partners L.P. is a private investment firm headquartered in Menlo Park, California and New York, New York, the general partner of which is Silver Lake Technology Associates, L.L.C. Silver Lake Technology Associates L.L.C. is a Delaware limited liability company. New SAC financed the acquisition of the Seagate operating assets as follows: o Equity financing of $916 million from Silver Lake Partners, L.P., TPG Partners III, L.P., August Capital, Chase Capital Partners, GS Private Equity Partners, L.P. and other investors, including certain Seagate management personnel. o A senior secured credit facility of $700 million in the aggregate from the Chase Manhattan Bank, Goldman Sachs Credit Partners L.P. and Merrill Lynch Capital Corporation (in addition, a revolving loan facility was also issued with amounts available up to $200 million). F-214 SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSORS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) o Senior subordinated notes of approximately $210 million issued by Seagate Technology International at a discount to the aggregate principal amount of $210 million, for gross proceeds of approximately $201 million. Seagate Technology International is indirectly owned by SAC. o Certain cash reserves of Seagate Technology of approximately $149 million, net of estimated transaction costs of $100 million. o In lieu of receiving consideration in connection with the Merger, most of Seagate Technology's senior management team converted a portion of their unvested Seagate Technology options and restricted stock ("rollover equity") with an aggregate value of $184 million into deferred compensation and an equity interest in New SAC. Although the amount of cash that Seagate Technology received from New SAC was reduced by the aggregate value of this converted equity, the total merger consideration received by Seagate Technology stockholders on a per share basis was not reduced due to the cancellation of a number of Seagate Technology stock options equal in value to the $184 million in rollover equity. 5. DEBT GUARANTEES AND PLEDGE OF ASSETS SENIOR SECURED CREDIT FACILITY On the closing of the Transaction, Seagate Technology International and Seagate Technology (US) Holdings, Inc., both subsidiaries of New SAC entered into senior credit facilities with a syndicate of banks and other financial institutions led by The Chase Manhattan Bank, as administrative agent and an issuing bank, and Goldman Sachs Credit Partners L.P., as a documentation agent, The Bank of Nova Scotia as a documentation agent, and Merrill Lynch Capital Corporation, as a documentation agent. The senior credit facilities provide senior secured financing of up to $900 million, consisting of: o a $200 million revolving credit facility for general corporate purposes, with a sub-limit of $100 million for letters of credit, which will terminate in five years; o a $200 million term loan A facility with a maturity of five years; and o a $500 million term loan B facility with a maturity of six years. At the closing of the transaction, New SAC did not borrow under the revolving credit facility. At that time approximately $155 million of the revolving credit facility was available because approximately $45 million of existing letters of credit were outstanding and reduced availability under it. New SAC drew the full amount of the term loan A facility and the term loan B facility on the closing of the transaction to finance the acquisition of Seagate Technology's operating assets, including the Predecessor. The $700 million of outstanding loans under the term loan A and B facilities are repayable in semi-annual payments due as follows (in thousands): Fiscal 2001 ........... $ 5,000 2002 ..... .......... 22,500 2003 ..... .......... 40,000 2004 ..... .......... 50,000 2005 ..... .......... 60,000 Thereafter ......... 522,500 -------- Total .... .......... $700,000 ========
F-215 SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSORS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The loans bear interest at variable rates dependent upon market interest rates and the nature of the borrowings, as well as the consolidated financial position of New SAC at applicable measurement dates. The average interest rates being charged under these borrowings from the date of the New SAC Transaction ranged from 9.1875% (LIBOR plus 2.5%) to 9.6875% (LIBOR plus 3%). New SAC and certain of its subsidiaries, including the Company and its subsidiaries are guarantors on a joint and several, whole and unconditional basis, under the senior credit facilities. In addition, the majority of New SAC's and certain of its subsidiaries' assets, including the Company's assets and its capital stock, have been pledged against the debt under this credit agreement. New SAC, and certain of its subsidiaries, including the Company and its subsidiaries, have agreed to certain covenants under this agreement including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. Further, the Company, as part of the consolidated group, is subject to certain financial covenants which are assessed on the consolidated operating results and financial position of New SAC and its subsidiaries. The credit agreement provides for the release of the Company from its guarantee obligations, and asset pledge upon an approved transfer or sale of the Company's common stock, or an initial public offering of at least 10%, on a fully diluted basis, of the Company's voting common stock. SENIOR SUBORDINATED NOTES In connection with the closing and financing of the New SAC Transaction, Seagate Technology International issued unsecured senior subordinated notes under an Indenture Agreement dated November 22, 2000, at a discount to the aggregate principal amount of $210 million, for gross proceeds of approximately $201 million. The notes mature on November 15, 2007 and bear interest payable semi-annually at a rate of 12.5% per annum. New SAC and certain of its subsidiaries, including the Company and its subsidiaries, are guarantors of the senior subordinated notes on a joint and several, whole and unconditional basis. In addition, New SAC and certain of its subsidiaries including the Company and its subsidiaries, have agreed to certain restrictive covenants under the terms of these notes including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. The Company may be released from its guarantee obligation, if there are certain sales of its capital stock, including in an initial public offering, but would remain subject to the restrictive covenants of the indenture until the Company and its subsidiaries are no longer subsidiaries of New SAC or are deemed no longer to be subject to the restrictive covenants. New SAC will not require the Company's cash flow to be used to service the obligations pursuant to the senior secured credit facility and the senior subordinated notes. The Company believes that none of the guarantees or pledges of assets under the senior credit facilities or the guarantees under the Indenture are likely to be invoked. 6. PURCHASE ACCOUNTING New SAC accounted for the stock purchase agreement as a purchase in accordance with APB 16, "Business Combinations," All acquired tangible assets, identifiable intangible assets as well as assumed liabilities were valued based on their relative fair values and reorganized into the following businesses: 1) the rigid disk drive business (HDD), 2) the storage area networks business (SAN), which consists of the Company, 3) the removable storage solutions business (RSS), 4) the software F-216 SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSORS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) business CD, and 5) an investment holding company (ST). The fair value of the net assets exceeded the net purchase price by approximately $909 million. Accordingly, the resultant negative goodwill was allocated on a pro rata basis to the acquired long-lived assets and reduced the recorded amounts by approximately 46%. The estimated fair values of intangible assets acquired related to the Company adjusted for the negative goodwill allocations are as follows (in thousands):
LIFE ESTIMATED DESCRIPTION IN YEARS FAIR VALUE - ----------------------------------------------- ---------- ----------- Net current assets (1) ........................ $ 26,911 Long term liabilities ......................... (9,650) Other long-lived assets ....................... -- Property, plant & equipment (2) ............... 2,412 Identified intangibles: Trade names (3) .............................. 5 1,088 Developed technologies (3) ................... 4 5,441 Assembled workforces (3) ..................... 1 544 Other ........................................ 1 1,088 -------- Subtotal ................................... 8,161 Net assets ................................. 27,834 In-process research & development (3) ......... 25,027 -------- Net Purchase Price ......................... $ 52,861 ========
- ---------- (1) Acquired current assets included cash and cash equivalents, accounts receivable, inventories and other current assets. The fair values of current assets generally approximated the recorded historic book values of XIOtech. Inventory values were estimated based on the current market value of the inventories less completion costs and less a normal profit margin based on activities remaining to be completed until the inventory is sold. Assumed current liabilities included accounts payable, accrued compensation and expenses and accrued income taxes. The fair values of current liabilities generally approximated the historic recorded book values of XIOtech because of the monetary nature of most of the liabilities. (2) New SAC obtained an independent valuation of the acquired property, plant and equipment. In arriving at the determination of market value for the assets, the appraisers considered the estimated cost to construct or acquire comparable property. Machinery and equipment was assessed using replacement cost estimates reduced by depreciation factors representing the condition, functionality and operability of the assets. The sales comparison approach was used for office and data communication equipment. Leasehold improvements were valued based upon discussions with knowledgeable personnel. (3) New SAC obtained an independent valuation of acquired identified intangibles. The significant assumptions relating to each category are discussed in the following paragraphs. Also, these assets are being amortized on the straight-line basis over their estimated useful life and resultant amortization is included in amortization of goodwill and other intangibles. Trade Names -- The value of the trade names was based upon discounting to their net present value the licensing income that would arise by charging the operating businesses that use the trade names. F-217 SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSORS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) Developed Technologies -- The value of this asset for each operating business was determined by discounting the expected future cash flows attributable to all existing technologies which had reached technological feasibility, after considering risks relating to: 1) the characteristics and applications of the technology, 2) existing and future markets, as well as 3) life cycles of the technologies. Estimates of future revenues and expenses used to determine the value of developed technology was consistent with the historical trends in the industry and expected outlooks. Assembled workforces -- The value of the assembled work force was determined by estimating the recruiting, hiring and training costs to replace each group of existing employees. In-process research and development -- The value of in-process research and development (IPR&D) was based on an evaluation of all developmental projects using the guidance set forth in Interpretation No. 4 of Financial Accounting Standards Board Statement No. 2 (FAS), Accounting for Research and Development Costs and FAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. The amount was determined by: 1) obtaining management estimates of future revenues and operating profits associated with existing developmental projects 2) projecting the cash flows and costs to complete of the underlying technologies and resultant products, and 3) discounting these cash flows to their net present value. Estimates of future revenues and expenses used to determine the value of IPR&D was consistent with the historical trends in the industry and expected outlooks. The entire amount was charged to operations because related technologies had not reach technological feasibility and they had no alternative future use. At the valuation date, the Predecessor was in the process of developing two next generation versions of existing technologies, which, based on an effort to date, were 50% and 75% complete. Activities necessary to covert this IPR&D into commercially viable technologies include the writing and testing of code diagnostic software design development testing and system integration. The Company expects resultant products will be successfully developed in fiscal 2002 at an additional estimated cost of $1,000,000. PRO FORMA FINANCIAL INFORMATION The pro forma financial information presented below is presented as if the acquisition of substantially all of the operating assets of the Predecessor had occurred at July 1, 1999. The pro forma statements of operations for the six months ended December 29, 2000, include the historical results of the Company for the period from November 23, 2000 to December 29, 2000 and the historical results of the Predecessor from July 1, 2000 to November 22, 2000 and are adjusted to reflect the new accounting basis for the assets and liabilities of the Company, and exclude acquisition related charges for recurring amortization of goodwill and intangibles related to the Predecessor. The pro forma Statement of Operations for the six months ended December 31, 1999 include the historical results of the Pre-Predecessor and are adjusted to reflect the new accounting basis for the assets and liabilities of the Company. The pro forma financial results are as follows (in thousands):
SIX MONTHS ENDED ------------------------------ DECEMBER 29, DECEMBER 31, 2000 1999 -------------- ------------- Revenue .......................... $ 31,771 $ 6,677 Loss before income taxes ......... $ (44,066) $ (4,478) Net loss ......................... $ (44,066) $ (4,478)
F-218 SEAGATE TECHNOLOGY SAN HOLDINGS AND ITS PREDECESSORS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED) (UNAUDITED) 7. LITIGATION LEGAL PROCEEDINGS Storage Computer Corporation -- On March 22, 2001, Storage Computer Corporation filed suit in the U.S. District Court for the Northern District of Texas, Civil Action No. 3-01CV0555-M, entitled Storage Computer Corporation v. XIOtech Corporation and Seagate Technology, Inc. The complaint alleges that XIOtech's MAGNITUDETM product infringes U.S. Patent No. 5,893,919 and that Seagate Technology induces infringement of the patent by promoting and marketing XIOtech's MAGNITUDETM product, particularly through a hyperlink on Seagate Technology's internet website to XIOtech's internet website. The plaintiff alleges willful infringement and seeks damages and an injunction. We have engaged outside counsel to evaluate the claims in the suit. The ultimate outcome of this litigation is fact intensive and cannot be determined and remains uncertain. The ultimate resolution of this matter could have a material adverse impact on XIOtech's financial condition, results of operations, and cash flows. 8. CAPITAL STOCK The Company's authorized share capital is $50,000 and consists of 50,000 shares of a par value of $1.00, of which 2,000 shares were issued and outstanding at December 29, 2000. The Predecessor's authorized share capital consisted of 1,000 shares of common stock with a par value of $.01, of which 1,000 shares were issued and outstanding at June 30, 2000. F-219 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Seagate Technology SAN Holdings We have audited the accompanying balance sheets of XIOtech Corporation (the "Company") as of June 30, 2000, and the related statements of operations, changes in manditorily redeemable convertible preferred stock and stockholders' equity (net capital deficit), and cash flows for the period from January 29, 2000 to June 30, 2000. We have also audited the accompanying balance sheet of XIOtech Corporation (prior to being acquired by Seagate Technology, Inc.) (the "Pre-Predecessor") at December 31, 1999, and the related statements of operations, changes in mandatorily redeemable convertible preferred stock and stockholders' equity (net capital deficit), and cash flows for the period from January 1, 2000 to January 28, 2000 and for the year ended December 31, 1999. These financial statements are the responsibility of the Company's and the Pre-Predecessor's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company at June 30, 2000, and the results of its operations and its cash flows for the period from January 29, 2000 to June 30, 2000, and the financial position of the Pre-Predecessor at December 31, 1999, and the results of its operations and its cash flows for the period from January 1, 2000 to January 28, 2000 and for the year ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP San Jose, California March 16, 2001 F-220 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Shareholders Seagate Technology SAN Holdings In our opinion, the accompanying balance sheets and the related statements of operations, of changes in mandatorily redeemable convertible preferred stock and stockholders' equity (net capital deficit) and of cash flows present fairly, in all material respects, the financial position of XIOtech Corporation (prior to being acquired by Seagate Technology, Inc.) (the "Pre-Predecessor") at December 31, 1998, and the results of its operations and its cash flows for each of the two years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Pre-Predecessor's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP Minneapolis, Minnesota March 26, 1999 F-221 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRE-PREDECESSOR --------------------------- JUNE 30, DECEMBER 31, 2000 1999 1998 ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents ............................................ $ 6,968 $ 9,208 $ 6,395 Accounts receivable, net of allowance for doubtful accounts of $905 in 2000, $488 in 1999, and $0 in 1998................................... 6,027 4,003 654 Inventory ............................................................ 4,893 2,584 1,208 Deferred income taxes ................................................ 5,984 -- -- Prepaid expenses and other assets .................................... 259 95 62 ---------- --------- --------- Total current assets .................................................. 24,131 15,890 8,319 Restricted cash ....................................................... 300 -- -- Property and equipment, net ........................................... 2,613 970 569 Goodwill and purchased intangibles, net ............................... 233,794 -- -- ---------- --------- --------- Total assets .......................................................... $ 260,838 $ 16,860 $ 8,888 ========== ========= ========= LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIT) Current liabilities: Accounts payable ..................................................... $ 994 $ 1,596 $ 519 Accrued expenses ..................................................... 2,517 1,684 561 Deferred revenue ..................................................... 1,706 147 31 Accrued compensation benefits ........................................ 6,763 371 119 ---------- --------- --------- Total current liabilities ............................................. 11,980 3,798 1,230 Intercompany payable to Seagate ....................................... 1,695 -- -- Deferred income taxes ................................................. 14,645 -- -- ---------- --------- --------- Total liabilities ..................................................... 28,320 3,798 1,230 Commitments and Contingencies Mandatorily redeemable preferred stock: Series B mandatorily redeemable convertible preferred stock, $1.00 par value; 0, 5,600 and 5,600 shares authorized and 0, 5,085 and 5,085 shares outstanding in 2000, 1999 and 1998; stated at current redemption value .................................................... -- 8,414 7,646 Series C mandatorily redeemable convertible preferred stock, $1.00 par value; 0, 5,320 and 5,320 shares authorized and 0, 4,879 and 4,879 shares outstanding in 2000, 1999 and 1998; stated at current redemption value .................................................... -- 11,592 10,454 Series D mandatorily redeemable convertible preferred stock, $1.00 par value; 0, 4,000 and 4,000 shares authorized and 0, 1,643 and 0 shares outstanding in 2000, 1999 and 1998; stated at current redemption value .................................................... -- 10,100 -- ---------- --------- --------- -- 30,106 18,100 Stockholders' equity (net capital deficit): Series A convertible preferred stock, $1.00 par value; 0, 1,900 and 1,900 shares authorized and 0, 1,337 and 1,362 shares outstanding in 2000, 1999, and 1998 ............................................. -- 1,377 1,362 Common stock, $0.001 par value; 0, 50,000 and 50,000 shares authorized and 0, 2,870 and 2,322 shares outstanding in 2000, 1999 and 1998 ............................................................ -- 3 2 Common Stock $0.01 par value; 1 share authorized and outstanding in 2000 ................................................................ -- -- -- Additional paid-in capital ........................................... 359,413 791 48 Accumulated deficit .................................................. (126,895) (19,215) (11,854) ---------- --------- --------- Total stockholders' equity (net capital deficit) ...................... 232,518 (17,044) (10,442) ---------- --------- --------- Total liabilities, mandatorily redeemable preferred stock, and stockholders' equity (net capital deficit) ........................... $ 260,838 $ 16,860 $ 8,888 ========== ========= =========
See accompanying notes. F-222 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS STATEMENTS OF OPERATIONS (IN THOUSANDS)
PRE-PREDECESSOR --------------------------------------------------------------- PERIOD PERIOD FROM SIX MONTHS JANUARY 29, JANUARY 1, ENDED 2000 2000 TO JUNE 30, YEARS ENDED DECEMBER 31, TO JUNE 30, JANUARY 28, 1999 2000 2000 (Unaudited) 1999 1998 1997 -------------- ------------- ------------ ------------ ----------- ----------- Revenue ............................... $ 12,739 $ 430 $ 4,052 $ 10,727 $ 1,542 $ -- Cost of goods sold (includes $3,462 of intangible amortization for the period from January 29, 2000 to June 30, 2000) ....................... 8,672 180 2,624 6,034 1,867 461 ---------- -------- -------- -------- -------- -------- Gross profit (loss) ................... 4,067 250 1,428 4,693 (325) (461) Operating expenses: Product development .................. 1,529 208 961 2,094 2,028 1,896 Marketing and administrative ......... 14,813 965 3,141 8,108 3,646 1,019 Amortization of goodwill and intangible assets ................... 16,892 -- -- -- -- -- In-process research and development ......................... 104,844 -- -- -- -- -- ---------- -------- -------- -------- -------- -------- Total operating expenses .............. 138,078 1,173 4,102 10,202 5,674 2,915 ---------- -------- -------- -------- -------- -------- Loss from operations .................. (134,011) (923) (2,674) (5,509) (5,999) (3,376) Interest income ....................... 157 43 107 292 249 276 ---------- -------- -------- -------- -------- -------- Loss before income taxes .............. (133,854) (880) (2,567) (5,217) (5,750) (3,100) Benefit for income taxes .............. 6,959 -- -- -- -- -- ---------- -------- -------- -------- -------- -------- Net loss .............................. (126,895) (880) (2,567) (5,217) (5,750) (3,100) Accretion to redemption value of mandatorily redeemable preferred stock ...................... -- (257) (1,045) (2,144) (1,110) (635) ---------- -------- -------- -------- -------- -------- Net loss attributable to common stockholders ......................... $ (126,895) $ (1,137) $ (3,612) $ (7,361) $ (6,860) $ (3,735) ========== ======== ======== ======== ======== ========
See accompanying notes. F-223 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS STATEMENTS OF CHANGES IN MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIT) (IN THOUSANDS)
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIT) ---------------- SERIES A CONVERTIBLE MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK PREFERRED STOCK --------------------------------------------------------- ----------------- SERIES B SERIES C SERIES D ----------------- ------------------- ------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT -------- -------- -------- ---------- -------- ---------- -------- -------- PERIOD FROM JANUARY 1, 1997 TO JANUARY 28, 2000 (PRE-PREDECESSOR): Balance at January 1, 1997 ...................... -- $ -- -- $ -- -- $ -- 1,362 $1,362 Sale of Series B preferred stock ........... 5,085 6,312 -- -- -- -- -- -- Exercise of stock options ................... -- -- -- -- -- -- -- -- Accretion to redemption value of preferred stock ..................... -- 635 -- -- -- -- -- -- Net loss ................... -- -- -- -- -- -- -- -- ----- ------ -- ------- -- ------- ----- ------ Balance at December 31, 1997 ...................... 5,085 $6,947 -- -- -- -- 1,362 1,362 Sale of Series C preferred stock ........... -- -- 4,879 10,043 -- -- -- -- Exercise of stock options ................... -- -- -- -- -- -- -- -- Accretion to redemption value of preferred stock ..................... -- 699 -- 411 -- -- -- -- Net loss .................. -- -- -- -- -- -- -- -- ----- ------ ----- ------- -- ------- ----- ------ Balance at December 31, 1998 ...................... 5,085 $7,646 4,879 $10,454 -- -- 1,362 $1,362 Exercise of warrants in Series A preferred stock ..................... -- -- -- -- -- -- 15 15 Sale of Series D preferred stock ........... -- -- -- -- 1,643 9,862 -- -- Exercise of warrants in common stock .............. -- -- -- -- -- -- -- -- Exercise of stock options ................... -- -- -- -- -- -- -- -- Accretion to redemption value of preferred stock ..................... -- 768 -- 1,138 -- 238 -- -- Compensation expense related to options and warrants .................. -- -- -- -- -- -- -- -- Net loss .................. -- -- -- -- -- -- -- -- ----- ------ ----- ------- ----- ------- ----- ------ Balance at December 31, 1999 ...................... 5,085 $8,414 4,879 $11,592 1,643 $10,100 1,377 $1,377 STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIT) ------------------------------------------ TOTAL COMMON STOCK ADDITIONAL STOCKHOLDERS' ----------------- PAID-IN ACCUMULATED EQUITY SHARES AMOUNT CAPITAL DEFICIT (NET CAPITAL DEFICIT) -------- -------- ------------ ------------- ---------------------- PERIOD FROM JANUARY 1, 1997 TO JANUARY 28, 2000 (PRE-PREDECESSOR): Balance at January 1, 1997 ...................... 2,300 $ 2 $ 114 $ (1,327) $ 151 Sale of Series B preferred stock ........... -- -- -- -- -- Exercise of stock options ................... 1 -- -- -- -- Accretion to redemption value of preferred stock ..................... -- -- (68) (567) (635) Net loss ................... -- -- -- (3,100) (3,100) ----- --- ----- --------- --------- Balance at December 31, 1997 ...................... 2,301 2 46 (4,994) (3,584) Sale of Series C preferred stock ........... -- -- -- Exercise of stock options ................... 21 -- 2 -- 2 Accretion to redemption value of preferred stock ..................... -- -- -- (1,110) (1,110) Net loss .................. -- -- -- (5,750) (5,750) ----- --- ----- --------- --------- Balance at December 31, 1998 ...................... 2,322 $ 2 48 $ (11,854) $ (10,442) Exercise of warrants in Series A preferred stock ..................... -- -- 15 -- 30 Sale of Series D preferred stock ........... -- -- -- -- -- Exercise of warrants in common stock .............. 400 1 8 -- 9 Exercise of stock options ................... 148 -- 3 -- 3 Accretion to redemption value of preferred stock ..................... -- -- -- (2,144) (2,144) Compensation expense related to options and warrants .................. -- -- 717 -- 717 Net loss .................. -- -- -- (5,217) (5,217) ----- --- ----- --------- --------- Balance at December 31, 1999 ...................... 2,870 $ 3 791 $ (19,215) $ (17,044)
F-224 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS STATEMENTS OF CHANGES IN MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIT) (CONTINUED) (IN THOUSANDS)
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIT) SERIES A CONVERTIBLE MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK PREFERRED STOCK --------------------------------------------------------- ----------------- SERIES B SERIES C SERIES D ----------------- ------------------- ------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT -------- -------- -------- ---------- -------- ---------- -------- -------- Balance at December 31, 1999 ...................... 5,085 $8,414 4,879 $11,592 1,643 $10,100 1,377 $1,377 Exercise of stock options ................... -- -- -- -- -- -- -- -- Accretion to redemption value of preferred stock ..................... -- 70 -- 99 -- 88 -- -- Net loss .................. -- -- -- -- -- -- -- -- ----- ------ ----- ------- ----- ------- ----- ------ Balance at January 28, 2000 ...................... 5,085 $8,484 4,879 $11,691 1,643 $10,188 1,377 $1,377 ===== ====== ===== ======= ===== ======= ===== ====== PERIOD FROM JANUARY 29, 2000 TO JUNE 30, 2000: New capitalization at January 29, 2000 .......... -- $ -- -- $ -- -- $ -- -- $ -- Stock option deduction available to Seagate....... -- -- -- -- -- -- -- -- Net loss .................. -- -- -- -- -- -- -- -- ----- ------ ----- ------- ----- ------- ----- ------ Balance at June 30, 2000 ...................... -- $ -- -- $ -- -- $ -- -- $ -- ===== ====== ===== ======= ===== ======= ===== ====== STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIT) -------------------------------------- TOTAL COMMON STOCK ADDITIONAL STOCKHOLDERS' ----------------- PAID-IN ACCUMULATED EQUITY SHARES AMOUNT CAPITAL DEFICIT (NET CAPITAL DEFICIT) -------- -------- ------------ ------------- ---------------------- Balance at December 31, 1999 ...................... 2,870 $ 3 $ 791 $ (19,215) $ (17,044) Exercise of stock options ................... 35 -- 7 -- 7 Accretion to redemption value of preferred stock ..................... -- -- -- (257) (257) Net loss .................. -- -- -- (880) (880) ----- --- -------- ---------- ---------- Balance at January 28, 2000 ...................... 2,905 $ 3 $ 798 $ (20,352) $ (18,174) ===== === ======== ========== ========== PERIOD FROM JANUARY 29, 2000 TO JUNE 30, 2000: New capitalization at January 29, 2000 .......... 1 $-- $359,221 $ -- $ 359,221 Stock option deduction available to Seagate....... -- -- 192 -- 192 Net loss .................. -- -- -- (126,895) (126,895) ----- --- -------- ---------- ---------- Balance at June 30, 2000 ...................... 1 $-- $359,413 $ (126,895) $ 232,518 ===== === ======== ========== ==========
See accompanying notes. F-225 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PRE-PREDECESSOR ------------------------------------------------------------------- PERIOD PERIOD FROM SIX MONTHS JANUARY 29, JANUARY 1, ENDED 2000 2000 TO JUNE 30, YEARS ENDED DECEMBER 31, TO JUNE 30, JANUARY 28, 1999 2000 2000 (Unaudited) 1999 1998 1997 -------------- ------------- -------------- ------------ ------------ ------------ OPERATING ACTIVITIES Net loss ............................... $ (126,895) $(880) $(2,567) $ (5,217) $ (5,750) $ (3,100) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ......... 20,660 42 149 352 219 112 In-process research and development .......................... 104,844 -- -- -- -- -- Deferred income taxes ................. (3,109) -- -- -- -- -- Compensation expense related to options and warrants .............. -- -- -- 717 -- -- Changes in operating assets and liabilities: Accounts receivable ................... (3,097) 1,073 (2,131) (3,349) (654) -- Inventory ............................. (1,426) (883) (675) (1,376) (886) (322) Prepaid expenses and other assets ............................... (161) (3) (1) (33) (15) (18) Restricted cash ....................... (300) -- -- -- -- -- Accounts payable and accrued expenses ............................. 6,886 (235) 1,149 2,400 619 408 Deferred revenue ...................... 1,493 66 38 116 31 -- ---------- ------- --------- -------- -------- -------- Net cash used in operating activities ............................ (1,105) (820) (4,038) (6,390) (6,436) (2,920) INVESTING ACTIVITIES Net cash used in investing activities for purchase of property and equipment ................ (1,979) (10) (272) (701) (423) (328) FINANCING ACTIVITIES Repayment of capital lease obligations ........................... (23) (5) -- -- -- -- Changes in intercompany payable to Seagate ............................ 1,695 -- -- -- -- -- Proceeds from issuance of common stock .......................... -- 7 8 12 2 -- Proceeds from issuance of Series A preferred stock ..................... -- -- -- 30 -- -- Net proceeds from issuance of mandatorily redeemable convertible preferred stock ........... -- -- -- 9,862 10,043 6,312 ---------- ------- --------- -------- -------- -------- Net cash provided by (used in) financing activities .................. 1,672 2 8 9,904 10,045 6,312 ---------- ------- --------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents .................. (1,412) (828) (4,302) 2,813 3,186 3,064 Cash and cash equivalents at beginning of period ................... 8,380 9,208 6,395 6,395 3,209 145 ---------- ------- --------- -------- -------- -------- Cash and cash equivalents at end of period ............................. $ 6,968 $8,380 $ 2,093 $ 9,208 $ 6,395 $ 3,209 ========== ======= ========= ======== ======== ========
See accompanying notes. F-226 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BUSINESS XIOtech Corporation ("XIOtech" or the "Company"), was a privately held independent company prior to its acquisition by Seagate Technology, Inc. ("Seagate") on January 29, 2000. XIOtech was originally incorporated in the state of Minnesota on October 5, 1995. On November 22, 2000, the Company became a wholly owned subsidiary of Seagate Technology SAN Holdings, which on an outstanding shares basis is a wholly owned subsidiary of New SAC, the successor to Seagate Technology, Inc. (see Note 3). XIOtech designs, manufactures, and markets a centralized data storage system. This system is based on an exclusive set of sophisticated data management and data movement tools. It offers storage virtualization, multi-node server clustering, and zero backup window solutions. The main component of the system is MAGNITUDE, a fully implemented SAN (Storage Area Network). SANs are high-speed data storage units that attach to servers in a network environment. SANs enable users to store their data as a network instead of just one server. MAGNITUDE is sold in a cabinet containing software-based architecture that allows the incorporation of all of the components of a SAN in one centralized configuration. XIOtech also designs, develops, and produces software, namely the REDI suite of software, which runs MAGNITUDE's software-based architecture. The REDI software suite is application specific and gives customers the capability of better managing their data. BASIS OF PRESENTATION XIOtech was acquired by Seagate on January 29, 2000, whereby all outstanding shares, options, and warrants were exchanged for 8,032,000 shares of common stock and options of Seagate with a combined fair value of $359 million (the "Seagate Transaction"). Prior to the Seagate Transaction, XIOtech is referred to as the Pre-Predecessor. The Seagate Transaction was accounted for as a purchase, and pursuant to the provisions of SEC Staff Accounting Bulletin No. 54 and the rules of pushdown accounting, the Seagate Transaction gave rise to a new basis of accounting (see Note 2). On November 22, 2000, substantially all the operating assets and liabilities of Seagate, including all the operating assets and liabilities of the Company, were acquired by Suez Acquisition Company (Cayman) Limited ("SAC") for approximately $1.814 billion in cash. As a result of the acquisition by SAC, and the subsequent transfer of rights by SAC to New SAC, the Company became a wholly owned subsidiary of Seagate Technology SAN Holdings, which on an outstanding share basis is a wholly owned subsidiary of New SAC (see Note 3). The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal year 2000 ended on June 30. The Pre-Predecessor's fiscal year ended on December 31. ECONOMIC DEPENDENCE ON NEW SAC The Company has incurred net losses and negative cash flows from operations from inception. The Company believes that to the extent future cash flows from operations are not sufficient to fund the Company's working capital needs and planned activities during the next twelve months, additional funding will be available from New SAC or from Seagate Technology Holdings, an affiliated company. F-227 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ materially from these estimates. Given the volatility of the markets in which the Company and its Pre-Predecessor participates, the Company and the Pre-Predecessor make adjustments to the value of inventory based on estimates of potentially excess and obsolete inventory after considering forecasted demand and forecasted average selling prices. However, forecasts are subject to revisions, cancelations, and rescheduling. Actual demand will inevitably differ from such anticipated demand, and such differences may have a material effect on the financial statements. CASH EQUIVALENTS Cash equivalents consist of short-term, highly liquid financial instruments with insignificant interest rate risk that are readily convertible to cash and have maturities of three months or less from the date of purchase. Cash equivalents consist of money market funds. The fair market value, based on quoted market prices, of cash equivalents is substantially equal to their carrying value at June 30, 2000 and December 31, 1999 and 1998. RESTRICTED CASH At June 30, 2000 the Company has cash which is restricted by an irrevocable standby letter of credit to a customer in the amount of $400,000 expiring May 31, 2004. Beginning on May 31, 2001, the letter of credit will decrease by $100,000 annually, thereby relieving the restriction of cash at the same rate. Prepaid expenses and other assets on the balance sheets include $100,000 of restricted cash at June 30, 2000. CONCENTRATION OF CREDIT RISK The Company and the Pre-Predecessor's concentration of credit risk consists principally of cash, cash equivalents, and trade receivables. The Company's investment policy restricts investments to high-credit quality investments and limits the amounts invested with any one issuer. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral. Reserves are maintained for potential credit losses. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company and the Pre-Predecessor's financial instruments primarily consist of cash and cash equivalents and short-term trade receivables and payables for which current carrying amounts approximate fair market value. INVENTORY Inventories are valued at the lower of cost or market. Cost is computed on a currently adjusted standard basis which approximates actual cost on a first-in, first-out basis. Inventory consists of the following at June 30, 2000 and December 31, 1999 and 1998 (in thousands): F-228 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PRE-PREDECESSOR --------------------- JUNE 30, DECEMBER 31, 2000 1999 1998 --------- --------- --------- Raw materials and components ......... $1,885 $1,037 $ 187 Work-in-process ...................... 566 359 252 Finished goods ....................... 2,442 1,188 769 ------ ------ ------ $4,893 $2,584 $1,208 ====== ====== ======
LONG-LIVED ASSETS Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are generally two to seven years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the lease.
(IN THOUSANDS) -------------------------------- PRE-PREDECESSOR -------------------- JUNE 30, DECEMBER 31, 2000 1999 1998 --------- -------- --------- Computer software ...................................... $ 491 $ 273 $ 252 Computer equipment ..................................... 2,149 1,196 591 Tooling ................................................ 64 77 18 Leasehold improvements ................................. 35 38 22 Office furniture and equipment ......................... 180 88 36 ------ ------ ------ 2,919 1,672 919 ------ ------ ------ Less accumulated depreciation and amortization ......... (306) (702) (350) ------ ------ ------ $2,613 $ 970 $ 569 ====== ====== ======
Depreciation expense for the Company for the period from January 29, 2000 to June 30, 2000 was $306,000. Depreciation expense for the Pre-Predecessor for the period from January 1, 2000 to January 28, 2000, the six months ended June 30, 1999 (unaudited), and the years ended December 31, 1999, 1998, and 1997 was $42,000, $149,000 (unaudited), $352,000, $219,000 and $112,000 respectively. Goodwill represents the excess of the purchase price of net tangible and intangible assets acquired by Seagate in the Seagate Transaction over their estimated fair value. Other intangibles represent developed technology, assembled workforce, and trademarks acquired in the Seagate Transaction. Goodwill and purchased intangibles are being amortized on a straight-line basis over their estimated useful lives ranging from four months to seven years (see Note 2). Purchased research and development without alternative future use is expensed when acquired. Accumulated amortization of goodwill and other intangibles was approximately $20,350,000 as of June 30, 2000. In accordance with Statement of Financial Accounting Standards No. 121, the carrying value of property and equipment, purchase intangibles, and related goodwill is reviewed if the facts and circumstances suggest that they may be permanently impaired. If this review indicates that the carrying value of these assets will not be recoverable, as determined based on undiscounted net cash flows over the remaining life of the assets, the Company's carrying value is reduced to its estimated fair value, first by reducing goodwill, and second by reducing long-term assets and other intangibles (generally based on an estimate of discounted future net cash flows). F-229 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED) REVENUE RECOGNITION The Company and the Pre-Predecessor recognize revenue when the earnings process is complete as evidenced by an agreement with the customer, title and risk of loss has transferred to the customer (typically at the time of shipment to the customer), determination of probable collectibility, and fixed and determinable pricing. If significant obligations remain after delivery, revenue is deferred until such obligations are fulfilled. The Company and the Pre-Predecessor derive a portion of their revenue from software, installation, and support sold together with its SAN units. For arrangements including software, revenue is recognized in accordance with the American Institute of Certified Public Accountant's Statement of Position (SOP) 97-2, as amended by SOP 98-4, "Software Revenue Recognition." Revenue from software license agreements is primarily recognized at the time of product delivery, provided that fees are fixed or determinable, evidence of an arrangement exists, collectibility is probable, and the vendor-specific objective evidence of fair value exists. Revenue from resellers is primarily recognized at the time risk of loss passes to the end user, which is generally at time product is shipped. Service revenue from customer maintenance fees for ongoing customer support and product updates is recognized ratably over the maintenance term, which is typically twelve months. RESEARCH AND DEVELOPMENT Research and development expenditures are generally charged to operations as incurred. Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed," requires the capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company and the Pre-Predecessor's product development process, technological feasibility is established upon the completion of a working model. The time period between achieving technological feasibility and availability of the product for general release to customers is typically very short. Accordingly, the costs qualifying for capitalization have not been material to date and no costs have been capitalized. COMPREHENSIVE INCOME Effective January 1, 1998, the Pre-Predecessor adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The Company and the Pre-Predecessor's comprehensive net loss was the same as its net loss for all periods presented. ADVERTISING COSTS Advertising costs are expensed as incurred. Advertising expense was not material for any period presented. STOCK-BASED COMPENSATION The Company and the Pre-Predecessor account for employee stock-based compensation under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion 25"), and related interpretations. Pro forma net income disclosures and net income per share disclosures are required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), and are included in Note 6. F-230 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED) SUPPLIER AND CUSTOMER CONCENTRATIONS A limited number of customers historically have accounted for a substantial portion of the Company and its Pre-Predecessor's revenues. Percentage revenues from customers with more than 10% of sales were as follows (as a percentage of net sales):
PRE-PREDECESSOR ------------------------------------------------------------- PERIOD PERIOD SIX MONTHS FROM FROM ENDED JANUARY 29, JANUARY 1, JUNE 30, 2000 TO 2000 TO 1999(A) YEARS ENDED DECEMBER 31, JUNE 30, JANUARY 28, 2000 2000 (UNAUDITED) 1999(A) 1998 1997(A) ------------- ------------ ------------ --------- -------- -------- Armed Forces Bank .................... * 18% * * * * Times Mirror Magazines, Inc. ......... * 11% * * * * Winstar Broadband Services ................ * 27% * * * * Seagate Technology .............. 10% * * * * * Connect ................... * * * * 20% * Netlan .................... * * * * 17% * Deerfield ................. * * * * 16% *
- ---------- * Revenues from customers in these periods represent less than 10% of net sales. (a) There were no customers with revenues exceeding 10% of total revenues during these periods. Sales of the Company's products will vary as a result of fluctuations in market demand. Further, the SAN markets in which the Company competes are characterized by rapid technological change, evolving industry standards, declining average selling prices, and rapid technological obsolescence. Certain of the raw materials and components used by the Company in the manufacture, production, and assembly of its products are available from a limited number of suppliers. For example, all of the Company's SAN solution products use disk drives that are currently supplied by Seagate (see Note 8). RECLASSIFICATIONS Certain amounts have been reclassified in the 1998 and 1997 financial statements in order to conform to the 2000 and 1999 presentation. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by Statement of Financial Accounting Standards No. 138 ("FAS 133"). FAS 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133," which deferred the effective date of FAS 133 until fiscal years beginning after June 15, 2000. The adoption of FAS 133 did not have a significant impact on the Company's results of operations, financial position, or cash flows. F-231 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED) In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. SAB 101 will be effective for the Company for the fiscal year ending June 2001. The Company's revenue recognition policy currently complies with SAB 101, and therefore the adoption of SAB 101 will not have any effect on the Company results of operations, financial position, or cash flows. In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 and, among other issues, clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25, the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequences of various modifications to the terms of the previously fixed stock options or awards, and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The application of FIN 44 did not have a material impact on the Company's results of operations, financial position, or cash flows. 2. ACQUISITION OF THE PRE-PREDECESSOR BY SEAGATE As discussed in Note 1, effective January 29, 2000, the Pre-Predecessor was acquired by Seagate in exchange for 8,032,000 shares of common stock and options with a combined value of approximately $359,000,000. The following is a summary of the purchase price allocation (in thousands):
ESTIMATED DESCRIPTION LIFE FAIR VALUE - --------------------------------------------- ----------- ----------- Tangible assets and liabilities ............. $ 11,440 Developed technology ........................ 54 months 37,390 Trade names ................................. 60 months 4,836 Assembled workforce ......................... 4 months 2,183 Customer list ............................... 12 months 1,967 In-process research and development ......... 104,844 Goodwill .................................... 7 years 208,333 Deferred tax liability ...................... (11,772) -------- $359,221 ========
The value of in-process research & development ("IPR&D") was based on an evaluation of all developmental projects using the guidance set forth in Interpretation No. 4 of Financial Accounting Standards Board Statement (FAS) No. 2, Accounting for Research and Development Costs and FAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. The amount was determined by: 1) obtaining management estimates of future revenues and operating profits associated with existing developmental projects 2) projecting the cash flows and costs to complete of the underlying technologies and resultant products, and 3) discounting these cash flows to their net present value. Estimates of future revenues and expenses used to determine the value of IPR&D was consistent with the historical trends in the industry and expected outlooks. The entire amount was charged to operations because related technologies had not reached technological feasibility and they had no alternative future use. F-232 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED) At the valuation date, the Company was in the process of developing two next generation versions of existing technologies. The anticipated release date for these next generation projects was the first half of fiscal 2001 and the third quarter of fiscal 2001. Activities necessary to convert this IPR&D into commercially viable technologies was expected to be $1,000,000 at the date of the valuation. Pro forma results of operations have not been presented for this transaction due to the subsequent acquisition of Seagate by New SAC on November 22, 2000. See Note 3 for a discussion of that transaction. 3. PURCHASE OF SEAGATE BY SAC On November 22, 2000, Seagate, Seagate Software Holdings, Inc. ("Seagate Software"), a subsidiary of Seagate, and SAC completed the stock purchase agreement, and Seagate and VERITAS Software Corporation ("VERITAS") completed the agreement and plan of merger and reorganization (the "Merger Agreement"). SAC was a limited liability company organized under the laws of the Cayman Islands and formed solely for the purpose of entering into the stock purchase agreement and related acquisitions. SAC assigned all of its rights under the stock purchase agreement to New SAC. Under the stock purchase agreement, SAC agreed to purchase for $1.84 billion cash, including transaction costs of $25 million, all of the operating assets of Seagate and its consolidated subsidiaries, including XIOtech. In addition, under the stock purchase agreement, SAC agreed to assume substantially all of the operating liabilities of Seagate and its consolidated subsidiaries. In addition, New SAC acquired Seagate Technology Investments, Inc. a subsidiary of Seagate, which holds strategic investments in various companies. As part of the New SAC transaction, New SAC contributed the stock of the Company to Seagate Technology SAN Holdings, a holding company that is a wholly owned subsidiary of New SAC. Seagate Technology SAN Holdings is the successor to the Company. On November 22, 2000, XIOtech also formed a wholly owned subsidiary XIOtech Canada, Ltd., for which certain assets of XIOtech were contributed. Immediately following the consummation of the SAC transaction, VERITAS acquired Seagate, and a wholly owned subsidiary of VERITAS merged with and into Seagate with Seagate becoming a wholly owned subsidiary of VERITAS (the "VERITAS Merger"). VERITAS did not acquire Seagate's disc drive business or any other Seagate operating businesses, including XIOtech. In the VERITAS merger, the Seagate stockholders received merger consideration consisting of VERITAS stock and cash. We refer to the transactions relating to the stock purchase agreement, the agreement and plan of merger, and the VERITAS Merger as the New SAC Transactions. New SAC has accounted for the New SAC Transaction as a purchase in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations." All acquired tangible assets, identifiable intangible assets, as well as assumed liabilities were fair valued. The fair value of the net assets acquired in the New SAC Transaction exceeded the net purchase price. Accordingly, the resultant negative goodwill was allocated on a pro rata basis to the acquired long-lived assets and reduced the recorded amounts by approximately 46%. Pursuant to the provisions of SEC Staff Accounting Bulletin No. 54 and the rules of pushdown accounting, the New SAC Transaction gave rise to a new basis of accounting for the Company. The estimated fair values of intangible assets acquired related to the Company, adjusted for the negative goodwill allocations, are as follows (in thousands): F-233 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED)
LIFE ESTIMATED DESCRIPTION IN YEARS FAIR VALUE - ----------------------------------------------- ---------- ----------- Net current assets (1) ........................ $ 26,911 Long term liabilities ......................... (9,650) Other long-lived assets ....................... -- Property, plant & equipment (2) ............... 2,412 Identified intangibles: Trade names (3) .............................. 5 1,088 Developed technologies (3) ................... 4 5,441 Assembled workforces (3) ..................... 1 544 Other ........................................ 1 1,088 -------- Subtotal ................................... 8,161 -------- Net assets .................................... 27,834 In-process research & development (3) ......... 25,027 -------- $ 52,861 ========
- ---------- (1) Acquired current assets included cash and cash equivalents, accounts receivable, inventories and other current assets. The fair values of current assets generally approximated the recorded historic book values of XIOtech. Inventory values were estimated based on the current market value of the inventories less completion costs and less a normal profit margin based on activities remaining to be completed until the inventory is sold. Assumed current liabilities included accounts payable, accrued compensation and expenses and accrued income taxes. The fair values of current liabilities generally approximated the historic recorded book values of XIOtech because of the monetary nature of most of the liabilities. (2) New SAC obtained an independent valuation of the acquired property, plant and equipment. In arriving at the determination of market value for the assets, the appraisers considered the estimated cost to construct or acquire comparable property. Machinery and equipment was assessed using replacement cost estimates reduced by depreciation factors representing the condition, functionality and operability of the assets. The sales comparison approach was used for office and data communication equipment. Leasehold improvements were valued based upon discussions with knowledgeable personnel. (3) New SAC obtained an independent valuation of acquired identified intangibles. The significant assumptions relating to each category are discussed in the following paragraphs. Also, these assets are being amortized on the straight-line basis over their estimated useful life and resultant amortization is included in amortization of goodwill and other intangibles. Trade Names -- The value of the trade names was based upon discounting to their net present value the licensing income that would arise by charging the operating businesses that use the trade names. Developed Technologies -- The value of this asset for each operating business was determined by discounting the expected future cash flows attributable to all existing technologies which had reached technological feasibility, after considering risks relating to: 1) the characteristics and applications of the technology, 2) existing and future markets, as well as 3) life cycles of the technologies. Estimates of future revenues and expenses used to determine the value of developed technology was consistent with the historical trends in the industry and expected outlooks. Assembled workforces -- The value of the assembled work force was determined by estimating the recruiting, hiring and training costs to replace each group of existing employees. F-234 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED) In-process research & development (IPR&D) -- The value of IPR&D was based on an evaluation of all developmental projects using the guidance set forth in Interpretation No. 4 of Financial Accounting Standards Board Statement (FAS) No. 2, Accounting for Research and Development Costs and FAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. The amount was determined by: 1) obtaining management estimates of future revenues and operating profits associated with existing developmental projects 2) projecting the cash flows and costs to complete of the underlying technologies and resultant products, and 3) discounting these cash flows to their net present value. Estimates of future revenues and expenses used to determine the value of IPR&D was consistent with the historical trends in the industry and expected outlooks. The entire amount was charged to operations because related technologies had not reached technological feasibility and they had no alternative future use. PRO FORMA FINANCIAL INFORMATION The pro forma financial information presented below is presented as if the New SAC Transaction had occurred at January 1, 1998. The pro forma information for the six months ended June 30, 2000 combines the historical results of the Company and are adjusted to reflect the new accounting basis for the assets and liabilities as if the New SAC transaction had occurred on January 1, 1998. The proforma information for the years ended December 31, 1999 and 1998 and the six months ended June 30, 1999 include the historical results of the Pre-Predecessor and are adjusted to reflect the new accounting basis for the assets and liabilities as if the New SAC transaction had occurred on January 1, 1998. The pro forma information does not purport to represent the Company or the Pre-Predecessor's actual results of operations had the New SAC transaction occurred on January 1, 1998 and should not serve as a forecast of operating results for any future periods. The pro forma financial results are as follows (in thousands):
SIX MONTHS ENDED YEARS ENDED JUNE 30, DECEMBER 31, ---------------------------------- --------------------------- 2000 1999 (UNAUDITED) 1999 1998 ------------- ------------------ ------------ ------------ Revenue .......................... $ 13,169 $ 4,052 $ 10,727 $ 1,542 Loss before income taxes ......... $ (35,748) $ (3,564) $ (7,154) $ (9,479) Net loss ......................... $ (35,748) $ (3,564) $ (7,154) $ (9,479)
F-235 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. COMMITMENTS The Company has entered into various operating leases. The Company leases its facility under an operating lease expiring in April 2007. The Company also has equipment operating leases through fiscal 2007. Future minimum lease payments under the operating leases at June 30, 2000 are as follows (in thousands):
2001 ................................. $ 453 2002 ................................. 1,037 2003 ................................. 1,031 2004 ................................. 1,077 2005 ................................. 1,099 Thereafter ........................... 2,014 ------ Total minimum lease payments ......... $6,711 ======
Rental expense under operating leases was approximately $212,000, $42,000, $222,000 (unaudited), $429,000, $423,000 and $231,000 for the periods from January 29, 2000 to June 30, 2000, January 1, 2000 to January 28, 2000, the six months ended June 30, 1999 (unaudited), and the years ended December 31, 1999, 1998, and 1997, respectively. 5. INCOME TAXES Subsequent to the business combination with Seagate Technology on January 28, 2000, Xiotech Corporation is included in the consolidated federal and certain combined and consolidated foreign and state income tax returns of Seagate Technology. Seagate Technology and Xiotech Corporation have entered into a tax sharing agreement (the "Tax Allocation Agreement") pursuant to which Xiotech Corporation computes hypothetical tax returns as if Xiotech Corporation was not joined in consolidated or combined returns with Seagate Technology. Xiotech Corporation must pay Seagate Technology the positive amount of any such hypothetical taxes. If the hypothetical tax returns show entitlement to refunds, including any refunds attributable to a carryback, then Seagate Technology will pay Xiotech Corporation the amount of such refunds. At the end of fiscal 2000, there were approximately $4.0 million of inter-company tax related balances due to Xiotech Corporation from Seagate Technology that were offset against amounts due to Seagate Technology under the Revolving Loan Agreement. F-236 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED) The provision for (benefit from) income taxes consisted of the following:
PRE-PREDECESSOR -------------------------------------------------------------------------------- PERIOD FROM PERIOD FROM SIX MONTHS JANUARY 29, JANUARY 1, ENDED 2000 TO 2000 TO JUNE 30, YEARS ENDED DECEMBER 31, JUNE 30, JANUARY 28, 1999 --------------------------------- 2000 2000 (UNAUDITED) 1999 1998 1997 (IN THOUSANDS) ------------- ------------- ------------ --------- --------- --------- Current Tax Expense: Federal ............ $ (550) $ -- $ -- $ -- $ -- $ -- State .............. (109) -- -- -- -- -- -------- ------ ------ ------ ------ ------ Total ............... (659) -- -- -- -- -- Deferred Tax Expense: Federal ............ (5,265) -- -- -- -- -- State .............. (1,035) -- -- -- -- -- -------- ------ ------ ------ ------ ------ Total ............... (6,300) -- -- -- -- -- -------- ------ ------ ------ ------ ------ Benefit from Income Taxes .............. $ (6,959) $ -- $ -- $ -- $ -- $ -- ======== ====== ====== ====== ====== ======
The pro forma information assuming a tax benefit based on a separate return basis is as follows:
PERIOD FROM JANUARY 29, 2000 TO JUNE 30, 2000 ----------------- (IN THOUSANDS) Loss before income taxes .......................... $133,854 Provision for (benefit from) income taxes ......... -- -------- Net loss .......................................... $133,854 ========
The income tax benefits related to the exercise of certain employee stock options increased amounts due from Seagate Technology pursuant to the Tax Allocation Agreement and were credited to additional paid-in capital. Such amount approximated $192,000 in fiscal 2000. F-237 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's deferred tax assets and liabilities were as follows:
PRE-PREDECESSOR --------------------------- JUNE 30, DECEMBER 31, 2000 1999 1998 (IN THOUSANDS) ------------ ----------- ------------- DEFERRED TAX ASSETS Reserves and accrued expenses ...................... $ 2,787 $ 290 $ 17 Deferred revenue ................................... 300 -- -- Net operating losses ............................... 2,556 5,458 3,976 Research and development credits/other ............. 397 334 228 --------- -------- ------- Total deferred tax assets .......................... 6,040 6,082 4,221 Valuation allowance ................................ -- (6,071) (4,216) --------- -------- ------- Net deferred tax assets ............................ 6,040 11 5 --------- -------- ------- DEFERRED TAX LIABILITIES Acquisition-related deferred tax liability ......... (14,645) -- -- Other .............................................. (56) (11) (5) --------- -------- ---------- Total deferred tax liabilities ..................... (14,701) (11) (5) --------- -------- ---------- Net deferred tax liabilities ....................... $ (8,661) $ -- $ -- ========= ======== =========
A valuation allowance has been provided for the deferred tax assets as of the end of fiscal 1999 and fiscal 1998. Realization of the deferred tax assets was dependent on future earnings, the timing and amount of which were uncertain. In addition, the net operating loss and tax credit carryforwards are subject to further limitations on utilization due to the "change in ownership" provisions of Internal Revenue Code Section 382. The valuation allowance decreased by $6,071,000 in 2000 and increased by $1,855,000 and $2,450,000 in 1999 and 1998, respectively. Approximately $1.9 million of the deferred tax assets at June 30, 2000 represent acquired tax attributes that reduced the purchase price recorded in the business combination through a reduction of goodwill. As of June 30, 2000, Xiotech Corporation has federal and state tax net operating loss carry-forwards of approximately $6.5 million that start expiring in fiscal 2015, if not used to offset future taxable income. F-238 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED) The reconciliation between the benefit from income taxes at the U.S. federal statutory rate and the effective rate are summarized as follows (in thousands):
PRE-PREDECESSOR ---------------------------------------------------------------- PERIOD FROM PERIOD FROM JANUARY 29, JANUARY 1, SIX MONTHS 2000 TO 2000 TO ENDED YEARS ENDED DECEMBER 31, JUNE 30, JANUARY 28, JUNE 30, -------------------------------------- 2000 2000 1999 1999 1998 1997 ------------- ------------- ----------- ------------ ------------ ------------ (IN THOUSANDS) Benefit at U.S. statutory rate ............. $ (46,849) $ (308) $ (898) $ (1,826) $ (2,012) $ (1,085) State income tax provision (benefit), net of federal income tax benefit ......... (744) -- -- -- -- -- Nondeductible charge for purchased research and development .................. 36,696 -- -- -- -- -- Nondeductible goodwill ..................... 3,955 -- -- -- -- -- Valuation allowance ........................ -- 308 898 1,560 2,012 1,085 Compensation expense ....................... -- -- -- 251 -- -- Other ...................................... (17) -- -- 15 -- -- --------- ------ ------ -------- -------- -------- Benefit from income taxes .................. $ (6,959) $ -- $ -- $ -- $ -- $ -- ========= ====== ====== ======== ======== ========
6. STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIT) COMMON STOCK, PREFERRED STOCK, AND MANDATORILY REDEEMABLE PREFERRED STOCK In 1999, the Pre-Predecessor sold 1,643,000 shares of Series D mandatorily redeemable convertible preferred stock for $9,862,000. The Series D mandatorily redeemable convertible preferred stock was convertible at the holder's option into one share of common stock, subject to adjustment of the conversion price, as defined. The Series D preferred stock had voting rights identical to shares of the Pre-Predecessor's common stock. In 1998, the Pre-Predecessor sold 4,879,000 shares of Series C mandatorily redeemable convertible preferred stock for $10,099,000. The Series C mandatorily redeemable convertible preferred stock was convertible at the holder's option into one share of common stock, subject to adjustment of the conversion price, as defined. The Series C preferred stock had voting rights identical to shares of the Pre-Predecessor's common stock. During 1997, the Pre-Predecessor sold 5,085,000 shares of Series B mandatorily redeemable convertible preferred stock for $6,358,000. The Series B mandatorily redeemable convertible preferred stock was convertible at the holder's option into one share of common stock, subject to adjustment of the conversion price, as defined. The Series B preferred stock had voting rights identical to shares of the Pre-Predecessor's common stock. The Series A preferred stock was convertible at the holder's option into one share of common stock, subject to adjustment of the conversion price, as defined. The Series A preferred stock had voting rights identical to shares of the Company's common stock. All preferred stock was liquidated and exchanged by the holders for Seagate stock at the date of the Seagate Transaction. Prior to the Seagate Transaction, the Pre-Predecessor had authorized 75,000,000 shares of stock, of which 25,000,000 shares were designated preferred stock and 50,000,000 were designated common stock. Of the 25,000,000 shares of designated preferred stock, 1,900,000 shares had been designated Series A, 5,600,000 had been designated Series B, 5,320,000 had been designated Series C, and 4,000,000 had been designated Series D. The remaining 8,180,000 shares of preferred stock were undesignated. F-239 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED) WARRANTS In connection with the Series A sale of preferred stock in 1997, the Pre-Predecessor issued warrants to the respective stockholders to purchase 456,000 shares of Series A preferred stock at a per share exercise price of $2.00. In June 1996, the Pre-Predecessor redeemed 400,000 founders shares in exchange for 400,000 ten-year warrants to purchase common stock at an exercise price of $0.15. There were 267,000 shares vested through December 1998. The remaining 133,000 warrants became fully vested by board approval in August 1999. All 400,000 warrants were exercised during the year ended December 31, 1999. In March 1996, the Pre-Predecessor granted 10,000 warrants to a director to purchase Series A preferred stock at an exercise price of $1.00, which vested through January 1, 2000. OPTIONS ISSUED TO EMPLOYEES In March 1996, the Pre-Predecessor established the 1996 Stock Option Plan (the Plan). Under the Plan, the Pre-Predecessor could grant options to employees for up to 1,000,000 shares of common stock, subject to adjustments for changes in the Pre-Predecessor's stock such as stock splits and stock dividends. The exercise price of each option equals the fair market value of the Pre-Predecessor's stock, as determined by its Board of Directors, on the date of grant. Options generally vested over a four-year period with a maximum option term of ten years. A summary of stock option activity of the Pre-Predecessor is presented below (shares in thousands):
WEIGHTED TOTAL SHARES AVERAGE AVAILABLE FOR NUMBER OF EXERCISE GRANT SHARES PRICE --------------- ----------- --------- Balance at December 31, 1996 ......... 918 82 $ 0.10 Grants .............................. (193) 193 $ 0.13 Exercised ........................... -- (1) $ 0.10 Canceled ............................ 4 (4) $ 0.10 ---- ------ Balance at December 31, 1997 ......... 729 270 $ 0.12 Granted ............................. (218) 218 $ 0.17 Exercised ........................... -- (21) $ 0.12 Canceled ............................ 34 (34) $ 0.12 ---- ----- Balance at December 31, 1998 ......... 545 433 $ 0.14 Granted ............................. (635) 635 $ 0.54 Exercised ........................... -- (148) $ 0.11 Canceled ............................ 109 (109) $ 0.16 ---- ------ Balance at December 31, 1999 ......... 19 811 $ 0.44 Exercised ........................... -- (35) $ 0.21 ---- ------ ------ Balance at January 28, 2000 .......... 19 776 $ 0.45 ==== ======
F-240 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED) The Pre-Predecessor Plan was terminated at the acquisition date of the Company by Seagate. All outstanding XIOtech options were converted to options to purchase Seagate stock. Beginning January 29, 2000, the Company's employees participated in the Seagate employee stock option and stock purchase plans. Options granted under Seagate Technology's stock option plans are granted at fair market value, expire ten years from the date of the grant and generally vest in four equal annual installments, commencing one year from the date of the grant.
WEIGHTED NUMBER OF AVERAGE SHARES EXERCISE PRICE ----------- --------------- (IN THOUSANDS) XIOtech options exchanged for Seagate options at January 29, 2000 ....... 352 $ 1.17 Grants ................................................................ 135 $ 40.25 Exercised ............................................................. (1) $ 1.33 Canceled .............................................................. (96) $ 0.54 ----- ------- Balance at June 30, 2000 of options held by XIOtech employees ........... 390 $ 13.45 ===== =======
At June 30, 2000, the Company's employees held 390,000 options at a weighted average exercise price of $13.45. All options outstanding at the date of the New SAC transaction, November 22, 2000, became fully vested and were exchanged for cash. SEAGATE STOCK PURCHASE PLAN Seagate also maintains an Employee Stock Purchase Plan in which employees of the Company are eligible to participate. The Purchase Plan permits eligible employees who have completed thirty days of employment prior to the inception of the offering period to purchase common stock through payroll deductions generally at the lower of 85% of the fair market value of the common stock at the beginning or at the end of each six-month offering period. ACCOUNTING FOR STOCK-BASED COMPENSATION The Company and the Pre-Predecessor have elected to follow APB Opinion No. 25 and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FAS 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB Opinion No. 25, because the exercise price of the Company's or the Pre-Predecessor's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income is required by FAS 123, which also requires that the information be determined as if the Company or the Pre-Predecessor had accounted for their employee stock options granted under the fair value method of this statement. The fair value of Seagate's and the Pre-Predecessor's options was estimated using a Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, the Black-Scholes model requires the input of highly subjective assumptions, including the expected stock price volatility. Because Seagate's and the Pre-Predecessor's stock options granted to employees have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options granted to employees. F-241 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED) The weighted average fair value of stock options granted under Seagate's or the Pre-Predecessor's stock option plans was $16.66, $0.54, $0.54 (unaudited), $0.54, $0.17, and $0.13 for the period from January 29, 2000 to June 30, 2000, January 1, 2000 to January 28, 2000, the six months ended June 30, 1999 (unaudited), and the years ended December 31, 1999, 1998, and 1997, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the option's vesting period (for stock options) and the six-month purchase period for stock purchases under the Stock Purchase Plan. Had compensation expense for the Company's stock based compensation plans been determined based on the fair value at the grant dates for awards under these plans, consistent with the method of FAS 123, the impact on a proforma basis to the net loss would have been immaterial for all periods presented. 7. RETIREMENT PLANS TAX DEFERRED SAVINGS PLANS Seagate has a tax-deferred savings plan, the Seagate Technology, Inc. Savings and Investment Plan (the "401(k) plan"), for the benefit of qualified employees (including employees of the Company subsequent to January 29, 2000). The 401(k) plan is designed to provide employees with an accumulation of funds at retirement. Qualified employees may elect to make contributions to the 401(k) plan on a monthly basis. Seagate may make annual contributions to the 401(k) plan at the discretion of its Board of Directors. During the period from January 29, 2000 to June 30, 2000, Seagate's contributions to the 401(K) plan made on behalf of the Company's employees was not material. In September 1996, the Pre-Predecessor adopted a 401(k) employee retirement plan under which eligible employees could contribute up to 18% of their annual compensation, subject to certain limitations. Employees vested immediately in their contributions and earnings thereon. The plan allowed for, but did not require, the Pre-Predecessor to make matching contributions. No contributions were made by the Pre-Predecessor for the period from January 1, 2000 to January 28, 2000, the six months ended June 30, 1999 (unaudited), and the years ended December 31, 1999, 1998, and 1997. The plan was terminated at the date of the Seagate Transaction. 8. RELATED PARTY TRANSACTIONS The Company and the Pre-Predecessor conduct transactions with a number of Seagate entities. The Company or the Pre-Predecessor sold SAN products to Seagate totaling approximately $1,325,000, $5,000, $0 (unaudited), $221,000, $0, and $0 for the periods from January 29, 2000 to June 30, 2000, January 1, 2000 to January 28, 2000, the six months ended June 30, 1999 (unaudited), and the years ended December 31, 1999, 1998, and 1997, respectively. The amount receivable from Seagate for product sales was $978,000, and $105,000 at June 30, 2000 and December 31, 1999 respectively. The $978,000 receivable at June 30, 2000 is included in payable to Seagate, net on the balance sheet. Amounts receivable from Seagate at December 31, 1999 and 1998 are included in accounts receivable in the balance sheet. The Company or the Pre-Predecessor purchased disc drives from Seagate totaling approximately $2,723,000, $0, $0 (unaudited), $0, $0, and $0 for the periods from January 29, 2000 to June 30, 2000, January 1, 2000 to January 28, 2000, the six months ended June 30, 1999 (unaudited), and the years ended December 31, 1999, 1998, and 1997, respectively. The amount F-242 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED) payable to Seagate for disc drive purchases was $2,723,000 at June 30, 2000. The $2,723,000 payable at June 30, 2000 is included in payable to Seagate, net on the balance sheet. Amounts payable to Seagate at December 31, 1999 and 1998 are included in accounts payable on the balance sheet. 9. DEBT GUARANTEES AND PLEDGE OF ASSETS SENIOR SECURED CREDIT FACILITY On the closing of the New SAC Transactions, Seagate Technology International and Seagate Technology (US) Holdings, Inc., both subsidiaries of New SAC entered into senior credit facilities with a syndicate of banks and other financial institutions led by The Chase Manhattan Bank, as administrative agent and an issuing bank, and Goldman Sachs Credit Partners L.P., as a documentation agent, The Bank of Nova Scotia as a documentation agent, and Merrill Lynch Capital Corporation, as a documentation agent. The senior credit facilities provide senior secured financing of up to $900 million, consisting of: o a $200 million revolving credit facility for general corporate purposes, with a sub-limit of $100 million for letters of credit, which will terminate in five years; o a $200 million term loan A facility with a maturity of five years; and o a $500 million term loan B facility with a maturity of six years. At the closing of the transaction, New SAC did not borrow under the revolving credit facility. At that time approximately $155 million of the revolving credit facility was available because approximately $46 million of existing letters of credit were outstanding and reduced availability under it. New SAC drew the full amount of the term loan A facility and the term loan B facility on the closing of the transaction to finance the acquisition of old Seagate's operating assets, including the Company. F-243 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED) The $700 million of outstanding loans under the term loan A and B facilities are repayable in semi-annual payments due as follows (in thousands): Fiscal 2001 ........... $ 5,000 2002 ..... .......... 22,500 2003 ..... .......... 40,000 2004 ..... .......... 50,000 2005 ..... .......... 60,000 Thereafter ......... 522,500 -------- Total .... .......... $700,000 ========
The loans bear interest at variable rates dependent upon market interest rates and the nature of the borrowings, as well as the consolidated financial position of New SAC at applicable measurement dates. The average interest rates being charged under these borrowings from the date of the New SAC Transactions ranged from 9.1875% (LIBOR plus 2.5%) to 9.6875% (LIBOR plus 3%). New SAC and certain of its subsidiaries, including the Company's successor and its subsidiaries are guarantors under the senior credit facilities. In addition, the majority of New SAC's and certain of its subsidiaries' assets, including the Company's successor's assets and its capital stock, have been pledged against the debt under this credit agreement. New SAC, and certain of its subsidiaries, including the Company's successor and its subsidiaries, have agreed to certain covenants under this agreement including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. Further, the Company's successor, as part of the consolidated group, is subject to certain financial covenants which are assessed on the consolidated operating results and financial position of New SAC and its subsidiaries. The credit agreement provides for the release of the Company's successor from its guarantee obligations, and asset pledge upon an approved transfer or sale of the Company's successor's common stock, or an initial public offering of at least 10%, on a fully diluted basis, of the Company's successor's voting common stock. SENIOR SUBORDINATED NOTES In connection with the closing and financing of the New SAC Transaction, Seagate Technology International issued unsecured senior subordinated notes under an Indenture Agreement dated November 22, 2000 at a discount to the aggregate principal amount of $210 million, for gross proceeds of approximately $201 million. The notes mature on November 15, 2007 and bear interest payable semi-annually at a rate of 12.5% per annum. New SAC and certain of its subsidiaries, including the Company's successor and its subsidiaries, are guarantors of the notes. In addition, New SAC and certain of its subsidiaries including the Company's successor and its subsidiaries, have agreed to certain restrictive covenants under the terms of these notes including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. The Company's successor may be released from its guarantee obligation, if there are certain sales of its capital stock, including in an initial public offering, but would remain subject to the restrictive covenants of the indenture until the Company's successor and its subsidiaries are no longer subsidiaries of New SAC or are deemed no longer to be subject to the restrictive covenants. F-244 XIOTECH CORPORATION PREDECESSOR TO SEAGATE TECHNOLOGY SAN HOLDINGS NOTES TO FINANCIAL STATEMENTS (CONCLUDED) New SAC will not require the Company's successor's cash flow to be used to service the obligations pursuant to the senior secured credit facility and the senior subordinated notes. The Company's successor believes that none of the guarantees or pledges of assets under the senior credit facilities or the guarantees under the Indenture are likely to be invoked. 10. LITIGATION LEGAL PROCEEDINGS Storage Computer Corporation -- On March 22, 2001, Storage Computer Corporation filed suit in the U.S. District Court for the Northern District of Texas, Civil Action No. 3-01CV0555-M, entitled Storage Computer Corporation v. XIOtech Corporation and Seagate Technology, Inc. The complaint alleges that XIOtech's MAGNITUDETM product infringes U.S. Patent No. 5,893,919 and that Seagate Technology induces infringement of the patent by promoting and marketing XIOtech's MAGNITUDETM product, particularly through a hyperlink on Seagate Technology's internet website to XIOtech's internet website. The Plaintiff alleges willful infringment and seeks unspecified damages and an injunction. We have engaged outside counsel to evaluate the claims in the suit. The ultimate outcome of this litigation is uncertain. The ultimate resolution of this matter could have a material adverse impact on XIOtech's financial condition, results of operations, and cash flows. 11. SEGMENT INFORMATION The Company applied Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or group, in deciding how to allocate resources and in assessing performance. The Company operates in one segment, storage area network products. The Company markets its products primarily in the United States through its sales personnel, dealers, and resellers. The Chief Executive Officer has been identified as the Chief Operating Decision Maker ("CODM") because he has final authority over resources allocation decisions and performance assessment. The CODM does not receive discrete financial information about individual components of the market. 12. SUPPLEMENTAL BALANCE SHEET INFORMATION
BALANCE CHARGED AT TO BALANCE AT BEGINNING COST AND END OF OF YEAR EXPENSES OTHER DEDUCTIONS YEAR ----------- ---------- ------- ------------ ----------- Accounts receivable allowance (In thousands): Period from January 29, 2000 to June 30, 2000 ........................................ $583 $334 $-- $ (12) $905 Period from January 1, 2000 to January 28, 2000 ........................................ $488 $ 95 $-- $ -- $583 Six months ended June 30, 1999 (unaudited)..... $ -- $150 $-- $ -- $150 Year ended December 31, 1999 .................. $ -- $488 $-- $ -- $488 Year ended December 31, 1998 .................. $ -- $ -- $-- $ -- $ --
F-245 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR CONDENSED CONSOLIDATED AND CONDENSED COMBINED BALANCE SHEETS (IN THOUSANDS)
SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS PREDECESSOR ------------------ ------------ DECEMBER 29, JUNE 30, 2000 2000 (1) ------------------ ------------ (UNAUDITED) ASSETS (See Note 7) Cash and cash equivalents .................................... $ 10,797 $ 2,502 Accounts receivable, net ..................................... 21,296 19,217 Accounts receivable from affiliates .......................... 5,594 -- Inventories .................................................. 23,931 16,866 Other current assets ......................................... 670 1,776 Deferred tax asset ........................................... -- 7,675 -------- ------- Total Current Assets ........................................ 62,288 48,036 -------- ------- Property, equipment and leasehold improvements, net .......... 10,709 14,432 Goodwill and other intangibles, net .......................... 14,282 3,170 Other assets ................................................. 249 -- -------- ------- Total Assets (See Note 7) ................................... $ 87,528 $65,638 ======== ======= LIABILITIES Accounts payable ............................................. $ 19,819 $17,978 Accrued employee compensation ................................ 4,627 6,733 Accrued expenses ............................................. 8,751 7,277 Accrued warranty ............................................. 4,425 5,276 Current portion of long-term debt ............................ 666 666 -------- ------- Total Current Liabilities ................................... 38,288 37,930 -------- ------- Accrued warranty ............................................. 1,888 2,506 Long-term debt less current portion .......................... 667 333 -------- ------- Total Liabilities ........................................... 40,843 40,769 -------- ------- SHAREHOLDER'S/BUSINESS EQUITY Common stock ................................................. 2 -- Contributed Capital .......................................... 52,221 -- Accumulated deficit .......................................... (5,538) -------- Total stockholder's/Business Equity ......................... 46,685 24,869 -------- ------- Total Liabilities and Shareholder's/Business Equity ......... $ 87,528 $65,638 ======== =======
- ---------- (1) The information in this column was derived from Seagate Removable Storage Solutions Business, an Operating Business of Seagate Technology, Inc.'s audited combined balance sheet as of June 30, 2000. See notes to condensed consolidated and condensed combined financial statements. F-246 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS PREDECESSOR ------------------ ------------------------------ PERIOD FROM PERIOD FROM SIX MONTHS NOVEMBER 23, TO JULY 1, TO ENDED DECEMBER 29, NOVEMBER 22, DECEMBER 31, 2000 2000 1999 ------------------ -------------- ------------- Revenue ................................................ $ 28,371 $ 89,987 $152,071 Cost of sales .......................................... 29,225 76,520 107,521 Product development .................................... 2,372 22,578 17,799 Marketing and administration ........................... 2,556 13,231 11,755 Amortization of goodwill and intangible assets ......... 91 323 438 Restructuring .......................................... -- 776 369 -------- --------- -------- Total operations expenses ............................. 34,244 113,428 137,882 -------- --------- -------- Income (loss) from operations .......................... (5,873) (23,441) 14,189 Interest income ........................................ 31 28 35 Other income (expense) net ............................. (62) 806 3 -------- --------- -------- Income (loss) before income taxes ...................... (5,904) (22,607) 14,227 Benefit (provision) for income taxes 366 9,132 (4,892) -------- --------- -------- Net income (loss) ...................................... $ (5,538) $ (13,475) $ 9,335 ======== ========= ========
See notes to condensed consolidated and condensed combined financial statements. F-247 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR CONDENSED CONSOLIDATED AND CONDENSED COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS PREDECESSOR ------------------ ------------------------------ PERIOD FROM PERIOD FROM SIX MONTHS NOVEMBER 23, TO JULY 1, TO ENDED DECEMBER 29, NOVEMBER 22, DECEMBER 31, 2000 2000 1999 ------------------ -------------- ------------- OPERATING ACTIVITIES: Net income (loss) ...................................... $ (5,538) $(13,475) $ 9,335 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and Amortization ......................... 694 2,570 2,841 Profit on disposal of property, equipment and leasehold improvements .............................. -- (3) (6) Deferred income taxes ................................. (6,637) 2,615 Changes in operating assets and liabilities: Accounts receivable ................................... (9,806) 2,133 5,889 Inventories ........................................... 6,912 (6,098) (2,207) Other assets .......................................... (636) 470 (571) Accounts payable ...................................... 2,675 (834) (4,893) Accrued expenses, employee compensation and warranty ............................................ 913 (3,167) 105 Other liabilities ..................................... -- -- 666 Long-term debt ........................................ -- -- 666 Other non-current liabilities ......................... 385 (665) (484) --------- ---------- --------- Net cash provided by (used in) operating activities (3,129) (25,706) 13,956 INVESTING ACTIVITIES: Acquisition of property, equipment and leasehold improvement ........................................... (1,255) (4,987) (5,248) Proceeds from sale of property, equipment and leasehold improvements ................................ 334 402 40 Other, net ............................................. 2 (251) -- --------- ---------- --------- Net cash provided by (used in) investing activities..... (919) (4,836) (5,208) FINANCING ACTIVITIES: Net cash change in investment by Seagate Technology, Inc. ...................................... -- 42,885 (6,597) --------- ---------- --------- Net cash provided by (used in) financing activities -- 42,885 (6,597) Increase (decrease) in cash and cash equivalents (4,048) 12,343 2,151 Cash and cash equivalents at the beginning of the period ................................................ 14,845 2,502 2,411 --------- ---------- --------- Cash and cash equivalents at the end of the period ................................................ $ 10,797 $ 14,845 $ 4,562 ========= ========== =========
See notes to condensed consolidated and condensed combined financial statements. F-248 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) 1. BACKGROUND AND BASIS OF PRESENTATION BACKGROUND Seagate Removable Storage Solutions Holdings ("the Company") was formed in August 2000, for the purpose of acquiring the Removable Storage Solutions operating business of Seagate Technology, Inc. The Company is wholly owned on an outstanding shares basis, by New SAC, the successor to Seagate Technology, Inc. Prior to November 22, 2000, the Company did not have significant operations. As a result, Seagate Removable Storage Solutions Business, an Operating Business of Seagate Technology ("RSS" or "Predecessor") is considered to be the Company's Predecessor for accounting purposes. The Company and its Predecessor design, market and support a product line of tape drives that use removable tape cartridges that store and protect large volumes of data inexpensively and reliably. Tape drives are used in both enterprise and desktop computer systems needing dedicated backup storage that combines high capacity, portability, low cost and reliability. Typically tape drives are used less frequently and data is often migrated from rigid disc drives to tape drives because tape drives are less expensive. However, tape drives take longer to retrieve data. The Company also manufactures tape heads for use in it's own products and for sale to other OEM companies that manufacture and sell tape drives. BASIS OF PRESENTATION The accompanying financial statements have been prepared by the Company, without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. For comparative purposes, the financial statements presentation includes the combined operations of the predecessor through November 22, 2000, and the Company's consolidated operations from November 23, 2000 to December 29, 2000. The Company believes the disclosures included in these condensed consolidated and condensed combined financial statements, when read in conjunction with the combined financial statements of the predecessor as of June 30, 2000, and related notes thereto, are adequate to make the information presented herein not misleading. The accompanying financial statements include the historical assets, liabilities, revenues and expenses that are directly related to the Company's and its Predecessor's operations. For certain assets and liabilities that are not specifically identifiable with the Company and its Predecessor, estimates have been used to allocate such assets and liabilities to the Company and its Predecessor, by applying methodologies management believes are appropriate. The statements of income include all revenues and expenses attributable to the Company and its Predecessor including allocations of certain corporate administration, finance and management costs. Such costs were proportionately allocated to the Company and its Predecessor based on detailed inquiries and estimates of time incurred by Seagate Technology, Inc.'s corporate marketing and general administrative departmental managers. In addition, certain of Seagate Technology, Inc.'s operations are shared locations involving activities that pertain to the Company and its Predecessor as well as to other businesses of Seagate Technology, Inc. Costs incurred in shared locations are allocated based on specific identification, or where specific identification is not possible, such costs are allocated between the Company and its Predecessor and other businesses of Seagate Technology, Inc. based on the volume of activity, head count, square footage, and other methodologies that management believes are reasonable. Transactions and balances between entities and locations within the Company's and its Predecessor's business have been eliminated. Management believes that the foregoing allocations were made on a reasonable basis. F-249 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The accompanying financial statements reflect, in the opinion of management, all material adjustments necessary to summarize fairly the consolidated or combined financial position, results of operations and cash flows for such periods. Such adjustments are of a normal recurring nature. The consolidated results of operations of the Company and its Predecessor for the six-month period ended December 29, 2000 are not necessarily indicative of the results that may be expected for the entire fiscal year ending June 29, 2001. The Predecessor operated and reported financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. The Company will operate and report financial results on the same basis. Fiscal 2001 will be 52 weeks for the combined Company and its Predecessor and will end on June 29, 2001. The financial information included herein may not necessarily reflect the results of operations, financial position, change in business equity and cash flows of the Company in the future or what they would have been had it been a separate, stand-alone entity during the periods presented. ECONOMIC DEPENDENCE ON AFFILIATE -- SEAGATE TECHNOLOGY HOLDINGS The Company has incurred net losses and negative cash flows from operations for the period from July 1, 2000 to November 22, 2000, and for the period from November 23, 2000 to December 29, 2000. To the extent future cash flows from operations are insufficient to fund the Company's working capital needs and planned activities, the Company believes that additional funding will be available from Seagate Technology Holdings, a subsidiary of New SAC. Seagate Technology Holdings operates the former rigid disc drive and storage area networks business of Seagate Technology, Inc. Seagate Technology, Inc. is the predecessor of the Company's parent New SAC. 2. BALANCE SHEET AND OTHER INFORMATION
SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS PREDECESSOR ------------------ ------------ DECEMBER 29, JUNE 30, 2000 2000 ------------------ ------------ (IN THOUSANDS) Accounts Receivable: Accounts receivable ....................... $ 23,888 $ 21,635 Less allowance for non-collection ......... (2,592) (2,418) -------- -------- $ 21,296 $ 19,217 ======== ========
F-250 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 2. BALANCE SHEET AND OTHER INFORMATION (CONTINUED) Activity in the allowance for doubtful accounts is as follows:
BALANCE AT CHARGED TO BALANCE AT BEGINNING OF COSTS AND END OF PERIOD EXPENSES PERIOD -------------- ------------ ----------- (IN THOUSANDS) Six Months Ended December 29, 2000 ......... $2,418 $174 $2,592 ====== ==== ======
SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS PREDECESSOR ------------------ ------------ DECEMBER 29, JUNE 30, 2000 2000 ------------------ ------------ (IN THOUSANDS) Inventories: Components ............................................. $ 9,055 $ 3,488 Work-in-process ........................................ 1,216 2,801 Finished goods ......................................... 13,660 10,577 ------- --------- $23,931 $ 16,866 ======= ========= Property, equipment and leasehold improvements ......... $10,992 $ 45,013 Less accumulated depreciation and amortization ......... (283) (30,581) ------- --------- $10,709 $ 14,432 ======= =========
Included within Property, equipment and leasehold improvements at December 29, 2000 is a property held for sale of $2,273,000. The Company purchases certain backup and retrieval software that are included with its tape drives when sold. This software is purchased from VERITAS Software Corporation which is an equity method investment held by Seagate Technology, Inc. prior to its merger with and into VERITAS (See Note 7). Purchases from VERITAS were $2,175,200 and $932,615 in the periods from July 1, 2000 to November 22, 2000 and November 23, 2000 to December 29, 2000, respectively and $3,384,145 for the six months ended December 31, 1999. 3. INCOME TAXES The federal Tax Allocation Agreement ("Tax Allocation Agreement") between the Company and Seagate Technology was terminated on November 22, 2000, and the Company will no longer file federal income tax returns on a consolidated basis with Seagate Technology. The Company will enter into a state tax allocation agreement with affiliates of New SAC, as applicable. Therefore, Seagate Technology will not benefit from nor will it reimburse the Company pursuant to the Tax Allocation Agreement for federal tax losses the Company sustains subsequent to consummation of the SAC Transaction. In prior periods, the Company has recorded substantial intercompany receivables for its tax losses utilized by Seagate Technology, which have been netted against the Seagate Technology business equity interest in the Company. As a result of the termination of the Tax Allocation Agreement, the Company may not be able to convert any future tax losses into cash. F-251 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 3. INCOME TAXES (CONTINUED) The provision for (benefit from) income taxes consisted of the following:
SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS PREDECESSOR ------------------- -------------------------------------- NOVEMBER 23, 2000 JULY 1, 2000 SIX MONTHS THROUGH THROUGH ENDED DECEMBER 29, 2000 NOVEMBER 23, 2000 DECEMBER 31, 1999 ------------------- ------------------- ------------------ (IN THOUSANDS) Current Tax Expense (Benefit): Federal ................................. $ -- $ (2,225) $1,367 State ................................... (370) (286) 368 Foreign ................................. 4 17 543 ------ -------- ------ (366) (2,494) 2,278 ------ -------- ------ Deferred Tax Expense (Benefit): Federal ................................. -- (5,532) 2,181 State ................................... -- (1,106) 433 Foreign ................................. -- -- -- ------ -------- ------ Provision for (Benefit from) Income Taxes $ (366) $ (9,132) $4,892 ------ -------- ------
Income (loss) before income taxes consisted of the following:
SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS PREDECESSOR ------------------- -------------------------------------- NOVEMBER 23, 2000 JULY 1, 2000 SIX MONTHS THROUGH THROUGH ENDED DECEMBER 29, 2000 NOVEMBER 23, 2000 DECEMBER 31, 1999 ------------------- ------------------- ------------------ (IN THOUSANDS) Domestic ......... $ (5,376) $ (23,073) $ 9,611 Foreign .......... (528) 466 4,616 -------- --------- ------- $ (5,904) $ (22,607) $14,227 ======== ========= =======
The proforma information assuming a tax provision/(benefit) based on a separate return basis is as follows:
PERIOD FROM NOVEMBER 23, 2000 TO DECEMBER 29, 2000 ------------- Income (loss) before income taxes ............ $ (5,904) Provision (benefit) for income taxes ......... (366) -------- Net Income (loss) ............................ $ (5,538) ========
The income tax benefit related to the exercise of certain employee stock options increased amounts due from Seagate Technology pursuant to the Tax Allocation Agreement and were credited to Business Equity. Such amounts approximated $2.5 million in the period from July 1, 2000 to November 22, 2000. F-252 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 3. INCOME TAXES (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's deferred tax assets and liabilities were as follows:
PREDECESSOR ------------------------ DECEMBER 29, JUNE 30, 2000 2000 -------------- --------- (IN THOUSANDS) DEFERRED TAX ASSETS Accrued Warranty .................................. $ 3,176 $ 343 Inventory Valuation Accounts ...................... 1,352 1,874 Receivable Reserves ............................... 1,776 3,830 Accrued Compensation and Benefits ................. 1,279 570 Acquisition-related Items ......................... 2,158 -- Deferred Revenue .................................. 135 151 Other Reserves and Accruals ....................... 5,410 1,753 Research and Development Credits .................. 142 -- --------- ------ Total Deferred Tax Assets ......................... 15,428 8,521 Valuation Allowance ............................... (12,256) -- --------- ------ Net Deferred Tax Assets ........................... 3,172 8,521 --------- ------ DEFERRED TAX LIABILITIES Depreciation ...................................... (311) (330) Unremitted income of foreign subsidiaries ......... -- (516) Acquisition-related Items ......................... (2,861) -- --------- ------ Total Deferred Tax Liabilities .................... (3,172) (846) --------- ------ Net Deferred Tax Assets ........................... $ 0 $7,675 ========= ======
In connection with the purchase of the operating assets of Seagate Technology, Inc., approximately $2.9 million of deferred tax liabilities at December 29, 2000 represent the excess of book basis over the tax basis of the acquired property, plant and equipment, and liabilities assumed for which we do not expect to receive tax deductions in our federal and state returns in future periods. The realization of the Company's federal and state deferred tax assets will depend primarily on its ability to generate sufficient taxable income in the United States in future fiscal years, the timing and amount of which are uncertain. Due to these uncertainties the Company recorded a valuation allowance of $12.3 million for the deferred tax assets as of December 29, 2000. The Company anticipates that the tax benefits of $10.4 million of net deferred tax assets if realized, will result in an increased adjustment to the amount of unamortized negative goodwill that has been allocated on a pro rata basis to the long-lived assets. Any excess tax benefit would then be realized as a reduction of future income tax expense. F-253 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 3. INCOME TAXES (CONTINUED) The reconciliation between the provision for (benefit from) income taxes at the U.S. federal statutory rate and the effective rate are summarized as follows:
PREDECESSOR PRE_PREDECESSOR ------------------------------- ---------------- PERIOD FROM PERIOD FROM NOVEMBER 23, JULY 1, SIX MONTHS 2000 TO 2000 TO ENDED DECEMBER 29, NOVEMBER 22, DECEMBER 31, 2000 2000 1999 -------------- -------------- ---------------- (IN THOUSANDS) Provision (benefit) at U.S. statutory rate ......... $ (2,066) $ (7,913) $4,980 State income tax provision (benefit), net of federal income tax benefit ................................ (240) (906) 521 Research and Development credits ................... (142) (784) (485) Benefit from net earnings of foreign subsidiaries considered to be permanently reinvested in non-U.S. operations ............................... (121) (174) -- Valuation Allowance ................................ 1,877 -- -- Foreign losses not benefitted ...................... 295 509 -- Other .............................................. 31 136 (124) -------- -------- ------ Provision for (benefit from) income taxes .......... $ (366) $ (9,132) $4,892 -------- -------- ------
A substantial portion of the Company's Asia Pacific manufacturing operations in Singapore and Malaysia operate under various tax holidays which expire in whole or in part during fiscal years 2001 through 2010. Certain tax holidays may be extended if specific conditions are met. The net impact of these tax holidays was to increase net income approximately by $.3 million in the six months ended December 29, 2000. The tax holidays had no impact on net income in the six months ended December 31, 1999. Cumulative undistributed earnings of the Company's Asia Pacific subsidiaries for which no income taxes have been provided aggregated $3.5 million at December 29, 2000. These earnings are considered to be permanently invested in non-U.S. operations. Additional federal and state taxes of approximately $1.4 million would have to be provided if these earnings were repatriated to the U.S. 4. RESTRUCTURING The Company has recorded expense for all restructuring activities as incurred. This amounted to nil, $776,000 and $369,000 for the period from November 23, 2000 through December 29, 2000, the period from July 1, 2000 through November 22, 2000 and six months ended December 31, 1999, respectively. These expenses consisted primarily of workforce reductions related to the closure of facilities or portions of facilities. 5. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION The Company develops, manufactures and markets a product line of tape drives. These products include tape drives, tape media and components such as read and write heads and storage and retrieval software. The Company operates one operating segment under the criteria of Statement of Financial Accounting Standards No. 131 (SFAS 131) "Disclosures about Segments of an Enterprise and Related Information," with activities in three geographical areas. The President has been identified as the Chief Operating Decision maker as defined by SFAS No. 131. The President evaluates performance and allocates resources based on revenue and gross profit from operations. Gross profit from operations is defined as revenue less cost of sales. F-254 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 6. SUPPLIER AND CUSTOMER CONCENTRATIONS A limited number of customers historically have accounted for a substantial portion of the Company's revenues. Percentage revenues from customers with more than 10% of sales were as follows (as a percentage of net sales):
SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS PREDECESSOR ------------------ ------------------------------ PERIOD FROM PERIOD FROM NOVEMBER 23, JULY 1 SIX MONTHS 2000 TO 2000 TO ENDED DECEMBER 28, NOVEMBER 22, DECEMBER 31, 2000 2000 1999 ------------------ -------------- ------------- International Business Machines Corp. ......... 32% 29% 22% Dell Computer Corp. ........................... 20% 24% 19% Ingram Micro Inc. ............................. -- -- 14%
Sales of the Company's products will vary as a result of fluctuations in market demand. Further, the markets in which the Company competes are characterized by rapid technological obsolescence. Certain of the raw materials and components used by the Company in the manufacture of its products are available from a limited number of suppliers. For example, all of the Company's basic DAT tape drives are currently purchased from Matsushita Kotobuki Electronics, (MKE), under an exclusive manufacturing agreement. All of the Company's LTO heads are manufactured by the Company and the main component of the head, the wafer, is purchased exclusively from a Seagate Technology plant in Springtown, Ireland. 7. PURCHASE ACCOUNTING On November 22, 2000, under the stock purchase agreement, the Company's Parent, New SAC, completed the purchase of all of the operating assets and assumption of the operating liabilities of Seagate Technology and its consolidated subsidiaries. The net purchase price was $1.840 billion in cash, including transaction costs of approximately $25 million. Seagate Technology designed, developed and manufactured rigid disk drives, enterprise management software, storage area networks, and removable tape storage solutions. Immediately thereafter, in a separate and independent transaction, Seagate Technology and VERITAS completed their merger under the Merger Agreement. The stock purchase agreement and the Merger Agreement are referred to as the New SAC transactions. At the time of the merger with VERITAS, Seagate Technology assets included a specified amount of cash, an equity method investment in VERITAS, and certain specified investments and liabilities. In connection with the Merger Agreement, Seagate Technology, VERITAS, and New SAC entered into an Indemnification Agreement, pursuant to which these entities and certain other subsidiaries of Seagate Technology agreed to certain indemnification provisions regarding tax and other matters that may arise in connection with the New SAC transactions. New SAC accounted for the acquisition of all the operations of Seagate Technology as a purchase in accordance with Accounting Principles Board Opinion No. 16 "Business Combinations." All acquired tangible assets, identifiable intangible assets as well as assumed liabilities were valued based on their fair values and reorganized into the following businesses: 1) the rigid disk drive business (HDD), 2) the storage area networks business (SAN), 3) the removable storage solutions business (RSS), 4) the software business (CD), and 5) an investment holding company (ST). The fair value of the net assets acquired by New SAC exceeded the net purchase price by approximately $909 million. Accordingly, the resultant negative goodwill was allocated on a pro rata basis to certain acquired long-lived assets and reduced the recorded fair value amounts by approximately 46%. F-255 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 7. PURCHASE ACCOUNTING (CONTINUED) The purchase price allocation presented below is preliminary because New SAC has not received the final reports from the independent appraiser that are required to complete the allocation. New SAC believes that the independent appraiser has substantially completed and concluded its work, except for certain information that is continuing to be assessed at the Company for in-process research and development. New SAC expects the independent appraiser to complete and issue its final report prior to July 2001. The table below summarizes the preliminary allocation of net purchase price as it relates to the RSS business (in thousands).
ESTIMATED DESCRIPTION LIFE FAIR VALUE - ----------------------------------------- ------ ----------- Net current assets (1) .................. $ 31,586 Other long-lived assets ................. 250 Property, plant & equipment (2) ......... 8,832 Identified intangibles: Developed technologies (4) .............. 3 11,426 Assembled workforces (4) ................ 3 3,264 -------- Subtotal ................................ 14,690 Long-term deferred taxes (3) ............ (2,861) Long term liabilities ................... (351) -------- Net assets .............................. 52,146 ========
- ---------- (1) Acquired current assets included cash and cash equivalents, accounts receivable, inventories and other current assets. The fair values of current assets generally approximated the recorded historic book values of the Company. Inventory values were estimated based on the current market value of the inventories less completion costs and less a normal profit margin based on activities remaining to be completed until the inventory is sold. Valuation allowances were established for current deferred tax assets in excess of long-term deferred tax liabilities. Assumed current liabilities included accounts payable, accrued compensation and expenses and accrued income taxes. The fair values of current liabilities generally approximated the historic recorded book values of the Company because of the monetary nature of most of the liabilities. (2) The Company has obtained a preliminary indication of the fair value of the acquired property, plant and equipment. This valuation is subject to the engagement of a valuation expert to complete a valuation and the Company anticipates it will receive a final report by July 2001. (3) Long-term deferred tax liabilities arose as a result of the excess of the fair values of inventory, and acquired intangible assets over their related tax basis. The Company has $10.4 million federal and state deferred tax assets for which a full valuation allowance has been established. (See Note 3, Income Taxes.) (4) The Company obtained an independent valuation of acquired identified intangible assets. The significant assumptions relating to each category are discussed in the following paragraphs. Also, these assets are being amortized on the straight-line basis over their estimated useful life and resultant amortization is included in amortization of goodwill and other intangible assets. DEVELOPED TECHNOLOGIES -- The value of this asset for the Company was determined by discounting the expected future cash flows attributable to all existing technologies which had reached technological feasibility, after considering risks relating to: 1) the characteristics and applications of F-256 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 7. PURCHASE ACCOUNTING (CONTINUED) the technology, 2) existing and future markets, as well as 3) life cycles of the technologies. Estimates of future revenues and expenses used to determine the value of developed technology was consistent with the historical trends in the industry and expected outlooks. ASSEMBLED WORKFORCES -- The value of the assembled work force was determined by estimating the recruiting, hiring and training costs to replace each group of existing employees. PRO FORMA FINANCIAL INFORMATION The pro forma financial information presented below is presented as if the acquisition of substantially all of the operating assets of RSS had occurred at the beginning of fiscal 2000. The pro forma statements of operations for the six months ended December 29, 2000 and December 31, 1999, include the historical results of the Company in addition to the historical results of the predecessor and are adjusted to reflect the new accounting basis for the assets and liabilities of the Company, and exclude acquisition related charges for recurring amortization of goodwill and intangibles related to the Company's prior acquisitions, as well as compensation expense related to option accelerations associated with the New SAC transactions. The pro forma financial results are as follows:
SIX MONTHS ENDED ---------------------------- DECEMBER 29, DECEMBER 31, 2000 1999 -------------- ------------- (IN THOUSANDS) Revenue .................................... $ 118,358 $152,071 Income (loss) before income taxes ......... (26,992) 12,815 Net income (loss) ......................... (26,587) 7,923
CAPITAL STOCK The Company's authorized share capital is $50,000 and consists of 50,000 ordinary shares, par value $1.00, of which 2,000 shares were outstanding as of December 29, 2000. DEFERRED COMPENSATION PLAN Members of the Seagate Technology management group including certain members of management of Seagate Removable Storage Solutions Business, the predecessor, entered into rollover agreements in connection with the New SAC transactions. Under these agreements, members of the management group agreed not to receive the merger consideration for a portion of their Seagate Technology restricted common stock and options to purchase shares of Seagate Technology common stock, valued at approximately $184 million. In exchange for the management rollover, the members of the management group received the right to participate in a deferred compensation plan and receive unvested ordinary and preferred shares of New SAC. The deferred compensation plan and the unvested preferred and ordinary shares provide for a vesting schedule as follows: o one-third will vest on the first anniversary of the closing of the transactions; o one-third will vest proportionately each month over the next 18 months; and o the final one-third will vest on the date which is 30 months after the closing of the transactions. Of the total value of the management rollover, approximately $179 million relates to the deferred compensation plan and of this amount approximately $[ ] million relates to employees of the F-257 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 7. PURCHASE ACCOUNTING (CONTINUED) Company. Payments, if any, under the deferred compensation plan are contingent and will be made only when distributions are made to preferred shareholders and only to the extent of vesting. New SAC's ability to make distributions is subject to limitations under the debt agreement. As a result, compensation expense for the deferred cash compensation plan will be deferred until distributions are made to preferred shareholders of New SAC and the Company will record compensation expense to the extent New SAC records compensation expense for employees of the Company. With respect to the restricted ordinary and preferred shares received in connection with the rollover agreements, New SAC will recognize compensation expense of approximately $23 million, based on the fair value of the ordinary and preferred shares at the date of issuance, amortized over the 30 month vesting period using the graded vesting method. Of the $23 million to be recorded as compensation expense by New SAC, approximately $[ ] million relate to employees of the Company and will be recorded by the Company over the vesting period. LONG-TERM DEBT AND CREDIT FACILITIES Upon the closing of the transactions, New SAC entered into senior credit facilities with a syndicate of banks and other financial institutions. The senior credit facilities provide senior secured financing of up to $900 million, consisting of: o a $200 million revolving credit facility for general corporate purposes, with a sublimit of $100 million for letters of credit, which will terminate in five years; o a $200 million term loan A facility with a maturity of five years; and o a $500 million term loan B facility with a maturity of six years. At the closing of the transactions, New SAC did not borrow under the revolving credit facility. At that time approximately $155 million of the revolving credit facility was available because approximately $45 million of existing letters of credit were outstanding and reduced availability under it. New SAC drew the full amount of the term loan A facility and the term loan B facility on the closing of the transactions to finance the acquisition of Seagate Technology's operating assets. The $700 million of outstanding loans under the term loan A and B facilities are repayable in semi-annual payments due as follows:
(IN THOUSANDS) --------------- Fiscal 2001 ................ $ 5,000 2002 ................ 22,500 2003 ................ 40,000 2004 ................ 50,000 2005 ................ 60,000 Thereafter .......... 522,500 -------- Total ............... $700,000 ========
The loans bear interest at variable rates dependent upon market interest rates and the nature of the borrowings, as well as New SAC's consolidated financial position at applicable measurement dates. The average interest rates being charged under these borrowings from the date of the transactions ranged from 9.1875% (LIBOR plus 2.5%) to 9.6875% (LIBOR plus 3%). New SAC, and certain of its subsidiaries, including Seagate Removable Storage Solutions Holdings, are guarantors under the senior credit facilities. In addition, the majority of New SAC's, and F-258 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 7. PURCHASE ACCOUNTING (CONTINUED) certain of its subsidiaries, assets have been pledged against the debt under this credit agreement (see Note 8, Condensed Consolidating Financial Information). The Company, and certain of its subsidiaries have agreed to certain covenants under this agreement including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. In connection with the closing and financing of the transactions, Seagate Technology International, a subsidiary of New SAC, issued unsecured senior subordinated notes under an Indenture Agreement dated November 22, 2000 at a discount to the aggregate principal amount of $210 million, for gross proceeds of approximately $201 million. The notes mature on November 15, 2007 and bear interest payable semi-annually at a rate of 12.5% per annum. New SAC and certain of its subsidiaries, including Seagate Removable Storage Solutions Holdings, are guarantors of the notes. In addition, New SAC, and certain of its subsidiaries have agreed to certain restrictive covenants under the terms of these notes including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. The Company may be released from its guarantee obligation, if there are certain sales of its capital stock, including in an initial public offering, but would remain subject to the restrictive covenants of the indenture until the Company and its subsidiaries are no longer subsidiaries of New SAC or are deemed no longer to be subject to the restrictive covenants. New SAC will not require the Companys' cash flow to be used to service the obligations pursuant to the senior secured credit facility and the senior subordinated notes. The Company believes that none of the guarantees or pledges of assets under the senior credit facilities or the guarantees under the Indenture are likely to be invoked. 8. CONDENSED CONSOLIDATING FINANCIAL INFORMATION The Company is a wholly owned subsidiary of New SAC. The senior subordinated notes are guaranteed by certain, but not all of the subsidiaries of New SAC. The guarantees of the senior subordinated notes are full and unconditional, and are made on a joint and several basis by the guaranteeing subsidiaries. F-259 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) The following tables present guarantor and non-guarantor condensed consolidating financial information for RSS' subsidiaries, at December 29, 2000 condensed consolidating results of its operations and its cash flows for the one month ended December 29, 2000, the five months ended November 22, 2000 and six months ended December 31, 1999. The information is based on the guarantor and non-guarantor classification of RSS's subsidiaries under the current provisions of the senior subordinated notes. CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 29, 2000 (IN THOUSANDS) (UNAUDITED)
GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------------ ---------------- -------------- ------------- ASSETS Cash and cash equivalents .................. $10,150 $ 647 $ -- $10,797 Accounts receivable, net ................... 17,587 5,838 (2,129) 21,296 Affiliate accounts receivable .............. 9,195 (3,601) -- 5,594 Inventories ................................ 21,611 2,320 -- 23,931 Other current assets ....................... 649 21 -- 670 ------- --------- -------- ------- Total Current Assets ...................... 59,192 5,225 (2,129) 62,288 Property, equipment, leasehold improvements, net ......................... 7,625 3,084 -- 10,709 Other assets ............................... 14,173 358 -- 14,531 ------- --------- -------- ------- Total Assets .............................. $80,990 $ 8,667 $ (2,129) $87,528 ======= ========= ======== ======= LIABILITIES Accounts payable ........................... $17,359 $ 4,589 $ (2,129) $19,819 Affiliate accounts payable ................. 20,175 (20,175) -- -- Accrued employee compensation .............. 4,238 389 -- 4,627 Accrued expenses ........................... 8,467 284 -- 8,751 Accrued Warranty ........................... 4,425 -- -- 4,425 Current portions of long-term debt ......... 666 -- -- 666 ------- --------- -------- ------- Total Current Liabilities ................. 55,330 (14,913) (2,129) 38,288 Other liabilities .......................... 2,555 -- -- 2,555 ------- --------- -------- ------- Shareholders' Equity ...................... 17,263 23,580 -- 40,843 ------- --------- -------- ------- Total Liabilities and Shareholders' Equity .................................. $80,990 $ 8,667 $ (2,129) $87,528 ======= ========= ======== =======
F-260 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS PERIOD FROM NOVEMBER 23, 2000 TO DECEMBER 29, 2000 (IN THOUSANDS) (UNAUDITED)
GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------------ ---------------- -------------- ------------- Revenues ...................................... $ 36,209 $4,340 $ (4,178) $ 28,371 Costs of revenues ............................. 36,346 5,057 (7,078) 29,225 Product development ........................... 2,372 -- -- 2,372 Marketing and administrative .................. 2,420 136 -- 2,556 Amortization of goodwill and other intangibles 91 -- -- 91 Restructuring ................................. -- -- -- -- -------- ------ -------- -------- Total operating expenses ................... 41,229 5,193 (7,078) 34,244 -------- ------ -------- -------- Income (loss) from operations .............. (7,920) (853) 2,900 (5,873) Other income (expense), net ................... (31) -- -- (31) -------- ------ -------- -------- Income (loss) before income taxes ............. (7,951) (853) 2,900 (5,904) -------- ------ -------- -------- Benefit (provision) for income taxes .......... 366 -- -- 366 -------- ------ -------- -------- Net Income (loss) .......................... $ (7,585) $ (853) $ 2,900 $ (5,538) ======== ====== ======== ========
CONDENSED COMBINING STATEMENT OF OPERATIONS PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 (IN THOUSANDS) (UNAUDITED)
GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------------ ---------------- -------------- ------------- Revenues ...................................... $ 124,252 $ 8,225 $ (6,490) $ 89,987 Costs of sales ................................ 110,271 8,739 (6,490) 76,520 Product development ........................... 22,578 -- 22,578 Marketing and administrative .................. 12,507 724 13,231 Amortization of goodwill and other intangibles .................................. 323 -- 323 Restructuring ................................. 755 21 776 --------- -------- --------- Total operating expense .................... 146,434 9,484 (6,490) 113,428 Income (loss) from operations .............. (22,183) (1,259) -- (23,442) Other income (expense), net ................... 830 4 -- 834 --------- -------- -------- --------- Income (loss) before income taxes ............. (21,352) (1,255) -- (22,607) Benefit (provision) for income taxes .......... 9,132 -- -- 9,132 --------- -------- -------- --------- Net income (loss) .......................... $ (12,220) $ (1,255) $ -- $ (13,475) ========= ======== ======== =========
F-261 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONDENSED COMBINING STATEMENT OF CASH FLOWS FOR THE PERIOD FROM NOVEMBER 23, 2000 TO DECEMBER 29, 2000 (IN THOUSANDS) (UNAUDITED)
GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------------ ---------------- -------------- ------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................... $ (3,788) $ 659 $ -- $ (3,129) INVESTING ACTIVITIES Acquisition of property, equipment, and leasehold improvements, net ............ (995) (260) -- (1,255) Proceeds from sale of property, equipment and leasehold improvements ............. 334 -- -- 334 Other, net .............................. 2 -- -- 2 -------- ------ ----- -------- Net cash provided by (used in) investing activities ........................... (659) (260) -- (919) FINANCING ACTIVITIES NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ................. -- -- -- -- Increase (decrease) in cash and cash equivalents ............................ (4,447) 399 -- (4,048) Cash and cash equivalents at the beginning of the year .................. 14,597 248 -- 14,845 -------- ------ ----- -------- Cash and cash equivalents at the end of the year ............................... $ 10,150 $ 647 $ -- $ 10,797 ======== ====== ===== ========
F-262 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONDENSED COMBINING STATEMENT OF CASH FLOWS PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 (IN THOUSANDS) (UNAUDITED)
GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED --------------- ---------------- -------------- --------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................... $ (25,085) $ (621) $ -- $ (25,706) INVESTING ACTIVITIES Acquisition of property, equipment, and leasehold improvements, net ............ (3,507) (1,480) -- (4,987) Profit on disposal of property equipment and leasehold improvements ............. 402 -- -- 402 Other, net .............................. (251) -- -- (251) ----------- -------- ----- ----------- Net cash provided by (used in) investing activities ........................... (3,356) (1,480) -- (4,836) FINANCING ACTIVITIES Other, net .............................. 40,656 2,322 -- 42,978 ----------- -------- ----- ----------- Net cash provided by (used in) financing activities ........................... 40,656 2,322 -- 42,978 Effect of exchange rate changes on cash and cash equivalents ................... -- -- -- -- Increase (decrease) in cash and cash equivalents ............................ 12,122 221 -- 12,343 Cash and cash equivalents at the beginning of the year .................. 2,475 27 -- 2,502 ----------- -------- ----- ----------- Cash and cash equivalents at the end of the year ............................... $ 14,597 $ 248 $ -- $ 14,845 =========== ======== ===== ===========
F-263 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONDENSED COMBINING STATEMENT OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1999 (IN THOUSANDS) (UNAUDITED)
GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ----------- Revenues ...................................... $201,402 $26,430 $ (29,761) 152,071 Costs of sales ................................ 158,943 24,344 (29,766) 107,521 Product development ........................... 17,799 -- -- 17,799 Marketing and administrative .................. 11,230 525 -- 11,755 Amortization of goodwill and other intangibles .................................. 438 -- -- 438 Restructuring ................................. 128 241 -- 369 -------- ------- --------- ------- Total operating expense .................... 142,538 25,110 (29,766) 137,882 Income (loss) from operations .............. 12,864 1,320 5 14,189 Other income (expense), net ................... 33 5 38 -------- ------- ------- Income (loss) before income taxes ............. 12,897 1,325 5 14,227 Benefit (provision) for income taxes .......... (4,674) (218) -- (4,892) -------- ------- --------- ------- Net income (loss) .......................... $ 8,223 $ 1,107 $ 5 9,335 ======== ======= ========= =======
F-264 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONDENSED COMBINING STATEMENT OF CASH FLOWS SIX MONTHS ENDED DECEMBER 31, 1999 (IN THOUSANDS) (UNAUDITED)
GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................... $ (7,462) $6,494 $-- $ 13,956 INVESTING ACTIVITIES Acquisition of property, equipment, and leasehold improvements ................. (5,248) -- -- (5,248) Proceeds from sale of property, equipment and leasehold improvements ............. 40 -- -- 40 Other, net .............................. 3 0 -- 3 -------- ------ --- -------- Net cash provided by (used in) investing activities ........................... (5,245) 1,349 -- (5,208) FINANCING ACTIVITIES Net cash change in investment by Seagate Technology Inc., ............... (6,597) -- -- (6,597) Net cash provided by (used in) financing activities ........................... 6,597 -- -- 6,597 Increase (decrease) in cash and cash equivalents ............................ 2,173 (22) -- 2,151 Cash and cash equivalents at the beginning of the year .................. 2,389 22 -- 2,411 -------- ------ --- -------- Cash and cash equivalents at the end of the year ............................... $ 4,562 $ 0 $-- $ 4,562 ======== ====== === ========
F-265 SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS AND ITS PREDECESSOR NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (CONCLUDED) (UNAUDITED) 10. SUBSEQUENT EVENTS In February 2001, the Board of Directors of the Company, approved an amendment to the Articles of Association of Seagate Removable Storage Solutions Holdings. This amendment is subject to approval by the senior subordinated noteholders under the terms of a Share Mortgage Agreement entered into between the Company and the senior subordinated noteholders. Under the terms of the amendment, the Company's authorized share capital will consist of 30 million common shares, par value $0.0001, and 22.5 million preferred shares, par value $0.0001, of which 20 million shares will be designated Series A preferred shares. Common Shares -- Holders of common shares will be entitled to receive dividends and distributions when and as declared by the Company's Board of Directors, subject to the rights of holders of the Company's preferred shares. Upon any liquidation, dissolution, or winding up of the Company, after required payments are made to holders of preferred shares, any remaining assets of the Company will be distributed ratably to holders of the ordinary shares. Holders of common shares are entitled to one vote per share on all matters presented to the Company's shareholders. Preferred Shares -- The Board approved amendment allows the Company's Board of Directors to issue one or more series of preferred shares, at the time and for the consideration determined by the Board of Directors. Holders of preferred shares will be entitled to receive dividends and distributions when and as declared by the Company's Board of Directors in preference to holders of the Company's ordinary shares. Upon any liquidation, dissolution, or winding up of the Company, the holders of preferred shares shall receive, out of any remaining, legally available assets of the Company, a liquidation preference of $100.00 per preferred share, less the aggregate amount of any distributions or dividends already made per preferred share. To the extent there are not sufficient remaining assets of the Company to pay the liquidation preference, holders of preferred shares shall share ratably in the distribution of the Company's remaining assets. Upon payment of the liquidation preference on each preferred share, the preferred shares shall be redeemed in full and cancelled. Holders of preferred shares will have no voting rights. SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS 2001 STOCK OPTION PLAN On December 18, 2000, the Company's Board of Directors approved, subject to the approval by the Senior Subordinated note holders in accordance with the terms of the share mortgage agreement, the Seagate Removable Storage Solutions Holdings 2001 Stock Option Plan (the 2001 Stock Option Plan). A total of 5,000,000 options to purchase ordinary shares may be issued under the 2001 Stock Option Plan. Key management and other employees, directors and consultants of the Company and its affiliates, are eligible to be granted awards under the 2001 Stock Option Plan. The Board of Directors has committed to issuing 1,037,000 options to purchase shares of common stock at a weighted average exercise price of $1.60 per share under the 2001 Stock Option Plan. Such options will be issued upon completion of the previously mentioned amendment to the Articles of Incorporation and approved by the Senior Subordinated noteholders. NEW SAC 2001 RESTRICTED SHARE PLAN On December 18, 2000, New SAC's Board of Directors approved, subject to the approval by the senior subordinated note holders, the New SAC 2001 Restricted Share Plan (the 2001 Restricted Share Plan). A total of 500,000 shares of common stock have been reserved for issuance under the New SAC 2001 Restricted Share Plan. Key management and other employees, directors and consultants of New SAC and its subsidiaries, including Seagate Removable Storage Solutions Holdings, are eligible to be granted awards under the Plan. The Board of Directors has committed to issuing up to 3,400 shares at a fair value to certain employees of Seagate Removal Storage Solutions Holdings. Such shares will vest over 4 years on a pro rata basis. F-266 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Seagate Removable Storage Solutions Holdings We have audited the accompanying combined balance sheets of the Seagate Removable Storage Solutions Business, an Operating Business of Seagate Technology, Inc., the predecessor to Seagate Removable Storage Solutions Holdings, as of June 30, 2000 and July 2, 1999 and the related combined statements of operations, business equity, and cash flows for each of the three years in the period ended June 30, 2000. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of the Seagate Removable Storage Solutions Business, an Operating Business of Seagate Technology, Inc. at June 30, 2000 and July 2, 1999 and the combined results of its operations and its cash flows for each of the three years in the period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP San Jose, California April 18, 2001 F-267 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS COMBINED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, JULY 2, 2000 1999 ---------- ---------- ASSETS (see Note 8) Cash and cash equivalents ................................... $ 2,502 $ 2,411 Accounts receivable, net .................................... 19,217 35,686 Inventories ................................................. 16,866 11,122 Other current assets ........................................ 1,776 958 Deferred tax asset .......................................... 7,675 12,373 ------- ------- Total Current Assets ....................................... 48,036 62,550 ------- ------- Property, equipment and leasehold improvements, net ......... 14,432 12,172 Goodwill and other intangible assets, net ................... 3,170 3,612 ------- ------- Total Assets (see Note 8) .................................. $65,638 $78,334 ======= ======= LIABILITIES Accounts payable ............................................ 17,978 24,694 Accrued employee compensation ............................... 6,733 7,293 Accrued expenses ............................................ 7,277 13,417 Accrued warranty ............................................ 5,276 5,951 Current portion of long-term debt ........................... 666 -- ------- ------- Total Current Liabilities .................................. 37,930 51,355 Accrued warranty ............................................ 2,506 2,267 Long-term debt less current portion ......................... 333 -- ------- ------- Total Liabilities .......................................... 40,769 53,622 BUSINESS EQUITY ............................................. 24,869 24,712 ------- ------- Total Liabilities and Business Equity ...................... $65,638 $78,334 ======= =======
See notes to combined financial statements. F-268 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS COMBINED STATEMENTS OF INCOME (IN THOUSANDS)
YEARS ENDED ---------------------------------------- JUNE 30, JULY 2, JULY 3, 2000 1999 1998 ------------ ----------- ----------- Revenue ...................................................... $262,814 $314,006 $286,086 Cost of revenue .............................................. 193,193 225,151 228,901 Product development .......................................... 37,444 36,081 24,981 Marketing and administration ................................. 18,578 22,924 27,175 Amortization of goodwill and other intangible assets ......... 877 3,207 2,181 Restructuring ................................................ 627 711 686 -------- -------- -------- Total operating expenses .................................... 250,719 288,074 283,924 Income from operations ....................................... 12,095 25,932 2,162 Interest income .............................................. 87 94 51 Other income (expense) net ................................... 1,489 (92) 836 -------- -------- -------- Income before income taxes ................................... 13,671 25,934 3,049 Benefit (provision) for income taxes ......................... (4,432) (9,556) (1,571) -------- -------- -------- Net income .................................................. $ 9,239 $16,378 $ 1,478 ======== ======== ========
See notes to combined financial statements. F-269 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED --------------------------------------- JUNE 30, JULY 2, JULY 3, 2000 1999 1998 ---------- ----------- ------------ OPERATING ACTIVITIES Net income .................................................. $ 9,239 $ 16,378 $ 1,478 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and Amortization .............................. 6,606 8,904 7,609 Profit on disposal of property, equipment and leasehold improvements .................................... (10) (119) (58) Deferred income taxes ...................................... 4,698 88 (1,271) Changes in operating assets and liabilities: Accounts receivable ........................................ 16,469 (4,183) 7,757 Inventories ................................................ (5,744) 10,165 13,022 Other assets................................................ (819) 19 (25) Accounts payable ........................................... (6,716) 3,624 668 Accrued expenses, employee compensation and warranty ................................................. (7,375) 3,144 (4,040) Other assets and liabilities ............................... 666 -- -- Other non-current liabilities .............................. 572 671 (610) -------- --------- --------- Net cash provided by (used in) operating activities ......... 17,586 38,691 24,530 INVESTING ACTIVITIES Acquisition of property, equipment and leasehold improvements ............................................... (9,083) (6,573) (7,223) Proceeds from sale of property, equipment and leasehold improvements ..................................... 670 958 1,949 -------- --------- --------- Net cash provided by (used in) investing activities ......... (8,413) (5,615) (5,274) FINANCING ACTIVITIES Net cash change in investment by Seagate Technology, Inc. ........................................... (9,082) (29,061) (21,828) -------- --------- --------- Net cash provided by (used in) financing activities ......... (9,082) (29,061) (21,828) Increase (Decrease) in cash and cash equivalents ............ 91 4,015 (2,572) Cash and cash equivalents at the beginning of the year ....................................................... 2,411 (1,604) 968 -------- --------- --------- Cash and cash equivalents at the end of the year ............ $ 2,502 $ 2,411 $ (1,604) ======== ========= =========
See notes to combined financial statements. F-270 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS COMBINED STATEMENT OF BUSINESS EQUITY (IN THOUSANDS) Balance at June 27, 1997 ...................................... $ 57,745 Net income ................................................... 1,478 Net change in investment by Seagate Technology, Inc. ......... (21,828) --------- Balance at July 3, 1998 ....................................... 37,395 Net income ................................................... 16,378 Net change in investment by Seagate Technology, Inc. ......... (29,061) --------- Balance at July 2, 1999 ....................................... 24,712 Net income ................................................... 9,239 Net change in investment by Seagate Technology, Inc. ......... (9,082) --------- Balance at June 30, 2000 ...................................... $ 24,869 =========
See notes to combined financial statements. F-271 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. Nature of Operations -- Seagate Removable Storage Solutions Holdings ("RSS" or the "Company") operated as an operating business of Seagate Technology, Inc. ("Seagate Technology") during the three years ended June 30, 2000. On November 22, 2000, all the operating assets and liabilities of Seagate Technology, including all the operating assets and liabilities of the Company, were acquired by New SAC. New SAC is the parent company of Seagate Removable Storage Solutions Holdings and the operating assets and liabilities of the Company are now organized in to various subsidiaries of Seagate Removable Storage Solutions Holdings. Seagate Removable Storage Solutions Holdings had no operations prior to November 22, 2000, and Seagate Removable Storage Solutions, an operating business of Seagate Technology is considered the predecessor to Seagate Removable Storage Solutions Holdings. See Note 8, Subsequent Events, for a further description of the current organizational structure of the Company. The Company designs, markets and supports a product line of tape drives that use removable tape cartridges that store and protect large volumes of data inexpensively and reliably. Tape drives are used in both enterprise and desktop computer systems needing dedicated backup storage that combines high capacity, portability, low cost and reliability. Typically tape drives are used less frequently and data is often migrated from rigid disc drives to tape drives because tape drives are less expensive. However, tape drives take longer to retrieve data. The Company also manufactures tape heads for use in its own products and for sale to other OEM companies that manufacture and sell tape drives. Basis of Presentation -- These financial statements have been prepared using the historical basis of accounting and are presented as if the Company existed as an entity separate from Seagate Technology during the periods presented. These financial statements include the historical assets, liabilities, revenues and expenses that are directly related to the Company's operations. For certain assets and liabilities that are not specifically identifiable with the Company, estimates have been used to allocate such assets and liabilities to the Company, by applying methodologies management believes are appropriate. The statements of income include all revenues and expenses attributable to the Company, including allocations of certain corporate administration, finance and management costs. Such costs were proportionately allocated to the Company based on detailed inquiries and estimates of time incurred by Seagate Technology's corporate marketing and general administrative departmental managers. In addition, certain of Seagate Technology's operations are shared locations involving activities that pertain to the Company as well as to other businesses of Seagate Technology. Costs incurred in shared locations are allocated based on specific identification, or where specific identification is not possible, such costs are allocated between the Company and other businesses of Seagate Technology based on the volume of activity, head count, square footage, and other methodologies that management believes are reasonable. Transactions and balances between entities and locations within the Company's business have been eliminated. Management believes that the foregoing allocations were made on a reasonable basis. Domestic treasury and cash management for the Company was performed by Seagate Technology on a centralized basis. Accordingly, the majority of the Company's cash and cash equivalents were held by foreign subsidiaries. The financial information included herein may not necessarily reflect the results of operations, financial position, change in business equity and cash flows of the Company in the future or what they would have been had it been a separate, stand-alone entity during the periods presented. F-272 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Fiscal Year --The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 2000 was 52 weeks and ended on June 30, 2000, fiscal 1999 was 52 weeks and ended on July 2, 1999, and fiscal 1998 was 53 weeks and ended on July 3, 1998. All references to years in these notes represent fiscal years unless otherwise noted. Accounting Estimates -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. The actual results with regard to warranty expenditures could have a material unfavorable impact on the Company if the actual rate of unit failure or the cost to repair a unit is greater than what the Company has used in estimating the warranty expense accrual. Given the volatility of the markets in which the Company participates, the Company makes adjustments to the value of inventory based on estimates of potentially excess and obsolete inventory after considering forecasted demand and forecasted average selling prices. However, forecasts are subject to revisions, cancellations, and rescheduling. Actual demand will inevitably differ from such anticipated demand, and such differences may have a material effect on the financial statements. Cash Equivalents -- Cash equivalents consist of short-term, highly liquid financial instruments with insignificant interest rate risk that are readily convertible to cash and have maturities of three months or less from the date of purchase. The Company had no cash equivalents for any period presented. Foreign Currency Translation -- The U.S. dollar is the functional currency for most of the Company's foreign operations. Gains and losses on the remeasurement into U.S. dollars of amounts denominated in foreign currencies are included in net income for those operations whose functional currency is the U.S. dollar. Revenue Recognition and Product Warranty -- Revenue from sales of products is recognized when persuasive evidence of an arrangement exists including a fixed price to the buyer, title and risk of loss has transferred to the buyer (typically upon shipment) and collectibility is reasonably assured. Product returns are reserved for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 48. The Company warrants its products against defects in design, materials and workmanship generally for two to four years depending upon the capacity category of the tape drive or tape component (head), with the higher capacity products being warranted for the longer periods. A provision for estimated future costs relating to warranty expense is recorded when products are shipped. Inventory -- Inventories are valued at the lower of standard cost (which approximates actual cost using the first-in, first-out method) or market. Market value is based upon forecast estimated average selling price reduced by estimated completion costs. Property, Equipment, and Leasehold Improvements -- Land, equipment, buildings and leasehold improvements are stated at cost. Equipment and buildings are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated life of the asset or the remaining term of the lease. Depreciation is computed using the straight-line method over the useful economic lives of the assets which are, one to four years for equipment and the shorter of the lease period or 30 years for building and leasehold improvements. F-273 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Goodwill and Other Intangible Assets -- Goodwill represents the excess of the purchase price of net tangible and intangible assets acquired by the Company over their estimated fair value. Other intangible assets represent developed technology, assembled workforce and trademarks acquired in business combinations. Goodwill and other intangible assets are being amortized on a straight-line basis over their estimated useful lives of three to eight years. Accumulated amortization of goodwill and other intangible assets was $8,898,000 and $8,021,000 as of June 30, 2000 and July 2, 1999, respectively. In accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lives Assets and for Long-Lives Assets to be Disposed of" the carrying value of property and equipment, other intangible assets, and related goodwill is reviewed if the facts and circumstances suggest that they may be permanently impaired. If this review indicates these assets' carrying value will not be recoverable, as determined based on undiscounted net cash flows over the assets' remaining life, the Company's carrying value is reduced to its estimated fair value, first by reducing goodwill, and second by reducing long-term assets and other intangible assets (fair value is generally based on an estimate of discounted future net cash flows). Advertising Expense -- The cost of advertising is expensed as incurred. Advertising costs were $1,330,000, $2,898,000 and $3,985,000 in 2000, 1999, and 1998, respectively. Stock-Based Compensation -- The company accounts for employee stock-based compensation under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25") and related interpretations. Pro forma net income and net income per share are disclosures required by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and are included in note 4 below under "Stock-Based Benefit Plans -- Pro Forma Information". Impact of Recently Issued Accounting Standards -- In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that derivatives be recognized in the balance sheet at fair value and specifies the accounting for changes in fair value. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000 and will be adopted by Seagate Removable Storage Solutions Holdings, the successor to the Company for its fiscal year 2001 and is not anticipated to have a material impact on Seagate Removable Storage Solutions Holdings, the successor to the Company. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. Seagate Removable Storage Solutions Holdings, the successor to the Company does not expect the adoption of SAB 101 will have a material effect on its combined results of operations, financial position and cash flows. Seagate Removable Storage Solutions Holdings, the successor to the Company is required to adopt SAB 101 in the fourth quarter of fiscal 2001, retroactive to the beginning of the year. In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB Opinion No. 25 and, among other issues, clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a non-compensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, F-274 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The adoption of FIN 44 did not have a material impact on the Company's consolidated results of operations, financial position, and cash flows. Concentration of Credit Risk -- The Company's customer base for tape drive products and tape components is concentrated with a small number of systems manufacturers and distributors. Financial instruments, which potentially subject the Company to concentrations of credit risk, are primarily accounts receivable, cash equivalents and short-term investments. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The allowance for noncollection of accounts receivable is based upon the expected collectibility of all accounts receivable. 2. BALANCE SHEET INFORMATION ACCOUNTS RECEIVABLE Accounts receivable are summarized below:
JUNE 30, JULY 2, 2000 1999 ---------- ---------- (IN THOUSANDS) Accounts receivable .......................... $ 21,635 $ 37,232 Less allowance for doubtful accounts ......... (2,418) (1,546) -------- -------- $ 19,217 $ 35,686 ======== ========
Activity in the allowance for doubtful accounts is as follows:
ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING OF COSTS AND DEDUCTIONS-- END OF PERIOD EXPENSES DESCRIBE(1) PERIOD -------------- ------------ -------------- ----------- (IN THOUSANDS) Year Ended June 30, 2000: ......... $1,546 $915 $ 43 $2,418 Year Ended July 2, 1999: .......... $1,576 $ -- $ 30 $1,546 Year Ended July 3, 1998: .......... $2,365 $ -- $789 $1,576
- ---------- (1) Uncollectible accounts written off, net of recoveries. F-275 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) INVENTORIES Inventories are summarized below:
JUNE 30, JULY 2, 2000 1999 ---------- ---------- (IN THOUSANDS) Components .............. $ 3,488 $ 1,042 Work-in-process ......... 2,801 330 Finished goods .......... 10,577 9,750 ------- ------- $16,866 $11,122 ======= =======
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold improvements are stated at cost and consist of the following:
JUNE 30, JULY 2, ESTIMATED USEFUL LIFE 2000 1999 ------------------------------------ ------------ ------------ (IN THOUSANDS) Land ................................................... $ 890 $ 890 Equipment .............................................. 3 to 4 years 37,348 30,734 Building and leasehold improvements .................... Shorter of life of Lease or 30 yrs 5,098 4,995 Construction in progress ............................... 1,677 3,084 --------- --------- 45,013 39,703 Less accumulated depreciation and amortization ......... (30,581) (27,531) --------- --------- Property, equipment and leasehold improvements (net) ................................................. $ 14,432 $ 12,172 ========= =========
There are no capitalized leases. Depreciation expense is recorded on a straight-line basis over the shorter of the useful life of the asset or the life of the lease. Depreciation expense was $5,729,000, $5,682,000 and $5,428,000 in 2000, 1999 and 1998, respectively. LONG-TERM DEBT AND LINES OF CREDIT: At June 30, 2000, future minimum principal payments on long-term debt consists of and are $666,000 in 2001, $333,000 in 2002 and none there after. As of June 30, 2000, Seagate Technology has committed lines of credit of $71 million that can be used for standby letters of credit or bankers' guarantees. At June 30, 2000, the Company utilized $15 million of these lines of credit. 3. COMPENSATION TAX-DEFERRED SAVINGS PLAN The Company participated in the Seagate Technology Savings and Investment Plan ("the 401(k) plan"), for the benefit of qualified employees. The 401(k) plan is designed to provide employees with an accumulation of funds at retirement. Qualified employees may elect to make contributions to the 401(k) plan on a monthly basis. Seagate Technology may make annual contributions to the 401(k) plan at the discretion of the Board of Directors. During the fiscal years ended June 30, 2000, July 2, 1999, and July 3, 1998 Seagate Technology made contributions for employees of the Company totaling approximately $612,640, $612,640 and $397,808 respectively to the 401(k) plan in each year. EMPLOYEE PROFIT SHARING AND EXECUTIVE BONUS PLANS The Company participated in Seagate Technology's Employee Profit Sharing and Executive Bonus Plan. The Company allocates a certain percentage of adjusted quarterly pretax profits to F-276 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Seagate Technology's Employee Profit Sharing Plan, which is currently distributed to employees employed for the full quarter. The Company also allocates a certain percentage of adjusted quarterly pretax profits to Seagate Technology's Executive Bonus Plan. Charges to operations for distributions to employees of the Company under these plans during 2000, 1999, and 1998 were $3,220,000, $3,027,000, and $3,157,000, respectively. STOCK-BASED BENEFIT PLANS Stock Option Plans -- Employees of the Company are eligible to participate in Seagate Technology's stock option plans. Options granted under Seagate Technology's stock option plans are granted at fair market value, expire ten years from the date of the grant and generally vest in four equal annual installments, commencing one year from the date of the grant. As of June 30, 2000, 778,000 options were outstanding to employees of the Company. STOCK PURCHASE PLAN The Company also participates in Seagate Technology's Employee Stock Purchase Plan. The purchase plan permits eligible employees, including employees of the Company, who have completed thirty days of employment prior to the inception of the offering period to purchase common stock through payroll deductions generally at the lower of 85% of the fair market value of the common stock at the beginning or at the end of each six-month offering period. Under the plan 1,515,000, 1,604,000 and 1,348,000 shares of common stock were issued to the employees of the Company in 2000, 1999 and 1998, respectively. PRO FORMA INFORMATION Seagate Technology has elected to follow APB Opinion No. 25 and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB Opinion No. 25, the Company generally recognized no compensation expense with respect to such options. As a result of the consummation of the transactions, all stock options other than stock options included in the management rollover, were accelerated and exercised. The full fair value of these stock options amounting to $16.9 million was recorded as compensation in the period ended November 22, 2000. In these circumstances and because of the significant change in the Company's ownership and equity structure, the Company believes the pro forma net income (loss) information as required by SFAS 123, Accounting for Stock Based Stock Compensation, is not meaningful and such information has not been provided. POST RETIREMENT HEALTH CARE PLAN In fiscal 2000, Seagate Technology adopted a post-retirement health care plan which offers medical coverage to eligible U.S. retirees and their eligible dependents including eligible employees of the Company. Substantially all U.S. employees become eligible for these benefits after 15 years of service and attaining age 60 or older. The following table provides a reconciliation of the changes in the post-retirement health care plan's benefit obligation and a statement of the funded status for the Company's eligible participant's. F-277 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS) CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year ................................... $ -- Service cost .............................................................. 122 Amortization of unrecognized prior service cost ........................... 52 ---- Benefit obligation at end of year ......................................... $174 ==== FUNDED STATUS OF THE PLAN Fair value of plan assets at end of year .................................. $ -- Unrecognized prior service cost ........................................... 512 Accrued benefit liability recognized in the balance sheet at June 30, 2000 174 ---- Accrued benefit cost ...................................................... $686 ====
Net periodic benefit cost allocated to the Company for the year ended June 30, 2000 was as follows:
(IN THOUSANDS) Service cost ................................ $ 72 Interest cost ............................... 50 Amortization of prior service cost .......... 52 ---- Net periodic benefit cost ................... $174 ====
WEIGHTED AVERAGE ACTURIAL ASSUMPTIONS A discount rate of 7.0% was used in the determination of the accumulated benefit obligation. Seagate Technology's future medical benefit costs were estimated to increase at an annual rate of 10% during 2000, decreasing to an annual growth rate of 5% in 2010, and thereafter. Seagate Technology's cost is capped at 200% of its fiscal year 1999 employer cost and, therefore, will not be subject to medical and dental trends after the capped cost is attained. A 1% change in these annual trend rates would not have a significant impact on the accumulated post-retirement benefit obligation at June 30, 2000, or benefit expense for the period from January 29, 2000 to June 30, 2000. Claims are paid as incurred. 4. INCOME TAX RSS is included in the consolidated federal and certain combined and consolidated foreign and state income tax returns of Seagate Technology. Seagate Technology and RSS have entered into a tax sharing agreement (the "Tax Allocation Agreement") pursuant to which RSS computes hypothetical tax returns as if RSS was not joined in consolidated or combined returns with Seagate Technology. RSS must pay Seagate Technology the positive amount of any such hypothetical taxes. If the hypothetical tax returns show entitlement to refunds, including any refunds attributable to a carryback, then Seagate Technology will pay RSS the amount of such refunds. At the end of fiscal 2000, there were no inter-company tax related balances due from RSS to Seagate Technology. F-278 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) The provision for (benefit from) income taxes consisted of the following:
2000 1999 1998 ------------ --------- ----------- (IN THOUSANDS) Current Tax Expense (Benefit): Federal .......................... $ (1,130) $7,530 $ 2,126 State ............................ (32) 1,630 488 Foreign .......................... 896 308 227 -------- ------ -------- (266) 9,468 2,841 -------- ------ -------- Deferred Tax Expense (Benefit): Federal .......................... 3,960 98 (1,040) State ............................ -- -- -- Foreign .......................... 738 (10) (230) -------- ------ -------- 4,698 88 (1,270) -------- ------ -------- Provision for Income Taxes ......... $ 4,432 $9,556 $ 1,571 ======== ====== ========
Income (loss) before income taxes consisted of the following:
2000 1999 1998 --------- ---------- ------------ Domestic .......... $ 5,983 $18,448 $ (2,888) Foreign ........... 7,688 7,486 5,937 ------- ------- -------- $13,671 $25,934 $ 3,049 ======= ======= ========
The pro forma information assuming a tax provision (benefit) based on a separate return basis is as follows:
FOR THE YEAR ENDED JUNE 30, 2000 -------------- Income before income taxes ................... $13,671 Provision (benefit) for income taxes ......... 4,432 ------- Net Income ................................... $ 9,239 =======
The income tax benefit related to the exercise of certain employee stock options increased amounts due from/(decreased amounts due to) Seagate Technology pursuant to the Tax Allocation Agreement and were credited to business equity. Such amounts approximated $2,277,000, ($328,000) and ($81,000) for fiscal 2000, 1999 and 1998 respectively. F-279 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's deferred tax assets and liabilities were as follows:
JUNE 30, JULY 2, 2000 1999 ---------- ---------- (IN THOUSANDS) DEFERRED TAX ASSETS Accrued warranty .................................. $ 343 $ 166 Inventory valuation accounts ...................... 1,874 2,429 Receivable reserves ............................... 3,830 4,215 Accrued compensation and benefits ................. 570 1,266 Deferred revenue .................................. 151 191 Other reserves and accruals ....................... 1,753 4,417 ------ ------- Total deferred tax assets ........................ 8,521 12,684 ------ ------- DEFERRED TAX LIABILITIES Depreciation ...................................... (330) (40) Unremitted income of foreign subsidiaries ......... (516) (271) ------ ------- Total deferred tax liabilities ................... (846) (311) ------ ------- Net deferred tax assets (liabilities) ............ $7,675 $12,373 ====== =======
The reconciliation between the provision for (benefit from) income taxes at the U.S. federal statutory rate and the effective rate are summarized as follows:
JUNE 30, JULY 2, JULY 3, 2000 1999 1998 ---------- --------- ---------- (IN THOUSANDS) Provision (benefit) at U.S. statutory rate ......... $4,785 $9,077 $1,067 State income tax provision (benefit), net of federal income tax benefit ................................ 459 1,053 168 Research and development credits ................... (969) (677) (332) Non-deductible goodwill ............................ -- 711 404 Benefit from net earnings of foreign subsidiaries considered to be permanently reinvested in non-U.S. operations ............................... -- (705) -- Other .............................................. 157 97 264 ------ ------ ------ Provision for (benefit from) income taxes .......... $4,432 $9,556 $1,571 ====== ====== ======
A substantial portion of the Company's Asia Pacific manufacturing operations in Singapore and Malaysia operate under various tax holidays which expire in whole or in part during fiscal years 2001 through 2010. Certain tax holidays may be extended if specific conditions are met. The tax holidays had no impact on net income in 2000. The net impact of these tax holidays was to increase net income approximately $700,000 in 1999. The tax holidays had no impact on net income in 1998. Cumulative undistributed earnings of the Company's Asia Pacific subsidiaries for which no income taxes have been provided aggregated $2.7 million at June 30, 2000. These earnings are considered to be permanently invested in non-U.S. operations. Additional federal and state taxes of approximately $1.1 million would have to be provided if these earnings were repatriated to the U.S. F-280 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 5. RESTRUCTURING The Company has recorded expense for all restructuring activities as incurred. This amounted to $627,000, $711,000 and $686,000 for the years ended June 30, 2000, July 2, 1999 and July 3, 1998, respectively. These expenses consisted primarily of workforce reductions related to the reorganization of our sales force in fiscal 2000 resulting in the termination of 40 sales persons, reduction of head count in the Costa Mesa tape drive operation and Santa Maria tape head operation resulting in the termination of personnel and closure of facilities, or portions of facilities. 6. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION The Company designs, manufactures and markets a product line of tape drives. These products include tape drives, tape media and components such as read and write heads and storage and retrieval software. The Company operates one operating segment under the criteria of SFAS No. 131, with activities in three geographical areas. The President evaluates performance and allocates resources based on revenue and gross profit from operations. Gross profit from operations is defined as revenue less cost of sales. The President has been identified as the Chief Operating Decision maker as defined by SFAS No. 131. Long-lived assets consist of property, equipment and leasehold improvements, capital leases, equity investments, goodwill and other intangibles, and other non-current assets as recorded by RSS's operations in each area. The following table summarizes RSS's operations by geographic area:
2000 1999 1998 ----------- ----------- ----------- (IN THOUSANDS) Revenue from external customers: (1) United States ..................... $163,640 $201,923 $205,997 Scotland .......................... 71,625 88,385 71,679 Rest of Europe .................... 3,078 2,348 -- Asia, primarily Singapore ......... 24,471 21,350 8,410 -------- -------- -------- Total ............................. $262,814 $314,006 $286,086 ======== ======== ======== Long-lived assets: United States ..................... $ 15,475 $ 12,651 $ 19,711 Europe ............................ 23 137 84 Asia, primarily Malaysia .......... 2,104 2,996 4,283 -------- -------- -------- Total ............................. $ 17,602 $ 15,784 $ 24,078 ======== ======== ========
- ---------- (1) Revenue is attributed to countries based on the shipping location. F-281 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 7. SUPPLIER AND CUSTOMER CONCENTRATIONS A limited number of customers historically have accounted for a substantial portion of the Company's revenues. Percentage revenues from customers with more than 10% of sales were as follows (as a percentage of net sales):
JUNE 30, JULY 2, JULY 3, 2000 1999 1998 ---------- --------- -------- International Business Machines Corp. ......... 25% 24% 16% Dell Computer Corp. ........................... 19% 19% 14% Ingram Micro Inc. ............................. 13% 12% --
Sales of the Company's products will vary as a result of fluctuations in market demand. Further, the RSS markets in which the Company competes are characterized by rapid technological change, evolving industry standards, declining average selling prices, and rapid technological obsolescence. Certain of the raw materials and components used by the Company in the manufacture of its products are available from a limited number of suppliers. For example, all of the Company's basic DAT Tape drives are currently purchased from Matsushita Kotobuki Electronics (MKE), under an exclusive manufacturing agreement. All of the Company's LTO heads are manufactured by the Company and the main component of the head, the wafer, is purchased exclusively from a Seagate Technology plant in Springtown, Ireland. 8. SUBSEQUENT EVENTS PURCHASE OF SEAGATE TECHNOLOGY BY NEW SAC On November 22, 2000, under the stock purchase agreement New SAC, successor to Seagate Technology, completed the purchase of all of the operating assets and the assumption of operating liabilities of Seagate Technology and its consolidated subsidiaries. The net purchase price was $1.840 billion in cash, including transaction costs of approximately $25 million. Seagate Technology designed, developed and manufactured rigid disk drives, enterprise management software, storage area networks, and removable tape storage solutions. Immediately thereafter, in a separate and independent transaction, Seagate Technology and VERITAS completed their merger under the merger agreement (the "Merger Agreement"). The stock purchase agreement and the Merger Agreement are referred to as the New SAC transactions. At the time of the merger, Seagate Technology assets included a specified amount of cash, an investment in VERITAS, and certain specified investments and liabilities. In connection with the Merger Agreement, Seagate Technology, VERITAS and New SAC entered into an Indemnification Agreement, pursuant to which these entities and certain other subsidiaries of Seagate Technology agreed to certain indemnification provisions regarding tax and other matters that may arise in connection with the New SAC transactions. New SAC accounted for this transaction as a purchase in accordance with Accounting Principles Board (APB) Opinion No. 16 "Business Combinations". All acquired tangible assets, identifiable intangible assets as well as assumed liabilities were valued based on their relative fair values and reorganized into the following businesses: 1) the rigid disk drive business (HDD), 2) the storage area networks business (SAN), 3) the removable storage solutions business (RSS), 4) the software business (CD), and 5) an investment holding company (ST). The fair value of the net assets exceeded the net purchase price by approximately $909 million. Accordingly, the resultant negative goodwill was allocated on a pro rata basis to the acquired long-lived assets and reduced the recorded amounts by approximately 46%. F-282 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) The purchase price allocation presented below is preliminary because New SAC has not received the final reports from the independent appraiser that are required to complete the allocation. New SAC believes that the independent appraiser has substantially completed and concluded its work, except for certain information that is continuing to be assessed at the Division for in-process research and development. New SAC expects the independent appraiser to complete and issue its final report prior to July 2001. The table below summarizes the preliminary allocation of net purchase price as it relates to the RSS (in thousands):
LIFE ESTIMATED DESCRIPTION (IN YEARS) FAIR VALUE - ----------------------------------------- ------------ --------------- (IN THOUSANDS) Net current assets (1) .................. $ 31,586 Other long-lived assets ................. 250 Property, plant & equipment (2) ......... 8,832 Identified intangibles: Developed technologies (4) .............. 3 11,426 Assembled workforces (4) ................ 3 3,264 Subtotal ............................... 14,690 Long-term deferred taxes (3) ............ (2,861) Long term liabilities ................... (351) -------- Net assets ............................. 52,146 --------
- ---------- (1) Acquired current assets included cash and cash equivalents, accounts receivable, inventories and other current assets. The fair values of current assets generally approximated the recorded historic book values. Inventory values were estimated based on the current market value of the inventories less completion costs and less a normal profit margin based on activities remaining to be completed until the inventory is sold. Valuation allowances were established for current deferred tax assets in excess of long-term deferred tax liabilities. Assumed current liabilities included accounts payable, accrued compensation and expenses and accrued income taxes. The fair values of current liabilities generally approximated the historic recorded book values because of the monetary nature of most of the liabilities. (2) New SAC has obtained a preliminary indication of the fair value of the acquired property, plant and equipment. This valuation is subject to additional work to completion and New SAC anticipates the appraiser will issue a final report by July 2001. In arriving at the determination of estimated market value for the assets, the appraisers considered the estimated cost to construct or acquire comparable property. Machinery and equipment was assessed using replacement cost estimates reduced by depreciation factors representing the condition, functionality and operability of the assets. The sales comparison approach was used for office and data communication equipment. Land, land improvements, buildings, and building and leasehold improvements were valued based upon discussions with knowledgeable personnel. (3) Long-term deferred tax liabilities arose as a result of the excess of the fair values of inventory, and acquired intangible assets over their related tax basis. The Company has $10.4 million of federal and state deferred tax assets for which a full valuation allowance has been established. (4) New SAC obtained an independent valuation of acquired identified intangibles. The significant assumptions relating to each category are discussed in the following paragraphs. Also, these assets are being amortized on the straight-line basis over their estimated useful life and resultant amortization is included in amortization of goodwill and other intangibles. F-283 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Developed technologies -- The value of this asset for RSS was determined by discounting the expected future cash flows attributable to all existing technologies which had reached technological feasibility, after considering risks relating to: 1) the characteristics and applications of the technology, 2) existing and future markets, as well as 3) life cycles of the technologies. Estimates of future revenues and expenses used to determine the value of developed technology was consistent with the historical trends in the industry and expected outlooks. Assembled workforces -- The value of the assembled work force was determined by estimating the recruiting, hiring and training costs to replace each group of existing employees. PRO FORMA FINANCIAL INFORMATION The pro forma financial information presented below is presented as if the acquisition of substantially all of the operating assets of RSS had occurred at the beginning of fiscal 1999. The pro forma statements of operations for the fiscal years ended June 30, 2000 and July 2, 1999 are adjusted to reflect the new accounting basis for the assets and liabilities of Seagate Removable Storage Solutions Holdings, and exclude acquisition related charges for recurring amortization of goodwill and intangibles related to RSS's prior acquisitions, as well as charges recorded by Seagate Technology to reflect the loss on sale to New SAC and compensation expense related to option accelerations associated with the transactions. The pro forma financial results are as follows:
FISCAL YEAR ------------------------ JUNE 30, JULY 2, 2000 1999 ---------- ----------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Revenue ................................... $262,814 $314,006 Income (loss) before income taxes ......... 12,858 26,614 Net income (loss) ......................... 8,754 18,119
NEW CAPITAL STRUCTURE The Company operated as an operating business of Seagate Technology and had no formal capital structure prior to the stock purchase agreement by New SAC, see Note 8. From November 23, 2000, the Company operated as Seagate Technology Removable Storage Solutions Holdings, a stand alone company, with a new capital structure. In February 2001, the Board of Directors of the Company, approved an amendment to the Articles of Association of Seagate Removable Storage Solutions Holdings. This amendment is subject to approval by the senior subordinated noteholders under the terms of a Share Mortgage Agreement entered into between the Company and the senior subordinated noteholders. Under the terms of the amendment, the Company's authorized share capital will consist of 30 million common shares, par value $0.0001, and 22.5 million preferred shares, par value $0.0001, of which 20 million shares will be designated Series A preferred shares. Common Shares -- Holders of common shares will be entitled to receive dividends and distributions when and as declared by the Company's Board of Directors, subject to the rights of holders of the Company's preferred shares. Upon any liquidation, dissolution, or winding up of the Company, after required payments are made to holders of preferred shares, any remaining assets of the Company will be distributed ratably to holders of the ordinary shares. Holders of common shares are entitled to one vote per share on all matters presented to the Company's shareholders. Preferred Shares -- The Board approved amendment allows the Company's Board of Directors to issue one or more series of preferred shares, at the time and for the consideration determined by the Board of Directors. Holders of preferred shares will be entitled to receive dividends and F-284 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) distributions when and as declared by the Company's Board of Directors in preference to holders of the Company's ordinary shares. Upon any liquidation, dissolution, or winding up of the Company, the holders of preferred shares shall receive, out of any remaining, legally available assets of the Company, a liquidation preference of $100.00 per preferred share, less the aggregate amount of any distributions or dividends already made per preferred share. To the extent there are not sufficient remaining assets of the Company to pay the liquidation preference, holders of preferred shares shall share ratably in the distribution of the Company's remaining assets. Upon payment of the liquidation preference on each preferred share, the preferred shares shall be redeemed in full and cancelled. Holders of preferred shares will have no voting rights. SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS 2001 STOCK OPTION PLAN On December 18, 2000, the Company's Board of Directors approved, subject to the approval by the Senior Subordinated note holders in accordance with the terms of the share mortgage agreement, the Seagate Removable Storage Solutions Holdings 2001 Stock Option Plan (the 2001 Stock Option Plan). A total of 5,000,000 options to purchase shares of common stock may be issued under the 2001 Stock Option Plan. Key management and other employees, directors and consultants of the Company and its affiliates, are eligible to be granted awards under the 2001 Stock Option Plan. The Board of Directors has committed to issuing 1,037,000 options to purchase shares of common stock at a weighted average exercise price of $1.60 per share under the 2001 Stock Option Plan. NEW SAC 2001 RESTRICTED SHARE PLAN On December 18, 2000, New SAC's Board of Directors approved, subject to the approval by the senior subordinated note holders, the New SAC 2001 Restricted Share Plan (the 2001 Restricted Share Plan). A total of 500,000 shares of common stock have been reserved for issuance under the New SAC 2001 Restricted Share Plan. Key management and other employees, directors and consultants of New SAC and its subsidiaries, including Seagate Removable Storage Solutions Holdings, are eligible to be granted awards under the Plan. The Board of Directors has committed to issuing 3,400 shares under the 2001 Restricted Share Plan to certain employees of Seagate Removal Storage Solutions Holdings. Such shares will vest over 4 years on a pro rata basis. 9. DEBT GUARANTEES AND PLEDGE OF ASSETS SENIOR SECURED CREDIT FACILITY On the closing of the New SAC Transaction, Seagate Technology International and Seagate Technology (US) Holdings, Inc., both subsidiaries of New SAC entered into senior credit facilities with a syndicate of banks and other financial institutions led by The Chase Manhattan Bank, as administrative agent and an issuing bank, and Goldman Sachs Credit Partners L.P., as a documentation agent, The Bank of Nova Scotia as a documentation agent, and Merrill Lynch Capital Corporation, as a documentation agent. The senior credit facilities provide senior secured financing of up to $900 million, consisting of: o a $200 million revolving credit facility for general corporate purposes, with a sub-limit of $100 million for letters of credit, which will terminate in five years; o a $200 million term loan A facility with a maturity of five years; and o a $500 million term loan B facility with a maturity of six years. At the closing of the transaction, New SAC did not borrow under the revolving credit facility. At that time approximately $155 million of the revolving credit facility was available because F-285 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) approximately $45 million of existing letters of credit were outstanding and reduced availability under it. New SAC drew the full amount of the term loan A facility and the term loan B facility on the closing of the transaction to finance the acquisition of Seagate Technology's operating assets, including RSS. The $700 million of outstanding loans under the term loan A and B facilities are repayable in semi-annual payments due as follows:
(IN THOUSANDS) --------------- Fiscal 2001 ............ $ 5,000 2002 ..... ........... 22,500 2003 ..... ........... 40,000 2004 ..... ........... 50,000 2005 ..... ........... 60,000 Thereafter .......... 522,500 -------- Total .... ........... $700,000 ========
The loans bear interest at variable rates dependent upon market interest rates and the nature of the borrowings, as well as the consolidated financial position of New SAC at applicable measurement dates. The average interest rates being charged under these borrowings from the date of the New SAC Transaction ranged from 9.1875% (LIBOR plus 2.5%) to 9.6875% (LIBOR plus 3%). New SAC and certain of its subsidiaries, including RSS and certain of its subsidiaries are guarantors under the senior credit facilities. In addition, the majority of New SAC's and certain of its subsidiaries' assets, including RSS' assets and its capital stock, have been pledged for the debt under this credit agreement. New SAC and certain of its subsidiaries, including RSS and certain of its subsidiaries, have agreed to certain covenants under this agreement including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. Further, RSS, as part of the consolidated group, is subject to certain financial covenants which are assessed on the consolidated operating results and financial position of New SAC and its subsidiaries. The credit agreement provides for the release of RSS from its guarantee obligations, and asset pledge upon an approved transfer or sale of RSS' common stock, or an initial public offering of at least 10%, on a fully diluted basis, of RSS' voting common stock. SENIOR SUBORDINATED NOTES In connection with the closing and financing of the New SAC Transaction, Seagate Technology International issued unsecured senior subordinated notes under an Indenture Agreement dated November 22, 2000 at a discount to the aggregate principal amount of $210 million, for gross proceeds of approximately $201 million. The notes mature on November 15, 2007 and bear interest payable semi-annually at a rate of 12.5% per annum. New SAC and certain of its subsidiaries, including RSS and certain of its subsidiaries, are guarantors of the notes, see Note 13. In addition, New SAC and certain of its subsidiaries including RSS and certain of its subsidiaries, have agreed to certain restrictive covenants under the terms of these notes including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. RSS may be released from its guarantee obligation, if there are certain sales of its capital stock, including in an initial public offering, but would remain subject to the restrictive covenants of the indenture until RSS and its subsidiaries are no longer subsidiaries of New SAC or are deemed no longer to be subject to the restrictive covenants. F-286 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) New SAC will not require RSS' cash flow to be used to service the obligations pursuant to the senior secured credit facility and the senior subordinated notes. The Company believes that none of the guarantees or pledges of assets under the senior credit facilities or the guarantees under the Indenture are likely to be invoked. 10. COMMITMENTS LEASES The Company, leases certain property, facilities and equipment under non-cancelable lease agreements. Land and facility leases expire at various dates through 2015 and contain various provisions for rental adjustments including, in certain cases, a provision based on increases in the Consumer Price Index. All of the leases require the Company, to pay property taxes, insurance and normal maintenance costs. Future minimum lease payments for operating leases with initial or remaining terms of one year or more at June 30, 2000 were as follows:
OPERATING LEASES --------------- (IN THOUSANDS) 2001 ................................. $2,057 2002 ................................. 1,800 2003 ................................. 1,413 2004 ................................. 1,295 2005 ................................. -- Thereafter ........................... -- ------ Total minimum lease payments ......... $6,565 ======
Total rental expense for all land, facility and equipment operating leases was approximately $2,292,000, $2,195,000 and $2,282,000 for 2000, 1999 and 1998, respectively. CAPITAL EXPENDITURES The Company's commitments for construction of manufacturing facilities and equipment approximated $2,300,000 at June 30, 2000. F-287 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 11. SUPPLEMENTAL CASH FLOW INFORMATION The components of depreciation and amortization are as follows:
2000 1999 1998 --------- --------- --------- (IN THOUSANDS) Depreciation ..................................... $5,729 $5,682 $5,428 Amortization of goodwill and intangibles ......... 877 3,222 2,181
12. RELATED PARTY TRANSACTIONS Historically, Seagate Technology has provided substantial services to the Company. Upon the closing of the stock purchase agreement by New SAC, these services continue to be provided by New SAC. The services provided generally include general management, treasury, tax, financial reporting, benefits administration, insurance, information technology, legal accounts payable and receivable and credit functions, among others. Seagate Technology charges the Company for these services through corporate expense allocations. The amount of corporate expense allocations depends upon the total amount of allocable costs incurred by Seagate Technology on behalf of the Company less amounts charged as specific cost or expense rather than by allocation. Such costs have been proportionately allocated to the Company based on detailed inquiries and estimates of time incurred by Seagate Technology's corporate marketing and general administrative departmental managers. Management believes that the allocations charged to the Company is reasonable. Allocations charged to the Company's marketing and administrative expenses for the years ended June 30, 2000, July 2, 1999 and July 3, 1998 were $3,476,000, $3,476,000 and $3,476,000, respectively. The Company conducts transactions with a number of New SAC subsidiaries. The Predecessor conducted a number of transactions with Seagate Technology. These transactions generally include warranty repair and customer service administration, Wafer Manufacturing in Springtown, Ireland, and product distribution in the Far East and Eastern Europe, among others. For the years ended June 30, 2000, July 2, 1999 and July 3, 1998 the Company sold products to Seagate Technology totaling approximately $864,000, $608,000 and $1,949,000, respectively. For the years ended June 30, 2000, July 2, 1999 and July 3, 1998 the Company purchased products from Seagate Technology totaling approximately $8,113,000, $7,869,000 and $4,609,000, respectively. 13. CONDENSED FINANCIAL INFORMATION Seagate Removable Storage Solutions Holdings, ("RSS"), is a subsidiary of New SAC. The Senior Subordinated Debt, see Note 9, is guaranteed by certain, but not all of the subsidiaries of New SAC, including certain of RSS's world-wide subsidiaries. The guarantees of the subordinated debt are full and unconditional, and are made on a joint and several basis by the guaranteeing subsidiaries. The following tables present guarantor and non-guarantor condensed financial information for RSS's subsidiaries, at June 30, 2000 and June 29, 1999, and the condensed results of its operations and its cash flows for the years ended June 30, 2000, June 29, 1999 and June 27, 1998. The information is based on the guarantor and non-guarantor classification of RSS's subsidiaries under the current provisions of the senior subordinated debentures. F-288 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) CONDENSED COMBINING BALANCE SHEET JUNE 30, 2000 (IN THOUSANDS)
TOTAL GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ----------- ASSETS Cash and cash equivalents ........................ $ 2,475 $ 27 $ -- $ 2,502 Accounts receivable, net ......................... 20,554 6,719 (8,056) 19,217 Inventories ...................................... 14,833 2,033 -- 16,866 Deferred income taxes ............................ 7,675 -- -- 7,675 Other current assets ............................. 1,590 186 -- 1,776 -------- -------- --------- -------- Total Current Assets .......................... 47,127 8,965 (8,056) 48,036 Property, equipment, leasehold improvements, net ............................................. 12,328 2,104 -- 14,432 Goodwill and other intangibles ................... 3,170 -- -- 3,170 -------- -------- --------- -------- Total Assets .................................. $ 62,625 $ 11,069 $ (8,056) $ 65,638 ======== ======== ========= ======== LIABILITIES Accounts payable ................................. $ 23,577 $ 2,457 $ (8,056) $ 17,978 Accrued employee compensation .................... 6,270 463 -- 6,733 Accrued expenses ................................. 6,646 631 -- 7,277 Accrued warranty ................................. 5,276 -- -- 5,276 Current portions of long-term debt ............... 666 -- -- 666 -------- -------- --------- -------- Total Current Liabilities ..................... 42,435 3,551 (8,056) 37,930 Other liabilities ................................ 2,839 -- -- 2,839 -------- -------- --------- -------- BUSINESS EQUITY .................................. 17,351 7,518 -- 24,869 -------- -------- --------- -------- Total Liabilities and Business Equity ......... $ 62,625 $ 11,069 $ (8,056) $ 65,638 ======== ======== ========= ========
F-289 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) CONDENSED COMBINING STATEMENT OF OPERATIONS JUNE 30, 2000 (IN THOUSANDS)
TOTAL GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ------------ Revenues ............................................... $ 262,095 $ 47,532 $ (46,813) $ 262,814 Cost of sales .......................................... 278,431 43,575 (46,813) 193,193 Product development .................................... 37,444 -- -- 37,444 Marketing and administrative ........................... 17,338 1,240 -- 18,578 Amortization of goodwill and other intangibles ......... 877 -- -- 877 Restructuring .......................................... 627 -- -- 627 --------- -------- ---------- --------- Total operating expense ............................. 255,717 44,815 (128,813) 250,719 Income (loss) from operations ....................... 6,378 2,717 -- 12,095 Other, net ............................................. 1,576 -- -- 1,576 --------- -------- ---------- --------- Income (loss) before income taxes ...................... 7,954 2,717 -- 13,671 Benefit (provision) for income taxes ................... (3,762) (670) -- (4,432) --------- -------- ---------- --------- Net income (loss) ................................... $ 7,192 $ 2,047 $ -- $ 9,239 ========= ======== ========== =========
F-290 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) CONDENSED COMBINING STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2000 (IN THOUSANDS)
TOTAL GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................................. $ 10,320 $ 7,266 $ -- $ 17,586 INVESTING ACTIVITIES Acquisition of property, equipment, and leasehold improvements, net ................ (6,086) (2,997) -- (9,083) Proceeds from sale of property, equipment and leasehold improvements ..................... 670 -- -- 670 Net cash provided by (used in) investing activities .............................. (8,510) 97 -- (8,413) FINANCING ACTIVITIES Net cash change in investments by Seagate Technology, Inc. ........................... (7,358) (2,724) -- (9,082) -------- -------- ---- -------- Net cash provided by (used in) financing activities ................................. (1,724) (7,358) -- (9,082) Increase (decrease) in cash and cash equivalents ................................ 86 5 -- 91 Cash and cash equivalents at the beginning of the year ................................... 2,389 22 -- 2,411 -------- -------- ---- -------- Cash and cash equivalents at the end of the year ....................................... $ 2,475 $ 27 $ -- $ 2,502 ======== ======== ==== ========
F-291 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) CONDENSED COMBINING BALANCE SHEET JULY 2, 1999 (IN THOUSANDS)
TOTAL GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ----------- ASSETS Cash and cash equivalents ........................ $ 2,389 $ 22 $ -- $ 2,411 Accounts receivable, net ......................... 88,297 12,419 (65,030) 35,686 Inventories ...................................... 10,124 998 -- 11,122 Other current assets ............................. 823 135 -- 958 Deferred income taxes ............................ 12,373 -- -- 12,373 -------- ------- ---------- -------- Total Current Assets .......................... 114,006 13,574 (65,030) 62,550 Property, equipment, leasehold improvements, net ............................................. 9,176 2,996 -- 12,172 Other assets ..................................... 3,612 -- -- 3,612 -------- ------- ---------- -------- Total Assets .................................. $126,794 $16,570 $ (65,030) $ 78,334 ======== ======= ========== ======== LIABILITIES Accounts payable ................................. $ 84,264 $ 5,460 $ (65,030) $ 24,694 Accrued employee compensation .................... 6,711 582 -- 7,293 Accrued expenses ................................. 12,994 423 -- 13,417 Accrued warranty ................................. 5,951 -- -- 5,951 -------- ------- ---------- -------- Total Current Liabilities ..................... 109,920 6,465 (65,030) 51,355 Other liabilities ................................ 2,267 -- -- 2,267 -------- ------- ---------- -------- BUSINESS EQUITY .................................. 11,883 12,829 -- 24,712 -------- ------- ---------- -------- Total Liabilities and Business Equity ......... $124,070 $19,294 $ (65,030) $ 78,334 ======== ======= ========== ========
F-292 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) CONDENSED COMBINING STATEMENT OF OPERATIONS JULY 2, 1999 (IN THOUSANDS)
TOTAL GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ------------ Revenues ............................................... $325,265 $ 64,792 $ (76,051) $ 314,006 Cost of sales .......................................... 311,172 59,030 (76,051) 225,151 Product development .................................... 36,081 -- -- 36,081 Marketing and administrative ........................... 22,651 273 -- 22,924 Amortization of goodwill and other intangibles ......... 3,207 -- -- 3,207 Restructuring .......................................... 711 -- -- 711 -------- -------- ---------- --------- Total operating expense ............................. 304,822 59,303 (76,051) 288,074 Income (loss) from operations ....................... 20,443 5,489 -- 25,932 Other, net ............................................. 2 -- -- 2 -------- -------- ---------- --------- Income (loss) before income taxes ...................... 20,445 5,489 -- 25,934 Benefit (provision) for income taxes ................... (9,307) (249) -- (9,556) -------- -------- ---------- --------- Net income (loss) ................................... $ 11,138 $ 5,240 $ -- $ 16,378 ======== ======== ========== =========
F-293 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) CONDENSED COMBINING STATEMENT OF CASH FLOWS YEAR ENDED JULY 2, 1999 (IN THOUSANDS)
GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................................. $ 68,063 $ (827) $ (28,545) $ 38,691 INVESTING ACTIVITIES Acquisition of property, equipment, and leasehold improvements ..................... 5,484 (1,526) -- (6,573) Proceeds from sale of property, equipment and leasehold improvements ..................... 958 -- -- 958 Net cash provided by (used in) investing activities .............................. 7,141 (1,526) -- (5,615) FINANCING ACTIVITIES Net change in investments by Seagate Technology ................................. (59,919) 2,313 28,545 (29,061) --------- -------- --------- --------- Net cash provided by (used in) financing activities .............................. (59,919) 2,313 28,545 29,061 Increase (decrease) in cash and cash equivalents ................................ (3,975) (40) -- 4,015 Cash and cash equivalents at the beginning of the year ................................ (1,666) 62 -- (1,604) --------- -------- --------- --------- Cash and cash equivalents at the end of the year ................................ $ 2,389 $ 22 $ -- $ 2,411 ========= ======== ========= =========
F-294 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) CONDENSED COMBINING STATEMENT OF OPERATIONS JULY 3, 1998 (IN THOUSANDS)
TOTAL GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ------------ Revenues ............................................... $ 299,529 $ 53,755 $ (67,198) $ 286,086 Cost of sales .......................................... 246,950 49,149 (67,198) 228,901 Product development .................................... 24,981 -- -- 24,981 Marketing and administrative ........................... 26,757 418 -- 27,175 Amortization of goodwill and other intangibles ......... 2,181 -- -- 2,181 Restructuring .......................................... 686 -- -- 686 --------- -------- ---------- --------- Total operating expense ............................. 301,555 49,567 (67,198) 283,924 Income (loss) from operations ....................... (2,026) 4,188 -- 2,162 Other, net ............................................. 887 -- -- 887 --------- -------- ---------- --------- Income (loss) before income taxes ...................... (1,139) 4,188 -- 3,049 Benefit (provision) for income taxes ................... (1,571) -- -- (1,571) --------- -------- ---------- --------- Net income (loss) ................................... $ (2,710) $ 4,188 $ -- $ 1,478 ========= ======== ========== =========
F-295 SEAGATE REMOVABLE STORAGE SOLUTIONS, AN OPERATING BUSINESS OF SEAGATE TECHNOLOGY, INC., THE PREDECESSOR TO SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS NOTES TO COMBINED FINANCIAL STATEMENTS (CONCLUDED) CONDENSED COMBINING STATEMENT OF CASH FLOWS YEAR ENDED JULY 3, 1998 (IN THOUSANDS)
GUARANTORS NON-GUARANTORS ELIMINATIONS COMBINED ------------ ---------------- -------------- ------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................................. $ 21,234 $ 3,431 $ (135) $ 24,530 INVESTING ACTIVITIES Acquisition of property, equipment, and leasehold improvements, net ................ (4,383) (2,840) -- (7,223) Proceeds from sale of property, equipment and leasehold improvements ..................... 1,949 -- -- 1,949 Net cash provided by (used in) investing activities .............................. (2,434) (2,840) -- (5,274) FINANCING ACTIVITIES Net change in investments by Seagate Technology ................................. (21,434) (529) 135 (21,828) --------- -------- ------ --------- Net cash provided by (used in) financing activities .............................. (21,434) (529) 135 (21,828) Effect of exchange rate changes on cash and cash equivalents ........................... -- Increase (decrease) in cash and cash equivalents ................................ (2,634) 62 -- (2,572) Cash and cash equivalents at the beginning of the year ................................... 968 -- -- 968 --------- -------- ------ --------- Cash and cash equivalents at the end of the year ....................................... $ (1,666) $ 62 $ -- $ (1,604) ========= ======== ====== =========
F-296 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) CONSOLIDATED AND COMBINED CONDENSED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
DECEMBER 29, 2000 JUNE 30, (SEE NOTE 2) 2000 -------------- ------------- ASSETS (See Note 10) Cash ......................................................... $ 6,544 $ 3,621 Loan receivable from Seagate Technology (See Note 3) ......... 31,331 25,681 Accounts receivable, net ..................................... 21,083 16,578 Income taxes receivable ...................................... 1,599 6,071 Inventories .................................................. 357 674 Prepaid and other current assets ............................. 4,181 4,021 ------- ---------- Total Current Assets ........................................ 65,095 56,646 Capital assets, net .......................................... 5,955 9,348 Goodwill and other intangibles, net .......................... 21,687 5,286 ------- ---------- Total Assets ................................................ $92,737 $ 71,280 ======= ========== LIABILITIES Current liabilities: Accounts payable ............................................. 10,064 10,190 Accrued employee compensation ................................ 8,449 6,004 Accrued expenses ............................................. 11,003 12,097 Deferred revenue ............................................. 24,971 19,495 ------- ---------- Total Current Liabilities ................................... 54,487 47,786 Deferred income taxes ........................................ 2,087 381 ------- ---------- Total Liabilities ........................................... 56,574 48,167 Commitments and contingencies (See Notes 2, 3, and 10) STOCKHOLDERS' EQUITY Common stock -- 150,000,000 shares authorized; shares issued and outstanding -- 75,283,820 and 75,002,050 at $0.001 par value per share as of December 29, 2000 and June 30, 2000 ............................................... 75 75 Additional paid-in capital ................................... 41,625 407,893 Accumulated deficit .......................................... (5,535) (384,688) Accumulated other comprehensive loss ......................... (2) (167) ---------- ---------- Total Stockholders' Equity .................................. 36,163 23,113 --------- ---------- Total Liabilities and Stockholders' Equity .................. $92,737 $ 71,280 ========= ==========
See notes to consolidated and combined condensed financial statements. F-297 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
FOR THE SIX MONTHS ENDED -------------------------------- DECEMBER 29, DECEMBER 31, 2000 1999 -------------- --------------- Revenues: Licensing (See note 7) ............................................ $ 48,536 $ 31,391 Maintenance, support and services (See note 7) .................... 28,512 26,784 ----------- ----------- Total Revenues ................................................... 77,048 58,175 Cost of revenues: Licensing ......................................................... 2,182 1,603 Maintenance, support and services ................................. 20,028 20,815 Amortization of developed technologies ............................ 511 93 ----------- ----------- Total Cost of Revenues ........................................... 22,721 22,511 ----------- ----------- Gross profit ...................................................... 54,327 35,664 Operating expenses: Sales and marketing ............................................... 34,823 32,427 Research and development .......................................... 13,785 12,841 General and administrative (See note 7) ........................... 9,491 10,008 Amortization of goodwill and other intangibles .................... 844 2,002 Write-off of in-process research and development (See note 2) ..... 7,073 -- Unusual items (See note 5) ........................................ 1,851 242,569 Restructuring costs (See note 6) .................................. 573 1,301 ----------- ----------- Total Operating Expenses ......................................... 68,440 301,148 ----------- ----------- Loss from Operations .............................................. (14,113) (265,484) Interest and Other Income (Expense), net (See note 3) ............. 1,120 (1,283) ----------- ----------- Loss before income taxes .......................................... (12,993) (266,767) Benefit from (provision for) income taxes (See note 8) ............ 2,506 48,881 ----------- ----------- Net Loss ......................................................... $ (10,487) $ (217,886) =========== =========== Net loss per share: Basic and diluted (See note 9) .................................... $ (0.14) $ (2.90) =========== =========== Weighted average number of shares used in basic and diluted net loss per share: .............................................. 75,155,894 75,001,000
See notes to consolidated and combined condensed financial statements. F-298 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
(SEE NOTE 2) FOR THE SIX MONTHS ENDED ------------------------------ DECEMBER 29, DECEMBER 31, 2000 1999 -------------- ------------- OPERATING ACTIVITIES: Net loss ....................................................... $ (10,487) $ (217,886) Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization ................................. 3,635 4,112 Bad debt expense .............................................. 588 2,674 Deferred income taxes ......................................... 162 (27) Stock based compensation expense on Seagate Technology Exchange of Shares .......................................... 1,851 239,574 Write-off of in-process research and development .............. 7,073 -- --------- ---------- 2,822 28,447 --------- ---------- Changes in operating assets and liabilities: Accounts receivable ........................................... (5,059) 15,916 Income taxes receivable ....................................... 4,472 (51,280) Income taxes receivable from Seagate Technology ............... (3,978) (4,118) Inventories ................................................... 317 366 Prepaid and other current assets .............................. (129) (3,397) Accounts payable .............................................. (75) (2,668) Accrued employee compensation ................................. 2,527 (4,422) Accrued expenses .............................................. (1,094) 4,575 Deferred revenue .............................................. 6,821 (568) Other liabilities ............................................. -- (225) --------- ---------- Net cash provided by (used in) operating activities ............ 6,624 (17,374) --------- ---------- INVESTING ACTIVITIES: Acquisition of capital assets, net ............................. (2,966) (1,454) --------- ---------- Net cash (used in) investing activities ........................ (2,966) (1,454) --------- ---------- FINANCING ACTIVITIES: Issuance of common stock and common stock subject to repurchase .................................................... 1,127 1 Borrowings from Seagate Technology ............................. 76,712 94,895 Payment to Seagate Technology .................................. (78,384) (77,075) --------- ---------- Net cash provided by (used in) financing activities ......... (545) 17,821 Effect of exchange rate changes on cash ........................ (190) 614 --------- ---------- Increase (decrease) in cash ................................. 2,923 (393) Cash at the beginning of the period ............................ 3,621 7,419 --------- ---------- Cash at the end of the period .................................. $ 6,544 $ 7,026 ========= ==========
See notes to consolidated and combined condensed financial statements. F-299 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION DESCRIPTION OF BUSINESS Crystal Decisions, Inc. -- ("Crystal Decisions" or the "Company") develops and markets software products and provides related services enabling business users and information technology professionals to manage enterprise information. Crystal Decisions operates in a single industry segment and its products, commonly referred to as business intelligence software, permit the analysis and interpretation of data in order to make business decisions. Crystal Decisions was incorporated in Delaware in August 1999. Crystal Decision's headquarters are located in Palo Alto, California. Crystal Decisions is a majority-owned subsidiary of Seagate Software (Cayman) Holdings, Inc., a Cayman Islands limited corporation ("Suez Software"), which is a wholly owned subsidiary of New SAC, a Cayman Islands limited corporation ("New SAC"), whose predecessor was Seagate Technology, Inc. ("Seagate Technology"). On November 22, 2000, through Suez Software, Crystal Decisions became a majority owned subsidiary of Suez Software. Prior to November 22, 2000, the Company was a majority owned subsidiary of Seagate Software Holdings, Inc. ("Seagate Software Holdings", formerly known as Seagate Software, Inc.), a Delaware corporation and wholly owned subsidiary of Seagate Technology. Seagate Technology was a data technology company that provided products for storing, managing and accessing digital information on computer systems. The outstanding minority interests in the Company's capital stock amounted to approximately 12.8% and 10.5% on a fully diluted basis as of December 29, 2000 and June 30, 2000, respectively. The minority interests consisted of the Company's common stock and options to purchase its common stock issued pursuant to the 1999 and 2000 Stock Option Plans. In March 2001, the Company changed its name from Seagate Software Information Management Group Holdings, Inc. to Crystal Decisions, Inc. BASIS OF PRESENTATION The consolidated and combined condensed financial statements of the Company have been prepared by the Company, without audit, in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations. These unaudited interim financial statements, should be read in conjunction with the consolidated and combined financial statements and related notes of the Company as of June 30, 2000, July 2, 1999 and July 3, 1998 included herein. The consolidated and combined condensed financial statements reflect, in the opinion of management, all material adjustments (consisting of normal recurring items) necessary for the fair presentation of the consolidated financial position, results of operations and cash flows for such periods. The results of operations for the six months ended December 29, 2000 are not necessarily indicative of the results that may be expected for the entire fiscal year ending June 29, 2001. On November 22, 2000, 99% of the outstanding common stock of Crystal Decisions was purchased by New SAC, through Suez Software and resulted in a "Change in Control of Crystal Decisions" as described in note 2. Under the Securities and Exchange Commission's, or SEC's, rules and regulations, because more than 95% of the Company was acquired and a change of ownership F-300 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) occurred, the Company has restated all its assets and liabilities as of November 22, 2000 on a push down accounting basis. Accordingly, results of operations prior to November 22, 2000 and the comparative information presented do not reflect these adjustments. Refer to further discussion of the push down accounting basis in note 2. The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 2000 ended on June 30, 2000, fiscal 1999 ended on July 2, 1999 and fiscal 1998 ended on July 3, 1998. Fiscal 2000 and 1999 were comprised of 52 weeks. Fiscal 1998 was comprised of 53 weeks. Fiscal 2001 will be a 52-week year and will end on June 29, 2001. The quarters ended October 1, 1999, December 31, 1999, September 29, 2000 and December 29, 2000 each comprised 13 weeks of activity. 2. CHANGE IN CONTROL OF CRYSTAL DECISIONS On November 22, 2000, Suez Software, a wholly owned subsidiary of New SAC, acquired 75,001,000 shares of Crystal Decisions common stock under the terms of a stock purchase agreement (the "Stock Purchase Agreement"). As a result of this transaction, New SAC held 99.6% of the outstanding capital stock of Crystal Decisions at December 29, 2000. New SAC did not purchase shares of Crystal Decisions common stock that are outstanding as a result of the exercise of options to purchase these shares under Crystal Decisions' 1999 and 2000 Stock Option Plans. Crystal Decisions' minority stockholders continue to hold their interests in common stock. In addition, the outstanding unexercised options granted under the 1999 and 2000 Stock Option Plans continue to remain outstanding. SALE OF SEAGATE TECHNOLOGY On March 29, 2000, Seagate Software Holdings, Seagate Technology and Suez Acquisition Company (Cayman) Limited ("SAC"), an entity affiliated with, among others, Silver Lake Partners and Texas Pacific Group, entered into the stock purchase agreement, and Seagate Technology, VERITAS Software Corporation ("VERITAS") and a wholly owned subsidiary of VERITAS entered into an agreement and plan of Merger and Reorganization (the "Merger Agreement"). At the closing of the transaction contemplated by the stock purchase agreement, SAC assigned all of its rights under such agreements to New SAC. SAC was organized solely for the purpose of entering into the Stock Purchase Agreement with Seagate Technology and Seagate Software Holdings. Similar to SAC, New SAC is controlled by Silver Lake Partners and Texas Pacific Group. Silver Lake Partners L.P. is a private investment firm headquartered in Menlo Park, California and New York, New York, the general partner of which is Silver Lake Technology Associates, L.L.C. Silver Lake Technology Associates L.L.C. is a Delaware limited liability company. TRANSACTION FINANCING AND CONSIDERATION PAID New SAC financed the acquisition of the Seagate Technology operating assets, including 75,001,000 shares of Crystal Decisions' common stock through: o Equity financing of $916 million from Silver Lake Partners, L.P., TPG Partners III, L.P., August Capital, Chase Capital Partners, GS Private Equity Partners, L.P. and other investors, including certain of the directors of Crystal Decisions. F-301 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) o A senior secured credit facility of $700 million in the aggregate from the Chase Manhattan Bank, Goldman Sachs Credit Partners L.P. and Merrill Lynch Capital Corporation. In addition, a revolver facility was entered into with amounts available up to $200 million. o Senior subordinated notes of approximately $210 million issued by Seagate Technology International (which is an indirect subsidiary of New SAC) at a discount to the aggregate principal amount of $210 million, for gross proceeds of approximately $201 million. o Certain cash reserves of Seagate Technology of approximately $149 million, net of estimated transaction costs of $100 million. o In lieu of receiving consideration in connection with the merger, most of Seagate Technology's senior management team converted a portion of their unvested Seagate Technology options and restricted stock ("rollover equity") with an aggregate value of $184 million into deferred compensation and an equity interest in New SAC. Although the amount of cash that Seagate Technology received from New SAC was reduced by the aggregate value of this converted equity, the total merger consideration received by Seagate Technology stockholders on a per share basis was not reduced due to the cancellation of a number of Seagate Technology stock options equal in value to the $184 million in rollover equity. As a result, while the cash component of the merger consideration to be received by Seagate Technology shareholders was reduced on a per share basis, the VERITAS shares component of the merger consideration was increased on a per share basis by an offsetting amount because of the antidilutive impact of the Seagate Technology stock options that were cancelled. Under the Stock Purchase Agreement, New SAC purchased for $2.05 billion of cash (less the value of Seagate Technology equity rolled over by former Seagate Technology officers and less $50 million paid to VERITAS and to be released to the former Seagate Technology shareholders upon settlement of outstanding lawsuits), all of the operating assets of Seagate Technology and its consolidated subsidiaries, including Seagate Technology's rigid disc drive, storage area network, removable tape storage solutions, enterprise management software businesses and operations, including shares of Crystal Decisions common stock, and certain cash balances, but excluding the approximately 128 million shares of VERITAS common stock then held by Seagate Software Holdings and Seagate Technology's equity investments in Gadzoox Networks, Inc. and Lernout & Hauspie Speech Products N.V. In addition, under the Stock Purchase Agreement, wholly owned subsidiaries of New SAC assumed substantially all of the operating liabilities of Seagate Technology, Seagate Software Holdings and their consolidated subsidiaries. This transaction is referred to hereafter as the New SAC Transaction. Immediately following the New SAC Transaction, VERITAS acquired Seagate Technology pursuant to the Merger Agreement and a wholly owned subsidiary of VERITAS merged with and into Seagate Technology, and Seagate Technology survived the merger and became a wholly owned subsidiary of VERITAS. This wholly owned subsidiary was renamed VERITAS Software Technology Corporation. We refer to this transaction as the Merger. In the Merger, Seagate Technology stockholders received consideration consisting of 0.4465 shares of VERITAS common stock and $8.55 of cash per share of Seagate Technology common stock. The Merger is intended to qualify as a tax-free reorganization. In addition, Seagate Technology stockholders were entitled to receive their proportionate amounts of a tax refund trust account, a class action litigation settlement of $50 million and the shares of Lernout & Hauspie Speech Products N.V. held by Seagate Technology at closing. F-302 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) VERITAS did not acquire Seagate Technology's disc drive business or any other Seagate Technology operating business, including Crystal Decisions. All of Seagate Technology's operating assets, including Crystal Decisions, were sold to wholly owned subsidiaries of New SAC in connection with the leveraged buyout. The New SAC Transaction and the Merger are referred to collectively herein as the transactions. Crystal Decisions' directors and officers had interests in the transactions that may have differed from those of Seagate Technology's, or VERITAS' stockholders. For example, certain directors and officers of Crystal Decisions are members of the board of directors of VERITAS. As part of the New SAC Transaction, New SAC, Seagate Technology and Crystal Decisions agreed to assume and indemnify VERITAS for substantially all liabilities arising in connection with the Company's operating assets. On March 29, 2000, Seagate Technology, VERITAS and SAC entered into an Indemnification Agreement, pursuant to which these entities and certain other subsidiaries of Seagate Technology, including Crystal Decisions, have agreed to certain indemnification provisions regarding tax and other matters that may arise in connection with the transactions. A majority of Crystal Decisions' assets, along with certain other assets of Seagate Technology, are now pledged as a guarantee for debt issued to finance the New SAC Transaction. (Refer to further discussion in note 10). The federal tax allocation agreement ("Tax Allocation Agreement") Crystal Decisions had with Seagate Technology was terminated on November 22, 2000, and Crystal Decisions will no longer file federal income tax returns on a consolidated basis with Seagate Technology. (Refer to further discussion in note 8). Crystal Decisions relies on a revolving loan, pursuant to a revolving loan agreement (the "Revolving Loan Agreement"), with Seagate Technology LLC, which is a wholly owned subsidiary of New SAC, to fund a portion of its operating cash needs. The Revolving Loan Agreement continues in effect subsequent to the closing of the New SAC Transaction on November 22, 2000 and expires on July 4, 2001. (Refer to further discussion in note 3). ALLOCATION OF PURCHASE PRICE TO CRYSTAL DECISIONS PURSUANT TO THE APPLICATION OF PUSH DOWN ACCOUNTING The New SAC Transaction constituted a purchase business transaction of Seagate Technology and resulted in a change in control of Crystal Decisions. Under purchase accounting rules, the net purchase price under this transaction has been allocated to the assets and liabilities of Seagate Technology and its subsidiaries, including Crystal Decisions based on their estimated fair values at the date of the transaction. However, the estimated fair values of identifiable tangible and intangible assets and liabilities of Seagate Technology and its subsidiaries at the date of the transaction were greater than the amount paid, resulting in negative goodwill. The negative goodwill has been allocated to the long-lived tangible and intangible assets, including those of Crystal Decisions, on the basis of relative fair values. The estimated fair values of tangible and intangible assets, including in-process research and development, have been determined based upon independent appraisals. The consolidated and combined condensed interim financial statements as of December 29, 2000 reflect the historical results of operations and financial position up to the date of the transactions, November 22, 2000, the restatement of assets and liabilities at that date to reflect the push down purchase accounting adjustments, followed by the results of operations and financial F-303 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) position for the period from November 22, 2000 to December 29, 2000 reflecting the effects of restated balances from the date of the New SAC Transaction. As a result of the New SAC Transaction and the push down accounting, the Company's results of operations following the New SAC Transaction, particularly the depreciation and amortization charges, are not necessarily comparable to the results of operations prior to the New SAC Transaction. In connection with the finalization of the purchase price allocation of the transactions, New SAC and Crystal Decisions are currently evaluating the fair value of the consideration given and the fair value of the assets acquired and liabilities assumed. Using this information, New SAC and Crystal Decisions will make a final allocation of the purchase price including the allocation to in-process research and development and other intangibles. Accordingly, the purchase price allocation is preliminary, and subject to adjustment. The table below lists the estimated net purchase price allocation of the tangible and intangible assets acquired. The fair value of the intangible assets acquired and long-lived assets acquired have been reduced by approximately 46% as a result of negative goodwill allocated to these assets to arrive at the net purchase price allocation.
NET PURCHASE PRICE PURCHASE PRICE ALLOCATION ALLOCATION - ------------------------------------------------- ------------------- (IN THOUSANDS) Net current assets acquired ..................... $ 9,138 Tangible long-lived assets acquired (1) ......... 5,130 -------- 14,268 -------- Intangible assets acquired: Developed technology (2) ........................ 15,234 Assembled work force (3) ........................ 7,073 In-process research and development (4) ......... 7,073 Deferred tax liability (5) ...................... (2,126) -------- $ 27,254 -------- Total ........................................ $ 41,522 ========
- ---------- (1) Tangible long-lived assets acquired consists of leasehold improvements and equipment, and are amortized over their remaining useful lives of approximately 2 years. (2) The value of the developed technology has been estimated by discounting the expected future cash flows attributable to all existing technology, taking into account risks related to the characteristics and applications of the technology, existing and future markets and assessments of the life cycle stage of the technology. The analysis resulted in a valuation for developed technology, which had reached technological feasibility and therefore was capable of being capitalized. The developed technology is being amortized on the straight-line basis over its estimated useful life (3 years) and the amortization is included in cost of revenues. (3) The estimated value of the assembled work force has been determined by estimating the costs to replace the existing employees, including the recruiting, hiring and training costs for each category of employee. The assembled workforce is being amortized on the straight-line basis over its estimated useful life (3 years) and the amortization is included in amortization of goodwill and other intangibles. F-304 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) (4) As the basis for identifying the in-process research and development ("IPR&D"), Crystal Decisions' developmental projects were evaluated in the context of Financial Accounting Standards Board Interpretation 4 and paragraph 11 of Financial Accounting Standards Board ("FAS") Statement No. 2 and FAS Statement No. 86. Crystal Decisions has charged the value allocated to projects identified as IPR&D to expense in the period the transactions close. This write-off is necessary because the acquired technologies have not yet reached technological feasibility and have no future alternative uses. At the valuation date, Crystal Decisions was in the process of developing three next generation versions of existing technologies which were estimated to be about 85%, 70%, and 75% complete based on total man-hours and absolute time. Crystal Decisions expects these three projects to be completed in fiscal 2002, at an estimated cost of $20 million. The nature of the efforts required to develop the purchased IPR&D into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the product can be produced to meet its design specifications, including functions, features and technical performance requirements. Crystal Decisions expects that the acquired IPR&D will be successfully developed, but it cannot ensure that commercial viability of these products will be achieved. The value of the purchased IPR&D for Crystal Decisions has been calculated by estimating the projected net cash flows related to such products, including costs to complete the development of the technology and the future revenues to be earned on commercialization of the products. These cash flows were then discounted back to their net present value. The projected net cash flows from such projects were based on management's estimates of revenues and operating profits related to these projects. (5) Deferred taxes arose because of the difference between the book and tax basis of tangible long-lived and intangible assets acquired and located in jurisdictions other than the United States (U.S.). Deferred taxes do not arise for those intangible and tangible long-lived assets acquired and located in the U.S., because the transaction is subject to a special tax election in the U.S., whereby no difference in the book and tax basis of the net assets exists. PRO FORMA INFORMATION. The following table presents the unaudited pro forma results of operations for informational purposes, assuming the change of control of Crystal Decisions occurred at the beginning of fiscal 1999:
FOR THE SIX MONTHS ENDED ------------------------------ DECEMBER 29, DECEMBER 31, 2000 1999 -------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenue ............................................. $ 77,048 $ 58,175 Net loss .................................................. $ (6,847) $ (23,237) -------- --------- Pro forma basic and diluted net loss per share ......... $ (0.09) $ (0.31) ======== =========
The pro forma results of operations give effect to certain adjustments including amendment of amortization and depreciation of revalued intangible and tangible assets. The pro forma net loss for the six months ended December 29, 2000 and December 31, 1999 does not include the following push down and purchase price adjustments, as they represent one time charges which are not necessarily reflective of ongoing operating results: o unusual items of approximately $1.9 million and $242.6 million for the six months ended December 29, 2000 and December 31, 1999, respectively as described in note 5; F-305 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) o the effects of fair value adjustments to deferred revenue, reducing revenue by $1.3 million on a declining basis during the twelve months following the date of the transaction; and o the write off of IPR&D charges of approximately $7.1 million during the six months ended December 29, 2000, in connection with the SAC Transaction. 3. ECONOMIC DEPENDENCE ON SEAGATE TECHNOLOGY On July 4, 2000, Crystal Decisions and Seagate Technology LLC, then a wholly owned subsidiary of Seagate Technology, now an indirect subsidiary of New SAC, renewed the Revolving Loan Agreement dated June 28, 1996. Under the Revolving Loan Agreement, Seagate Technology LLC finances certain of Crystal Decisions' working capital needs and operating activities. The Revolving Loan Agreement provides for maximum outstanding borrowings of up to $60.0 million and expires on July 4, 2001. The Revolving Loan Agreement continued in effect subsequent to the closing of the New SAC Transaction on November 22, 2000. The loan is payable or receivable upon termination of the agreement. As of December 29, 2000 and June 30, 2000, the revolving loan balance was a net receivable from Seagate Technology LLC and its affiliates of $31.3 million and $25.7 million, respectively. The net receivable arose largely as a result of offsetting amounts due from Seagate Technology under a Tax Allocation Agreement for income tax loss benefits utilized by Seagate Technology relative to Crystal Decisions' tax loss position (refer to note 8 for further discussion). The loan balance is presented on the balance sheet as a net receivable or net payable in accordance with the terms of the loan agreement. During the six months ended December 29, 2000, Crystal Decisions earned interest income on a monthly basis on the net receivable revolving loan balance outstanding at a rate calculated to be Seagate Technology LLC's in-house portfolio yield (average of 7.67% for the six months ended December 29, 2000). During the six months ended December 31, 1999, interest was charged or earned on the net revolving loan balance receivable or payable outstanding on a monthly basis at LIBOR plus 2% per annum, (7.53% for the six months ended December 31, 1999). Interest income and expense as presented in the statement of operations primarily relates to interest on the revolving loan. Crystal Decisions has incurred net losses during the three year period ended June 30, 2000 and the six months ended December 29, 2000. Crystal Decisions relies on the revolving loan with Seagate Technology LLC to fund a portion of its operating needs. Crystal Decisions believes that the amounts due from Seagate Technology LLC under the Revolving Loan Agreement, in addition to the amounts available to Crystal Decisions under the Revolving Loan Agreement are sufficient to fund Crystal Decisions' operating and planned activities during the next six months. Crystal Decisions may require additional financing through the end of fiscal 2002. Crystal Decisions is in the process of negotiating additional financing with Seagate Technology LLC through the end of fiscal 2002. Should additional financing not be available from Seagate Technology LLC at terms that are satisfactory to Crystal Decisions and Seagate Technology LLC, Crystal Decisions may seek additional equity and financing from other sources, subject to concurrence by the lenders which financed the New SAC Transaction, as well as Crystal Decisions' parent company. As a result of the New SAC Transaction, Crystal Decisions guaranteed the debt used to finance the New SAC Transaction and pledged a majority of its assets. As a result of restrictive covenants under the debt agreement, the ability of Crystal Decisions to raise additional debt or equity from other sources may be limited. (Refer to note 10 for further discussion.) F-306 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) 4. REVENUE RECOGNITION Typically, Crystal Decisions can establish vendor specific objective evidence ("VSOE") for all elements of its multi-element arrangements, and accordingly, revenues are allocated to the individual elements on the basis of VSOE. During the second quarter of fiscal year 2001, Crystal Decisions adopted a new sales model that limits the sale of certain software license products sold on an individual basis and, as a result, is not able to establish sufficient VSOE for these license products. As a result of this change in circumstance, when these products are included in bundled arrangements with technical support and maintenance services, Crystal Decisions applies the residual method of accounting as specified in SOP 98-9 such that the total fair value of the undelivered elements as indicated by vendor-specific objective evidence, is deferred and subsequently recognized in accordance with SOP 97-2 and the difference between the total arrangement fee and the amount deferred for the undelivered elements is accounted for as revenue related to the delivered elements. The impact on revenues of applying the residual method of accounting in the six months ended December 29, 2000 was not material. Although not typical, some OEM arrangements contain end-user maintenance elements for which VSOE has not been established, as sufficient evidence of consistent pricing and renewal rates has not been present. In such arrangements, Crystal Decisions has recognized the arrangement fee ratably over the maintenance period in accordance with the provisions set forth in SOP 97-2. 5. UNUSUAL TRANSACTIONS SALE OF SEAGATE TECHNOLOGY On November 22, 2000, the date of the closing of the New SAC Transaction, vesting of Seagate Technology options were accelerated and net exercised for merger consideration of 0.4465 shares of VERITAS and $8.55 cash per share of Seagate Technology. The accelerated vesting and net exercise of these options resulted in compensation expense to Seagate Technology. At November 22, 2000, options to purchase 51,500 shares of Seagate Technology common stock were held by certain Crystal Decisions employees. As a result, the Company recorded approximately $1.9 million of compensation expense attributable to its employees as a capital contribution from Seagate. The compensation expense is recorded as an unusual item in the income statement for the six months ended December 29, 2000. THE OCTOBER 1999 SEAGATE TECHNOLOGY EXCHANGE OF SHARES On October 20, 1999, the stockholders of Seagate Software Holdings approved the merger of Seagate Daylight Merger Corp., a wholly owned subsidiary of Seagate Technology, with and into Seagate Software Holdings. The merger was effected on October 20, 1999. Seagate Software Holdings assets consisted of the assets of the business and its investment in the common stock of VERITAS. Upon the closing of the merger, Seagate Software Holdings became a wholly owned subsidiary of Seagate Technology. All outstanding options to purchase Seagate Software Holdings common stock were accelerated immediately prior to the merger. In connection with the merger, Seagate Software Holdings minority stockholders and optionees received payment in the form of 3.23 shares of Seagate's common stock per share of Seagate Software Holdings common stock less any amounts due for the payment of the exercise price of unexercised options. Seagate Technology issued 9,124,046 shares of its common stock from treasury shares to optionees and minority stockholders of Seagate Software Holdings in connection with the merger. Seagate Technology accounted for the exchange of shares of its common stock as the acquisition of a minority interest for Seagate Software Holdings common stock outstanding and F-307 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) vested more than six months held by employees and all stock held by former employees and consultants. The fair value of the shares of Seagate Technology issued was $19.4 million and was recorded as the purchase price and allocated to all the identifiable tangible and intangible assets and liabilities of Seagate Software Holdings. Seagate Technology accounted for the exchange of shares of its common stock for stock options in Seagate Software Holdings held by employees and stock held and vested by employees less than six months as the settlement of an earlier stock award. Seagate Technology recorded compensation expense of $283.6 million, plus $2.1 million of employer portion of payroll taxes, related to the purchase of minority interest in Seagate Software Holdings. The consolidated and combined condensed statement of operations for the six months ended December 31, 1999 includes an allocation of compensation expense arising from the October 1999 Seagate Technology exchange offer. Compensation expense was allocated to Crystal Decisions on the basis of employees specifically identified with the business and for those employees that performed services for the business, on the basis of time estimates. Accordingly, Crystal Decisions recorded $239.6 million of the $283.6 million compensation expense related to the October 1999 Seagate Exchange of Shares and an offsetting $239.6 million was recorded as a capital contribution from Seagate Technology. In addition, the $2.1 million of employer portion of payroll taxes paid related to Crystal Decisions employees and therefore the amount was recorded as an expense for the six months ended December 31, 1999. In addition, $877,000 of legal and accounting costs were incurred by Crystal Decisions in connection with the recapitalization and reorganization of Crystal Decisions, of which $523,000 was recorded in the six months ended December 31, 1999. The following table summarizes the components of the unusual items expense for the six months ended December 31, 1999 reported by Seagate that are attributable to the employees of Crystal Decisions:
AS REPORTED BY ALLOCATED TO SEAGATE TECHNOLOGY CRYSTAL DECISIONS -------------------- ------------------ (IN THOUSANDS) Compensation expense associated with the exchange of Seagate Software Holdings common stock for Seagate Technology common stock ...................................................... $283,619 $239,574 Employer portion of payroll taxes ........................... 2,118 2,118 Transaction costs ........................................... 877 877 -------- -------- Total unusual items ...................................... $286,614 $242,569 ======== ========
F-308 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) 6. RESTRUCTURING COSTS During the six months ended December 29, 2000, Crystal Decisions incurred $573,000 of restructuring charges. The charges relate to the closure of eight offices in Europe and are part of a restructuring plan announced in September 2000 to consolidate the European sales organization into fewer office locations. The charges primarily consisted of costs related to the termination of office leases and other related closure costs, as well as severance and benefits due to nine sales and marketing employees who were terminated in September 2000. At December 29, 2000, $375,000 was included in accrued expenses and is expected to be paid by the quarter ending March 30, 2001. During the six months ended December 31, 1999, Crystal Decisions incurred $1.3 million of restructuring charges for termination of excess personnel as Crystal Decisions realigned its resources to better manage and control its business. The charges resulted from a company-wide restructuring plan announced in October 1999 and were comprised of charges of severance and benefits paid to approximately 125 employees from various locations and departments, including direct sales force personnel, who were terminated on October 23, 1999. The restructuring charges were paid during fiscal 2000. The restructuring events described above were independent of each other. 7. RELATED PARTY TRANSACTIONS During the six months ended December 29, 2000, Crystal Decisions signed a software license agreement (the "License Agreement") with Seagate Technology. Under the terms of the License Agreement, Crystal Decisions granted Seagate Technology a non-exclusive, non-transferable, perpetual license to use its business intelligence software and maintenance and support services. The total value of the License Agreement is $1.6 million. The License Agreement was priced at an approximate 50% discount to Crystal Decisions' established list price. During the six months ended December 29, 2000, Crystal Decisions recognized a total of $1.3 million from the License Agreement. The balance of $347,000 is included in deferred revenue. As of December 29, 2000, there were no outstanding amounts owed by Seagate included in accounts receivable. Historically, Seagate Technology has provided substantial services to Crystal Decisions under a General Services Agreement dated June 28, 1997. Upon the closing of the New SAC Transaction, this agreement was assumed by New SAC. The services generally include general management, treasury, tax, financial reporting, benefits administration, insurance, information technology, legal, accounts payable and receivable and credit functions, among others. Seagate Technology charges Crystal Decisions for these services through corporate expense allocations. The amount of corporate expense allocations depends upon the total amount of allocable costs incurred by Seagate on behalf of Crystal Decisions' less amounts charged as a specific cost or expense rather than by allocation. Such costs have been proportionately allocated to Crystal Decisions based on detailed inquiries and estimates of time incurred by Seagate Technology's corporate marketing and general and administrative departmental managers. Management believes that the allocation method applied to the costs provided under the General Services Agreement is reasonable. Allocations charged to Crystal Decisions general and administrative expenses were $422,000 and $328,874 for the six months ended December 29, 2000 and December 31, 1999, respectively. Management estimates that additional costs for the services covered under this agreement would have been $688,000 for fiscal 2000 had the Company operated on a stand-alone basis from Seagate. F-309 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) 8. INCOME TAXES Prior to the sale of the operating assets of Seagate Technology, Crystal Decisions was included in the consolidated federal and certain combined and consolidated foreign and state income tax returns of Seagate Technology. Seagate Technology and Crystal Decisions had entered into a tax sharing agreement (the "Tax Allocation Agreement") pursuant to which Crystal Decisions computes hypothetical tax returns as if Crystal Decisions was not joined in consolidated or combined returns with Seagate Technology. Crystal Decisions paid Seagate Technology the positive amount of any such hypothetical taxes. If the hypothetical tax returns show entitlement to refunds, including any refunds attributable to a carryback, then Seagate would pay Crystal Decisions the amount of such refunds. At the end of fiscal 2000 and fiscal 1999 there were $67.0 million and $762,000 of intercompany tax related balances due to Crystal Decisions from Seagate Technology that were offset against amounts due to Seagate Technology under the Revolving Loan Agreement (note 2). On November 22, 2000, the Tax Allocation Agreement was terminated. The provision for (benefit from) income taxes consisted of the following:
PRE-PREDECESSOR ------------------ SIX MONTHS SIX MONTHS ENDED ENDED DECEMBER 29, 2000 DECEMBER 31, 1999 (IN THOUSANDS) ------------------- ------------------ Current Tax Expense (Benefit): Federal ........................................... (1,936) (30,137) State ............................................. (846) (8,069) Foreign ........................................... 276 (10,282) ------ ------- (2,506) (48,488) ------ ------- Deferred Tax Expense (Benefit): Federal ........................................... -- (351) State ............................................. -- (42) Foreign ........................................... -- -- ------ ------- -- (393) ------ ------- Provision for (Benefit from) Income Taxes ......... (2,506) (48,881) ------ -------
For purposes of the historical financial statements, the benefit from income taxes has been computed on a separate return basis, except that the tax benefits of certain of Crystal Decisions' tax losses and credits were recognized by Crystal Decisions on a current basis if such losses could be utilized by Seagate Technology in its tax returns. Income (loss) before income taxes consisted of the following:
PRE-PREDECESSOR ------------------ SIX MONTHS SIX MONTHS ENDED ENDED DECEMBER 29, 2000 DECEMBER 31, 1999 ------------------- ------------------ Domestic ......... (8,445) (262,693) Foreign .......... (4,548) (4,074) ------ -------- (12,993) (266,767) ------- --------
F-310 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) The proforma information assuming a tax provision/(benefit) based on a separate return basis is as follows:
SIX MONTHS ENDED DECEMBER 29, 2000 ------------------ Income (loss) before income taxes ............ (12,993) Provision (benefit) for income taxes ......... (2,506) ------- Net Income (loss) ............................ (10,487) -------
The income tax benefits related to the exercise of certain employee stock options increased amounts due from Seagate Technology pursuant to the Tax Allocation Agreement and were credited to additional paid-in capital. Such amounts approximated $34,000 as of November 22, 2000. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of Crystal Decisions' deferred tax assets and liabilities were as follows:
DECEMBER 29, JUNE 30, 2000 2000 -------------- ------------ DEFERRED TAX ASSETS Inventory Valuation Accounts ..................... 164 141 Receivable Reserves .............................. 1,173 1,953 Accrued Compensation and Benefits ................ 283 802 Depreciation ..................................... 53 75 Acquisition-related Items ........................ 8,255 31,754 Other Reserves and Accruals ...................... 2,228 2,721 Net operating loss and tax carryforwards ......... 590 855 ----- ------ Total Deferred Tax Assets ........................ 12,746 38,301 Valuation Allowance .............................. (12,746) (38,301) ------- ------- Net Deferred Tax Assets .......................... -- -- DEFERRED TAX LIABILITIES Acquisition-related Items ........................ (2,087) (381) ------- ------- Total Deferred Tax Liabilities ................... (2,087) (381) ------- ------- Net Deferred Tax Assets/(Liabilities) ............ (2,087) (381) ------- -------
In connection with the purchase of the operating assets of Seagate Technology, we recorded a $10.5 million valuation allowance for deferred tax assets. The $10.5 million of deferred tax assets subject to the valuation allowance arose primarily as a result of the excess of tax basis over the fair values of acquired property, plant and equipment, and liabilities assumed for which we expect to receive tax deductions in our federal and state returns in future periods. We also recorded $2 million of foreign deferred tax liabilities as a result of the excess of the fair market value of inventory, long-term investments, and acquired intangible assets over their related tax bases. Our realization of F-311 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) the tax benefits for the federal and state deferred tax assets subject to the valuation allowance will depend primarily on our ability to generate sufficient taxable income in the United States in future periods, the timing and amount of which are uncertain. We anticipate that the tax benefits of the deferred tax assets when realized, will first result in an increased adjustment to the amount of unamortized negative goodwill that has been allocated on a pro rata basis to the long-lived assets. Any excess tax benefit would then be realized as a reduction of future income tax expense. The reconciliation between the provision for (benefit from) income taxes at the U.S. federal statutory rate and the effective rate are summarized as follows:
PRE-PREDECESSOR (IN THOUSANDS) ------------------ SIX MONTHS SIX MONTHS ENDED ENDED DECEMBER 29, 2000 DECEMBER 31, 1999 ------------------- ------------------ Provision (benefit) at U.S. statutory rate ............................ (4,548) (93,368) State income tax provision (benefit), net of federal income tax benefit (550) (5,272) Write-off of in-process research and development ...................... 778 -- Compensation expense SSI exchange offer ............................... -- 49,585 Valuation Allowance ................................................... 2,244 -- Other ................................................................. (430) 174 ------ ------- Provision for (benefit from) income taxes ............................. (2,506) (48,881) ------ -------
9. NET LOSS PER SHARE Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share", requires the disclosure of basic and diluted earnings (losses) per share. Prior to August 24, 1999, Crystal Decisions had no outstanding share capital. Crystal Decisions issued 1,000 shares of common stock to Seagate Technology for aggregate proceeds of $1,000 on August 24, 1999. On November 16, 1999, Seagate Software Holdings contributed the information management group business' legal entities to Crystal Decisions in exchange for 75,000,000 shares of Crystal Decisions common stock. On November 22, 2000, and as part of the New SAC Transaction, New SAC, through Suez Software, acquired the 75,001,000 common shares of Crystal Decisions owned by Seagate Technology. Basic loss per common share has been computed using the weighted average number of shares of common stock outstanding during each of the periods presented, with the initial 1,000 and 75,000,000 shares being treated as outstanding for all reporting periods. Diluted loss per share is computed using the pro forma weighted average number of shares of common stock outstanding during each of the periods presented assuming exercise of options to purchase common stock, with the initial 1,000 and 75,000,000 shares being treated as outstanding for all reporting periods. Options to purchase common stock were excluded from the computation of diluted net loss per share, as their effect is antidilutive. F-312 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) Below is a reconciliation of the numerator and denominator used to calculate net loss per share.
FOR THE SIX MONTHS ENDED ---------------------------- DECEMBER 29, DECEMBER 31, 2000 1999 -------------- ------------- (IN THOUSANDS, EXPECT SHARE AND PER SHARE DATA) (UNAUDITED) Basic net loss per share Numerator: Net loss ............................... $ (10,487) $ (217,886) Denominator: Weighted average number of common shares outstanding .......................... 75,155,894 75,001,000 Net loss per share -- basic ............. $ (0.14) $ (2.90) Diluted net loss per share computation: Numerator: Net loss ............................... $ (10,487) $ (217,886) Denominator: Weighted average number of common shares outstanding .......................... 75,155,894 75,001,000 ----------- ----------- 75,155,894 75,001,000 ----------- ----------- Net loss per share -- diluted ........... $ (0.14) $ (2.90) =========== ===========
10. DEBT GUARANTEES AND PLEDGE OF ASSETS SENIOR SECURED CREDIT FACILITY On the closing of the New SAC Transaction, Seagate Technology International and Seagate Technology (US) Holdings, Inc., both subsidiaries of New SAC entered into senior credit facilities with a syndicate of banks and other financial institutions led by The Chase Manhattan Bank, as administrative agent and an issuing bank, and Goldman Sachs Credit Partners L.P., as a documentation agent, The Bank of Nova Scotia as a documentation agent, and Merrill Lynch Capital Corporation, as a documentation agent. The senior credit facilities provide senior secured financing of up to $900 million, consisting of: o a $200 million revolving credit facility for general corporate purposes, with a sub-limit of $100 million for letters of credit, which will terminate in five years; o a $200 million term loan A facility with a maturity of five years; and o a $500 million term loan B facility with a maturity of six years. At the closing of the transaction, New SAC did not borrow under the revolving credit facility. At that time approximately $155 million of the revolving credit facility was available because approximately $45 million of existing letters of credit were outstanding and reduced availability under it. New SAC drew the full amount of the term loan A facility and the term loan B facility on the closing of the transaction to finance the acquisition of Seagate Technology's operating assets, including Crystal Decisions. F-313 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) The $700 million of outstanding loans under the term loan A and B facilities are repayable in semi-annual payments due as follows:
(IN THOUSANDS) --------------- Fiscal 2001 ............ $ 5,000 2002 ..... ........... 22,500 2003 ..... ........... 40,000 2004 ..... ........... 50,000 2005 ..... ........... 60,000 thereafter .......... 522,500 -------- Total .... ........... $700,000 ========
The loans bear interest at variable rates dependent upon market interest rates and the nature of the borrowings, as well as the consolidated financial position of New SAC at applicable measurement dates. The average interest rates being charged under these borrowings from the date of the New SAC Transaction ranged from 9.1875% (LIBOR plus 2.5%) to 9.6875% (LIBOR plus 3%). New SAC and certain of its subsidiaries, including Crystal Decisions and certain of its subsidiaries are guarantors under the senior credit facilities. In addition, the majority of New SAC's and certain of its subsidiaries' assets, including Crystal Decisions' assets and its capital stock, have been pledged against the debt under this credit agreement. New SAC, and certain of its subsidiaries, including Crystal Decisions and certain of its subsidiaries, have agreed to certain covenants under this agreement including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. Further, Crystal Decisions, as part of the consolidated group, is subject to certain financial covenants which are assessed on the consolidated operating results and financial position of New SAC and its subsidiaries. The credit agreement provides for the release of Crystal Decisions from its guarantee obligations, and asset pledge upon an approved transfer or sale of Crystal Decisions' common stock, or an initial public offering of at least 10%, on a fully diluted basis, of Crystal Decisions' voting common stock. SENIOR SUBORDINATED NOTES In connection with the closing and financing of the New SAC Transaction, Seagate Technology International issued unsecured senior subordinated notes under an Indenture Agreement dated November 22, 2000 at a discount to the aggregate principal amount of $210 million, for gross proceeds of approximately $201 million. The notes mature on November 15, 2007 and bear interest payable semi-annually at a rate of 12.5% per annum. New SAC and certain of its subsidiaries, including Crystal Decisions and certain of its subsidiaries, are guarantors of the notes. In addition, New SAC and certain of its subsidiaries including Crystal Decisions and certain of its subsidiaries, have agreed to certain restrictive covenants under the terms of these notes including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. Crystal Decisions may be released from its F-314 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) guarantee obligation, if there are certain sales of its capital stock, including in an initial public offering, but would remain subject to the restrictive covenants of the indenture until Crystal Decisions and its subsidiaries are no longer subsidiaries of New SAC or are deemed no longer to be subject to the restrictive covenants. New SAC will not require Crystal Decisions' cash flow to be used to service the obligations pursuant to the senior secured credit facility and the senior subordinated notes. The Company believes that none of the guarantees or pledges of assets under the senior credit facilities or the guarantees under the Indenture are likely to be invoked. 11. COMMON STOCK ELIGIBLE FOR REPURCHASE As of December 29, 2000, employees and directors of Crystal Decisions exercised a combined total of 282,820 options to purchase common stock under the 1999 Stock Option Plan. At December 29, 2000, 152,611 shares were vested and 130,209 shares were unvested. At the option of Crystal Decisions and within 30 days of termination, the unvested shares held by directors may be repurchased at the directors original purchase price. As of December 29, 2000, there were 168,750 shares eligible for repurchase with a balance and a repurchase price of $675,000. 12. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION Crystal Decisions adopted Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information", in fiscal 1999. SFAS 131 establishes standards for reporting information about operating segments. Crystal Decisions operates in a single industry segment, enterprise information management. Crystal Decisions' products and services are sold worldwide, through direct, OEM and distributor channels. Within the segment, the chief operating decision maker, Crystal Decisions' chief executive officer, evaluates the performance of the business based upon revenues from product and services, revenues by geographic regions and revenues by product channels. The chief executive officer does not receive discrete financial information about asset allocation, expense allocation or profitability from the business products or maintenance, support and services. Product and services revenues:
FOR THE SIX MONTHS ENDED ---------------------------- DECEMBER 29, DECEMBER 31, 2000 1999 -------------- ------------- (IN THOUSANDS) Licensing revenues ..................... $48,536 $31,391 Maintenance, support and other ......... 28,512 26,784 ------- ------- Total revenues ...................... $77,048 $58,175 ======= =======
F-315 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) Geographic revenues (1), (2):
FOR THE SIX MONTHS ENDED ---------------------------- DECEMBER 29, DECEMBER 31, 2000 1999 -------------- ------------- (IN THOUSANDS) United States ............. $53,959 $37,262 Europe .................... 14,170 14,065 Other ..................... 8,919 6,848 ------- ------- Total revenues ......... $77,048 $58,175 ======= =======
Channel revenues:
FOR THE SIX MONTHS ENDED ---------------------------- DECEMBER 29, DECEMBER 31, 2000 1999 -------------- ------------- (IN THOUSANDS) Direct .................... $47,255 $37,316 Distribution .............. 24,696 16,133 OEM ....................... 5,097 4,726 ------- ------- Total revenues ......... $77,048 $58,175 ======= =======
F-316 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) Long-lived assets (3):
DECEMBER 29, JUNE 30, 2000 2000 -------------- --------- (IN THOUSANDS) United States ...................... $14,486 $ 6,154 Canada ............................. 10,467 7,254 Other .............................. 2,689 1,226 ------- ------- Total long-lived assets ......... $27,642 $14,634 ======= =======
DECEMBER 29, JUNE 30, 2000 2000 -------------- --------- Total long-lived assets ................. $27,642 $14,634 Other assets, including current ......... 65,095 56,646 ------- ------- Total assets ......................... $92,737 $71,280 ======= =======
- ---------- (1) Revenues are attributed to geographic regions based on the location of the customer. (2) Europe includes South Africa and the Middle East. (3) Reconciliation to total assets reported (in thousands). Overall, Crystal Decisions' customer base is diverse however, a third-party customer, Ingram Micro Inc. ("Ingram"), represented 21% and 19% of revenues for the six months ended December 29, 2000 and December 31, 1999, respectively. The revenues from Ingram accounted for more than 10% of consolidated revenues for a total of $16.5 million for the six months ended December 29, 2000. 13. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with the basis of presentation adopted in fiscal 2001. 14. CONDENSED CONSOLIDATING FINANCIAL INFORMATION The Company is a non-wholly owned subsidiary of New SAC. The senior subordinated notes, see Note 10, are guaranteed by certain, but not all of the subsidiaries of New SAC, including certain of the Company's world-wide subsidiaries. The guarantees of the senior subordinated notes are full and unconditional, and are made on a joint and several basis by the guaranteeing subsidiaries. The following tables present guarantor and non-guarantor condensed consolidating financial information for the Company's subsidiaries, at December 29, 2000, and the condensed consolidating results of its operations and its cash flows for the period from November 23, 2000 to December 29, 2000, period from July 1, 2000 to November 22, 2000, and six months ended December 31, 1999. The information is based on the guarantor and non-guarantor classification of the Company's subsidiaries under the current provisions of the senior subordinating notes. This information is audited. F-317 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) CONSOLIDATING CONDENSED BALANCE SHEET DECEMBER 29, 2000 (IN THOUSANDS) (UNAUDITED)
TOTAL CONSOLIDATED GUARANTORS NON-GUARANTORS ELIMINATIONS CRYSTAL DECISIONS ------------ ---------------- -------------- ------------------- ASSETS Cash ................................................ $ 4,133 $ 2,411 $ -- $ 6,544 Loan receivable from Seagate Technology ............. 31,331 -- -- 31,331 Accounts receivable, net ............................ 24,795 9,754 (13,466) 21,083 Inventories ......................................... 357 -- -- 357 Current deferred income taxes ....................... -- 17 (17) -- Income tax receivable ............................... 1,599 -- -- 1,599 Other current assets ................................ 3,667 514 -- 4,181 ------- ------- --------- ------- Current assets ..................................... 65,882 12,696 (13,483) 65,095 Capital assets, net ................................. 5,684 271 -- 5,955 Investments ......................................... 1,781 -- (1,781) -- Intangibles ......................................... 21,687 -- -- 21,687 ------- ------- --------- ------- Total assets ....................................... 95,034 12,967 (15,264) 92,737 ------- ------- --------- ------- LIABILITIES Accounts payable .................................... 17,834 5,516 (13,286) 10,064 Accrued employee compensation ....................... 7,536 913 -- 8,449 Accrued expenses .................................... 8,967 2,036 -- 11,003 Deferred revenue .................................... 23,122 1,849 -- 24,971 Current deferred income taxes ....................... 17 -- (17) -- Accrued income taxes ................................ (665) 665 -- -- ------- ------- --------- ------- Current liabilities ................................ 56,811 10,979 (13,303) 54,487 Other liabilities ................................... 2,060 27 -- 2,087 ------- ------- --------- ------- STOCKHOLDERS' EQUITY ............................... 36,163 1,961 (1,961) 36,163 ------- ------- --------- ------- Total liabilities and stockholders' equity ......... $95,034 $12,967 $ (15,264) $92,737 ======= ======= ========= =======
F-318 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS PERIOD FROM NOVEMBER 23, 2000 TO DECEMBER 29, 2000 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
TOTAL CONSOLIDATED GUARANTOR NON-GUARANTOR ELIMINATIONS CRYSTAL DECISIONS ------------- --------------- -------------- ------------------- Revenues ..................................... $ 18,673 $ 1,201 $ -- $ 19,874 Costs of revenues ............................ 4,404 233 -- 4,637 Research and development ..................... 2,754 31 -- 2,785 Sales, marketing and administrative .......... 8,653 881 -- 9,534 Amortization of goodwill and other intangibles ................................. 196 -- -- 196 Restructuring costs .......................... -- 14 -- 14 Unusual items ................................ 7,073 -- -- 7,073 --------- ------- ----- --------- Total operating expenses .................... 23,080 1,159 -- 24,239 --------- ------- ----- --------- Income (loss) from operations ............... (4,407) 42 -- (4,365) Interest income (expense) .................... 251 (22) -- 229 Intercompany charges, net .................... (342) 342 -- -- Equity investment income (loss) .............. (139) -- 139 0 --------- ------- ----- --------- Other income (expense), net ................. (230) 320 139 229 --------- ------- ----- --------- Income (loss) before income taxes ............ (4,637) 362 139 (4,136) Benefit (provision) for income taxes ......... (898) (501) -- (1,399) --------- ------- ----- --------- Net income (loss) ........................... $ (5,535) $ (139) $ 139 $ (5,535) ========= ======= ===== =========
F-319 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS PERIOD FROM NOVEMBER 23, 2000 TO DECEMBER 29, 2000 (IN THOUSANDS)
TOTAL CONSOLIDATED GUARANTORS NON-GUARANTORS ELIMINATIONS CRYSTAL DECISIONS ------------ ---------------- -------------- ------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ..................................... $ 4,244 $ (620) $180 $ 3,804 INVESTING ACTIVITIES Acquisition of capital assets, net .............. (1,024) (41) -- (1,065) --------- ------ ---- --------- Net cash provided by (used in) investing activities ................................... (1,024) (41) -- (1,065) FINANCING ACTIVITIES Issuance of common stock ........................ 178 -- -- 178 Borrowings from Seagate Technology .............. 22,433 -- -- 22,433 Payments to Seagate Technology .................. (23,925) -- -- (23,925) --------- ------ ---- --------- Net cash provided by (used in) financing activities ................................... (1,314) -- -- (1,314) Effect of exchange rate changes on cash ......... (32) 236 -- 204 --------- ------ ---- --------- Increase (decrease) in cash ..................... 1,874 (425) 180 1,629 Cash at the beginning of the period ............. 2,259 2,656 0 4,915 --------- ------ ---- --------- Cash at the end of the period ................... $ 4,133 $2,231 $180 $ 6,544 ========= ====== ==== =========
F-320 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) CONSOLDIATING CONDENSED STATEMENT OF OPERATIONS PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
TOTAL CONSOLIDATED GUARANTORS NON-GUARANTORS ELIMINATIONS CRYSTAL DECISIONS ------------ ---------------- -------------- ------------------- Revenues ............................................... $ 52,914 $ 4,260 $ -- $ 57,174 Costs of revenues ...................................... 16,831 1,253 -- 18,084 Research and development ............................... 10,887 113 -- 11,000 Sales, marketing and administrative .................... 30,319 4,478 (17) 34,780 Amortization of goodwill and other intangibles ......... 648 -- -- 648 Restructuring costs .................................... (45) 604 -- 559 Unusual items .......................................... 1,851 -- -- 1,851 --------- -------- ------- --------- Total Operating Expenses .............................. 60,491 6,448 (17) 66,922 --------- -------- ------- --------- Income (Loss) from Operations ......................... (7,577) (2,188) 17 (9,748) Interest income (expense) .............................. 540 368 (17) 891 Intercompany charges, net .............................. (2,451) 2,451 -- -- Equity investment income (loss) ........................ 820 -- (820) -- --------- -------- ------- --------- Other Income (Expense), net ........................... (1,091) 2,819 (837) 891 --------- -------- ------- --------- Income (loss) before income taxes ...................... (8,668) 631 (820) (8,857) Benefit (provision) for income taxes ................... 3,716 189 -- 3,905 --------- -------- ------- --------- Net Income (Loss) ..................................... $ (4,952) $ 820 $ (820) $ (4,952) --------- -------- ------- ---------
F-321 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS PERIOD FROM JULY 1, 2000 TO NOVEMBER 22, 2000 (IN THOUSANDS) (UNAUDITED)
TOTAL CONSOLIDATED GUARANTORS NON-GUARANTORS ELIMINATIONS CRYSTAL DECISIONS ------------ ---------------- -------------- ------------------- Net cash provided by (used in) operating activities ..................................... $ 2,641 $ 179 $ -- $ 2,820 INVESTING ACTIVITIES Acquisition of capital assets, net .............. (1,916) 15 -- (1,901) --------- ------ ------ --------- Net cash provided by (used in) investing activities ................................... (1,916) 15 -- (1,901) FINANCING ACTIVITIES Issuance of common stock ........................ 949 -- -- 949 Borrowings from Seagate Technology .............. 54,279 -- -- 54,279 Payments to Seagate Technology .................. (54,459) -- -- (54,459) --------- ------ ------ --------- Net cash provided by (used in) financing activities ................................... 769 -- -- 769 Effect of exchange rate changes on cash ......... (79) (315) -- (394) --------- ------ ------ --------- Increase (decrease) in cash ..................... 1,415 (121) -- 1,294 Cash at the beginning of the period ............. 844 2,777 -- 3,621 --------- ------ ------ --------- Cash at the end of the period ................... $ 2,259 $2,656 $ -- $ 4,915 ========= ====== ====== =========
F-322 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
TOTAL CONSOLIDATED GUARANTOR NON-GUARANTOR ELIMINATIONS CRYSTAL DECISIONS --------------- --------------- -------------- ------------------- Revenues ................................. $ 50,541 $ 7,634 $ -- $ 58,175 Costs of revenues ........................ 20,384 2,127 -- 22,511 Research and development ................. 12,841 -- -- 12,841 Sales, marketing and administrative ...... 35,274 7,161 -- 42,435 Amortization of goodwill and other intangibles ............................. 2,002 -- -- 2,002 Restructuring costs ...................... 838 463 -- 1,301 Unusual items ............................ 221,601 20,968 -- 242,569 ----------- ---------- -------- ----------- Total operating expenses ................ 292,940 30,719 -- 323,659 ----------- ---------- -------- ----------- Income (loss) from operations ........... (242,399) (23,085) -- (265,484) Interest income (expense) ................ (1,311) 28 -- (1,283) Intercompany Charges, net ................ (2,692) 2,692 0 0 Equity investment income (loss) .......... (20,464) -- 20,464 0 ----------- ---------- -------- ----------- Other income (expense), net ............. (24,467) 2,720 20,464 (1,283) ----------- ---------- -------- ----------- Income (loss) before income taxes ........ (266,866) (20,365) 20,464 (266,767) Benefit (provision) for income taxes ..... 48,980 (99) -- 48,881 ----------- ---------- -------- ----------- Net income (loss) ....................... $ (217,886) $ (20,464) $ 20,464 $ (217,886) =========== ========== ======== ===========
F-323 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 29, 2000 AND FOR THE SIX MONTHS ENDED DECEMBER 29, 2000 AND DECEMBER 31, 1999 IS UNAUDITED) (CONCLUDED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (IN THOUSANDS) (UNAUDITED)
TOTAL CONSOLIDATED GUARANTORS NON-GUARANTORS ELIMINATIONS CRYSTAL DECISIONS ------------ ---------------- -------------- ------------------- Net cash provided by (used in) operating activities ..................................... $ (18,719) $1,345 $ -- $ (17,374) INVESTING ACTIVITIES Acquisition of capital assets, net .............. (1,359) (95) -- (1,454) --------- ------ ------ --------- Net cash provided by (used in) investing activities ................................... (1,359) (95) -- (1,454) FINANCING ACTIVITIES Issuance of common stock ........................ 1 -- -- 1 Borrowings from Seagate Technology .............. 94,895 -- -- 94,895 Payments to Seagate Technology .................. (77,075) -- -- (77,075) --------- ------ ------ --------- Net cash provided by (used in) financing activities ................................... 17,821 -- -- 17,821 Effect of exchange rate changes on cash ......... 596 18 -- 614 --------- ------ ------ --------- Increase (decrease) in cash ..................... (1,661) 1,268 -- (393) Cash at the beginning of the period ............. 4,895 2,524 -- 7,419 --------- ------ ------ --------- Cash at the end of the period ................... $ 3,234 $3,792 $ -- $ 7,026 ========= ====== ====== =========
F-324 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) CONSOLIDATED AND COMBINED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, JULY 2, 2000 1999 ------------- ------------- ASSETS (SEE NOTE 20) Current assets: Cash ......................................................... $ 3,621 $ 7,419 Loan receivable from Seagate Technology (See note 2) ......... 25,681 -- Accounts receivable, net (See note 4) ........................ 16,578 42,727 Income taxes receivable ...................................... 6,071 11,655 Inventories (See note 5) ..................................... 674 981 Prepaid and other current assets ............................. 4,021 2,533 ---------- ---------- Total Current Assets ........................................ 56,646 65,315 Capital assets, net (See Note 6) ............................. 9,348 7,293 Goodwill and other intangibles, net (See Note 7) ............. 5,286 7,212 ---------- ---------- Total Assets ................................................ $ 71,280 $ 79,820 ========== ========== LIABILITIES Current liabilities: Loan payable to Seagate Technology (See Note 2) .............. $ -- $ 16,517 Accounts payable ............................................. 10,190 12,231 Accrued employee compensation ................................ 6,004 19,299 Accrued expenses ............................................. 12,097 10,879 Deferred revenue ............................................. 19,495 17,552 ---------- ---------- Total Current Liabilities ................................... 47,786 76,478 Deferred income taxes (See Note 11) .......................... 381 234 Other liabilities ............................................ -- 225 ---------- ---------- Total Liabilities ........................................... 48,167 76,937 Commitments and contingencies (Notes 17 and 18) STOCKHOLDERS' EQUITY Common stock, -- 150,000,000 shares authorized; shares issued and outstanding -- 75,002,050 at $0.001 par value per share as of June 30, 2000; no shares authorized or issued and outstanding as of July 2, 1999 (See notes 13 and 14) ......................................................... 75 -- Additional paid-in capital (See Notes 13 and 14) ............. 407,893 167,038 Accumulated deficit .......................................... (384,688) (163,526) Accumulated other comprehensive loss ......................... (167) (629) ---------- ---------- Total Stockholders' Equity .................................. 23,113 2,883 ---------- ---------- Total Liabilities and Stockholders' Equity .................. $ 71,280 $ 79,820 ========== ==========
See notes to consolidated and combined financial statements. F-325 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
FOR THE YEARS ENDED ------------------------------------------------- JUNE 30, JULY 2, JULY 3, 2000 1999 1998 --------------- -------------- -------------- Revenues: Licensing ................................................ $ 74,182 $ 92,013 $ 81,246 Maintenance, support and services ........................ 52,336 49,744 34,706 Total Revenues .......................................... 126,518 141,757 115,952 Cost of revenues: Licensing ................................................ 4,096 4,243 3,249 Maintenance, support and services ........................ 39,681 35,213 26,379 Amortization of developed technologies ................... 198 4,545 6,128 Write-off of developed technologies (See Note 7) ......... -- 4,700 -- ----------- ----------- ----------- Total Cost of Revenues .................................. 43,975 48,701 35,756 ----------- ----------- ----------- Gross profit ............................................. 82,543 93,056 80,196 Operating expenses: Sales and marketing (See Notes 8 and 9) .................. 66,076 65,473 50,725 Research and development ................................. 24,874 21,224 16,237 General and administrative (See Note 9) .................. 20,922 13,830 15,062 Amortization of goodwill and other intangibles ........... 3,038 4,772 3,165 Unusual items (See Note 9) ............................... 242,569 86,714 -- Restructuring costs (See Note 10) ........................ 1,301 -- -- ----------- ----------- ----------- Total Operating Expenses ................................ 358,780 192,013 85,189 ----------- ----------- ----------- Loss from Operations .................................... (276,237) (98,957) (4,993) Interest income (See Note 2) ............................. 982 145 297 Interest expense (See Note 2) ............................ (1,481) (128) (253) Net foreign currency exchange gain (loss) ................ 519 39 490 ----------- ----------- ----------- Interest and Other, net ................................. 20 56 534 ----------- ----------- ----------- Loss before income taxes ................................. (276,217) (98,901) (4,459) Benefit from (provision for) income taxes (See Note 11) 55,055 2,526 (8,800) ----------- ----------- ----------- Net Loss ................................................ $ (221,162) $ (96,375) $ (13,259) =========== =========== =========== Net loss per share: Basic and diluted (See Note 12) .......................... $ (2.95) $ (1.28) $ (0.18) =========== =========== =========== Number of shares used in basic and diluted net loss per share ............................................... 75,001,391 75,001,000 75,001,000
See notes to consolidated and combined financial statements. F-326 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED ------------------------------------------------ JUNE 30, JULY 2, JULY 3, 2000 1999 1998 -------------- -------------- -------------- OPERATING ACTIVITIES Net loss .............................................. $ (221,162) $ (96,375) $ (13,259) Adjustments to reconcile net loss to net cash from operating activities: ................................ Depreciation and amortization (See Note 6) ........... 7,538 12,775 12,087 Bad debt expense (recovery) .......................... 2,288 1,049 807 Deferred income taxes (See Note 11) .................. 147 234 -- Stock based compensation expense on Seagate Technology exchange of shares (See Note 9) ......... 239,574 77,519 -- Write-off of developed technologies (See Note 7) ..... -- 4,700 -- Write-off of in process research and development (See Note 9) ....................................... 25 109 -- ---------- ---------- ---------- 28,410 11 (365) ---------- ---------- ---------- Changes in operating assets and liabilities: Accounts receivable .................................. 24,236 (14,278) (16,054) Income taxes receivable .............................. 5,599 (15,593) 1,526 Income taxes receivable from Seagate Technology (See Note 11) ...................................... (66,245) 4,954 (2,765) Inventories .......................................... 307 (575) (107) Prepaid and other current assets ..................... (1,585) (154) (184) Accounts payable ..................................... (2,133) 4,696 3,433 Accrued employee compensation ........................ (13,295) 13,132 3,921 Accrued expenses ..................................... 1,297 2,077 2,039 Deferred revenue ..................................... 1,985 4,596 6,093 Other liabilities .................................... (225) 225 -- ---------- ---------- ---------- Net cash provided by (used in) operating activities ........................................ (21,649) (909) (2,463) ---------- ---------- ---------- INVESTING ACTIVITIES Acquisition of capital assets, net .................... (6,356) (4,856) (4,765) Acquisition of intangible assets ...................... -- -- (1,950) ---------- ---------- ---------- Net cash (used in) investing activities .............. (6,356) (4,856) (6,715) ---------- ---------- ---------- FINANCING ACTIVITIES Issuance of common stock and common stock eligible for repurchase (See Note 14) ................ 5 -- -- Borrowings from Seagate Technology .................... 176,714 131,194 108,469 Payment to Seagate Technology ......................... (152,667) (128,233) (100,243) ---------- ---------- ---------- Net cash provided by financing activities ............ 24,052 2,961 8,226 Effect of exchange rate changes on cash ............... 155 -- 11 ---------- ---------- ---------- Increase (decrease) in cash .......................... (3,798) (2,804) (941) Cash at the beginning of the year ..................... 7,419 10,223 11,164 ---------- ---------- ---------- Cash at the end of the year ........................... $ 3,621 $ 7,419 $ 10,223 ========== ========== ==========
See notes to consolidated and combined financial statements. F-327 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 30, 2000, JULY 2, 1999 AND JULY 3, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED COMMON STOCK ADDITIONAL OTHER ------------------------ PAID-IN COMPREHENSIVE ACCUMULATED SHARES AMOUNT CAPITAL INCOME (LOSS) DEFICIT TOTAL ------------- -------- ----------- --------------- -------------- ------------- Balance at June 27, 1997 ............................ -- $ $ 84,046 $ 157 $ (53,892) $ 30,311 -- Components of comprehensive loss Foreign currency translation .................... (414) (414) Net loss ........................ (13,259) (13,259) ---------- Comprehensive loss .............. (13,673) Income tax benefit from Seagate Technology stock option exercises (See note 11) .................. 3 3 -------- ---------- Balance at July 3, 1998 .......... -- -- 84,049 (257) (67,151) 16,641 Components of comprehensive loss Foreign currency translation .................... (372) (372) Net loss ........................ (96,375) (96,375) ---------- Comprehensive loss .............. (96,747) Equity contribution by Seagate Technology related to the acquisition of the minority interest of Seagate Software Holdings, Inc .......... 5,448 5,448 Compensation expense for Seagate Technology stock exchange offer .................. 77,519 77,519 Income tax benefit from Seagate Technology stock option exercises (See note 11) ........................ 22 22 -------- ---------- Balance at July 2, 1999 .......... -- -- 167,038 (629) (163,526) 2,883 Components of comprehensive loss Foreign currency translation .................... 462 462 Net loss ........................ (221,162) (221,162) ---------- Comprehensive loss .............. (220,700) Incorporation of Crystal Decisions ....................... 1,000 1 1 Contribution of IMG business to Crystal Decisions ............ 75,000,000 75 (75) Issuance of common stock upon exercise of employee stock options ................... 1,050 4 4 Equity contribution by Seagate Technology related to the acquisition of the minority interest of Seagate Software Holdings, Inc .......... 1,242 1,242 Compensation expense for Seagate Technology exchange of shares .............. 239,574 239,574 Income tax benefit from Seagate Technology stock option exercises (See note 11) ........................ 109 109 -------- ---------- Balance at June 30, 2000 ......... 75,002,050 $75 $407,893 $ (167) $ (384,688) $ 23,113
See notes to consolidated and combined financial statements F-328 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) QUARTERLY INFORMATION (UNAUDITED) The table below shows the Company's unaudited quarterly statements of operations data for each of the ten quarters ended December 29, 2000. This information has been derived from the Company's unaudited consolidated and combined financial statements, which, in management's opinion, have been prepared on the same basis as the audit consolidated and combined financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the information for the quarters presented. The operating results for any quarter are not necessarily indicative of the operating results for any future period. For the 13 weeks ended:
DEC. 29 SEPT. 29, JUNE 30, MAR. 31, 2000 2000 2000 2000 -------------- -------------- -------------- -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net Revenues.... $ 40,145 $ 36,904 $ 33,956 $ 34,387 Gross Profit ... 28,524 25,804 23,012 23,867 Net Loss ....... $ (8,308) $ (2,179) $ (2,173) $ (1,103) Net Loss per share--basic and diluted.... $ (0.11) $ (0.03) $ (0.03) $ (0.01) Weighted average number of shares ........ 75,240,507 75,073,753 75,002,050 75,001,357 DEC. 31 OCT. 1, JULY 2, APRIL 2, JAN. 1, OCT. 2 1999 1999 1999 1999 1999 1998 -------------- -------------- -------------- -------------- -------------- -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net Revenues.... $ 30,298 $ 27,877 $ 41,779 $ 38,869 $ 33,517 $ 27,592 Gross Profit ... 19,353 16,311 26,623 26,363 22,870 17,200 Net Loss ....... $ (213,234) $ (4,652) $ (87,541) $ (2,296) $ (354) $ (6,184) Net Loss per share--basic and diluted.... $ (2.84) $ (0.06) $ (1.17) $ (0.03) $ (0.00) $ (0.08) Weighted average number of shares ........ 75,001,000 75,001,000 75,001,000 75,001,000 75,001,000 75,001,000
F-329 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION DESCRIPTION OF BUSINESS Crystal Decisions, Inc. ("Crystal Decisions" or "the Company") develops and markets software products and provides related services enabling business users and information technology professionals to manage enterprise information. Crystal Decisions operates in a single industry segment and its products, commonly referred to as business intelligence software, permit the analysis and interpretation of data in order to make business decisions. Crystal Decisions has over 25 offices and operations in 14 countries worldwide, including significant operations and certain administrative functions in Vancouver, Canada. Crystal Decisions' primary market is North America where Crystal Decisions products are sold through a direct sales force and certain indirect sales channels, such as distributors and original equipment manufacturer ("OEM") relationships. Outside North America, Crystal Decisions products are sold through a direct sales force, distributors and OEMs. Crystal Decisions was incorporated in Delaware in August 1999. Crystal Decisions is a majority-owned subsidiary of Seagate Software (Cayman) Holdings, Inc., a Cayman Islands limited corporation ("Suez Software"), which is a wholly owned subsidiary of New SAC, a Cayman Islands limited corporation ("New SAC"), whose predecessor was Seagate Technology, Inc. ("Seagate Technology"). On November 22, 2000, through Suez Software, Crystal Decisions became a majority owned subsidiary of Suez Software. Prior to November 22, 2000, the Company was a majority owned subsidiary of Seagate Software Holdings, Inc. ("Seagate Software Holdings", formerly known as Seagate Software, Inc.), a Delaware corporation and wholly owned subsidiary of Seagate Technology. Seagate Technology was a data technology company that provided products for storing, managing and accessing digital information on computer systems. The outstanding minority interests in our capital stock amounted to approximately 10.5% on a fully diluted basis as of June 30, 2000. The minority interests consisted of the Company's common stock and options to purchase Crystal Decisions common stock issued pursuant to the 1999 and 2000 Stock Option Plans (see Note 19, Sale of Seagate Technology). In March 2001, the Company changed its name from Seagate Software Information Management Group Holdings, Inc. to Crystal Decisions, Inc BASIS OF PRESENTATION Seagate Software Holdings commenced operations in May 1994 pursuant to Seagate Technology's acquisition of Crystal Computer Services, Inc., a company engaged in developing and marketing report writing software. This acquisition was accounted for as a pooling of interests. Prior to May 28, 1999, Seagate Software Holdings comprised two business units, the Information Management Group ("IMG") business and the Network Storage Management Group ("NSMG") business. The NSMG business developed and marketed software products and provided related services enabling information technology professionals to manage distributed network resources and to secure and protect enterprise data. On May 28, 1999, Seagate Software Holdings contributed its NSMG business to VERITAS Software Corporation ("VERITAS") in exchange for VERITAS common stock. On October 20, 1999, the stockholders of Seagate Software Holdings approved the merger of Seagate Daylight Merger Corp., a wholly owned subsidiary of Seagate Technology, with and into Seagate Software Holdings. Seagate Software Holdings' assets consisted of the assets of the IMG business and its investment in the common stock of VERITAS. Upon the closing of the merger, Seagate Software Holdings became a wholly owned subsidiary of Seagate Technology. F-330 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) On November 16, 1999 Seagate Software Holdings contributed the IMG business to Crystal Decisions, including the operating assets, liabilities and interests in subsidiaries, as a contribution of capital. As consideration for the IMG business, Crystal Decisions issued 75,000,000 shares of its common stock to Seagate Software Holdings. Seagate Software Holdings retained the shares of VERITAS common stock and other non-operating assets. The accompanying consolidated and combined financial statements present the consolidated financial position of Crystal Decisions and its consolidated subsidiaries as of June 30, 2000. These financial statements have been prepared using the historical basis of accounting and are presented as if Crystal Decisions had existed as an entity separate from Seagate Software Holdings during each of the periods presented. The financial statements include the historical assets, liabilities, revenues and expenses that are directly related to Crystal Decisions' operations. For all periods prior to November 16, 1999, the consolidated and combined financial statements present the combined historical financial position, results of operations, equity and cash flows of the ongoing IMG business of Seagate Software Holdings and are not necessarily indicative of what the financial position, results of operations, equity or cash flows would have been had Crystal Decisions been an independent legal entity during the periods presented. For certain assets and liabilities of Seagate Software Holdings that were not specifically identifiable with the IMG business, estimates were used to allocate assets and liabilities to Crystal Decisions by applying methodologies management believed to be appropriate. The statements of operations include all revenues and costs attributable to Crystal Decisions, including allocations of certain corporate administration, finance and management costs. Such costs were proportionately allocated to the IMG business based on detailed inquiries and estimates of time incurred by Seagate Software Holdings corporate marketing and general and administrative departmental managers. In addition, certain of Seagate Software Holdings operations were previously shared locations involving activities that pertained to the IMG business as well as to the NSMG business of Seagate Software Holdings. Costs incurred in shared locations were allocated based on specific identification, or where specific identification was not possible, costs were proportionately allocated between the IMG business and the NSMG business based on either headcount, square footage or a percentage of revenues as management believed was reasonable. Such costs consisted primarily of administration and marketing and sales costs related to shared finance and marketing functions. Crystal Decisions operated on a stand-alone basis for fiscal 2000. Management estimates that additional costs in the form of professional fees and public reporting costs of $378,000 (unaudited) and $744,000 (unaudited) respectively, would have been incurred in fiscal 1999 and fiscal 1998 had we been reporting as a stand-alone entity from Seagate Software Holdings. Crystal Decisions operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 2000 ended on June 30, 2000, fiscal 1999 ended on July 2, 1999 and fiscal 1998 ended on July 3, 1998. Fiscal 2000 and 1999 were comprised of 52 weeks and fiscal 1998 was comprised of 53 weeks. Fiscal 2001 will be a 52-week year and will end on June 29, 2001. 2. ECONOMIC DEPENDENCE ON SEAGATE TECHNOLOGY On July 4, 2000, Crystal Decisions, Seagate Software Holdings and Seagate Technology LLC, then a wholly owned subsidiary of Seagate Technology, the predecessor to New SAC, renewed the Revolving Loan Agreement dated June 28, 1996. Under the Revolving Loan Agreement, Seagate Technology finances certain of Crystal Decisions' working capital needs and operating activities. The Revolving Loan Agreement provides for maximum outstanding borrowings of up to $60.0 million and F-331 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) expires on July 4, 2001. The Revolving Loan Agreement continues in effect subsequent to the closing of the New SAC Transaction on November 22, 2000 (see note 19). The loan is payable or receivable upon termination of the agreement. As of June 30, 2000, the Revolving Loan balance was a net receivable from Seagate Technology and its affiliates of $25.7 million. The net receivable arose largely as a result of offsetting amounts due from Seagate Technology under a Tax Allocation Agreement for income tax loss benefits utilized by Seagate Technology relative to Crystal Decisions' tax loss position (see Note 11). The loan balance is presented on the balance sheet as a net receivable or net payable in accordance with the terms of the loan agreement. As of July 2, 1999, borrowings from Seagate Technology and its affiliates were $16.5 million. Beginning fiscal 2001, we earned interest income on a monthly basis on net receivable balances outstanding at a rate calculated to be Seagate Technology's in-house portfolio yield and were charged interest expense on a monthly basis on net amounts payable at LIBOR plus 2%. During fiscal 2000 and fiscal 1999, interest was charged on a monthly basis at the LIBOR plus 2% per annum (7.85% for fiscal 2000) on balances outstanding. Prior to fiscal 1999, Crystal Decisions paid interest at 6%. Interest income and expense as presented in the statement of operations primarily relates to interest on the revolving loan. Crystal Decisions may require additional financing through the end of fiscal 2002. Crystal Decisions is in the process of negotiating additional financing with Seagate Technology LLC through the end of fiscal 2002. Should additional financing not be available from Seagate Technology LLC at terms that are satisfactory to Crystal Decisions and Seagate Technology LLC, Crystal Decisions may seek additional equity and financing from other sources, subject to concurrence by the lenders which financed the SAC Transaction, as well as Crystal Decision's parent company. As a result of the SAC Transaction, Crystal Decisions guaranteed the debt used to finance the SAC Transaction and pledge a majority of its assets. As a result of restrictive covenants under the debt agreement, the ability of Crystal Decisions to raise additional debt or equity from other sources may be limited. (Refer to note 20 for further discussion.) 3. SIGNIFICANT ACCOUNTING POLICIES Accounting Estimates -- The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ materially from those estimates. Foreign Currency Translation -- The functional currency for most of Crystal Decisions' foreign operations is the local currency. In such cases, assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Translation adjustments resulting from this process are charged or credited to other comprehensive income. Revenues and expenses are translated at average rates of exchange prevailing during the year. Gains and losses on foreign currency transactions are included in other expenses. For those foreign operations whose functional currency is the U.S. dollar, financial results are translated using a combination of current and historical exchange rates and any translation adjustments are included in net earnings, along with all transaction gains and losses for the period. Revenue Recognition -- Licensing revenues are derived from sales of software licenses. Maintenance, support and services revenues consist of technical support, training, consulting and maintenance. Crystal Decisions recognizes revenues in accordance with Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as amended by SOP 98-4 "Deferral of the Effective Date of a F-332 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) Provision of SOP 97-2" and by SOP 98-9" Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions." These amendments deferred and then clarified, respectively, the specification of what was considered vendor specific objective evidence of fair value for the various elements in a multiple element arrangement. Crystal Decisions adopted the provisions of SOP 97-2 and SOP 98-4 as of the beginning of fiscal year 1999 and adopted SOP 98-9 as of the beginning of fiscal year 2000. SOP 97-2 requires that the total arrangement fee from software arrangements that include rights to multiple software products, post contract customer support and/or other services be allocated to each element of the arrangement based on their relative fair values. Under SOP 97-2, the determination of fair value is based on vendor specific objective evidence ("VSOE"). Fair value is established for each element based on its individual sales prices consistent with Crystal Decisions' pricing strategy. The pricing strategy is established by the pricing group, consisting of representatives from our marketing, sales, finance and product development departments. Typically, Crystal Decisions can establish VSOE for all elements of its multi-element arrangements, and accordingly, revenues are allocated to the individual elements on the basis of VSOE. Although not typical, some OEM arrangements contain end-user maintenance elements for which VSOE has not been established, as sufficient evidence of consistent pricing and renewal rates has not been present. In such arrangements, Crystal Decisions has recognized the arrangement fee ratably over the maintenance period in accordance with the provisions set forth in SOP 97-2. Crystal Decisions generally recognizes licensing revenues, whether sold direct or through resellers, upon product delivery, provided persuasive evidence of an arrangement exists, fees are fixed or determinable and the resulting receivable is deemed collectible by management. In instances where payments are subject to extended payment terms, revenues are not recognized until the date payments become due. When an acceptance period is specified in an arrangement, revenues are recognized upon the earlier of customer acceptance or the expiration of the acceptance period. Crystal Decisions' policy is not to recognize revenues on sales to distributors or resellers, if resale contingencies exist. Some of the factors that are considered to determine the existence of such contingencies include payment terms, collectibility and history with the distributor or reseller. Revenues are recognized when such contingencies are resolved and the criteria for revenue recognition in SOP 97-2 are met. Crystal Decisions recognizes revenues for sales to distributors and resellers with rights of return when the criteria for recognizing revenues, as outlined in SFAS 48, are met. However, we make estimates of future returns and reduce the revenues and related receivables accordingly by the amount of such estimates. Where rights of return exist and the criteria of SFAS 48 are not met, revenues are not recognized until such time that all of the criteria are met. We consider factors including historical experience, nature of the product, fixed or determinable fees, arms length contract terms, the level of inventory in the distribution channels and the ability to reasonably estimate returns. Revenues from technical support and maintenance are recognized ratably over the term of the arrangement, generally one year. Revenues from training and consulting are recognized as the services are performed. Deferred revenue represents amounts from customers under certain license, maintenance and service arrangements for which the revenue earnings process has not been completed. These amounts relate primarily to provision of technical support and maintenance, arrangements with future deliverables and arrangements where specified customer acceptance has not occurred. F-333 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) Where software arrangements require Crystal Decisions to provide consulting services for significant production, modification, or customization of software, or where these services are essential to the functionality of the software, Crystal Decisions recognizes revenues in accordance with the provisions of SOP 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts". In these arrangements, both the licensing revenues and consulting services revenues are recognized on the percentage of completion method based on cost inputs. Cash Management -- Seagate Technology uses a centralized cash management function for all of its domestic operations, including certain domestic operations of Crystal Decisions. A substantial majority of Crystal Decisions' cash is from balances maintained by its foreign subsidiaries. Cash and Cash Equivalents -- Crystal Decisions considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Crystal Decisions typically uses available cash in excess of amounts required for operating activities to pay amounts due under the Revolving Loan Agreement. Accordingly, historically Crystal Decisions has not had significant cash equivalents. Fair Value Disclosures -- Crystal Decisions maintains its cash held by its foreign subsidiaries principally with major banks in interest and non-interest-bearing bank accounts. There are no realized or unrealized gains or losses and fair value approximates carrying value for all cash balances as of the periods presented herein. The fair values of accounts receivable balances approximate carrying values. Concentration of Credit and Foreign Currency Risk -- Financial instruments that potentially subject Crystal Decisions to significant concentrations of credit risk consist primarily of cash and accounts receivable. Crystal Decisions places its cash in high credit quality financial institutions. Year-end cash balances represent both US Dollar and foreign currency deposits, primarily denominated in Canadian Dollar, British Pounds Sterling, Japanese Yen and currencies tied to the Euro. Accounts receivable are derived from revenues earned from customers primarily located in North America and Europe. Crystal Decisions performs ongoing credit evaluations of its customers and generally does not require collateral. Crystal Decisions maintains reserves for potential credit losses. Overall, Crystal Decisions' customer base is diverse however, a third-party customer, Ingram Micro, Inc. ("Ingram") represented 20%, 13% and 14% of Crystal Decisions' total revenues in fiscal 2000, fiscal 1999 and fiscal 1998, respectively. As a percentage of receivables, amounts outstanding from Ingram Micro represent 22% and 18% of the total receivable balance in fiscal 2000 and fiscal 1999, respectively. Crystal Decisions' agreements with Ingram may be terminated upon the expiration of a required notice period. Inventories -- Inventories are stated at the lower of cost (first in, first out method) or market and consist primarily of materials used in software products, related supplies and packaging materials. Capital Assets. Property and equipment, including leasehold improvements, are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets up to ten years. Leasehold improvements are depreciated using the straight-line method over the shorter of the estimated useful lives of the leasehold improvement or the remaining leasehold life. Goodwill and Other Intangibles -- Goodwill represents the excess of the purchase price of acquired companies over estimated fair values of tangible and intangible net assets acquired. Goodwill is amortized on a straight-line basis over four years. Under SFAS No. 121, the carrying values of long-term assets and intangibles other than developed technology (included in other intangibles) are reviewed if facts and circumstances suggest that they may be impaired. If this review F-334 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) indicates that carrying values of long-term assets and other intangibles and associated goodwill will not be recoverable based on projected undiscounted future cash flows, carrying values are reduced to estimated fair values by first reducing goodwill and second by reducing long-term assets and other intangibles. Other intangible assets consist of trademarks, assembled work forces, distribution networks and developed technology and customer bases. Amortization of purchased intangibles is provided on the straight-line basis over the respective useful lives of the assets ranging from 36 to 60 months. In-process research and development without alternative future use is expensed when acquired. In addition, Crystal Decisions assesses the impairment of goodwill not included in the scope of SFAS 121 under Accounting Principles Board Opinion No. 17 ("APB 17"), "Intangible Assets". Write-offs and write-downs to net realizable value of goodwill not included in the scope of SFAS 121 are typically made only when Crystal Decisions has effectively abandoned and stopped selling virtually all of the products acquired in an acquisition. Developed Technology -- Crystal Decisions applies Statement of Financial Accounting Standards No. 86 ("SFAS 86"), "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed" to software technologies developed internally, acquired in business acquisitions and purchased. Internal development costs are included in research and development and are expensed as incurred. SFAS 86 requires the capitalization of certain internal development costs once technological feasibility is established, which for Crystal Decisions generally occurs upon the completion of a working model. As the time period between the completion of a working model and the general availability of software has been short, capitalization of internal development costs has not been material to date. Capitalized costs are amortized based on the greater of the straight-line basis over the estimated product life (generally 30 to 48 months) or the ratio of current revenues to the total of current and anticipated future revenues. Purchased developed technology is amortized based on the greater of the straight-line basis over the estimated useful life (30 to 48 months) or the ratio of current revenues to the total of current and anticipated future revenues. The recoverability of the carrying value of purchased developed technology and associated goodwill is reviewed periodically. The carrying value of developed technology is compared to the estimated future gross revenues from that product reduced by the estimated future costs of completing and disposing of that product, including the costs of performing maintenance and customer support (net undiscounted cash flows) and to the extent that the carrying value exceeds the undiscounted cash flows the difference is written off. Comprehensive Income (Loss) -- Accumulated other comprehensive income (loss) comprises foreign currency translation gains and losses. Crystal Decisions has reported the components of comprehensive loss on its consolidated and combined statements of stockholders' equity. Stock-Based Compensation -- Crystal Decisions accounts for employee stock-based compensation under Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees" and related interpretations. Pro forma net income and net income per share are disclosures required by Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation" and are included in the Stock Based Benefits Plans -- Pro Forma Information note to the consolidated and combined financial statements. Income Taxes -- The liability method is used in accounting for income taxes. Under this method deferred tax assets and liabilities are determined based on differences between financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws. F-335 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) 4. ACCOUNTS RECEIVABLE Accounts receivable are summarized below:
JUNE 30, JULY 2, 2000 1999 ---------- ---------- (IN THOUSANDS) Accounts receivable .................. $ 19,272 $ 45,574 Less allowance for bad debts ......... (1,679) (1,635) Less allowance for returns ........... (1,015) (1,212) -------- -------- $ 16,578 $ 42,727 ======== ========
Return reserves are summarized below:
BALANCE AT ADDITIONS REDUCTIONS BALANCE BEGINNING OF CHARGED TO FROM RETURN AT DESCRIPTION PERIOD PERIOD RESERVES END OF PERIOD - ------------------------- -------------- ------------ ------------- -------------- (IN THOUSANDS) Return Reserves: Fiscal Year Ended June 30, 2000: ......... $1,212 $1,130 $1,327 $1,015 ------ ------ ------ ------ Fiscal Year Ended July 2, 1999: .......... $ 647 $2,067 $1,502 $1,212 ------ ------ ------ ------ Fiscal Year Ended July 3, 1998: .......... $ 208 $2,250 $1,811 $ 647 ====== ====== ====== ======
Allowance for bad debts are summarized below:
BALANCE AT ADDITIONS REDUCTIONS BALANCE BEGINNING OF CHARGED TO FROM RETURN AT DESCRIPTION PERIOD PERIOD RESERVES END OF PERIOD - ------------------------- -------------- ------------ ------------- -------------- (IN THOUSANDS) Allowance for Bad Debts: Fiscal Year Ended June 30, 2000: ......... $1,635 $3,191 $3,147 $1,679 ------ ------ ------ ------ Fiscal Year Ended July 2, 1999: .......... $ 926 $1,049 $ 340 $1,635 ------ ------ ------ ------ Fiscal Year Ended July 3, 1998: .......... $ 317 $ 807 $ 198 $ 926 ====== ====== ====== ======
5. INVENTORIES During fiscal 2000, product support materials in the amount of $350,000 were written off as obsolete. There were no other revaluations of inventory to the lower of cost or market during fiscal 2000, fiscal 1999, or fiscal 1998. F-336 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) 6. CAPITAL ASSETS Capital assets consisted of the following:
ESTIMATED JUNE 30, JULY 2, USEFUL LIFE 2000 1999 --------------- ------------ ---------- (IN THOUSANDS) Equipment ............................. 2 to 5 years $ 19,686 $ 14,219 Leasehold improvements ................ Life of lease 3,359 2,665 --------- -------- 23,045 16,884 Less accumulated depreciation ......... (13,697) (9,591) --------- -------- $ 9,348 $ 7,293 ========= ========
Depreciation expense was $4.3 million, $3.4 million and $2.6 million in fiscal 2000, fiscal 1999 and fiscal 1998, respectively. 7. GOODWILL AND OTHER INTANGIBLES Goodwill and other intangibles consisted of the following, in thousands:
JUNE 30, JULY 2, 2000 1999 ------------ ------------ (IN THOUSANDS) Goodwill ....................................... $ 5,771 $ 4,700 Other intangibles: Developed technologies ......................... 18,492 18,336 Trademark ...................................... 2,284 2,237 Assembled work force ........................... 4,025 4,025 Customer base .................................. 6,506 6,469 --------- --------- Total other intangibles ....................... 31,307 31,067 --------- --------- 37,078 35,767 Accumulated amortization and write-off ......... (31,792) (28,555) --------- --------- Goodwill and other intangibles ................. $ 5,286 $ 7,212 ========= =========
Amortization of developed technologies is included in costs of revenues. Cost of revenues includes write-offs to net realizable value of $4.7 million in fiscal 1999 due to Crystal Decisions' decision not to use previously acquired technology in future periods and to reflect the impairment of certain developed technologies. Crystal Decisions periodically reviews the net realizable value of developed technologies under the guidance of SFAS 86. Crystal Decisions compares the estimated undiscounted future cash flows on a product-by-product basis to the unamortized cost of developed technologies and unamortized costs in excess of the estimated undiscounted cash flows are written off. Crystal Decisions also reviews the carrying value of its intangibles to ascertain if there has been any impairment. Amortization of goodwill and other intangibles includes a write-off of $1.5 million in fiscal 1999 due to asset values that have become impaired. Crystal Decisions has capitalized the assembled work force in most of its acquisitions and amortizes this asset over an expected useful life of 48 months. As more fully described in Note 3, Crystal Decisions reviews the carrying value of its long-term assets and intangibles other than developed technology using the guidance of SFAS 121. To date, there have been no write-offs or write-downs for impairment of acquired assembled work force recorded in the financial statements. F-337 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) 8. ADVERTISING EXPENSE Advertising expense included in sales and marketing expense, totaled $10.9 million, $10.7 million and $6.8 million in fiscal 2000, fiscal 1999 and fiscal 1998, respectively. The cost of advertising is expensed as incurred. Crystal Decisions does not incur any direct response advertising costs. 9. RELATED PARTY TRANSACTIONS Seagate Technology has provided substantial services to Crystal Decisions under a General Services Agreement dated June 28, 1997. The services generally include general management, treasury, tax, financial reporting, benefits administration, insurance, information technology, legal, accounts payable and receivable and credit functions, among others. Seagate Technology charges Crystal Decisions for these services through corporate expense allocations. The amount of corporate expense allocations depends upon the total amount of allocable costs incurred by Seagate Technology on behalf of Crystal Decisions less amounts charged as a specific cost or expense rather than by allocation. Such costs have been proportionately allocated to Crystal Decisions based on detailed inquiries and estimates of time incurred by Seagate Technology's corporate marketing and general and administrative departmental managers. Management believes that the allocation method applied to the costs provided under the General Services Agreement is reasonable. Allocations charged to Crystal Decisions' general and administrative expenses were $657,749, $279,848 and $273,870 in fiscal 2000, fiscal 1999 and fiscal 1998, respectively. Allocations charged to Crystal Decisions' sales and marketing expenses were corporate allocation charges of zero, $288,000 and $307,792 in fiscal 2000, fiscal 1999 and fiscal 1998, respectively. Management estimates that additional costs for the services covered under this agreement would have been $688,000 for fiscal 2000 (unaudited), $755,000 for fiscal 1999 (unaudited) and $719,000 for fiscal 1998 (unaudited), had we operated on a stand-alone basis from Seagate. The employees of Crystal Decisions also participate in the [Seagate Technology] Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan permits eligible employees who have completed thirty days of employment prior to the inception of the offering period to purchase common stock of Seagate through payroll deductions at the lower of 85% of the fair market value of the common stock at the beginning or at the end of each six-month offering period. Under the Purchase Plan, Crystal Decisions employees purchased 57,245, 35,113 and 39,361 shares of Seagate common stock in fiscal 2000, fiscal 1999 and fiscal 1998, respectively. The U.S. employees of Crystal Decisions also participate in the Seagate Technology tax-deferred savings plan, the Seagate Technology, Inc. Savings and Investment Plan ("the 401(k) plan"). The 401(k) plan is designed to provide qualified employees with an accumulation of funds at retirement. Qualified employees may elect to contribute to the 401(k) plan on a monthly basis. Crystal Decisions may make annual contributions to the 401(k) plan at the discretion of the Board of Directors. Crystal Decisions made no material contributions in fiscal 2000, fiscal 1999 or fiscal 1998. THE JUNE 1999 SEAGATE TECHNOLOGY EXCHANGE OFFER On May 28, 1999, Seagate Software Holdings contributed its NSMG business and related assets and liabilities to VERITAS in exchange for shares of VERITAS common stock. In a separate but related transaction on June 9, 1999, Seagate exchanged 5,275,772 shares of Seagate Technology common stock for 3,267,255 shares of Seagate Software Holdings common stock owned by employees, directors and consultants of Seagate Software Holdings and its parent and subsidiaries. The exchange ratio was determined based on the estimated value of Seagate Software Holdings common stock divided by the fair market value of Seagate common stock. F-338 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) The estimated value of Seagate Software Holdings common stock exchanged into Seagate common stock was determined based upon the sum of the fair value of the NSMG business, as measured by the fair value of the shares received from VERITAS, plus the estimated fair value of the IMG business of Seagate Software Holdings as determined by the Seagate Software Holding's Board of Directors, plus the assumed proceeds from the exercise of all outstanding Seagate Software Holdings stock options, divided by the number of fully converted shares of Crystal Decisions. The Board of Directors of Seagate Software Holdings considered a number of factors in determining the estimated fair value of the IMG business, including historical and projected revenues, earnings and cash flows, as well as other factors and consultations with financial advisors. Seagate Software Holdings recorded the acquisition of its common stock by Seagate Technology as an acquisition of the minority interest by Seagate Technology. Seagate Software Holdings accounted for the exchange of shares of its common stock outstanding and vested more than six months as the purchase of a minority interest and, accordingly, the fair value of the shares exchanged of $51.8 million was allocated to all the identifiable tangible and intangible assets and liabilities of Seagate Software Holdings. For those shares outstanding and vested less than six months, the fair value of the sharespurchased less the original purchase price paid by the employees was recorded as compensation expense as this constitutes an early settlement of an award of stock or grant of an option. Compensation expense associated with the issuance of Seagate shares amounted to approximately $102.5 million, plus $630,000 of employer portion of payroll taxes. Related to the June 1999 Seagate Technology Exchange Offer, Seagate Software Holdings recorded additional compensation expense of $8.6 million for the issuance of notes payable for the purchase of unvested stock options held by certain continuing employees. This amount was not considered a capital contribution from Seagate Technology because the notes payable were issued by Crystal Decisions, Inc. In addition, Seagate Software Holdings recorded compensation expense amounting to $12.7 million for accelerated vesting on certain stock options for its former Chief Executive Officer and several other employees, each of whom became employees of VERITAS. The consolidated and combined statement of operations for fiscal 1999 included an allocation of compensation expense arising from the June 1999 Seagate Technology Exchange Offer attributable to Crystal Decisions. Compensation expense was allocated to Crystal Decisions on the basis of employees specifically identified with the IMG business who participated in the exchange and for those employees of Seagate Software Holdings and Seagate Technology who performed services for the IMG business on the basis of time estimates. Accordingly, Crystal Decisions recorded $77.5 million of compensation expense out of the total compensation expense of $102.5 million related to the June 1999 Seagate Technology Exchange Offer as a capital contribution from Seagate. In addition, both the $630,000 and an offsetting entry of $77.5 million was recorded relating to the employer portion of payroll taxes and the $8.6 million aforementioned compensation expense for the purchase of unvested stock options relate to certain continuing employees of Crystal Decisions, and therefore both amounts have been reflected as expenses for fiscal 1999. None of the aforementioned $12.7 million of compensation expense that arose from the accelerated vesting on certain stock options for employees who became employees of VERITAS was allocated to Crystal Decisions because the compensation expense was not attributable to employees of Crystal Decisions. The following table summarizes the components of the unusual items expense for fiscal 1999 reported by Seagate, that are attributable to the employees of Crystal Decisions: F-339 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS REPORTED BY ALLOCATED TO SEAGATE TECHNOLOGY CRYSTAL DECISIONS -------------------- ------------------ (IN THOUSANDS) Compensation expense related to the issuance of Seagate Technology common stock ........................................... $102,549 $77,519 Compensation expense for accelerating vesting on stock options held by certain employees who became employees of VERITAS 12,719 -- Compensation expense for the purchase of unvested stock options held by certain continuing employees of Crystal Decisions ......... 8,565 8,565 Employer portion of payroll taxes .................................. 630 630 -------- ------- Total unusual items ............................................... $124,463 $86,714 ======== =======
The consolidated and combined financial statements of Crystal Decisions at July 2, 1999 also include an allocation of $5.4 million of the $51.8 million purchase price allocation described above. The allocation to Crystal Decisions was based on the fair value of the IMG business relative to Seagate Software Holdings. A number of factors were considered in determining the estimated fair value of the IMG business, including historical and projected revenues, earnings and cash flows, as well as other factors and consultations with financial advisors. The allocation of the purchase price to the intangible assets of Crystal Decisions as at June 9, 1999 was as follows: Developed technologies ...................... $ 686,000 Trademark ................................... 158,000 Assembled work force ........................ 207,000 In-process research and development ......... 109,000 Goodwill .................................... 4,700,000 Deferred tax liability ...................... (412,000) ---------- Total purchase price allocated ........... $5,448,000 ==========
THE OCTOBER 1999 SEAGATE TECHNOLOGY EXCHANGE OF SHARES On October 20, 1999, the stockholders of Seagate Software Holdings approved the merger of Seagate Daylight Merger Corp., a wholly owned subsidiary of Seagate Technology, predecessor of New SAC, with and into Seagate Software Holdings. The merger was effected on October 20, 1999. Seagate Software Holding's assets consisted of the assets of the IMG business and its investment in the common stock of VERITAS. Upon the closing of the merger, Seagate Software Holdings became a wholly owned subsidiary of Seagate Technology. All outstanding options to purchase Seagate Software Holdings common stock were accelerated immediately prior to the merger. In connection with the merger, Seagate Software Holdings minority stockholders and optionees received payment in the form of 3.23 shares of Seagate common stock per share of Seagate Software Holdings common stock less any amounts due for the payment of the exercise price of unexercised options. Seagate issued 9,124,046 shares of its common stock from treasury shares to optionees and minority stockholders of Seagate Software Holdings in connection with the merger. Seagate Technology accounted for the exchange of shares of its common stock as the acquisition of a minority interest for Seagate Software Holdings common stock outstanding and vested more than six months held by employees and all stock held by former employees and consultants. The fair value of the shares of Seagate Technology issued was $19.4 million and was recorded as purchase price and allocated to all the identifiable tangible and intangible assets and liabilities of Seagate Software Holdings. Seagate Technology accounted for the exchange of shares F-340 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) of its common stock for stock options in Seagate Software Holdings held by employees and stock held and vested by employees less than six months as the settlement of an earlier stock award. Seagate Technology recorded compensation expense of $283.6 million, plus $2.1 million of employer portion of payroll taxes, related to the purchase of minority interest in Seagate Software Holdings. The consolidated and combined statement of operations for fiscal 2000 includes an allocation of compensation expense arising from the October 1999 Seagate Technology exchange offer. Compensation expense was allocated to Crystal Decisions on the basis of employees specifically identified with the IMG business and for those employees that performed services for the IMG business, on the basis of time estimates. Accordingly, Crystal Decisions recorded $239.6 million of the $283.6 million compensation expense related to the October 1999 Seagate Technology exchange of total of shares and offsetting $239.6 million was recorded as a capital contribution from Seagate Technology. In addition, the $2.1 million of employer portion of payroll taxes paid relate to Crystal Decisions employees and therefore the amount is recorded as an expense for fiscal 2000. In addition, $877,000 of legal and accounting costs were incurred by Crystal Decisions in connection with the recapitalization and reorganization of Crystal Decisions. The following table summarizes the components of the unusual items expense for fiscal 2000 reported by Seagate that are attributable to the employees of Crystal Decisions:
AS REPORTED BY ALLOCATED TO SEAGATE CRYSTAL DECISIONS ---------------- ------------------ (IN THOUSANDS) Compensation expense associated with the exchange of Seagate Software Holdings common stock for Seagate Technology common stock .............................................. $283,619 $239,574 Employer portion of payroll taxes .......................... 2,118 2,118 Transaction costs .......................................... 877 877 -------- -------- Total unusual items ....................................... $286,614 $242,569 ======== ========
The consolidated and combined financial statements of Crystal Decisions at June 30, 2000 also include an allocation of $1.2 million of the $19.4 million purchase price allocation described above. The allocation to Crystal Decisions was based on the fair value of the IMG business relative to the fair value of Seagate Software Holdings. A number of factors were considered in determining the estimated fair value of the IMG business, including historical and projected revenues, earnings and cash flows, as well as other factors and consultations with financial advisors. The allocation of the purchase price to the intangible assets of Crystal Decisions as at October 20, 1999 was as follows: Developed technologies ...................... $ 156,000 Trademark ................................... 36,000 Assembled work force ........................ 47,000 In-process research and development ......... 25,000 Goodwill .................................... 1,071,000 Deferred tax liability ...................... (94,000) ---------- Total purchase price allocated ........... $1,241,000 ==========
10. RESTRUCTURING COSTS During fiscal 2000 Crystal Decisions incurred $1.3 million of restructuring charges for termination of excess personnel as Crystal Decisions realigned its resources to better manage and control its F-341 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) business. The charges resulted from a company-wide restructuring plan announced in October 1999 and were comprised of charges for excess personnel related to severance and benefits paid to approximately 125 employees from various locations and departments, including direct sales force personnel, who were terminated on October 23, 1999. The decline in the direct sales force as part of this restructuring contributed to the decline in revenues during fiscal 2000 as compared to fiscal 1999. The restructuring charges were paid during fiscal 2000 and no amounts were outstanding as of June 30, 2000 11. INCOME TAXES Crystal Decisions is included in the consolidated federal and certain combined and consolidated foreign and state income tax returns of Seagate Technology. Seagate Technology and Crystal Decisions have entered into a tax sharing agreement (the "Tax Allocation Agreement") pursuant to which Crystal Decisions computes hypothetical tax returns as if Crystal Decisions was not joined in consolidated or combined returns with Seagate Technology. Crystal Decisions must pay Seagate Technology the positive amount of any such hypothetical taxes. If the hypothetical tax returns show entitlement to refunds, including any refunds attributable to a carryback, then Seagate Technology will pay Crystal Decisions the amount of such refunds. At the end of fiscal 2000 and fiscal 1999 there were $67.0 million and $762,000 of inter-company tax related balances due to Crystal Decisions from Seagate Technology that were offset against amounts due to Seagate Technology under the Revolving Loan Agreement. On November 22, 2000 the Tax Allocation Agreement was terminated (see note 19). The provision for (benefit from) income taxes consisted of the following:
FOR THE YEARS ENDED ------------------------------------------- JUNE 30, JULY 2, JULY 3, 2000 1999 1998 --------------- ------------ ---------- (IN THOUSANDS) Current Tax Expense (Benefit) Federal ......................................... $(46,977) $ (3,646) $1,915 State ........................................... (7,440) (1,694) (195) Foreign ......................................... $ (491) $ 2,814 $7,080 -------- -------- ------ Total Current Tax Expense (Benefit) .......... $(54,908) $ (2,526) $8,800 -------- -------- ------ Deferred Tax Expense (Benefit) Federal ......................................... (139) -- -- State ........................................... (8) -- -- Foreign ......................................... -- -- -- ---------- -------- ------ Total Deferred Tax Expense (Benefit) ......... (147) -- -- ---------- -------- ------ Provision for (benefit from) Income Taxes .......... $(55,055) $ (2,526) $8,800 ========== ======== ======
For purposes of the historical financial statements, the benefit from income taxes has been computed on a separate return basis, except that the tax benefits of certain of Crystal Decisions's tax losses and credits were recognized by Crystal Decisions on a current basis if such losses could be utilized by Seagate Technology in its tax returns. F-342 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) Loss before income taxes consisted of the following:
FOR THE YEARS ENDED ----------------------------------------------- JUNE 30, JULY 2, JULY 3, 2000 1999 1998 -------------- -------------- ------------- (IN THOUSANDS) United States ......... $ (271,991) $ (109,095) $ (20,005) Foreign: Canada ............... (4,042) 9,668 14,944 Europe ............... 116 750 (459) Other ................ (300) (224) 1,061 ---------- ---------- --------- $ (276,217) $ (98,901) $ (4,459) ========== ========== =========
The pro forma information assuming a tax benefit based on a separate return basis is as follows:
FOR THE YEAR ENDED JUNE 30, 2000 -------------- Loss before income taxes .......................... $ (276,217) Provision for (benefit from) income taxes ......... (491) ---------- Net loss .......................................... $ (275,726) ==========
The income tax benefits related to the exercise of certain employee stock options increased amounts due from Seagate Technology pursuant to the Tax Allocation Agreement and were credited to additional paid-in capital. Such amounts approximated $109,000, $22,000 and $3,000 in fiscal 2000, fiscal 1999 and fiscal 1998, respectively. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of Crystal Decisions's deferred tax assets and liabilities were as follows:
FOR THE YEARS ENDED --------------------------- JUNE 30, JULY 2, 2000 1999 ------------ ------------ (IN THOUSANDS) Deferred Tax Assets: Receivable reserves ............................... 1,953 1,158 Inventory valuation accounts ...................... 141 68 Accrued compensation and benefits ................. 802 523 Depreciation ...................................... 75 (24) Accrued expenses not currently deductible ......... 1,300 (28) Goodwill and other intangibles .................... 31,754 37,322 Foreign net operating loss carryforwards .......... 855 3,579 Tax credit carryforwards .......................... -- 7,602 Other ............................................. 1,421 1,014 ------ ------ Total Deferred Tax Assets ...................... 38,301 51,214 Valuation allowance ............................... (38,301) (51,214) ------- ------- Net Deferred Tax Assets ........................ -- -- ------- ------- Deferred Tax Liabilities: Goodwill and other intangibles .................... 381 234 ------- ------- Net Deferred Tax Liabilities ................... $ 381 $ 234 ========= =========
F-343 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) A valuation allowance has been provided for the deferred tax assets as of the end of fiscal 2000 and fiscal 1999. Realization of the deferred tax assets is dependent on future earnings, the timing and amount of which are uncertain. In addition, the net operating loss and tax credit carryforwards of acquired subsidiaries are subject to further limitations on utilization due to the "change in ownership" provisions of Internal Revenue Code Section 382 and the "separate return limitation year" rules of the federal consolidated return regulations. The valuation allowance decreased by $12.9 million in fiscal 2000 and increased by $13.6 million in fiscal 1999 and $9.0 million in fiscal 1998. As of June 30, 2000, Crystal Decisions had foreign net operating loss carryforwards of approximately $2.8 million that start expiring in fiscal 2004 if not used to offset future taxable income. The reconciliation between the provision for (benefit from) income taxes at the U.S. statutory rate and the effective rate are summarized as follows:
FOR THE YEARS ENDED -------------------------------------------- JUNE 30, JULY 2, JULY 3, 2000 1999 1998 ------------- ------------- ------------ (IN THOUSANDS) Provision (benefit) at U.S. statutory rate ........................ $ (95,765) $ (34,615) $ (1,562) State income taxes (benefit), net ................................. (4,191) (2,371) (557) Foreign income taxes (benefit) in excess of the U.S. statutory rate 1,229 109 1,816 Non-deductible compensation expense ............................... 56,734 18,019 -- Valuation allowance ............................................... (12,913) 13,631 9,075 Other individually immaterial items ............................... (149) 2,701 28 --------- --------- -------- $ (55,055) $ (2,526) $ 8,800 ========= ========= ========
12. NET LOSS PER SHARE Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share", requires the disclosure of basic and diluted earnings (losses) per share. Prior to August 24, 1999, Crystal Decisions had no outstanding share capital. Crystal Decisions issued 1,000 shares of common stock to Seagate Technology for aggregate proceeds of $1,000 on August 24, 1999. On November 16, 1999, Seagate Software Holdings contributed the IMG business to Crystal Decisions in exchange for 75,000,000 shares of Crystal Decisions common stock. Basic loss per common share has been computed using the weighted average number of common stock outstanding during each of the periods presented, with the initial 1,000 and 75,000,000 shares being treated as outstanding for all reporting periods. Diluted loss per share is computed using the weighted average number of shares of common stock outstanding during each of the periods presented assuming exercise of options to purchase common stock, with the initial 1,000 and 75,000,000 shares being treated as outstanding for all reporting periods. Options to purchase common stock were excluded from the computation of diluted net loss per share, as their effect is antidilutive. F-344 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) Below is a reconciliation of the numerator and denominator used to calculate net loss per share :
FOR THE YEARS ENDED ----------------------------------------------- JUNE 30, JULY 2, JULY 3, 2000 1999 1998 -------------- -------------- ------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Basic net loss per share Numerator: Net loss ........................................... $ (221,162) $ (96,375) $ (13,259) Denominator: Weighted average number of common shares outstanding ....................................... 75,001,391 75,001,000 75,001,000 ----------- ----------- ----------- Net loss per share -- basic ........................... $ (2.95) $ (1.28) $ (0.18) =========== =========== =========== Diluted net loss per share computation Numerator: Net loss ........................................... $ (221,162) $ (96,375) $ (13,259) Denominator: Weighted average number of common shares outstanding ....................................... 75,001,391 75,001,000 75,001,000 Incremental common shares attributable to exercise of outstanding options and shares subject to repurchase (assuming proceeds would be used to purchase treasury stock) ......... -- -- -- ----------- ----------- ----------- 75,001,391 75,001,000 75,001,000 ----------- ----------- ----------- Net loss per share -- diluted ......................... $ (2.95) $ (1.28) $ (0.18) =========== =========== ===========
13. STOCKHOLDERS' EQUITY Crystal Decisions' authorized capital stock consists of 150,000,000 shares of common stock, $0.001 par value per share. No dividends have been declared or paid to date by Crystal Decisions. 1999 and 2000 Stock Option Plans -- The Crystal Decisions' 1999 and 2000 Stock Option Plans ("Crystal Decisions Plans") provides for the issuance of incentive and nonstatutory stock options to employees, directors and consultants of Crystal Decisions, its parent and subsidiaries. 1999 Stock Option Plan -- As of June 30, 2000, Crystal Decisions had reserved 22,500,000 shares under the 1999 Stock Option Plan. Options granted under this Plan are granted at fair market value, expire ten years from the date of the grant and vest over 48 months, with 25% vesting on the first anniversary of the date of grant. As of June 30, 2000, 8,626,879 options were outstanding under the 1999 stock option plan. 2000 Stock Option Plan -- As of June 30, 2000, Crystal Decisions had reserved 200,000 shares under the 2000 Stock Option Plan. Options granted under this Plan are granted at fair market value, expire ten years from the date of grant and become fully vested and exercisable immediately prior to a merger or asset sale, other than the Sale of Seagate Technology described in note 19, or on the date upon an initial public offering of Crystal Decisions common stock is declared effective by the United States Securities and Exchange Commission. Compensation expense will have to be recognized upon vesting of these options as all of the options under this plan have been granted to employees of our parent or another subsidiary within the consolidated group. As of June 30, 2000, 161,450 options were outstanding under the 2000 stock option plan. F-345 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) Options under the 1999 and 2000 Stock Option Plans were granted at an exercise price equal to the fair market value of Crystal Decisions' common stock on the grant date, as determined by our Board of Directors. Prior to fiscal 2000, employees, directors and consultants of Crystal Decisions participated in Seagate Software Holdings' 1996 Stock Option Plan (the "Holdings Plan"). Under the Holdings Plan, incentive or nonstatutory stock options were issued to employees, directors and consultants of Seagate Software Holdings, its parent and subsidiaries. Seagate Software Holdings had reserved a total of 16,600,000 shares under the plan. Options granted under the Holdings Plan were granted at fair market value, expired 10 years from the date of the grant and vested equally over 48 months. During fiscal 1999, certain of these options were exchanged for Seagate Technology common stock, (see note 9), and in October 1999, the remaining options outstanding were accelerated, vested in full and exercised. In connection with the merger of Seagate Software Holdings and Seagate Daylight Merger Corp., the Holdings Plan was terminated. The SFAS 123 pro forma information disclosed below for fiscal 1999 and fiscal 1998 were based on the Holdings Plan. Following is a summary of stock option activity from the inception of the Crystal Decisions stock option plans through fiscal 2000:
OPTIONS OUTSTANDING ----------------------------------- NUMBER OF COMMON SHARES WEIGHTED AVERAGE ISSUABLE EXERCISE PRICE --------------- ----------------- Balance at July 2, 1999 .......... 0 0.00 Granted ......................... 9,501,899 4.00 Exercised ....................... (1,050) 4.00 Canceled ........................ (712,520) 4.00 --------- Balance at June 30, 2000 ......... 8,788,329 4.00 =========
Options available for grant were 13,910,621 as of the end of fiscal 2000. The following tables summarize information about options outstanding at June 30, 2000.
EXERCISABLE OPTIONS OUTSTANDING OPTIONS ---------------------------------------------------------- ----------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE EXERCISE NUMBER OF CONTRACTUAL LIFE EXERCISE NUMBER OF EXERCISE PRICE SHARES (IN YEARS) PRICE SHARES PRICE ---------- ----------- ------------------ ---------- ----------- --------- $ 4.00 8,788,329 9.54 $ 4.00 40,600 $ 4.00 --------- ------ Total ......... $ 4.00 8,788,329 9.54 $ 4.00 40,600 $ 4.00 ========= ======
Pro Forma Information -- In October 1995, the Financial Accounting Standards Board issued SFAS 123. SFAS 123 provides an alternative to APB 25 and requires additional disclosures. Crystal Decisions has elected to follow APB 25 in accounting for stock options granted. Under APB 25, Crystal Decisions generally recognized no compensation expense with respect to such options. F-346 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) SFAS 123 requires Crystal Decisions to present pro forma information regarding net income and earnings per share for stock options granted after June 30, 1995 as if Crystal Decisions had accounted for its stock options under the fair value method of SFAS 123. The fair value of Crystal Decisions' stock options was estimated using a Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, the Black-Scholes model requires the input of highly subjective assumptions, including the expected stock price volatility. Because Crystal Decisions' stock options granted to employees have characteristics significantly different from those of exchange-traded options (and are not fully transferable) and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the Black-Scholes model does not necessarily provide a reliable single measure of the fair value of its stock options granted to employees. The fair value of Crystal Decisions' stock options granted to employees was estimated assuming no expected dividends and the following weighted average assumptions:
CRYSTAL DECISIONS INCENTIVE SEAGATE EMPLOYEE STOCK OPTION PLAN SHARES STOCK PURCHASE PLAN SHARES ----------------------------------------- ---------------------------------------- FISCAL 2000 FISCAL 1999 FISCAL 1998 FISCAL 2000 FISCAL 1999 FISCAL 1998 ------------- ------------- ------------- ------------- ------------- ------------ Expected life (in years) ......... 1.97 3.31 3.67 .50 .50 .56 Risk-free interest rate .......... 6.2% 5.2% 5.7% 5.7% 4.6% 5.5% Volatility ....................... .95 .68 .55 .78 .80 .63
The weighted average fair value of stock options granted under Crystal Decisions' 1999 Stock Option Plan was $2.83 per share. The weighted average fair value of shares granted under the Purchase Plan were $11.47, $10.18 and $12.03 per share in fiscal 2000, fiscal 1999 and fiscal 1998, respectively. The weighted average purchase price of shares granted under the Purchase Plan was $23.38, $22.72 and $26.99 per share in fiscal 2000, fiscal 1999 and fiscal 1998, respectively. For purposes of pro forma disclosures, the estimated fair value of the options was amortized over the options' vesting period (for stock options) and over the six-month purchase period for stock purchases under the Purchase Plan. Crystal Decisions' pro forma information follows:
FOR THE YEARS ENDED ---------------------------------------------- JUNE 30, JULY 2, JULY 3, 2000 1999 1998 -------------- ------------- ------------- (IN THOUSANDS) Pro forma net loss .......................... $ (225,973) $ (96,956) $ (14,319) Pro forma net loss per common share ......... $ (3.01) $ (1.29) $ (0.19)
The effects on pro forma disclosures of applying SFAS 123 are not likely to be representative of the effects on pro forma disclosures of future years as no shares were issued under the IMG Plan prior to November 1999. 14. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION Crystal Decisions adopted Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information", in fiscal 1999. SFAS 131 establishes standards for reporting information about operating segments. Crystal Decisions operates in a single industry segment, enterprise information management. Crystal Decisions' products and services are sold worldwide, through direct, OEM and distributor channels. Within the segment, the chief operating decision maker, Crystal Decisions' chief executive F-347 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) officer, evaluates the performance of the business based upon revenues from product and services, revenues by geographic regions and revenues by product channels. The chief executive officer does not receive discrete financial information about asset allocation, expense allocation or profitability from the business products or maintenance, support and services. Product and services revenues:
FOR THE YEARS ENDED ------------------------------------- JUNE 30, JULY 2, JULY 3, 2000 1999 1998 ---------- ----------- ---------- (IN THOUSANDS) Licensing revenues ..................... $ 74,182 $ 92,013 $ 81,246 Maintenance, support and other ......... 52,336 49,744 34,706 -------- -------- -------- Total revenues ...................... $126,518 $141,757 $115,952 ======== ======== ========
Geographic revenues (1),(2):
FOR THE YEARS ENDED ------------------------------------- JUNE 30, JULY 2, JULY 3, 2000 1999 1998 ---------- ----------- ---------- (IN THOUSANDS) United States ............. $ 83,080 $ 86,945 $ 78,932 Europe .................... 28,570 38,625 25,760 Other ..................... 14,868 16,187 11,260 -------- -------- -------- Total revenues ......... $126,518 $141,757 $115,952 ======== ======== ========
Channel revenues:
FOR THE YEARS ENDED ------------------------------------- JUNE 30, JULY 2, JULY 3, 2000 1999 1998 ---------- ----------- ---------- (IN THOUSANDS) Direct .................... $ 74,760 $ 85,773 $ 69,908 Distribution .............. 40,985 44,299 38,953 OEM ....................... 10,773 11,685 7,091 -------- -------- -------- Total revenues ......... $126,518 $141,757 $115,952 ======== ======== ========
Long-lived assets (3) as of:
JUNE 30, JULY 2, 2000 1999 ---------- ---------- (IN THOUSANDS) United States ...................... $ 6,154 $ 8,347 Canada ............................. 7,254 4,904 Other .............................. 1,226 1,254 ------- ------- Total long-lived assets ......... $14,634 $14,505 ======= =======
F-348 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, JULY 2, 2000 1999 ---------- ---------- Total long-lived assets ................. $14,634 $14,505 Other assets, including current ......... 56,646 65,315 ------- ------- Total assets ......................... $71,280 $79,820 ======= =======
- ---------- (1) Revenues are attributed to geographic regions based on the location of the customer. (2) Europe includes the United Kingdom, South Africa and the Middle East. (3) Reconciliation to total assets reported (in thousands). In fiscal 2000, fiscal 1999 and fiscal 1998, revenues from one third-party customer, Ingram, accounted for more than 10% of consolidated revenues for a total of $25.3 million, $18.3 million and $16.8 million, respectively. 15. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that derivatives be recognized in the balance sheet at fair value. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB No. 133" to defer the effective date of SFAS 133 until fiscal years beginning after June 15, 2000. Crystal Decisions is still assessing the impact of SFAS 133 on its consolidated results of operations, financial position and cash flows. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements". SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. All registrants are expected to apply the accounting and disclosures described in SAB 101. Crystal Decisions is required to adopt SAB 101 in the fourth quarter of fiscal 2001, retroactive to the beginning of the year. Crystal Decisions is still assessing the impact of SAB 101 on its consolidated results of operations, financial position and cash flows. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation--an Interpretation of APB No. 25". FIN 44 clarifies the application of APB Opinion No. 25 and, among other issues, clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequences of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective fiscal years commencing July 1, 2000. The impact of FIN 44 is not anticipated to be material when adopted. 16. COMMITMENTS Leases. Crystal Decisions leases its property, facilities and equipment under non-cancelable lease agreements. Facility leases expire at various dates through 2007 and contain various provisions for rental adjustments. The leases require Crystal Decisions to pay property taxes, insurance and normal maintenance costs. Crystal Decisions also occupies certain facilities owned by Seagate. Future minimum payments for operating leases were as follows at June 30, 2000: F-349 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
OPERATING LEASES --------------- (IN THOUSANDS) 2001 ............... $ 5,506 2002 ............... 4,812 2003 ............... 4,080 2004 ............... 3,423 2005 ............... 2,365 After 2005 ......... 2,418 ------- $22,604 =======
Total rent expense for all facility equipment operating leases was approximately $5.7 million, $5.7 million and $3.2 million for fiscal 2000, fiscal 1999 and fiscal 1998, respectively. Non-cancelable Capital Obligations. As of June 30, 2000 there were no outstanding non-cancelable capital obligations. Canadian Registered Retirement Savings Program. In January 1999, Crystal Decisions began sponsoring a tax deferred registered retirement savings program for its Canadian employees. Employees voluntarily contribute to registered retirement savings accounts and Crystal Decisions contributes 50% of the amounts contributed by the employees, up to a maximum of $1,667 (CAD $2,500) per employee or 6% of the individual employee's salary, whichever is less. Expenses related this program were $530,000 in fiscal 2000 and $215,000 in fiscal 1999. 17. CONTINGENCIES On November 10, 1997, Vedatech commenced an action in the High Court of Justice Chancery Division in the United Kingdom against Seagate Software Information Management Group Ltd., a wholly owned subsidiary of Crystal Decisions, claiming breach of an oral agreement and infringement of a Vedatech U.K. copyright in the Japanese translation of one of Crystal Decisions' products and is seeking monetary and injunctive relief. No specific damage amount has yet been claimed with the exception of $240,000 ((Yen)26.0 million) for unpaid invoices in connection with the quantum meruit claim. Vedatech seeks to enjoin Crystal Decisions from infringing the U.K. copyright and seeks forfeiture to Vedatech of all infringing software copies. Crystal Decisions has hired local counsel in the U.K., reviewed documents, conducted interviews and participated in the discovery process. On August 22, 2000, Vedatech requested and obtained permission from the court to amend its action to include claims for unjust enrichment, unlawful interference and quantum merit. Crystal Decisions has deposited with the court an amount equal to $200,000 in relation to the quantum meruit claim. Crystal Decisions has filed an amended response. Discovery is ongoing, and the court has expressed its intent to set the matter for trial on June 5, 2001. With the exception of the quantum meruit claim, Crystal Decisions believes the complaint has no merit, and intends vigorously to defend the action. However, if an unfavorable outcome were to arise, there can be no assurance that such outcome would not have a material adverse affect on Crystal Decisions' liquidity, financial position or results of operations. The outcome of this matter and amount of related claims are not determinable at this time. In addition to the foregoing, Crystal Decisions is subject to other litigation in the ordinary course of our business. While Crystal Decisions believes that the ultimate outcome of these matters will not have a material adverse effect on Crystal Decisions, the outcome of these matters is not determinable and negative outcomes may adversely affect Crystal Decisions' financial position, liquidity, or results of operations. F-350 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) 18. SUPPLEMENTAL CASH FLOW INFORMATION
FOR THE YEARS ENDED --------------------------------- JUNE 30, JULY 2, JULY 3, 2000 1999 1998 ---------- --------- -------- (IN THOUSANDS) Cash Transactions: Cash paid for interest ............................. $1,481 $ 128 $ 253 Cash paid for income taxes, net of refunds ......... $1,045 $12,951 $6,756
19. SALE OF SEAGATE TECHNOLOGY On March 29, 2000, Seagate Technology, Seagate Software Holdings and Suez Acquisition Company (Cayman) Limited ("SAC"), an entity affiliated with, among others, Silver Lake Partners and Texas Pacific Group, entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") and Seagate Technology, VERITAS and a wholly owned subsidiary of VERITAS entered into an Agreement and Plan of Merger and Reorganization (the "Merger Agreement"). The transaction is referred to as the "New SAC Transaction." The stockholders of each of VERITAS and Seagate approved the Merger and the New SAC Transaction, as the case may be, on November 21, 2000. The New SAC Transaction contemplated by the Stock Purchase Agreement and Merger Agreement were completed on November 22, 2000. SAC assigned all of its rights under the Stock Purchase Agreement to New SAC, a Cayman Islands limited corporation ("New SAC"), in connection with the closing of the New SAC Transaction. Under the Stock Purchase Agreement, New SAC has purchased for cash, all of the operating assets of Seagate Technology and its consolidated subsidiaries, including Seagate Technology's rigid disc drive, storage area network, removable tape storage solutions, and enterprise management software businesses and operations, including Crystal Decisions and certain cash reserves. Upon completion of the New SAC Transaction, the 75,001,000 common shares of Crystal Decisions formerly held by Seagate Software Holdings were assigned to Seagate Software (Cayman) Holdings, a wholly owned subsidiary of New SAC organized as a Cayman Islands limited corporation. The New SAC transaction resulted in a change of control which will require pushdown accounting. Crystal Decisions will be required to reflect the fair value of its tangible and intangible assets and liabilities as at the close of the transaction. The Tax Allocation Agreement between Seagate Technology and Crystal Decisions was terminated on November 22, 2000, and Seagate and Crystal Decisions will no longer file federal income tax returns on a consolidated basis. Therefore, Seagate Technology will not benefit from nor will it reimburse Crystal Decisions pursuant to the Tax Allocation Agreement for tax losses sustained by Crystal Decisions subsequent to consummation of the transaction. In prior periods, Crystal Decisions has generated substantial cash payments from its tax losses utilized by Seagate Technology, which have been used to reduce its obligations to Seagate Technology under the Revolving Loan Agreement. As a result of the termination of the Tax Allocation Agreement, Crystal Decisions may not be able to convert any future tax losses into cash. Crystal Decisions relies on a revolving loan with Seagate Technology LLC, which is now a wholly-owned subsidiary of New SAC, to fund a portion of its operating cash needs. The Revolving Loan Agreement continues in effect subsequent to the closing of the New SAC Transaction on November 22, 2000. Crystal Decisions may require additional financing through the end of fiscal 2002. Crystal Decisions is in the process of negotiating additional financing with Seagate Technology LLC through the end of fiscal 2002. Should additional financing not be available from Seagate Technology LLC at terms that are satisfactory to Crystal Decisions and Seagate Technology LLC, F-351 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) Crystal Decisions may seek additional equity and financing from other sources. However, as a result of the New SAC Transaction, Crystal Decisions pledged a majority of its assets to guarantee the debt used to finance the New SAC Transaction. As a result, Crystal Decisions' ability to raise additional secured debt from other sources may be limited. NOTE 20. DEBT GUARANTEES AND PLEDGE OF ASSETS SENIOR SECURED CREDIT FACILITY On the closing of the New SAC Transaction, Seagate Technology International and Seagate Technology (US) Holdings, Inc., both subsidiaries of New SAC entered into senior credit facilities with a syndicate of banks and other financial institutions led by The Chase Manhattan Bank, as administrative agent and an issuing bank, and Goldman Sachs Credit Partners L.P., as a documentation agent, The Bank of Nova Scotia as a documentation agent, and Merrill Lynch Capital Corporation, as a documentation agent. The senior credit facilities provide senior secured financing of up to $900 million, consisting of: o a $200 million revolving credit facility for general corporate purposes, with a sub-limit of $100 million for letters of credit, which will terminate in five years; o a $200 million term loan A facility with a maturity of five years; and o a $500 million term loan B facility with a maturity of six years. At the closing of the transaction, New SAC did not borrow under the revolving credit facility. At that time approximately $155 million of the revolving credit facility was available because approximately $45 million of existing letters of credit were outstanding and reduced availability under it. New SAC drew the full amount of the term loan A facility and the term loan B facility on the closing of the transaction to finance the acquisition of Seagate's operating assets, including Crystal Decisions. The $700 million of outstanding loans under the term loan A and B facilities are repayable in semi-annual payments due as follows:
(IN THOUSANDS) --------------- Fiscal 2001 ............ $ 5,000 2002 ..... ........... 22,500 2003 ..... ........... 40,000 2004 ..... ........... 50,000 2005 ..... ........... 60,000 Thereafter .......... 522,500 -------- Total .... ........... $700,000 ========
The loans bear interest at variable rates dependent upon market interest rates and the nature of the borrowings, as well as the consolidated financial position of New SAC at applicable measurement dates. The average interest rates being charged under these borrowings from the date of the New SAC Transaction ranged from 9.1875% (LIBOR plus 2.5%) to 9.6875% (LIBOR plus 3%). New SAC and certain of its subsidiaries, including Crystal Decisions and certain of its subsidiaries are guarantors under the senior credit facilities. In addition, the majority of New SAC's and certain of its subsidiaries' assets, including Crystal Decisions' assets and its capital stock, have been pledged against the debt under this credit agreement. New SAC, and certain of its subsidiaries, F-352 CRYSTAL DECISIONS, INC. (FORMERLY SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.) NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) including Crystal Decisions and certain of its subsidiaries, have agreed to certain covenants under this agreement including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. Further, Crystal Decisions, as part of the consolidated group, is subject to certain financial covenants which are assessed on the consolidated operating results and financial position of New SAC and its subsidiaries. The credit agreement provides for the release of Crystal Decisions from its guarantee obligations, and asset pledge upon an approved transfer or sale of Crystal Decisions' common stock, or an initial public offering of at least 10%, on a fully diluted basis, of Crystal Decisions' voting common stock. SENIOR SUBORDINATED NOTES In connection with the closing and financing of the New SAC Transaction, Seagate Technology International issued unsecured senior subordinated notes under an Indenture Agreement dated November 22, 2000 at a discount to the aggregate principal amount of $210 million, for gross proceeds of approximately $201 million. The notes mature on November 15, 2007 and bear interest payable semi-annually at a rate of 12.5% per annum. New SAC and certain of its subsidiaries, including Crystal Decisions and certain of its subsidiaries, are guarantors of the notes. In addition, New SAC and certain of its subsidiaries including Crystal Decisions and certain of its subsidiaries, have agreed to certain restrictive covenants under the terms of these notes including restrictions on future equity and borrowing transactions, business acquisitions and disposals, making certain restricted payments and dividends, making certain capital expenditures, incurring guarantee obligations and engaging in mergers or consolidations. Crystal Decisions may be released from its guarantee obligation, if there are certain sales of its capital stock, including in an initial public offering, but would remain subject to the restrictive covenants of the indenture until Crystal Decisions and its subsidiaries are no longer subsidiaries of New SAC or are deemed no longer to be subject to the restrictive covenants. New SAC will not require Crystal Decisions' cash flow to be used to service the obligations pursuant to the senior secured credit facility and the senior subordinated notes. The Company believes that none of the guarantees or pledges of assets under the senior credit facilities or the guarantees under the Indenture are likely to be invoked. CONDENSED CONSOLIDATING FINANCIAL INFORMATION Crystal Decisions is a non-wholly owned subsidiary of New SAC. The senior subordinated notes are guaranteed by certain, but not all of the subsidiaries of New SAC, including certain of Crystal Decisions' world-wide subsidiaries. The guarantees of the senior subordinated notes are full and unconditional, and are made on a joint and several basis by the guaranteeing subsidiaries. F-353 The following tables present guarantor and non-guarantor condensed consolidating financial information for Crystal Decisions' subsidiaries, at June 30, 2000 and July 2, 1999, and the condensed consolidating results of its operations and its cash flows for the years ended June 30, 2000, July 2, 1999, and July 3, 1998. The information is based on the guarantor and non-guarantor classification of Crystal Decisions' subsidiaries under the current provisions of the senior subordinated notes. CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED BALANCE SHEET JUNE 30, 2000 (IN THOUSANDS)
ELIMINATION TOTAL CONSOLIDATED GUARANTOR NON-GUARANTOR ENTRIES CRYSTAL DECISIONS ----------- --------------- ------------- ------------------- ASSETS: Cash ........................................... $ 844 $ 2,777 $ -- $ 3,621 Loan receivable from Seagate Technology......... 25,681 -- -- 25,681 Accounts Receivable, net ....................... 24,141 12,638 (20,201) 16,578 Inventories .................................... 674 -- 674 Deferred Income Taxes .......................... -- -- -- -- Income Tax Receivable .......................... 6,134 -- (63) 6,071 Other Current Assets ........................... 1,832 2,189 4,021 -------- -------- -------- Current Assets ................................. 59,306 17,604 (20,264) 56,646 Capital Assets, net ............................ 9,095 253 -- 9,348 Investments .................................... 1,436 -- (1,436) -- Goodwill and Other Intangible Assets ........... 5,286 -- -- 5,286 -------- -------- ---------- -------- TOTAL ASSETS ................................... $ 75,123 $ 17,857 $ (21,700) $ 71,280 ======== ======== ========== ======== LIABILITIES: Accounts Payable ............................... 20,677 9,714 (20,201) 10,190 Accrued Employee Compensation .................. 5,239 765 -- 6,004 Accrued Expenses ............................... 8,279 3,818 -- 12,097 Deferred Revenue ............................... 18,038 1,457 -- 19,495 Deferred income taxes .......................... -- 63 (63) -- Accrued Income Taxes ........................... (573) 573 -- -- -------- -------- ---------- -------- Current Liabilities ............................ 51,660 16,390 (20,264) 47,786 Deferred income taxes .......................... 350 31 -- 381 -------- -------- ---------- -------- TOTAL LIABILITIES .............................. 52,010 16,421 (20,264) 48,167 STOCKHOLDERS' EQUITY ........................... 23,113 1,436 (1,436) 23,113 ======== ======== ========== ======== Total Liabilities and Stockholders' Equity ..... $ 75,123 $ 17,857 $ (21,700) $ 71,280 ======== ======== ========== ========
F-354 CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2000 (IN THOUSANDS)
ELIMINATION TOTAL CONSOLIDATED GUARANTORS NON-GUARANTORS ENTRIES CRYSTAL DECISIONS --------------- ---------------- ------------- ------------------- Revenues ................................. $ 113,094 $ 13,424 $ -- $ 126,518 Costs of revenues ........................ 40,417 3,558 43,975 Research and development ................. 24,874 -- 24,874 Sales, marketing and administrative ...... 72,205 14,793 86,998 Amortization of goodwill and other intangibles ............................. 3,038 -- 3,038 Restructuring costs ...................... 855 446 1,301 Unusual items ............................ 221,601 20,968 242,569 ----------- ---------- ----------- Total operating expenses .............. 362,990 39,765 -- 402,755 ----------- ---------- -------- ----------- Loss from Operations .................. (249,896) (26,341) -- (276,237) Equity Investment income (loss) .......... (21,513) -- 21,513 -- Other income (expense) ................... (5,561) 5,581 -- 20 ----------- ---------- -------- ----------- Other Income (Expense), net ........... (27,074) 5,581 21,513 20 ----------- ---------- -------- ----------- Income (loss) before income taxes ........ (276,970) (20,760) 21,513 (276,217) Benefit (provision) for income taxes ..... 55,808 (753) 55,055 ----------- ---------- ----------- Net Income (Loss) ..................... $ (221,162) $ (21,513) $ 21,513 $ (221,162) =========== ========== ======== ===========
F-355 CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2000 (IN THOUSANDS)
ELIMINATION TOTAL CONSOLIDATED GUARANTORS NON-GUARANTORS ENTRIES CRYSTAL DECISIONS ------------ ---------------- ------------- ------------------- Net cash provided by (used in) operating activities ................................... $ (21,717) $ 68 $ $ (21,649) -- INVESTING ACTIVITIES Acquisition of capital assets, net ............ (6,272) (84) -- (6,356) ---------- ------ ----------- ---------- Net cash (used in) investing activities..... (6,272) (84) -- (6,356) FINANCING ACTIVITIES Issuance of common stock ...................... 5 -- -- 5 Borrowings from Seagate Technology ............ 176,714 -- -- 176,714 Payments to Seagate Technology ................ (152,667) -- -- (152,667) ---------- ------ ----------- ---------- Net cash provided by (used in) financing activities ...................... 24,052 -- -- 24,052 Effect of exchange rate changes on cash ....... (114) 269 -- 155 ---------- ------ ----------- ---------- Increase (decrease) in cash ................... (4,051) 253 -- (3,798) Cash at the beginning of the year ............. 4,895 2,524 -- 7,419 ---------- ------ ----------- ---------- Cash at the end of the year ................... $ 844 $2,777 $ -- $ 3,621 ========== ====== =========== ==========
F-356 CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED BALANCE SHEET JULY 2, 1999 (IN THOUSANDS)
ELIMINATION TOTAL CONSOLIDATED GUARANTOR NON-GUARANTOR ENTRIES CRYSTAL DECISIONS ----------- --------------- ------------- ------------------- ASSETS: Cash ............................................... $ 4,895 $ 2,524 $ -- $ 7,419 Accounts Receivable, net ........................... 46,910 8,343 (12,526) 42,727 Inventories ........................................ 981 -- 981 Deferred Income Taxes .............................. 11,655 -- 11,655 Income Tax Receivable .............................. -- -- -- -- Other Current Assets ............................... (1,747) 4,281 2,534 -------- ------- ------- Current Assets ..................................... 62,694 15,148 (12,526) 65,316 Capital Assets, net ................................ 6,933 360 -- 7,293 Investments ........................................ 1,702 -- (1,702) -- Goodwill and Other Intangible Assets ............... 7,212 -- -- 7,212 Other Assets ....................................... -- -- -- -- -------- ------- --------- ------- TOTAL ASSETS ....................................... $ 78,541 $15,508 $ (14,228) $79,821 ======== ======= ========= ======= LIABILITIES: Accounts Payable ................................... 15,752 9,005 (12,526) 12,231 Accrued Employee Compensation ...................... 18,393 906 -- 19,299 Accrued Expenses ................................... 24,673 4,090 (331) 28,432 Loan Payable to Seagate Technology ................. 16,517 -- -- 16,517 Accrued Other Taxes ................................ 89 (420) 331 -- -------- ------- --------- ------- Current Liabilities ................................ 75,424 13,581 (12,526) 76,479 -------- ------- --------- ------- Deferred income taxes .............................. 234 -- -- 234 Other Liabilities .................................. -- 225 -- 225 -------- ------- --------- ------- TOTAL LIABILITIES .................................. 75,658 13,806 (12,526) 76,938 STOCKHOLDERS' EQUITY ............................... 2,883 1,702 (1,702) 2,883 Total Liabilities and Stockholders' Equity ......... $ 78,541 $15,508 $ (14,228) $79,821 ======== ======= ========= =======
F-357 CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 2, 1999 (IN THOUSANDS)
ELIMINATION TOTAL CONSOLIDATED GUARANTORS NON-GUARANTORS ENTRIES CRYSTAL DECISIONS -------------- ---------------- ------------- ------------------- Revenues ..................................... $ 126,265 $ 15,492 $ -- $ 141,757 Costs of revenues ............................ 45,407 3,294 -- 48,701 Research and development ..................... 21,224 -- -- 21,224 Sales, marketing and administrative .......... 66,305 12,998 -- 79,303 Amortization of goodwill and other intangibles ................................. 4,772 -- -- 4,772 Restructuring costs .......................... -- -- -- -- Unusual items ................................ 79,157 7,557 86,714 ---------- --------- ---------- Total operating expenses .................. 216,865 23,849 -- 240,714 ---------- --------- ------- ---------- Income (Loss) from Operations ............. (90,600) (8,357) -- (98,957) Interest income (expense) .................... 816 (760) -- 56 Equity Investment income (loss) .............. (8,999) -- 8,999 -- ---------- --------- ------- ---------- Other Income (Expense), net ............... (8,183) (760) 8,999 56 ---------- --------- ------- ---------- Income (loss) before income taxes ............ (98,783) (9,117) 8,999 (98,901) Benefit (provision) for income taxes ......... 2,408 118 -- 2,526 ---------- --------- ------- ---------- Net Income (Loss) ......................... $ (96,375) $ (8,999) $ 8,999 $ (96,375) ========== ========= ======= ==========
F-358 CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JULY 2, 1999 (IN THOUSANDS)
ELIMINATION TOTAL CONSOLIDATED GUARANTORS NON-GUARANTORS ENTRIES CRYSTAL DECISIONS ------------ ---------------- ------------- ------------------- Net cash provided by (used in) operating activities ................................. $ (2,322) $1,413 $ -- $ (909) INVESTING ACTIVITIES Acquisition of capital assets, net .......... (4,731) (125) -- (4,856) ---------- ------ ----- ---------- Net cash provided by (used in) investing activities .................... (4,731) (125) -- (4,856) FINANCING ACTIVITIES Borrowings from Seagate Technology .......... 131,194 -- -- 131,194 Payments to Seagate Technology .............. (128,233) -- -- (128,233) ---------- ------ ----- ---------- Net cash provided by (used in) financing activities .................... 2,961 -- -- 2,961 Effect of exchange rate changes on cash ..... -- -- -- -- ---------- ------ ----- ---------- Increase (decrease) in cash ................. (4,092) 1,288 -- (2,804) Cash at the beginning of the year ........... 8,987 1,236 10,223 ---------- ------ ---------- Cash at the end of the year ................. $ 4,895 $2,524 $ -- $ 7,419 ========== ====== ===== ==========
F-359 CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 3, 1998 (IN THOUSANDS)
ELIMINATION TOTAL CONSOLIDATED GUARANTORS NON-GUARANTORS ENTRIES CRYSTAL DECISIONS -------------- ---------------- ------------- ------------------- Revenues ..................................... $ 103,955 $ 11,997 $ -- $ 115,952 Costs of revenues ............................ 35,067 689 35,756 Research and development ..................... 16,237 -- 16,237 Sales, marketing and administrative .......... 55,222 10,565 65,787 Amortization of goodwill and other intangibles ................................. 3,165 -- 3,165 Restructuring costs .......................... -- -- -- Unusual items ................................ -- -- -- ---------- -------- ---------- Total operating expenses .................. 109,691 11,254 -- 120,945 ---------- -------- ------- ---------- Income (Loss) from Operations ............. (5,736) 743 -- (4,993) Interest income (expense) .................... 742 (208) 534 Equity Investment income (loss) .............. 291 -- (291) -- ---------- -------- ------- ---------- Other Income (Expense), net ............... 1,033 (208) (291) 534 ---------- -------- ------- ---------- Income (loss) before income taxes ............ (4,703) 535 (291) (4,459) Benefit (provision) for income taxes ......... (8,556) (244) (8,800) ---------- -------- ---------- Net Income (Loss) ......................... $ (13,259) $ 291 $ (291) $ (13,259) ========== ======== ======= ==========
F-360 CRYSTAL DECISIONS, INC. CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JULY 3, 1998 (IN THOUSANDS)
ELIMINATION TOTAL CONSOLIDATED GUARANTORS NON-GUARANTORS ENTRIES CRYSTAL DECISIONS ------------ ---------------- ------------- ------------------- Net cash provided by (used in) operating activities ................................. $ (4,235) $1,772 $ -- $ (2,463) INVESTING ACTIVITIES Acquisition of capital assets, net .......... (4,122) (643) -- (4,765) Acquisition of intangible assets ............ (1,950) -- -- (1,950) ---------- ------ ----- ---------- Net cash provided by (used in) investing activities .................... (6,072) (643) -- (6,715) FINANCING ACTIVITIES Borrowings from Seagate Technology .......... 108,469 -- -- 108,469 Payments to Seagate Technology .............. (100,243) -- -- (100,243) ---------- ------ ----- ---------- Net cash provided by (used in) financing activities .................... 8,226 -- -- 8,226 Effect of exchange rate changes on cash ..... -- 11 -- 11 ---------- ------ ----- ---------- Increase (decrease) in cash ................. (2,081) 1,140 -- (941) Cash at the beginning of the year ........... 11,068 96 11,164 ---------- ------ ---------- Cash at the end of the year ................. $ 8,987 $1,236 $ -- $ 10,223 ========== ====== ===== ==========
NOTE 21. QUARTERLY INFORMATION (UNAUDITED) The table below shows the Company's unaudited quarterly statements of operations data for each of the eight quarters ended June 30, 2000. This information has been derived from the Company's unaudited consolidated and combined financial statements, which, in management's opinion, have been prepared on the same basis as the audited consolidated and combined financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the information for the quarters presented. The operating results for any quarter are not necessarily indicative of the operating results for any future period. For the 13 Weeks Ended:
JUNE 30, MAR. 31, DEC. 31, 2000 2000 1999 -------------- -------------- -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATE) Net Revenues .......... $ 33,956 $ 34,387 $ 30,298 Gross Profit .......... 23,012 23,867 19,353 Net Loss .............. $ (2,173) $ (1,103) $ (213,234) Net Loss per share-- basic and diluted .... $ (0.03) $ (0.01) $ (2.84) Weighted average number of shares ..... 73,002,050 75,001,357 75,001,000 OCT. 1 JULY 2, APRIL 2, JAN. 1, OCT. 2, 1999 1999 1999 1999 1998 -------------- -------------- -------------- -------------- -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATE) Net Revenues .......... $ 27,877 $ 41,779 $ 38,869 $ 33,517 $ 27,592 Gross Profit .......... 16,311 26,623 26,363 22,870 17,200 Net Loss .............. $ (4,652) $ (87,541) $ (2,296) $ (354) $ (6,184) Net Loss per share-- basic and diluted .... $ (0.06) $ (1.17) $ (0.03) $ (0.00) $ (0.08) Weighted average number of shares ..... 75,001,000 75,001,000 75,001,000 75,001,000 75,001,000
F-361 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Crystal Decisions, Inc. We have audited the accompanying consolidated and combined balance sheets of Crystal Decisions, Inc. as of June 30, 2000 and July 2, 1999 and the related consolidated and combined statements of operations, stockholders' equity and cash flows for each of the years in the three year period ended June 30, 2000. These financial statements are the responsibility of Crystal Decisions, Inc.'s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the consolidated and combined financial position of Crystal Decisions, Inc. at June 30, 2000 and July 2, 1999 and the consolidated combined results of its operations and its cash flows for each of the years in the three year period ended June 30, 2000, in conformity with generally accepted accounting principles in the United States. Vancouver, Canada, Chartered Accountants July 7, 2000, except for Notes 1, 2, 11, 19, and 20 /s/ Ernst & Young LLP as to which the date is March 26, 2001 F-362 $210,000,000 [GRAPHIC OMITTED] SEAGATE TECHNOLOGY INTERNATIONAL OFFER TO EXCHANGE ALL OUTSTANDING 12 1/2% SENIOR SUBORDINATED NOTES DUE 2007 FOR 12 1/2% SENIOR SUBORDINATED NOTES DUE 2007 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 --------------------- P R O S P E C T U S , 2001 --------------------- Until , 2001 (90 days after the date of this prospectus), all dealers effecting transactions in the exchange notes, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and regarding their unsold allotments or subscriptions. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to exchange the exchange notes for outstanding notes only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. INDEMNIFICATION OF THE DIRECTORS AND OFFICERS OF THE ISSUER, NEW SAC, SEAGATE TECHNOLOGY HOLDINGS, SEAGATE TECHNOLOGY SAN HOLDINGS AND SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS The articles of association of the Issuer, New SAC, Seagate Technology Holdings, Seagate Technology SAN Holdings and Seagate Removable Storage Solutions Holdings provide for the indemnification of their respective directors and officers. Specifically, under the indemnification provisions, these companies will indemnify their respective directors and officers against liabilities that are incurred by the directors or officers while carrying out the affairs of the company or discharging the duties of their respective offices. The directors and officers, however, will not be entitled to the indemnification if they incurred the liabilities through their own willful neglect or default. In addition, the board resolutions of the Issuer, New SAC, Seagate Technology Holdings, Seagate Technology SAN Holdings and Seagate Removable Storage Solutions Holdings provide for the indemnification of their respective directors and officers against any claims arising out of or relating to (a) the preparation, filing and distribution of this registration statement or the prospectus contained in this registration statement, (b) the issue and exchange of the exchange guarantee or the exchange notes, (c) the exchange offer and (d) any activities that the directors and officers deem necessary or advisable to carry out the intent and purposes of the resolutions. The resolutions also expressly authorize these companies to indemnify their directors and officers to the fullest extent permitted by law. Each of these companies is a Cayman Islands company and, as such, is governed by the laws of the Cayman Islands with respect to the indemnification provisions. Although The Companies Law (2000 Revision) of the Cayman Islands does not specifically restrict a Cayman Islands company's ability to indemnify its directors or officers, it does not expressly provide for such indemnification either. Certain Commonwealth case law (which is likely to be persuasive in the Cayman Islands), however, indicate that the indemnification is generally permissible, unless there had been fraud, willful default or reckless disregard on the part of the director or officer in question. INDEMNIFICATION OF THE DIRECTORS AND OFFICERS OF CRYSTAL DECISIONS, INC. Crystal Decisions, Inc. is a Delaware corporation and is subject to the Delaware General Corporation Law or DGCL. Section 145 of the DGCL permits the company to indemnify its officers and directors against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with any threatened, pending or completed action (except settlements or judgments in derivative suits), suit or proceeding in which such person is made a party by reason of his or her being or having been a director, officer, employee or agent of the company, in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act of 1933, as amended. The statute provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any by-law, agreement, vote of stockholders of disinterested directors, or otherwise. Article 6 of Crystal Decisions' by-laws provides for the mandatory indemnification of its directors, officers, employees and other agents to the maximum extent permitted by the DGCL. As permitted by sections 102 and 145 of the DGCL, the company's certificate of incorporation eliminates a director's personal liability for monetary damages to the company and its stockholders arising from a breach of a director's fiduciary duty, except as otherwise provided under the DGCL. LIABILITY INSURANCE COVERING DIRECTORS AND OFFICERS In addition to the indemnification provisions set forth above, each of the Issuer, New SAC, Crystal Decisions, Inc., Seagate Technology Holdings, Seagate Technology SAN Holdings and II-1 Seagate Removable Storage Solutions Holdings maintains insurance policies that indemnify its directors and officers against various liabilities arising under the Securities Act of 1933 and the Securities Exchange Act of 1934 that might be incurred by any director or officer in his capacity as such. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. The following exhibits are being filed with this Registration Statement pursuant to Item 601 of Regulation S-K. (A) EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------------ ---------------------------------------------------------------------------------------- 1.1 Purchase Agreement, dated as of November 17, 2000, by and among Suez Acquisition Company (Cayman) Limited, Chase Securities Inc., Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated 1.2 Joinder to the Purchase Agreement, dated as of November 22, 2000, by and among among Seagate Technology International, the Note Guarantors listed therein, Chase Securities Inc., Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated 2.1 Stock Purchase Agreement, dated as of March 29, 2000, by and among Suez Acquisition Company (Cayman) Limited, Seagate Technology, Inc. and Seagate Software Holdings, Inc. 2.2 Agreement and Plan of Merger and Reorganization, dated as of March 29, 2000, by and among VERITAS Software Corporation, Victory Merger Sub, Inc. and Seagate Technology, Inc. 2.3 Indemnification Agreement, dated as of March 29, 2000, by and among VERITAS Software Corporation, Seagate Techology, Inc. and Suez Acquisition Company (Cayman) Limited 2.4 Joinder Agreement to the Indemnification Agreement, dated as of November 22, 2000, by and among VERITAS Software Corporation, Seagate Technology, Inc. and the SAC Indemnitors listed therein 2.5 Consolidated Amendment to Stock Purchase Agreement, Agreement and Plan of Merger and Reorganization, and Indemnification Agreement, and Consent, dated as of August 29, 2000, by and among Suez Acquisition Company (Cayman) Limited, Seagate Technology, Inc., Seagate Software Holdings, Inc., VERITAS Software Corporation and Victory Merger Sub, Inc. 2.6 Consolidated Amendment No. 2 to Stock Purchase Agreement, Agreement and Plan of Merger and Reorganization, and Indemnification Agreement, and Consent, dated as of October 18, 2000, by and among Suez Acquisition Company (Cayman) Limited, Seagate Technology, Inc., Seagate Software Holdings, Inc., VERITAS Software Corporation and Victory Merger Sub, Inc. 2.7 Letter Agreement, dated as of March 29, 2000, by and between VERITAS Software Corporation and Suez Acquisition Company (Cayman) Limited 2.8 Agreement and Plan of Reorganization, dated as of December 3, 1999, by and among Seagate Technology, Inc., Trout Acquisition Corp., XIOtech Corporation and the Securityholders Agents listed therein 3.1(a) Memorandum of Association of Seagate Technology International 3.1(b) Articles of Association of Seagate Technology International 3.2(a) Memorandum of Association of New SAC 3.2(b) Articles of Association of New SAC 3.3(a) Certificate of Incorporation of Seagate Software Information Management Group Holdings, Inc. 3.3(b) Amendment to Certificate of Incorporation of Crystal Decisions, Inc., formerly known as Seagate Software Information Management Group Holdings, Inc.
II-2
EXHIBIT NUMBER DESCRIPTION - -------------- -------------------------------------------------------------------------------------- 3.3(c) By-laws of Crystal Decisions, Inc. 3.4(a) Amended and Restated Memorandum of Association of Seagate Technology Holdings 3.4(b) Amended and Restated Articles of Association of Seagate Technology Holdings 3.5(a)* Amended and Restated Memorandum of Association of Seagate Technology SAN Holdings 3.5(b)* Amended and Restated Articles of Association of Seagate Technology SAN Holdings 3.6(a) Amended and Restated Memorandum of Association of Seagate Removable Storage Solutions Holdings 3.6(b) Amended and Restated Articles of Association of Seagate Removable Storage Solutions Holdings 4.1 Form of 12 1/2% Senior Subordinated Note due 2007 (included in Exhibit 4.2(a) hereto) 4.2(a) Indenture, dated as of November 22, 2000, by and among among New SAC, Seagate Technology International, the Note Guarantors listed therein and The Bank of New York 4.2(b) Supplemental Indenture, dated as of February 16, 2001, among Seagate Technology (Malaysia) Holding Company, New SAC, Seagate Technology International, the Existing Guarantors listed therein and The Bank of New York 4.3 Exchange and Registration Rights Agreement, dated as of November 22, 2000, by and among Seagate Technology International, the Note Guarantors listed therein, Chase Securities Inc., Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated 5.1 Opinion of Simpson Thacher & Bartlett 10.1 Credit Agreement, dated as of November 22, 2000, by and among New SAC, Seagate Technology International, Seagate Technology (US) Holdings, Inc., the Lenders party thereto and The Chase Manhattan Bank 10.2* First Amendment, dated as of April 11, 2001, to the Credit Agreement dated as of November 22, 2000, by and among New SAC, Seagate Technology (US) Holdings, Inc., the Lenders party hereto and The Chase Manhattan Bank 10.3(a) Form of Employment Agreement by and between Seagate Technology (US) Holdings, Inc. and the Executive listed therein 10.3(b) Employment Agreement, dated as of February 2, 2001, by and between Seagate Technology (US) Holdings, Inc. and Stephen J. Luczo 10.3(c)* Employment Agreement, dated as of February 2, 2001, by and between Seagate Technology (US) Holdings, Inc. and William D. Watkins 10.4 Separation Agreement and Release, dated as of July 29, 1998, by and between Seagate Technology, Inc. and Al Shugart 10.5(a) Form of Management Retention Agreement by and between the Employee listed therein and Seagate Technology, Inc. 10.5(b) Management Retention Agreement, dated November 1998, by and between Seagate Technology, Inc. and Stephen J. Luczo 10.6 Form of Rollover Agreement, dated as of November 13, 2000, by and among New SAC, Seagate Technology HDD Holdings and the Senior Manager listed therein 10.7 Form of Rollover Agreement, dated as of November 13, 2000, by and among New SAC, Seagate Technology SAN Holdings and the Senior Manager listed therein 10.8 Seagate Technology HDD Holdings Deferred Compensation Plan 10.9 Seagate Technology SAN Holdings Deferred Compensation Plan 10.10(a) New SAC 2000 Restricted Share Plan 10.10(b) Form of New SAC 2000 Restricted Share Agreement 10.11(a) New SAC 2001 Restricted Share Plan 10.11(b) Form of New SAC 2001 Restricted Share Agreement (Tier I Senior Managers) 10.11(c) Form of New SAC 2001 Restricted Share Agreement (Other Employees) 10.12 Crystal Decisions, Inc. 1999 Stock Option Plan and Form of Stock Option Agreement as amended and restated
II-3
EXHIBIT NUMBER DESCRIPTION - ---------- --------------------------------------------------------------------------------------- 10.13 Crystal Decisions, Inc. 2000 Stock Option Plan and Form of Stock Option Agreement as amended and restated 10.14* Seagate Technology Holdings 2001 Stock Option Plan 10.15* Seagate Removable Storage Solutions Holdings 2001 Stock Option Plan 10.16 Shareholders Agreement, dated as of November 22, 2000, by and among New SAC, Silver Lake Technology Investors Cayman, L.P., Silver Lake Investors Cayman, L.P., Silver Lake Partners Cayman, L.P., SAC Investments, L.P., August Capital III, L.P., Chase Equity Associates, L.P., GS Capital Partners III, L.P., GS Capital Partners III Offshore, L.P., Goldman, Sachs & Co. Verwaltungs GmbH, Stone Street Fund 2000 L.P., Bridge Street Special Opportunities Fund 2000, L.P., Staenberg Venture Partners II, L.P., Staenberg Seagate Partners, LLC, Integral Capital Partners V, L.P., Integral Capital Partners V Side Fund, L.P. and the individuals listed therin 10.17 Management Shareholders Agreement, dated as of November 22, 2000, by and among New SAC and the Management Shareholders listed therein 12.1 Statement of Computation of Ratio of Earnings to Fixed Charges 21.1 List of Subsidiaries 23.1 Consent of Ernst & Young LLP, Independent Auditors of New SAC and its predecessor Seagate Technology, Inc. 23.2 Consent of Ernst & Young LLP, Independent Auditors of Seagate Technology Hard Disc Drive Business, an operating business of Seagate Technology, Inc. 23.3 Consent of Ernst & Young LLP, Independent Auditors of XIOtech Corporation 23.4 Consent of Ernst & Young LLP, Independent Auditors of Seagate Removable Storage Solutions Business, an operting business of Seagate Technology, Inc. 23.5 Consent of Ernst & Young LLP, Independent Auditors of Crystal Decisions, Inc. 23.6 Consent of PricewaterhouseCoopers LLP, Independent Accountants of XIOtech Corporation 23.7 Consent of Simpson Thacher & Bartlett (included in Exhibit 5.1 hereto) 24.1 Powers of Attorney (included on the signature pages) 25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York 99.1 Form of Letter of Transmittal 99.2 Form of Notice of Guaranteed Delivery
- ---------- * To be filed by amendment. II-4 ITEM 22. UNDERTAKINGS. (a) The undersigned registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933. (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) that, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" Table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered that remain unsold at the termination of the offering. (b) (1) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus that is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the Issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-5 (d) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (e) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE TECHNOLOGY INTERNATIONAL By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE TECHNOLOGY INTERNATIONAL to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer and Director ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ William L. Hudson Director ------------------------------- William L. Hudson /s/ Donald L. Waite Director ------------------------------- Donald L. Waite /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. NEW SAC By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable NEW SAC to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- ------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ David J. Roux Chairman of the Board ------------------------------- David J. Roux /s/ David Bonderman Director ------------------------------- David Bonderman /s/ James G. Coulter Director ------------------------------- James G. Coulter /s/ James A. Davidson Director ------------------------------- James A. Davidson /s/ Glenn H. Hutchins Director ------------------------------- Glenn H. Hutchins
II-8
SIGNATURE TITLE - ---------------------------------- --------------------------------------- /s/ David F. Marquardt Director ------------------------------- David F. Marquardt /s/ John W. Thompson Director ------------------------------- John W. Thompson /s/ William D. Watkins Director ------------------------------- William D. Watkins /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-9 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. QUINTA CORPORATION By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable QUINTA CORPORATION to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- ------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer and Director ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ William L. Hudson Director ------------------------------- William L. Hudson
II-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE TECHNOLOGY (US) HOLDINGS, INC. By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE TECHNOLOGY (US) HOLDINGS, INC. to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- ------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ Donald L. Waite Director ------------------------------- Donald L. Waite
II-11 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE TECHNOLOGY LLC By: SEAGATE TECHNOLOGY (US) HOLDINGS, INC., its Managing Member By: /s/ Stephen J. Luczo ----------------------------------------- Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc. POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE TECHNOLOGY LLC to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Managing Member) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-12 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE REMOVABLE STORAGE SOLUTIONS (US) HOLDINGS, INC. By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE REMOVABLE STORAGE SOLUTIONS (US) HOLDINGS, INC. to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- ------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ Donald L. Waite Director ------------------------------- Donald L. Waite
II-13 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE REMOVABLE STORAGE SOLUTIONS LLC By: SEAGATE REMOVABLE STORAGE SOLUTIONS (US) HOLDINGS, INC., its Sole Member By: /s/ Stephen J. Luczo ---------------------------------------- Stephen J. Luczo, on behalf of Seagate Removable Storage Solutions (US) Holdings, Inc. POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE REMOVABLE STORAGE SOLUTIONS LLC to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- ----------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ Stephen J. Luczo Seagate Removable Storage Solutions (US) ------------------------------- Holdings, Inc. Stephen J. Luczo, on behalf (Sole Member) of Seagate Removable Storage Solutions (US) Holdings, Inc.
II-14 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE RSS LLC By: SEAGATE REMOVABLE STORAGE SOLUTIONS LLC, as Sole Member By: /s/ Stephen J. Luczo ---------------------------------------- Stephen J. Luczo, on behalf of Seagate Removable Storage Solutions LLC POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE RSS LLC to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- ---------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ Stephen J. Luczo Seagate Removable Storage Solutions LLC ------------------------------- (Sole Member) Stephen J. Luczo, on behalf of Seagate Removable Storage Solutions LLC
II-15 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE US LLC By: SEAGATE TECHNOLOGY LLC, as Sole Member By: /s/ Stephen J. Luczo ------------------------------------ Stephen J. Luczo, on behalf of Seagate Technology LLC POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE US LLC to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- ------------------------------- /s/ Stephen J. Luczo Chief Executive Officer ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ Stephen J. Luczo Seagate Technology LLC ------------------------------- (Sole Member) Stephen J. Luczo, as Chief Executive Officer of Seagate Technology LLC
II-16 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. REDWOOD ACQUISITION CORPORATION By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable REDWOOD ACQUISITION CORPORATION to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- ------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer and Director ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson
II-17 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. CRYSTAL DECISIONS, INC. By: /s/ Gregory B. Kerfoot ------------------------------------ Name: Gregory B. Kerfoot Title: President and Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable CRYSTAL DECISIONS, INC. to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------------- /s/ Gregory B. Kerfoot President and Chief Executive Officer ------------------------------- (Principal Executive Officer) Gregory B. Kerfoot /s/ Eric Patel Chief Financial Officer ------------------------------- (Principal Financial and Accounting Officer) Eric Patel /s/ Stephen J. Luczo Chairman of the Board ------------------------------- Stephen J. Luczo /s/ Justin Chang Director ------------------------------- Justin Chang /s/ David F. Marquardt Director ------------------------------- David F. Marquardt /s/ David J. Roux Director ------------------------------- David J. Roux /s/ John W. Thompson Director ------------------------------- John W. Thompson /s/ Donald L. Waite Director ------------------------------- Donald L. Waite
II-18 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. XIOTECH CORPORATION By: /s/ Philip E. Soran ------------------------------------ Name: Philip E. Soran Title: President and Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable XIOTECH CORPORATION to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- ------------------------------------------------ /s/ Philip E. Soran President, Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Philip E. Soran /s/ Sue Hogue Chief Financial Officer ------------------------------- (Principal Financial Officer) Sue Hogue /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ Justin Chang Director ------------------------------- Justin Chang /s/ John P. Guider Director ------------------------------- John P. Guider /s/ Kenneth Y. Hao Director ------------------------------- Kenneth Y. Hao /s/ Jeremy Tennenbaum Director ------------------------------- Jeremy Tennenbaum
II-19 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. XIOTECH (CANADA) LTD. By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable XIOTECH (CANADA) LTD. to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ Philip E. Soran Director ------------------------------- Philip E. Soran /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-20 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. CRYSTAL DECISIONS, CORP By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable CRYSTAL DECISIONS, CORP to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Eric Patel Chief Financial Officer ------------------------------- (Principal Financial and Accounting Officer) Eric Patel /s/ Gregory B. Kerfoot Director ------------------------------- Gregory B. Kerfoot /s/ Susan J. Wolfe Director ------------------------------- Susan J. Wolfe /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-21 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE TECHNOLOGY HOLDINGS By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE TECHNOLOGY HOLDINGS to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- ------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ David J. Roux Chairman of the Board ------------------------------- David J. Roux /s/ David Bonderman Director ------------------------------- David Bonderman /s/ James G. Coulter Director ------------------------------- James G. Coulter /s/ James A. Davidson Director ------------------------------- James A. Davidson /s/ Glenn H. Hutchins Director ------------------------------- Glenn H. Hutchins /s/ David F. Marquardt Director ------------------------------- David F. Marquardt /s/ John W. Thompson Director ------------------------------- John W. Thompson
II-22
SIGNATURE TITLE - ---------------------------------- --------------------------------------- /s/ William D. Watkins Director ------------------------------- William D. Watkins /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-23 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE TECHNOLOGY HDD HOLDINGS By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE TECHNOLOGY HDD HOLDINGS to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ Donald L. Waite Director ------------------------------- Donald L. Waite /s/ William D. Watkins Director ------------------------------- William D. Watkins /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-24 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE TECHNOLOGY CHINA HOLDING COMPANY By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE TECHNOLOGY CHINA HOLDING COMPANY to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer and Director ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-25 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE TECHNOLOGY ASIA HOLDINGS By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE TECHNOLOGY ASIA HOLDINGS to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer and Director ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-26 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE TECHNOLOGY (IRELAND) By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE TECHNOLOGY (IRELAND) to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer and Director ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ Kenneth D. Allen Director ------------------------------- Kenneth D. Allen /s/ James M. Chirico, Jr Director ------------------------------- James M. Chirico, Jr. /s/ William L. Hudson Director ------------------------------- William L. Hudson /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-27 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE TECHNOLOGY MEDIA (IRELAND) By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE TECHNOLOGY MEDIA (IRELAND) to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer and Director ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ Patrick J. O'Malley Director ------------------------------- Patrick J. O'Malley /s/ William D. Watkins Director ------------------------------- William D. Watkins /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-28 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE TECHNOLOGY FAR EAST HOLDINGS By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE TECHNOLOGY FAR EAST HOLDINGS to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer and Director ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ William L. Hudson Director ------------------------------- William L. Hudson /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-29 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE TECHNOLOGY (PHILIPPINES) By: /s/ Charles C. Pope ------------------------------------ Name: Charles C. Pope Title: Chief Executive Officer and Chief Financial Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE TECHNOLOGY (PHILIPPINES) to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- -------------------------------------------- /s/ Charles C. Pope Chief Executive Officer and Chief ------------------------------- Financial Officer Charles C. Pope (Principal Executive and Financial Officer) /s/ Glen A. Peterson Chief Accounting Officer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ James M. Chirico, Jr Director ------------------------------- James M. Chirico, Jr. /s/ William L. Hudson Director ------------------------------- William L. Hudson /s/ Pornchai Piemsomboon Director ------------------------------- Pornchai Piemsomboon /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-30 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE TECHNOLOGY SAN HOLDINGS By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE TECHNOLOGY SAN HOLDINGS to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ Donald L. Waite Director ------------------------------- Donald L. Waite /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-31 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- ------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ David J. Roux Chairman of the Board ------------------------------- David J. Roux /s/ David Bonderman Director ------------------------------- David Bonderman /s/ James G. Coulter Director ------------------------------- James G. Coulter /s/ James A. Davidson Director ------------------------------- James A. Davidson /s/ Glenn H. Hutchins Director ------------------------------- Glenn H. Hutchins /s/ David F. Marquardt Director ------------------------------- David F. Marquardt /s/ John W. Thompson Director ------------------------------- John W. Thompson
II-32
SIGNATURE TITLE - ---------------------------------- --------------------------------------- /s/ William D. Watkins Director ------------------------------- William D. Watkins /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-33 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE REMOVABLE STORAGE SOLUTIONS INTERNATIONAL By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE REMOVABLE STORAGE SOLUTIONS INTERNATIONAL to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ Donald L. Waite Director ------------------------------- Donald L. Waite /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-34 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE SOFTWARE (CAYMAN) HOLDINGS By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE SOFTWARE (CAYMAN) HOLDINGS to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- ------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ David J. Roux Chairman of the Board ------------------------------- David J. Roux /s/ David Bonderman Director ------------------------------- David Bonderman /s/ James G. Coulter Director ------------------------------- James G. Coulter /s/ James A. Davidson Director ------------------------------- James A. Davidson /s/ Glenn H. Hutchins Director ------------------------------- Glenn H. Hutchins /s/ David F. Marquardt Director ------------------------------- David F. Marquardt
II-35
SIGNATURE TITLE - ---------------------------------- --------------------------------------- /s/ John W. Thompson Director ------------------------------- John W. Thompson /s/ William D. Watkins Director ------------------------------- William D. Watkins /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-36 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE TECHNOLOGY (MALAYSIA) HOLDING COMPANY By: /S/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE TECHNOLOGY (MALAYSIA) HOLDING COMPANY to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ Donald L. Waite Director ------------------------------- Donald L. Waite /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-37 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. NIPPON SEAGATE INC. By: /s/ Tsuyoshi Kobayashi ------------------------------------ Name: Tsuyoshi Kobayashi Title: President POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable NIPPON SEAGATE INC. to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- -------------------------------------------------- /s/ Tsuyoshi Kobayashi President and Representative Director ------------------------------- (Principal Executive Officer) Tsuyoshi Kobayashi /s/ Stephen P. Sedler Statutory Auditor ------------------------------- (Principal Financial and Accounting Officer) Stephen P. Sedler /s/ Stephen J. Luczo Chairman of the Board and Representative Director ------------------------------- Stephen J. Luczo /s/ Charles C. Pope Director ------------------------------- Charles C. Pope /s/ William L. Hudson Director ------------------------------- William L. Hudson /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-38 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. NIPPON SEAGATE SOFTWARE KK By: /s/ Gregory B. Kerfoot ------------------------------------ Name: Gregory B. Kerfoot Title: Chief Executive Officer and Director POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable NIPPON SEAGATE SOFTWARE KK to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------------- /s/ Gregory B. Kerfoot Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Gregory B. Kerfoot /s/ Eric Patel Chief Financial Officer ------------------------------- (Principal Financial and Accounting Officer) Eric Patel /s/ Shun Goto Representative Director ------------------------------- Shun Goto /s/ Stephen J. Luczo Director ------------------------------- Stephen J. Luczo /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-39 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE TECHNOLOGY -- REYNOSA, S. DE R.L. DE C.V. By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE TECHNOLOGY -- REYNOSA, S. DE R.L. DE C.V. to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- -------------------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Charles C. Pope Chief Financial Officer and Chairman of the Board ------------------------------- (Principal Financial Officer) Charles C. Pope /s/ Glen A. Peterson Treasurer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ William D. Watkins Director ------------------------------- William D. Watkins /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-40 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE DISTRIBUTION (UK) LIMITED By: /s/ Charles C. Pope ------------------------------------ Name: Charles C. Pope Title: Chief Executive Officer, Chief Financial Officer and Chairman of the Board POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE DISTRIBUTION (UK) LIMITED to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- -------------------------------------------------- Chief Executive Officer, Chief Financial Officer, /s/ Charles C. Pope Chairman of the Board and Managing Director ------------------------------- Charles C. Pope (Principal Executive and Financial Officer) /s/ Glen A. Peterson Chief Accounting Officer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ William L. Hudson Director ------------------------------- William L. Hudson /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-41 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE SINGAPORE DISTRIBUTION PTE. LTD. By: /s/ Charles C. Pope ------------------------------------ Name: Charles C. Pope Title: Chief Executive Officer and Chief Financial Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE SINGAPORE DISTRIBUTION PTE. LTD. to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- -------------------------------------------- /s/ Charles C. Pope Chief Executive Officer, Chief Financial ------------------------------- Officer and Director Charles C. Pope (Principal Executive and Financial Officer) /s/ Glen A. Peterson Chief Accounting Officer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ William L. Hudson Director ------------------------------- William L. Hudson /s/ Ronald Roughton Director ------------------------------- Ronald Roughton /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-42 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. CRYSTAL DECISIONS (SINGAPORE) PTE LTD By: /s/ Gregory B. Kerfoot ------------------------------------ Name: Gregory B. Kerfoot Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable CRYSTAL DECISIONS (SINGAPORE) PTE LTD to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------------- /s/ Gregory B. Kerfoot Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Gregory B. Kerfoot /s/ Eric Patel Chief Financial Officer ------------------------------- (Principal Financial and Accounting Officer) Eric Patel /s/ Stephen J. Luczo Director ------------------------------- Stephen J. Luczo /s/ Geraldine Norrie Director ------------------------------- Geraldine Norrie /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-43 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE TECHNOLOGY (THAILAND) LIMITED By: /s/ Charles C. Pope ------------------------------------ Name: Charles C. Pope Title: Chief Executive Officer and Chief Financial Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE TECHNOLOGY (THAILAND) LIMITED to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- ----------------------------------------------------- /s/ Charles C. Pope Chief Executive Officer, Chief Financial Officer and ------------------------------- Director Charles C. Pope /s/ Glen A. Peterson Chief Accounting Officer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ James M. Chirico, Jr Director ------------------------------- James M. Chirico, Jr. /s/ Terry M. Dauenhauer Director ------------------------------- Terry M. Dauenhauer /s/ Patrick J. O'Malley Director ------------------------------- Patrick J. O'Malley /s/ Pornchai Piemsomboon Director ------------------------------- Pornchai Piemsomboon /s/ Jirapannee Supratya Director ------------------------------- Jirapannee Supratya /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-44 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. SEAGATE TECHNOLOGY (MARLOW) LIMITED By: /s/ Charles C. Pope ------------------------------------ Name: Charles C. Pope Title: Chief Executive Officer and Chief Financial Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable SEAGATE TECHNOLOGY (MARLOW) LIMITED to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- -------------------------------------------- /s/ Charles C. Pope Chief Executive Officer, Chief Financial ------------------------------- Officer and Director Charles C. Pope (Principal Executive and Financial Officer) /s/ Glen A. Peterson Chief Accounting Officer ------------------------------- (Principal Accounting Officer) Glen A. Peterson /s/ William L. Hudson Director ------------------------------- William L. Hudson /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-45 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the following registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of April, 2001. CRYSTAL DECISIONS (UK) LIMITED By: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Chief Executive Officer POWER OF ATTORNEY The undersigned do hereby constitute and appoint William L. Hudson and Stephen J. Luczo our true and lawful attorneys and agents, to do any and all acts and things in our name and on our behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents may deem necessary or advisable to enable CRYSTAL DECISIONS (UK) LIMITED to comply with the Securities Act of 1933 and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto and we do hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 20, 2001.
SIGNATURE TITLE - ---------------------------------- --------------------------------------------- /s/ Stephen J. Luczo Chief Executive Officer and Director ------------------------------- (Principal Executive Officer) Stephen J. Luczo /s/ Eric Patel Chief Financial Officer ------------------------------- (Principal Financial and Accounting Officer) Eric Patel /s/ Brian Cannon Director ------------------------------- Brian Cannon /s/ Gregory B. Kerfoot Director ------------------------------- Gregory B. Kerfoot /s/ Stephen J. Luczo Seagate Technology (US) Holdings, Inc. ------------------------------- (Authorized U.S. Representative) Stephen J. Luczo, on behalf of Seagate Technology (US) Holdings, Inc.
II-46 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE - -------------- -------------------------------------------------------------------------------- ----- 1.1 Purchase Agreement, dated as of November 17, 2000, by and among Suez Acquisition Company (Cayman) Limited, Chase Securities Inc., Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated 1.2 Joinder to the Purchase Agreement, dated as of November 22, 2000, by and among among Seagate Technology International, the Note Guarantors listed therein, Chase Securities Inc., Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated 2.1 Stock Purchase Agreement, dated as of March 29, 2000, by and among Suez Acquisition Company (Cayman) Limited, Seagate Technology, Inc. and Seagate Software Holdings, Inc. 2.2 Agreement and Plan of Merger and Reorganization, dated as of March 29, 2000, by and among VERITAS Software Corporation, Victory Merger Sub, Inc. and Seagate Technology, Inc. 2.3 Indemnification Agreement, dated as of March 29, 2000, by and among VERITAS Software Corporation, Seagate Techology, Inc. and Suez Acquisition Company (Cayman) Limited 2.4 Joinder Agreement to the Indemnification Agreement, dated as of November 22, 2000, by and among VERITAS Software Corporation, Seagate Technology, Inc. and the SAC Indemnitors listed therein 2.5 Consolidated Amendment to Stock Purchase Agreement, Agreement and Plan of Merger and Reorganization, and Indemnification Agreement, and Consent, dated as of August 29, 2000, by and among Suez Acquisition Company (Cayman) Limited, Seagate Technology, Inc., Seagate Software Holdings, Inc., VERITAS Software Corporation and Victory Merger Sub, Inc. 2.6 Consolidated Amendment No. 2 to Stock Purchase Agreement, Agreement and Plan of Merger and Reorganization, and Indemnification Agreement, and Consent, dated as of October 18, 2000, by and among Suez Acquisition Company (Cayman) Limited, Seagate Technology, Inc., Seagate Software Holdings, Inc., VERITAS Software Corporation and Victory Merger Sub, Inc. 2.7 Letter Agreement, dated as of March 29, 2000, by and between VERITAS Software Corporation and Suez Acquisition Company (Cayman) Limited 2.8 Agreement and Plan of Reorganization, dated as of December 3, 1999, by and among Seagate Technology, Inc., Trout Acquisition Corp., XIOtech Corporation and the Securityholders Agents listed therein 3.1(a) Memorandum of Association of Seagate Technology International 3.1(b) Articles of Association of Seagate Technology International 3.2(a) Memorandum of Association of New SAC 3.2(b) Articles of Association of New SAC 3.3(a) Certificate of Incorporation of Seagate Software Information Management Group Holdings, Inc. 3.3(b) Amendment to Certificate of Incorporation of Crystal Decisions, Inc., formerly known as Seagate Software Information Management Group Holdings, Inc. 3.3(c) By-laws of Crystal Decisions, Inc. 3.4(a) Amended and Restated Memorandum of Association of Seagate Technology Holdings 3.4(b) Amended and Restated Articles of Association of Seagate Technology Holdings 3.5(a)* Amended and Restated Memorandum of Association of Seagate Technology SAN Holdings 3.5(b)* Amended and Restated Articles of Association of Seagate Technology SAN Holdings
EXHIBIT NUMBER DESCRIPTION PAGE - ------------- -------------------------------------------------------------------------------- ----- 3.6(a) Amended and Restated Memorandum of Association of Seagate Removable Storage Solutions Holdings 3.6(b) Amended and Restated Articles of Association of Seagate Removable Storage Solutions Holdings 4.1 Form of 12 1/2% Senior Subordinated Note due 2007 (included in Exhibit 4.2(a) hereto) 4.2(a) Indenture, dated as of November 22, 2000, by and among among New SAC, Seagate Technology International, the Note Guarantors listed therein and The Bank of New York 4.2(b) Supplemental Indenture, dated as of February 16, 2001, among Seagate Technology (Malaysia) Holding Company, New SAC, Seagate Technology International, the Existing Guarantors listed therein and The Bank of New York 4.3 Exchange and Registration Rights Agreement, dated as of November 22, 2000, by and among Seagate Technology International, the Note Guarantors listed therein, Chase Securities Inc., Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated 5.1 Opinion of Simpson Thacher & Bartlett 10.1 Credit Agreement, dated as of November 22, 2000, by and among New SAC, Seagate Technology International, Seagate Technology (US) Holdings, Inc., the Lenders party thereto and The Chase Manhattan Bank 10.2* First Amendment, dated as of April 11, 2001, to the Credit Agreement dated as of November 22, 2000, by and among New SAC, Seagate Technology (US) Holdings, Inc., the Lenders party hereto and The Chase Manhattan Bank 10.3(a) Form of Employment Agreement by and between Seagate Technology (US) Holdings, Inc. and the Executive listed therein 10.3(b) Employment Agreement, dated as of February 2, 2001, by and between Seagate Technology (US) Holdings, Inc. and Stephen J. Luczo 10.3(c)* Employment Agreement, dated as of February 2, 2001, by and between Seagate Technology (US) Holdings, Inc. and William D. Watkins 10.4 Separation Agreement and Release, dated as of July 29, 1998, by and between Seagate Technology, Inc. and Al Shugart 10.5(a) Form of Management Retention Agreement by and between the Employee listed therein and Seagate Technology, Inc. 10.5(b) Management Retention Agreement, dated November 1998, by and between Seagate Technology, Inc. and Stephen J. Luczo 10.6 Form of Rollover Agreement, dated as of November 13, 2000, by and among New SAC, Seagate Technology HDD Holdings and the Senior Manager listed therein 10.7 Form of Rollover Agreement, dated as of November 13, 2000, by and among New SAC, Seagate Technology SAN Holdings and the Senior Manager listed therein 10.8 Seagate Technology HDD Holdings Deferred Compensation Plan 10.9 Seagate Technology SAN Holdings Deferred Compensation Plan 10.10(a) New SAC 2000 Restricted Share Plan 10.10(b) Form of New SAC 2000 Restricted Share Agreement 10.11(a) New SAC 2001 Restricted Share Plan 10.11(b) Form of New SAC 2001 Restricted Share Agreement (Tier I Senior Managers) 10.11(c) Form of New SAC 2001 Restricted Share Agreement (Other Employees) 10.12 Crystal Decisions, Inc. 1999 Stock Option Plan and Form of Stock Option Agreement as amended and restated 10.13 Crystal Decisions, Inc. 2000 Stock Option Plan and Form of Stock Option Agreement as amended and restated 10.14* Seagate Technology Holdings 2001 Stock Option Plan
EXHIBIT NUMBER DESCRIPTION PAGE - ----------- ---------------------------------------------------------------------------------- ----- 10.15* Seagate Removable Storage Solutions Holdings 2001 Stock Option Plan 10.16 Shareholders Agreement, dated as of November 22, 2000, by and among New SAC, Silver Lake Technology Investors Cayman, L.P., Silver Lake Investors Cayman, L.P., Silver Lake Partners Cayman, L.P., SAC Investments, L.P., August Capital III, L.P., Chase Equity Associates, L.P., GS Capital Partners III, L.P., GS Capital Partners III Offshore, L.P., Goldman, Sachs & Co. Verwaltungs GmbH, Stone Street Fund 2000 L.P., Bridge Street Special Opportunities Fund 2000, L.P., Staenberg Venture Partners II, L.P., Staenberg Seagate Partners, LLC, Integral Capital Partners V, L.P., Integral Capital Partners V Side Fund, L.P. and the individuals listed therin 10.17 Management Shareholders Agreement, dated as of November 22, 2000, by and among New SAC and the Management Shareholders listed therein 12.1 Statement of Computation of Ratio of Earnings to Fixed Charges 21.1 List of Subsidiaries 23.1 Consent of Ernst & Young LLP, Independent Auditors of New SAC and its predecessor Seagate Technology, Inc. 23.2 Consent of Ernst & Young LLP, Independent Auditors of Seagate Technology Hard Disc Drive Business, an operating business of Seagate Technology, Inc. 23.3 Consent of Ernst & Young LLP, Independent Auditors of XIOtech Corporation 23.4 Consent of Ernst & Young LLP, Independent Auditors of Seagate Removable Storage Solutions Business, an operating business of Seagate Technology, Inc. 23.5 Consent of Ernst & Young LLP, Independent Auditors of Crystal Decisions, Inc. 23.6 Consent of PricewaterhouseCoopers LLP, Independent Accountants of XIOtech Corporation 23.7 Consent of Simpson Thacher & Bartlett (included in Exhibit 5.1 hereto) 24.1 Powers of Attorney (included on the signature pages) 25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York 99.1 Form of Letter of Transmittal 99.2 Form of Notice of Guaranteed Delivery
- ---------- * To be filed by amendment. EX-1.1 2 0002.txt PURCHASE AGREEMENT EXHIBIT 1.1 EXECUTION COPY SEAGATE TECHNOLOGY INTERNATIONAL $210,000,000 12 1/2% Senior Subordinated Notes due 2007 PURCHASE AGREEMENT November 17, 2000 CHASE SECURITIES INC. GOLDMAN, SACHS & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, c/o Chase Securities Inc. 270 Park Avenue, 4th floor New York, New York 10017 Ladies and Gentlemen: Seagate Technology International, an exempted limited liability company organized under the laws of the Cayman Islands (the "Issuer"), proposes to issue and sell $210,000,000 aggregate principal amount of its 12 1/2% Senior Subordinated Notes due 2007 (the "Securities"). The Securities will be issued pursuant to an Indenture to be dated as of November 22, 2000 (the "Indenture"), among the Issuer, New SAC, an exempted limited liability company organized under the laws of the Cayman Islands ("New SAC"), each entity listed on Schedule I hereto (New SAC and such entities, collectively, the "Note Guarantors") and The Bank of New York, as trustee (the "Trustee") and will be guaranteed on an unsecured senior subordinated basis by the Note Guarantors. On the date hereof, this Agreement will be executed by Suez Acquisition Company (Cayman) Limited, an exempted limited liability company organized under the laws of the Cayman Islands ("Old SAC"), Chase Securities Inc. ("CSI"), Goldman, Sachs & Co. ("Goldman") and Merrill Lynch, Pierce, Fenner & Smith Incorporated (together with CSI and Goldman, the "Initial Purchasers"). On the Closing Date (as defined in Section 3), (i) Old SAC will be merged (the "SAC Merger") with and into New SAC, with New SAC as the surviving entity, (ii) the Issuer will become a party to this Agreement, as issuer, and (iii) each of the Note Guarantors will become a party to this agreement, as a Note Guarantor. Old SAC hereby confirms its agreement with the Initial Purchasers concerning the purchase of the Securities. 2 The Securities will be offered and sold to the Initial Purchasers without being registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon an exemption therefrom. The Issuer has prepared a preliminary offering memorandum dated November 3, 2000 (the "Preliminary Offering Memorandum") and will prepare an offering memorandum dated the date hereof (the "Offering Memorandum") setting forth information concerning the Issuer, the Note Guarantors and the Securities. Copies of the Preliminary Offering Memorandum have been, and copies of the Offering Memorandum will be, delivered by the Issuer to the Initial Purchasers pursuant to the terms of this Agreement. Any references herein to the Preliminary Offering Memorandum and the Offering Memorandum shall be deemed to include all amendments and supplements thereto, unless otherwise noted. The Issuer and the Note Guarantors hereby confirm that they have authorized the use of the Preliminary Offering Memorandum and the Offering Memorandum in connection with the offering and resale of the Securities by the Initial Purchasers in accordance with Section 2. Holders of the Securities (including the Initial Purchasers and their direct and indirect transferees) will be entitled to the benefits of an Exchange and Registration Rights Agreement, substantially in the form attached hereto as Annex A (the "Registration Rights Agreement"), pursuant to which the Issuer and the Note Guarantors will agree to file with the Securities and Exchange Commission (the "Commission") (i) a registration statement under the Securities Act (the "Exchange Offer Registration Statement") registering an issue of senior subordinated notes of the Issuer (the "Exchange Securities") which are identical in all material respects to the Securities (except that the Exchange Securities will not contain terms with respect to transfer restrictions) and (ii) under certain circumstances, a shelf registration statement pursuant to Rule 415 under the Securities Act (the "Shelf Registration Statement"). The Securities are being offered in connection with Old SAC's acquisition of substantially all of the operating assets of Seagate Technology, Inc., a Delaware corporation ("Seagate"), consisting of its rigid disc drive, tape drive, software and intelligent storage solutions businesses (including all of the capital stock of the subsidiaries of Seagate (including the Issuer) that operate such businesses), and all of Seagate's non-operating assets other than the Designated Assets (as defined in the Stock Purchase Agreement referred to below) pursuant to a Stock Purchase Agreement dated as of March 29, 2000, as amended from time to time on or prior to the date hereof (the "Stock Purchase Agreement"), by and among Old SAC, Seagate and Seagate Software Holdings, Inc., a Delaware corporation ("SSHI"). For the purposes of this Agreement, the transactions contemplated by the Stock Purchase Agreement and the other transactions described in the Offering Memorandum under the caption "The Transactions", together with the SAC Merger, are referred to as the "Transactions" and each entity that will be a subsidiary of New SAC upon the consummation of the Transactions is referred to as a "SAC Subsidiary". Following the consummation of the Transactions, the Issuer will be an indirect subsidiary of New SAC. 3 Capitalized terms used but not defined herein shall have the meanings given to such terms in the Offering Memorandum. 1. Representations, Warranties and Agreements of Old SAC, the Issuer and the Note Guarantors. (i) Old SAC represents and warrants to, and agrees with, the several Initial Purchasers on and as of the date hereof and as of the Closing Date and (ii) the Issuer and each of the Note Guarantors represent and warrant to, and agree with, the several Initial Purchasers on and as of the Closing Date that: (a) Each of the Preliminary Offering Memorandum and the Offering Memorandum, as of its respective date, did not, and on the Closing Date the Offering Memorandum will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Issuer and the Note Guarantors make no representation or warranty as to information contained in or omitted from the Preliminary Offering Memorandum or the Offering Memorandum in reliance upon and in conformity with written information relating to the Initial Purchasers furnished to the Issuer or the Note Guarantors by or on behalf of any Initial Purchaser specifically for use therein (the "Initial Purchasers' Information"). (b) Each of the Preliminary Offering Memorandum and the Offering Memorandum, as of its respective date, contained or contains all of the information that, if requested by a prospective purchaser of the Securities, would be required to be provided to such prospective purchaser pursuant to Rule 144A(d)(4) under the Securities Act. (c) Assuming the accuracy of the representations and warranties of the Initial Purchasers contained in Section 2 and their compliance with the agreements set forth therein, it is not necessary, in connection with the issuance and sale of the Securities to the Initial Purchasers and the offer, resale and delivery of the Securities by the Initial Purchasers in the manner contemplated by this Agreement and the Offering Memorandum, to register the Securities under the Securities Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). (d) Old SAC, New SAC and each of the SAC Subsidiaries have been duly incorporated or formed, as the case may be, and are validly existing as corporations or limited liability companies, as the case may be, in good standing under the laws of their respective jurisdictions of incorporation, are duly qualified to do business and are in good standing as foreign corporations in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all corporate or limited liability company power and authority necessary to own or hold their respective properties 4 and to conduct the businesses in which they are engaged, except where the failure to so qualify or have such power or authority would not, singularly or in the aggregate, have a material adverse effect on the financial condition results of operations or business of New SAC and the SAC Subsidiaries taken as a whole after giving effect to the consummation of the Transactions (a "Material Adverse Effect"). (e) As of the Closing Date and after giving effect to the consummation of the Transactions, New SAC will have an authorized capitalization as set forth in the Offering Memorandum under the heading "Capitalization"; all of the outstanding shares of capital stock of New SAC will be duly and validly authorized and issued and will be fully paid-up. On the Closing Date, after giving effect to the consummation of the Transactions, all of the outstanding share capital, capital stock or limited liability company interests, as the case may be, of each subsidiary of New SAC, including the Issuer, will be duly and validly authorized and issued, will be fully paid or paid-up and non-assessable, as applicable, and will be owned directly or indirectly by New SAC, free and clear of any lien, charge, encumbrance, security interest, restriction upon voting or transfer or any other claim of any third party (other than liens, charges or encumbrances that, on the Closing Date, will secure obligations under the Credit Agreement to be entered into on the Closing Date among New SAC, the Issuer, Seagate Technology (U.S.) Holdings, Inc. ("Seagate U.S."), the Lenders (as defined therein) party thereto, The Chase Manhattan Bank, as administrative agent, CSI, as book manager and lead arranger, Goldman Sachs Credit Partners L.P., as documentation agent, The Bank of Nova Scotia, as documentation agent and Merrill Lynch Capital Corporation, as documentation agent (the "Credit Agreement") and the related guarantees). (f) The statements set forth in the Offering Memorandum, under the captions "Risk Factors", "The Transactions", "Capitalization", "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources", "Business--Legal Proceedings", "Management", "Certain Relationships and Related Transactions" and "Description of Senior Credit Facilities", insofar as such statements constitute a summary of certain provisions of the documents or securities referred to therein, are accurate summaries thereof in all material respects. (g) The Issuer and each of the Note Guarantors each have full corporate or limited liability company, as the case may be, power and authority to execute and deliver this Agreement, the Indenture, the Registration Rights Agreement and the Securities (in the case of the Issuer only) (collectively, the "Note Documents") to which each is a party and to perform their respective obligations hereunder and thereunder; and all corporate or limited liability company action required to be taken for the due and proper authorization, execution and delivery of each of the Note Documents and the consummation of the transactions contemplated thereby have been duly and validly taken by the Issuer and each of the Note Guarantors. 5 (h) This Agreement has been duly authorized, executed and delivered by Old SAC, the Issuer and each of the Note Guarantors and, assuming due execution and delivery by the Initial Purchasers, constitutes a valid and legally binding agreement of Old SAC, the Issuer and each of the Note Guarantors enforceable against Old SAC, the Issuer and each of the Note Guarantors in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law) and except to the extent that the indemnification provisions hereof may be unenforceable. (i) The Registration Rights Agreement has been duly authorized by the Issuer and each of the Note Guarantors and, when duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute a valid and legally binding agreement of the Issuer and each of the Note Guarantors enforceable against the Issuer and each of the Note Guarantors in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). (j) The Indenture has been duly authorized by the Issuer and each of the Note Guarantors and, when duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute a valid and legally binding agreement of the Issuer and each of the Note Guarantors enforceable against the Issuer and each of the Note Guarantors in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). On the Closing Date, the Indenture will conform in all material respects to the requirements of the Trust Indenture Act and the rules and regulations of the Commission applicable to an indenture that is qualified thereunder. (k) The Securities have been duly authorized by the Issuer and each of the Note Guarantors and, when duly executed, authenticated, issued and delivered as provided in the Indenture and paid for as provided herein, will be duly and validly issued and outstanding and will constitute valid and legally binding obligations of the Issuer, as issuer, and each of the Note Guarantors, as guarantors, entitled to the benefits of the Indenture and enforceable against the Issuer, as issuer, and each of the Note Guarantors, as guarantors, in accordance with their terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating 6 to or affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). (l) The Credit Agreement has been duly authorized by New SAC, the Issuer and Seagate U.S. and, when duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute a valid and legally binding agreement of New SAC, the Issuer and Seagate U.S. enforceable against New SAC, the Issuer and Seagate U.S., respectively, in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). (m) To the knowledge of Old SAC and the Issuer and the Note Guarantors (except with respect to Old SAC), the Stock Purchase Agreement has been duly authorized, executed and delivered by Old SAC, Seagate and SSHI and constitutes a valid and legally binding agreement of Old SAC, Seagate and SSHI enforceable against Old SAC, Seagate and SSHI in accordance with its terms, subject to (i) the effect of any applicable laws of general application relating to bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors' rights and the relief of debtors generally, and (ii) the effect of rules of law and general principles of equity, including, without limitation, rules of law and general principles of equity governing specific performance, injunctive relief and other equitable remedies (regardless of whether such enforceability is considered in a proceeding in equity or at law). (n) To the knowledge of Old SAC and the Issuer and the Note Guarantors (except with respect to Old SAC), the Indemnification Agreement dated as of March 29, 2000, as amended from time to time on or prior to the date hereof (the "Indemnification Agreement"), by and among VERITAS Software Corporation, a Delaware corporation ("VERITAS"), Seagate, Old SAC and each subsidiary of Old SAC (or any successor thereto) party thereto has been duly authorized, executed and delivered by Seagate, Old SAC and each subsidiary of Old SAC (or any successor thereto) party thereto and constitutes a valid and legally binding agreement of Seagate, Old SAC (or any successor thereto) and each subsidiary of Old SAC (or any successor thereto) party thereto enforceable against Seagate, Old SAC (or any successor thereto) and each subsidiary of Old SAC (or any successor thereto) party thereto in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). 7 (o) Each of the several Rollover Agreements, each between Old SAC and the individual listed on the schedules thereto (each a "Rollover Agreement" and, collectively, the "Rollover Agreements"), the Management Shareholders Agreement to be entered into on the Closing Date among Old SAC and the parties identified on the signature pages thereto as the "Management Shareholders" (the "Management Shareholders Agreement") and the Shareholders Agreement to be entered into on the Closing Date among Old SAC, Silver Lake Partners, L.P., TPG Partners III, L.P., Integral Capital Partners, August Capital, Chase Capital Partners and GS Capital Partners III, L.P., or their respective affiliates (the "Shareholders Agreement") has been duly authorized by each of the parties thereto and, when duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute a valid and legally binding agreement of each party thereto enforceable against each party thereto in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). (p) Each of the Deferred Compensation Plans of Seagate Technology HDD Holdings, Seagate Technology SAN Holdings and Seagate Removable Storage Solutions Holdings (the "Deferred Compensation Plans") and the Suez Acquisition Company (Cayman) Limited 2000 Restricted Share Plan (the "Restricted Share Plan") have been duly authorized and adopted by Seagate Technology HDD Holdings, Seagate Technology SAN Holdings, Seagate Removable Storage Solutions Holdings and Old SAC, respectively. The terms and conditions of the Deferred Compensation Plans (including, without limitation, any terms relating to subordination) and the Restricted Share Plan are valid and legally binding on each participant in such plans, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law) (q) Each of the Note Documents, the Stock Purchase Agreement, the Indemnification Agreement, the Merger Agreement, the Credit Agreement, the Rollover Agreements, the Deferred Compensation Plans, the Restricted Share Plan, the Preferred Stock of SAC (the "Preferred Stock"), the Management Shareholders Agreement and the Shareholders Agreement (collectively, the "Transaction Documents") conforms in all material respects to the description thereof contained in the Offering Memorandum. (r) The execution, delivery and performance by Old SAC, the Issuer and each of the Note Guarantors of each of the Transaction Documents to which each is a party, the issuance, authentication, sale and delivery of the Securities and compliance by the Issuer and each of the Note Guarantors with the terms thereof and the 8 consummation of the transactions contemplated by the Transaction Documents will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance (other than liens, charges or encumbrances that secure obligations under the Credit Agreement and the related guarantees) upon any property or assets of New SAC or any of the SAC Subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which New SAC or any of the SAC Subsidiaries is a party or by which New SAC or any of the SAC Subsidiaries is bound or to which any of the property or assets of New SAC or any of the SAC Subsidiaries is subject, except for such conflicts, breaches, violations, defaults, liens, charges or encumbrances that could not reasonably be expected to have a Material Adverse Effect; nor will such actions result in any violation of the provisions of the charter or by-laws (or any comparable constitutive documents) of New SAC or any of the SAC Subsidiaries or any statute or any judgment, order, decree, rule or regulation of any court or arbitrator or governmental agency or body having jurisdiction over New SAC or any of the SAC Subsidiaries or any of their properties or assets except for, in the case of a statute, judgment, order, decree, rule or regulation, such violations which could not reasonably be expected to have a Material Adverse Effect; and no consent, approval, authorization or order of, or filing or registration with, any such court or arbitrator or governmental agency or body under any such statute, judgment, order, decree, rule or regulation is required for the execution, delivery and performance by the Issuer and each of the Note Guarantors of each of the Transaction Documents to which each is a party, the issuance, authentication, sale and delivery of the Securities and compliance by the Issuer and each of the Note Guarantors with the terms thereof and the consummation of the transactions contemplated by the Transaction Documents, except for such consents, approvals, authorizations, filings, registrations or qualifications (i) which shall have been obtained or made prior to the Closing Date, (ii) as may be required to be obtained or made under the Securities Act and applicable state securities laws as provided in the Registration Rights Agreement and (iii) the lack of which could not reasonably be expected to result in a Material Adverse Effect. (s) Ernst & Young LLP are or have been, as the case may be, independent certified public accountants with respect to Old SAC and its subsidiaries and Seagate and its subsidiaries within the meaning of Rule 101 of the Code of Professional Conduct of the American Institute of Certified Public Accountants ("AICPA") and its interpretations and rulings thereunder. The historical financial statements (including the related notes) contained in the Offering Memorandum (i) comply in all material respects with the requirements applicable to a registration statement on Form S-1 under the Securities Act (except that the following are omitted as otherwise required by Regulation S-X of the SEC: (A) the historical financial statements of Seagate Software Information Management Group Holdings, Inc., a non-wholly owned 9 subsidiary of Seagate, (B) notes to the historical financial statements containing, for periods presented in the historical financial statements, the historical financial statements of the guarantor and non-guarantor subsidiaries of the Issuer, Seagate Software Information Management Group Holdings, Inc. and certain other companies directly or indirectly owned by Seagate, (C) historical financial statements for XIOtech Corporation for the period from its acquisition in January 2000 through the present and (D) certain supporting schedules) and (ii) have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods covered thereby and fairly present in all material respects the financial position of the entities purported to be covered thereby at the respective dates indicated and the results of their operations and their cash flows for the respective periods indicated; and the financial information contained in the Offering Memorandum under the headings "Offering Memorandum Summary--Summary Historical and Pro Forma Financial Information", "Capitalization", "Unaudited Pro Forma Consolidated Condensed Financial of New Seagate", "Selected Historical Consolidated Financial Information of Old Seagate", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Management--Compensation of Executive Officers" are derived from the accounting records of Seagate and its subsidiaries and fairly present in all material respects the information purported to be shown thereby based on the assumptions stated therein, as applicable. The pro forma financial information contained in the Offering Memorandum has been prepared on a basis consistent with the historical financial statements contained in the Offering Memorandum (except for the pro forma adjustments specified therein), includes all material adjustments to the historical financial information required by Rule 11-02 of Regulation S-X under the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act") to reflect the transactions and the prior pro forma events described in the Offering Memorandum, gives effect to assumptions made on a reasonable basis and fairly presents the historical and proposed transactions contemplated by the Offering Memorandum and the Transaction Documents. The other historical financial information and data included in the Offering Memorandum are, in all material respects, fairly presented. (t) Except as disclosed in the Offering Memorandum, there are no legal or governmental proceedings pending to which Old SAC or any of its subsidiaries or Seagate or any of its subsidiaries is a party or of which any property or assets of Old SAC or any of its subsidiaries or Seagate or any of its subsidiaries is the subject which, (A) singularly or in the aggregate, if determined adversely to Old SAC or any of its subsidiaries or Seagate or any of its subsidiaries, could reasonably be expected to have a Material Adverse Effect or (B) question the validity or enforceability of any of the Transaction Documents or any action taken or to be taken pursuant thereto; and to the knowledge of the Issuer and each of the Note Guarantors, no such proceedings are threatened or contemplated by governmental authorities or 10 threatened by others. (u) To the knowledge of Old SAC, the Issuer and the Note Guarantors, no action has been taken and no statute, rule, regulation or order has been enacted, adopted or issued by any governmental agency or body which prevents the issuance of the Securities or suspends the sale of the Securities in any jurisdiction; no injunction, restraining order or order of any nature by any federal or state court of competent jurisdiction has been issued with respect to Old SAC or any of its subsidiaries or Seagate or any of its subsidiaries which would prevent or suspend the issuance or sale of the Securities or the use of the Preliminary Offering Memorandum or the Offering Memorandum in any jurisdiction; except as disclosed in the Offering Memorandum, no action, suit or proceeding is pending against or, to the knowledge of the Issuer and each of the Note Guarantors, threatened against or affecting Old SAC or any of its subsidiaries or Seagate or any of its subsidiaries before any court or arbitrator or any governmental agency, body or official, domestic or foreign, which could reasonably be expected to interfere with or adversely affect the issuance of the Securities in any material respect or in any manner draw into question the validity or enforceability of any of the Transaction Documents or any action taken or to be taken pursuant thereto; and the Issuer and the Note Guarantors have complied with any requests by any securities authority in any jurisdiction for additional information to be included in the Preliminary Offering Memorandum and the Offering Memorandum. (v) Neither New SAC nor any of the SAC Subsidiaries is, or after giving effect to the Transactions, will be (i) in violation of its charter or by-laws (or other similar constitutive documents), (ii) in default in any material respect, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any material indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which it is a party or by which it is bound or to which any of its property or assets is subject or (iii) in violation in any material respect of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject other than, in the case of clauses (ii) and (iii), such defaults or violations that would not reasonably be expected to have a Material Adverse Effect. (w) Except as disclosed in the Offering Memorandum, after giving effect to the Transactions, New SAC and each of the SAC Subsidiaries will possess all material licenses, certificates, authorizations and permits issued by, and will have made all declarations and filings with, the appropriate federal, state or foreign regulatory agencies or bodies which are necessary for the ownership of their respective properties or the conduct of their respective businesses as described in the Offering Memorandum, except where the failure to possess or make the same could not, 11 singularly or in the aggregate, reasonably be expected to have a Material Adverse Effect, and none of New SAC or any of the SAC Subsidiaries will have received notification of any revocation or modification of any such license, certificate, authorization or permit or will have any reason to believe that any such license, certificate, authorization or permit will not be renewed in the ordinary course, except where the failure to possess the same would not reasonably be expected to have a Material Adverse Effect. (x) Each of Old SAC and each of its subsidiaries and each of Seagate and each of its subsidiaries has timely filed all federal, state, local and foreign income and franchise tax returns required to be filed through the date hereof or have timely filed requests for extensions and such extensions have been granted and have not expired and have paid all taxes due thereon (or have made adequate provision for such taxes on their respective balance sheets), except for such taxes of which such failure to pay or so file could not reasonably be expected to have a Material Adverse Effect, and, except as disclosed in the Offering Memorandum, no tax deficiency has been determined adversely to SAC or any of its subsidiaries or Seagate or any of its subsidiaries which has had (nor does the Issuer or any of the Note Guarantors have any knowledge of any tax deficiency which, if determined adversely to SAC or any of its subsidiaries or Seagate or any of its subsidiaries, could reasonably be expected to have) a Material Adverse Effect. (y) After giving effect to the Transactions, none of New SAC or any of the SAC Subsidiaries will be an "investment company" or a company "controlled by" an investment company within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"), and the rules and regulations of the Commission thereunder. (z) On the Closing Date and after giving effect to the Transactions, all of the material assets used in the rigid disc drive operations of New SAC and the SAC Subsidiaries will be held by New SAC or subsidiaries of New SAC other than Unrestricted Subsidiaries (as such term is defined in the Offering Memorandum) or Designated Subsidiaries (as such term is defined in the Offering Memorandum). (aa) SAC and each of its subsidiaries and Seagate and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with their respective management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with their respective management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 12 (bb) On the Closing Date and after giving effect to the Transactions, New SAC and each of the SAC Subsidiaries will have insurance covering their respective properties, operations, personnel and businesses, which insurance will be in amounts and will insure against such losses and risks as are customary for similar businesses or as required by law. None of New SAC or any of the SAC Subsidiaries will have received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance. (cc) There are no material contracts or other documents which would be required to be described in a prospectus pursuant to the Securities Act that are not described in the Offering Memorandum. (dd) Except as disclosed in the Offering Memorandum, on the Closing Date and after giving effect to the Transactions, (i) New SAC and each of the SAC Subsidiaries will own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses and know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) necessary for the conduct of their respective businesses; and (ii) the conduct of their respective businesses will not conflict in any material respect with, and New SAC and the SAC Subsidiaries will not have received any notice of any claim of conflict with, any such rights of others, except, in the case of clause (i) or (ii), where the failure to do so could not reasonably be expected to result in a Material Adverse Effect. (ee) On the Closing Date and after giving effect to the Transactions, New SAC and each of the SAC Subsidiaries will have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real and personal property which are material to the respective businesses of New SAC and the SAC Subsidiaries, in each case free and clear of all liens, encumbrances, claims and defects and imperfections of title except such as (i) do not materially interfere with the use made and proposed to be made of such property by New SAC and the SAC Subsidiaries or (ii) could not reasonably be expected to have a Material Adverse Effect. (ff) No labor disturbance by or dispute with the employees of New SAC or any of the SAC Subsidiaries exists or, to the best knowledge of the Issuer and the Note Guarantors, is contemplated or threatened, except as could not reasonably be expected to result in a Material Adverse Effect. (gg) No "prohibited transaction" (as defined in Section 406 of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and 13 published interpretations thereunder ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time (the "Code")) or "accumulated funding deficiency" (as defined in Section 302 of ERISA) or any of the events set forth in Section 4043(b) of ERISA (other than events with respect to which the 30-day notice requirement under Section 4043 of ERISA has been waived) has occurred with respect to any employee benefit plan of New SAC or any of the SAC Subsidiaries which could reasonably be expected to have a Material Adverse Effect; each such employee benefit plan is in compliance with applicable law, including ERISA and the Code, except where any noncompliance could not reasonably be expected to have a Material Adverse Effect; New SAC and each of the SAC Subsidiaries have not incurred and do not expect to incur liability under Title IV of ERISA with respect to the termination of, or withdrawal from, any pension plan for which New SAC or any of the SAC Subsidiaries would have any liability, except for such liability which, if any were incurred, could not reasonably be expected to have a Material Adverse Effect; and each such pension plan that is intended to be qualified under Section 401(a) of the Code has either obtained from the IRS a favorable determination, notification, advisory and/or opinion letter, as applicable, as to its qualified status under the Code, or still has a remaining period of time under applicable treasury regulations or IRS pronouncements in which to apply for such letter and to make any amendments necessary to obtain a favorable determination as to its qualified status under the Code. (hh) Except as disclosed in the Offering Memorandum, there has been no storage, generation, transportation, handling, treatment, disposal, discharge, emission or other release of any kind of toxic or other wastes or other hazardous substances by, due to or caused by Old SAC or any of its subsidiaries or Seagate or any of its subsidiaries (or, to the best knowledge of the Issuer and the Note Guarantors, any other entity (including any predecessor) for whose acts or omissions New SAC or any of the SAC Subsidiaries is or could reasonably be expected to be liable after giving effect to the Transactions) upon any of the property now or previously owned or leased by Old SAC or any of its subsidiaries or Seagate or any of its subsidiaries, or upon any other property, in violation of any statute or any ordinance, rule, regulation, order, judgment, decree or permit or which would, under any statute or any ordinance, rule (including rule of common law), regulation, order, judgment, decree or permit, give rise to any liability, except for any violation or liability that could not reasonably be expected to have, singularly or in the aggregate with all such violations and liabilities, a Material Adverse Effect; and, except as disclosed in the Offering Memorandum, there has been no disposal, discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or other wastes or other hazardous substances with respect to which the Issuer or any of the Note Guarantors has knowledge, except for any such disposal, discharge, emission or other release of any kind which could not reasonably be expected to have, singularly or in the aggregate with all such discharges and other 14 releases, a Material Adverse Effect. (ii) Except as could not reasonably be expected to result in a Material Adverse Effect, none of Old SAC or any of its subsidiaries or Seagate or any of its subsidiaries nor, to the best knowledge of the Issuer and each of the Note Guarantors, any director, officer, agent, employee or other person associated with or acting on behalf of Old SAC or any of its subsidiaries or Seagate or any of its subsidiaries has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity, (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds, (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977 or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (jj) On and immediately after the Closing Date, the Issuer and each of the Note Guarantors (after giving effect to the issuance of the Securities and to the other Transactions related thereto as described in the Offering Memorandum) will be Solvent. As used in this paragraph, the term "Solvent" means, with respect to the Issuer or a Note Guarantor and a particular date, that on such date (i) the present fair market value (or present fair saleable value) of the assets of the Issuer or such Note Guarantor, as applicable, is not less than the total amount required to pay the probable liabilities of the Issuer or such Note Guarantor, as applicable, on its total existing debts and liabilities (including contingent liabilities) as they become absolute and matured, (ii) the Issuer or such Note Guarantor, as applicable, is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and commitments as they mature and become due in the normal course of business, (iii) assuming the sale of the Securities as contemplated by this Agreement and the Offering Memorandum, the Issuer or such Note Guarantor, as applicable, is not incurring debts or liabilities beyond its ability to pay as such debts and liabilities mature and (iv) the Issuer or such Note Guarantor, as applicable, is not engaged in any business or transaction, and is not about to engage in any business or transaction, for which its property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which the Issuer or such Note Guarantor, as applicable, is engaged. In computing the amount of such contingent liabilities at any time, it is intended that such liabilities will be computed at the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. (kk) After giving effect to, and on the consummation of, the Transactions, except as described in the Offering Memorandum, there will be no outstanding subscriptions, rights, warrants, calls or options to acquire, or instruments convertible into or exchangeable for, or agreements or understandings with respect to the sale or 15 issuance of, any share capital, shares of capital stock of or other equity or other ownership interest in New SAC or any of the SAC Subsidiaries. (ll) After giving effect to the Transactions, none of New SAC or any of the SAC Subsidiaries will own any "margin securities" as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), and none of the proceeds of the sale of the Securities will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Securities to be considered a "purpose credit" within the meanings of Regulations T, U or X of the Federal Reserve Board. (mm) None of Old SAC or any of its subsidiaries or Seagate or any of its subsidiaries is a party to any contract, agreement or understanding with any person that would give rise to a valid claim against the Issuer, any Note Guarantor or the Initial Purchasers for a brokerage commission, finder's fee or like payment in connection with the offering and sale of the Securities. (nn) The Securities satisfy the eligibility requirements of Rule 144A(d)(3) under the Securities Act. (oo) None of the Issuer, any of the Note Guarantors, any of their affiliates or any person acting on its or their behalf has engaged or will engage in any directed selling efforts (as such term is defined in Regulation S under the Securities Act ("Regulation S")), and all such persons have complied and will comply with the offering restrictions requirement of Regulation S to the extent applicable. (pp) Assuming the accuracy of the representations and warranties of the Initial Purchasers in Section 2, none of the Issuer, any of the Note Guarantors or any of their affiliates has, directly or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as such term is defined in the Securities Act), which is or will be integrated with the sale of the Securities in a manner that would require registration of the Securities under the Securities Act. (qq) None of the Issuer, any of the Note Guarantors or any of its affiliates or any other person acting on its or their behalf has engaged, in connection with the offering of the Securities, in any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act. (rr) Except with respect to securities of Seagate and Seagate Software Information Group Holdings, Inc., which will be deregistered and delisted in connection with the Transactions, there are no securities of the Issuer or any of the Note Guarantors 16 registered under the Exchange Act, or listed on a national securities exchange or quoted in a U.S. automated inter-dealer quotation system. (ss) None of the Issuer or any of the Note Guarantors has taken or will take, directly or indirectly, any action prohibited by Regulation M under the Exchange Act in connection with the offering of the Securities. (tt) No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Preliminary Offering Memorandum or the Offering Memorandum has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith. (uu) Since the date as of which information is given in the Offering Memorandum, except as otherwise stated therein, (i) there has been no material adverse change or, to the knowledge of Old SAC or the Issuer, any development involving a prospective material adverse change in the financial condition or in the earnings, business affairs or management of New SAC or any of the SAC Subsidiaries, whether or not arising in the ordinary course of business, (ii) none of New SAC or any of the SAC Subsidiaries has incurred any material liability or obligation, direct or contingent, other than in the ordinary course of business, (iii) none of New SAC or any of the SAC Subsidiaries has entered into any material transaction other than in the ordinary course of business and (iv) there has not been any change in the share capital, capital stock or other equity interests or long-term debt of New SAC or any of the SAC Subsidiaries, or any dividend or distribution of any kind declared, paid or made by New SAC or any of the SAC Subsidiaries on any class of their respective share capital, capital stock or other equity interests. 2. Purchase and Resale of the Securities. (a) On the basis of the representations, warranties and agreements contained herein, and subject to the terms and conditions set forth herein, the Issuer agrees to issue and sell to each of the Initial Purchasers, severally and not jointly, and each of the Initial Purchasers, severally and not jointly, agrees to purchase from the Issuer, the principal amount of Securities set forth opposite the name of such Initial Purchaser on Schedule II hereto at a purchase price equal to 92.709% of the principal amount thereof. The Issuer shall not be obligated to deliver any of the Securities except upon payment for all of the Securities to be purchased as provided herein. (b) The Initial Purchasers have advised Old SAC and the Issuer that they propose to offer the Securities for resale upon the terms and subject to the conditions set forth herein and in the Offering Memorandum. Each Initial Purchaser, severally and not jointly, represents, warrants and agrees with Old SAC, the Issuer and the Note Guarantors that (i) it is purchasing the Securities pursuant to a private sale exempt from registration under the Securities Act, (ii) it has not solicited offers for, or offered or sold, and will not solicit offers for, or offer or sell, the Securities by means of any form of general solicitation 17 or general advertising within the meaning of Rule 502(c) of Regulation D under the Securities Act ("Regulation D") or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act and (iii) it has solicited and will solicit offers for the Securities only from, and has offered or sold and will offer, sell or deliver the Securities, as part of their initial offering, only (A) within the United States to persons whom it reasonably believes to be qualified institutional buyers ("Qualified Institutional Buyers"), as defined in Rule 144A under the Securities Act ("Rule 144A"), or if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to it that each such account is a Qualified Institutional Buyer to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A and in each case, in transactions in accordance with Rule 144A and (B) outside the United States to persons other than U.S. persons in reliance on Regulation S under the Securities Act ("Regulation S"). (c) In connection with the offer and sale of Securities in reliance on Regulation S, each Initial Purchaser, severally and not jointly, represents, warrants and agrees with Old SAC, the Issuer and the Note Guarantors that: (i) the Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in transactions not subject to, the registration requirements of the Securities Act; (ii) such Initial Purchaser has offered and sold the Securities, and will offer and sell the Securities, (A) as part of their distribution at any time and (B) otherwise until 40 days after the later of the commencement of the offering of the Securities and the Closing Date, only in accordance with Regulation S or Rule 144A or any other available exemption from registration under the Securities Act; (iii) none of such Initial Purchaser or any of its affiliates or any other person acting on its or their behalf has engaged or will engage in any directed selling efforts with respect to the Securities, and all such persons have complied and will comply with the offering restriction requirements of Regulation S; (iv) at or prior to the confirmation of sale of any Securities sold in reliance on Regulation S, it will have sent to each distributor, dealer or other person receiving a selling concession, fee or other remuneration that purchases Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold within the United States or to, or for the account or benefit of, 18 U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering of the Securities and the date of original issuance of the Securities, except in accordance with Regulation S or Rule 144A or any other available exemption from registration under the Securities Act. Terms used above have the meanings given to them by Regulation S"; (v) it has not and will not enter into any contractual arrangement with any distributor with respect to the distribution of the Securities, except with its affiliates or with the prior written consent of the Issuer; and (vi) it has complied and will comply in all material respects with all applicable laws and regulations, in each jurisdiction, in which it acquires, offers, sells or delivers Securities or has in its possession or distributed the Preliminary Offering Memorandum or Offering Memorandum at its own expense. Terms used in this Section 2(c) have the meanings given to them by Regulation S. (d) Each Initial Purchaser, severally and not jointly, represents, warrants and agrees that (i) it has not offered or sold and prior to the date six months after the Closing Date will not offer or sell any Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 and the Public Offers of Securities Regulations 1995 with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 (as amended) or is a person to whom such document may otherwise lawfully be issued or passed on. (e) Each Initial Purchaser, severally and not jointly, agrees that, prior to or simultaneously with the confirmation of sale by such Initial Purchaser to any purchaser of any of the Securities purchased by such Initial Purchaser from the Issuer pursuant hereto, such Initial Purchaser shall furnish to that purchaser a copy of the Offering Memorandum (and any amendment or supplement thereto that the Issuer shall have furnished to such Initial Purchaser prior to the date of such confirmation of sale). In addition to the foregoing, each Initial Purchaser acknowledges and agrees that the Issuer and, for purposes of the opinions to be delivered to the Initial Purchasers pursuant to Sections 5(d) and (e), counsel for the Issuer and for the Initial Purchasers, respectively, may rely upon the 19 accuracy of the representations and warranties of the Initial Purchasers and their compliance with their agreements contained in this Section 2, and each Initial Purchaser hereby consents to such reliance. (f) Old SAC, the Issuer and each of the Note Guarantors acknowledges and agrees that the Initial Purchasers may sell Securities to any affiliate of an Initial Purchaser and that any such affiliate may sell Securities purchased by it to an Initial Purchaser. 3. Delivery of and Payment for the Securities. (a) Delivery of and payment for the Securities shall be made at the offices of Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York, or at such other place as shall be agreed upon by the Initial Purchasers and the Issuer, at 10:00 A.M., New York City time, on November 22, 2000, or at such other time or date, not later than seven full business days thereafter, as shall be agreed upon by the Initial Purchasers and the Issuer (such date and time of payment and delivery being referred to herein as the "Closing Date"). (b) On the Closing Date, payment of the purchase price for the Securities shall be made to the Issuer by wire or book-entry transfer of same-day funds to such account or accounts as the Issuer shall specify prior to the Closing Date or by such other means as the parties hereto shall agree prior to the Closing Date against delivery to the Initial Purchasers of the certificates evidencing the Securities. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligations of the Initial Purchasers hereunder. Upon delivery, the Securities shall be in global form, registered in such names and in such denominations as CSI on behalf of the Initial Purchasers shall have requested in writing not less than two full business days prior to the Closing Date. Old SAC and the Issuer agree to make one or more global certificates evidencing the Securities available for inspection by CSI on behalf of the Initial Purchasers in New York, New York at least 24 hours prior to the Closing Date. 4. Further Agreements of the Issuer and the Note Guarantors. Old SAC, the Issuer and each of the Note Guarantors agree with each of the several Initial Purchasers: (a) to advise the Initial Purchasers promptly and, if requested, confirm such advice in writing, of the happening of any event during the period prior to the completion of the resale of the Securities by the Initial Purchasers which makes any statement of a material fact made in the Offering Memorandum untrue or which requires the making of any additions to or changes in the Offering Memorandum (as amended or supplemented from time to time) in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; to advise the Initial Purchasers promptly of any order preventing or suspending the use of the Preliminary Offering Memorandum or the Offering Memorandum, of any suspension of the qualification of the Securities for offering or sale in any jurisdiction and of the initiation or threatening of any proceeding for 20 any such purpose; and to use their reasonable best efforts to prevent the issuance of any such order preventing or suspending the use of the Preliminary Offering Memorandum or the Offering Memorandum or suspending any such qualification and, if any such suspension is issued, to use their reasonable best efforts to obtain the lifting thereof at the earliest possible time; (b) to furnish promptly to each of the Initial Purchasers and counsel for the Initial Purchasers, without charge, as many copies of the Preliminary Offering Memorandum and the Offering Memorandum (and any amendments or supplements thereto) as may be reasonably requested; (c) prior to making any amendment or supplement to the Offering Memorandum, at any time prior to the completion of the resale of the Securities by the Initial Purchasers, to furnish a copy thereof to each of the Initial Purchasers and counsel for the Initial Purchasers and not to effect any such amendment or supplement to which the Initial Purchasers shall reasonably object by notice to the Issuer after a reasonable period to review; (d) if, at any time prior to completion of the resale of the Securities by the Initial Purchasers, any event shall occur or condition exist as a result of which it is necessary, in the opinion of counsel for the Initial Purchasers, counsel for Old SAC or counsel for the Issuer, to amend or supplement the Offering Memorandum in order that the Offering Memorandum will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time it is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Offering Memorandum to comply with applicable law, to promptly prepare such amendment or supplement as may be necessary to correct such untrue statement or omission or so that the Offering Memorandum, as so amended or supplemented, will comply with applicable law; (e) for so long as the Securities are outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, to furnish to holders of the Securities and prospective purchasers of the Securities designated by such holders, upon request of such holders or such prospective purchasers, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act, unless New SAC and the Issuer are then subject to and in compliance with Section 13 or 15(d) of the Exchange Act (the foregoing agreement being for the benefit of the holders from time to time of the Securities and prospective purchasers of the Securities designated by such holders); (f) for a period of three years following the Closing Date, to furnish to the Initial Purchasers copies of any annual reports, quarterly reports and current reports 21 filed by New SAC with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated by the Commission, and such other documents, reports and information as shall be furnished by New SAC or the Issuer to the Trustee or to the holders of the Securities pursuant to the Indenture or the Exchange Act or any rule or regulation of the Commission thereunder; (g) to promptly take from time to time such actions as the Initial Purchasers may reasonably request to qualify the Securities for offering and sale under the securities or Blue Sky laws of such jurisdictions as the Initial Purchasers may designate and to continue such qualifications in effect for so long as required for the resale of the Securities; and to arrange for the determination of the eligibility for investment of the Securities under the laws of such jurisdictions as the Initial Purchasers may reasonably request; provided that, following the Closing Date, New SAC and the SAC Subsidiaries shall not be obligated to qualify as foreign corporations in any jurisdiction in which they are not so qualified or to file a general consent to service of process or to subject themselves to taxation in respect of doing business in any jurisdiction; (h) to assist the Initial Purchasers in arranging for the Securities to be designated Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") Market securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. ("NASD") relating to trading in the PORTAL Market and for the Securities to be eligible for clearance and settlement through The Depository Trust Company ("DTC"); (i) not to, and to cause its affiliates not to, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as such term is defined in the Securities Act) which could be integrated with the sale of the Securities in a manner which would require registration of the Securities under the Securities Act; (j) except following the effectiveness of the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, not to, and to cause its affiliates not to, and not to authorize or knowingly permit any person acting on their behalf to, solicit any offer to buy or offer to sell the Securities by means of any form of general solicitation or general advertising within the meaning of Regulation D or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act; and not to offer, sell, contract to sell or otherwise dispose of, directly or indirectly, any securities under circumstances where such offer, sale, contract or disposition would cause the exemption afforded by Section 4(2) of the Securities Act to cease to be applicable to the offering and sale of the Securities as contemplated by this Agreement and the Offering Memorandum; (k) for a period of 90 days from the date of the Offering Memorandum and 22 except as contemplated by the Registration Rights Agreement, not to offer for sale, sell, contract to sell or otherwise dispose of, directly or indirectly, or file a registration statement for, or announce any offer, sale, contract for sale of or other disposition of any debt securities issued or guaranteed by Old SAC, New SAC or any of the SAC Subsidiaries (other than the Securities) without the prior written consent of the Initial Purchasers; (l) during the period from the Closing Date until two years after the Closing Date, without the prior written consent of the Initial Purchasers, not to, and not to permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Securities that have been reacquired by them, except for Securities purchased by the Issuer or any of its affiliates and resold in a transaction registered under the Securities Act; (m) not to, until the consummation of the Exchange Offer be or become, or be or become owned by, an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act, and to not be or become, or be or become owned by, a closed-end investment company required to be registered, but not registered thereunder; (n) in connection with the offering of the Securities, until CSI on behalf of the Initial Purchasers shall have notified the Issuer of the completion of the resale of the Securities, not to, and to cause its affiliated purchasers (as defined in Regulation M under the Exchange Act) not to, either alone or with one or more other persons, bid for or purchase, for any account in which it or any of its affiliated purchasers has a beneficial interest, any Securities, or attempt to induce any person to purchase any Securities; and not to, and to cause its affiliated purchasers not to, make bids or purchase for the purpose of creating actual, or apparent, active trading in or of raising the price of the Securities; provided, however, that the Issuer and the Note Guarantors shall not be responsible for any such activities by the Initial Purchasers. (o) in connection with the offering of the Securities, to make its officers, employees, independent accountants and legal counsel reasonably available upon request by the Initial Purchasers; (p) to furnish to each of the Initial Purchasers on the date hereof a copy of the independent accountants' report included in the Offering Memorandum signed by the accountants rendering such report; (q) to do and perform all things required to be done and performed by it under this Agreement that are within its control prior to, on or after the Closing Date, and to use its reasonable best efforts to satisfy all conditions precedent on its 23 part to the delivery of the Securities; (r) prior to the Closing Date, not to issue any press release or other communication directly or indirectly or hold any press conference with respect to Old SAC, New SAC or any of the SAC Subsidiaries, its condition, financial or otherwise, or earnings, business affairs or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past practices of Seagate and of which the Initial Purchasers are notified), without the prior written consent of the Initial Purchasers, unless in the judgment of Old SAC and its counsel or the Issuer and its counsel, and after notification to the Initial Purchasers, such press release or communication is required by law; and (s) to apply the net proceeds from the sale of the Securities as set forth in the Offering Memorandum under the heading "Use of Proceeds". 5. Conditions of Initial Purchasers' Obligations. The respective obligations of the several Initial Purchasers hereunder are subject to the accuracy, on and as of the date hereof and the Closing Date, of the representations and warranties of Old SAC, the Issuer and each of the Note Guarantors contained herein, to the accuracy of the statements of Old SAC, the Issuer and each of the Note Guarantors and their respective officers made in any certificates delivered pursuant hereto, to the performance by Old SAC, the Issuer and each of the Note Guarantors of their respective obligations hereunder, and to each of the following additional terms and conditions: (a) The Offering Memorandum (and any amendments or supplements thereto) shall have been printed and copies distributed to the Initial Purchasers as promptly as practicable on or following the date of this Agreement or at such other date and time as to which the Initial Purchasers may agree; and no stop order suspending the sale of the Securities in any jurisdiction shall have been issued and no proceeding for that purpose shall have been commenced or shall be pending or threatened. (b) None of the Initial Purchasers shall have discovered and disclosed to the Issuer on or prior to the Closing Date that the Offering Memorandum or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of counsel for the Initial Purchasers, is material or omits to state any fact which, in the opinion of such counsel, is material and is necessary to make the statements therein not misleading. (c) All corporate proceedings and other legal matters incident to the authorization, form and validity of each of the Transaction Documents and the Offering Memorandum, and all other legal matters relating to the Transaction 24 Documents and the transactions contemplated thereby, shall be reasonably satisfactory in all material respects to the Initial Purchasers, and the Issuer and the Note Guarantors shall have furnished to the Initial Purchasers all documents and information that they or their counsel may reasonably request to enable them to pass upon such matters. (d) Each of Simpson Thacher & Bartlett, special counsel, and local counsel to Old SAC, New SAC and the SAC Subsidiaries in each of California and Minnesota, Canada, the Cayman Islands, England and Wales, Japan, Mexico, Northern Ireland, Singapore, Scotland and Thailand shall have furnished to the Initial Purchasers their written opinions, as counsel to Old SAC, New SAC and the SAC Subsidiaries, addressed to the Initial Purchasers and dated the Closing Date, in form and substance reasonably satisfactory to the Initial Purchasers. (e) The Initial Purchasers shall have received from Cravath, Swaine & Moore, counsel for the Initial Purchasers, and local counsel for the Initial Purchasers in Canada, the Cayman Islands, England and Wales, Northern Ireland, Singapore, Scotland and Thailand such opinion or opinions, dated the Closing Date, with respect to such matters as the Initial Purchasers may reasonably require, and the Issuer shall have furnished to such counsel such documents and information as they request for the purpose of enabling them to pass upon such matters. (f) The Issuer shall have furnished to the Initial Purchasers a letter (the "Initial Letter") of Ernst & Young LLP, addressed to the Initial Purchasers and dated the date hereof, in form and substance reasonably satisfactory to the Initial Purchasers, substantially to the effect set forth in Annex B hereto. (g) The Issuer shall have furnished to the Initial Purchasers a letter (the "Bring-Down Letter") of Ernst & Young LLP, addressed to the Initial Purchasers and dated the Closing Date (i) confirming that they are independent public accountants with respect to Seagate and its subsidiaries within the meaning of Rule 101 of the Code of Professional Conduct of the AICPA and its interpretations and rulings thereunder, (ii) stating, as of the date of the Bring-Down Letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Offering Memorandum, as of a date not more than three business days prior to the date of the Bring-Down Letter), that the conclusions and findings of such accountants with respect to the financial information and other matters covered by the Initial Letter are accurate and (iii) confirming in all material respects the conclusions and findings set forth in the Initial Letter. (h) The Issuer and New SAC, on behalf of themselves and the other Note Guarantors, shall have furnished to the Initial Purchasers a certificate, dated the Closing Date, of their respective chief executive officers and their respective chief 25 financial officers stating that (A) such officers have carefully examined the Offering Memorandum, (B) in their opinion, the Offering Memorandum, as of its date, did not include any untrue statement of a material fact and did not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and since the date of the Offering Memorandum, no event has occurred which should have been set forth in a supplement or amendment to the Offering Memorandum so that the Offering Memorandum (as so amended or supplemented) would not include any untrue statement of a material fact and would not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, (C) to their knowledge after due inquiry, as of the Closing Date, the representations and warranties of the Issuer and the Note Guarantors, in this Agreement are true and correct in all material respects, the Issuer and the Note Guarantors, have complied in all material respects with all agreements and satisfied all conditions on their part to be performed or satisfied hereunder on or prior to the Closing Date, and (D) to their knowledge after due inquiry, subsequent to the date of the most recent financial statements contained in the Offering Memorandum, there has been no material adverse change in the financial position or results of operation of Old SAC, New SAC or any of the SAC Subsidiaries, or any change, or any development involving a prospective change, in or affecting the financial condition, results of operations or business of New SAC and the SAC Subsidiaries taken as a whole after giving effect to the consummation of the Transactions. (i) The Initial Purchasers shall have received a counterpart of the Registration Rights Agreement which shall have been executed and delivered by a duly authorized officer of the Issuer and each Note Guarantor. (j) The Indenture shall have been duly executed and delivered by the Issuer, the Note Guarantors and the Trustee, and the Securities shall have been duly executed and delivered by the Issuer and each Note Guarantor and duly authenticated by the Trustee. (k) The Securities shall have been approved by the NASD for trading in the PORTAL Market. (l) If any event shall have occurred that requires the Issuer under Section 4(d) to prepare an amendment or supplement to the Offering Memorandum, such amendment or supplement shall have been prepared, the Initial Purchasers shall have been given a reasonable opportunity to comment thereon, and copies thereof shall have been delivered to the Initial Purchasers reasonably in advance of the Closing Date. 26 (m) There shall not have occurred any invalidation of Rule 144A under the Securities Act by any court or any withdrawal or proposed withdrawal of any rule or regulation under the Securities Act or the Exchange Act by the Commission or any amendment or proposed amendment thereof by the Commission which in the reasonable judgment of the Initial Purchasers would materially impair the ability of the Initial Purchasers to purchase, hold or effect resales of the Securities as contemplated hereby. (n) Subsequent to the execution and delivery of this Agreement or, if earlier, the dates as of which information is given in the Offering Memorandum (exclusive of any amendment or supplement thereto), there shall not have been any change in the capital stock or long-term debt or any change, or any development involving a prospective change, in or affecting the financial condition, results of operations or business or prospects of SAC and the SAC Subsidiaries taken as a whole after giving effect to the consummation of the Transactions, the effect of which, in any such case described above, is, in the reasonable judgment of the Initial Purchasers, so material and adverse as to make it impracticable or inadvisable to proceed with the sale or delivery of the Securities on the terms and in the manner contemplated by this Agreement and the Offering Memorandum (exclusive of any amendment or supplement thereto). (o) No action shall have been taken and no statute, rule, regulation, injunction, restraining order or order of any other nature shall have been enacted, adopted or issued by any federal or state court of competent jurisdiction or any governmental agency or body which would, as of the Closing Date, prevent the issuance or sale of the Securities. (p) Subsequent to the execution and delivery of this Agreement (i) no downgrading shall have occurred in the rating accorded the Securities or any of New SAC's or the Issuer's other debt securities or preferred stock by any "nationally recognized statistical rating organization", as such term is defined by the Commission for purposes of Rule 436(g)(2) of the rules and regulations of the Commission under the Securities Act and (ii) no such organization shall have publicly announced that it has under surveillance or review (other than an announcement with positive implications of a possible upgrading), its rating of the Securities or any of New SAC's or the Issuer's other debt securities or preferred stock. (q) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the over-the-counter market shall have been suspended or limited, or minimum prices shall have been established on any such exchange or market by the Commission, by any such 27 exchange or by any other regulatory body or governmental authority having jurisdiction, or trading in any securities of the Issuer on any exchange or in the over-the-counter market shall have been suspended or (ii) any moratorium on commercial banking activities shall have been declared by federal or New York state authorities or (iii) an outbreak or escalation of hostilities involving the United States or a declaration by the United States of a national emergency or war or (iv) a material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets in the United States shall be such) the effect of which, in the case of this clause (iv), is, in the reasonable judgment of the Initial Purchasers, so material and adverse as to make it impracticable or inadvisable to proceed with the sale or the delivery of the Securities on the terms and in the manner contemplated by this Agreement and in the Offering Memorandum (exclusive of any amendment or supplement thereto). (r) Each of the Issuer and the Note Guarantors shall have become parties to this Agreement pursuant to the execution and delivery of a Joinder to the Purchase Agreement in the form attached hereto as Annex C. (s) All conditions to the consummation of the Transactions, other than the offering of the Securities, shall have been satisfied. The Transactions, including the initial funding under the Credit Agreement, the SAC Merger, the mailing of the notice of redemption of the Existing Senior Notes and the transactions contemplated by the Stock Purchase Agreement and the Merger Agreement described under "The Transactions" in the Offering Memorandum shall be consummated substantially concurrently with the sale of the Securities hereunder. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory in all material respects to counsel for the Initial Purchasers. 6. Termination. The obligations of the Initial Purchasers hereunder may be terminated by the Initial Purchasers, in their absolute discretion, by notice given to and received by the Issuer prior to delivery of and payment for the Securities if, prior to that time, any of the events described in Section 5(m), (n), (o), (p) or (q) shall have occurred and be continuing. 7. Defaulting Initial Purchasers. (a) If, on the Closing Date, any Initial Purchaser defaults in the performance of its obligations under this Agreement, the non-defaulting Initial Purchasers may make arrangements for the purchase of the Securities which such defaulting Initial Purchaser agreed but failed to purchase (the "Unpurchased Securities") by other persons satisfactory to the Issuer and the non-defaulting Initial Purchasers, but if no such arrangements are made within 48 hours after such default then 28 (i) if the principal amount of the Unpurchased Securities does not exceed 10% of the principal amount of Securities to be purchased on such date, the non-defaulting Initial Purchasers shall be obligated to purchase the full amount thereof, or (ii) if the principal amount of the Unpurchased Securities exceeds 10% of the Securities to be purchased on such date, the Issuer shall be entitled to a further period of 48 hours within which to procure another party or parties reasonably satisfactory to the non-defaulting Initial Purchasers to purchase such Unpurchased Securities upon such terms herein set forth. If, however, the Issuer shall not have completed such arrangements within 96 hours after such default and the principal amount of the Unpurchased Securities exceeds 10% of the principal amount of Securities to be purchased on such date, then this Agreement shall terminate without liability on the part of the non-defaulting Initial Purchasers, Old SAC, the Issuer or the Note Guarantors, except that the Issuer and the Note Guarantors will continue to be liable for the payment of expenses to the extent set forth in Sections 8 and 12 and except that the provisions of Sections 9 and 10 shall not terminate and shall remain in effect. As used in this Agreement, the term "Initial Purchasers" includes, for all purposes of this Agreement unless the context otherwise requires, any party not listed in Schedule 1 hereto that, pursuant to this Section 7, purchases Securities which a defaulting Initial Purchaser agreed but failed to purchase. (b) Nothing contained herein shall relieve a defaulting Initial Purchaser of any liability it may have to the Issuer or any non-defaulting Initial Purchaser for damages caused by its default. If other persons are obligated or agree to purchase the Securities of a defaulting Initial Purchaser, either the non-defaulting Initial Purchasers or the Issuer may postpone the Closing Date for up to seven full business days in order to effect any changes that in the opinion of counsel for the Issuer or counsel for the Initial Purchasers may be necessary in the Offering Memorandum or in any other document or arrangement, and the Issuer agrees to promptly prepare any amendment or supplement to the Offering Memorandum that effects any such changes. 8. Reimbursement of Initial Purchasers' Expenses. If (a) this Agreement shall have been terminated pursuant to Section 6 or 7, (b) the Issuer shall fail to tender the Securities for delivery to the Initial Purchasers for any reason permitted under this Agreement or (c) the Initial Purchasers shall decline to purchase the Securities for any reason permitted under this Agreement, the Issuer and the Note Guarantors shall reimburse the Initial Purchasers (other than as provided with respect to a defaulting Initial Purchaser in the last sentence of this paragraph) for such out-of-pocket expenses (including reasonable fees and disbursements of counsel) as shall have been reasonably incurred by the Initial Purchasers in connection with this Agreement and the proposed purchase and resale of the Securities. If this Agreement is terminated pursuant to Section 7 by reason of the default of one or more of the Initial Purchasers, the Issuer and the Note Guarantors shall not be obligated to reimburse any defaulting Initial Purchaser on account of such expenses. 9. Indemnification. (a) The Issuer and each of the Note Guarantors shall 29 jointly and severally indemnify and hold harmless each Initial Purchaser, its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls any Initial Purchaser within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 9(a) and Section 10 as an Initial Purchaser), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, without limitation, any loss, claim, damage, liability or action relating to purchases and sales of the Securities), to which that Initial Purchaser may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering Memorandum or the Offering Memorandum or in any amendment or supplement thereto or in any information provided by the Issuer pursuant to Section 4(e) or (ii) the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse each Initial Purchaser promptly upon demand for any legal or other expenses reasonably incurred by that Initial Purchaser in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Issuer and the Note Guarantors shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with any Initial Purchasers' Information; and provided, further, that with respect to any such untrue statement in or omission from the Preliminary Offering Memorandum, the indemnity agreement contained in this Section 9(a) shall not inure to the benefit of any such Initial Purchaser to the extent that the sale to the person asserting any such loss, claim, damage, liability or action was an initial resale by such Initial Purchaser and any such loss, claim, damage, liability or action of or with respect to such Initial Purchaser results from the fact that both (A) to the extent required by applicable law, a copy of the Offering Memorandum was not sent or given to such person at or prior to the written confirmation of the sale of such Securities to such person and (B) the untrue statement in or omission from the Preliminary Offering Memorandum was corrected in the Offering Memorandum unless, in either case, such failure to deliver the Offering Memorandum was a result of non-compliance by the Issuer or a Note Guarantor with Section 4(b). (b) Each Initial Purchaser, severally and not jointly, shall indemnify and hold harmless the Issuer, its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls the Issuer within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 9(b) and Section 10 as the Issuer), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Issuer may become 30 subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering Memorandum or the Offering Memorandum or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with any Initial Purchasers' Information, and shall reimburse the Issuer for any legal or other expenses reasonably incurred by the Issuer in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred. (c) Promptly after receipt by an indemnified party under this Section 9 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 9(a) or 9(b), notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 9 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and, provided, further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 9. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 9 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that an indemnified party shall have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel for the indemnified party will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based upon advice of outside counsel to the indemnified party) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based upon advice of outside counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on 31 behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm of attorneys (in addition to any local counsel) at any one time for all such indemnified party or parties. Each indemnified party, as a condition of the indemnity agreements contained in Sections 9(a) and 9(b), shall use all reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or reasonably could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. The obligations of the Issuer, the Note Guarantors and the Initial Purchasers in this Section 9 and in Section 10 are in addition to any other liability that the Issuer, the Note Guarantors or the Initial Purchasers, as the case may be, may otherwise have, including in respect of any breaches of representations, warranties and agreements made herein by any such party. 10. Contribution. If the indemnification provided for in Section 9 is unavailable or insufficient to hold harmless an indemnified party under Section 9(a) or 9(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Issuer and the Note Guarantors on the one hand and the Initial Purchasers on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Issuer and the Note Guarantors on the one hand and the Initial Purchasers on the other with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Issuer 32 and the Note Guarantors on the one hand and the Initial Purchasers on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities purchased under this Agreement (before deducting expenses) received by or on behalf of the Issuer and the Note Guarantors, on the one hand, and the total discounts and commissions received by the Initial Purchasers with respect to the Securities purchased under this Agreement, on the other, bear to the total gross proceeds from the sale of the Securities under this Agreement. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to the Issuer or information supplied by the Issuer and the Note Guarantors on the one hand or to any Initial Purchasers' Information on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Issuer, the Note Guarantors and the Initial Purchasers agree that it would not be just and equitable if contributions pursuant to this Section 10 were to be determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 10 shall be deemed to include, for purposes of this Section 10, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 10, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total discounts and commissions received by such Initial Purchaser with respect to the Securities purchased by it under this Agreement exceeds the amount of any damages which such Initial Purchaser has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial Purchasers' obligations to contribute as provided in this Section 10 are several in proportion to their respective purchase obligations and not joint. 11. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers, Old SAC, the Issuer, the Note Guarantors and their respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except as provided in Sections 9 and 10 with respect to affiliates, officers, directors, employees, representatives, agents and controlling persons of the Issuer, the Note Guarantors and the Initial Purchasers and in Section 4(e) with respect to holders and prospective purchasers of the Securities. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 11, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 33 12. Expenses. The Issuer and the Note Guarantors agree with the Initial Purchasers to pay (a) the costs incident to the authorization, issuance, sale, preparation and delivery of the Securities to the Initial Purchasers and any taxes payable in that connection; (b) the costs incident to the preparation, printing and distribution of the Preliminary Offering Memorandum, the Offering Memorandum and any amendments or supplements thereto; (c) the costs of reproducing and distributing each of the Transaction Documents; (d) the costs incident to the preparation, printing and delivery of the certificates evidencing the Securities, including stamp duties and transfer taxes, if any, payable upon issuance of the Securities to the Initial Purchasers; (e) the fees and expenses of the Issuer's counsel and independent accountants; (f) the fees and expenses of qualifying the Securities under the securities laws of the several jurisdictions as provided in Section 4(g) and of preparing, printing and distributing Blue Sky Memoranda (including reasonable related fees and expenses of counsel for the Initial Purchasers); (g) any fees charged by rating agencies for rating the Securities; (h) the fees and expenses of the Trustee and any paying agent (including related reasonable fees and expenses of any counsel to such parties); (i) all expenses and application fees incurred in connection with the application for the inclusion of the Securities on the PORTAL Market and any expenses incurred in connection with the approval of the Securities for book-entry transfer by DTC; and (j) all other costs and expenses incident to the performance of the obligations of the Issuer or a Note Guarantor under this Agreement which are not otherwise specifically provided for in this Section 12; provided, however, that except as provided in this Section 12 and Section 8, the Initial Purchasers shall pay their own costs and expenses. 13. Survival. The respective indemnities, rights of contribution, representations, warranties and agreements of the Issuer, the Note Guarantors and the Initial Purchasers contained in this Agreement or made by or on behalf of the Issuer, the Note Guarantors or the Initial Purchasers pursuant to this Agreement or any certificate delivered pursuant hereto shall survive the delivery of and payment for the Securities and shall remain in full force and effect, regardless of any termination or cancelation of this Agreement or any investigation made by or on behalf of any of them or any of their respective affiliates, officers, directors, employees, representatives, agents or controlling persons. 14. Notices, etc.. All statements, requests, notices and agreements hereunder shall be in writing, and: (a) if to the Initial Purchasers, shall be delivered or sent by mail or telecopy transmission to Chase Securities Inc., 270 Park Avenue, New York, New York 10017, Attention: Legal Department (telecopier no.: (212) 270-0994); or (b) if to Old SAC, the Issuer or the Note Guarantors, shall be delivered or sent by mail or telecopy transmission to the address of the Issuer set forth in the Offering Memorandum, Attention: William L. Hudson, Senior Vice President, General Counsel and Secretary (Telephone: (831) 439-5370; Facsimile: (831) 438-6675) and 34 Glen A. Peterson, Vice President, Corporate Finance and Treasurer (Telephone: (831) 439-2870; Facsimile: (831) 438-8931); with a copy to Simpson Thacher & Bartlett, 245 Lexington Avenue, New York, New York, 10017, Attention: Rise Norman (Telephone (212-455- 2000); Facsimile (212) 455-2502); provided that any notice to an Initial Purchaser pursuant to Section 9(c) shall also be delivered or sent by mail to such Initial Purchaser at its address set forth on the signature page hereof. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. The Issuer shall be entitled to act and rely upon any request, consent, notice or agreement given or made on behalf of the Initial Purchasers by CSI. 15. Definition of Terms. For purposes of this Agreement, (a) the term "business day" means any day on which the New York Stock Exchange, Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405 under the Securities Act and (c) except where otherwise expressly provided, the term "affiliate" has the meaning set forth in Rule 405 under the Securities Act. 16. Initial Purchasers' Information. The parties hereto acknowledge and agree that, for all purposes of this Agreement, the Initial Purchasers' Information consists solely of the following information in the Preliminary Offering Memorandum and the Offering Memorandum: (i) bullet point on the right hand side of the front cover page concerning the terms of the offering by the Initial Purchasers and (ii) the statements concerning the Initial Purchasers contained in the third, ninth, tenth, eleventh and twelfth paragraphs under the heading "Plan of Distribution". 17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 18. Counterparts. This Agreement may be executed in one or more counterparts (which may include counterparts delivered by telecopier) and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 19. Amendments. No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto. 20. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. 21. Acknowledgment by Initial Purchasers. Each of the Initial Purchasers 35 hereby acknowledges that (a) Old SAC is making representations and warranties to and certain agreements with the Initial Purchasers solely on the date hereof and (b) on the Closing Date, after giving effect to the consummation of the transactions contemplated by this Agreement, Old SAC shall cease to exist as an exempted limited liability company organized under the laws of the Cayman Islands and that the Issuer and the Note Guarantors shall join this Agreement by the execution and delivery of an agreement in the form attached hereto as Annex C. 22. Waiver of Immunities. To the extent that Old SAC, the Issuer or any of the Note Guarantors or any of their respective properties, assets or revenues may have or may hereafter become entitled to, or have attributed to it, any right of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding, from the giving of any relief in any such legal action, suit or proceeding, from setoff or counterclaim, from the competent jurisdiction of any court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution of judgment, or from execution of judgment, or from other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, in any competent jurisdiction in which proceedings may at any time be commenced, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Agreement and the transactions contemplated hereby, Old SAC, the Issuer and each Note Guarantor hereby irrevocably and unconditionally waives and agrees not to plead or claim, any such immunity and consent to such relief and enforcement. 23. Consent to Jurisdiction; Appointment of Agent for Service of Process; Judgment Currency. (a) Old SAC, the Issuer and each of the Note Guarantors agrees that any suit, action or proceeding against Old SAC, the Issuer or any Note Guarantor arising out of or relating to this Agreement may be instituted in any state or U.S. Federal court in the Borough of Manhattan, The City of New York, New York, and any appellate court from any thereof, and each of them irrevocably submits to the non-exclusive jurisdiction of such courts in any suit, action or proceeding. Old SAC, the Issuer and each of the Note Guarantors irrevocably waives, to the fullest extent permitted by law, any objection to any suit, action, or proceeding that may be brought in connection with this Agreement, including such actions, suits or proceedings relating to securities laws of the United States of America or any state thereof, in such courts whether on the grounds of venue, residence or domicile or on the ground that any such suit, action or proceeding has been brought in an inconvenient forum. Old SAC, the Issuer and each Note Guarantor agrees that final judgment in any such suit, action or proceeding brought in such court shall be conclusive and binding upon Old SAC, the Issuer or any Note Guarantor, as the case may be, and may be enforced in any court to the jurisdiction of which Old SAC, the Issuer or any Note Guarantor, as the case may be, is subject by a suit upon such judgment; provided that service of process is affected upon Old SAC, the Issuer or any Note Guarantor, as the case may be, in the manner provided by this Section. 36 (b) Old SAC, the Issuer and each Note Guarantor organized under the laws of any jurisdiction other than the United Sates, any state thereof or the District of Columbia irrevocably appoints CT Corporation System Inc., with offices on the date hereof at 1633 Broadway, New York, New York 10019, as its authorized agent (the "Authorized Agent"), upon whom process may be served in any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated herein which may be instituted in any state or U.S. Federal court in the Borough of Manhattan, The City of New York, New York, and expressly accepts the non-exclusive jurisdiction of any such court in respect of any such suit, action or proceeding. Old SAC, the Issuer and each Note Guarantor hereby represents and warrants that the Authorized Agent has accepted such appointment and has agreed to act as said agent for service of process, and Old SAC, the Issuer and the Note Guarantors agree to take any and all action, including the filing of any and all documents that may be necessary to continue such respective appointment in full force and effect for a period of seven years from the date of this Agreement. Service of process upon the Authorized Agent shall be deemed, in every respect, effective service of process upon Old SAC, the Issuer and the Note Guarantors. Notwithstanding the foregoing, any action involving Old SAC, the Issuer or any Note Guarantor arising out of or relating to this Agreement may be instituted in any court of competent jurisdiction in any other jurisdiction. (c) Any action, suit or proceeding brought by Old SAC, the Issuer or any Note Guarantor against any Initial Purchaser arising out of or based upon this Agreement and the transactions contemplated herein shall be brought solely in a U.S. Federal or state court in the Borough of Manhattan, The City of New York, New York, and neither Old SAC, the Issuer or any Note Guarantor shall initiate or seek to initiate, in the Cayman Islands or any other jurisdiction other than in such New York courts, any action, suit or proceeding against any Initial Purchaser arising out of or based upon this Agreement and the transactions contemplated herein. The foregoing shall apply, without limitation, to any action seeking to obtain any injunction or declaratory judgment against the enforcement of, or a declaratory judgment concerning, any claim by any Initial Purchaser in respect of this Agreement and any transaction contemplated herein, and any action challenging the enforceability of or seeking to invalidate in any respect the submission by Old SAC, the Issuer or any Note Guarantor hereunder to the jurisdiction of such New York courts or the designation, pursuant to this section 23, of the laws of the State of New York as the law applicable to this Agreement. (d) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder into any currency other than United States dollars, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange shall be the rate at which in accordance with normal banking procedures the Initial Purchasers, Old SAC, the Issuer, or any Note Guarantor could purchase United States dollars with the other currency in New York City on the business day preceding that on which final judgment is given. The obligation of any Initial Purchaser, Old SAC, the 37 Issuer or any Note Guarantor in respect of the sum due shall, notwithstanding any judgment in a currency other than United States dollars, not be discharged until the first business day following receipt by such Initial Purchaser, Old SAC, the Issuer or such Note Guarantor of any sum adjudged to be so due in such other currency, on which (and only to the extent that) such Initial purchaser, Old SAC, the Issuer or such Note Guarantor may in accordance with normal banking procedures purchase United States dollars with such other currency; if the United States dollars so purchased are less than the sum originally due to any Initial Purchaser, Old SAC, the Issuer or any Note Guarantor hereunder, such Initial Purchaser, Old SAC, the Issuer or such Note Guarantor agrees, as applicable, as a separate obligation and notwithstanding any such judgment, to indemnify such Initial Purchaser, Old SAC, the Issuer or such Note Guarantor against such loss. If the United States dollars so purchased are greater than the sum originally due to such Initial Purchaser, Old SAC, the Issuer or such Note Guarantor, such Initial Purchaser, Old SAC, the Issuer or such Note Guarantor agrees to pay to such Initial Purchaser, Old SAC, the Issuer or such Note Guarantor, as the case may be, an amount equal to the excess of the United States dollars so purchased over the sum originally due to such Initial Purchaser, Old SAC, the Issuer or such Note Guarantor. (e) The provisions of this Section 23 shall survive any termination or cancelation of this Agreement. 38 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us a counterpart hereof, whereupon this instrument will become a binding agreement between Old SAC and, upon the execution of a Joinder to the Purchase Agreement in the form of Annex C, the Issuer, the Note Guarantors and the several Initial Purchasers in accordance with its terms. Very truly yours, SUEZ ACQUISITION COMPANY (CAYMAN) LIMITED, By /s/ Kenneth Hao Name: Kenneth Hao Title: Accepted: CHASE SECURITIES INC., By /s/ Sean Holland Authorized Signatory Address for notices pursuant to Section 9(c): 1 Chase Plaza, 25th floor New York, New York 10081 Attention: Legal Department 39 GOLDMAN, SACHS & CO., By /s/ Goldman, Sachs & Co. Authorized Signatory Address for notices pursuant to Section 9(c): 1 Liberty Plaza, 7th Floor New York, New York 10006 Attention: Don Hansen, Registration Department MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, By /s/ Scott P. Gutterman Authorized Signatory Scott P. Gutterman Address for notices pursuant to Section 9(c): 4 World Financial Center, Floor 27 New York, New York 10080 Attention: Legal Department 40 SCHEDULE I Note Guarantors
Name Jurisdiction of - ---- Organization -------------- New SAC Cayman Islands Seagate Technology Holdings Cayman Islands Seagate Technology HDD Holdings Cayman Islands Seagate Technology China Holding Company Cayman Islands Seagate Technology Asia Holdings Cayman Islands Seagate Technology (Ireland) Cayman Islands/ Located in Northern Ireland Seagate Technology Media (Ireland) Cayman Islands/ Located in Northern Ireland Seagate Technology Far East Holdings Cayman Islands Seagate Technology (Philippines) Cayman Islands Seagate Technology (SAN) Holdings Cayman Islands Seagate Removable Storage Solutions Holdings Cayman Islands Seagate Removable Storage Solutions International Cayman Islands Seagate Software (Cayman) Holdings Cayman Islands Seagate Technology (US) Holdings, Inc. Delaware Seagate Technology LLC Delaware Seagate US LLC Delaware Redwood Acquisition Corporation Delaware Seagate Removable Storage Solutions (US) Holdings, Inc Delaware Seagate Removable Storage Solutions LLC Delaware 41 Seagate RSS LLC Delaware Seagate Software Information Management Group Delaware Holdings, Inc. Quinta Corporation California XIOtech Corporation Minnesota Seagate Technology (Thailand) Limited Thailand Seagate Technology-Reynosa, S. de R.L. de C.V. Mexico Nippon Seagate Inc. Japan Nippon Seagate Software, Inc. Japan Seagate Singapore Distribution Pte Ltd Singapore Seagate Software Information Pte Ltd Singapore Seagate Distribution (UK) Limited Scotland Seagate Technology (Marlow) Limited England & Wales Seagate Software Information Management Group Limited England & Wales XIOtech (Canada) Limited Canada Seagate Software(Canada), Inc. Canada
42 SCHEDULE II Principal Amount Initial Purchasers of Securities ------------------ ------------- Chase Securities Inc. $84,000,000 Goldman, Sachs & Co. $84,000,000 Merrill Lynch, Pierce, Fenner & Smith Incorporated $42,000,000 ----------- Total $210,000,000 43 ANNEX A [Form of Exchange and Registration Rights Agreement] 44 ANNEX B [Form of Initial Letter] 45 ANNEX C SEAGATE TECHNOLOGY INTERNATIONAL $210,000,000 12 1/2% Senior Subordinated Notes due 2007 [Form Of] JOINDER TO THE PURCHASE AGREEMENT --------------------------------- November 22, 2000 CHASE SECURITIES INC. GOLDMAN, SACHS & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED c/o Chase Securities Inc. 270 Park Avenue, 4th floor New York, New York 10017 Ladies and Gentlemen: Reference is made to the Purchase Agreement (the "Purchase Agreement") dated November 17, 2000, among Suez Acquisition Company (Cayman) Limited, an exempted limited liability company organized under the laws of the Cayman Islands, Chase Securities Inc. ("CSI"), Goldman, Sachs & Co. ("Goldman") and Merrill Lynch, Pierce, Fenner & Smith Incorporated (together with CSI and Goldman, the "Initial Purchasers") concerning the purchase of the Securities (as defined in the Purchase Agreement) from the Issuer by the several Initial Purchasers. Capitalized terms used herein but not defined herein shall have the meanings assigned to such terms in the Purchase Agreement. This is the agreement referred to in Section 5(r) of the Purchase Agreement. Seagate Technology International, an exempted limited liability company organized under the laws of the Cayman Islands (the "Issuer") and each of the Note Guarantors listed on Schedule I hereto agree that this letter agreement is being executed and delivered in connection with the issue and sale of the Securities pursuant to the Purchase Agreement and to induce the Initial Purchasers to purchase the Securities thereunder. This letter agreement is being executed on the Closing Date, concurrently with the consummation of the sale of Securities pursuant to the Purchase Agreement and the consummation of the other Transactions. 1. Joinder. Each of the parties hereto hereby agrees to be become bound by 46 the terms, conditions and other provisions of the Purchase Agreement (in the case of the Issuer, as issuer and in the case of each Note Guarantor, as a Note Guarantor), with all attendant rights, duties and obligations stated therein, with the same force and effect as if originally named therein as a party and as if such party executed the Purchase Agreement on the date thereof. 2. Representations, Warranties and Agreements of the Issuer and the Note Guarantors. The Issuer and each of the Note Guarantors represent and warrant to, and agree with, the several Initial Purchasers on and as of the date hereof that: (a) each of Issuer and the Note Guarantors has the corporate or limited liability power, as the case may be, to execute and deliver this letter agreement and all corporate or limited liability action, as the case may be, required to be taken by each of them for the due and proper authorization, execution, delivery and performance of this letter agreement and the consummation of the transactions contemplated hereby has been duly and validly taken; this letter agreement has been duly authorized, executed and delivered by the Issuer and each of the Note Guarantors and constitutes a valid and legally binding agreement of the Issuer and each of the Note Guarantors enforceable against the Issuer and each of the Note Guarantors in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). (b) the representations, warranties and agreements set forth in Section 1 of the Purchase Agreement are true and correct on and as of the date hereof. 3. GOVERNING LAW. THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 4. Counterparts. This Letter Agreement may be executed in one or more counterparts (which may include counterparts delivered by telecopier) and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 5. Amendments. No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto. 47 6. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. 48 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us a counterpart hereof, whereupon this instrument will become a binding agreement between Old SAC, and upon the execution of a Joinder to Purchase Agreement in the form of Annex C, the Issuer, the Note Guarantors and the several Initial Purchasers in accordance with its terms. Very truly yours, SEAGATE TECHNOLOGY INTERNATIONAL, by Name: Title: NEW SAC, by Name: Title: SEAGATE TECHNOLOGY HOLDINGS, by Name: Title: SEAGATE TECHNOLOGY HDD HOLDINGS, by Name: Title: 49 SEAGATE TECHNOLOGY CHINA HOLDING COMPANY, by Name: Title: SEAGATE TECHNOLOGY ASIA HOLDINGS, by Name: Title: SEAGATE TECHNOLOGY (IRELAND), by Name: Title: SEAGATE TECHNOLOGY MEDIA (IRELAND), by Name: Title: SEAGATE TECHNOLOGY FAR EAST HOLDINGS, by Name: 50 Title: SEAGATE TECHNOLOGY (PHILIPPINES), by Name: Title: SEAGATE TECHNOLOGY (SAN) HOLDINGS, by Name: Title: SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS, by Name: Title: SEAGATE REMOVABLE STORAGE SOLUTIONS INTERNATIONAL, by Name: Title: SEAGATE SOFTWARE (CAYMAN) HOLDINGS, 51 by Name: Title: SEAGATE TECHNOLOGY (US) HOLDINGS, INC., by Name: Title: SEAGATE TECHNOLOGY LLC, by SEAGATE TECHNOLOGY (US) HOLDINGS, INC., as Managing Member by Name: Title: SEAGATE US LLC, by SEAGATE TECHNOLOGY LLC, as Sole Member by Name: Title: REDWOOD ACQUISITION CORPORATION, by 52 Name: Title: SEAGATE REMOVABLE STORAGE SOLUTIONS (US) HOLDINGS, INC., by Name: Title: SEAGATE REMOVABLE STORAGE SOLUTIONS LLC, by SEAGATE REMOVABLE STORAGE SOLUTIONS (US) HOLDINGS, INC., as Sole Member by Name: Title: SEAGATE RSS LLC, by SEAGATE REMOVABLE STORAGE SOLUTIONS LLC, as Sole Member by Name: Title: SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC., 53 by Name: Title: QUINTA CORPORATION, by Name: Title: XIOTECH CORPORATION, by Name: Title: SEAGATE TECHNOLOGY (THAILAND) LIMITED, by Name: Title: SEAGATE TECHNOLOGY-REYNOSA S. DE R.L. DE C.V., by Name: Title: 54 NIPPON SEAGATE INC., by Name: Title: NIPPON SEAGATE SOFTWARE, INC., by Name: Title: SEAGATE SINGAPORE DISTRIBUTION PTE LTD, by Name: Title: SEAGATE SOFTWARE INFORMATION PTE LTD, by Name: Title: SEAGATE DISTRIBUTION (UK) LIMITED, by Name: Title: 55 SEAGATE TECHNOLOGY (MARLOW) LIMITED, by Name: Title: SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP LIMITED, by Name: Title: XIOTECH (CANADA) LIMITED, by Name: Title: SEAGATE SOFTWARE (CANADA), INC., by Name: Title: 56 Accepted: CHASE SECURITIES INC., By Authorized Signatory Address for notices pursuant to Section 9(c): 1 Chase Plaza, 25th floor New York, New York 10081 Attention: Legal Department GOLDMAN, SACHS & CO., By Authorized Signatory Address for notices pursuant to Section 9(c): 1 Liberty Plaza, 7th Floor New York, New York 10006 Attention: Don Hansen, Registration Department MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By Authorized Signatory Address for notices pursuant to Section 9(c): 4 World Financial Center, Floor 27 New York, New York 10080 Attention: Legal Department EX-1.2 3 0003.txt JOINDER TO THE PURCHASE AGREEMENT Exhibit 1.2 1 EXECUTION COPY SEAGATE TECHNOLOGY INTERNATIONAL $210,000,000 12 1/2% Senior Subordinated Notes due 2007 JOINDER TO THE PURCHASE AGREEMENT --------------------------------- November 22, 2000 CHASE SECURITIES INC. GOLDMAN, SACHS & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED c/o Chase Securities Inc. 270 Park Avenue, 4th floor New York, New York 10017 Ladies and Gentlemen: Reference is made to the Purchase Agreement (the "Purchase Agreement") dated November 17, 2000, among Suez Acquisition Company (Cayman) Limited, an exempted limited liability company organized under the laws of the Cayman Islands, Chase Securities Inc. ("CSI"), Goldman, Sachs & Co. ("Goldman") and Merrill Lynch, Pierce, Fenner & Smith Incorporated (together with CSI and Goldman, the "Initial Purchasers") concerning the purchase of the Securities (as defined in the Purchase Agreement) from the Issuer by the several Initial Purchasers. Capitalized terms used herein but not defined herein shall have the meanings assigned to such terms in the Purchase Agreement. This is the agreement referred to in Section 5(r) of the Purchase Agreement. Seagate Technology International, an exempted limited liability company organized under the laws of the Cayman Islands (the "Issuer") and each of the Note Guarantors listed on Schedule I hereto agree that this letter agreement is being executed and delivered in connection with the issue and sale of the Securities pursuant to the Purchase Agreement and to induce the Initial Purchasers to purchase the Securities thereunder. This letter agreement is being executed on the Closing Date, concurrently with the consummation of the sale of Securities pursuant to the Purchase Agreement and the consummation of the 2 other Transactions. 1. Joinder. Each of the parties hereto hereby agrees to be become bound by the terms, conditions and other provisions of the Purchase Agreement (in the case of the Issuer, as issuer and in the case of each Note Guarantor, as a Note Guarantor), with all attendant rights, duties and obligations stated therein, with the same force and effect as if originally named therein as a party and as if such party executed the Purchase Agreement on the date thereof. 2. Representations, Warranties and Agreements of the Issuer and the Note Guarantors. The Issuer and each of the Note Guarantors represent and warrant to, and agree with, the several Initial Purchasers on and as of the date hereof that: (a) each of Issuer and the Note Guarantors has the corporate or limited liability power, as the case may be, to execute and deliver this letter agreement and all corporate or limited liability action, as the case may be, required to be taken by each of them for the due and proper authorization, execution, delivery and performance of this letter agreement and the consummation of the transactions contemplated hereby has been duly and validly taken; this letter agreement has been duly authorized, executed and delivered by the Issuer and each of the Note Guarantors and constitutes a valid and legally binding agreement of the Issuer and each of the Note Guarantors enforceable against the Issuer and each of the Note Guarantors in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). (b) the representations, warranties and agreements set forth in Section 1 of the Purchase Agreement are true and correct on and as of the date hereof. 3. GOVERNING LAW. THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 4. Counterparts. This Letter Agreement may be executed in one or more counterparts (which may include counterparts delivered by telecopier) and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 3 5. Amendments. No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto. 6. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. 4 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us a counterpart hereof, whereupon this instrument will become a binding agreement between Old SAC, and upon the execution of a Joinder to Purchase Agreement in the form of Annex C, the Issuer, the Note Guarantors and the several Initial Purchasers in accordance with its terms. Very truly yours, SEAGATE TECHNOLOGY INTERNATIONAL, by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President NEW SAC, by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY HOLDINGS, by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY HDD HOLDINGS, by /s/ Kenneth Hao 5 Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY CHINA HOLDING COMPANY, by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY ASIA HOLDINGS, by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY (IRELAND), by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY MEDIA (IRELAND), by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President 6 SEAGATE TECHNOLOGY FAR EAST HOLDINGS, by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY (PHILIPPINES), by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY (SAN) HOLDINGS, by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS, by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE REMOVABLE STORAGE SOLUTIONS INTERNATIONAL, by /s/ Kenneth Hao 7 Name: Kenneth Hao Title: Vice President SEAGATE SOFTWARE (CAYMAN) HOLDINGS, by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY (US) HOLDINGS, INC., by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY LLC, by SEAGATE TECHNOLOGY (US) HOLDINGS, INC., as Managing Member by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE US LLC, by SEAGATE TECHNOLOGY LLC, as Sole Member 8 by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President REDWOOD ACQUISITION CORPORATION, by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE REMOVABLE STORAGE SOLUTIONS (US) HOLDINGS, INC., by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE REMOVABLE STORAGE SOLUTIONS LLC, by SEAGATE REMOVABLE STORAGE SOLUTIONS (US) HOLDINGS, INC., as Sole Member by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE RSS LLC, by SEAGATE REMOVABLE STORAGE SOLUTIONS LLC, as Sole Member 9 by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC., by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President QUINTA CORPORATION, by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President XIOTECH CORPORATION, by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY (THAILAND) LIMITED, by /s/ Kenneth Hao 10 Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY-REYNOSA S. DE R.L. DE C.V., by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President NIPPON SEAGATE INC., by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President NIPPON SEAGATE SOFTWARE, INC., by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE SINGAPORE DISTRIBUTION PTE. LTD., by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President 11 SEAGATE SOFTWARE INFORMATION PTE. LTD., by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE DISTRIBUTION (UK) LIMITED, by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY (MARLOW) LIMITED, by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP UK LIMITED, by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President XIOTECH (CANADA) LIMITED, 12 by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President SEAGATE SOFTWARE (CANADA), INC., by /s/ Kenneth Hao Name: Kenneth Hao Title: Vice President 13 Accepted: CHASE SECURITIES INC., By /s/ Sean Holland Authorized Signatory Address for notices pursuant to Section 9(c): 1 Chase Plaza, 25th floor New York, New York 10081 Attention: Legal Department GOLDMAN, SACHS & CO., By /s/ Goldman Sachs & Co. Authorized Signatory Address for notices pursuant to Section 9(c): 1 Liberty Plaza, 7th Floor New York, New York 10006 Attention: Don Hansen, Registration Department MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By /s/ Michael Senft Authorized Signatory Address for notices pursuant to Section 9(c): 4 World Financial Center, Floor 27 New York, New York 10080 14 Attention: Legal Department EX-2.1 4 0004.txt STOCK PURCHASE AGREEMENT EXHIBIT 2.1 EXECUTION COPY STOCK PURCHASE AGREEMENT BY AND AMONG SUEZ ACQUISITION COMPANY (CAYMAN) LIMITED, SEAGATE TECHNOLOGY, INC., AND SEAGATE SOFTWARE HOLDINGS, INC. DATED AS OF MARCH 29, 2000 TABLE OF CONTENTS
PAGE ---- STOCK PURCHASE AGREEMENT............................................. 1 ARTICLE I DEFINITIONS............................................... 1 1.1 Certain Defined Terms....................................... 1 ARTICLE II PURCHASE AND SALE........................................ 5 2.1 Purchase and Sale of the Shares............................. 5 2.2 Purchase Price; Allocation of Purchase Price................ 5 2.3 Closing..................................................... 5 2.4 Closing Deliveries by Seller and SSHI....................... 6 2.5 Closing Deliveries by Purchaser............................. 6 2.6 Adjustment of Required Cash................................. 6 2.7 Transaction Structure....................................... 7 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER................ 8 3.1 Organization; Good Standing................................. 8 3.2 Charter Documents........................................... 8 3.3 Subsidiaries................................................ 8 3.4 Capital Structure........................................... 8 3.5 Authority................................................... 9 3.6 Conflicts................................................... 9 3.7 Consents.................................................... 10 3.8 SEC Filings; Seller Financial Statements.................... 10 3.9 [Reserved].................................................. 11 3.10 Absence of Certain Changes or Events........................ 11 3.11 Tax Matters................................................. 11 3.12 Compliance.................................................. 13 3.13 Permits..................................................... 13 3.14 Litigation.................................................. 13 3.15 Brokers' and Finders' Fees.................................. 13 3.16 Employee Benefit Plans...................................... 13 3.17 Absence of Liens............................................ 15 3.18 Environmental Matters....................................... 15 3.19 Labor Matters............................................... 17 3.20 Agreements, Contracts and Commitments....................... 17 Statements; Registration Statement; Proxy 3.21 Statement/Prospectus........................................ 17 3.22 Board Approval.............................................. 18 3.23 State Takeover Statutes..................................... 18 3.24 Fairness Opinion............................................ 18 3.25 Intellectual Property....................................... 18 3.26 Assets...................................................... 19 3.27 Insurance................................................... 19 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER.............. 19 4.1 Organization; Good Standing................................. 19 4.2 Charter Documents........................................... 20 4.3 Authority................................................... 20 4.4 Conflicts................................................... 20 4.5 Consents.................................................... 20
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PAGE ---- 4.6 Litigation.................................................. 21 4.7 Statements; Registration Statement; Proxy Statement......... 21 4.8 Financing................................................... 21 4.9 Delaware Law................................................ 21 4.10 Newly Organized............................................. 21 4.11 Related Agreements.......................................... 21 4.12 Solvency.................................................... 21 4.13 No Amendment to VERITAS Merger Agreement.................... 22 ARTICLE V CONDUCT PRIOR TO CLOSING.................................. 22 5.1 Conduct of Business......................................... 22 5.2 Restrictions on Conduct of Business......................... 22 ARTICLE VI ADDITIONAL AGREEMENTS.................................... 25 6.1 Registration Statement; Proxy Statement; Other Filings...... 25 6.2 Meeting of Seller Stockholders.............................. 26 6.3 Access to Information....................................... 27 6.4 Confidentiality............................................. 27 6.5 No Solicitation............................................. 28 6.6 Public Disclosure........................................... 29 6.7 Legal Requirements.......................................... 29 6.8 Notification of Certain Matters............................. 29 6.9 Commercially Reasonable Efforts and Further Assurances...... 29 6.10 Indemnification............................................. 30 6.11 Regulatory Filings; Reasonable Efforts...................... 30 6.12 Use of Names................................................ 31 6.13 Debt Offer.................................................. 31 6.14 Commitment Letters; Rolled Options.......................... 31 6.15 Transaction Expenses........................................ 31 6.16 Non-Assignable Assets....................................... 32 ARTICLE VII EMPLOYEE MATTERS........................................ 32 7.1 Employee Liabilities........................................ 32 7.2 Employee Benefit Plans...................................... 32 7.3 WARN Act.................................................... 33 ARTICLE VIII TAX MATTERS............................................ 33 8.1 Conveyance Taxes............................................ 33 8.2 Section 338(h)(10) Election................................. 33 8.3 Tax Matters Schedule........................................ 34 ARTICLE IX CONDITIONS TO CLOSING.................................... 34 Conditions to Obligations of Each Party to Effect the 9.1 Closing..................................................... 34 9.2 Additional Conditions to Obligations of Seller.............. 35 9.3 Additional Conditions to the Obligations of Purchaser....... 35 ARTICLE X TERMINATION, AMENDMENT AND WAIVER......................... 36 10.1 Termination................................................. 36 10.2 Notice of Termination; Effect of Termination................ 38 10.3 Fees and Expenses........................................... 38 10.4 Amendment................................................... 39 10.5 Extension; Waiver........................................... 39
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PAGE ---- ARTICLE XI INDEMNIFICATION.......................................... 40 11.1 Survival.................................................... 40 11.2 Indemnification............................................. 40 ARTICLE XII GENERAL PROVISIONS...................................... 40 12.1 Notices..................................................... 40 12.2 Interpretation.............................................. 42 12.3 Counterparts................................................ 42 12.4 Entire Agreement............................................ 42 12.5 Severability................................................ 42 12.6 Other Remedies; Specific Performance........................ 42 12.7 Governing Law............................................... 43 12.8 Rules of Construction....................................... 43 12.9 Assignment.................................................. 43 12.10 Waiver of Jury Trial........................................ 43 12.11 No Third Party Rights....................................... 43 12.12 Attorneys' Fees............................................. 43
iii STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into as of March 29, 2000 by and among Suez Acquisition Company (Cayman) Limited, a limited company organized under the laws of the Cayman Islands ("Purchaser"), Seagate Technology, Inc., a Delaware corporation ("Seller"), and Seagate Software Holdings, Inc., a Delaware corporation ("SSHI"). RECITALS: A. Seller owns beneficially all of the issued and outstanding shares (collectively, the "Shares") of capital stock of each Sold Subsidiary (as defined herein). B. Seller and SSHI wish to sell to Purchaser, and Purchaser wishes to purchase from Seller and SSHI, the Shares, upon the terms and subject to the conditions set forth herein. C. Seller and Purchaser desire to make certain representations and warranties, and mutual covenants and agreements in connection with the transactions contemplated hereby. D. Simultaneously and in connection with entering into this Agreement, Seller is entering into the VERITAS Merger Agreement (as defined below) with VERITAS (as defined below). NOW, THEREFORE, in consideration of the foregoing premises, and the covenants, promises and representations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged and accepted, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Certain Defined Terms. For all purposes of and under this Agreement, the following terms shall have the following respective meanings: (a) "Action" means any claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority. (b) "Adjustment Amount" means, to the extent not paid or discharged on or prior to the Closing Date, the sum of (i) accrued and unpaid Taxes of Seller and its Subsidiaries (including the Sold Subsidiaries) determined in accordance with the principles arrived at in determining the February 28, 2000 balance sheet of Seller (i.e., $278,000,000 minus Taxes reflected in such amount to the extent paid or settled since such date, plus additions to such amount in respect of items identified or arising since such date, plus an amount equal to 40% of the aggregate income of Seller and its Subsidiaries since such date) excluding Taxes caused by or relating to the Split and including, without limitation, any Taxes payable by virtue of the transactions contemplated hereby and any U.S. alternative minimum tax for which Seller or any of its Subsidiaries may be liable arising out of or attributable to the 1999 reorganization of Seagate Software Information Management Group (Canada), Inc. (the "Canadian Reorganization"), (ii) Indebtedness of Seller and its Subsidiaries (including any interest thereon and any premium payable in connection with the retirement thereof), (iii) the Overage Amount, if any, (iv) the Bonus Amount, and (v) any Transaction Expenses. 1 (c) "Affiliate" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. (d) "Bonus Amount" means the aggregate amount of year-end bonuses and profit sharing payments required to be paid by Seller and its Subsidiaries in July of 2000. (e) "Cash" means cash, cash equivalents and short-term investments (including all securities available for sale) as determined in accordance with GAAP and consistent with the determination thereof in the Recent SEC Reports (as defined in Section 3.8(a) hereof). (f) "Code" means the Internal Revenue Code of 1986, as amended, or any successor statute thereto. (g) "Commitment Letters" means the debt commitment letter attached as Schedule I hereto. (h) "control" (including the correlative terms "controlled by" and "under common control with"), with respect to the relationship between or among two or more persons, means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the affairs or management of a person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise, including, without limitation, the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such person. (i) "Delaware Law" means the General Corporation Law of the State of Delaware, as amended, or any successor statute thereto. (j) "Designated Assets" means the securities set forth on Schedule II hereto. (k) "Designated Liabilities" means all Liabilities (including with respect to Taxes) of Seller and its Subsidiaries relating to (i) the Designated Assets, (ii) transactions pursuant to the OD Documents, (iii) obligations to VERITAS (indemnification or otherwise) in respect of the software business sold to VERITAS in exchange for shares of VERITAS common stock, (iv) any Non-Assumed Plan (as defined in Section 7.1 hereof), and (v) Seller's stock purchase plan. Without expanding the definition of Designated Liabilities, Designated Liabilities shall not include Liabilities relating to the transactions contemplated by this Agreement or any Liabilities included in the Adjustment Amount. (l) "DOJ" means the United States Department of Justice, or any successor agency thereto. (m) "Equity Commitments" means the equity commitment letters attached as Schedule III hereto. (n) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute thereto. (o) "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute thereto. (p) "FTC" means the United States Federal Trade Commission, or any successor agency thereto. 2 (q) "GAAP" means United States generally accepted accounting principles. (r) "Governmental Authority" or "Governmental Authorities" means any United States federal, state or local or any foreign government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body. (s) "Governmental Order" means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority. (t) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any successor statute thereto. (u) "Indebtedness" means, with respect to any person, (i) all indebtedness of such person, whether or not contingent, for borrowed money, (ii) all obligations of such person evidenced by notes, bonds, debentures or other similar instruments, (iii) all obligations, contingent or otherwise, of such person under acceptance, letter of credit or similar facilities, and (iv) all Indebtedness of others referred to in clauses (i) through (iii) above, inclusive, guaranteed directly or indirectly in any manner by such person (excluding guarantees of collection), or in effect guaranteed directly or indirectly by such person, including by way of an agreement (A) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (B) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (C) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered), or (D) otherwise to assure a creditor against loss. (v) "Indenture" means the Indenture dated as of March 1, 1997 between Seller and First Trust of California, National Association, pursuant to which the Debentures (as defined in Section 3.4(b) hereof) have been issued. (w) "IRS" means the United States Internal Revenue Service, or any successor agency thereto. (x) "knowledge" (or any word or phrase of similar import) means, with respect to any matter in question, the knowledge of the executive officers or directors of the person in question and its Subsidiaries. (y) "Law" or "Laws" means any federal, state, local or foreign statute, law, ordinance, regulation, rule, code, order, judgment, decree or other requirement or rule of law. (z) "Liability" or "Liabilities" means any and all debts, liabilities and obligations of any type or nature whatsoever, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including, without limitation, those arising under any Law (including, without limitation, any Environmental Law), Action or Governmental Order and those arising under any contract, agreement, arrangement, commitment or undertaking. (aa) "Lien" means any lien, security interest, adverse claim, charge, mortgage or other encumbrance. 3 (bb) "Material Adverse Effect" means any change in, or effect on Seller or any of its Subsidiaries that, individually or in the aggregate with any other circumstances, changes in, or effects on, Seller or any of its Subsidiaries is materially adverse to the operations or Liabilities, financial condition or results of operations of the Sold Subsidiaries and their respective Subsidiaries, taken as a whole (after giving effect to the Split), excluding (i) any change in or effect on Seller or any of its Subsidiaries that is related to compliance by Seller or its Subsidiaries with the terms of this Agreement, and (ii) any Liability which results in an increase in the Required Cash pursuant to Section 2.6 hereof or which is a Designated Liability. (cc) "OD Documents" means the Agreement and Plan of Merger and Reorganization, dated as of March 29, 2000, by and among Seller and VERITAS Software Corporation, a Delaware corporation ("VERITAS"), as the same may be amended, supplemented and modified from time to time in accordance with its terms (the "VERITAS Merger Agreement"). (dd) "Overage Amount" means any "excess parachute payments" within the meaning of Section 280G of the Code payable as a result of the acceleration of Star Options (as defined in the VERITAS Merger Agreement) pursuant to the OD Documents in excess of $100,000,000. (ee) "Required Cash" means $800,000,000, as adjusted pursuant to Section 2.6 hereof. (ff) "Roll Agreement" means the Rollover Commitment Agreements previously delivered to the parties hereto. (gg) "Rolled Option Value" means the aggregate Rollover Value (as defined in the Roll Agreement). (hh) "SEC" means the United States Securities and Exchange Commission, or any successor agency thereto. (ii) "Securities Act" means the Securities Act of 1933, as amended, or any successor statute thereto. (jj) "Split" means the transfer to the Sold Subsidiaries, prior to the Closing Date, of all assets (including, without limitation, the securities of iCompression, TurboLinux and MetaByte currently held by Seller (the "Private Securities") or the Cash or other proceeds realized by Seller from the sale, disposition or transfer of such Private Securities) (and such Cash or other proceeds shall be in addition to any Required Cash) and Liabilities of Seller and Seagate Software Holdings, Inc., other than the Designated Assets and the Designated Liabilities, to be transferred pursuant to an agreement in a form consistent with the terms hereof to be agreed upon by Seller and Purchaser prior to Closing and reasonably satisfactory to VERITAS. (kk) "Subsidiary" or "Subsidiaries" means any and all corporations, limited liability companies, general or limited partnerships, joint ventures, business trusts, associations and other business enterprises and entities controlled by a person directly or indirectly through one or more intermediaries. (ll) "TA Statement" means an estimate of the Adjustment Amount by the Chief Financial Officer of Seller to be prepared in collaboration with Purchaser based on Seller's month-end immediately preceding delivery of such estimate together with a certificate of the Chief Financial Officer of Seller specifying (i) that the TA Statement fairly presents his or her good faith best effort estimate of the Adjustment 4 Amount as at the then scheduled Closing Date and (ii) the assumed VERITAS Price utilized therein for the purposes of calculating any Overage Amount. (mm) "Tax" or "Taxes" shall mean any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and Liabilities relating to taxes, including, without limitation, taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts, and any Liability for taxes of a predecessor entity (if any). (nn) "Transaction Expenses" means the fees and expenses of Seller's or its Subsidiaries' investment bankers, attorneys, consultants, accountants and advisors incurred in connection with this Agreement, the OD Documents and the transactions contemplated hereby and thereby. (oo) "VERITAS Price" means the closing price for a share of VERITAS Common Stock, as reported on the Nasdaq National Market. ARTICLE II PURCHASE AND SALE 2.1 Purchase and Sale of the Shares. Upon the terms and subject to the conditions of this Agreement, at the Closing (as defined in Section 2.3 hereof), (i) Seagate Technology, Inc. shall sell to Purchaser or one of its Designees (as defined in Section 12.10 hereof), and Purchaser shall, or shall cause one of its Designees to, purchase from Seller, all of the outstanding capital stock of each of the Subsidiaries of Seller listed on Schedule IV hereto, and (ii) SSHI shall sell to Purchaser or one of its Designees, and Purchaser shall, or shall cause one of its Designees to, purchase from SSHI, all of the outstanding capital stock of Seagate Software Information Management Group, Inc., a Delaware corporation ("SSIMG") (such Subsidiaries set forth on Schedule IV and SSIMG being referred to herein, collectively, as the "Sold Subsidiaries"), in exchange for payment of the "Purchase Price" set forth in Section 2.2 hereof. 2.2 Purchase Price; Allocation of Purchase Price. The aggregate purchase price for the Shares shall be $2,000,000,000 in cash, minus the Rolled Option Value (the "Purchase Price"), plus the assumption of all Liabilities (other than the Designated Liabilities) of Seller and SSHI. 2.3 Closing. Upon the terms and subject to the conditions of this Agreement, the sale and purchase of the Shares contemplated by this Agreement shall take place at a closing (the "Closing") to be held at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, located at One Market Street, Spear Tower, Suite 1600, San Francisco, California 94105, at a time and date to be specified by the parties hereto, which shall be no later than second (2nd) business day following the satisfaction or, if permitted pursuant hereto, waiver of the conditions set forth in Article IX hereof, or at such other location, date and time as Purchaser and Seller shall mutually agree. The date upon which the Closing actually occurs shall be referred to herein as the "Closing Date." 5 2.4 Closing Deliveries by Seller and SSHI. At the Closing, Seller or SSHI (as applicable) shall deliver, or cause to be delivered, to Purchaser and/or its Designees, as appropriate, the following: (a) stock certificates evidencing the Shares, duly endorsed in blank or accompanied by stock powers duly executed in blank, and with all required stock transfer tax stamps affixed thereto, representing all of the issued and outstanding shares of capital stock of each of the Sold Subsidiaries, free and clear of all Liens; (b) a receipt for the Purchase Price; and (c) the certificates and other documents required to be delivered as a condition to the Closing pursuant to Section 9.3 hereof. 2.5 Closing Deliveries by Purchaser. At the Closing, Purchaser shall deliver, or cause to be delivered, to Seller the following: (a) cash in an amount equal to the Purchase Price, by wire transfer in immediately available funds to an account designated in writing by Seller at least two (2) business days prior to the Closing; (b) an assumption of the Seagate Software Information Management Group, Inc. Stock Option Plan; and (c) the certificates and other documents required to be delivered as a condition to the Closing pursuant to Section 9.2 hereof. 2.6 Adjustment of Required Cash. The amount of Required Cash shall be subject to adjustment prior to Closing in the manner set forth below: (a) TA Statement. No later than fifteen (15) calendar days prior to the date of Seller Stockholder Meeting, Seller shall deliver to Purchaser the TA Statement. If the Closing does not occur within twenty (20) calendar days of delivery of the TA Statement, a revised TA Statement shall be delivered to Purchaser, and such revised TA Statement shall constitute the TA Statement for all purposes hereof and shall be subject to Sections 2.6(b) and 2.6(c) below. (b) TA Statement Disputes. (i) Subject to the terms of Section 2.6(b)(ii) hereof, the TA Statement shall be deemed to be and shall be final, binding and conclusive on Seller and Purchaser. (ii) Purchaser shall be entitled to dispute any amounts reflected on the TA Statement, but only on the basis that the amounts reflected on the TA Statement contain errors or are based on erroneous assumptions or were not arrived at in accordance with Seller's accounting practices and policies applied on a basis consistent with Seller's past accounting practices and policies; provided, however, that Purchaser shall have notified Seller in writing of each disputed item, specifying the amount thereof in dispute and setting forth, in reasonable detail, the basis for such dispute, within seven (7) calendar days of Seller's delivery of the TA Statement to Purchaser. In the event of such a dispute, Seller and Purchaser shall attempt to reconcile their disputed amounts, and any resolution by them as to any disputed amounts shall be final, binding and conclusive on Seller and Purchaser. In the event that Seller and Purchaser are unable to reach a resolution of any disputed amounts within five (5) calendar days after receipt by Seller of Purchaser's written notice of dispute delivered in accordance with the 6 foregoing, Seller and Purchaser shall submit the items remaining in dispute for resolution to Arthur Andersen LLP (or, if such firm shall decline to act or is not, at the time of such submission, independent of Seller and Purchaser, to another independent accounting firm of international reputation mutually acceptable to Seller and Purchaser) (either Arthur Andersen LLP or such other accounting firm being referred to herein as the "Independent Accounting Firm"), which shall, on an expedited basis, within five (5) calendar days after such submission, determine and report to Seller and Purchaser upon such remaining disputed items, and such report shall be final, binding and conclusive on Seller and Purchaser. The fees and disbursements of the Independent Accounting Firm shall be allocated between Seller and Purchaser in the same proportion that the aggregate amount of such remaining disputed items so submitted to the Independent Accounting Firm that is unsuccessfully disputed by each such party (as finally determined by the Independent Accounting Firm) bears to the total amount of such remaining disputed items so submitted. (iii) In acting under this Agreement, the Independent Accounting Firm shall be entitled to the privileges and immunities of an arbitrator. (iv) The TA Statement shall be deemed final for the purposes of and under this Section 2.6 upon the earlier to occur of (i) the failure of Purchaser to notify Seller of a dispute within seven (7) calendar days of Seller's delivery of the TA Statement to Purchaser pursuant to Section 2.6(b)(ii) hereof, (ii) the resolution of all disputes, pursuant to Section 2.6(b)(ii) hereof, by Seller and Purchaser, and (iii) the resolution of all disputes, pursuant to Section 2.6(b)(ii) hereof, by the Independent Accounting Firm. At the Closing, (i) the Adjustment Amount set forth in the final TA Statement shall be recalculated by using the VERITAS Price on the trading day immediately preceding the Effective Time under the VERITAS Merger Agreement in substitution for that utilized in the estimated TA Statement, as may be adjusted by the Independent Accounting Firm and (ii) the amount of Required Cash shall be increased upward on a dollar for dollar basis, in an amount equal to the Adjustment Amount (as recalculated pursuant to the foregoing clause of this Section 2.6(b)(iv)). 2.7 Transaction Structure. The parties agree to cooperate and take all requisite actions prior to the Closing Date to merge, form, consolidate or alter the tax status of any of the Sold Subsidiaries or any Subsidiaries of the Sold Subsidiaries to the extent desirable in the Purchaser's judgment for commercial, regulatory, tax or other reasons, and further agree that the Purchaser may at any time change the structure of the transactions contemplated by this Agreement, including without limitation, by determining the order in which the Sold Subsidiaries (and any assets of the Sold Subsidiaries) are transferred, and the Seller shall cooperate in such efforts, including by entering into appropriate amendments to this Agreement, provided, however, that such actions shall not decrease the amount or change the kind of the consideration paid to Seller pursuant to this Agreement, increase Designated Liabilities or add transaction costs to those costs arising out of the transactions contemplated by this Agreement (unless Purchaser agrees to pay such additional costs). On or prior to the Closing Date, Seller shall effectuate the Split. 7 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Purchaser, subject to the exceptions and qualifications specifically set forth or disclosed in writing in the disclosure letter delivered by Seller to Purchaser, dated as of the date hereof (the "Seller Disclosure Schedule"), and after giving effect to the OD Documents, the Split and the transactions contemplated thereby, if relevant for the purposes of determining compliance herewith as follows: 3.1 Organization; Good Standing. Seller and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the corporate or other power and authority to own, lease and operate its assets and properties and to carry on its business as now being conducted, and is duly qualified to do business and in good standing in each jurisdiction in which the failure to be so qualified would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. 3.2 Charter Documents. Seller has delivered or made available to Purchaser a true and correct copy of the Certificate of Incorporation and Bylaws of Seller and SSHI and the organizational documents of each of the Sold Subsidiaries, each as amended to date and in effect as of the date hereof, and each such instrument is in full force and effect. Seller and SSHI are not in violation of any of the provisions of their Certificate of Incorporation or Bylaws. 3.3 Subsidiaries. Section 3.3 of the Seller Disclosure Schedule contains a complete and accurate list of each Subsidiary of Seller, indicating the jurisdiction of incorporation of each such Subsidiary and Seller's proportionate equity interest therein. Each Subsidiary of Seller that is not a Sold Subsidiary (other than SSHI) is owned, directly or indirectly, by a Sold Subsidiary. 3.4 Capital Structure. (a) The authorized capital stock of each Sold Subsidiary is as set forth in Section 3.4(a) of the Seller Disclosure Schedule. All of the Shares are owned beneficially and of record by Seller or one of its Subsidiaries, except for director's qualifying shares and similar statutory de minimis holdings. All of the Shares are duly authorized and validly issued, fully paid and nonassessable, and are not subject to any preemptive rights created by statute, the organizational documents of Seller or any of its Subsidiaries, or any agreement or document to which Seller or any of its Subsidiaries is a party or by which of Seller or any of its Subsidiaries is bound and, when transferred to Purchaser will be free and clear of all Liens. Except as set forth in Section 3.4(a) of the Seller Disclosure Schedule, there are no equity securities, partnership interests or other similar ownership interests of any class or series of any Sold Subsidiary, or any securities convertible into, or exercisable or exchangeable for, such equity securities, partnership interests or similar ownership interests of any Sold Subsidiary, which are issued, reserved for issuance or outstanding. Except as set forth in Section 3.4(a) of the Seller Disclosure Schedule, there are no options, warrants, equity securities, partnership interests or other similar ownership interests, calls, rights (including preemptive rights), commitments or agreements of any kind or character to which Seller or any of its Subsidiaries is a party or by which Seller or any of its Subsidiaries is bound obligating Seller or any of its Subsidiaries to issue, deliver or sell (or cause to be issued, delivered or sold), or repurchase, redeem or otherwise acquire (or cause the repurchase, redemption or acquisition of), any shares of capital stock of any Sold Subsidiary or any Subsidiaries thereof, or obligating Seller or any of its 8 Subsidiaries to grant, extend, accelerate the vesting of or enter into any such option, warrant, equity security, partnership interest or similar ownership interest, call, right, commitment or agreement. There are no registration rights, proxies or other agreements or understandings with respect to any equity security, partnership interest or other similar ownership interest of any class or series of any capital stock of any Sold Subsidiary or any Subsidiaries thereof. (b) The only outstanding Indebtedness of Seller and its Subsidiaries is (i) $200 million in principal amount of 7.125% Senior Notes Due March 1, 2004 (the "2004 Senior Notes") issued pursuant to the Indenture, dated as of March 1, 1997 (the "Indenture"), (ii) $200 million in aggregate principal amount of 7.37% Senior Notes Due March 1, 2007 (the "2007 Senior Notes") issued pursuant to the Indenture, (iii) $100 million in principal amount of 7.875% Senior Debentures due March 1, 2017 (the "2017 Senior Debentures") issued pursuant to the Indenture, (iv) $200 million in principal amount of 7.45% Senior Debentures due March 1, 2037 (the "2037 Senior Debentures") and, together with the 2004 Notes, the 2007 Notes and the 2017 Senior Debentures, the "Debentures") issued pursuant to the Indenture. Other than the Debentures, which are redeemable in full in accordance with their respective terms, there is no Indebtedness of Seller or its Subsidiaries. 3.5 Authority. Each of Seller and SSHI has all necessary corporate power and authority to enter into this Agreement and the OD Documents, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the OD Documents by Seller and SSHI, and the performance by Seller and SSHI of its obligations hereunder and thereunder and the consummation by Seller and SSHI of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action on the part of Seller and SSHI, subject only to the approval and adoption of this Agreement and the OD Documents by the stockholders of Seller in accordance with Delaware Law. The affirmative vote of the holders of at least a majority of the outstanding shares of Seller Common Stock is the only vote required for the stockholders of Seller to approve this Agreement, the OD Documents and the transactions contemplated hereby and thereby under the applicable rules of The New York Stock Exchange, Inc. (the "NYSE"), Delaware Law and all other legal and regulatory requirements applicable thereto (the "Required Stockholder Approval"). This Agreement and the OD Documents have been duly executed and delivered by Seller and SSHI and, assuming the due authorization, execution and delivery of this Agreement by Purchaser and the OD Documents by the other party or parties thereto, constitute the valid and binding obligations of Seller and SSHI, enforceable in accordance with their respective terms, subject to (i) the effect of any applicable laws of general application relating to bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors' rights and the relief of debtors generally, and (ii) the effect of rules of law and general principles of equity, including, without limitation, rules of law and general principles of equity governing specific performance, injunctive relief and other equitable remedies (regardless of whether such enforceability is considered in a proceeding in equity or at law). 3.6 Conflicts. The execution and delivery of this Agreement by Seller and SSHI does not, and the performance by Seller and SSHI of its obligations hereunder and the consummation by Seller and SSHI of the transactions contemplated hereby will not, (i) conflict with or violate the Certificate of Incorporation or Bylaws of Seller and SSHI or the organizational documents of any of its Subsidiaries, (ii) subject to compliance with the requirements set forth in Section 3.7 hereof, conflict with or violate any Law, rule, 9 regulation, order, judgment or decree applicable to Seller or any of its Subsidiaries, or by which Seller, any of its Subsidiaries or any of their respective assets and properties are bound or affected, or (iii) result in any breach of, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair the rights of Seller or any of its Subsidiaries under, or alter the obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the assets or properties of Seller or any of its Subsidiaries pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Seller or any of its Subsidiaries is a party or by which Seller, any of its Subsidiaries or any of their respective assets and properties are bound or affected, except to the extent such conflict, violation, breach, default, impairment or other effect could not, in the case of clause (ii) or (iii) of this Section 3.6, individually or in the aggregate, (a) reasonably be expected to have a Material Adverse Effect, or (b) reasonably be expected to have a material adverse effect on, or materially delay, the ability of Purchaser, Seller or SSHI to consummate the transactions contemplated hereby. 3.7 Consents. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority is required by or with respect to Seller or any of its Subsidiaries in connection with the execution and delivery of this Agreement and the OD Documents by Seller, or the performance by Seller of its obligations hereunder and thereunder or the consummation by Seller of the transactions contemplated hereby and thereby, except for (i) the filing of the Proxy Statement (as defined in Section 6.1(a) hereof) with the SEC in accordance with the Exchange Act, (ii) consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under the HSR Act or any applicable state antitrust Laws, (iii) consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under the Laws of any foreign country, and (iv) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not have a Material Adverse Effect or have a material adverse effect on, or materially delay, the ability of Seller or Purchaser to consummate the transactions contemplated hereby. 3.8 SEC Filings; Seller Financial Statements. (a) Seller has filed all forms, reports and documents required to be filed with the SEC since July 3, 1998, and has made available (through on-line databases) to Purchaser such forms, reports and documents in the form filed with the SEC. All such required forms, reports and documents (including all exhibits and schedules thereto and all documents incorporated by reference therein) are referred to herein as the "Seller SEC Reports." As of their respective dates, the Seller SEC Reports (i) complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act, and the rules and regulations of the SEC promulgated thereunder, and (ii) did not at the time each such Seller SEC Report was filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. None of the Subsidiaries of Seller is required to file any forms, reports or other documents with the SEC. Except to the extent revised or superseded by a subsequent filing with the SEC, none of the Seller SEC Reports filed by Seller since July 3, 1999 and prior to the date of this Agreement (collectively, the "Recent SEC Reports") contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements 10 therein, in the light of the circumstances under which they were made, not misleading. The consolidated financial statements of Seller included in all Seller SEC Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP (except, in the case of unaudited consolidated quarterly statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Seller and its consolidated Subsidiaries as of the dates thereof and the consolidated financial position of Seller and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited quarterly statements, to normal year-end audit adjustments). Except as reflected in the most recent consolidated balance sheet of Seller included in the Recent SEC Reports most recently filed by Seller with the SEC prior to the date hereof (such consolidated balance sheet being referred to herein as the "Current Seller Balance Sheet" and the date thereof being referred to herein as the "Current Balance Sheet Date"), as of the Current Balance Sheet Date, neither Seller nor any of its Subsidiaries had, and since such date neither Seller nor any of such Subsidiaries has incurred, any Liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. 3.9 [Reserved] 3.10 Absence of Certain Changes or Events. Except as reflected in the Recent SEC Reports or Section 3.10 of the Seller Disclosure Schedule, since the date of the last audited financial statements of Seller included in the Recent SEC Reports, Seller has conducted its business only in the ordinary course consistent with past practice, and there is not and has not been (i) any condition, event or occurrence which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, or (ii) any condition, event or occurrence which could reasonably be expected to prevent, hinder or materially delay the ability of Seller to consummate the transactions contemplated by this Agreement or the VERITAS Merger Agreement. Except as set forth in Section 3.10 of the Seller Disclosure Schedule, since the date of Seller's most recent periodic report on Form 10-Q included in the Recent SEC Reports, there is not and has not been any event or action described in Section 5.2 hereof. 3.11 Tax Matters. (a) Seller and each of its Subsidiaries have timely filed all federal, state, local and foreign returns, estimates, information statements and reports ("Returns") relating to Taxes required to be filed by Seller and each of its Subsidiaries with any Tax authority, except such Returns which are not material to Seller or any such Subsidiaries, and all such Returns are true, correct and complete in all material respects. Seller and each of its Subsidiaries have paid all Taxes due and payable on such Returns. (b) As of the Closing Date, Seller and each of its Subsidiaries will have withheld with respect to its employees all federal and state income Taxes, Taxes payable pursuant to the Federal Insurance Contribution Act, Taxes payable pursuant to the Federal Unemployment Tax Act and other Taxes required to be withheld, except such Taxes which are not material to Seller or any such Subsidiaries. (c) Neither Seller nor any of its Subsidiaries has been delinquent in the payment of any material Tax. Section 3.11(c) of the Seller Disclosure Schedule contains a complete 11 and accurate list of all material Tax deficiencies outstanding, proposed or assessed against Seller or any of its Subsidiaries, and a complete and accurate list of all Seller's or any of its Subsidiaries' executed and unexpired waiver of any statute of limitations on or extending the period for the assessment or collection of any Liabilities for any Tax. (d) Section 3.11(d) of the Seller Disclosure Schedule contains a complete and accurate list of all audits or other examinations of any Return of Seller or any of its Subsidiaries by any Tax authority is presently in progress, and a complete and accurate list of all Seller's or any of its Subsidiaries' notifications of any request for such an audit or other examination. (e) Section 3.11(e) of the Seller Disclosure Schedule contains a complete and accurate list of all adjustments relating to any Returns filed by Seller or any of its Subsidiaries that have been proposed in writing formally or informally by any Tax authority to Seller or any of its Subsidiaries or any representative thereof. (f) Neither Seller nor any of its Subsidiaries has any Liability for any material unpaid Taxes which has not been accrued for or reserved on the Current Seller Balance Sheet in accordance with GAAP, contingent or otherwise, which is material to Seller or any of its Subsidiaries, other than any Liability for unpaid Taxes that may have accrued in connection with the operation of the business of Seller and its Subsidiaries in the ordinary course. (g) Section 3.11(g) of the Seller Disclosure Schedule contains a complete and accurate list of all contracts, agreements, plans or arrangements to which Seller or any of its Subsidiaries is a party as of the date of this Agreement (including, without limitation, the provisions of this Agreement), covering any employee or former employee of Seller or any of its Subsidiaries that, individually or collectively, would reasonably be expected to give rise to the payment of any amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code. The Seller Disclosure Schedule contains a complete and accurate list of contracts, agreements, plans or arrangements to which Seller is a party or by which it is bound to compensate any individual for excise taxes paid pursuant to Section 4999 of the Code. Except as set forth in Section 3.11(g) of the Seller Disclosure Schedule, no Seller Plan (as defined in Section 3.16(a) hereof) exists that could result in the payment to any present or former employee of Seller or any of its Subsidiaries of any money or other property, or accelerate or provide any other rights or benefits to any present or former employee of Seller or any of its Subsidiaries as a result of the transaction contemplated by this Agreement or the OD Documents. (h) There are no Liens with respect to Taxes upon the assets of Seller or any of its Subsidiaries, other than with respect to Taxes not yet due and payable or which are being contested in good faith. (i) Neither Seller nor any of its Subsidiaries has filed any consent agreement under Section 341(f) of the Code, or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by Seller or any of its Subsidiaries. (j) Section 3.11(j) of the Seller Disclosure Schedule contains a complete and accurate list of all Seller's and any of its Subsidiaries' Tax-sharing, Tax indemnity or Tax allocation agreements or arrangements. (k) None of the assets or properties of Seller or any of its Subsidiaries are Tax exempt use property within the meaning of Section 168(h) of the Code. 12 (l) Seller has no excess loss accounts with respect to the stock of any of its Subsidiaries. The transactions contemplated by this Agreement will not result in the recognition of a material amount of deferred intercompany gain under the deferred intercompany transaction rules of the Code. 3.12 Compliance. Neither Seller nor any of its Subsidiaries is, in any material respect, in conflict with, or in default or violation of (i) any Law (including the Foreign Corrupt Practices Act of 1977), rule, regulation, order, judgment or decree applicable to Seller or any of its Subsidiaries or by which Seller or any of its Subsidiaries or any of their respective assets and properties are bound or affected, or (ii) any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Seller or any of its Subsidiaries is a party or by which Seller or any of its Subsidiaries or its or any of their respective assets and properties are bound or affected. No investigation or review by any Governmental Authority is pending or, to the knowledge of Seller, threatened, against Seller or any of its Subsidiaries, nor has any Governmental Authority indicated an intention to conduct the same, other than routine investigations in the ordinary course of Seller's business. There is no agreement, judgment, injunction, order or decree binding upon Seller or any of its Subsidiaries which has, or could reasonably be expected to have, the effect of prohibiting or materially impairing any business practice of Seller or any of its Subsidiaries, any acquisition of material property by Seller or any of its Subsidiaries or the conduct of business by Seller or any of its Subsidiaries as currently conducted. 3.13 Permits. Seller and its Subsidiaries hold all permits, licenses, variances, exemptions, orders and approvals from Governmental Authorities which are material to the operation of the business of Seller and its Subsidiaries, and Seller and its Subsidiaries are in compliance in all material respects with the terms of such permits, licenses, variances, exemptions, order and approvals. 3.14 Litigation. There is no Action, suit, proceeding, claim, arbitration or investigation pending against Seller or any of its Subsidiaries or as to which Seller or any of its Subsidiaries has received any notice of assertion, nor to the knowledge of Seller, is there any threatened Action, suit, proceeding, claim, arbitration or investigation pending against Seller or any of its Subsidiaries, in either case which individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 3.15 Brokers' and Finders' Fees. Except for fees payable to Morgan Stanley & Co. Incorporated, neither Seller nor any of its Subsidiaries has incurred, nor will Seller or any of its Subsidiaries incur, directly or indirectly, any Liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 3.16 Employee Benefit Plans. (a) Section 3.16(a) of the Seller Disclosure Schedule contains a complete and accurate list of all employee compensation, incentive, fringe or benefit plans, programs, policies, commitments, agreements (including, without limitation, all employment, severance, change of control or similar agreements) or other arrangements (whether or not set forth in a written document and including, without limitation, all "employee benefit plans" within the meaning of Section 3(3) of ERISA) maintained or contributed to by Seller or a Seller affiliate covering any active or former employee, director or consultant of Seller (each, a "Seller Employee" and, collectively, the "Seller Employees" which shall, for all purposes of and under this Section 3.16, mean an employee of Seller or a Seller Affiliate 13 (as defined below)), any Subsidiary of Seller or any trade or business (whether or not incorporated) which is a member of a controlled group or which is under common control with Seller within the meaning of Section 414(b), (c) or (m) of the Code (each, a "Seller Affiliate" and, collectively, the "Seller Affiliates") (each, a "Seller Plan" and, collectively, the "Seller Plans"). Seller has provided or made available to Purchaser: (i) correct and complete copies of all documents embodying each Seller Plan, including, without limitation, all amendments thereto, all trust documents related thereto, and all material written agreements and contracts related thereto; (ii) the most recent annual reports (Form Series 5500 and all schedules and financial statements attached thereto), if any, required under ERISA or the Code in connection with each Seller Plan; (iii) the most recent summary plan description together with the summary(ies) of material modifications thereto, if any, required under ERISA with respect to each Seller Plan; (iv) all IRS determination, opinion, notification and advisory letters with respect to each Seller Plan; (v) all material correspondence to or from any Governmental Authority relating to any Seller Plan; (vi) all forms and related notices required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, with respect to each Seller Plan; (vii) the most recent discrimination tests for each Seller Plan required to perform such tests; (viii) the most recent actuarial valuations, if any, prepared for each Seller Plan; (ix) if the Seller Plan is funded, the most recent annual and periodic accounting of the assets of each Seller Plan; and (x) all communication to Seller Employees relating to any Seller Plan and any proposed Seller Plan, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules, or other events which would result in any material Liability to Seller or any Seller Affiliate in respect of any Seller Plan. (b) Each Seller Plan has been maintained and administered in all material respects in compliance with its terms and with the requirements prescribed by any and all Laws applicable thereto (including, without limitation, ERISA and the Code). No Action, suit or other litigation (excluding claims for benefits incurred in the ordinary course of Seller Plan activities) has been brought, or to the knowledge of Seller, is threatened, against or with respect to any such Seller Plan. There are no audits, inquiries or proceedings pending or, to the knowledge of Seller, threatened by the IRS or the United States Department of Labor with respect to any Seller Plans. All contributions, reserves or premium payments required to be made or accrued as of the date hereof to the Seller Plans have been timely made or accrued. Any Seller Plan intended to be qualified under Section 401(a) of the Code, and each trust intended to qualify under Section 501(a) of the Code (i) has either obtained from the IRS a favorable determination, notification, advisory and/or opinion letter, as applicable, as to its qualified status under the Code, or still has a remaining period of time under applicable treasury regulations or IRS pronouncements in which to apply for such letter and to make any amendments necessary to obtain a favorable determination as to its qualified status under the Code, and (ii) except with respect to amendments for which the Internal Revenue Service has allowed until December 31, 2000, incorporates or has been amended to incorporate all provisions required to comply with the Tax Reform Act of 1986 and subsequent legislation. To the knowledge of Seller, no condition or circumstance exists giving rise to a material likelihood that any such Seller Plan would not be treated by the IRS as qualified under the Code, except as set forth in Section 3.16(b) of the Seller Disclosure Schedule. Seller does not have any plan or commitment to establish any new Seller Plan, to modify any existing Seller Plan (except to the extent required by Law or to conform any such Seller Plan to the requirements of any applicable Law, in each case as previously disclosed to Purchaser in writing, or as required by the terms of any Seller Plan or this Agreement), or to enter into any new 14 Seller Plan. Each Seller Plan can be amended, terminated or otherwise discontinued after the Closing Date in accordance with its terms, without Liability to Purchaser, Seller or any of the Seller Affiliates (other than ordinary administration expenses). (c) Neither Seller, any of its Subsidiaries, nor any of the Seller Affiliates has at any time ever maintained, established, sponsored, participated in, or contributed to any plan subject to Title IV of ERISA or Section 412 of the Code, and at no time has Seller contributed to or been requested to contribute to any "multiemployer plan," as such term is defined in ERISA. To Seller's knowledge, there are no circumstances which could reasonably be expected to subject Seller, any of its Subsidiaries, or any officer or director of Seller or any of its Subsidiaries, to any material Liability or penalty under Section 4975 through 4980B of the Code or Title I of ERISA. No "prohibited transaction," within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt under Section 4975 of the Code and Section 408 of ERISA, has occurred with respect to any Seller Plan which could reasonably be expected to subject Seller or any Seller Affiliates to material Liability. (d) Except as set forth in Section 3.16(d) of the Seller Disclosure Schedule, none of the Seller Plans promises or provides retiree medical or other retiree welfare benefits to any person except as required by applicable Law, and neither Seller nor any of its Subsidiaries has represented, promised or contracted (whether in oral or written form) to provide such retiree benefits to any Seller Employee, former employee, director, consultant or other person, except to the extent required by applicable Law. (e) Each Seller International Employee Plan (as defined below) has been established, maintained and administered in compliance in all material respects with its terms and conditions and with the requirements prescribed by any and all applicable Laws. No Seller International Employee Plan has unfunded Liabilities that, as of the Closing, will not be offset by insurance or fully accrued. Except as required by applicable Law, no condition exists that would prevent Seller or Purchaser from terminating or amending any Seller International Employee Plan at any time for any reason. For all purposes of and under this Agreement, the term "Seller International Employee Plan" shall mean each Seller Plan that has been adopted or maintained by Seller or any of its Subsidiaries, whether informally or formally, for the benefit of current or former employees of Seller or any of its Subsidiaries who are not United States citizens and who are employed outside the United States. 3.17 Absence of Liens. Seller and each of its Subsidiaries has good and valid title to, or in the case of leased assets and properties valid leasehold interests in, all of its material tangible assets and properties, real, personal and mixed, used in their respective businesses, free and clear of any Liens, except (i) as reflected in the consolidated balance sheet of Seller included in the Recent SEC Reports, (ii) for Liens for Taxes not yet due and payable, and (iii) for such imperfections of title and encumbrances, if any, which would not be material to Seller or any of its Subsidiaries. 3.18 Environmental Matters. (a) For all purposes of and under this Agreement, the following terms shall have the following respective meanings: (i) "Environmental Claim" or "Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, causes of action, demands, demand letters, claims, Liens, notices of non-compliance, potential liability or violation, investigations, proceedings, consent orders or consent or settlement agreements 15 relating in any way to any Environmental Laws or any Environmental Permits, including, without limitation, (A) any and all claims or directions by Governmental Authorities for enforcement, investigation, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (B) any and all Claims by any Person seeking damages (including with respect to natural resource damages, property damage, diminution in value and personal injury) contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. (ii) "Environmental Law" or "Environmental Laws" means any Law, now or hereafter in effect and as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, natural resources, health, safety or Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. sec.sec. 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. sec.sec. 6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. sec.sec. 5101 et seq.; the Clean Water Act, 33 U.S.C. sec.sec. 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. sec.sec. 2601 et seq.; the Clean Air Act, 42 U.S.C. sec.sec. 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. sec.sec. 300f et seq.; the Occupational Safety and Health Act, 29 U.S.C. sec.sec. 1651 et seq., the Atomic Energy Act, 42 U.S.C. sec.sec. 2014 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. sec.sec. 136 et seq. and the Federal Food, Drug and Cosmetic Act, 21 U.S.C. sec.sec. 301 et seq. and analogous state, provincial and foreign laws. (iii) "Environmental Permit" or "Environmental Permits" means all permits, approvals, registrations, identification numbers, licenses and other authorizations required under any applicable Environmental Laws. (iv) "Hazardous Material" or "Hazardous Materials" means (A) petroleum and petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contain polychlorinated biphenyls, and radon gas, (B) any other chemicals, materials or substances defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants", "contaminants" or "pollutants", or words of similar import, under any applicable Environmental Law, and (C) any other chemical, material or substance the use, handling, generation, treatment, storing, release or exposure to which is regulated by any Governmental Authority. (b) Except as would not reasonably be expected to result in a Material Adverse Effect, (i) neither Seller nor any of its Subsidiaries has transported, stored, used, manufactured, disposed of, released or exposed its employees or others to any Hazardous Materials in violation of any Law, and (ii) neither Seller nor any of its Subsidiaries has disposed of, transported, sold, used, released, exposed its employees or others to or manufactured any product containing a Hazardous Material (collectively, "Hazardous Materials Activities") in violation of any Environmental Law. (c) Except as set forth in Section 3.18(c) of the Seller Disclosure Schedule, (i) no material Action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending, or to the knowledge of Seller, threatened, concerning any Environmental Permit, Hazardous Material or any Hazardous Materials Activities of Seller 16 or any of its Subsidiaries; and (ii) Seller is not aware of any fact or circumstance which could involve Seller or any of its Subsidiaries in any material Environmental Claim or impose upon Seller or any of its Subsidiaries any material Liabilities under any Environmental Law. (d) Except as would not reasonably be expected to result in a Material Adverse Effect, (i) each of Seller and its Subsidiaries are consistently and reliably in compliance in all respects with all applicable Environmental Laws; and (ii) Seller has obtained and is, as presently operating, consistently and reliably in compliance with the conditions of all Environmental Permits necessary under any Environmental Law for the continued conduct of the business and operations of Seller in the manner now conducted. (e) No investigation or review with respect to such matters is pending or threatened, nor has any Governmental Authority or other person indicated an intention to conduct the same, other than routine investigations and reviews taken in the ordinary course of business. 3.19 Labor Matters. (i) There are no controversies pending or, to the knowledge of Seller, threatened, between Seller or any of its Subsidiaries and any of their respective employees; (ii) as of the date hereof, neither Seller nor any of its Subsidiaries is a party to any collective bargaining agreement or other labor union contract applicable to persons employed by Seller or any of its Subsidiaries, nor does Seller know of any activities or proceedings of any labor union to organize any such employees; and (iii) as of the date hereof, Seller has no any knowledge of any strikes, slowdowns, work stoppages or lockouts, or threats thereof, by or with respect to any employees of Seller or any of its Subsidiaries. 3.20 Agreements, Contracts and Commitments. Except as set forth in Section 3.20 of the Seller Disclosure Schedule, neither Seller nor any of its Subsidiaries is a party to or is bound by any of the following to the extent currently in force: (a) any employment or consulting agreement, contract or commitment with any officer or director of Seller, other than those that are terminable on no more than thirty (30) days' notice; (b) any agreement, contract or commitment relating to the disposition or acquisition by Seller or any of its Subsidiaries, after the date hereof, of a material amount of assets or properties other than in the ordinary course of business; (c) any agreement, contract or commitment to license any third party to manufacture or reproduce any Seller product, service or technology, or any agreement, contract or commitment to sell or distribute any Seller products, service or technology, except in each case for agreements entered into in the ordinary course of business; or (d) any mortgages, indentures, guarantees, loans or credit agreements, security agreements or other agreements, contracts or commitments relating to the borrowing of money or extension of credit. 3.21 Statements; Registration Statement; Proxy Statement/Prospectus. None of the information supplied or to be supplied by Seller for inclusion or incorporation by reference in (i) the Registration Statement (as defined in Section 6.1(a) hereof) will, at the time it is declared or ordered effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, or (ii) the Proxy Statement (as defined in Section 6.1(a) hereof) will, on the date it is first mailed to the stockholders of Seller, at the time of the Seller 17 Stockholders' Meeting (as defined in Section 6.1(a) hereof) and at the Closing Date, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Seller Stockholders' Meeting which has become false or misleading. The Proxy Statement will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations promulgated thereunder. Notwithstanding the foregoing, Seller makes no representation or warranty with respect to any information supplied by Purchaser which is contained in the Proxy Statement. 3.22 Board Approval. The Board of Directors of Seller has (i) determined that this Agreement and the transactions contemplated hereby are fair to, advisable and in the best interests of Seller and its stockholders, (ii) duly approved this Agreement and the transactions contemplated hereby, and (iii) resolved to recommend that the stockholders of Seller approve this Agreement and the transactions contemplated hereby. 3.23 State Takeover Statutes. The Board of Directors of Seller has approved this Agreement and the transactions contemplated hereby, and such approval is sufficient to render inapplicable to this Agreement and the transactions contemplated hereby the provisions of Section 203 of Delaware Law to the extent, if any, such provisions are applicable to this Agreement and the transactions contemplated hereby. No other state takeover statute or similar statute or regulation applies to or purports to apply to this Agreement or the transactions contemplated hereby. 3.24 Fairness Opinion. Seller has received a written opinion from Morgan Stanley & Co. Incorporated, dated as of the date hereof, to the effect that, as of the date hereof, the Merger Consideration (as defined in the VERITAS Merger Agreement) payable pursuant to the VERITAS Merger Agreement is fair to the stockholders of Seller from a financial point of view. 3.25 Intellectual Property. (a) Seller or its Subsidiaries own, or possess licenses or other valid rights to use, and immediately prior to Closing the Sold Subsidiaries or one or more of their Subsidiaries will own, or possess licenses or other valid rights to use, all Intellectual Property (as defined in Section 3.25(d) hereof) necessary for the conduct of the business of Seller and its Subsidiaries as currently conducted. Except as set forth in Section 3.25(a) of the Seller Disclosure Schedule, (i) the conduct of the business of Seller and its Subsidiaries as currently conducted does not infringe or otherwise violate any Intellectual Property of any third party except where such infringement would not reasonably be expected to have a Material Adverse Effect, and (ii) no person is infringing or otherwise violating any Intellectual Property of Seller or its Subsidiaries, except where such infringement would not reasonably be expected to have a Material Adverse Effect. Except as set forth in Section 3.25(a) of the Seller Disclosure Schedule, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby will not result in the loss of, or any encumbrance on, the rights of Seller or any of its Subsidiaries with respect to the Intellectual Property owned or used by them and no claims, order, actions or proceedings are pending or, to the knowledge of Seller, threatened, that seek to question the ownership or scope, cancel or limit the scope or validity of the Intellectual Property owned or used by Seller or any of its Subsidiaries or the rights of Seller or any of its Subsidiaries therein, except in each case for such claims, 18 orders, actions, proceedings, losses, encumbrances or rights as would not have a Material Adverse Effect. (b) Seller and each of its Subsidiaries has implemented policies and consistently followed practices regarding the preservation of its Proprietary Information (as defined in Section 3.25(d) hereof) from unauthorized disclosure to third parties and regarding the use and disclosure of its Proprietary Information by its employees and contractors. (c) Section 3.25(c) of the Seller Disclosure Schedule contains a complete and accurate list of all material Intellectual Property held or owned by Seller and its Subsidiaries that has been issued or registered by, or filed with, any Governmental Authority and all material Intellectual Property licenses to which Seller or any of its Subsidiaries is a party. (d) For all purposes of and under this Agreement, (i) "Intellectual Property" shall mean intellectual or property of a similar nature including without limitation all United States and foreign patents and patent applications, United States and foreign trademark registrations or any analogous rights and applications therefor, United States and foreign copyright registrations and applications therefor, Proprietary Information and all other intellectual property rights, including, without limitation, inventions, processes, formulae, technology, know-how, techniques or other data and information, confidential and proprietary trade secrets, computer software, technical manuals and documentation used in connection with any of the foregoing, and licenses and rights with respect to the foregoing or property of like nature, and (ii) "Proprietary Information" shall mean the trade secrets, proprietary technology, know-how and other confidential information relation to the business of Seller and its subsidiaries as currently conducted. 3.26 Assets. The assets held directly or indirectly by the Sold Subsidiaries (after giving effect to the Split), constitute all of the assets of Seller and its Subsidiaries other than the Designated Assets. 3.27 Insurance. Seller and each of its Subsidiaries maintain, and all times during the prior three years have maintained, fire and casualty, general liability, business interruption, product liability, and sprinkler and water damage insurance which it believes to be reasonably prudent for similarly sized and similarly situated businesses. All premiums due and payable under all such policies and bonds have been paid, Seller and each of its Subsidiaries is otherwise in material compliance with the terms of such policies and bonds and, to the knowledge of Seller, there is no threatened termination of, or material premium increase with respect to, any of such policies. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to Seller, subject to the exceptions and qualifications set forth or disclosed in the disclosure letter delivered by Purchaser to Seller, dated as of the date hereof (the "Purchaser Disclosure Schedule"), as follows: 4.1 Organization; Good Standing. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, with the corporate power and authority to own, lease and operate its assets and property and to carry on its business as now being conducted and as proposed to be conducted, and is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would not reasonably be expected to have a material 19 adverse effect on, or materially delay, the ability of Purchaser or Seller to consummate the transactions contemplated by this Agreement. 4.2 Charter Documents. Purchaser has delivered to Seller a true and correct copy of the organizational documents of Purchaser, each as amended to date and in effect as of the date hereof, and each such instrument is in full force and effect. Purchaser is not in violation of any of the provisions of its organizational documents. 4.3 Authority. Purchaser has all requisite corporate power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Purchaser, and the performance by Purchaser of its obligations hereunder and the consummation by Purchaser of the transactions contemplated hereby, have been duly authorized by all necessary corporate action on the part of Purchaser. No vote of the holders of the outstanding shares of capital stock of Purchaser is required to approve this Agreement or the transactions contemplated hereby. This Agreement has been duly executed and delivered by Purchaser and, assuming the due authorization, execution and delivery by Seller, constitutes the valid and binding obligations of Purchaser, enforceable in accordance with their respective terms, subject to (i) the effect of any applicable laws of general application relating to bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors' rights and the relief of debtors generally, and (ii) the effect of rules of law and general principles of equity, including, without limitation, rules of law and general principles of equity governing specific performance, injunctive relief and other equitable remedies (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4.4 Conflicts. The execution and delivery of this Agreement by Purchaser does not, and the performance by Purchaser of its obligations hereunder the consummation by Purchaser of the transactions contemplated hereby will not, (i) conflict with or violate the organizational documents of Purchaser, (ii) subject compliance with the requirements set forth in Section 4.5 hereof, conflict with or violate any Law, rule, regulation, order, judgment or decree applicable to Purchaser or by which Purchaser or its assets and properties are bound or affected, or (iii) result in any breach of, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair the rights of Purchaser under, or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the assets or properties of Purchaser pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Purchaser is a party or by which Purchaser or its assets and properties are bound or affected, except to the extent such conflict, violation, breach, default, impairment or other effect could not, in the case of clause (ii) or (iii) of this Section 4.4, individually or in the aggregate, reasonably be expected to have a material adverse effect on, or materially delay, the ability of Purchaser or Seller to consummate the transactions contemplated by this Agreement. 4.5 Consents. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority is required by or with respect to Purchaser in connection with the execution and delivery of this Agreement by Purchaser, or the performance by Seller of its obligations hereunder or the consummation by Seller of the transactions contemplated hereby, except for (i) consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under the HSR Act or any applicable state antitrust Laws, (ii) consents, approvals, orders, authorizations, 20 registrations, declarations and filings as may be required under the Laws of any foreign country, and (iii) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not reasonably be expected to have a material adverse effect on, or materially delay, the ability of Purchaser or Seller to consummate the transactions contemplated hereby. 4.6 Litigation. There is no Action, suit, proceeding, claim, arbitration or investigation pending against Purchaser or as to which Purchaser has received any notice of assertion, nor to the knowledge of Purchaser, is there any threatened Action, suit, proceeding, claim, arbitration or investigation pending against Purchaser, which could reasonably be expected to have a material adverse effect on Purchaser. 4.7 Statements; Registration Statement; Proxy Statement. None of the information supplied or to be supplied by Purchaser or its Affiliates for inclusion or incorporation by reference in (i) the Registration Statement will, at the time it is declared or ordered effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, or (ii) the Proxy Statement will, on the date the Proxy Statement is first mailed to the stockholders of Seller, at the time of the Seller Stockholders' Meeting and at the Closing Date, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Seller Stockholders' Meeting which has become false or misleading. Notwithstanding the foregoing, Purchaser makes no representation or warranty with respect to any information supplied by Seller which is contained in the Proxy Statement. 4.8 Financing. For all purposes of and under this Agreement, the Commitment Letters and the Equity Commitments shall be referred to together as the "Financing Agreements" and the financing to be provided thereunder shall be referred to as the "Financing." The aggregate proceeds of Financing are in an amount sufficient to consummate the transactions contemplated hereby in accordance with the terms hereof. None of the Commitment Letters or the Equity Commitments has been withdrawn and Purchaser does not know of any facts or circumstances that may reasonably be expected to result in any of the conditions set forth in the Commitment Letters or the Equity Commitments not being satisfied. 4.9 Delaware Law. Purchaser was not immediately, prior to the execution and delivery of this Agreement, an "interested stockholder" of Seller within the meaning of Section 203 of Delaware Law, and neither Purchaser nor any of its Affiliates beneficially owns any shares of Common Stock of Seller on the date hereof. 4.10 Newly Organized. Purchaser was formed solely for the purpose of engaging in the transactions contemplated by this Agreement and has engaged in no other business activities. 4.11 Related Agreements. Purchaser has delivered to Seller true and correct copies of any and all contracts and agreements between VERITAS and Purchaser and their respective Affiliates. 4.12 Solvency. Immediately after giving effect to the transactions contemplated by this Agreement and the closing of the Financing in order to effect the transactions 21 contemplated by this Agreement, the Sold Subsidiaries and their respective Subsidiaries shall be able to pay their debts as they become due in the ordinary course of business and shall own assets having a present fair saleable value greater than the combined stated liabilities and identified contingent liabilities of such entities. Immediately after giving effect to the transactions contemplated by this Agreement and the closing of the Financing to be obtained in order to effect the transactions contemplated by this Agreement, the Sold Subsidiaries and their respective Subsidiaries shall have adequate capital to carry on their businesses. No transfer of property is being made and no obligation is being incurred in connection with the transactions contemplated by this Agreement and the closing of any Financing to be obtained in order to effect the transactions contemplated by this Agreement with the intent to hinder, delay or defraud either present or future creditors of Purchaser, Seller, the Sold Subsidiaries or any of their respective Subsidiaries. 4.13 No Amendment to VERITAS Merger Agreement. Seller shall not, without the prior written consent of Purchaser, amend, modify, supplement, mutually terminate or waive any term or condition set forth in the OD Documents, as in effect as of the date hereof. ARTICLE V CONDUCT PRIOR TO CLOSING 5.1 Conduct of Business. Except (i) as set forth in Section 5.1 of the Seller Disclosure Schedule, (ii) to the extent that Purchaser shall otherwise consent in writing, and (iii) to the extent contemplated by the OD Documents as in effect on the date hereof, or for the sale of all or a portion of the Designated Assets, at all times during the period commencing with the execution and delivery hereof and continuing until the earlier of the termination of this Agreement pursuant to the terms hereof or the Closing, Seller shall, and shall cause each of its Subsidiaries to, (a) carry on its business diligently and in the usual, regular and ordinary course, in substantially the same manner as heretofore conducted and in compliance with all applicable Laws, (b) pay or perform its material obligations when due, and (c) use its commercially reasonable efforts, consistent with past practices and policies, to preserve intact its present business organization, keep available the services of its present officers and employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees and others with which it has business dealings. In furtherance of the foregoing and subject to applicable Law, Seller shall confer with Purchaser, as promptly as practicable, prior to taking any material actions or making any material management decisions with respect to the conduct of its business and the business of its Subsidiaries. 5.2 Restrictions on Conduct of Business. Without limiting the generality of the terms of Section 5.1 hereof, except (i) as set forth in Section 5.2 of the Seller Disclosure Schedule or as required by the terms hereof, or (ii) to the extent that Purchaser shall otherwise consent in writing (which, in the case of Section 5.2(q) hereof, shall not be unreasonably withheld), or (iii) to the extent contemplated by the OD Documents as in effect on the date hereof, or for the sale of all or a portion of the Designated Assets, at all times during the period commencing with the execution and delivery hereof and continuing until the earlier of the termination of this Agreement pursuant to the terms hereof or the 22 Closing, Seller shall not do any of the following, or permit its Subsidiaries to do any of the following: (a) except as required by applicable Law, waive any stock repurchase rights, accelerate, amend or change the period of exercisability of options or restricted stock, or reprice options granted under any employee, consultant or director stock plans or authorize cash payments in exchange for any options granted under any of such plans; (b) enter into any material partnership arrangements, joint development agreements or strategic alliances, other than in the ordinary course of business consistent with past practice; (c) (i) increase the compensation or fringe benefits of any present or former director, officer or employee of Seller or its Subsidiaries (except for increases in salary or wages in the ordinary course of business consistent with past practice), (ii) grant any severance or termination pay to any present or former director, officer or employee of Seller or its Subsidiaries (except for the payment of severance or termination pay in the ordinary course of business consistent with past practice), or (iii) establish, adopt, enter into, amend or terminate any Seller Plan or any plan, agreement, program, policy, trust, fund or other arrangement that would be a Seller Plan if it were in existence as of the date of this Agreement, except as required by applicable Law; (d) issue, deliver, sell, authorize, pledge or otherwise encumber, or propose any of the foregoing with respect to, any shares of capital stock or any securities convertible into, or exercisable or exchangeable for, shares of capital stock of any of its Subsidiaries, or subscriptions, rights, warrants or options to acquire any shares of capital stock or any securities convertible into, or exercisable or exchangeable for, shares of capital stock of any of its Subsidiaries, or enter into other agreements or commitments of any character obligating it to issue any such shares of capital stock of any of its Subsidiaries, or securities convertible into, or exercisable or exchangeable for, shares of capital stock of any of its Subsidiaries; (e) cause, permit or propose any amendments to any charter document or bylaws (or similar governing instruments) of Seller or any of its Subsidiaries; (f) acquire or agree to acquire by merging or consolidating with, or by purchasing any equity interest in or a material portion of the assets of, or by any other manner, any business or any corporation, limited liability company, general or limited partnership, joint venture, association, business trust or other business enterprise or entity, or otherwise acquire or agree to acquire any assets having a value exceeding $5,000,000 in the aggregate or which are otherwise material, individually or in the aggregate, to the business of Seller and its Subsidiaries to be included in the Sold Subsidiaries; (g) adopt a plan of merger, complete or partial liquidation, dissolution, consolidation, restructuring, recapitalization or other reorganization; (h) except as required by applicable Law, adopt or amend any employee benefit plan or employee stock purchase or employee stock option plan, or enter into any employment contract or collective bargaining agreement (other than offer letters and letter agreements entered into in the ordinary course of business consistent with past practice with employees who are terminable "at will"), pay any special bonus or special remuneration to any director or employee other than in the ordinary course of 23 business consistent with past practice, or increase the salaries or wage rates or fringe benefits (including rights to severance or indemnification) of its officers; (i) except in the ordinary course of business consistent with past practice, modify, amend or terminate any material contract or agreement to which Seller or any of its Subsidiaries is a party, or waive, delay the exercise of, release or assign any material rights or claims thereunder; (j) sell, lease, license, mortgage or otherwise encumber or subject to any Lien or otherwise dispose of any of its properties or assets, other than (i) the sale or transfer of any Designated Assets (but not including shares of VERITAS capital stock), or (ii) any such properties or assets the value of which do not exceed $5,000,000 individually and $10,000,000 in the aggregate, except sales of inventory in the ordinary course of business consistent with past practice; provided, that Seller may divest any of the Private Securities without the consent of Purchaser if required to do so on an involuntary basis pursuant to any merger, securities purchase or other similar type of agreement; (k) (i) incur any Indebtedness or guarantee any such Indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities of Seller or any of its Subsidiaries, guarantee any debt securities of another person, enter into any "keep well" or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, except for endorsements and guarantees for collection, short-term borrowings and lease obligations, in each case incurred in the ordinary course of business consistent with past practice, or (ii) make any loans, advances or capital contributions to, or investment in, any other person, other than to Seller or any direct or indirect wholly-owed Subsidiary of Seller; (l) fail in any material respect to make any capital expenditures in the amounts budgeted and at the times contemplated therefor in Seller's annual capital expenditures budget for fiscal year 2000 previously provided to Purchaser, or expend funds for unbudgeted capital expenditures in an amount greater than $5,000,000; (m) pay, discharge or satisfy any claims (including claims of stockholders), liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), except for the payment, discharge or satisfaction of liabilities or obligations in the ordinary course of business consistent with past practices or in accordance with their terms as in effect on the date hereof, or waive, release, grant, or transfer any rights of material value or modify or change in any material respect any existing license, lease, contract or other document, other than in the ordinary course of business consistent with past practice; (n) change any financial reporting or material accounting principle used by it unless otherwise required by applicable Law or GAAP; (o) settle or compromise any litigation (whether or not commenced prior to the date of this Agreement) other than settlements or compromises of litigation where the amount paid (after giving effect to insurance proceeds actually received) in settlement or compromise does not exceed $1,000,000, provided that the aggregate amount paid in connection with the settlement or compromise of all such litigation shall not exceed $10,000,000; 24 (p) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by a direct or indirect wholly owned subsidiary of Seller to its parent (i) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (ii) purchase, redeem or otherwise acquire any shares of capital stock of Seller or any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; or (q) make, or permit to be made, without the prior written consent of Purchaser any material Tax election which would affect the Sold Subsidiaries or any of their respective Subsidiaries. (r) agree in writing or otherwise to take any of the actions described in Section 5.2(a) through Section 5.2(q) hereof, inclusive. ARTICLE VI ADDITIONAL AGREEMENTS 6.1 Registration Statement; Proxy Statement; Other Filings. (a) As promptly as practicable after the execution and delivery of this Agreement, (i) Seller (in cooperation with Purchaser and the other party or parties to the OD Documents) shall prepare and file with the SEC a proxy statement/prospectus to be sent to the stockholders of Seller in connection with the meeting of the stockholders of Seller to consider the approval of this Agreement, the OD Documents and the transactions contemplated hereby and thereby (such proxy statement/prospectus being referred to herein as the "Proxy Statement" and such meeting of the stockholders of Seller being referred to herein as the "Seller Stockholders' Meeting"), and (ii) Seller shall cooperate with Purchaser and the other party or parties to the OD Documents in the preparation and filing a registration statement on Form S-4 (the "Registration Statement") to be filed with the SEC in connection with the transactions contemplated by the OD Documents. Seller shall respond to any comments of the SEC with respect to the Registration Statement or the Proxy Statement, shall use its commercially reasonable efforts to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing and shall cause the Proxy Statement to be mailed to its stockholders at the earliest practicable time. As promptly as practicable after the execution and delivery of this Agreement, Seller shall prepare and file any other filings required under the Exchange Act, the Securities Act or any other federal, foreign or state "blue sky" securities Laws relating to the transactions contemplated hereby (collectively, the "Other Filings"). Seller shall promptly notify Purchaser upon the receipt of any comments from the SEC or its staff, and of any request by the SEC or its staff or any other government officials for amendments or supplements to the Registration Statement, the Proxy Statement or any Other Filing, or for additional information, and shall supply the other with copies of all correspondence between such party or any of its representatives, on the one hand, and the SEC, or its staff or any other government officials, on the other hand, with respect to the Registration Statement, the Proxy Statement or any Other Filing. The Proxy Statement, the Registration Statement and the Other Filings shall comply in all material respects with all requirements of applicable Law and the rules and regulations promulgated thereunder. Whenever any event occurs which is required to be set forth in an amendment or supplement to the Proxy Statement, the Registration Statement or any Other Filing, Seller 25 or Purchaser, as the case may be, shall promptly inform the other party of such occurrence and cooperate in filing with the SEC or its staff or any other government officials, and/or mailing to stockholders of Seller, such amendment or supplement. (b) Subject to Section 6.2(c) hereof, the Proxy Statement shall also include the recommendation of the Board of Directors of Seller in favor of the approval of this Agreement, the OD Documents and the transactions contemplated hereby and thereby. 6.2 Meeting of Seller Stockholders. (a) Subject to the terms of Section 6.2(c) hereof, promptly after the date hereof and in consultation with Purchaser, Seller shall take all action necessary in accordance with Delaware Law and its Certificate of Incorporation and Bylaws to convene the Seller Stockholders' Meeting, to be held as promptly as practicable, for the purpose of voting upon this Agreement, the OD Documents and the transactions contemplated hereby and thereby. Subject to the terms of Section 6.2(c) hereof, Seller shall solicit proxies from its stockholders in favor of the approval of this Agreement, the OD Documents and the transactions contemplated hereby and thereby, and shall take all other action necessary or advisable to secure the Required Stockholder Approval. (b) Subject to the terms of Section 6.2(c) hereof, (i) the Board of Directors of Seller shall recommend that Seller's stockholders vote in favor of and approve this Agreement, the OD Documents and the transactions contemplated hereby and thereby at the Seller Stockholders' Meeting, (ii) the Proxy Statement shall include a statement to the effect that the Board of Directors of Seller has recommended that Seller's stockholders vote in favor of and approve this Agreement, the OD Documents and the transactions contemplated hereby and thereby, and (iii) neither the Board of Directors of Seller nor any committee thereof shall withdraw, amend or modify, or propose or resolve to withdraw, amend or modify in a manner adverse to Purchaser, the recommendation of the Board of Directors of Seller that Seller's stockholders vote in favor of and approve this Agreement, the OD Documents and the transactions contemplated hereby and thereby. (c) Notwithstanding the foregoing or anything to the contrary set forth in this Agreement, nothing in this Agreement shall prevent the Board of Directors of Seller from withdrawing, amending or modifying its recommendation in favor of this Agreement and the transactions contemplated hereby if (i) Seller receives a Seller Superior Offer (as defined below) and such Seller Superior Offer is not withdrawn, (ii) neither Seller nor any of its agents or representatives shall have violated any of the restrictions set forth in Section 6.5(a) hereof, and (iii) the Board of Directors of Seller concludes in good faith, after consultation with its outside counsel, that, in light of such Seller Superior Offer, the withdrawal, amendment or modification of such recommendation is necessary in order for the Board of Directors of Seller to comply with its fiduciary obligations to the stockholders of Seller under applicable Law. For all purposes of and under this Agreement, the term "Seller Superior Offer" shall mean a bona fide written offer made by a third party to consummate any of the following transactions: (a) a merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving Seller, pursuant to which the stockholders of Seller immediately preceding such transaction would hold less than fifty percent (50%) of the equity interest in the surviving or resulting entity of such transaction (or the ultimate parent entity thereof); (b) a sale or other disposition by Seller of assets (excluding inventory and used equipment sold in the ordinary course of business) representing all or substantially all of Seller's consolidated assets immediately prior to such sale, (c) a sale or other disposition by Seller of all or more than ninety-five percent (95%) of the assets to be held (directly or indirectly) by the Sold Subsidiaries 26 after giving effect to the Split, or (d) the acquisition by any person or group (including by way of a tender offer or an exchange offer or issuance by Seller), directly or indirectly, of beneficial ownership or a right to acquire beneficial ownership of shares representing in excess of fifty percent (50%) of the voting power of the then outstanding shares of capital stock of Seller, in each case on terms that the Board of Directors of Seller determines, in its reasonable judgment (after consultation with its financial advisor and after taking into account all aspects of the proposal and the person making the proposal and any proposed changes to this Agreement that may be proposed by Purchaser in response to such Seller Superior Offer) to be more favorable to the stockholders of Seller, from a financial point of view, than, (i) in the case of a Seller Superior Offer of the type referred to in clauses (a), (b) or (d), this Agreement and the OD Documents and the transactions contemplated hereby and thereby and (ii) in the case of a Seller Superior Offer of the type referred to in clause (c), this Agreement and the transactions contemplated hereby; provided, however, that any such offer shall not be deemed to be a "Seller Superior Offer" if any financing required to consummate the transaction contemplated by such offer is not committed and is not likely in the judgment of Seller's Board of Directors to be obtained by such third party on a timely basis. Notwithstanding the foregoing or anything to the contrary set forth in this Agreement, except for a mutual termination as provided for in Section 4.13 hereof, nothing in this Agreement shall prevent the Board of Directors of Seller from withdrawing, amending or modifying its recommendation in favor of the OD Documents, or terminating the OD Documents in accordance with its terms. 6.3 Access to Information. (a) Seller shall afford Purchaser and its accountants, counsel and other representatives (including potential financing sources), reasonable access, during normal business hours, to the properties, books, records and personnel of Seller and its Subsidiaries at any time prior to the Closing in order to enable Purchaser obtain all information concerning the business, assets and properties, results of operations and personnel of Seller and its Subsidiaries as Purchaser may reasonably request. No information or knowledge obtained in the foregoing investigation by Purchaser pursuant to this Section 6.3 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of Seller and Purchaser to consummate the transactions contemplated hereby. (b) Seller shall provide, and shall cause its Subsidiaries and its and their respective officers and employees to provide, all necessary cooperation in connection with the arrangement of the Financing and related matters, including, without limitation, the execution and delivery of any commitment letters, underwriting or placement agreements, pledge and security documents, other definitive financing documents, or other requested certificates or documents, including a certificate of the chief financial officer of Seller with respect to solvency matters, as may be requested by Purchaser, provided, however, that such letters, agreements or documents expressly provide that, from and after consummation of the transactions contemplated by this Agreement, Seller shall have no Liability thereunder and the other parties thereto shall look solely to Purchaser in respect of any obligations of Seller thereunder. 6.4 Confidentiality. Seller and Purchaser acknowledge that they have previously entered into a Confidentiality Agreement (the "Confidentiality Agreement"), which shall continue in full force and effect in accordance with its terms. 27 6.5 No Solicitation. (a) From and after the date of this Agreement until the earlier to occur of the Closing and termination of this Agreement pursuant to Section 10.1 hereof, Seller and its Subsidiaries shall not, and shall cause their respective officers, directors, affiliates or employees or any investment banker, attorney or other advisor or representative retained by any of them not to, directly or indirectly (i) solicit, initiate, encourage or induce the making, submission or announcement of any Seller Acquisition Proposal (as defined in Section 6.5(b) hereof), (ii) participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes or may reasonably be expected to lead to, any Seller Acquisition Proposal, (iii) engage in discussions with any person with respect to any Seller Acquisition Proposal, except as to the existence of the terms of this Section 6.5, (iv) subject to the terms of Section 6.2(c) hereof, approve, endorse or recommend any Seller Acquisition Proposal, or (v) enter into any letter of intent or similar document or any contract, agreement or commitment contemplating or otherwise relating to any Seller Acquisition Transaction (as defined in Section 6.5(b) hereof); provided, however, that until the date on which this Agreement is approved by the requisite vote of the stockholders of Seller, the terms of this Section 6.5(a) shall not prohibit Seller from furnishing information regarding Seller and its Subsidiaries to, entering into a confidentiality or non-disclosure agreement with, or entering into discussions with, any person or group in response to a Seller Superior Offer submitted by such person or group (and not withdrawn) if (a) Seller has not violated any of the restrictions set forth in this Section 6.5(a), (b) the Board of Directors of Seller concludes in good faith, after consultation with its outside legal counsel, that such action is reasonably necessary in order for the Board of Directors of Seller to comply with its fiduciary obligations to the stockholders of Seller under applicable Law, (c) Seller receives from such person or group an executed confidentiality or non-disclosure agreement containing customary limitations on the use and disclosure of all non-public written and oral information furnished to such person or group by or on behalf of Seller and containing terms no less favorable to the disclosing party than the terms of the Confidentiality Agreement (including with respect to any standstill arrangements, which may not be waived by Seller unless the standstill arrangements in the Confidentiality Agreement are waived), and (d) prior to furnishing any such non-public information to such person or group or entering into negotiations or discussions, Seller notifies Purchaser promptly of such inquiries, proposals or offers received by, any such information requested from, or any such discussions or negotiations sought to be initiated or continued with, any of its representatives indicating, in connection with such notice, the name of the person and the terms and conditions of any inquiries, proposals or offers, and furnishes such non-public information to Purchaser to the extent such information has not been previously furnished to Purchaser. Seller and its Subsidiaries shall (and shall cause their respective officers, directors, affiliates, employees, investment bankers, attorneys and representatives to) immediately cease any and all existing activities, discussions or negotiations with any parties conducted heretofore with respect to any Seller Acquisition Proposal. (b) For all purposes of and under this Agreement, the term "Seller Acquisition Proposal" shall mean any offer or proposal relating to any Seller Acquisition Transaction. For all purposes of and under this Agreement, "Seller Acquisition Transaction" shall mean any transaction or series of related transactions, other than the transactions permitted to be effected under Section 5.2 hereof involving: (i) any acquisition or purchase from Seller by any person or "group" (as defined under Section 13(d) of the Exchange Act and the rules 28 and regulations promulgated thereunder) of more than fifteen percent (15%) in interest of the total outstanding voting securities of Seller, or any tender offer or exchange offer that if consummated would result in any person or "group" (as defined under Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) beneficially owning more than fifteen percent (15%) of the total outstanding voting securities of Seller, or any merger, consolidation, business combination or similar transaction involving Seller pursuant to which the stockholders of Seller immediately preceding such transaction would hold less than eighty-five percent (85%) of the equity interests in the surviving or resulting entity of such transaction (or the ultimate parent entity thereof); (ii) any sale, lease (other than in the ordinary course of business), exchange, transfer, license (other than in the ordinary course of business), acquisition or disposition of more than fifteen percent (15%) of the fair market value of the consolidated assets and properties of Seller; (iii) a sale or other disposition by Seller of all or more than fifteen percent (15%) of the assets to be held by the Sold Subsidiaries after giving effect to the Split; and (iv) the acquisition by any person or group (including by way of a tender offer or exchange offer or issuance by Seller), directly or indirectly, of beneficial ownership or a right to acquire beneficial ownership of shares representing in excess of fifteen percent (15%) of the voting power of the then outstanding shares of capital stock of Seller. 6.6 Public Disclosure. Purchaser and Seller shall consult with each other and agree before issuing any press release or otherwise making any public statement with respect to this Agreement, and shall not issue any such press release or make any such public statement prior to such agreement, except as may be required by applicable Law or Seller's listing agreement with The New York Stock Exchange, Inc., in which case reasonable efforts to consult with the other party shall be made prior to such release or public statement. 6.7 Legal Requirements. Purchaser and Seller shall take all reasonable actions necessary or desirable to comply promptly with all legal requirements which may be imposed on them with respect to the consummation of the transactions contemplated by this Agreement (including, without limitation, furnishing all information required in connection with approvals of or filings with any Governmental Authority, and prompt resolution of any litigation prompted hereby), and shall promptly cooperate with, and furnish information to, the other party hereto to the extent necessary in connection with any such requirements imposed upon any of them or their respective Subsidiaries in connection with the consummation of the transactions contemplated by this Agreement. 6.8 Notification of Certain Matters. Purchaser shall give prompt notice to Seller, and Seller shall give prompt notice to Purchaser, of the occurrence, or failure to occur, of any event, which occurrence or failure to occur would be reasonably likely to cause (i) any representation or warranty contained in this Agreement to be untrue or inaccurate at the Closing, such that the conditions set forth in Section 9.2(a) or Section 9.3(a) hereof, as the case may be, would not be satisfied or fulfilled as a result thereof, or (ii) any material failure of Purchaser or Seller, as the case may be, or of any officer, director, employee or agent thereof, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. Notwithstanding the foregoing, the delivery of any notice pursuant to this Section 6.8 shall not limit or otherwise affect the rights and remedies available hereunder to the party receiving such notice. 6.9 Commercially Reasonable Efforts and Further Assurances. Subject to the respective rights and obligations of Purchaser and Seller under this Agreement, each of Purchaser and Seller shall use its respective commercially reasonable efforts to effectuate 29 the transactions contemplated hereby, and to fulfill and cause to be fulfilled the conditions to Closing under this Agreement. Each of Purchaser and Seller, at the reasonable request of the other party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of the transactions contemplated hereby. 6.10 Indemnification. (a) From and after the Closing, Purchaser and the Sold Subsidiaries shall fulfill and honor in all respects the obligations of Seller pursuant to any indemnification agreements (substantially in the form delivered to Purchaser prior to the date hereof) between Seller, the Sold Subsidiaries and their respective directors and officers in effect immediately prior to the Closing and the Split (the "Indemnified Parties") and any indemnification provisions under Seller's charter documents as in effect on the date hereof. The organizational documents of Purchaser shall contain provisions with respect to exculpation and indemnification that are at least as favorable to the Indemnified Parties as those contained in Seller's organizational documents as in effect on the date hereof, which provisions shall not be amended, repealed or otherwise modified for a period of six (6) years from the Closing Date in any manner that would adversely affect the rights thereunder of individuals who, immediately prior to the Closing, were directors, officers, employees or agents of Seller or the Sold Subsidiaries, unless such modification is required by applicable Law. (b) In the event that Purchaser or any of its successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers all or substantially all of its properties and assets to any person in a single transaction or a series of transactions, then, and in each such case, Purchaser shall make or cause to be made proper provision so that the successors and assigns of Purchaser assume the indemnification obligations of Purchaser and the Sold Subsidiaries under this Section 6.10 for the benefit of the Indemnified Parties. (c) The provisions of this Section 6.10 are (i) intended to be for the benefit of, and will be enforceable by, each of the Indemnified Parties, and (ii) in addition to, and not in substitution for, any other rights to indemnification or contribution that any such person may have by contract or otherwise. (d) For a period of six (6) years following the Closing Date, Purchaser shall use its best efforts to maintain in effect the directors' and officers' liability insurance policies maintained by Seller; provided, however, that in no event shall Purchaser be required to expend in any one year in excess of one hundred and fifty percent (150%) of the annual premium currently paid by Seller for such coverage. 6.11 Regulatory Filings; Reasonable Efforts. As soon as may be reasonably practicable following the execution and delivery of this Agreement, Seller and Purchaser each shall file with the FTC and DOJ Notification and Report Forms relating to the transactions contemplated hereby as required by the HSR Act, as well as comparable pre-merger notification forms required by the merger notification or control laws and regulations of any applicable jurisdiction, as agreed to by Seller and Purchaser. Seller and Purchaser each shall promptly (i) supply the other with any information which may be required in order to effectuate such filings, and (ii) supply any additional information which reasonably may be required by the FTC, the DOJ or the competition or merger 30 control authorities of any other jurisdiction and which Seller and Purchaser may reasonably deem appropriate. 6.12 Use of Names. Seller acknowledges that from and after the Closing, the name "Seagate" and all similar or related names, marks and logos (all of such names, marks and logos being referred to herein as the "Seller Names") shall be owned by the Sold Subsidiaries, that neither Seller nor any of its Affiliates shall have any rights in the Seller Names, and that neither Seller nor any of its Affiliates will be entitled to contest the ownership or validity or any rights of Purchaser, the Sold Subsidiaries or any of their respective Subsidiaries in or to the Seller Names. 6.13 Debt Offer. Subject to the terms and conditions of this Agreement, Seller shall commence an irrevocable tender offer (the "Debt Offer") to purchase all of the principal amount of the Debentures. The obligations of Seller (i) to commence the Debt Offer and (ii) to accept for payment, and pay for, any securities tendered pursuant to the Debt Offer, shall be subject to customary conditions and be conditioned upon closing of the transactions contemplated hereby and the OD Documents (any of which may be waived by Seller in its sole discretion). If fewer than one hundred percent (100%) of the Debentures are purchased pursuant to the Debt Offer, then at the Closing Purchaser shall (i) in accordance with the terms and provisions of Section 8.01 and Section 9.01 of the Indenture, assume the Debentures and enter into a Supplemental Indenture in accordance with such Section 8.01 and Section 9.01, (ii) give an irrevocable notice of redemption pursuant to Section 11.01 of the Indenture to the Trustee thereunder and each holder of a Debenture thereunder, specifying a "Redemption Date" thirty one (31) days after the Closing and other matters specified in Section 11.08 of the Indenture, and (iii) deposit the principal amount of the "Redemption Price" with the Trustee under the Indenture. 6.14 Commitment Letters; Rolled Options. Purchaser shall promptly forward Seller's counsel a copy of all credit documentation prepared pursuant to the Commitment Letters. In the event that one or more of the lenders under the Commitment Letters withdraws its Commitment Letter (or commitment thereunder) or invokes a condition that would prevent the Closing from occurring, Purchaser shall promptly notify Seller thereof. In the event that Purchaser invokes the condition set forth in Section 9.3(c) hereof, or one or more lenders withdraws its commitment, Purchaser shall use all commercially reasonable efforts to enter into contracts with one or more substitute lenders designated by Purchaser and reasonably acceptable to Seller ("Substitute Lenders"), provided, however, that Purchaser shall be required to enter into such contracts with one or more Substitute Lenders only if the economic terms and other conditions offered by such Substitute Lenders are no less favorable than those set forth in the Commitment Letters. From and after the date hereof until the Closing, Purchaser shall not amend, modify or supplement, or permit the amendment, modification or supplementation of, the Roll Agreement without Seller's prior written consent. 6.15 Transaction Expenses. No later than fifteen (15) calendar days prior to the Closing Seller shall deliver to Purchaser final invoices from Seller's investment bankers (including their counsel, if any), attorneys, accountants and other advisors with respect to the transactions contemplated hereby, together with a statement from each such person to the effect that (i) the amounts shown due and owing therein constitute a "final" bill, and (ii) after payment in full of the amounts indicated therein, each such person will not look to Purchaser, Seller or any of their Affiliates or any party to the OD Documents for the payment of further amounts with respect to the transactions contemplated hereby or the OD Documents. 31 6.16 Non-Assignable Assets. Nothing in this Agreement shall be construed as an attempt or agreement to assign any asset, contract, lease, permit, license or other right which would otherwise be included in the assets transferred pursuant to the Split, but which is by its terms non-assignable without the consent of the other party or parties thereto, unless such consent shall have been given (the "Non-Assignable Assets"). Seller agrees to use commercially reasonably efforts before the Closing to obtain such consent or consents. Following the Closing and until such time as the Non-Assignable Assets may be properly assigned to Purchaser, such Non-Assignable Assets shall be held in trust for the benefit of Purchaser, the covenants and obligations thereunder shall be performed by Purchaser, and all benefits and obligations existing thereunder shall be for the account of Purchaser. Following the Closing, Seller authorizes Purchaser, to the extent permitted by applicable Law and the terms of the Non-Assignable Assets, to perform all of the obligations and receive all of the benefits under the Non-Assignable Assets, and appoints Purchaser as its attorney-in-fact to act in its name and on its behalf (and on behalf of its Affiliates) with respect thereto. ARTICLE VII EMPLOYEE MATTERS 7.1 Employee Liabilities. Seller and its Subsidiaries shall take all corporate actions necessary to provide for the transfer of all assets relating to the Assumed Plans (as defined below) to the Purchaser as of, or as soon as practicable following, the Closing. From and after the date of the transfer of such assets, Purchaser shall assume sole sponsorship of all Seller Plans (other than any stock incentive plan, including, without limitation, the 1983 Incentive Stock Option Plan, the Employee Stock Purchase Plan, the Executive Stock Plan, the Conner Peripherals, Inc. 1986 Incentive Stock Plan, the 1991 Incentive Stock Option Plan, the Amended and Restated Directors' Option Plan, the Amended and Restated Archive Corporation Stock Option and Restricted Stock Purchase Plan -- 1981, the Amended and Restated Archive Corporation Incentive Stock Option Plan -- 1981, the Conner Peripherals, Inc. -- Arcada Holdings, Inc. Stock Option Plan, 1998 Non-Statutory Stock Option Plan, 1999 Stock Option Plan, Arcada Holdings Inc. 1994 Stock Option Plan, Xiotech Corporation Amended and Restated 1996 Stock Option Plan) (such assumed Seller Plans, the "Assumed Plans") (provided, however, that the Assumed Plans shall include the [Suez] Software Information Management Group, Inc. 1999 Stock Option Plan and any outstanding options to acquire Seller Common Stock which are converted into options to acquire Purchaser shares pursuant to the Roll Agreement), and shall assume and be responsible for all Liabilities whatsoever to Seller Employees, including, without limitation, claims incurred under any Assumed Plan (including, without limitation, any statutory worker's compensation claims), other than Liabilities under any Seller Plan which is not an Assumed Plan (each, a "Non-Assumed Plan"). 7.2 Employee Benefit Plans. (a) From and after the Closing, (i) Purchaser shall offer all Seller Employees employment with a Sold Subsidiary following the Closing ("Transferred Employees"), initially on the same terms and conditions of employment that such Transferred Employee had immediately prior to the Closing (including salary, title and location), and all Transferred Employees shall be entitled to, service credit under all employee benefit plans of Purchaser, the Sold Subsidiaries or any of their respective Subsidiaries equal to credited service time for Seller Employees under all Assumed Plans prior to the Closing, (ii) any service of a Transferred Employee prior to the Closing Date which was recognized under 32 any medical plan of Seller for purposes of medical or dental coverage shall be recognized by the corresponding employee benefit plans of Purchaser, the Sold Subsidiaries and their respective Subsidiaries, and (iii) any service of a Transferred Employee prior to the Closing Date which was recognized under Seller's vacation policy shall be recognized under the vacation policy of Purchaser, the Sold Subsidiaries and their respective Subsidiaries. (b) Purchaser agrees that all Transferred Employees who continue employment with Purchaser or any affiliate of Purchaser after the Closing ("Continuing Employees") shall be eligible to continue to participate in all Assumed Plans, provided that (i) nothing in this Section 7.2 shall limit the right of Purchaser to amend or terminate any such Assumed Plan, and (ii) if Purchaser terminates any such Assumed Plan, then the Continuing Employees shall immediately be eligible to participate in the corresponding Purchaser employee benefit plan or arrangement on substantially the same terms and conditions as similarly situated employees of Purchaser and its affiliates. If a Continuing Employee ceases to be covered by an Assumed Plan providing health or welfare benefits prior to the end of the plan year, and subsequently becomes covered by any Purchaser employee health or welfare benefit plan or arrangement, then (A) the Continuing Employee shall be given full credit under Purchaser's plan or arrangement for any co-pays, deductibles and out-of-pocket maximums incurred by him or her for such plan year, and (B) Purchaser's plan or arrangement shall waive any preexisting condition limitation or restriction otherwise applicable to the Continuing Employee. 7.3 WARN Act. Purchaser shall assume and be responsible for any Liabilities arising under the Worker Adjustment and Retraining Notification Act in connection with the termination of any Seller Employee on or after the Closing Date. ARTICLE VIII TAX MATTERS 8.1 Conveyance Taxes. Purchaser shall pay all real property transfer or gains, sales, use, transfer, value added, stock transfer, and stamp taxes, any transfer, recording, registration, and other fees, and any similar Taxes which become payable in connection with the transactions contemplated by this Agreement, and shall file such applications and documents as shall permit any such Tax to be assessed and paid on or prior to the Closing Date in accordance with any available pre-sale filing procedure. Purchaser shall execute and deliver all instruments and certificates necessary to enable Seller to comply with this Section 8.1. 8.2 Section 338(h)(10) Election. (a) At the request of Purchaser, Seller will join with Purchaser in making an election under Section 338(h)(10) of the Code and Treasury Regulation Section 1.338(h)(10)-1(d) (and, if permissible, any corresponding elections under any applicable state and local income tax laws) (collectively, the "Section 338(h)(10) Elections") with respect to the purchase and sale of Shares of any of the Sold Subsidiaries which is a United States person within the meaning of Section 7701(a)(30) of the Code (collectively, the "U.S. Sold Subsidiaries") hereunder. (b) To the extent possible, Purchaser, Seller and the U.S. Sold Subsidiaries shall execute on or prior to the Closing any and all forms necessary to effectuate the Section 338(h)(10) Elections (including, without limitation, Internal Revenue Service Form 8023 and any similar forms under the applicable state and local income tax laws 33 (the "Section 338 Forms")). In the event, however, any Section 338 Forms are not executed at the Closing, Purchaser and Seller shall prepare and complete each such Section 338 Form no later than 15 days prior to the date such Section 338 Form is required to be filed. Purchaser and Seller shall each cause the Section 338 Forms to be duly executed by an authorized person for Purchaser and Seller in each case, and shall duly and timely file the Section 338 Forms in accordance with applicable tax Laws and the terms of this Agreement. (c) As soon as practicable after the Closing Date, Purchaser shall (i) allocate the Purchase Price among the Sold Subsidiaries (the "Stock Allocation"), and (ii) determine the allocation of that portion of the Stock Allocation attributable to any of the U.S. Sold Subsidiaries resulting from the Section 338(h)(10) Elections (as required pursuant to Section 338(h)(10) of the Code and the regulations promulgated thereunder) among the assets of such U.S. Sold Subsidiaries (the "Section 338 Allocation") after considering in good faith Seller's comments thereto. Purchaser, Seller and the U.S. Sold Subsidiaries shall be bound by and shall file all Tax Returns (including amended Tax Returns and amended Section 338 Forms, as necessary) consistently with the Section 338 Allocation. 8.3 Tax Matters Schedule. Prior to the Closing Date, Seller shall promptly take all actions set forth in Schedule V hereto with respect to the transactions described herein. ARTICLE IX CONDITIONS TO CLOSING 9.1 Conditions to Obligations of Each Party to Effect the Closing. The respective obligations of each party to this Agreement to effect the Closing shall be subject to the satisfaction or fulfillment, at or prior to the Closing Date, of each of the following conditions: (a) Stockholder Approval. The Required Stockholder Approval shall have been obtained. (b) Registration Statement Effective; Proxy Statement. The SEC shall have declared the Registration Statement effective. No stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose, and no similar proceeding in respect of the Proxy Statement, shall have been initiated or threatened in writing by the SEC. (c) No Order; HSR Act. No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and which has the effect of making the transactions contemplated hereby illegal or otherwise prohibiting consummation of the transactions contemplated hereby. All requirements, if any, under the HSR Act or equivalent foreign statute, rule, regulation or order relating to the transactions contemplated hereby shall have been satisfied. (d) Other Transaction. All of the conditions set forth in Article VI of the VERITAS Merger Agreement (other than Section 6.1(f) thereof and the filing of the Merger Certificate thereunder) shall have been satisfied or waived. Purchaser shall have received a certificate with respect to the foregoing, signed on behalf of Seller by the President and the Chief Financial Officer of Seller. 34 9.2 Additional Conditions to Obligations of Seller. The obligation of Seller to consummate and effect the transactions contemplated by this Agreement shall be subject to the satisfaction or fulfillment, at or prior to the Closing Date, of each of the following conditions, any of which may be waived, in writing, exclusively by Seller: (a) Representations and Warranties. The representations and warranties of Purchaser contained in this Agreement shall have been true and correct in all material respects as of the date of this Agreement, except where the failure to be so true and correct would not, in the aggregate, reasonably be expected to have a material adverse effect on Purchaser. In addition, the representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date (except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date, which shall have been true and correct only as of such particular date), with the same force and effect as if made on and as of the Closing Date, except in such cases where the failure to be so true and correct would not, in the aggregate, reasonably be expected to have a material adverse effect on Purchaser. Seller shall have received a certificate with respect to the foregoing, signed on behalf of Purchaser by the Chief Executive Officer and the Chief Financial Officer of Purchaser. (b) Agreements and Covenants. Purchaser shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date, and Seller shall have received a certificate to such effect, signed on behalf of Purchaser by the Chief Executive Officer or the Chief Financial Officer of Purchaser. (c) OD Documents. The OD Documents shall be in full force and effect, enforceable in accordance with their terms, and Seller shall not have received any notice from the other party or parties to such OD Documents of its or their intention to terminate the OD Documents. 9.3 Additional Conditions to the Obligations of Purchaser. The obligations of Purchaser to consummate and effect the transactions contemplated hereby shall be subject to the satisfaction or fulfillment, at or prior to the Closing Date, of each of the following conditions, any of which may be waived, in writing, exclusively by Purchaser: (a) Representations and Warranties. The representations and warranties of Seller contained in this Agreement shall have been true and correct in all material respects as of the date of this Agreement, except, in the case of all such representations and warranties other than those set forth in Sections 3.3, 3.4, 3.15, 3.22, 3.23, 3.24 and 3.26 hereof, where the failure to be so true and correct would not, in the aggregate, reasonably be expected to have a Material Adverse Effect. In addition, the representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date (except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date, which shall remain true and correct as of such particular date), with the same force and effect as if made on and as of the Closing Date, except, in the case of all such representations and warranties other than those set forth in Sections 3.3, 3.4, 3.15, 3.22, 3.23, 3.24 and 3.26 hereof, where the failure to be so true and correct would not, in the aggregate, reasonably be expected to have a Material Adverse Effect. Purchaser 35 shall have received a certificate with respect to the foregoing, signed on behalf of Seller by the President or the Chief Financial Officer of Seller. (b) Agreements and Covenants. Seller shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date, and Purchaser shall have received a certificate to such effect, signed on behalf of Seller by the President and the Chief Financial Officer of Seller. (c) Financing. Purchaser shall have received the proceeds of the Financing contemplated by the Commitment Letters. (d) Sold Subsidiaries Cash Amount. The Sold Subsidiaries shall have available, free and clear of any and all Liens, an amount of Cash at least equal to the Required Cash. ARTICLE X TERMINATION, AMENDMENT AND WAIVER 10.1 Termination. This Agreement may be terminated at any time prior to the Closing Date, whether before or after approval of the transactions contemplated hereby by the stockholders of Seller: (a) by mutual written consent, duly authorized by the Boards of Directors of Purchaser and Seller; (b) by either Seller or Purchaser, if the transactions contemplated hereby shall not have been consummated by December 31, 2000; provided, however, that the right to terminate this Agreement pursuant to this Section 10.1(b) shall not be available to any party hereto whose failure to fulfill any obligation under this Agreement (including, without limitation, such party's obligations under in Section 6.5 hereof) has been a principal cause of, or resulted in, the failure of the transactions contemplated hereby to occur on or before such date; (c) by either Seller or Purchaser, if a Governmental Authority shall have issued an order, decree or ruling or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the transactions contemplated hereby or by the OD Documents, which order, decree or ruling is final and nonappealable; (d) by either Seller or Purchaser, if the Required Stockholder Approval shall not have been obtained by reason of the failure to obtain the Required Stockholder Approval upon a vote taken at a meeting of stockholders duly convened therefor or at any adjournment or postponement thereof; provided, however, that the right to terminate this Agreement pursuant to this Section 10.1(d) shall not be available to Seller where the failure to obtain the Required Stockholder Approval shall have been caused by the action or failure to act in a manner which constitutes a material breach of this Agreement; (e) by Seller, upon a breach of any representation, warranty, covenant or agreement on the part of Purchaser contained in this Agreement, or if any representation or warranty of Purchaser shall have become untrue, in either case such that the conditions set forth in Section 9.2(a) or Section 9.2(b) would not be satisfied as of the time of such breach or as of the time such representation or warranty shall 36 have become untrue, provided, however, that if such inaccuracy in Purchaser's representations and warranties or breach by Purchaser is curable, then Seller may not terminate this Agreement pursuant to this Section 10.1(e) for thirty-five (35) calendar days after delivery of written notice from Seller to Purchaser of such breach, provided that Purchaser continues to exercise commercially reasonable efforts to cure such breach (it being understood that Seller may not terminate this Agreement pursuant to this Section 10.1(e) if such breach by Purchaser is cured during such thirty-five (35)-day period); (f) by Purchaser, upon a breach of any representation, warranty, covenant or agreement on the part of Seller set forth in this Agreement, or if any representation or warranty of Seller shall have become untrue, in either case such that the conditions set forth in Section 9.3(a) or Section 9.3(b) would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become untrue, provided, however, that if such inaccuracy in Seller's representations and warranties or breach by Seller is curable, then Purchaser may not terminate this Agreement pursuant to this Section 10.1(f) for thirty-five (35) calendar days after delivery of written notice from Purchaser to Seller of such breach, provided that Seller continues to exercise commercially reasonable efforts to cure such breach (it being understood that Purchaser may not terminate this Agreement pursuant to this Section 10.1(f) if such breach by Seller is cured during such thirty-five (35)-day period); (g) by Seller, if (i) prior to obtaining the Required Stockholder Approval, Seller receives a Seller Superior Offer, the Board of Directors of Seller concludes in good faith, after consultation with its outside counsel, that in light of such Seller Superior Offer, the termination of this Agreement in order to accept such Seller Superior Offer is necessary in order for the Board of Directors of Seller to comply with its fiduciary obligations to the stockholders of Seller under applicable Law, and (ii) Seller has complied with all of its obligations under Section 6.5 hereof, and (iii) prior to the termination of this Agreement pursuant to this Section 10.1(g), Seller pays Purchaser the Seller Termination Fee pursuant to Section 10.3(b)(ii) hereof; provided, however, that such termination may take place only after two (2) business days following Purchaser's receipt of written notice advising Purchaser that the Board of Directors of the Seller has received a Seller Superior Offer specifying the material terms and conditions of such Seller Superior Offer (and including a copy thereof with all accompanying documentation, if in writing), identifying the person making such Seller Superior Offer and stating that it intends to make the determination set forth in clause (i) of this Section 10.1(g). After providing such notice, Seller shall provide an opportunity to Purchaser to make such adjustments in the terms and conditions of this Agreement as would enable Seller to proceed with its recommendation to its stockholders without making the determination set forth in clause (i) of this Section 10.1(g); provided, further, however, that any such adjustment shall be at the discretion of Purchaser at the time; or (h) by Purchaser, if a Seller Triggering Event (as defined below) shall have occurred. For the purposes of this Agreement, a "Seller Triggering Event" shall be deemed to have occurred if (i) the Board of Directors of Seller or any committee thereof shall for any reason have withdrawn or shall have amended or modified in a manner adverse to Purchaser its recommendation in favor of the approval of this Agreement or the OD Documents and the transactions contemplated hereby or thereby, (ii) Purchaser shall have failed to include in the Proxy Statement the 37 recommendation of the Board of Directors of Seller in favor of the approval of this Agreement or the OD Documents and the transactions contemplated hereby or thereby, or shall have taken any action or made any statement inconsistent with such recommendation, or (iii) a tender or exchange offer for in excess of the fifteen percent (15%) of the equity securities of Seller shall have been commenced by a person unaffiliated with Purchaser, and Seller shall not have sent to its securityholders pursuant to Rule 14e-2 promulgated under the Securities Act, within ten (10) business days after such tender or exchange offer is first published sent or given, a statement disclosing that Seller recommends rejection of such tender or exchange offer. 10.2 Notice of Termination; Effect of Termination. Any termination of this Agreement pursuant to Section 10.1 hereof shall be effective immediately upon the delivery of written notice of the terminating party to the other party hereto. In the event of the termination of this Agreement pursuant to Section 10.1 hereof, this Agreement shall be of no further force or effect, except (i) as set forth in this Section 10.2, Section 10.3 hereof and Article XII hereof, each of which shall survive the termination of this Agreement without limitation, and (ii) nothing herein shall relieve any party from Liability for any breach of this Agreement. 10.3 Fees and Expenses. (a) General. Except as set forth in this Section 10.3, all fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, whether or not the transactions contemplated by this Agreement are consummated. (b) Seller Payments. (i) Seller shall pay to Purchaser or its Designees in immediately available funds, within one (1) business day after demand by Purchaser, an amount equal to $80,000,000 (the "Seller Termination Fee") if this Agreement is terminated by Purchaser pursuant to Section 10.1(h) hereof. (ii) Seller shall pay to Purchaser or its Designees in immediately available funds, prior to the termination of this Agreement, an amount equal to the Seller Termination Fee if this Agreement is terminated by Seller pursuant to Section 10.1(g) hereof. (iii) Seller shall pay to Purchaser or its Designees in immediately available funds, within one (1) business day after the date Seller directly or indirectly enters into an agreement with any third party with respect to a Seller Acquisition Transaction or a Seller Acquisition Transaction is consummated, an amount equal to the Seller Termination Fee if (A) this Agreement is terminated by either party pursuant to Section 10.1(d) hereof, (B) at any time after the date of this Agreement and at or before the Seller Stockholders' Meeting a Seller Acquisition Proposal shall have been publicly announced or otherwise communicated to Seller and not withdrawn, and (C) within twelve (12) months of the termination of this Agreement, Seller directly or indirectly enters into an agreement with any third party with respect to a Business Combination Transaction (as defined in Section 10.3(b)(vi) hereof) or a Business Combination Transaction is consummated. (iv) Seller shall pay to Purchaser or its Designees in immediately available funds, within one (1) business day after the first to occur of the events set forth in clause (D) below, an amount equal to the Seller Termination Fee if (A) this 38 Agreement is terminated by either party pursuant to Section 10.1(b) hereof, (B) at any time after the date of this Agreement and at or before the Termination Date a Seller Acquisition Proposal shall have been publicly announced or otherwise communicated to Seller and not publicly withdrawn, (C) following the public announcement or communication of such Seller Acquisition Proposal and prior to any such termination, Seller shall have intentionally breached (and not cured after notice thereof) any of its covenants or agreements set forth in this Agreement in any material respect, which breach shall have contributed to the failure of the Closing to occur on or before the Termination Date, and (D) within twelve (12) months of the termination of this Agreement, Seller directly or indirectly enters into an agreement with any third party with respect to a Business Combination Transaction or a Business Combination Transaction is consummated. (v) Seller acknowledges that the agreements contained in this Section 10.3(b) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Purchaser would not enter into this Agreement. (vi) "Business Combination Transaction" shall mean any transaction or series of related transactions involving: (i) any acquisition or purchase from Seller by any person or "group" (as defined under Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) of more than fifty percent (50%) in interest of the total outstanding voting securities of Seller, or any tender offer or exchange offer that if consummated would result in any person or "group" (as defined under Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) beneficially owning more than fifty percent (50%) of the total outstanding voting securities of Seller, or any merger, consolidation, business combination or similar transaction involving Seller pursuant to which the stockholders of Seller immediately preceding such transaction would hold less than fifty percent (50%) of the equity interests in the surviving or resulting entity of such transaction (or the ultimate parent entity thereof); (ii) any sale, lease (other than in the ordinary course of business), exchange, transfer, license (other than in the ordinary course of business), acquisition or disposition of more than fifty percent (50%) of the fair market value of the consolidated assets and properties of Seller; (iii) a sale or other disposition by Seller of all or more than fifty percent (50%) of the assets that would have been held by the Sold Subsidiaries if the Split had taken place; and (iv) the acquisition by any person or group (including by way of a tender offer or an exchange offer or issuance by Seller), directly or indirectly, of beneficial ownership or a right to acquire beneficial ownership of shares representing in excess of fifty percent (50%) of the voting power of the then outstanding shares of capital stock of Seller. 10.4 Amendment. Subject to applicable Law, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto. 10.5 Extension; Waiver. At any time prior to the Closing Date any party hereto may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other party hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an 39 instrument in writing signed on behalf of such party. Delay in exercising any right under this Agreement shall not constitute a waiver of such right. ARTICLE XI INDEMNIFICATION 11.1 Survival. The representations and warranties of Seller contained in this Agreement, and any representation or warranty, statement or other information contained in any Exhibit to this Agreement, the Seller Disclosure Schedule, the TA Statement and any certificate, instrument or other report or document delivered by Seller pursuant to this Agreement or in connection with the transactions contemplated hereby (collectively, the "Acquisition Documents"), shall not survive the Closing. Neither the period of non-survival nor the Liability of Seller with respect to Seller's representations or warranties, statements or other information contained in any of the Acquisition Documents shall be increased by any investigation made at any time by or on behalf of Purchaser, either before or after the Closing. 11.2 Indemnification. Purchaser shall indemnify and hold harmless Seller and each other party to the Indemnification Agreement against all losses and claims to the extent provided in the Indemnification Agreement. ARTICLE XII GENERAL PROVISIONS 12.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or sent via facsimile (receipt confirmed) to the parties at the following addresses or facsimile numbers (or at such other address or facsimile numbers for a party as shall be specified by like notice): (a) if to Purchaser (or the Sold Subsidiaries following the Closing), to: Suez Acquisition Company (Cayman) Limited c/o Silver Lake Partners, L.P. 2725 Sand Hill Road Building C, Suite 950 Menlo Park, California 94025 Attention: Dave Roux Facsimile: 650-233-8125 Telephone: 650-233-8121 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017-3954 Attention: William E. Curbow, Esq. Facsimile: 212-455-2502 Telephone: 212-455-2000 40 and to: TPG Partners III, L.P. 201 Main Street, Suite 2420 Fort Worth, Texas 76102 Attention: Richard A. Ekleberry, Esq. Facsimile: 817-871-4010 Telephone: 817-871-4000 with a copy to: Cleary, Gottlieb, Steen & Hamilton One Liberty Plaza New York, New York 10006 Attention: Paul J. Shim, Esq. Facsimile: 212-225-3999 Telephone: 212-225-2000 and to: VERITAS Software Corporation 1600 Plymouth Street Mountain View, California 94043 Attention: General Counsel Facsimile: 650-526-2581 Telephone: 650-335-8000 with a copy to: Willkie Farr & Gallagher 787 Seventh Avenue New York, New York 10019 Attention: Michael A. Schwartz Facsimile: 212-728-8111 Telephone: 212-728-8000 (b) if to Seller, SSHI (or the Sold Subsidiaries prior to the Closing), to: Seagate Technology, Inc. 920 Disc Drive P.O. Box 66360 Scotts Valley, California 95067 Attention: General Counsel Facsimile: 831-438-6675 Telephone: 831-439-5370 with a copy to: Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, California 94304-1050 Attention: Larry W. Sonsini, Esq. Facsimile: 650-493-6811 Telephone: 650-493-9300 41 and to: Wilson Sonsini Goodrich & Rosati Professional Corporation One Market Street Spear Tower, Suite 3300 San Francisco, California 94105 Attention: Michael J. Kennedy, Esq. Facsimile: 415-947-2099 Telephone: 415-947-2000 12.2 Interpretation. When a reference is made in this Agreement to Schedules or Exhibits, such reference shall be to a Schedule or Exhibit to this Agreement unless otherwise indicated. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement or any term or provision hereof. When reference is made herein to "the business of" an entity, such reference shall be deemed to include the business of all direct and indirect Subsidiaries of such entity. 12.3 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when each counterpart has been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. 12.4 Entire Agreement. This Agreement and the documents and instruments and other agreements among the parties hereto as contemplated by or referred to herein, including, without limitation, the Seller Disclosure Schedule and the Purchaser Disclosure Schedule, (i) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, it being understood that the Confidentiality Agreement shall continue in full force and effect until the Closing and shall survive any termination of this Agreement; and (ii) are not intended to confer upon any other person any rights or remedies hereunder, except as set forth herein. 12.5 Severability. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 12.6 Other Remedies; Specific Performance. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and 42 to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 12.7 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to conflicts of law principles. 12.8 Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any Law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 12.9 Assignment. No party may assign either this Agreement or any of its rights, interests, or obligations hereunder, in whole or in part, by operation of law or otherwise, without the prior written approval of the other party hereto; provided, however, that Purchaser shall have the right to assign any or all of its rights to acquire the Shares is one or more designee (each, a "Designee"); and provided, further, however, that no such assignment shall release Purchaser from any of its Liabilities or obligations under this Agreement. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12.10 WAIVER OF JURY TRIAL. EACH OF SELLER AND PURCHASER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF SELLER OR PURCHASER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF. 12.11 No Third Party Rights. Except as expressly set forth herein and as provided in Section 6.10 hereof, this Agreement does not create any rights, claims or benefits incurring to any person that is not a party hereto nor create or establish any third party claim. 12.12 Attorneys' Fees. Should suit be brought to enforce or interpret any party of this Agreement, the prevailing party will be entitled to recover, as an element of the costs of suit and not as damages, reasonably attorneys' fees to be fixed by the court, including, without limitation, costs, expenses and fees on any appeal. The prevailing party will be entitled to recover its costs of suit, regardless of whether such suit proceeds to final judgment. [Remainder of Page Intentionally Left Blank] 43 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed by their duly authorized respective officers, as of the date first above written. SUEZ ACQUISITION COMPANY (CAYMAN) LIMITED By: /s/ David Roux -------------------------------------- Name: David Roux Title: Managing Member SEAGATE TECHNOLOGY, INC. By: /s/ Stephen J. Luczo -------------------------------------- Name: Stephen J. Luczo Title: CEO and President SEAGATE SOFTWARE HOLDINGS, INC. By: /s/ Charles C. Pope -------------------------------------- Name: Charles C. Pope Title: SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT 44 List of Omitted Schedules ------------------------- Schedule I! Commitment Letters* Schedule II! Designated Assets* Schedule IV! Sold Subsidiaries* Schedule V! Seller's Covenant with Respect to Tax Matters* Seller Disclosure Schedule* Purchaser Disclosure Schedule* * To be furnished to the Securities and Exchange Commission upon request. EX-2.2 5 0005.txt AGREEMENT AND PLAN OF MERGER AND REORGANIZATION Exhibit 2.2 EXECUTION COPY AGREEMENT AND PLAN OF MERGER AND REORGANIZATION BY AND AMONG VERITAS SOFTWARE CORPORATION VICTORY MERGER SUB, INC. AND SEAGATE TECHNOLOGY, INC. DATED AS OF MARCH 29, 2000 TABLE OF CONTENTS
PAGE ---- AGREEMENT AND PLAN OF MERGER AND REORGANIZATION..................... 1 ARTICLE I THE MERGER............................................... 1 1.1 The Merger.................................................. 1 1.2 Effective Time; Closing..................................... 1 1.3 Effect of the Merger........................................ 2 1.4 Certificate of Incorporation and Bylaws of Surviving Corporation................................................. 2 1.5 Effect on Capital Stock..................................... 2 1.6 Surrender of Certificates................................... 4 1.7 No Further Ownership Rights in Seagate Common Stock......... 6 1.8 Lost, Stolen or Destroyed Certificates...................... 6 1.9 Tax Consequences............................................ 6 1.10 Taking of Necessary Action; Further Action.................. 7 1.11 Definitions................................................. 7 1.12 Dissenting Shares........................................... 10 ARTICLE II REPRESENTATIONS AND WARRANTIES OF SEAGATE............... 11 2.1 Organization; Good Standing................................. 11 2.2 Charter Documents........................................... 11 2.3 Capital Structure........................................... 11 2.4 Authority................................................... 12 2.5 Conflicts................................................... 13 2.6 Consents.................................................... 13 2.7 SEC Filings; Financial Statements........................... 13 2.8 Liabilities................................................. 14 2.9 Absence of Material Adverse Effect on Seagate............... 14 2.10 Compliance.................................................. 14 2.11 Permits..................................................... 15 2.12 Litigation.................................................. 15 2.13 Brokers' and Finders' Fees.................................. 15 2.14 Absence of Liens and Encumbrances........................... 15 2.15 Statements; Registration Statement; Proxy Statement/Prospectus........................................ 15 2.16 Board Approval.............................................. 16 2.17 State Takeover Statutes..................................... 16 2.18 Fairness Opinion............................................ 16 2.19 Veritas Common Stock........................................ 16 2.20 Intercompany Transactions................................... 16 2.21 Taxes....................................................... 16 2.22 Code Section 897 Company.................................... 16 ARTICLE III REPRESENTATIONS AND WARRANTIES OF VERITAS AND MERGER SUB............................................................... 17 3.1 Organization; Good Standing................................. 17 3.2 Charter Documents........................................... 17 3.3 Capital Structure........................................... 17 3.4 Authority................................................... 17 3.5 Conflicts................................................... 18
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PAGE ---- 3.6 Consents.................................................... 18 3.7 SEC Filings; Veritas Financial Statements................... 18 3.8 Absence of Certain Changes or Events........................ 19 3.9 Litigation.................................................. 19 3.10 Brokers' and Finders' Fees.................................. 19 3.11 Statements; Registration Statement; Proxy Statement/Prospectus........................................ 19 3.12 Board Approval.............................................. 20 3.13 Fairness Opinion............................................ 20 3.14 Merger Sub Operations....................................... 20 ARTICLE IV CONDUCT OF BUSINESS AND OTHER TRANSACTIONS.............. 20 4.1 Conduct of Business......................................... 20 4.2 No Amendment to OD Documents................................ 20 4.3 Waivers and Releases........................................ 20 ARTICLE V ADDITIONAL AGREEMENTS.................................... 21 5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings..................................................... 21 5.2 Stockholder Meetings........................................ 22 5.3 Confidentiality............................................. 23 5.4 No Solicitation............................................. 23 5.5 Public Disclosure........................................... 25 5.6 Legal Requirements.......................................... 25 5.7 Notification of Certain Matters............................. 25 5.8 Commercially Reasonable Efforts and Further Assurances...... 25 5.9 Indemnification............................................. 26 5.10 Tax-Free Reorganization..................................... 26 5.11 Nasdaq Listing.............................................. 27 5.12 Seagate Affiliate Agreement................................. 27 5.13 Regulatory Filings; Reasonable Efforts...................... 27 5.14 Access to Information....................................... 27 5.15 TRA Matters................................................. 27 ARTICLE VI CONDITIONS TO THE MERGER................................ 29 6.1 Conditions to Obligations of Each Party to Effect the Merger...................................................... 29 6.2 Additional Conditions to Obligations of Seagate............. 30 6.3 Additional Conditions to the Obligations of Veritas and Merger Sub.................................................. 30 ARTICLE VII TERMINATION, FEES AND EXPENSES; AMENDMENT AND WAIVER... 31 7.1 Termination................................................. 31 7.2 Notice of Termination; Effect of Termination................ 33 7.3 Fees and Expenses........................................... 34 7.4 Amendment................................................... 35 7.5 Extension; Waiver........................................... 35 ARTICLE VIII GENERAL PROVISIONS.................................... 35 8.1 Non-Survival of Representations and Warranties.............. 35 8.2 Notices..................................................... 35
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PAGE ---- 8.3 Certain Interpretations..................................... 37 8.4 Counterparts................................................ 37 8.5 Entire Agreement............................................ 38 8.6 Severability................................................ 38 8.7 Other Remedies; Specific Performance........................ 38 8.8 Governing Law............................................... 38 8.9 Rules of Construction....................................... 38 8.10 Assignment.................................................. 38 8.11 Waiver of Jury Trial........................................ 38
iii AGREEMENT AND PLAN OF MERGER AND REORGANIZATION THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this "Agreement") is made and entered into as of March 29, 2000 among VERITAS Software Corporation, a Delaware corporation ("Veritas"), Victory Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Veritas ("Merger Sub"), and Seagate Technology, Inc., a Delaware corporation ("Seagate"). RECITALS A. Upon the terms and subject to the conditions of this Agreement and in accordance with the General Corporation Law of the State of Delaware ("Delaware Law"), Veritas and Seagate have agreed to enter into a business combination transaction pursuant to which Merger Sub will merge with and into Seagate (the "Merger"). B. The Boards of Directors of Veritas and Merger Sub (i) have determined that the Merger is fair to, advisable and in the best interests of, Veritas, Merger Sub and their stockholders, (ii) have approved this Agreement, the Merger and the other transactions contemplated by this Agreement, and (iii) have determined to recommend approval of the Merger. In addition, the Board of Directors of Veritas has determined to recommend approval of, to the extent not previously authorized, an amendment to Veritas' Certificate of Incorporation to increase the authorized number of shares of Veritas common stock from 500,000,000 to an additional amount sufficient to permit the issuance of Veritas Common Stock contemplated hereby (the "Share Increase"). C. The Board of Directors of Seagate (i) has determined that the Merger is fair to, advisable and in the best interests of, Seagate and its stockholders, (ii) has approved this Agreement, the Merger and the other transactions contemplated by this Agreement, and (iii) has determined to recommend the approval of this Agreement and the Merger by the stockholders of Seagate. D. Veritas, Merger Sub and Seagate intend, by entering into this Agreement, to adopt a plan of "reorganization" within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"). NOW, THEREFORE, in consideration of the foregoing premises, and the covenants, promises and representations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, the parties hereto hereby agree as follows: ARTICLE I THE MERGER 1.1 The Merger. At the Effective Time (as defined in Section 1.2 hereof), and upon the terms and subject to the conditions of this Agreement and in accordance with the applicable provisions of Delaware Law, Merger Sub shall be merged with and into Seagate, the separate corporate existence of Merger Sub shall cease and Seagate shall continue as the surviving corporation. Seagate as the surviving corporation after the Merger is hereinafter sometimes referred to as the "Surviving Corporation." 1.2 Effective Time; Closing. As soon as practicable on or after the Closing Date (as defined in this Section 1.2), and upon the terms and subject to the conditions of this Agreement, the parties hereto shall cause the Merger to be consummated by filing a 1 Certificate of Merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware in accordance with the relevant provisions of Delaware Law (the time of such filing (or such later time as may be agreed upon in writing by Veritas and Seagate and specified in the Certificate of Merger) being referred to herein as the "Effective Time"). The closing of the Merger and the other transactions contemplated hereby (the "Closing") shall take place at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, located at One Market Plaza, Spear Tower, Suite 1600, San Francisco, California 94105, at a date and time to be specified by Veritas and Seagate, which shall be no later than the second (2nd) business day following the satisfaction or, if permitted pursuant hereto, waiver of the conditions set forth in Article VI hereof, or at such other location, date and time as Veritas and Seagate shall mutually agree in writing. The date upon which the Closing actually occurs shall be referred to herein as the "Closing Date." 1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in this Agreement and the applicable provisions of Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all of the property, rights, privileges, powers and franchises of Seagate and Merger Sub shall vest in the Surviving Corporation, and all of the debts, Liabilities and duties of Seagate and Merger Sub shall become the debts, Liabilities and duties of the Surviving Corporation. 1.4 Certificate of Incorporation and Bylaws of Surviving Corporation. (a) Certificate of Incorporation. As of the Effective Time, the Certificate of Incorporation of Merger Sub, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation, until thereafter amended as provided by Delaware Law and such Certificate of Incorporation. (b) Bylaws. As of the Effective Time, the Bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation, until thereafter amended as provided by Delaware Law, the Certificate of Incorporation of the Surviving Corporation and such Bylaws. (c) Directors and Officers. As of the Effective Time, Mr. Jay Jones shall be the sole director of the Surviving Corporation, and the officers of the Surviving Corporation shall be as designated by Veritas. 1.5 Effect on Capital Stock. Upon the terms and subject to the conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, Seagate or the holders of any of the following securities, the following shall occur: (a) Conversion of Seagate Common Stock. Except as otherwise provided in this Agreement, each share of Common Stock, par value $0.01 per share, of Seagate (the "Seagate Common Stock") outstanding immediately prior to the Effective Time (other than any shares of Seagate Common Stock to be canceled pursuant to Section 1.5(b) hereof) shall be canceled and extinguished and automatically converted (subject to the terms of this Section 1.5) into the right to receive (i) the Stock Portion (as defined in Section 1.11 hereof), (ii) the Cash Portion (as defined in Section 1.11 hereof) and (iii) the TRA Right (the Stock Portion, the Cash Portion and a TRA Right being referred to herein, collectively, as the "Merger Consideration") upon the surrender of the certificate representing such share of Seagate Common Stock in the manner set forth in Section 1.6 hereof (or in the case of a lost, 2 stolen or destroyed certificate, upon delivery of an affidavit (and bond, if required) in the manner set forth in Section 1.8 hereof). (b) Cancellation of Certain Seagate Common Stock. Unless otherwise determined by Veritas, each share of Seagate Common Stock (i) held in the treasury of Seagate, or (ii) owned by Merger Sub, Veritas or any direct or indirect wholly-owned subsidiary of Seagate or of Veritas, in either case immediately prior to the Effective Time, shall be canceled and extinguished without any conversion thereof. (c) Seagate Stock Options; Seagate Employee Stock Purchase Plan. At the Effective Time, (i) the vesting restrictions applicable to all options to purchase Seagate Common Stock ("Seagate Options") outstanding immediately prior to the Effective Time under all Seagate stock option and stock purchase plans (collectively, the "Seagate Stock Option Plans"), excluding the Rolled Options (as defined in Section 1.11 hereof), shall be accelerated such that no vesting restrictions remain thereon, (ii) each such Seagate Option (excluding the Rolled Options) shall, for all purposes of and under this Agreement, be converted into a number of shares of Seagate Common Stock ("Seagate Option Shares") equal to (x) the aggregate number of shares of Seagate Common Stock issuable upon the exercise in full of such Seagate Option, minus (y) the NE Amount in respect of such Seagate Option, (iii) the Seagate Option Shares so converted shall be considered outstanding shares of Seagate Common Stock for all purposes of and under this Agreement, including, without limitation, the right to receive the Merger Consideration pursuant to the Merger in accordance with Section 1.11(a)(xvii) and Section 1.5(a) hereof, (iv) the Rolled Options shall be canceled and extinguished without any payment of Merger Consideration or any other consideration therefor, and (v) in accordance with the terms of Seagate's 1999 Employee Stock Purchase Plan (the "Seagate ESPP"), all rights to purchase shares of Seagate Common Stock outstanding under the Seagate ESPP immediately prior to the Effective Time shall be exercised and each share of Seagate Common Stock purchased pursuant to such exercise shall by virtue of the Merger, and without any action on the part of the holder thereof, be converted into the right to receive the Merger Consideration payable in respect thereof, without the issuance of certificates representing issued and outstanding shares of Seagate Common Stock. The Seagate ESPP shall be terminated immediately following such exercises. (d) Required Withholding. Each of the Exchange Agent (as defined in Section 1.6(a) hereof) and Veritas shall be entitled to deduct and withhold from the Merger Consideration or any other consideration deliverable or otherwise payable pursuant to the Merger and this Agreement to any holder or former holder of Seagate Common Stock or Seagate Option Shares such amounts as may be required to be deducted or withheld therefrom under the Code or under any applicable provision of state, local or foreign tax law or under any other applicable legal requirement. To the extent such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been delivered or otherwise paid to the person to whom such amounts would otherwise have been delivered or otherwise paid pursuant to the Merger and this Agreement. (e) Adjustments to Exchange Ratio. The Merger Consideration shall be adjusted to reflect appropriately the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Veritas Common Stock or Seagate Common Stock), extraordinary cash dividend, reorganization, recapitalization, reclassification, combination, consolidation or subdivision, 3 exchange of shares or other like change with respect to Veritas Common Stock or Seagate Common Stock occurring on or after the date hereof and prior to the Effective Time. (f) Fractional Shares. No fraction of a share of Veritas Common Stock shall be issued pursuant to the Merger, but in lieu thereof each holder of shares of Seagate Common Stock and Seagate Option Shares who would otherwise be entitled to a fraction of a share of Veritas Common Stock (after aggregating all fractional shares of Veritas Common Stock to be received by such holder) pursuant to the Merger shall receive from Veritas an amount in cash (rounded to the nearest whole cent), without interest, equal to the product obtained by multiplying (x) such fraction by (y) the Average Veritas Stock Price (as defined in Section 1.11 hereof). (g) Capital Stock of Merger Sub. Each share of Common Stock, $0.01 par value per share, of Merger Sub (the "Merger Sub Common Stock") issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and nonassessable share of Common Stock, $0.01 par value per share, of the Surviving Corporation. Each certificate evidencing ownership of shares of Merger Sub Common Stock shall evidence ownership of such shares of capital stock of the Surviving Corporation. 1.6 Surrender of Certificates. (a) Exchange Agent. Veritas shall select an institution reasonably satisfactory to Seagate to act as the exchange agent (the "Exchange Agent") for the Merger. (b) Veritas to Provide Merger Consideration. Promptly following the Effective Time, Veritas shall make available to the Exchange Agent for exchange in accordance with this Article I, (i) the shares of Veritas Common Stock issuable pursuant to Section 1.5(a) or Section 1.5(c) hereof in exchange for outstanding shares of Seagate Common Stock and Seagate Option Shares, (ii) the cash payable pursuant to Section 1.5(a) hereof in exchange for outstanding shares of Seagate Common Stock and Seagate Option Shares, (iii) cash in an amount sufficient to make the cash payments in lieu of fractional shares pursuant to Section 1.5(f) hereof, and (iv) cash in an amount sufficient to pay any dividends or distributions to which holders of shares of Seagate Common Stock and Seagate Option Shares may be entitled pursuant to Section 1.6(e) hereof. From and after the date that is 6 months after the Effective Date, Veritas shall have the right to cause the Exchange Agent to transfer to Veritas all funds deposited by Veritas with the Exchange Agent pursuant to this Section 1.6(b) that have not been distributed pursuant to Section 1.6(d), and all holders of Seagate Common Stock and Seagate Options entitled to receive the Merger Consideration shall thereafter become general creditors of Veritas in respect of the Merger Consideration. (c) Exchange Procedures for Seagate Common Stock Certificates. Promptly following the Effective Time, Veritas shall cause the Exchange Agent to mail to each holder of record (as of the Effective Time) of a certificate or certificates (the "Certificates") which immediately prior to the Effective Time represented outstanding shares of Seagate Common Stock and which were converted into the right to receive shares of Veritas Common Stock and cash pursuant to Section 1.5(a) hereof, cash in lieu of any fractional shares pursuant to Section 1.5(f) hereof and any dividends or other distributions pursuant to Section 1.6(e) hereof, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent, and which shall be in 4 such form and have such other provisions as Veritas may reasonably specify), and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of Veritas Common Stock issuable and cash payable in respect of such shares of Seagate Common Stock pursuant to Section 1.5(a) hereof, cash in lieu of any fractional shares payable in respect of such shares of Seagate Common Stock pursuant to Section 1.5(f) hereof and any dividends or other distributions payable in respect of such Seagate Common Stock pursuant to Section 1.6(e) hereof. Upon the surrender and delivery of Certificates for cancellation to the Exchange Agent (or to such other agent or agents as may be appointed by Veritas), and such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holders of such Certificates shall be entitled to receive in exchange therefor certificates representing the number of whole shares of Veritas Common Stock issuable and cash payable in respect of such shares of Seagate Common Stock pursuant to Section 1.5(a) hereof, cash in lieu of fractional shares payable in respect of such shares of Seagate Common Stock pursuant to Section 1.5(f) hereof and any dividends or distributions payable in respect of such shares of Seagate Common Stock pursuant to Section 1.6(e) hereof, and the Certificates so surrendered shall forthwith be canceled. Until so surrendered, outstanding Certificates will be deemed from and after the Effective Time, for all corporate purposes, subject to Section 1.6(e) hereof as to the payment of dividends and other distributions, to evidence the ownership of a number of full shares of Veritas Common Stock and the right to receive an amount in cash into which such shares of Seagate Common Stock shall have been so converted pursuant to Section 1.5(a) hereof, and the right to receive an amount in cash in lieu of the issuance of any fractional shares payable in respect of such shares of Seagate Common Stock pursuant to Section 1.5(f) hereof and any dividends or distributions payable in respect of such shares of Seagate Common Stock pursuant to Section 1.6(e) hereof. (d) Exchange Procedures for Seagate Options. Promptly following the Effective Time, Veritas shall cause the Exchange Agent to mail to each holder (as of the Effective Time) of a Seagate Option which was converted into the right to receive the Merger Consideration pursuant to Section 1.5(a) hereof, cash in lieu of any fractional shares pursuant to Section 1.5(f) hereof and any dividends or other distributions pursuant to Section 1.6(e) hereof, (i) a letter of transmittal (which shall be in such form and have such other provisions as Veritas may reasonably specify), and (ii) instructions for use in receiving the certificates representing shares of Veritas Common Stock issuable and cash payable in respect of such Seagate Options pursuant to Section 1.5(a) and Section 1.5(c), cash in lieu of any fractional shares payable in respect of such Seagate Options pursuant to Section 1.5(f) hereof and any dividends or other distributions payable pursuant to Section 1.6(e) hereof. Upon the delivery of such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, to the Exchange Agent (or to such other agent or agents as may be appointed by Veritas), the holders of Seagate Options shall be entitled to receive the Merger Consideration payable to them pursuant to Common Stock issuable and cash issuable in respect of such Seagate Options pursuant to Section 1.5(a) and Section 1.5(c), cash in lieu of fractional shares payable in respect of such Seagate Options pursuant to Section 1.5(f) hereof and any dividends or distributions payable in respect of such Seagate Options pursuant to Section 1.6(e) hereof. (e) Distributions With Respect to Unexchanged Shares. No dividends or other distributions declared or made after the date of this Agreement in respect of Veritas Common Stock with a record date after the Effective Time shall be paid to the holders of any unsurrendered Certificates or Seagate Options with respect to the shares of Veritas 5 Common Stock represented thereby until the holders of record of such Certificates shall surrender such Certificates or the holders of such Seagate Options shall return a letter of transmittal, duly completed and validly executed in accordance with the instructions thereto. Subject to applicable law, following surrender of any such Certificates and return of such letter of transmittal, the Exchange Agent shall deliver to the record holders of such Certificates or the holders of such Seagate Options, as the case may be, without interest, certificates representing whole shares of Veritas Common Stock issued in exchange therefor, along with payment in lieu of fractional shares payable in respect of shares of Seagate Common Stock or Seagate Options pursuant to Section 1.5(g) hereof and the amount of any such dividends or other distributions with a record date after the Effective Time payable in respect of such whole shares of Veritas Common Stock. (f) Transfers of Ownership. If certificates for shares of Veritas Common Stock are to be issued in a name other than that in which the Certificates surrendered in exchange therefor are registered, it will be a condition of the issuance thereof that the Certificates so surrendered will be properly endorsed and otherwise in proper form for transfer and that the persons requesting such exchange will have paid to Veritas (or any agent designated by it) any transfer or other taxes required by reason of the issuance of certificates for shares of Veritas Common Stock in any name other than that of the registered holders of the Certificates surrendered, or established to the satisfaction of Veritas or any agent designated by it that such tax has been paid or is not payable. (g) No Liability. Notwithstanding anything to the contrary in this Section 1.6, neither the Exchange Agent, Veritas, the Surviving Corporation nor any party hereto shall be liable to a holder of shares of Veritas Common Stock or Seagate Common Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. 1.7 No Further Ownership Rights in Seagate Common Stock. All cash and shares of Veritas Common Stock issued pursuant to and in accordance with the terms of this Article I (including any cash paid in respect thereof pursuant to Section 1.5(f) and Section 1.6(e) hereof) shall be deemed to have been issued in full satisfaction of all rights pertaining to shares of Seagate Common Stock, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Seagate Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I. 1.8 Lost, Stolen or Destroyed Certificates. In the event that any Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, shares of Veritas Common Stock and cash payable in respect thereof pursuant to Section 1.5(a) or Section 1.5(b) hereof, cash in lieu of fractional shares, if any, payable in respect thereof pursuant to Section 1.5(f) hereof and any dividends or distributions payable in respect thereof pursuant to Section 1.6(e) hereof; provided, however, that Veritas may, in its discretion and as a condition precedent to the issuance and payment thereof, require the owner of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Veritas or the Exchange Agent with respect to the Certificates alleged to have been so lost, stolen or destroyed. 1.9 Tax Consequences. Veritas and Seagate intend that the Merger shall constitute a "reorganization" within the meaning of Section 368 of the Code. Veritas and Seagate 6 adopt this Agreement as a "plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations. 1.10 Taking of Necessary Action; Further Action. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes and intent of this Agreement and to vest in the Surviving Corporation full right, title and possession in and to all of the assets, properties, rights, privileges, powers and franchises of Seagate and Merger Sub, the officers and directors of Merger Sub and Seagate shall be authorized to take, and shall take, all such lawful and necessary action. 1.11 Definitions. (a) For all purposes of and under this Agreement, the following terms shall have the following respective meanings: (i) "Administrators" has the meaning set forth in Section 5.15. (ii) "Available Amount" means an amount equal to Cash held by Seagate immediately prior to the Effective Time including net amounts received under the OD Documents minus the VP Amount. (iii) "Average Seagate Stock Price" means the average closing price of a share of Seagate Common Stock, as reported on the NYSE, for the five (5) consecutive trading days ending two (2) trading days immediately preceding the Closing Date. (iv) "Average Veritas Stock Price" means the average closing price of a share of Veritas Common Stock, as reported on the Nasdaq, for the five (5) consecutive trading days ending two (2) trading days immediately preceding the Closing Date, as with respect to the VP Amount, preceding the date that Veritas makes its election. (v) "Cash" means cash, cash equivalents and short-term investments (including all debt securities available for sale) as determined in accordance with GAAP and consistent with the determination thereof in the Recent SEC Reports. (vi) "Cash Portion" means an amount, in cash, equal to the quotient obtained by dividing (x) the Available Amount by (y) the Outstanding Shares. (vii) "Designated Liabilities" mean all Liabilities (including with respect to Taxes) relating solely to (i) the Designated Assets and (ii) the transactions pursuant to this Agreement. Without expanding the definition of Designated Liabilities, Designated Liabilities shall not include Liabilities relating to the transactions contemplated by the OD Documents or any Liabilities included in the Adjustment Amount (as defined in the OD Documents). (viii) "Governmental Entity" means any court, administrative agency or commission or other governmental authority or instrumentality. (ix) "Indemnification Agreement" means the Indemnification Agreement dated as of even date herewith by and among Veritas, Seagate and Purchaser and each of its Subsidiaries. (x) "ISA Amount" means a number of shares of Veritas Common Stock equal to the quotient obtained by dividing (x) (A) the Stipulated Amount, divided by (B) the Average Veritas Stock Price, by (y) the Outstanding Shares. (xi) "knowledge" means, with respect to either party hereto, the actual knowledge of the executive officers of such party. 7 (xii) "Liability" or "Liabilities" means any and all debts, liabilities and obligations of any type or nature whatsoever, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including, without limitation, those arising under any Law (including, without limitation, any Environmental Law), Action or Governmental Order and those arising under any contract, agreement, arrangement, commitment or undertaking. (xiii) "Lien" means any lien, security interest, adverse claim, charge, mortgage or other encumbrance. (xiv) "Material Adverse Effect on Veritas" means any change, event, violation, inaccuracy, circumstance or effect that is materially adverse to the business, assets (including intangible assets), capitalization, financial condition or results of operations of Veritas and its Subsidiaries, taken as a whole; provided, however, that in no event shall (i) a decrease in Veritas' stock price or the failure to meet or exceed Wall Street research analysts' or Veritas' internal earnings or other estimates or projections in and of itself constitute a "Material Adverse Effect on Veritas," or (ii) any change, event, violation, inaccuracy, circumstance or effect that results from (A) the public announcement or pendency of the transactions contemplated hereby, (B) changes affecting the software industry generally or the segments thereof in which Veritas competes, or (C) changes affecting the United States economy generally, constitute a "Material Adverse Effect on Veritas." (xv) "Material Adverse Effect on Seagate" means any change, event, violation, inaccuracy, circumstance or effect that, after giving effect to the consummation of the transactions contemplated by the OD Documents, gives rise to, or is reasonably likely to give rise to, any Liability (absolute, accrued, contingent or otherwise, but excluding the Designated Liabilities) of Seagate (or Veritas following the Effective Time) for which Veritas is not entitled to indemnification under the Indemnification Agreement following the Effective Time. (xvi) "Nasdaq" means the Nasdaq National Market System of the National Association of Securities Dealers, Inc. (xvii) "NE Amount" means an amount equal to the quotient obtained by dividing (x) (A) the per share exercise price of a Seagate Option, multiplied by (B) the aggregate number of shares of Seagate Common Stock issuable upon the exercise in full of such Seagate Option immediately prior to the Effective Time, by (y) the Average Seagate Stock Price. (xviii) "NYSE" means the New York Stock Exchange. (xix) "OD Documents" means the Stock Purchase Agreement of even date herewith by and among Seagate, Seagate Software and Suez Acquisition Company (Cayman) Limited. (xx) "Outstanding Shares" means the aggregate number of shares of Seagate Common Stock outstanding immediately prior to the Effective Time, after giving effect to the treatment of Seagate Options under Section 1.5(c) hereof. (xxi) "Pro Rata Portion" means with respect to each person receiving a TRA Right, the number of shares of Seagate Common Stock held by such person immediately prior to the Effective Time, including shares deemed outstanding by virtue of Section 1.5(c) divided by the Outstanding Shares. (xxii) "Purchaser" has the meaning provided in the Stock Purchase Agreement. 8 (xxiii) "Rolled Options" means the Seagate Options and Seagate Common Stock held by the individuals and in the amounts indicated in the Rollover Commitment Agreements previously delivered to the parties hereto. (xxiv) "Seagate Restricted Stock" means shares of Seagate Common Stock subject to a right of repurchase or other restriction. (xxv) "Seagate Software" means Seagate Software Holdings, Inc. (xxvi) "Stipulated Amount" means the sum of: (1) with respect to all shares of SanDisk Corp. ("SanDisk") held by Seagate immediately prior to the Effective Time (the "SanDisk Shares"), (A) the product obtained by multiplying (x) the average closing price of a share of SanDisk common stock, as reported on the Nasdaq, for the five (5) consecutive trading days ending two (2) trading days immediately preceding the Closing Date (the "Reference Average"), by (y) 0.8 (the product of (x) and (y) being the "Value"), minus (B) 0.4 multiplied by the difference between the Value and Seagate's tax basis in a SanDisk Share; multiplied by (C) the number of SanDisk Shares; (2) with respect to all shares of CVC, Inc. ("CVCI") and Gadzoox Networks Inc. ("Gadzoox") held by Seagate immediately prior to the Effective Time (respectively, the "CVCI Shares" and the "Gadzoox Shares"), (A) the product obtained by multiplying (x) the Reference Average for shares of CVCI or Gadzoox common stock, respectively, by (y) 0.6 (the product of (x) and (y) being the "Value"), minus (B) 0.4 multiplied by the difference between the Value and Seagate's tax basis in a CVCI or Gadzoox Share, as the case may be, multiplied by (C) the number of CVCI Shares and Gadzoox Shares, respectively; and (3) with respect to shares of Lernout & Hauspie, Inc. ("Dragon") held by Seagate immediately prior to the Effective Time ( including shares into which such shares may have been converted, the "Dragon Shares"), (i) if such Dragon Shares are not listed for trading on a national securities exchange or over-the-counter market, then an amount mutually agreed upon by the parties hereto at least ten days prior to the Seagate Stockholders Meeting, (ii) if shares of Dragon are listed for trading on a national securities exchange or over-the-counter- market, then (A) the product obtained by multiplying (x) the Reference Average for shares of Dragon common stock, by (y) 0.6 (the product of (x) and (y) being the "Value"), minus (B) 0.4 multiplied by the difference between the Value and Seagate's tax basis in a Dragon Share multiplied by (C) the number of Dragon Shares (other than those subject to any escrow agreement). If the parties are unable to agree upon a value under clause (i) above or the valuation of any escrowed Dragon Shares, then the parties agree to include the Dragon Shares and such escrowed shares in the TRA Amount as provided in Section 5.15 hereof. (xxvii) "Stock Portion" means a number of shares of Veritas Common Stock equal to the sum of (i) the quotient obtained by dividing (x) (A) the number of shares of Veritas Common Stock held by Seagate immediately prior to the Effective Time, multiplied by (B) 0.853743, by (y) the Outstanding Shares, (ii) the quotient obtained by dividing (x) (A) the VP Amount, divided by (B) the Average Veritas Stock Price, by (y) the Outstanding Shares, and (iii) the ISA Amount. 9 (xxviii) "Subsidiary" or "Subsidiaries" means any and all corporations, limited liability companies, general or limited partnerships, joint ventures, business trusts, associations and other business enterprises and entities controlled by a person directly or indirectly through one or more intermediaries. (xxix) "Tax" or "Taxes" has the meaning provided in the Stock Purchase Agreement. (xxx) "TRA Amount" means the amount of cash received with respect to all refunds or the utilization of credits for Seagate Taxes for or attributable to taxable years or periods of Seagate ending on or prior to the Effective Time, or the pre-closing period, in the case of a taxable period commencing before the Effective Time and ending after the Effective Time, less any administrative charges of the Administrators. (xxxi) "TRA Right" means a non-transferable right to receive, when, as and if received by Veritas or its Affiliates, a stockholder's Pro Rata Portion of the TRA Amount. (xxxii) "Veritas Common Stock" means common stock, par value $.001 per share, of Veritas. (xxxiii) "VP Amount" means either $0, $500 million or, if Seagate has received gross proceeds in excess of $200,000,000 with respect to the securities listed in Part B of Schedule I hereto on or prior to the election of the VP Amount, $750 million, at the election of Veritas, which election shall be made no later than the tenth (10th) day prior to the date of the Seagate Stockholders' Meeting. 1.12 Dissenting Shares. Shares of Seagate Common Stock which have not been voted in favor of the Merger and with respect to which the holder thereof has exercised and demanded appraisal rights under Delaware Law ("Dissenting Shares") shall not be converted into the Merger Consideration pursuant to the Merger, but shall instead be converted into the right to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to Delaware Law. Seagate agrees that, except with the prior written consent of Veritas, or as required under Delaware Law, it will not voluntarily make any payment with respect to, or settle or offer to settle, any appraisal demand. Each holder of Dissenting Shares ("Dissenting Stockholder") who, pursuant to the provisions of Delaware Law, becomes entitled to payment of the fair value for shares of Seagate Common Stock shall receive payment therefor from Veritas (but only after the value therefor shall have been agreed upon or finally determined pursuant to Delaware Law). If, after the Effective Time, any Dissenting Shares shall lose their status as Dissenting Shares, Veritas shall issue and deliver, upon surrender by such stockholder of a certificate or certificates representing shares of Seagate Common Stock pursuant to Section 1.6 hereof, the Merger Consideration to which such stockholder would otherwise be entitled under Section 1.5. 10 ARTICLE II REPRESENTATIONS AND WARRANTIES OF SEAGATE As of the date hereof and as of the Closing Date, Seagate hereby represents and warrants to Veritas and Merger Sub, subject to the exceptions and qualifications specifically set forth or disclosed in writing in the disclosure letter delivered by Seagate to Veritas, dated as of the date hereof (the "Seagate Disclosure Schedule"), as follows: 2.1 Organization; Good Standing. Each of Seagate and Seagate Software is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with the corporate power and authority to own, lease and operate its assets and property and to carry on its business as presently being conducted and as proposed to be conducted, and is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified or in good standing would reasonably be expected to have a Material Adverse Effect on Seagate. 2.2 Charter Documents. Seagate has delivered or made available to Veritas a true and correct copy of the Certificate of Incorporation and Bylaws of Seagate and Seagate Software each as amended and in effect as of the date hereof. Neither Seagate nor Seagate Software is in violation of any of the provisions of its Certificate of Incorporation or Bylaws, each as amended and in effect as of the date hereof. 2.3 Capital Structure. (a)(i) The authorized capital stock of Seagate consists of 600,000,000 shares of Common Stock, par value $0.01 per share, of which there were 226,977,176 shares issued and outstanding as of February 29, 2000, and 1,000,000 shares of Preferred Stock, par value $0.01 per share, of which no shares are issued or outstanding. All outstanding shares of Seagate Common Stock are duly authorized and validly issued, fully paid and nonassessable, are not subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of Seagate or any contract, agreement or other commitment to which Seagate is a party or by which it is bound and have been offered, issued, sold and delivered by Seagate in compliance with all registration or qualification required (or applicable exemptions therefrom) of applicable federal and State securities laws. As of February 29, 2000, Seagate had reserved an aggregate of 47,709,220 shares of Seagate Common Stock, net of exercises, for issuance to employees, consultants and non-employee directors pursuant to the Seagate Stock Option Plans, under which there were (i) outstanding Seagate Options to purchase an aggregate of 34,415,211 shares of Seagate Common Stock, and (ii) 13,294,009 shares of Seagate Common Stock available for future grant. All shares of Seagate Common Stock subject to issuance under the Seagate Stock Option Plans, upon issuance in accordance with the terms and conditions set forth in the instruments pursuant to which such shares of Seagate Common Stock are issuable, would be duly authorized and validly issued, fully paid and nonassessable. (ii) The authorized capital stock of Seagate Software consists of 300,000,000 shares of Common Stock, par value $0.01 per share, and 73,000,000 shares of Preferred Stock, par value $0.01 per share, all of the issued or outstanding shares of which capital stock are owned by Seagate. All outstanding shares of Seagate Software Common Stock are duly authorized and validly issued, fully paid and nonassessable, are not subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of Seagate Software or any contract, agreement or other commitment to which Seagate Software is a party or by which it is bound and have been offered, issued, sold and delivered by Seagate Software in 11 compliance with all registration or qualification required (or applicable exemptions therefrom) of applicable federal and State securities laws. (b) Except as set forth in Section 2.3(a) hereof, there are no equity securities, partnership interests or other similar ownership interests of any class or series of Seagate or Seagate Software, or any securities exchangeable or convertible into, or exercisable for, any such equity securities, partnership interests or other similar ownership interests, issued, reserved for issuance or outstanding. Except as set forth in Section 2.3(a) hereof, there are no options, warrants, equity securities, partnership interests or other similar ownership interests, calls, rights (including preemptive rights), commitments or agreements of any kind or character to which Seagate or Seagate Software is a party or by which it is bound obligating Seagate or Seagate Software to issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or acquisition, of any shares of capital stock of Seagate or Seagate Software, or obligating Seagate or Seagate Software to grant, extend, accelerate the vesting of, or enter into, any such option, warrant, equity security, partnership interest or other similar ownership interest, call, right, commitment or agreement. Except as set forth in Section 2.3(b) of the Seagate Disclosure Schedule, there are no registration rights and, to the knowledge of Seagate, there are no voting trusts, proxies or other agreements or understandings, with respect to any capital stock of Seagate or Seagate Software. (c) Except for the Designated Assets (as defined in Section 4.1 hereof), as of the Closing Date, Seagate will not own or hold, directly or indirectly through one or more subsidiaries, any equity securities, partnership interests or other similar ownership interests of or in any class or series of any other corporation, limited liability company, general or limited partnership, joint venture, business trust, association or other business entity or enterprise, or any security exchangeable or convertible into, or exercisable for, any such equity securities, partnership interests or other similar ownership interests. 2.4 Authority. Seagate has all requisite corporate power and authority to enter into this Agreement and the OD Documents, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Seagate of this Agreement and the OD Documents, the performance by Seagate of its obligations hereunder and thereunder, and the consummation by Seagate of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action on the part of Seagate, subject only to the approval and adoption of the transaction contemplated by the OD Documents and this Agreement and the Merger by Seagate's stockholders and the filing and recordation of the Certificate of Merger in accordance with Delaware Law and the transactions contemplated by the OD Documents. The affirmative approval of the holders of a majority of the outstanding shares of the Seagate Common Stock is required for Seagate's stockholders to approve and adopt this Agreement and the Merger under Delaware Law and the transactions contemplated by the OD Documents. This Agreement and the OD Documents been duly executed and delivered by Seagate and, assuming the due authorization, execution and delivery of this Agreement by Veritas and Merger Sub and the OD Documents by the other parties thereto, this Agreement and the OD Documents constitute the valid and binding obligations of Seagate, enforceable in accordance with their respective terms, subject to (i) the effect of any applicable laws of general application relating to bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors' rights and the relief of debtors generally, and (ii) the effect of rules of law and general principles of equity, including, without limitation, rules of law and general principal of equity governing specific performance, injunctive relief and other 12 equitable remedies (regardless of whether such enforceability is considered in a proceeding in equity or at law). 2.5 Conflicts. The execution and delivery of this Agreement and the OD Documents by Seagate do not, and the performance by Seagate of its obligations hereunder and thereunder and the consummation by Seagate of the transactions contemplated hereby and thereby will not, (i) conflict with or violate the Certificate of Incorporation or Bylaws of Seagate, each as amended and in effect as of the date hereof, (ii) subject to obtaining the consents, approvals, orders or authorizations, and making the registrations, declarations or filings, set forth in Section 2.6 hereof, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Seagate or by which Seagate or its assets and properties are bound or affected, or (iii) result in any breach of, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair Seagate's rights or alter the rights or obligations of any third party under, or give to any third party any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the assets or properties of Seagate pursuant to, any material note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Seagate is a party or by which Seagate or its assets and properties are bound or affected, except to the extent such conflict, violation, breach, default, impairment or other effect would not, in the case of clause (ii) or (iii) of this Section 2.5, individually or in the aggregate, (a) reasonably be expected to have a Material Adverse Effect, or (b) reasonably be expected to have a material adverse effect on, or materially delay, the ability of Veritas or Seagate to consummate the transactions contemplated hereby or on Seagate's ability to consummate the transactions contemplated by the OD Documents. 2.6 Consents. Except as set forth in the Seagate Disclosure Statement, no material consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to Seagate in connection with the execution and delivery of this Agreement or the OD Documents by Seagate, or the performance by Seagate of its obligations hereunder or thereunder or the consummation by Seagate of the transactions contemplated hereby or thereby, except for (i) the filing and effectiveness of the Registration Statement (as defined in Section 5.1 hereof) with the United States Securities and Exchange Commission (the "SEC") in accordance with the Securities Act of 1933, as amended (the "Securities Act"), (ii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, (iii) the filing of the Proxy Statement (as defined in Section 5.1 hereof) with the SEC in accordance with the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (iv) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state "blue sky" securities laws and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the equivalent laws of any foreign country, and (v) such other consents, approvals, orders, authorizations, registrations, declarations and filings which, if not obtained or made, would not have a material adverse effect on the ability of Veritas and Seagate to consummate the Merger and the other transactions contemplated hereby or by the OD Documents. 2.7 SEC Filings; Financial Statements. Seagate has filed all forms, reports and documents required to be filed with the SEC since July 3, 1998, and has made available (through on-line databases) to Veritas such forms, reports and documents in the form filed with the SEC. All such required forms, reports and documents (including all exhibits and schedules thereto and all documents incorporated by reference therein) are referred to herein as the "Seagate SEC Reports." As of their respective dates, the Seagate SEC 13 Reports (i) complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act, and the rules and regulations of the SEC promulgated thereunder, and (ii) did not at the time each such Seagate SEC Report was filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. None of the Subsidiaries of Seagate is required to file any forms, reports or other documents with the SEC. Except to the extent revised or superseded by a subsequent filing with the SEC (a copy of which has been made available to Veritas prior to the date of this Agreement), none of the Seagate SEC Reports filed by Seagate since July 3, 1999 and prior to the date of this Agreement (collectively, the "Recent SEC Reports") contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The consolidated financial statements of Seagate included in all Seagate SEC Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP (except, in the case of unaudited consolidated quarterly statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Seagate and its consolidated Subsidiaries as of the dates thereof and the consolidated financial position of Seagate and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited quarterly statements, to normal year-end audit adjustments). Except as reflected in the most recent consolidated balance sheet of Seagate included in the Recent SEC Reports most recently filed by Seagate with the SEC prior to the date hereof (such consolidated balance sheet being referred to herein as the "Current Seagate Balance Sheet" and the date thereof being referred to herein as the "Current Balance Sheet Date"), as of the Current Balance Sheet Date, neither Seagate nor any of its Subsidiaries had, and since such date neither Seagate nor any of such Subsidiaries has incurred, any Liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. 2.8 Liabilities. Except as identified on the Seagate Disclosure Schedule, as of the Effective Time, Seagate will not have any material Liabilities or other obligations of any nature whatsoever (absolute, accrued, contingent or otherwise) other than (i) Designated Liabilities and (ii) Liabilities for which Veritas is entitled to indemnification under the Indemnification Agreement. 2.9 Absence of Material Adverse Effect on Seagate. Since the date of the Current Seagate Balance Sheet, there has not been, occurred or arisen any Material Adverse Effect on Seagate. 2.10 Compliance. Seagate is not in conflict in any material respect with, or in material default or violation of, (i) any law, rule, regulation, order, judgment or decree applicable to Seagate or by which Seagate or its assets and properties are bound or affected, or (ii) any material note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Seagate is a party or by which Seagate or its assets and properties are bound or affected. No investigation or review by any Governmental Entity is pending or, to the knowledge of Seagate, threatened, 14 against Seagate, nor has any Governmental Entity indicated an intention to conduct the same. There is no material agreement, judgment, injunction, order or decree binding upon Seagate or any of assets and properties which has had, or would reasonably be expected to have, the effect of prohibiting or materially impairing the consummation of the Merger, or the other transactions contemplated hereby or by the OD Documents. 2.11 Permits. Seagate holds all permits, licenses, variances, exemptions, orders and approvals from Governmental Entities which are material to the operation of the business of Seagate, and Seagate is in compliance in all material respects with the terms of such permits, licenses, variances, exemptions, orders and approvals. 2.12 Litigation. As of the date of this Agreement, there is no action, suit, proceeding, claim, arbitration or investigation pending, or as to which Seagate has received any notice of assertion nor, to the knowledge of Seagate, is there any threatened action, suit, proceeding, claim, arbitration or investigation against Seagate, which in any case would reasonably be expected to have a Material Adverse Effect on Seagate. 2.13 Brokers' and Finders' Fees. Except for fees payable to Morgan Stanley & Co. Incorporated, Seagate has not incurred, nor will it incur, directly or indirectly, any liability for any brokerage or finders' fees or agents' commissions or any similar charges in connection with the Merger or the other transactions contemplated hereby or by the OD Documents. 2.14 Absence of Liens and Encumbrances. Except as disclosed on Section 2.14 of the Seagate Disclosure Schedule, Seagate and Seagate Software Holdings, Inc. have good and valid title to all of their assets and properties that will not be sold or otherwise disposed of pursuant to the OD Documents including, without limitation, their shares of Veritas, Gadzoox, Dragon, CVCI and SanDisk, and such assets and properties at the Effective Time will be free and clear of any liens, encumbrances or financial commitments, except for liens for taxes not yet due and payable and as otherwise reflected in the Seagate SEC Reports. 2.15 Statements; Registration Statement; Proxy Statement/Prospectus. None of the information supplied or to be supplied by Seagate for inclusion or incorporation by reference in (i) the Registration Statement (as defined in Section 5.1 hereof) will, at the time it is declared or ordered effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, or (ii) the Proxy Statement (as defined in Section 5.1 hereof) will, on the date the Proxy Statement is first mailed to the stockholders of Seagate, at the time of the Seagate Stockholders' Meeting (as defined in Section 5.1 hereof), at the time of the Veritas Stockholders' Meeting and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Seagate Stockholders' Meeting or the Veritas Stockholders' Meeting which has become false or misleading. The Proxy Statement will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations promulgated thereunder. Notwithstanding the foregoing or anything to contrary set forth in this Agreement, Seagate makes no representation or warranty with respect to any information supplied by Veritas or Merger Sub which is contained in any of the foregoing documents. 15 2.16 Board Approval. The Board of Directors of Seagate has (i) determined that the Merger and the other transactions contemplated hereby and by the OD Documents are fair to, advisable and in the best interests of Seagate and its stockholders, (ii) duly approved the Merger, this Agreement, the OD Documents and the other transactions contemplated hereby and thereby, and (iii) determined to recommend that the stockholders of Seagate approve the Merger, this Agreement, the OD Documents and the other transactions contemplated hereby and thereby. 2.17 State Takeover Statutes. The Board of Directors of Seagate has approved the Merger, this Agreement, and the other transactions contemplated hereby and thereby, and such approval is sufficient to render inapplicable to the Merger, this Agreement, the OD Documents and the other transactions contemplated hereby and thereby the provisions of Section 203 of Delaware Law to the extent, if any, such provisions are applicable to the Merger, this Agreement, the OD Documents and the other transactions contemplated hereby and thereby. No other state takeover statute or similar statute or regulation applies to or purports to apply to the Merger, this Agreement, the OD Documents or the other transactions contemplated hereby and thereby. 2.18 Fairness Opinion. Seagate has received a written opinion from Morgan Stanley & Co., Incorporated dated as of the date hereof, to the effect that, as of the date hereof, the Merger Consideration is fair to the stockholders of Seagate from a financial point of view and will deliver to Veritas a copy of such opinion. 2.19 Veritas Common Stock. All of the Veritas Common Stock held directly or indirectly by Seagate is owned, beneficially and of record, by Seagate Software, and has been held continuously by Seagate Software since May 28, 1999. 2.20 Intercompany Transactions. At no time has Seagate, Seagate Software or any member of an affiliated group of corporations as defined in Section 1504 of the Code filing returns on a consolidated basis of which Seagate or Seagate Software is a member engaged in an intercompany transaction with respect to the Veritas Common Stock giving rise to an intercompany item or corresponding item within the meaning of Section 1.1502-13 of the United States Income Tax Regulations with respect to the Veritas Common Stock, including but not limited to such items that may be subject to gain recognition upon the application of Section 1.1502-13(f)(4) of the United States Income Tax Regulations. 2.21 Taxes. Each of Seagate and its Subsidiaries has filed all Tax Returns required to be filed by any of them and has paid (or Seagate has paid on its behalf), or has set up an adequate reserve for the payment of, all Taxes required to be paid in respect of the periods covered by such returns (except where the failure to pay would not have a Material Adverse Effect on Seagate). The information contained in such Tax Returns is true, complete and accurate in all material respects except where the failure to be so would not have a Material Adverse Effect on Seagate. Neither Seagate nor any subsidiary of Seagate is delinquent in the payment of any tax, assessment or governmental charge except where the delinquency would not have a Material Adverse Effect on Seagate. No deficiencies for any taxes have been proposed, asserted or assessed against Seagate or any of its subsidiaries that have not been finally settled or paid in full which would have a Material Adverse Effect on Seagate, and no requests for waivers of the time to assess any such tax are pending. 2.22 Code Section 897 Company. Seagate is not and has not been during the period referred to in section 897(c)(1)(A)(ii) a United States real property holding corporation within the meaning of section 897(c)(2) of the Code. 16 ARTICLE III REPRESENTATIONS AND WARRANTIES OF VERITAS AND MERGER SUB As of the date hereof and as of the Closing Date, Veritas and Merger Sub hereby jointly and severally represent and warrant to Seagate, subject to the exceptions and qualifications specifically set forth or disclosed in writing in the disclosure letter delivered by Veritas to Seagate, dated as of the date hereof (the "Veritas Disclosure Schedule"), as follows: 3.1 Organization; Good Standing. Veritas and each of its material subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the respective jurisdiction of its incorporation, with the corporate power and authority to own, lease and operate its respective assets and property and to carry on its respective business as now being conducted and as proposed to be conducted, and is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would reasonably be expected to have a Material Adverse Effect on Veritas. 3.2 Charter Documents. Veritas has delivered or made available to Seagate a true and correct copy of the Certificate of Incorporation and Bylaws of Veritas, as amended and in effect as of the date hereof. Neither Veritas nor any of its material subsidiaries is in violation of any of the provisions of its Certificate of Incorporation or Bylaws or equivalent organizational documents, in each case as amended and in effect as of the date hereof. 3.3 Capital Structure. The authorized capital stock of Veritas consists of 500,000,000 shares of Common Stock, par value $0.001 per share, of which there were 396,532,084 shares issued and outstanding as of March 24, 2000, 10,000,000 shares of Preferred Stock, par value $0.001 per share, of which no shares are issued or outstanding, and one share of the special voting stock, par value $0.001 per share. The authorized capital stock of Merger Sub consists of 1,000 shares of common stock, par value $0.01 per share, of which, as of the date hereof, 100 shares are issued and outstanding. All outstanding shares of Veritas Common Stock and Merger Sub's capital stock are duly authorized and validly issued, fully paid and non-assessable, and are not subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of Veritas or any contract, agreement or other commitment to which Veritas is a party or by which it is bound. All outstanding shares of capital stock of Merger Sub have been issued and granted in compliance with all applicable securities and other laws. 3.4 Authority. Each of Veritas and Merger Sub has all requisite corporate power and authority to enter into this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated hereby. The execution and delivery by Veritas and Merger Sub of this Agreement, the performance by Veritas and Merger Sub of the transactions contemplated hereby, and the consummation by Veritas and Merger Sub of the transactions contemplated hereby, have been duly authorized by all necessary corporate action on the part of Veritas and Merger Sub, subject only to the approval of the Merger and, to the extent not previously authorized, the Share Increase by Veritas' stockholders and the filing of an amendment to the Certificate of Incorporation of Venus with respect to the Share Increase and the Certificate of Merger in accordance with Delaware Law. The approval of the holders of a majority of the outstanding shares of Veritas Common Stock is required to approve the Merger and the Share Increase. This Agreement has been duly executed and delivered by Veritas and Merger Sub and, assuming the due authorization, execution and delivery of this Agreement by Seagate, this Agreement constitutes the valid 17 and binding obligations of Veritas and Merger Sub, enforceable in accordance with their respective terms, subject to (i) the effect of any applicable laws of general application relating to bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors' rights and the relief of debtors generally, and (ii) the effect of rules of law and general principles of equity, including, without limitation, rules of law and general principal of equity governing specific performance, injunctive relief and other equitable remedies (regardless of whether such enforceability is considered in a proceeding in equity or at law). 3.5 Conflicts. The execution and delivery of this Agreement by Veritas and Merger Sub do not, and the performance by Veritas and Merger Sub of their obligations hereunder and the consummation by Veritas and Merger Sub of the transactions contemplated hereby will not, (i) conflict with or violate the Certificate of Incorporation or Bylaws of Veritas and Merger Sub, (ii) subject to obtaining the consents, approvals, orders and authorizations, and making the registrations, recordations and filings, set forth in Section 3.6 hereof, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Veritas and Merger Sub or by which Veritas or Merger Sub or their assets and properties are bound or affected, or (iii) result in any breach of, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair Veritas' or Merger Sub's rights or alter the rights or obligations of any third party under, or give to any third parties any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the assets or properties of Veritas or Merger Sub pursuant to, any material note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Veritas or Merger Sub is a party or by which Veritas or Merger Sub or either of their assets and properties are bound or affected, except to the extent such conflict, violation, breach, default, impairment or other effect would not, in the case of clause (ii) or (iii) of this Section 3.5, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Veritas. 3.6 Consents. Except as set forth in the Veritas Disclosure Schedule, no material consent, approval, order or authorization of, or registration, declaration or filing with any Governmental Entity is required by or with respect to Veritas in connection with the execution and delivery of this Agreement or the performance by Veritas of its obligations hereunder or the consummation of the transactions contemplated hereby, except for (i) the filing of a Registration Statement with the SEC in accordance with the Securities Act, (ii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, (iii) the filing of the Proxy Statement with the SEC in accordance with the Exchange Act, (iv) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state "blue sky" securities laws and the HSR Act and the antitrust or competition laws of any foreign country, and (v) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not be material to Veritas or Merger Sub or have a material adverse effect on the ability of Veritas, Merger Sub and Seagate to consummate the Merger and the other transactions contemplated hereby. 3.7 SEC Filings; Veritas Financial Statements. (a) Veritas has filed all forms, reports and documents required to be filed with the SEC since December 31, 1998, and has made a copy of all such forms, reports and documents available to Seagate. All such forms, reports and documents (including those that Veritas may file subsequent to the date hereof) are referred to herein as the "Veritas 18 SEC Reports." As of their respective dates, the Veritas SEC Reports (i) were or will be (as the case may be) prepared in accordance with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder, and (ii) did not or will not (as the case may be) at the time they were filed (or if amended or superseded, then on the date of filing of such amendment or superseding form, report or document) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Veritas SEC Reports (the "Veritas Financials"), including any Veritas SEC Reports filed after the date hereof until the Closing, (i) complied or will comply (as the case may be) as to form in all material respects with the published rules and regulations of the SEC with respect thereto, (ii) was prepared or will be prepared (as the case may be) in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited interim financial statements, as may be permitted by the SEC on Form 10-Q under the Exchange Act), and (iii) fairly presented or will fairly present (as the case may be) in all material respects the consolidated financial position of Veritas and its subsidiaries at the respective dates thereof and the consolidated results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not, or are not expected to be, material in amount. The balance sheet of Veritas as of December 31, 1998 contained in the Veritas SEC Reports is hereinafter referred to as the "Veritas Balance Sheet." (c) Veritas has heretofore furnished to Seagate a complete and correct copy of any amendments or modifications, which have not yet been filed with the SEC but which are required to be filed, to agreements, documents or other instruments which previously had been filed by Veritas with the SEC pursuant to the Securities Act or the Exchange Act. 3.8 Absence of Certain Changes or Events. Since the date of the Veritas Balance Sheet, there has not been, occurred or arisen any Material Adverse Effect on Veritas. 3.9 Litigation. There is no action, suit, proceeding, claim, arbitration or investigation pending, or as to which Veritas or any of its subsidiaries has received any written notice of assertion nor, to the knowledge of Veritas, is there any threatened action, suit, proceeding, claim, arbitration or investigation against Veritas or any of its subsidiaries, which in any case would reasonably would be expected to have a Material Adverse Effect on Veritas. 3.10 Brokers' and Finders' Fees. Except for fees payable to Credit Suisse First Boston Corporation, Veritas has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with the Merger or the other transactions contemplated hereby. 3.11 Statements; Registration Statement; Proxy Statement/Prospectus. None of the information supplied or to be supplied by Veritas for inclusion or incorporation by reference in (i) the Registration Statement (as defined in Section 5.1 hereof) will at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (ii) the Proxy Statement (as defined in Section 5.1 hereof) 19 shall not, on the date the Proxy Statement is first mailed to each of Seagate's stockholders and Veritas' stockholders, at the times of the Seagate Stockholder's Meeting (as defined in Section 5.1 hereof) and the Veritas Stockholders' Meeting and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Seagate Stockholders' Meeting or Veritas Stockholders' Meeting which has become false or misleading. Notwithstanding the foregoing or anything else to the contrary set forth in this Agreement, Veritas makes no representation or warranty with respect to any information supplied by Seagate which is contained in any of the foregoing documents. 3.12 Board Approval. The Board of Directors of Veritas has (i) determined that the Merger and the other transactions contemplated hereby are advisable and in the best interests of Veritas and its stockholders, (ii) duly approved the Merger, this Agreement and the other transactions contemplated hereby, and (iii) resolved to recommend that the Stockholders of Veritas approve the Share Increase. 3.13 Fairness Opinion. Veritas has received a written opinion from Credit Suisse First Boston Corporation, dated as of the date hereof, to the effect that, as of the date hereof, the Stock Portion to be paid by Veritas is fair to Veritas from a financial point of view and will deliver to Seagate a copy of such opinion. 3.14 Merger Sub Operations. Merger Sub was formed solely for the purpose of engaging in the transactions contemplated hereby and has not (a) engaged in any business activities, (b) conducted any operations other than in connection with the transactions contemplated hereby or (c) incurred any Liabilities other than in connection with the transactions contemplated hereby. ARTICLE IV CONDUCT OF BUSINESS AND OTHER TRANSACTIONS 4.1 Conduct of Business. On or before the Effective Time, Seagate and Seagate Software shall take all actions necessary to transfer all of their respective assets and Liabilities to one or more of Seagate's Subsidiaries such that at the Effective Time the only assets and properties owned or held by Seagate (the "Designated Assets") and the only Liabilities not assumed by such other Subsidiaries shall be Designated Liabilities; provided, however, that prior to the Effective Time, Seagate may sell, transfer or otherwise dispose of any of the Designated Assets set forth on Part B of Schedule I hereto. From and after the execution and delivery of this Agreement until the earlier of the Effective Time or the termination of this Agreement, Seagate shall not sell, transfer or otherwise dispose of any shares of Veritas Common Stock owned by Seagate as of the date hereof. 4.2 No Amendment to OD Documents. From the date hereof until the earlier to occur of the Effective Time or the termination of this Agreement pursuant to and in accordance with Section 7.1 hereof, neither Seagate nor Seagate Software shall terminate, amend, modify or otherwise supplement or waive any of the terms and conditions of the OD Documents (or any of them); provided, however, that notwithstanding the foregoing, Seagate may terminate the OD Documents pursuant to their respective terms. 4.3 Waivers and Releases. Seagate shall use its best efforts to obtain and to deliver to Veritas, as soon as practicable after the date hereof and in any event at least 15 days 20 prior to the Effective Time, (i) with respect to each individual who will be a holder of Rolled Options, a waiver and release of claims in favor of Veritas and Seagate in form and in substance reasonably satisfactory to Veritas (a "Proper Waiver"), with respect to the cancellation of Rolled Options held by such individual described in Section 1.5(c) hereof, and (ii) with respect to each individual who is a party to any employment, severance or change in control or similar agreement, or who participates in any plan providing severance or change in control benefits, a Proper Waiver with respect to any claims which any such individual may have against Veritas and/or Seagate with respect to any such agreements or plans. ARTICLE V ADDITIONAL AGREEMENTS 5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings. (a) As promptly as practicable following the execution and delivery of this Agreement, Seagate and Veritas shall prepare and file with the SEC a document to be sent to the stockholders of Seagate and Veritas in connection with the meeting of Seagate's stockholders to consider the approval and adoption of this Agreement and the Merger (the "Seagate Stockholders' Meeting") and the meeting of Veritas Stockholders to consider approval of the Merger and the Share Increase (the "Veritas Stockholders' Meeting") (such proxy statement/prospectus, as amended or supplemented, being referred to herein as the "Proxy Statement"), and Veritas shall prepare and file with the SEC a registration statement on Form S-4 (the "Registration Statement") in which the Proxy Statement will be included as a prospectus. Each of Seagate and Veritas shall promptly respond to any comments of the SEC with respect to the Registration Statement or the Proxy Statement, shall use its respective commercially reasonable efforts to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing and, in the case of Seagate, shall cause the Proxy Statement to be mailed to the stockholders of Seagate at the earliest practicable time. As promptly as practicable after the execution and delivery of this Agreement, Seagate and Veritas shall prepare and file any other filings required under the Exchange Act, the Securities Act or any other federal, foreign or state "blue sky" securities laws relating to the Merger and the other transactions contemplated hereby (collectively, the "Other Filings"). Each of Seagate and Veritas shall notify the other promptly upon the receipt of any comments from the SEC or its staff, and of any request by the SEC or its staff or any other government officials for amendments or supplements to the Registration Statement, the Proxy Statement or any Other Filing, or for additional information, and shall supply the other with copies of all correspondence between such party or any of its agents or representatives, on the one hand, and the SEC, or its staff or any other government officials, on the other hand, with respect to the Registration Statement, the Proxy Statement, or any Other Filing. The Registration Statement, the Proxy Statement and the Other Filings shall comply in all material respects with all applicable requirements of law and the rules and regulations promulgated thereunder. Whenever any event occurs which is required to be set forth in an amendment or supplement to the Registration Statement, the Proxy Statement or any Other Filing, Seagate or Veritas, as the case may be, shall promptly inform the other of such event, and cooperate in filing with the SEC or its staff or any other government officials, and/or mailing to stockholders of Seagate, such amendment or supplement. 21 (b) Subject to the terms of Section 5.2(c) hereof, the Proxy Statement shall include the recommendation of the Board of Directors of Seagate in favor of adoption and approval of this Agreement and the Merger. The Proxy Statement shall also include the recommendation of the Board of Directors of Veritas in favor of approval of the Share Increase and the Merger. 5.2 Stockholder Meetings. (a) Subject to the terms of Section 5.2(c) hereof, promptly after the date hereof and in consultation with Veritas, Seagate shall take all action necessary in accordance with Delaware Law and its Certificate of Incorporation and Bylaws to convene the Seagate Stockholders' Meeting and Veritas shall call the Veritas Stockholders' Meeting, to be held as promptly as practicable, for the purpose of voting upon (i) this Agreement, the Merger and the transactions contemplated under the OD Documents, (ii) the Merger and (iii) if necessary, the Share Increase, as the case may be. Seagate and Veritas shall use all reasonable efforts to hold the Veritas Stockholders' Meeting and the Seagate Stockholders' Meeting on the same day and as soon as practicable after the date on which the Registration Statement becomes effective. Nothing herein shall prevent Seagate or Veritas from adjourning or postponing the Seagate Stockholders' Meeting or the Veritas Stockholders' Meeting, as the case may be, to the extent necessary to ensure that any necessary supplement or amendment to the Proxy Statement is provided to the stockholders of Veritas and Seagate in advance of a vote relevant to the Merger and this Agreement. Subject to the terms of Section 5.2(c) hereof, Seagate and Veritas shall each use its commercially reasonable efforts to solicit proxies from its stockholders in favor of the adoption and approval of the items in clauses (i) and (ii) of the preceding sentence, as relevant, and shall take all other action necessary or advisable to secure the vote or consent of its stockholders required by the rules of the National Association of Securities Dealers, Inc., Delaware Law, The New York Stock Exchange, Inc. and all other applicable legal requirements to obtain such approval. (b) Subject to the terms of Section 5.2(c) hereof: (i) the Board of Directors of Seagate shall recommend that Seagate's stockholders vote in favor of and adopt and approve this Agreement and the Merger and the transactions contemplated under the OD Documents at the Seagate Stockholders' Meeting; (ii) the Proxy Statement shall include a statement to the effect that the Board of Directors of Seagate has recommended that Seagate's stockholders vote in favor of and adopt and approve this Agreement and the Merger and the transactions contemplated under the OD Documents at the Seagate Stockholders' Meeting, (iii) neither the Board of Directors of Seagate nor any committee thereof shall withdraw, amend or modify, or propose or resolve to withdraw, amend or modify in a manner adverse to Veritas, the recommendation of the Board of Directors of Seagate that the stockholders of Seagate vote in favor of and adopt and approve this Agreement and the Merger, and, unless this Agreement shall have been terminated, Seagate shall cause Seagate Software to vote the shares of Veritas Common Stock it holds in favor of the Share Increase and the Merger. (c) Notwithstanding the foregoing or anything to the contrary set forth in this Agreement, nothing in this Agreement shall prevent the Board of Directors of Seagate from withdrawing, amending or modifying its recommendation in favor of this Agreement and the Merger (i) Seagate receives a Seagate Superior Offer (as defined below) and such Seagate Superior Offer is not withdrawn, (ii) neither Seagate nor any of its agents or representatives has violated any of the restrictions set forth in Section 5.4(a) hereof, and (iii) the Board of Directors of Seagate concludes in good faith, after consultation with its 22 outside counsel, that, in light of such Seagate Superior Offer, the withholding, withdrawal, amendment or modification of such recommendation is necessary in order for the Board of Directors of Seagate to comply with its fiduciary obligations to the stockholders of Seagate under applicable law. For all purposes of and under this Agreement, the term "Seagate Superior Offer" shall mean a bona fide written offer made by a third party to consummate any of the following transactions: (a) a merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving Seagate, pursuant to which the stockholders of Seagate immediately preceding the consummation of such transaction would hold less than fifty percent (50%) of the equity interest in the surviving or resulting entity of such transaction (or the ultimate parent entity thereof); (b) a sale or other disposition by Seagate of assets and properties (excluding inventory and used equipment sold in the ordinary course of business) representing more than fifty percent (50%) of Seagate's assets immediately prior to such sale or other disposition, or (c) the acquisition by any person or group (including by way of a tender offer or an exchange offer or issuance by Seagate), directly or indirectly, of beneficial ownership or a right to acquire beneficial ownership of shares representing more than fifty percent (50%) of the voting power of the then outstanding shares of capital stock of the Seagate, in each case on terms that the Board of Directors of Seagate determines, in its reasonable judgment, after consultation with its financial advisor, to be more favorable to the stockholders of Seagate, from a financial point of view, than the terms of this Agreement and the Merger; provided, however, that any such offer shall not be deemed to be a "Seagate Superior Offer" if any financing required to consummate the transaction contemplated by such offer is not committed and is not likely in the judgment of the Board of Directors of Seagate to be obtained by such third party on a timely basis. Notwithstanding the foregoing or anything to the contrary set forth in this Agreement, nothing in this Agreement shall prevent the Board of Directors of Seagate from withdrawing, amending or modifying its recommendation in favor of the transactions contemplated by the OD Documents, or terminating the OD Documents in accordance with their terms. 5.3 Confidentiality. Veritas and Seagate acknowledge that they have previously entered into a Confidentiality Agreement (the "Confidentiality Agreement"), which shall continue in full force and effect in accordance with its terms. 5.4 No Solicitation. (a) From the execution and delivery of this Agreement and until the earlier to occur of the Effective Time and termination of this Agreement pursuant to Section 7.1 hereof, Seagate and its Subsidiaries shall not, and they shall cause their respective officers, directors, affiliates or employees or any investment banker, attorney or other advisor or representative retained by any of them not to, directly or indirectly (i) solicit, initiate, encourage or induce the making, submission or announcement of any Seagate Acquisition Proposal (as defined in Section 5.4(b) hereof), (ii) participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes or may reasonably be expected to lead to, any Seagate Acquisition Proposal, (iii) engage in discussions with any person with respect to any Seagate Acquisition Proposal, (iv) subject to the terms of Section 5.2(c) hereof, approve, endorse or recommend any Seagate Acquisition Proposal, or (v) enter into any letter of intent or similar document or any contract, agreement or commitment contemplating or otherwise relating to any Seagate Acquisition Transaction (as defined in Section 5.4(b) hereof); provided, however, that until the date on which this Agreement is approved by the requisite vote of the stockholders of Seagate, the terms of this Section 5.4(a) shall not prohibit Seagate from 23 furnishing information regarding Seagate and its Subsidiaries to, entering into a confidentiality or non-disclosure agreement with, or entering into discussions with, any person or group in response to a Seagate Superior Offer submitted by such person or group (and not withdrawn) if (a) neither Seagate nor any agents or representative of Seagate and its Subsidiaries shall have violated any of the restrictions set forth in this Section 5.4(a), (b) the Board of Directors of Seagate concludes in good faith, after consultation with its outside legal counsel, that such action is necessary in order for the Board of Directors of Seagate to comply with its fiduciary obligations to the stockholders of Seagate under applicable Law, (c) Seagate receives from such person or group an executed confidentiality or non-disclosure agreement containing customary limitations on the use and disclosure of all non-public written and oral information furnished to such person or group by or on behalf of Seagate and containing terms no less favorable to the disclosing party than the terms of the Confidentiality Agreement (including with respect to any standstill arrangements, unless the standstill arrangements in the Confidentiality Agreement are waived and (d) prior to furnishing any such non-public information to such person or group, or entering into negotiations or discussions, Seller notifies Purchaser promptly of such inquiries, proposals or offers received by, any such information requested from, or any such discussions or negotiations sought to be initiated or continued with, any of its representatives indicating, in connection with such notice, the name of the person and the terms and conditions of any inquiries, proposals or offers, and furnishes such non-public information to Veritas to the extent such information has not been previously furnished to Veritas. Seagate and its subsidiaries shall immediately cease any and all existing activities, discussions or negotiations with any parties conducted heretofore with respect to any Seagate Acquisition Proposal. (b) For all purposes of and under this Agreement, the term "Seagate Acquisition Proposal" shall mean any offer or proposal (other than an offer or proposal by Veritas) relating to any Seagate Acquisition Transaction. For all purposes of and under this Agreement, "Seagate Acquisition Transaction" shall mean any transaction or series of related transactions, other than the transactions contemplated by this Agreement or the OD Documents, involving: (i) any acquisition or purchase from Seagate by any person or "group" (as defined under Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) of more than fifteen percent (15%) in interest of the total outstanding voting securities of Seagate, or any tender offer or exchange offer that if consummated would result in any person or "group" (as defined under Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) beneficially owning more than fifteen percent (15%) of the total outstanding voting securities of Seagate, or any merger, consolidation, business combination or similar transaction involving Seagate pursuant to which the stockholders of Seagate immediately preceding such transaction would hold less than fifteen percent (15%) of the equity interests in the surviving or resulting entity of such transaction; (ii) any sale, lease (other than in the ordinary course of business), exchange, transfer, license (other than in the ordinary course of business), acquisition or disposition of more than fifteen percent (15%) of the assets and properties of Seagate; or (iv) any liquidation or dissolution of Seagate, excluding, in all cases any disposition of the assets covered by the OD Documents. (c) In addition to the restrictions and obligations of Seagate set forth in Section 5.4(a) hereof, Seagate as promptly as practicable, and in any event within twenty-four (24) hours, shall advise Veritas orally and in writing of any request received by Seagate for non-public information which Seagate reasonably believes could lead to a Seagate Acquisition Proposal or of any Seagate Acquisition Proposal, the material terms 24 and conditions of such request or Seagate Acquisition Proposal, and the identity of the person or group making any such request or Seagate Acquisition Proposal. Seagate shall keep Veritas informed in all material respects of the status and details (including material amendments or proposed amendments) of any such request or Seagate Acquisition Proposal. 5.5 Public Disclosure. Veritas and Seagate shall consult with each other and agree before issuing any press release or otherwise making any public statement with respect to the Merger, this Agreement, or a Seagate Acquisition Proposal and shall not issue any such press release or make any such public statement prior to such agreement, except as may be required by law or any listing agreement with a national securities exchange or the Nasdaq, in which case reasonable efforts to consult with the other party hereto shall be made prior to such release or public statement; provided, however, that no such consultation or agreement shall be required if, prior to the date of such release or public statement, Seagate shall have withheld, withdrawn, amended or modified its recommendation in favor of this Agreement and the Merger or the OD Documents and the transactions contemplated thereunder. 5.6 Legal Requirements. Each of Veritas, Merger Sub and Seagate shall take all reasonable actions necessary or desirable to comply promptly with all legal requirements which may be imposed on them with respect to the consummation of the Merger and the other transactions contemplated hereby (including, without limitation, furnishing all information required in connection with approvals of, or filings with, any Governmental Entity, and prompt resolution of any litigation prompted hereby), and shall promptly cooperate with, and furnish information to, the other party hereto to the extent necessary in connection with any such requirements imposed upon either of them or their respective subsidiaries in connection with the consummation of the Merger and the other transactions contemplated hereby. Veritas shall use its commercially reasonable efforts to take such steps as may be necessary to comply with the securities and state "blue sky" securities laws of all jurisdictions which are applicable to the issuance of Veritas Common Stock pursuant to the Merger in accordance with this Agreement. Seagate shall use its commercially reasonable efforts to assist Veritas as may be necessary to comply with the securities and state "blue sky" securities laws of all jurisdictions which are applicable in connection with the issuance of Veritas Common Stock pursuant to the Merger in accordance with this Agreement. 5.7 Notification of Certain Matters. Veritas shall give prompt notice to Seagate, and Seagate shall give prompt notice to Veritas, of the occurrence, or failure to occur, of any event, which occurrence or failure to occur would be reasonably likely to cause (i) any representation or warranty contained in this Agreement to be untrue or inaccurate at the Effective Time, such that the conditions set forth in Section 6.2(a) or Section 6.3(a) hereof, as the case may be, would not be satisfied or fulfilled as a result thereof, or (ii) any material failure of Veritas, Merger Sub or Seagate, as the case may be, or of any officer, director, employee or agent thereof, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. Notwithstanding the foregoing, the delivery of any notice pursuant to this Section 5.7 shall not limit or otherwise affect the rights and remedies available hereunder to the party receiving such notice. 5.8 Commercially Reasonable Efforts and Further Assurances. Subject to the respective rights and obligations of Veritas and Seagate under this Agreement, each of Veritas and Seagate shall use its respective commercially reasonable efforts to effectuate 25 the Merger and the other transactions contemplated hereby, and to fulfill and cause to be fulfilled the conditions to the Closing under this Agreement. Each of Veritas and Seagate, at the reasonable request of the other party hereto, shall execute and deliver such other instruments, and do and perform such other acts and things, as may be necessary or desirable for effecting completely the consummation of the Merger and the other transactions contemplated hereby. 5.9 Indemnification. (a) From and after the Effective Time, the Surviving Corporation shall fulfill and honor in all respects the obligations of Seagate pursuant to any indemnification agreements between Seagate and any of its directors and officers existing prior to the date hereof to the extent the obligations thereunder relate to the approval and adoption of the Merger. The Certificate of Incorporation and Bylaws of the Surviving Corporation shall contain the provisions with respect to indemnification, exculpation, expense advancement and elimination of liability for monetary damages relating to the approval and adoption of the Merger at least as favorable as is set forth in the Certificate of Incorporation and Bylaws of Seagate, which provisions shall not be amended, repealed or otherwise modified for a period of six (6) years from the Effective Time in any manner that would adversely affect the rights thereunder of individuals who, at the Effective Time, were directors, officers, employees or agents of Seagate, unless such modification is required by law. (b) For a period of six (6) years after the Effective Time, Veritas shall use its commercially reasonable efforts to maintain in effect, if available, directors' and officers' liability insurance (or purchase tail coverage) covering those persons who are currently covered by Seagate's directors' and officers' liability insurance policy on terms comparable to those applicable to the then current directors and officers of Veritas. (c) In the event that the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers a material amount of its assets and properties to any person in a single transaction or a series of related transactions, then, and in each such case, the Surviving Corporation shall either guaranty the indemnification obligations of the Surviving Corporation under this Section 5.10, or shall make, or cause to be made, proper provision so that the successors and assigns of the Surviving Corporation assume the indemnification obligations of the Surviving Corporation under this Section 5.11 for the benefit of the parties entitled to the benefits of this Section 5.10 (the "Indemnified Parties"). The terms and provisions of this Section 5.10 are (a) intended to be for the benefit of, and shall be enforceable by, each of the Indemnified Parties, and (b) in addition to, and not in substitution for, any other rights to indemnification or contribution that any of the Indemnified Parties may have by contract or otherwise. (d) This Section 5.9 shall survive any termination of this Agreement and the consummation of the Merger at the Effective Time, and shall be binding on all successors and assigns of the Surviving Corporation. 5.10 Tax-Free Reorganization. Neither Seagate nor Veritas shall, nor shall either permit any of its Subsidiaries to take or cause to be taken any action that would disqualify the Merger as a "reorganization" within the meaning of Section 368(a) of the Code; provided, however, that neither party shall have any liability under this Section 5.10 as a result of any action contemplated hereunder or by the OD Documents. 26 5.11 Nasdaq Listing. Veritas shall authorize for listing on the Nasdaq the shares of Veritas Common Stock issuable pursuant to the Merger in accordance with this Agreement, upon official notice of issuance. 5.12 Seagate Affiliate Agreement. Prior to the Seagate Stockholders Meeting, Seagate shall provide Veritas a complete and accurate list of those persons who may be deemed to be, in Seagate's reasonable judgment, affiliates of Seagate within the meaning of Rule 145 promulgated under the Securities Act (a "Seagate Affiliate"). Seagate shall provide Veritas with such information and documents as Veritas reasonably requests for purposes of reviewing and verifying the foregoing list. Seagate shall deliver or cause to be delivered to Veritas as promptly as practicable on or following the date hereof, but in no event later than the date the Proxy Statement is filed with the SEC, from each Seagate Affiliate an executed Affiliate Agreement, in customary form and substance reasonably satisfactory to Veritas (the "Seagate Affiliate Agreement"), each of which will be effective as of the Effective Time. Veritas shall be entitled to place appropriate legends on the certificates evidencing any Veritas Common Stock to be received by a Seagate Affiliate pursuant to the Merger in accordance with this Agreement, and to issue appropriate stop transfer instructions to the transfer agent for the Veritas Common Stock. 5.13 Regulatory Filings; Reasonable Efforts. As soon as practicable following the execution and delivery of this Agreement, Seagate and Veritas each shall file with the United States Federal Trade Commission (the "FTC") and the Antitrust Division of the United States Department of Justice ("DOJ") a Notification and Report Form relating to the Merger and the other transactions contemplated hereby as required by the HSR Act, as well as any comparable pre-merger notification forms required by the merger notification or control laws and regulations of any applicable jurisdiction, as agreed to by Seagate and Veritas. Seagate and Veritas each shall promptly (i) supply the other with any information which may be required in order to effectuate the foregoing filings, and (ii) supply any additional information which reasonably may be required by the FTC, the DOJ or the competition or merger control authorities of any other jurisdiction and which the parties may reasonably deem appropriate. 5.14 Access to Information. From the date hereof until the Effective Date, Seagate will, and will cause each of its subsidiaries to (i) allow Veritas and its officers, employees, counsel, accountants, actuaries, consultants and other authorized representatives ("Representatives") to have full access to the books, records, contracts, properties, facilities, accountants, actuaries, consultants, advisors, management and personnel of Seagate and its subsidiaries at all reasonable times, (ii) furnish promptly to Veritas and its Representatives all information and documents concerning Seagate and its subsidiaries as Veritas or its Representatives may reasonably request and (iii) cause the respective officers, employees and Representatives of Seagate and its subsidiaries to cooperate in good faith with Veritas and its Representatives in connection with all such access. 5.15 TRA Matters. (a) Form. The TRA Rights shall be evidenced by a non-transferable document in form and substance reasonably satisfactory to Veritas and Seagate, and shall contain legends to the effect that they are non-negotiable instruments as well as such other legends as may be required by law. The TRA Rights shall have an expiration date of March 31, 2003, after which time they shall expire without further act. After the expiration date of the TRA Rights, any TRA Amounts received by Veritas and its Affiliates shall be the property of Veritas without any obligation whatsoever to account therefor to former holders of the TRA Rights. 27 (b) Administration generally. On or prior to the Effective Time, Seagate shall designate one or more designees (the "Administrators") who shall be responsible for overseeing collection of the TRA Amounts and coordinating activities with representatives of Veritas and Purchaser with respect to Seagate Taxes. Veritas and Seagate will, prior to the Effective Time, cooperate in good faith with respect to establishing procedures and structures designed to maximize the aggregate value of the TRA Amount and minimize the amount of administrative costs. This may include the establishment of segregated accounts, pass-through trusts or similar devices (collectively, a "Collection Account") to receive periodic payments of TRA Amounts. The Administrators shall be entitled to charge the Collection Account a fee of 1% for all amounts deposited therein and distributed to holders of the TRA Rights. (c) Collection Amount. Following the Effective Time, Veritas shall forward to the Collection Account (and notify the Administrators of) any such refunds or credits after receipt or realization thereof by Veritas. (d) Payments. Any payments from Veritas required to be paid shall be made within 10 business days of the receipt of any refund or realization of credit as the case may be. Any such payments not made within such time period, shall be subject to an interest charge of 8% per annum. (e) Investments/Distributions. Amounts deposited in the Collection Account shall be invested in short-term money markets instruments, and shall be distributed to holders of TRA Rights on each calendar quarterly end commencing September 30, 2000. (f) Conduct of Audits and Other Procedural Matters. The Administrators shall have the right to initiate any claim for refund, credit or amended return that would give rise to a TRA Amount, and to control any audit, examination or contest with respect thereto, except if such audit, examination or contest may give rise to an indemnification obligation by Purchaser under the Indemnification Agreement, in which case the provisions of Section 6(d)(i) of the Indemnification Agreement shall control. Venus shall promptly forward to the Administrators all written notifications and other written communications, including if available the original envelope showing any postmark, from any taxing authority received by Venus or its affiliates relating to the TRA Amount. (g) Assistance and Cooperation. After the Effective Time, Veritas shall (and shall cause their respective Affiliates to): (i) Assist the Administrators in calculating the potential amount of the TRA Amount and included any Tax Returns prepaid by Veritas claims for refunds or credits designed to maximize the TRA Amount; (ii) Cooperate fully in preparing for any audits of, or disputes with taxing authorities regarding the TRA Amount; (iii) Make available to the other and to any taxing authority as reasonably requested all information, records, and documents relating to Taxes of Veritas, Seagate or any of their respective subsidiaries; (iv) Provide timely notice to the other in writing of any pending or threatened Tax audits or assessments relating to refunds or credits included or potentially includable by individuals in the TRA Amount; and (v) Furnish the other with copies of all correspondence received from any taxing authority in connection with any Tax audit which may affect refunds or credits included or potentially includable in the TRA Amount. 28 (h) Exculpation. In performing any duties under this Agreement, the Administrator shall not be liable to any party for damages, losses, or expenses, except for negligence or willful misconduct on the part of the Administrator. The Administrator shall not incur any such liability for (A) any act or failure to act made or omitted in good faith, or (B) any action taken or omitted in reliance upon any instrument, including any written statement or affidavit provided for in this Agreement that the Administrator shall in good faith believe to be genuine, nor will the Administrator be liable or responsible for forgeries, fraud, impersonations, or determining the scope of any representative authority. In addition, the Administrator may consult with legal counsel in connection with performing the Administrator's duties under this Agreement and shall be fully protected in any act taken, suffered, or permitted by him/her in good faith in accordance with the advice of counsel. The Administrator is not responsible for determining and verifying the authority of any person acting or purporting to act on behalf of any party to this Agreement. (i) Dragon Shares. Any Dragon Shares escrowed at the Effective Time or with respect to which the parties did not mutually agree to a value, shall be added to the TRA Amount, mutatis mutandis. ARTICLE VI CONDITIONS TO THE MERGER 6.1 Conditions to Obligations of Each Party to Effect the Merger. The respective obligations of each party to this Agreement to effect the Merger and the other transactions contemplated hereby shall be subject to the satisfaction or fulfillment, at or prior to the Effective Time, of the following conditions: (a) Stockholder Approvals. This Agreement shall have been approved and adopted, and the Merger shall have been duly approved, by the requisite vote under applicable law by the stockholders of Seagate. The Share Increase and the Merger shall have been approved by the requisite vote of the Veritas stockholders. (b) Registration Statement Effective; Proxy Statement. The SEC shall have declared the Registration Statement effective. No stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose, and no similar proceeding in respect of the Proxy Statement, shall have been initiated or threatened in writing by the SEC. (c) No Order; HSR Act. No Governmental Entity shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and which has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger. All requirements, if any, under the HSR Act or equivalent foreign statute, rule, regulation or order relating to the transactions contemplated hereby shall have expired or terminated early. (d) Tax Opinions. Veritas and Seagate shall each have received substantially identical written opinions from their respective counsels, Willkie Farr & Gallagher and Wilson Sonsini Goodrich & Rosati, Professional Corporation, in form and substance reasonably satisfactory to them, to the effect that the Merger should constitute a "reorganization" within the meaning of Section 368(a) of the Code, and such opinions shall not have been withdrawn. The parties to this Agreement agree to make reasonable representations as requested by such counsel for the purpose of rendering such opinions. 29 (e) Closing of OD Documents. The closing of the transactions contemplated by the OD Documents shall have occurred without waiver of Section 9.2(a) and (b) or 9.3(a) and (b) of the OD Documents, and pursuant thereto, Seagate and Star Software shall not have (i) any assets or properties other than the Designated Assets, or (ii) any Liabilities (other than the Designated Liabilities) or other obligations (absolute, accrued contemplated or otherwise) for which Veritas is not entitled to indemnification under the Indemnification Agreement, and Seagate and Purchaser shall have provided Veritas with certificates by their respective Chief Financial Officers to the foregoing effect. 6.2 Additional Conditions to Obligations of Seagate. The obligation of Seagate to consummate and effect the Merger and the other transactions contemplated hereby shall be subject to the satisfaction or fulfillment, at or prior to the Effective Time, of the following conditions, any of which may be waived, in writing, exclusively by Seagate: (a) Representations and Warranties. The representations and warranties of Veritas and Merger Sub contained in this Agreement shall have been true and correct in all material respects as of the date hereof, except where the failure to be so true and correct would not, in the aggregate, reasonably be expected to have a Material Adverse Effect on Veritas. In addition, the representations and warranties of Veritas contained in this Agreement shall be true and correct in all material respects on and as of the Effective Time (except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date, which shall have been true and correct only as of such particular date), with the same force and effect as if made on and as of the Effective Time, except in such cases where the failure to be so true and correct would not, in the aggregate, reasonably be expected to have a Material Adverse Effect on Veritas. Seagate shall have received a certificate with respect to the foregoing signed on behalf of Veritas by the Chief Executive Officer and the Chief Financial Officer of Veritas. (b) Agreements and Covenants. Veritas and Merger Sub shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time, and Seagate shall have received a certificate to such effect signed on behalf of Veritas by the Chief Executive Officer and the Chief Financial Officer of Veritas. 6.3 Additional Conditions to the Obligations of Veritas and Merger Sub. The obligations of Veritas and Merger Sub to consummate and effect the Merger shall be subject to the satisfaction or fulfillment, at or prior to the Effective Time, of the following conditions, any of which may be waived, in writing, exclusively by Veritas: (a) Representations and Warranties. The representations and warranties of Seagate contained in this Agreement shall have been true and correct in all material respects as of the date hereof, except where the failure to be so true and correct would not, in the aggregate, reasonably be expected to have a Material Adverse Effect on Seagate. In addition, the representations and warranties of Seagate contained in this Agreement shall be true and correct in all material respects on and as of the Effective Time (except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date, which shall have been true and correct as of such particular date), with the same force and effect as if made on and as of the Effective Time, except in such cases where the failure to be so true and correct would not, in the aggregate, reasonably be expected to have a Material Adverse Effect on Seagate. Veritas shall 30 have received a certificate with respect to the foregoing signed on behalf of Seagate by the President and the Chief Financial Officer of Seagate. The representations and warranties in Section 2.3(b) hereof shall be true and correct in all material respects. (b) Agreements and Covenants. Seagate shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time, and the Veritas shall have received a certificate to such effect signed on behalf of Seagate by the President and the Chief Financial Officer of Seagate. (c) Indemnification Agreement Representations and Warranties. Each of the representations and warranties of the parties (other than Veritas) in the Indemnification Agreement (i) to the extent qualified by materiality shall be true and correct, and (ii) to the extent not qualified by materiality, shall be true and correct in all material respects, in each of cases (i) and (ii), on the date of this Agreement and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date), except as otherwise contemplated by this Agreement. The Indemnification Agreement shall be in full force and effect, and each Subsidiary of Purchaser shall have executed and delivered a joinder agreement in accordance with the terms of the Indemnification Agreement. (d) Financing. The Financing (as defined in the OD Documents) shall have closed on the terms and conditions specified in the Commitment Letters (as defined in the OD Documents) and no material change in the terms of such Financing shall have occurred which, in Veritas' reasonable judgment, would materially and adversely impact Purchaser's ability to timely satisfy its obligations under the Indemnification Agreement. ARTICLE VII TERMINATION, FEES AND EXPENSES; AMENDMENT AND WAIVER 7.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of this Agreement and the Merger by the stockholders of Seagate: (a) by mutual written consent, duly authorized by the Boards of Directors of Veritas and Seagate; (b) by either Seagate or Veritas, if the Merger shall not have been consummated by December 31, 2000; provided, however, that the right to terminate this Agreement pursuant to this Section 7.1(b) shall not be available to any party hereto whose failure to fulfill any obligation under this Agreement (including, without limitation, such party's obligation under Section 5.4 hereof) has been a principal cause of, or resulted in, the failure of the Merger to be consummated on or before such date (c) by either Seagate or Veritas, if a Governmental Entity shall have issued an order, decree or ruling or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger, which order, decree or ruling is final and nonappealable; (d) by either Seagate or Veritas, if (i) the requisite approval of the stockholders of Seagate under applicable law to approve this Agreement and the Merger shall not have been obtained by reason of the failure to obtain the requisite vote upon a vote 31 taken at a meeting of the stockholders of Seagate duly convened therefor or at any adjournment or postponement thereof; and (ii) the required approval by the stockholders of Veritas of the Share Increase (if not previously approved) and the Merger shall not have been obtained by reason of the failure to obtain the required vote at a meeting of Veritas stockholders duly convened therefor or at any adjournment thereto; provided, however, that a party's right to terminate this Agreement pursuant to this Section 7.1(d) shall not be available to Seagate if the failure to obtain the foregoing approval of the stockholders of that party shall have been caused by that party's action or failure to act in a manner which constitutes a material breach of this Agreement; (e) by Seagate, upon a breach by Veritas of any representation, warranty, covenant or agreement of Veritas in this Agreement, or if any representation or warranty of Veritas shall have become untrue, in either case such that the conditions set forth in Section 6.2(a) or Section 6.2(b) hereof would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become untrue; provided, however, that if such inaccuracy in Veritas' representations and warranties, or breach by Veritas, is curable, then Seagate may not terminate this Agreement pursuant to this Section 7.1(e) for thirty-five (35) calendar days after delivery of written notice to Veritas of such breach, provided that Veritas continues to exercise commercially reasonable efforts to cure such breach (it being understood that Seagate may not terminate this Agreement pursuant to this Section 7.1(e) if such breach by Veritas is cured during such thirty-five (35)-day period); (f) by Veritas, upon a breach by Seagate of any representation, warranty, covenant or agreement of Seagate contained in this Agreement, or if any representation or warranty of Seagate shall have become untrue, in either case such that the conditions set forth in Section 6.3(a) or Section 6.3(b) hereof would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become untrue, provided, however, that if such inaccuracy in Seagate's representations and warranties, or breach by Seagate, is curable then Veritas may not terminate this Agreement pursuant to this Section 7.1(f) for thirty-five (35) calendar days after delivery of written notice to Seagate of such breach, provided that Seagate continues to exercise commercially reasonable efforts to cure such breach (it being understood that Veritas may not terminate this Agreement pursuant to this Section 7.1(f) if such breach by Seagate is cured during such thirty-five (35)-day period); (g) by Seagate, if (i) prior to the receipt of the requisite approval of the stockholders of Seagate to this Agreement and the Merger, Seagate receives a Seagate Superior Offer and the Board of Directors of Seagate concludes in good faith, after consultation with its outside counsel, that in light of such Seagate Superior Offer, the termination of this Agreement in order to accept such Seagate Superior Offer is necessary in order for the Board of Directors of Seagate to comply with its fiduciary obligations to the stockholders of Seller under applicable law, and Seagate enters into an agreement contemplating, or consummates, a Seagate Acquisition Transaction, and (ii) Seagate has complied with all of its obligations under Section 5.4 hereof, and (iii) prior to the termination of this Agreement pursuant to this Section 7.1(g), pays Veritas the Seagate Termination Fee pursuant to Section 7.3(b)(ii) hereof; provided, that such termination may take place only after two (2) business days following Veritas' receipt of written notice advising Veritas that the Board of Directors of Seagate has received a Seller Superior Offer specifying the 32 material terms and conditions of such Seagate Superior Offer (and including a copy thereof with all accompanying documentation, if in writing), identifying the person making such Seagate Superior Offer and stating that it intends to make the determination set forth in clause (i) of this Section 7.1(g). After providing such notice, Seagate shall provide an opportunity to Veritas to make such adjustments in the terms and conditions of this Agreement as would enable Seagate to proceed with its recommendation to its stockholders without making the determination set forth in clause (i) of this Section 7.1(g); provided, further, however, that any such adjustment shall be at the discretion of Veritas at the time; or (h) by Veritas, if a Veritas Triggering Event shall have occurred. For all purposes of and under this Agreement, a "Veritas Triggering Event" shall be deemed to have occurred if: (i) the Board of Directors of Seagate (or any committee thereof) shall for any reason have withdrawn or shall have amended or modified in a manner adverse to Veritas its recommendation in favor of the adoption and approval of this Agreement or the Merger; (ii) Seagate shall have failed to include in the Proxy Statement the recommendation of the Board of Directors of Seagate in favor of the adoption and approval of this Agreement and the Merger or shall have taken any action or made any statement inconsistent with such recommendation; or (iii) a tender or exchange offer relating to securities of Seagate shall have been commenced by a person unaffiliated with Veritas, and Seagate shall not have sent to its securityholders pursuant to Rule 14e-2 promulgated under the Securities Act, within ten (10) business days after such tender or exchange offer is first published sent or given, a statement disclosing that Seagate recommends rejection of such tender or exchange offer; or (i) by Seagate, if: (i) the Board of Directors of Veritas (or any committee thereof) shall for any reason have withdrawn or shall have amended or modified in a manner adverse to Seagate its recommendation in favor of the Share Increase (if not previously approved) and the Merger; or (ii) Veritas shall have failed to include in the Proxy Statement the recommendation of the Board of Directors of Veritas in favor of the Share Increase (if not previously approved) and the Merger. 7.2 Notice of Termination; Effect of Termination. Except as set forth in Section 7.3(b), any termination of this Agreement pursuant to Section 7.1 hereof shall be effective immediately upon the delivery of written notice of the terminating party to the other party hereto. In the event of the termination of this Agreement pursuant to Section 7.1 hereof, this Agreement shall be of no further force or effect, except (i) as set forth in this Section 7.2, Section 7.3 hereof and Article VIII hereof, each of which shall survive the termination of this Agreement without limitation, and (ii) that nothing herein shall relieve any party from liability for any intentional breach of this Agreement. A change by the Veritas board of directors of its recommendation of approval of the Merger and/or the Share Increase shall be an intentional breach by Veritas of the terms hereof unless Veritas, at the time of such change, had the right to terminate this Agreement. In the event of the termination of this Agreement under circumstances whereby the Seagate Termination Fee shall be payable, either immediately or based upon the occurrence of a subsequent event, the provisions of any standstill or similar agreement that would prevent an acquisition by Veritas or any of its affiliates of capital stock or assets of Seagate or any affiliate of Seagate (such provisions being "standstill provisions") shall terminate without any further action on the Part of Veritas or Seagate, providing that (i) only such standstill provisions of any such agreement shall terminate and the remaining provisions thereof shall remain in full force and effect in accordance with their terms and (ii) no severability 33 provisions of any such agreement shall be interpreted to require the replacement of such standstill provisions with any other provision. 7.3 Fees and Expenses. (a) General. Except as set forth in this Section 7.3, all fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, whether or not the Merger is consummated. (b) Seagate Payments. (i) Seagate shall pay to Veritas in immediately available funds, within one (1) business day after such notice of termination is delivered, an amount equal to $440,000,000 (the "Seagate Termination Fee") if this Agreement is terminated by Veritas pursuant to Section 7.1(h) hereof. (ii) Seagate shall pay Veritas in immediately available funds, prior to the termination of this Agreement, an amount equal to the Seagate Termination Fee if this Agreement is terminated by Seagate pursuant to Section 7.1(g) hereof. (iii) Seagate shall pay to Veritas in immediately available funds, within one (1) business day after the date Seagate directly or indirectly enters into an agreement with any third party with respect to a Seagate Acquisition Transaction or a Seagate Acquisition Transaction is consummated, an amount equal to the Seagate Termination Fee if (A) this Agreement is terminated by Veritas pursuant to Section 7.1(d)(i) hereof and at such time was not terminable by Seagate pursuant to Section 7.1(d)(ii), (B) at any time after the date of this Agreement and at or before the Seagate Stockholder Meeting a Seagate Acquisition Proposal shall have been publicly announced or otherwise communicated to the Seagate, and (C) within twelve (12) months of the termination of this Agreement, Seagate directly or indirectly enters into an agreement with any third party with respect to a Seagate Acquisition Transaction or a Seagate Acquisition Transaction is consummated. (iv) Seagate shall pay to Veritas in immediately available funds, within one (1) business day after the first to occur of the events set forth in clause (d) below, an amount equal to the Seagate Termination Fee if (A) this Agreement is terminated by either party pursuant to Section 7.1(b) hereof and at such time was not terminable by Seagate pursuant to Section 7.1(d)(ii), (B) at any time after the date of this Agreement and at or before the Termination Date a Seagate Acquisition Proposal shall have been publicly announced or otherwise communicated to the Seagate, (C) following the public announcement or communication of such Seagate Acquisition Proposal and prior to any such terminations, Seagate shall have intentionally breached (and not cured after notice thereof) any of its covenants or agreements set forth in this Agreement in any material respect, which breach shall have contributed to the failure of the Closing to occur on or before the Termination Date, and (D) within twelve (12) months of the termination of this Agreement, Seagate directly or indirectly enters into an agreement with any third party with respect to a Seagate Acquisition Transaction or a Seagate Acquisition Transaction is consummated. (v) For all purposes of and under this Section 7.3, the term "Seagate Acquisition Proposal" shall mean any offer or proposal (other than an offer or proposal by Veritas relating to any Seagate Acquisition Transaction. For all purposes of and under this Section 7.3, "Seagate Acquisition Transaction" shall mean any transaction or series of 34 related transactions involving: (i) any acquisition or purchase from Seagate by any person or "group" (as defined under Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) of more than fifty percent (50%) in interest of the total outstanding voting securities of Seagate, or any tender offer or exchange offer that if consummated would result in any person or "group" (as defined under Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) beneficially owning more than fifty percent (50%) of the total outstanding voting securities of Seagate, or any merger, consolidation, business combination or similar transaction involving Seagate pursuant to which the stockholders of Seagate immediately preceding such transaction would hold less than fifty percent (50%) of the equity interests in the surviving or resulting entity of such transaction (or the ultimate parent entity thereof); (ii) any sale, lease (other than in the ordinary course of business), exchange, transfer, license (other than in the ordinary course of business), acquisition or disposition of more than fifty percent (50%) of the assets and properties of Seagate; or (iii) any liquidation or dissolution of Seagate, excluding in all cases any disposition of the assets covered by the OD Documents. (vi) Seagate acknowledges that the agreements contained in this Section 7.3(b) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Veritas would not enter into this Agreement. 7.4 Amendment. Subject to applicable law, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto. 7.5 Extension; Waiver. At any time prior to the Effective Time any party hereto may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other party hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. Delay in exercising any right under this Agreement shall not constitute a waiver of such right. ARTICLE VIII GENERAL PROVISIONS 8.1 Non-Survival of Representations and Warranties. The representations and warranties of Seagate and Veritas contained in this Agreement shall terminate at the Effective Time, and only the covenants and agreements that by their terms survive the Effective Time shall survive the Effective Time. 8.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or sent via facsimile (receipt confirmed) to the parties at the following addresses or facsimile numbers 35 (or at such other address or facsimile numbers for a party as shall be specified by like notice): (a) if to Seagate, to: Seagate Technology, Inc. 920 Disc Drive Scotts Valley, California 95066 Attention: General Counsel Facsimile No.: 831-438-6675 Telephone No.: 831-438-6550 with copies to: Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, California 94304-1050 Attention: Larry W. Sonsini, Esq. Facsimile No.: 650-493-6811 Telephone No.: 650-493-9300 and to: Wilson Sonsini Goodrich & Rosati Professional Corporation One Market Plaza Spear Tower San Francisco, California 94105 Attention: Michael J. Kennedy, Esq. Facsimile No.: 415-947-2099 Telephone No.: 415-947-2000 and to: Suez Acquisition Company (Cayman) Limited c/o Silver Lake Partners, L.P. 2725 Sand Hill Road Building C, Suite 950 Menlo Park, California 94025 Attention: Dave Roux Facsimile: 650-233-8125 Telephone: 650-233-8121 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017-3954 Attention: William E. Curbow, Esq. Facsimile: 212-455-2502 Telephone: 212-455-2000 36 and to: TPG Partners, III, L.P. 201 Main Street, Suite 2420 Fort Worth, Texas 76102 Attention: Richard A. Ekleberry, Esq. Facsimile: 817-871-4010 Telephone: 817-871-4000 with a copy to: Cleary, Gottlieb, Steen & Hamilton One Liberty Plaza New York, New York 10006 Attention: Paul J. Shim, Esq. Facsimile: 212-225-3999 Telephone: 212-225-2000 (b) if to Veritas, Merger Sub or the Surviving Corporation, to: VERITAS Software Corporation 1600 Plymouth Street Mountain View, California 94043 Attention: General Counsel Facsimile: 650-526-2581 Telephone: 650-335-8000 with a copy to: Willkie Farr & Gallagher 787 Seventh Avenue New York, New York 10019 Attention: Michael A. Schwartz Facsimile: 212-728-8111 Telephone: 212-728-8000 8.3 Certain Interpretations. (a) When a reference is made in this Agreement to a Section or an Exhibit, such reference shall be to a Section or an Exhibit to this Agreement unless otherwise indicated. (b) The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." (c) The table of contents and headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement, or any term or provision hereof. (d) Reference to the subsidiaries of an entity shall be deemed to include all direct and indirect subsidiaries of such entity. 8.4 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other party hereto, it being understood that each party hereto need not sign the same counterpart. 37 8.5 Entire Agreement. This Agreement and the documents and instruments and other agreements among the parties hereto as contemplated by or referred to herein, including the Seagate Disclosure Schedule and the Veritas Disclosure Schedule (i) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, it being understood that the Confidentiality Agreement shall continue in full force and effect until the Closing and shall survive any termination of this Agreement, and (ii) except as is provided in Section 5.9 hereof, are not intended to confer upon any other person any rights or remedies hereunder. 8.6 Severability. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 8.7 Other Remedies; Specific Performance. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 8.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law thereof. 8.9 Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 8.10 Assignment. No party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the of the parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 8.11 Waiver of Jury Trial. EACH OF VERITAS AND SEAGATE HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF VERITAS AND SEAGATE IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF. [Remainder of Page Intentionally Left Blank] 38 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed by their duly authorized respective officers, as of the date first above written. VERITAS SOFTWARE CORPORATION By: /s/ Mark Leslie Name: Mark Leslie Title: CEO and Chairman of the Board VICTORY MERGER SUB, INC. By: /s/ Jay A. Jones Name: Jay A. Jones Title: President, Chief Administrative Officer and Secretary SEAGATE TECHNOLOGY, INC. By: /s/ Stephen J. Luzco Name: Stephen J. Luzco Title: CEO and President 39 EX-2.3 6 0006.txt INDEMNIFICATION AGREEMENT Exhibit 2.3 INDEMNIFICATION AGREEMENT Indemnification Agreement, dated as of March 29, 2000, by and among VERITAS Software Corporation, a Delaware corporation ("Veritas"), Seagate Technology, Inc., a Delaware corporation ("Seagate"), Suez Acquisition Company (Cayman) Limited, a limited company organized under the laws of the Cayman Islands ("SAC"), and each Person who executes a Joinder Agreement (as defined below) pursuant to Section 4(f) hereof. WHEREAS, Seagate has determined to sell to SAC (the "Stock Purchase") all of the outstanding shares of capital stock of the Sold Subsidiaries (as defined below) pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement") between Seagate and SAC, dated as of the date hereof; WHEREAS, Seagate, Veritas and Victory Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Veritas ("Victory Sub"), have previously entered into an Agreement and Plan of Merger and Reorganization (the "Merger Agreement") dated as of the date hereof, providing for the merger of Victory Sub with and into Seagate (the "Merger"); WHEREAS, consummation of the Stock Purchase is a condition precedent to the consummation of the Merger; WHEREAS, it is a condition precedent to the consummation of the Stock Purchase and the Merger that this Indemnification Agreement shall be in full force and effect; and WHEREAS, the parties to this Agreement have determined that it is necessary and desirable to set forth certain agreements that will govern various tax matters, indemnity matters and other matters that may arise in connection with the Stock Purchase and the Merger. NOW, THEREFORE, in consideration of the premises and of the mutual agreements, provisions and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: SECTION 1. Definitions. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Stock Purchase Agreement. The following terms shall have the following definitions: "Financing Agreements" means the documents, instruments and agreements evidencing the Financing as the same may be amended, refinanced, replaced, modified or supplemented from time to time. "Loss" or "Losses" means any losses, claims, damages, deficiencies, liabilities, costs obligations, fines, penalties and expenses of any nature whatsoever (including reasonable expenses of investigation and reasonable attorney's fees and disbursements). "Material Adverse Effect" means a material adverse change in or effect with respect to the business, results of operations, properties, financial condition or prospects of SAC and its Subsidiaries, taken as a whole. "Person" means any individual, corporation, partnership, joint venture, limited liability company, association or other business entity. 1 "Pre-Purchase Tax Period" means any Tax Period ending on or before the end of the date of the Stock Purchase. "Pre-Purchase Taxes" shall mean (i) all liability for Taxes of Seagate and the Retained Subsidiaries for Pre-Purchase Tax Periods and (ii) all liability of Seagate and the Retained Subsidiaries for the Pre-Purchase portion of Taxes of such companies attributable to any Straddle Period as determined in accordance with Section 6(b) hereof, provided, however, that Taxes in respect of any transactions as of the date hereof undertaken at the written direction of Veritas shall be excluded. "Retained Subsidiary" means any Subsidiary of Seagate that is not a Sold Subsidiary. "SAC Indemnitor" means SAC and each Person who executes a Joinder Agreement pursuant to Section 4(f) hereof. "Stock Purchase Date" shall mean the date of the Stock Purchase. "Straddle Period" shall mean a taxable period of Seagate or a Retained Subsidiary that begins before the Stock Purchase Date and ends after the Stock Purchase Date. "Tax" or "Taxes" means (i) any tax, governmental fee or other like assessment or charge of any kind whatsoever (including, without limitation, withholding on amounts paid to or by any Person), together with any interest, penalty, addition to tax or additional amount imposed by any governmental authority (a "Taxing Authority") responsible for the imposition of any such tax (domestic or foreign), (ii) liability for the payment of any amounts of the type described in clause (i) above as a result of Seagate or any of its Subsidiaries, including the Sold Subsidiaries, being a member prior to the Stock Purchase Date of an affiliated, consolidated, combined or unitary group, or being a party to any agreement or arrangement entered into prior to the Stock Purchase Date as a result of which liability of Seagate or any of its Subsidiaries, including the Sold Subsidiaries, to a Taxing Authority is determined or taken into account with reference to the liability of any other person, (iii) liability of Seagate or any of its Subsidiaries, including the Sold Subsidiaries, for the payment of any amount as a result of being party to any tax sharing agreement or arrangement entered into prior to the Stock Purchase Date, or with respect to the payment of any amount of the type described in clause (i) or (ii) above as a result of any express or implied obligation arising prior to the Stock Purchase Date to indemnify any other Person and (iv) liability of Seagate or any of its Subsidiaries, including the Sold Subsidiaries, as a result of any express or implied obligation arising prior to the Stock Purchase Date to pay any Taxes of any Person or to "gross up" any Person for income received or deemed received as a result of any other Person paying Tax Liabilities of such Person. SECTION 2. Representations and Warranties of the SAC Indemnitors. The SAC Indemnitors jointly and severally represent and warrant to Veritas as of the date hereof, as of the Closing Date and as of the date of each Joinder Agreement as follows, each of which such representations and warranties shall survive the Closing Date: (a) Organization and Authority of the SAC Indemnitors. Each of the SAC Indemnitors is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all necessary corporate power and authority to enter into this Agreement, the Stock Purchase Agreement and 2 each Joinder Agreement to which it is a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Stock Purchase Agreement by SAC and each Joinder Agreement by each Person who executes such Agreement, the performance by the SAC Indemnitors of their respective obligations hereunder and thereunder and the consummation by the SAC Indemnitors of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of the SAC Indemnitors. This Agreement and the Stock Purchase Agreement have been, and each Joinder Agreement will be, duly executed and delivered by the SAC Indemnitor party thereto, and (assuming due authorization, execution and delivery by each of the other respective parties thereto) each of this Agreement, the Stock Purchase Agreement and each Joinder Agreement constitutes or, when executed and delivered in accordance with the terms hereof, will constitute a legal, valid and binding obligation of the SAC Indemnitor Party thereto enforceable against the SAC Indemnitor party thereto in accordance with its terms. (b) No Conflict. The execution, delivery and performance of this Agreement and the Stock Purchase Agreement by SAC and each Joinder Agreement by each Person who executes such Agreement does not and will not after giving effect to the transactions contemplated by the Stock Purchase Agreement and the Financing (i) violate, conflict with or result in the breach of any provision of the charter or by-laws (or similar organizational documents) of any SAC Indemnitor, (ii) violate or conflict with any provision of law, or any order, judgment or decree of any court or other governmental or other regulatory authority applicable to any SAC Indemnitor or (iii) violate, conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would constitute a default) under any material contract, lease, loan agreement, mortgage, security agreement, trust indenture or other agreement or instrument to which any SAC Indemnitor is a party or by which any SAC Indemnitor is bound or to which any SAC Indemnitor's properties or assets is subject or (iv) result in the creation of any lien, charge or encumbrance of any kind whatsoever on any of the properties or assets of any SAC Indemnitor. (c) Consents and Approvals. The execution, delivery and performance of this Agreement and the Stock Purchase Agreement by SAC and each Joinder Agreement by each Person who executes such Agreement does not and will not require any material consent, approval, authorization, waiver or other order of, action by, filing with or notification to any governmental or regulatory authority, domestic or foreign, except as will be made or obtained prior to Closing by the SAC Indemnitor party thereto and remains in full force and effect. SECTION 3. Representations and Warranties of Veritas. Veritas represents and warrants to SAC as of the date hereof and as of the Closing Date as follows, each of which such representations and warranties shall survive the Closing Date: (a) Organization and Authority of Veritas. Veritas is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all necessary corporate power and authority to enter into this Agreement and the Merger Agreement, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Merger Agreement by Veritas, the performance by Veritas of its obligations hereunder and thereunder and the 3 consummation by Veritas of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of Veritas. This Agreement and the Merger Agreement have been duly executed and delivered by Veritas, and (assuming due authorization, execution and delivery by each of the other respective parties hereto and thereto) this Agreement and the Merger Agreement constitute legal, valid and binding obligations of Veritas enforceable against Veritas in accordance with their terms. (b) No Conflict. The execution, delivery and performance of this Agreement and the Merger Agreement by Veritas does not and will not (i) violate, conflict with or result in the breach of any provision of the charter or by-laws of Veritas, (ii) violate or conflict with any provision of law, or any order, judgment or decree of any court or other governmental or other regulatory authority applicable to Veritas or (iii) violate, conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would constitute a default) under any material contract, lease, loan agreement, mortgage, security agreement, trust indenture or other agreement or instrument to which Veritas is a party or by which Veritas is bound or to which any of Veritas properties or assets is subject or (iv) result in the creation of any lien, charge or encumbrance of any kind whatsoever on any of the properties or assets of Veritas. (c) Consents and Approvals. The execution, delivery and performance of this Agreement and the Merger Agreement by Veritas does not and will not require any material consent, approval, authorization, waiver or other order of, action by, filing with or notification to any governmental or regulatory authority, domestic or foreign, except as has been made or obtained prior to Closing by Veritas and remains in full force and effect. SECTION 4. Certain Covenants. (a) Access to Books and Records of SAC; Financial Statements and Reports. Upon the request of Veritas, SAC shall provide to representatives of Veritas and its Affiliates reasonable access to its books and records and shall cause its auditors to provide to the auditors of Veritas and its Affiliates reasonable access to SAC's auditors' work papers. For as long as SAC is required to do so, SAC shall provide Veritas with copies of any annual or quarterly financial statements and reports that it is required to deliver to the lenders providing senior financing in the Financing, and any requests for waivers of any term or provisions in the Financing Documents, in each case, at the same times provided for in the Financing Agreements. The provisions contained in this Section 4(a) shall terminate and be of no further effect from and after the fifth anniversary of the Stock Purchase Date. (b) Retention of Documents. Subject to Section 6(f) hereof, each of the SAC Indemnitors agrees that it will preserve all documentation relating to the transactions contemplated by the Stock Purchase Agreement or this Agreement and each of Veritas and Seagate agrees that it will preserve all documentation relating to (i) Seagate, the Sold Subsidiaries, and the Retained Subsidiaries for any Pre-Purchase Tax Period and any Straddle Period, and (ii) the Merger Agreement, Designated Assets and Designated Liabilities (other than documentation transferred to SAC pursuant to the terms of the Stock Purchase Agreement), in each case to the extent required by applicable law or by such party's document retention policies, whichever is longer, as in effect from time to time. The provisions contained in this Section 4(b) shall terminate and be of no further effect from and after the eighth anniversary of the Stock Purchase Date. 4 (c) Notice of Certain Events. SAC shall promptly, but in no event more than five business days after receiving notification or obtaining knowledge thereof, provide written notice to Veritas of any event which would have a Material Adverse Effect or materially impair the ability of any SAC Indemnitor to perform fully its obligations hereunder. (d) Conduct of Business. Upon and after the Closing Date, SAC will preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business. (e) Financing Agreements. Prior to the Closing, SAC shall furnish to Veritas true and complete copies of the Financing Agreements and, promptly following any amendments thereto, true and complete copies of such amendments. The provisions contained in this Section 4(e) shall terminate and be of no further effect from and after the fifth anniversary of the Stock Purchase Date. (f) Joinder Agreements. On the Closing Date, SAC shall cause each of the Sold Subsidiaries to execute and deliver to Veritas a Joinder Agreement in the form of Annex I hereto (a "Joinder Agreement"). Thereafter, SAC shall cause any Person that becomes a Subsidiary of SAC to, on the date such Person becomes a Subsidiary of SAC, execute and deliver to Veritas a Joinder Agreement. Any Person executing a Joinder Agreement shall, upon executing the same, deliver to Veritas a certified copy of the charter and by-laws, or similar organizational documents, of such Person together with resolutions of the Board of Directors (or comparable governing body) of such Person approving the execution and delivery of the Joinder Agreement. SECTION 5. Indemnification. In addition to the obligations of the parties contained in Section 6 hereof, from and after the Closing Date: (a) Each of the SAC Indemnitors jointly and severally agrees to indemnify, defend and hold harmless Veritas and Seagate and their respective Affiliates including the Retained Subsidiaries (the "Veritas Indemnitees") from and against any and all Losses as they are incurred or suffered by any Veritas Indemnitee arising out of or in connection with or related to (but only to the extent arising out of or in connection with or related to): (i) all Liabilities (other than Designated Liabilities and other than in respect of Taxes, which are the subject of Section 6 hereof) arising out of or related to (A) the ownership, operations or conduct by Seagate and its predecessors or Affiliates (other than Veritas and its Subsidiaries) of their respective businesses, properties, assets or liabilities on or prior to the Closing Date, or (B) the ownership, operations or conduct by SAC or any of its Subsidiaries of their respective businesses, properties, assets or liabilities from and after the Closing Date; (ii) the enforcement by the Veritas Indemnitees of their respective rights under this Agreement; (iii) any breach by SAC of any agreement, obligation, covenant, representation or warranty contained in this Agreement, the Stock Purchase Agreement or any agreement or document entered into in connection therewith or delivered pursuant thereto to which SAC is a party. (b) Veritas and Seagate agree to indemnify, defend and hold harmless SAC and each of its Subsidiaries from and against any and all Losses, as they are incurred or 5 suffered by SAC or its Subsidiaries, arising out of or in connection with or related to (but only to the extent arising out of or in connection with or related to): (i) all Designated Liabilities; (ii) all Liabilities of or related to the ownership, operations or conduct by Seagate or the Retained Subsidiaries of their respective businesses, properties, assets or liabilities subsequent to the Closing Date; (iii) the enforcement by SAC and its Subsidiaries of their respective rights under this Agreement; and (iv) any breach by Veritas of any agreement, obligation, covenant, representation or warranty contained in this Agreement, the Merger Agreement or any agreement or document entered into in connection therewith or delivered pursuant thereto to which Veritas is a party. SECTION 6. Taxes. From and after the Closing Date: (a) Each of the SAC Indemnitors jointly and severally agrees to indemnify and hold the Veritas Indemnitees harmless from all Losses (other than Designated Liabilities) attributable to (i) Pre-Purchase Taxes of Seagate and the Retained Subsidiaries, and (ii) Taxes, whenever arising, of the Sold Subsidiaries or attributable to assets transferred to the Sold Subsidiaries in connection with the Stock Purchase and the Merger; provided, however, that the SAC Indemnitors shall not be obligated to indemnify the Veritas Indemnitees for any Taxes attributable to, or arising from, the transactions contemplated by the OD Documents (as defined in the Stock Purchase Agreement), other than the Split and the sale of shares of the capital stock of the Sold Subsidiaries (including any gain from any Section 338(h)(10) election made with respect to such sale). (b) For purposes of determining whether Taxes are Pre-Purchase Taxes described in clause 6(a)(i) above, in the case of a Straddle Period of Seagate or a Retained Subsidiary, the SAC Indemnitors shall be solely responsible for all Taxes attributable to the portion of the period ending on, and which includes, the Stock Purchase Date, and Veritas shall be solely responsible for all Taxes attributable to the portion of the period which begins after the Stock Purchase Date. For purposes hereof, the portion of any Tax that is attributable to the portion of a Straddle Period up to and including the Stock Purchase Date shall be (i) in the case of a Tax that is not based on net income, gross income, sales or gross receipts (including real property taxes), the total amount of such Tax for the period in question multiplied by a fraction, the numerator of which is the number of days in the Straddle Period up to and including the Stock Purchase Date, and the denominator of which is the total number of days in such Straddle Period, and (ii) in the case of a Tax that is based on any of net income, gross income, sales or gross receipts, the Tax that would be due with respect to the portion of the Straddle Period through and including the Stock Purchase Date, if such portion of the Straddle Period were a separate taxable period, except that exemptions, allowances, deductions or credits that are calculated on an annual basis (such as the deduction for depreciation or capital allowances) shall be apportioned on a per diem basis. The Veritas Indemnitees shall indemnify and hold harmless the SAC Indemnitors from and against (i) any Taxes of Seagate for which the SAC Indemnitors are 6 not obligated to indemnify the Veritas Indemnitees under Section 6(a), and (ii) any Taxes arising out of or attributable to the breach of any representation or covenant contained in this Indemnification Agreement by the Veritas Indemnitees. With regard to any Loss for which indemnification is payable hereunder, such payment shall be treated for federal, state, local and foreign tax purposes as an adjustment to the Purchase Price in the Stock Purchase Agreement, unless otherwise required under applicable law. The amount of any such payment shall be net of any Tax on the Indemnified Party arising from such payment and shall be adjusted to take into account any net Tax benefit or net Tax detriment realized by the Indemnified Party that arises from the occurrence of the Loss for which such payment was made; provided that no payment shall be made by the SAC Indemnitors in respect of any Taxes payable by any Veritas Indemnitee in respect of an indemnification payment hereunder (the "Gross-Up Amount") except if and to the extent that the aggregate cumulative taxable income of the Veritas Indemnitees that would otherwise give rise to Gross-Up Amounts exceeds the Available Loss Amount (as reduced from time to time to the extent used to reduce Pre-Purchase Taxes). The "Available Loss Amount" shall mean an amount determined by the Closing Date or as soon as practicable thereafter by a Big Five accounting firm mutually selected by SAC and Veritas as being equal to the best available estimate as of the date of determination of the excess of (x) the aggregate losses of Seagate and its consolidated group arising on or before the Stock Purchase Date or arising from the transactions contemplated by the Stock Purchase Agreement or Merger Agreement (but not taking into account any gain or income recognized in respect of the Designated Assets in Parts A, B and C of Schedule II of the Merger Agreement), including the exercise of options in connection with the Merger or the Stock Purchase Agreement, over (y) the amount of such losses as are estimated will be taken into account in determining the TRA Amount. (c)(i) A draft of all Tax Returns relating to Seagate and the Retained Subsidiaries which are to be filed after the Stock Purchase Date, but which relate to a Pre-Purchase Tax Period or Straddle Period, including the federal consolidated income Tax Return of the affiliated group of which Seagate is the common parent for the period ending with the Merger, shall be prepared by Ernst & Young or any other Big Five accounting firm (the "Tax Return Preparer") chosen by SAC. Any such Tax Return shall be prepared in a manner consistent with past practice and without a change of any election or any accounting method. A copy of such draft shall be furnished to Veritas at least 30 days prior to the due date for each such Tax Return for review and comment. Veritas shall be entitled to suggest such revisions to each such Tax Return as it, in its good faith belief, considers appropriate to minimize the risk of an audit adjustment to such Tax Return, which suggestions shall be considered in good faith by SAC. If Veritas reasonably objects to any position taken in such draft Tax Return, Seagate shall amend such draft Tax Return to reflect an alternative position suggested by Veritas, unless Seagate provides Veritas with an opinion from the Tax Return Preparer that there is substantial authority (within the meaning of Section 6662 of the Code and applicable Treasury regulations) to support the initial position. All other decisions regarding Tax Returns shall be made by SAC. Veritas shall execute and file such Tax Returns as so revised on a timely basis and shall pay the Taxes shown due on such Tax Return. SAC will pay over to Veritas the amount of Taxes shown due at least five days prior to the date such Tax Return is to be filed. SAC agrees that it shall be responsible for the preparation and filing of all Tax Returns of the Sold Subsidiaries and pay the Tax shown due thereon. 7 (ii) The parties shall cooperate with each other in the preparation of any Tax Return and the conduct of any audit or other proceeding, judicial or administrative (collectively, a "Tax Proceeding"), involving Taxes of Seagate, the Sold Subsidiaries and the Retained Subsidiaries. Veritas and SAC, without charge, shall provide the requesting party with such assistance and documents as may be reasonably requested by such party in connection with the preparation of any return or the conduct of any audit or other Tax Proceeding. Veritas and SAC agree to keep each other fully informed of all matters relating to any Tax Return, or Tax Proceeding, including without limitation any settlement negotiations in the event that such Tax Proceeding may involve Taxes for which an indemnity obligation may arise under this Section 6. Notwithstanding anything else to the contrary in this Section 6, the obligations of the SAC Indemnitors pursuant to this Section 6 shall be calculated by assuming no election has been made pursuant to Section 172(b)(3) of the Code, Treasury Regulation section 1.1502-21(b)(3), or any similar or successor provision, to waive the carryback of losses arising from the exercise of options in connection to the Merger or the Stock Purchase or any losses arising on or before the Stock Purchase Date and by assuming that all losses, credits and other tax attributes are used in the order provided under the applicable provisions of the Code and Treasury Regulations. (d)(i) If a claim in respect of Taxes (a "Tax Claim") is made or threatened by any Taxing Authority that, if successful, could result in an indemnity obligation under Section 6, Veritas shall promptly notify SAC, stating the nature and basis of such claim and the amount thereof, to the extent known. Failure to give such notice shall not relieve the SAC Indemnitors from any liability that they may have on account of this indemnification or otherwise, except to the extent that the SAC Indemnitors are materially prejudiced in the defense of such claim thereby. SAC will have the right, at its option, upon timely notice to Veritas, to assume at its own expense control of any audit or other defense of such Tax Claim with its own counsel, and by assuming such control will be deemed to have acknowledged its indemnification liability for such claim. SAC's right to control such a Tax Claim will be limited to issues in respect of which amounts in dispute would be paid by the SAC Indemnitors or for which the SAC Indemnitors would be liable pursuant to Section 6. Costs of such Tax Claims are to be borne by the SAC Indemnitors unless the Tax Claim relates to a Straddle Period. (ii) In the case of any Tax Proceeding involving liability for Tax of Seagate, a Retained Subsidiary or any Sold Subsidiary for which Seagate or a Retained Subsidiary could be liable if such Tax were unpaid (without regard to any indemnity obligation of SAC), (A) Veritas at its expense and through counsel of its choosing, shall have the right to observe all hearings, trials and other proceedings, attend all settlement and other conferences and receive copies of all material briefs and submissions and (B) notwithstanding the control rights granted to SAC in clause (i) above, Veritas shall have the right to control the Tax Proceeding and make all decisions in respect thereof in the case of any Tax proceeding involving the liability for Tax of Seagate or the Retained Subsidiaries if Veritas waives its right to obtain indemnity under this Section 6. (e) If the parties disagree as to the amount of any payment to be made under or on any other matter arising under this Section 6, the parties shall attempt in good faith to resolve such dispute, and any agreed-upon amount shall be paid to the appropriate party. If such dispute is not resolved within 15 days following written 8 notice from any party hereto to an other party hereto that a dispute subject to this subsection (f) exists, then the parties shall jointly retain an independent accounting firm to resolve the dispute. If and to the extent that a dispute presents legal issues, the independent accounting firm shall have authority to consult an independent law firm. The fees of the independent accounting firm and the independent law firm shall be borne by the party that does not substantially prevail in the dispute; the independent accounting firm shall make a determination regarding liability for expenses. The decision of such independent accounting firm and/or the independent law firm shall be rendered within ten (10) days following final submissions by the parties to such firm and shall be final and binding on all parties; provided, however, that if there is a subsequent adjudication or other determination of a fact or matter assumed, but not decided in the decision of such accounting firm or law firm, the decision of such accounting firm or law firm shall be appropriately adjusted and the parties shall adjust the payments made accordingly. Following the decision of the independent accounting firm and/or the independent law firm, the parties shall each take or cause to be taken any action that is necessary or appropriate to implement such decision of the independent accounting firm and/or the independent law firm. (f) Notwithstanding any other provision of this Agreement, Veritas, on the one hand, and SAC, on the other hand, shall retain all Tax Returns, schedules and workpapers, and all material records or other documents relating thereto, until the later of (i) sixty (60) days following the expiration of the statute of limitations (including extensions, waivers and mitigations thereof) of the taxable years to which such Tax Returns and other documents relate or (ii) one hundred twenty (120) days after the delivery of notice to the other party to the effect that it shall dispose of such Tax Returns or other documents, unless it is requested by such party within one hundred twenty (120) days of delivery of such notice (with which request it shall comply within thirty (30) days of receipt) that it transfer such Tax Returns or other documents to such other party. Any information obtained under this Section 6 shall be kept confidential, except as may be otherwise necessary in connection with the filing of Tax Returns or claims for refund or in conducting any audit or other proceeding. SECTION 7. Termination of Tax Sharing Agreement. All tax sharing or similar agreements (if any) between Seagate and its Affiliates, on the one hand, and the Sold Subsidiaries, on the other, are terminated as of the Closing Date without any further liability to any party thereto and shall be of no further force and effect. All claims for indemnification for Taxes between the parties shall be made and resolved in accordance with the terms of this Agreement. SECTION 8. [Reserved] SECTION 9. Indemnification Procedure. (a) Except as may be otherwise provided pursuant to Section 6 hereof, any party entitled to indemnification hereunder (each, an "Indemnified Party") shall, with respect to claims asserted against any such Indemnified Party by any third party (a "Third-Party Claim"), give written notice to the party against whom indemnification is sought (the "Indemnifying Party") of any liability which might give rise to a claim for indemnity hereunder within thirty (30) days of the receipt of any written claim or notice from any such third party, but no later than twenty (20) days prior to the date any answer, responsive pleading or other response may be due with respect thereto, and with respect to any other matter for which any Indemnified Party may seek indemnification hereunder, the 9 Indemnified Party shall give prompt written notice to the Indemnifying Party of any liability which might give rise to a claim for indemnity; provided, however that any failure to give such notice will not release the Indemnifying Party from its obligations hereunder except to the extent that the rights of the Indemnifying Party are materially prejudiced thereby. (b) Except with respect to claims governed by Section 6 hereof which shall be governed by the provisions thereof, the Indemnifying Party, upon receipt of such notice, shall be entitled to participate in or, at the Indemnifying Party's option, assume at its own expense the defense, appeal or settlement of such Third-Party Claim with respect to which such indemnity has been invoked with counsel of its own choosing (who shall be reasonably satisfactory to the Indemnified Party); provided, however, that if the Indemnifying Party assumes the defense, appeal or settlement of such Third-Party Claim, (i) the Indemnified Party shall be entitled to employ one counsel to represent itself if an actual conflict of interest exists in the opinion of counsel to the Indemnified Party between the Indemnifying Party and the Indemnified Party in respect of such Third-Party Claim and in that event and only in that event the reasonable fees and expenses of such counsel shall be paid by the Indemnifying Party (it being understood that all Indemnified Parties may employ not more than one counsel to represent them at the expense of the Indemnifying Party) and (ii) the Indemnified Party shall nevertheless be entitled to participate in (but not direct) the defense thereof with counsel of its own choice and, subject to clause (i) above, at its own expense. Any Indemnified Party is hereby authorized prior to the date on which it receives written notice from the Indemnifying Party that it intends to assume the defense, appeal or settlement of such Third-Party Claim, to file any motion, answer or other pleading and take such other action which it shall reasonably deem necessary to protect its interest or that of the Indemnifying Party until the date on which the Indemnified Party receives such notice from the Indemnifying Party. (c) No claim or demand may be settled by the Indemnified Party without the consent of the Indemnifying Party, which consent shall not be unreasonably delayed or withheld. Unless the claim or demand seeks only dollar damages (all of which are to be paid by the Indemnifying Party), no such claim or demand may be settled by the Indemnifying Party without the consent of the Indemnified Party, which consent shall not be unreasonably delayed or withheld. (d) The parties agree to cooperate in defending such Third-Party Claims and the Indemnified Party shall provide such cooperation and such access to its books, records and properties as the Indemnifying Party may reasonably request with respect to any matter for which indemnification is sought hereunder, and the parties hereto agree to cooperate with each other in order to insure the proper and adequate defense thereof. (e) With regard to Third-Party Claims for which indemnification is payable hereunder, indemnification shall be paid by the Indemnifying Party within five (5) business days following the earlier to occur of: (i) entry of a final non-appealable judgment by a court of competent jurisdiction or arbitration panel against an Indemnified Party which has not been stayed pending appeal; or (ii) a settlement of the claim, in accordance with the terms of such settlement. With regard to any claim for Taxes subject to Section 6 hereof, indemnification shall be paid by the SAC Indemnitees within five (5) business days following receipt by SAC 10 of written notice from Veritas stating that any amount subject to indemnification under such Section 6 has been paid by Veritas and the amount thereof and the indemnity payment requested. With regard to any other claim for which indemnification is payable hereunder, indemnification shall be paid promptly by the Indemnifying Party upon demand by the Indemnified Party but in any event within thirty (30) business days following any such demand, provided that any such demand shall include a reasonably detailed description of the claims giving rise to such demand. (f) The Indemnifying Parties agree to reimburse the Indemnified Parties for any indemnifiable Losses under the provisions of this Agreement as such Losses are incurred, provided, however, that if it is finally determined that any Indemnified Party was not entitled to any amount paid as indemnity with respect to such Losses, such Indemnified Party shall promptly refund all amounts to which such Indemnified Party was not entitled to the Indemnifying Parties that paid such amounts. SECTION 10. No Contribution. The Indemnifying Parties shall not be entitled to seek or obtain any contribution, reimbursement or other participation, direct or indirect, from any Indemnified Party in respect of any payment made or to be made by any Indemnifying Party hereunder or arising out of this Agreement, notwithstanding the fact that the Loss for which any Indemnifying Party is liable results from or is contributed to by any breach by any Indemnified Party or any misrepresentation by any Indemnified Party contained in the Merger Agreement, the Stock Purchase Agreement, this Agreement or any agreement, document, instrument or schedule referred to herein or therein or contemplated hereby or thereby. SECTION 11. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect; provided, however that if any mutual covenant contained herein is declared invalid or unenforceable with respect to Veritas and its Affiliates (including Seagate and any Retained Subsidiary following the Closing), on the one hand, or SAC and its Affiliates, on the other hand, by any court of competent jurisdiction or governmental authority, such mutual covenant shall become invalid or unenforceable with respect to the opposite group to such covenant and provided further, that this Section 11 shall not be construed to affect any other rights of any party hereto under applicable principles of contract law, including without limitation the principles of failure of consideration and mutual dependency. SECTION 12. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, by verified telecopy, by expedited delivery service (such as Federal Express) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties as follows: (i) if to Veritas (and, after Closing, Seagate), to: VERITAS Software Corporation 1600 Plymouth Street Mountain View, California 94043 Attention: General Counsel Facsimile: 650-526-2581 Telephone: 650-335-8000 11 with a copy to: Willkie Farr & Gallagher 787 Seventh Avenue New York, NY 10019 Attention: Michael A. Schwartz, Esq. Facsimile: 212-728-8111 Telephone: 212-728-8000 (ii) if to Seagate (prior to Closing), to: Seagate Technology, Inc. 920 Disc Drive P.O. Box 66360 Scotts Valley, California 95067 Attention: General Counsel Facsimile: 831-438-6675 Telephone: 831-439-5370 with a copy to: Wilson Sonsini Goodrich & Rosatti Professional Corporation 650 Page Mill Road Palo Alto, California 94304-1050 Attention: Larry W. Sonsini, Esq. and to: Wilson Sonsini Goodrich & Rosatti Professional Corporation One Market Street Spear Tower, Suite 3300 San Francisco, California 94105 Attention: Michael J. Kennedy, Esq. Facsimile: 415-947-2099 Telephone: 415-947-2000 (iii) if to SAC, to: Suez Acquisition Company (Cayman) Limited c/o Silver Lake Partners, L.P. 2725 Sand Hill Road Building C, Suite 950 Attention: Dave Roux Facsimile: 650-2338125 Telephone: 650-233-8121 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017-3954 Attention: William Curbow, Esq. Facsimile: 212-455-2502 Telephone: 212-455-2000 12 and to: TPG Partners III, L.P. 201 Main Street, Suite 2420 Fort Worth, Texas 76102 Attention: Richard A. Ekleberry, Esq. Facsimile: 817-871-4010 Telephone: 817-871-4000 with a copy to: Cleary, Gottlieb, Steen & Hamilton One Liberty Plaza New York, New York 10006 Attention: Paul J. Shim, Esq. Facsimile: 212-225-3999 Telephone: 212-225-2000 Such notice shall be effective on the day following receipt of delivery in person, by verified telecopy or by expedited delivery service and shall be effective four days after mailing in accordance with the foregoing. The person to whom notice is to be given, and any address, may be changed from time to time in the manner set forth above (provided that any such change shall be effective only upon receipt thereof). SECTION 13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Venue for any legal action under this Agreement shall be in the federal or state courts located in the State and County of New York, All parties hereunder hereto hereby submit themselves to the jurisdiction of such courts for the purpose of this Agreement and hereby waive trial by jury in any action, counterclaim or proceeding of any kind arising under or out of or in connection with this Agreement, the negotiations leading thereto, the inducements to the parties to enter into this Agreement and to the transactions it contemplates. SECTION 14. Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. SECTION 15. Parties-in-Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. SECTION 16. Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed to be an original, but both of which shall constitute one and the same agreement, provided that at least one counterpart is executed by each party herein named. SECTION 17. Successors. All agreements of the parties in this Agreement shall bind their respective successors, provided that upon written request by SAC following the sale of any of its Subsidiaries to an unaffiliated third party, Veritas shall execute and deliver a release of such Subsidiary of its obligations hereunder. SECTION 18. Assignment. This Agreement is not assignable by either party hereto without the prior written consent of the other party hereto. 13 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officers thereunto duly authorized, all as of the day and year first above mentioned. VERITAS SOFTWARE CORPORATION By: /s/ Mark Leslie Its: CEO and Chairman of the Board SEAGATE TECHNOLOGY, INC. By: /s/ Jay A. Jones Its: President, Chief Administrative Officer and Secretary SUEZ ACQUISITION COMPANY (CAYMAN) LIMITED By: /s/ Stephen J. Luczo Its: CEO and President 14 EX-2.4 7 0007.txt JOINDER AGREEMENT Exhibit 2.4 JOINDER AGREEMENT JOINDER AGREEMENT, dated this 22nd day of November, 2000, by and among VERITAS Software Corporation, a Delaware corporation ("Veritas"), Seagate Technology, Inc., a Delaware corporation ("Seagate") and the entities listed below as SAC Indemnitors (each, a "SAC Indemnitor"). Reference is made to that certain Indemnification Agreement (the "Indemnification Agreement"), dated as of March 29, 2000, by and among Veritas, Seagate, Suez Acquisition Company (Cayman) Limited, a limited company organized under the laws of the Cayman Islands ("SAC"), as amended. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto in the Indemnification Agreement. By executing this Joinder Agreement, each SAC Indemnitor, severally and not jointly, hereby agrees to be bound by the terms of the Indemnity Agreement as if it was an original signatory to such Agreement and shall be deemed to be a SAC Indemnitor thereunder. This Joinder Agreement shall be governed by and construed in accordance with the laws of the State of New York. This Joinder Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have executed this Joinder Agreement as of the date first above written. SAC INDEMNITORS: NEW SAC By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: 2 SEAGATE TECHNOLOGY HOLDINGS By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE TECHNOLOGY HDD HOLDINGS By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE TECHNOLOGY (US) HOLDINGS, INC. By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE TECHNOLOGY LLC By: Seagate Technology, Inc., its Managing Member By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: [SEAGATE US LLC] By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: REDWOOD ACQUISITION CORPORATION By: /s/ William L. Hudson -------------------------- Name: William L. Hudson 3 Title: QUINTA CORPORATION By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE TECHNOLOGY INTERNATIONAL By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE TECHNOLOGY (THAILAND) LIMITED By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE TECHNOLOGY CHINA HOLDING CO. By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE TECHNOLOGY ASIA HOLDINGS By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE TECHNOLOGY (IRELAND) By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: 4 SEAGATE TECHNOLOGY MEDIA (IRELAND) By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE TECHNOLOGY REYNOSA S. DE R.L. DE C.V. By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: NIPPON SEAGATE INC. By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE SINGAPORE DISTRIBUTION PTE. LTD. By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE DISTRIBUTION (UK) LIMITED By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE TECHNOLOGY (MARLOW) LIMITED By: /s/ William L. Hudson -------------------------- Name: William L. Hudson 5 Title: SEAGATE TECHNOLOGY FAR EAST HOLDINGS By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE TECHNOLOGY (PHILIPPINES) By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE TECHNOLOGY (SAN) HOLDINGS By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: XIOTECH CORPORATION By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: XIOTECH (CANADA) LTD. By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS By: /s/ William L. Hudson -------------------------- Name: William L. Hudson 6 Title: SEAGATE REMOVABLE STORAGE SOLUTIONS (US) HOLDINGS, INC By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE REMOVABLE STORAGE SOLUTIONS LLC By: Seagate Technology, Inc., its Managing Member By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: [SEAGATE RSS LLC] By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE REMOVABLE STORAGE SOLUTIONS INTERNATIONAL By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE SOFTWARE (CAYMAN) HOLDINGS By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC. 7 By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP (CANADA), INC. By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: NIPPON SEAGATE SOFTWARE KK By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS BV By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE SOFTWARE INFORMATION PTE LTD. By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP UK LIMITED By: /s/ William L. Hudson -------------------------- Name: William L. Hudson Title: 8 Agreed to and Accepted by: VERITAS SOFTWARE CORPORATION By: /s/ Jay A. Jones ------------------------------- Name: Jay A. Jones Title: SEAGATE TECHNOLOGY, INC. By: /s/ William L. Hudson ------------------------------- Name: William L. Hudson Title: EX-2.5 8 0008.txt CONSOLIDATED AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT Exhibit 2.5 CONSOLIDATED AMENDMENT AND CONSENT CONSOLIDATED AMENDMENT TO STOCK PURCHASE AGREEMENT, AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, AND INDEMNIFICATION AGREEMENT, AND CONSENT THIS AMENDMENT TO STOCK PURCHASE AGREEMENT, AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, AND INDEMNIFICATION AGREEMENT, AND CONSENT (this "AGREEMENT") is made and entered into as of August 29, 2000 by and among Suez Acquisition Company (Cayman) Limited, a limited company organized under the laws of the Cayman Islands ("SUEZ"), Seagate Technology, Inc., a Delaware corporation ("SEAGATE"), Seagate Software Holdings, Inc., a Delaware corporation ("SSHI"), VERITAS Software Corporation, a Delaware corporation ("VERITAS"), and Victory Merger Sub, Inc., a Delaware corporation ("MERGER SUB"). RECITALS A. On March 29, 2000, Suez, Seagate and SSHI entered into a Stock Purchase Agreement (the "STOCK PURCHASE AGREEMENT") pursuant to which, among other things, Seagate and SSHI agreed to sell to Suez (or one of its Designees), and Suez agreed to purchase (or cause one of its Designees to purchase) from Seagate and SSHI, all outstanding Shares of the Sold Subsidiaries (as such terms are defined in the Stock Purchase Agreement) upon the terms and subject to the conditions set forth therein. Capitalized terms used but not otherwise defined in Article I hereof shall have the respective meanings ascribed thereto in the Stock Purchase Agreement. In April 2000, Suez, Seagate and SSHI agreed to reduce the amount stated in the definition of Required Cash under the Stock Purchase Agreement from $800,000,000 to $775,000,000. B. Suez, Seagate and SSHI desire to amend certain terms of the Stock Purchase Agreement, as more fully set forth herein. C. On March 29, 2000, Veritas, Merger Sub and Seagate entered into an Agreement and Plan of Merger and Reorganization (the "MERGER AGREEMENT") pursuant to which, among other things, upon the terms and subject to the conditions of the Merger Agreement and in accordance with Delaware Law (as defined in the Merger Agreement), Veritas and Seagate agreed to consummate the Merger. Capitalized terms used but not otherwise defined in Article II hereof shall have the respective meanings ascribed thereto in the Merger Agreement. D. Veritas, Merger Sub and Seagate desire to amend certain terms of the Merger Agreement, as more fully set forth herein. E. On March 29, 2000, Veritas, Seagate and Suez entered into an Indemnification Agreement (the "Indemnification Agreement") which, among other things, sets forth certain agreements to govern various tax matters, indemnity matters and other matters that may arise in connection with the transactions contemplated by the Stock Purchase Agreement and the Merger Agreement. F. Veritas, Seagate and Suez desire to amend certain terms of the Indemnification Agreement, as more fully set forth herein. 1 NOW, THEREFORE, in consideration of the foregoing premises, and the covenants, promises and representations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, the parties hereto hereby agree as follows: ARTICLE I AMENDMENTS TO STOCK PURCHASE AGREEMENT Seagate, Suez and SSHI hereby agree as follows: 1. Purchase and Sale of SSHI Shares. Pursuant to Section 2.1 of the Stock Purchase Agreement, SSHI agreed to sell to Suez or one of its Designees all of the outstanding capital stock of SSIMG. Suez hereby acknowledges that SSIMG has adopted and administers the Seagate Software Information Management Group, Inc. 1999 Stock Option Plan pursuant to which options to purchase shares of common stock of SSIMG have been heretofore granted to employees of SSIMG. Suez hereby further acknowledges that a holder(s) of an option(s) granted under the foregoing stock option plan has/have heretofore exercised such option(s) to purchase shares of common stock of SSIMG and, as a result, SSHI will be unable to sell such shares to Suez or one of its Designees in accordance with, and in the manner contemplated by, the Stock Purchase Agreement. On the basis of the foregoing, Suez, Seller and SSHI hereby agree as follows: (a) Recital A of the Stock Purchase Agreement hereby is amended to insert immediately following the parenthetical language "(as defined herein)" the following: ", except as otherwise set forth herein." (b) Section 2.1 of the Stock Purchase Agreement hereby is amended to insert immediately following the parenthetical in which "SSIMG" is defined and immediately prior to the parenthetical in which "Sold Subsidiaries" is defined, the following: ", other than shares of capital stock of SSIMG issued pursuant to the exercise of options granted under the Seagate Software Information Management Group Inc. 1999 Stock Option Plan." (c) Section 3.4(a) of the Stock Purchase Agreement hereby is amended to (i) insert at the end of the second sentence thereof, the following: "and shares of common stock of SSIMG held by persons who have exercised stock options under the Seagate Software Information Management, Inc. 1999 Stock Option Plan" and (ii) insert in the third sentence thereof immediately following the language that currently reads "or any agreement or document to which Seller or any of its Subsidiaries is a party or by which of Seller or any of its Subsidiaries is bound and," the following: "if and". 2. Redemption of Debt. Pursuant to Section 6.13 of the Stock Purchase Agreement, Seagate agreed to commence an irrevocable tender offer to purchase all of the principal amount of the Debentures. Suez, Seagate and SSHI have agreed to forego the Debt Offer, but proceed with the redemption of the Debentures contemplated by Section 6.13 of the Stock Purchase Agreement. On the basis of the foregoing, Suez, Seagate and SSHI hereby agree that Section 6.13 of the Stock Purchase Agreement hereby is amended to delete therefrom the language beginning with "Seller shall commence an irrevocable tender offer (the "DEBT OFFER")..." in the first sentence thereof and ending with "If less than one hundred percent (100%) of the Debentures are purchased pursuant to the Debt Offer, then" in the third sentence thereof. 2 3. Designated Assets. Pursuant to Section 2.7 of the Stock Purchase Agreement, Seagate has agreed to effectuate the Split on or before the Closing Date. Pursuant to Section 1.1 of the Stock Purchase Agreement, (i) the term "Split" is defined as the "the transfer to the Sold Subsidiaries, prior to the Closing Date, of all assets...and Liabilities of Seller and Seagate Software Holdings, Inc., other than the Designated Assets and the Designated Liabilities..." and (ii) the term "Designated Assets" is defined as "the securities set forth on Schedule II [to the Stock Purchase Agreement]". Suez, Seagate and SSHI desire to clarify, among other things, that, in addition to the securities set forth on Schedule II to the Stock Purchase Agreement, in connection with the Split, Seagate will also retain (and not transfer to the Sold Subsidiaries) (i) all of Seagate's cash on hand in excess of the Required Cash, and (ii) the capital stock of SSHI held by Seagate. On the basis of the foregoing, Suez, Seagate and SSHI hereby agree as follows: (a) The definition of "Designated Assets" in Section 1.1(j) of the Stock Purchase Agreement hereby is amended to replace the word "securities" with the word "items". (b) Schedule II to the Stock Purchase Agreement hereby is amended to add the following immediately following the existing language on Schedule II: "D. All outstanding capital stock of SSHI held by Seller. E. Cash in excess of the Required Cash." 4. Required Cash. Pursuant to Section 1.1 of the Stock Purchase Agreement, the term "Required Cash" is defined as "$800,000,000, as adjusted pursuant to Section 2.6 [of the Stock Purchase Agreement]". Suez, Seagate and SSHI desire to amend the definition of Required Cash in the Stock Purchase Agreement. Suez, Seagate and SSHI hereby agree that the definition of "Required Cash" in Section 1.1(ee) of the Stock Purchase Agreement hereby is amended in its entirety to read as follows: "Required Cash" means (x)(i) $765,000,000, in the event that the $25.25 million settlement amount payable by Seagate to TeraStor Corporation, MaxOptics Corporation and Kubota Corporation is fully paid by Seagate prior to the Closing Date, or (ii) $775,000,000, in the event that the $25.25 million settlement amount payable by Seagate to TeraStor Corporation, MaxOptics Corporation and Kubota Corporation is not fully paid by Seagate prior to the Closing Date, minus (y) one-third ( 1/3) (up to a maximum of $2.5 million in the aggregate) of the Printing and Filing Expenses, as adjusted pursuant to Section 2.6 hereof." 5. Certain Expenses. Suez, Seagate and SSHI desire to clarify that Suez, Seagate and VERITAS have agreed to split the Transaction Expenses associated with the printing and filing of all documents with the SEC in connection with the transactions contemplated by the Stock Purchase Agreement and the Merger Agreement. Accordingly, Suez, Seagate and SSHI hereby agree as follows: (a) Section 1.1(nn) of the Stock Purchase Agreement hereby is amended in its entirety to read as follows: "'TRANSACTION EXPENSES' means the fees and expenses of Seller's or its Subsidiaries' investment bankers, attorneys, consultants, accountants and advisors, and the printing and filing fees and expenses associated with the printing and filing of all documents required to be filed with the SEC or mailed to the stockholders of Seller in connection with the transactions contemplated by this Agreement and the OD Documents ("PRINTING AND FILING EXPENSES"), in each case incurred in 3 connection with this Agreement, the OD Documents and the transactions contemplated hereby and thereby." (b) Section 1.1(b) of the Stock Purchase Agreement hereby is amended to insert at the end of such provision the following: "provided, however, that notwithstanding the foregoing or anything to the contrary set forth in this Agreement, for purposes of determining of the Adjustment Amount, Transaction Expenses shall be deemed to exclude one-third ( 1/3) (up to a maximum of $2.5 million in the aggregate) of the Printing and Filing Expenses." 6. Taxes. Suez, Seagate and SSHI desire to clarify certain mechanics associated with the election specified in Section 8.2 of the Stock Purchase Agreement. Section 8.2 of the Stock Purchase Agreement is hereby amended in its entirety to read as follows: 8.2 Section 338(h)(10) Election. (a) Seller and Purchaser shall make an election under Section 338(h)(10) of the Code and Treasury Regulation Section 1.338(h)(10)-1(d) (and, if permissible, any corresponding elections under any applicable state and local income tax laws) (collectively, the "SECTION 338(H)(10) ELECTIONS") with respect to the purchase and sale of Shares of any of the Sold Subsidiaries which is a United States person within the meaning of Section 7701(a)(30) of the Code (collectively, the "U.S. SOLD SUBSIDIARIES") hereunder listed on Schedule VI hereto, and any other U.S. Sold Subsidiary designated by the Purchaser (other than Quinta Corporation). (b) To the extent possible, Purchaser, Seller and the U.S. Sold Subsidiaries shall execute on or prior to the Closing any and all forms necessary to effectuate the Section 338(h)(10) Elections (including, without limitation, Internal Revenue Service Form 8023 and any similar forms under the applicable state and local income tax laws (the "SECTION 338 FORMS"). In the event, however, any Section 338 Forms are not executed by the Closing, Purchaser and Seller shall prepare and complete each such Section 338 Form no later than 15 days prior to the date such Section 338 Form is required to be filed. Purchaser and Seller shall each cause the Section 338 Forms to be duly executed by an authorized person for Purchaser and Seller in each case, and shall duly and timely file the Section 338 Forms in accordance with applicable tax Laws and the terms of this Agreement. (c) As soon as practicable after the date hereof, Purchaser shall (i) allocate the Purchase Price among the Sold Subsidiaries (the "STOCK ALLOCATION"), and (ii) determine the allocation of that portion of the Stock Allocation attributable to any of the U.S. Sold Subsidiaries resulting from the Section 338(h)(10) Elections (as required pursuant to Section 338(h)(10) of the Code and the regulations promulgated thereunder) among the assets of such U.S. Sold Subsidiaries (the "SECTION 338 ALLOCATION") after considering in good faith Seller's comments thereto. Purchaser, Seller and the U.S. Sold Subsidiaries shall be bound by and shall file all Tax Returns (including amended Tax Returns and amended Section 338 Forms as necessary) consistently with the Section 338 Allocation, unless in the opinion of a nationally recognized law firm, there is no reasonable basis therefor. 4 7. The Stock Purchase Agreement is hereby amended by adding the following as Schedule VI thereto: "SCHEDULE VI (i) Seagate Software Information Management Group Holdings, Inc. (ii) XIOtech Corporation" 8. Corrections and Clarifications. Purchaser, Seller and SSHI desire to make certain corrections and other clarifications to the terms of the Stock Purchase Agreement. Suez, Seagate and SSHI hereby agree as follows: (a) The definition of "Affiliate" in Section 1.1(c) of the Stock Purchase Agreement hereby is amended to replace each instance in which the capitalized term "Person" appears with the word "person". (b) The definition of "Liability" in Section 1.1(z) of the Stock Purchase Agreement hereby is amended to insert immediately following the language "Environmental Law", the following: "(as defined in Section 3.18(a) hereof)". (c) The definition of "OD Documents" in Section 1.1(cc) of the Stock Purchase Agreement hereby is amended to (i) delete the word "and" immediately following the language "by and among Seller" and immediately preceding the language "VERITAS Software Corporation" and substituting in its place a comma and (ii) insert immediately following the parenthetical in which "VERITAS" is defined, the following: "and Victory Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of VERITAS". (d) The definition of "Overage Amount" in Section 1.1(dd) of the Stock Purchase Agreement hereby is amended to replace the reference to "Star Options" with a reference to "Seagate Options". (e) The definition of "Split" in Section 1.1(jj) of the Stock Purchase Agreement hereby is amended to delete the reference to "Seagate Software Holdings, Inc." and replace the foregoing with the defined term "SSHI". (f) Section 2.1 of the Stock Purchase Agreement hereby is amended to (i) delete the language "Seagate Technology, Inc." and replace the foregoing with the word "Seller" and (ii) delete the cross-reference language "Section 12.10" in the first sentence thereof and replace the foregoing with a cross-reference to "Section 12.9". (g) Section 2.6(a) of the Stock Purchase Agreement hereby is amended to (i) delete the reference to "Seller Stockholder Meeting" in the first sentence thereof and replace the foregoing with the following: "Seller Stockholders' Meeting (as defined in Section 6.1(a) hereof)" and (ii) delete the cross-reference to Section 2.6(c) at the end of the such section. (h) Section 2.6(b)(i) of the Stock Purchase Agreement hereby is amended to insert immediately following the word "Seller", the following: ", SSHI". (i) Section 2.6(b)(ii) of the Stock Purchase Agreement hereby is amended to delete the language "Seller and Purchaser" at the end of the second and third sentences thereof, and insert the following: "Seller, SSHI and Purchaser". (j) Section 2.7 of the Stock Purchase Agreement hereby is amended to replace each reference to "costs" contained in the proviso to the first sentence thereof with the defined term "Transaction Expenses". 5 (k) Section 3.4(b) of the Stock Purchase Agreement hereby is amended to (i) delete the parenthetical language "(the "2037 SENIOR DEBENTURES") and, together with the 2004 Notes, the 2007 Notes and the 2017 Senior Debentures, the "DEBENTURES")" and replace the foregoing with the following: "(the "2037 SENIOR DEBENTURES" and, together with the 2004 Senior Notes, the 2007 Senior Notes and the 2017 Senior Debentures, the "DEBENTURES"), and (ii) delete ", dated as of March 1, 1997 (the "Indenture")". (l) Section 3.8 of the Stock Purchase Agreement hereby is amended to (i) insert at the beginning of the fourth sentence thereof, the following: "Except for SSIMG," (ii) delete the following redundant language in the sixth sentence thereof: "and the consolidated financial position of Seller and its consolidated Subsidiaries as of the dates thereof" and (iii) delete the subheading "(a)" after "Section 3.8". (m) Section 3.10 of the Stock Purchase Agreement hereby is amended to delete the reference to "VERITAS Merger Agreement" in the first sentence thereof and replace the foregoing with the following: "OD Documents." (n) Section 3.11(d) of the Stock Purchase Agreement hereby is amended to delete the language in the first sentence thereof beginning with "is presently in progress" until the end of the sentence, and replace the foregoing with the following: "which is presently in progress, and a complete and accurate list of all notifications received by Seller or any of its Subsidiaries from any Tax authority regarding any request for such an audit or other examination." (o) Section 3.11(g) of the Stock Purchase Agreement hereby is amended to delete the second sentence thereof and replace the foregoing with the following: "Section 3.11(g) of the Seller Disclosure Schedule contains a complete and accurate list of all contracts, agreements, plans or arrangements to which Seller is a party or by which it is bound pursuant to which Seller is required to compensate any individual for excise taxes pursuant to Section 4999 of the Code." (p) Section 3.16(d) of the Stock Purchase Agreement hereby is amended to delete the following language in the final sentence thereof: "former employee, director, consultant". (q) Section 3.19 of the Stock Purchase Agreement hereby is amended to delete the word "any" appearing immediately following the language "Seller has no" and immediately preceding the language "knowledge of any strikes". (r) Section 3.25(a) of the Stock Purchase Agreement hereby is amended to delete the language "and thereby" appearing immediately following the language "the consummation of the transactions contemplated hereby" and immediately preceding the language "will not result in the loss of," in the third sentence thereof. (s) Section 3.25(d) of the Stock Purchase Agreement hereby is amended to (i) insert the word "property" immediately following the language "shall mean intellectual" and immediately preceding the language "or property of a similar nature" in the first sentence thereof, and (ii) replace the reference to "subsidiaries" in the final sentence thereof with the defined term "Subsidiaries". (t) The preamble to Article IV of the Stock Purchase Agreement hereby is amended to delete the following: ", subject to the exceptions and qualifications set forth or disclosed in the disclosure letter delivered by Purchaser to Seller, dated as of the date hereof (the "PURCHASER DISCLOSURE LETTER"),". 6 (u) Section 4.5 of the Stock Purchase Agreement hereby is amended to replace each of the first two references to "Seller" in the first sentence thereof with references to "Purchaser". (v) Section 5.1 of the Stock Purchase Agreement hereby is amended to (i) delete the word "and" appearing in the first sentence thereof immediately preceding the following language: "(iii) to the extent contemplated by the OD Documents" and (ii) insert in the first sentence thereof immediately following the language "as in effect on the date hereof, or" and immediately preceding the language "for the sale of all or a portion of the Designated Assets", the following: "(iv)". (w) Section 7.1 of the Stock Purchase Agreement hereby is amended to delete the word "[Suez]" appearing in the proviso of the second sentence thereof and replace the foregoing with the following: "Seagate". (x) Section 7.2(a) of the Stock Purchase Agreement hereby is amended to insert immediately following the language "(i) Purchaser shall offer all" and immediately preceding the language "Seller Employees" in the first sentence thereof, the following: "then current". (y) Section 9.1(d) of the Stock Purchase Agreement hereby is amended to delete the cross-reference to Section 6.1(f) of the VERITAS Merger Agreement and replace the foregoing with a cross-reference to Section 6.1(e) of the VERITAS Merger Agreement. (z) Section 9.2 of the Stock Purchase Agreement hereby is amended to insert immediately following the reference to "Seller" in the caption thereof and the first sentence thereof, the following: "and SSHI". (aa) Section 11.2 of the Stock Purchase Agreement hereby is amended to insert immediately following the first reference to "Indemnification Agreement", the following: "of even date herewith by and among VERITAS, Seller, Purchaser and each person who executes a Joinder Agreement contemplated thereby". (bb) Section 12.12 of the Stock Purchase Agreement hereby is amended to delete the reference to "reasonably attorneys' fees" in the first sentence thereof, and replace the foregoing with the following: "reasonable attorneys' fees". 9. Consent. VERITAS hereby consents to the amendments to the Stock Purchase Agreement set forth in this Article I for all purposes of and under the Merger Agreement. ARTICLE II AMENDMENT TO MERGER AGREEMENT Seagate, Merger Sub and VERITAS hereby agree as follows: 1. Tax Withholding and Available Amount (a) The definition of "Available Amount" in Section 1.11(a)(ii) of the Merger Agreement is hereby amended by adding, immediately after the word "minus" a "(i)", and by adding at the end of such definition the phrase ', (ii) the Estimated Tax Withholding Amount and (iii) the Reserve Amount." 7 (b) A new definition is hereby added to the end of Section 1.11(a) of the Merger Agreement as follows: "(xxxiv) 'ESTIMATED TAX WITHHOLDING AMOUNT' means the aggregate amount required to be withheld under the Code or under any applicable provision of state, local or foreign tax law or under any other applicable legal requirement, as determined by the mutual agreement of Seagate and Veritas, in respect of the acceleration of vesting and conversion of the Seagate Options pursuant to Section 1.5(c) of the Merger Agreement." (c) Section 1.5(c) is hereby amended by deleting from clause (iii) thereof the words "and Section 1.5(a) hereof," and substituting therefor the words "and Section 1.5(a) hereof (except to the extent deducted or withheld pursuant to Section 1.5(d))," (d) Section 1.5(d) is hereby amended: (i) by deleting the words "Each of the Exchange Agent (as defined in Section 1.6(a) hereof) and Veritas" and substituting therefor the words "Each of the Exchange Agent (as defined in Section 1.6(a) hereof), Veritas and Seagate"; and (ii) by adding the end thereof a new sentence as follows: "Without limiting the foregoing, Seagate shall deduct and withhold from each holder of Seagate Option Shares such number of Seagate Option Shares (which may include fractional shares) as Veritas and Seagate shall mutually agree are required to be deducted and withheld from such holder under the Code or under any applicable provision of state, local or foreign tax law or under any other applicable legal requirement." 2. Valuation of Dragon Shares. The definition of "Stipulated Amount" in Section 1.11(a)(xxvi) of the Merger Agreement is hereby amended by deleting clause (3) thereof in its entirety and substituting therefor the following: "(3) with respect to shares of Dragon Systems, Inc. ("DRAGON") held by Seagate immediately prior to the Effective Time (including shares into which such shares may have been converted, the "DRAGON SHARES"), (A) the product obtained by multiplying (x) the Reference Average for Dragon Shares, by (y) 0.6 (the product of (x) and (y) being the "Value"), minus (B) 0.4 multiplied by the difference between the Value and Seagate's tax basis in a Dragon Share, multiplied by (C) the number of Dragon Shares (other than those subject to any escrow agreement). Any escrowed Dragon Shares shall be treated as provided in Section 5.15 hereof." 3. TRA Amount. (a) Section 1.11(a) of the Merger Agreement is hereby amended to insert the following definition as Section 1.11(a)(xxxiv): "Reserve Amount" shall mean $150 million; provided, however, the Reserve Amount shall be increased on a dollar for dollar basis to the extent the "Agreed TRA Amount" (as defined below) is less than $200 million; provided, further, in no event shall the Reserve Amount exceed $300 million. The "Agreed TRA Amount" shall mean the reasonably estimated amount of the TRA Amount (determined without taking into account the Reserve Amount) as mutually agreed upon by Seagate and Purchaser. Within seven (7) days of the delivery of 8 the TA Statement to Purchaser as provided for in Section 2.6(a) of the Stock Purchase Agreement, Seagate and Purchaser shall determine the Agreed TRA Amount or a methodology of computing the Agreed TRA Amount with the only variable in such computation being the Veritas Price (as defined in the Stock Purchase Agreement) on the trading day immediately preceding the Effective Time. To the extent the parties cannot so agree, the dispute resolution mechanism provided for in Section 2.6(b) of the Stock Purchase Agreement shall be followed. (b) The definition of "TRA Amount" in Section 1.11(a)(xxx) of the Merger Agreement is hereby restated in its entirety as follows: "TRA Amount" means (i) the amount of cash received with respect to all refunds or the utilization of credits for Seagate Taxes for or attributable to taxable years or periods of Seagate ending on or prior to the Effective Time, or the pre-closing period, in the case of a taxable period commencing before the Effective Time and ending after the Effective Time, (ii) cash in an amount equal to the Reserve Amount which shall be deposited with the Administrators by Veritas at the Closing or within two business days of the Closing and (iii) income earned with respect to the assets held in the Collection Account (as defined in Section 5.15(c) hereof), less any administrative charges of the Administrators and expenses of such Administrators, and less amounts paid to Veritas in respect of Taxes imposed on income earned in the Collection Account; provided, however, that the terms "refunds" and "credits" shall not include any amount that represents a tax benefit arising from a Correlative Adjustment. (c) The definition of "TRA Right" in Section 1.11(a)(xxxi) of the Merger Agreement is hereby restated in its entirety as follows: "TRA Right" means a non-transferable right to receive, when, as and if received by Veritas or its Affiliates, a stockholder's Pro Rata Portion of the TRA Amount as reduced pursuant to Section 5.15(e)(ii)(x) hereof and subject to Section 5.15(e)(i) hereof. (d) Section 1.11(a) of the Merger Agreement is hereby amended to insert the following definition as Section 1.11(a)(xxxv): "Correlative Adjustment" means a tax benefit such as an increase in the amount of tax basis of an asset, exclusion from income, tax credit or other adjustment that results (directly or indirectly) from a tax detriment arising in any Seagate taxable year ending prior to the taxable year in which the Closing occurs, such as an increase in taxable income or gain, reduction in the amount of a tax credit or the tax basis of an asset, to the extent arising from a settlement with, a taxing authority, a final determination (as described in Section 1313(a) of the Code), or the filing of an amended Tax Return, in each case, subsequent to the Closing. (e) Section 5.15 of the Merger Agreement hereby is amended and restated in its entirety to read as follows: "5.15 TRA Matters (a) Form. The TRA Rights shall be evidenced by a non-transferable document in form and substance reasonably satisfactory to Veritas and Seagate, and shall contain legends to the effect that they are non-negotiable instruments as well as such 9 other legends as may be required by law. The rights of the holders of the TRA Rights to receive a distribution from the Collection Account (as defined in Section 5.15(b) hereof) shall terminate with respect to TRA Amounts on the 30(th) day after the settlement, expiration of the statute of limitations, or final determination (as defined in Section 1313(a) of the Code) with respect to the last audit, examination or contest in respect of a claim for refund, credit or amended return that would give rise to a TRA Amount. After the expiration date of the TRA Rights, any TRA Amounts received by Veritas and its Affiliates shall be the property of Veritas or such Affiliate without any obligation whatsoever to account therefor to holders of the TRA Rights; provided, however, that any TRA Amounts to be received after such expiration date in respect of any settlement, or final determination with respect to the last audit, examination or contest described in the prior sentence shall be the property of the holders of the TRA Rights and an amount of cash equal to any such TRA Amount shall be deposited in the Collection Account pursuant to Section 5.15(c) below. (b) Administration generally. On or prior to the Effective Time, Seagate shall designate one or more persons (the "Administrators") who shall be responsible for overseeing collection of the TRA Amount and distributions with respect to the TRA Rights and coordinating activities with representatives of Veritas and Purchaser with respect to Seagate Taxes. Veritas and Seagate will, prior to the Effective Time, cooperate in good faith with respect to establishing procedures and structures designed to realize the aggregate value of the TRA Amount and minimize the amount of administrative costs. This may include the establishment of segregated accounts, pass-through trusts or similar devices (collectively, a "Collection Account") to receive periodic payments of cash amounts equal to the TRA Amount. The Administrators shall be entitled to charge the Collection Account a fee of 1% for all amounts deposited therein and distributed to holders of the TRA Rights, and to charge the Collection Account third-party expenses associated with administration of the TRA Rights. The Administrators shall pay to Veritas an amount on account of Taxes imposed on income earned on the assets held in the Collection Account, equal to 36% of all income and gain earned by the Collection Account. Such amount shall be paid no later than January 15 of each year in respect of income and gain earned in the preceding year or portion thereof during which the account is in existence. (c) Collection Account. Following the Effective Time, Veritas shall forward to the Collection Account (and notify the Administrators of) an amount in cash equal to any TRA Amount receipt (including the realization of any credit) by Seagate, within ten (10) business days of such receipt or, in the case of the Reserve Amount, within 2 business days of the Closing. (d) Interest. Any amounts in respect of the TRA Amounts not deposited in the Collection Account within the time period specified in Section 5.15(c) shall be subject to an interest charge of 8% per annum. (e) Investment/Distributions. (i) Amounts deposited in the Collection Account shall be invested by the Administrators in short-term money markets instruments, and shall be distributed to holders of TRA Rights on each calendar quarterly end commencing with the first such day that is at least 45 days following the Closing Date (as defined in the Stock Purchase Agreement); provided however, the amount available for distribution exceeds $5.0 million. Notwithstanding the immediately preceding sentence, the Administrators shall not distribute to the holders of the TRA Rights any amounts held in the Collection Account if such distribution would cause 10 the balance in the Collection Account to be less than $300 million (including interest earned thereon, net of amounts in respect of applicable income taxes) (the "Retained TRA Amount") until such time as there is a settlement, expiration of the applicable statute of limitations, or final determination (as defined in Section 1313(a) of the Code) with respect to the last audit, examination or contest in respect of Seagate income taxes relating to the taxable period beginning July 1, 2000 and ending on the Closing Date (as defined herein) and any carryback arising in such taxable period, provided, however, upon the earlier to occur of a settlement, or a final determination (as defined in Section 1313(a) of the Code) with respect Seagate's federal income taxes for the taxable year in which the Closing occurs and the taxable years to which any attribute arising in the taxable year in which the Closing occurs is carried back, the remaining amount held in the Collection Account, less $50 million, shall be distributed immediately to the holders of the TRA Rights. (ii) The Retained TRA Amount shall be paid (x) first to Veritas for application in respect of Seagate income Taxes (including interest and penalties, if any) relating to the taxable period beginning July 1, 2000 and ending on the Closing Date (as defined herein) and any carryback arising in such taxable period, and (y) then second, the remainder (less fees and expenses, including reimbursement for taxes) thereof, to the holders of the TRA Rights, pursuant to Section 5.15(e)(i) hereof. (f) Conduct of Audits and Other Procedural Matters. The Administrators shall have the right to control any audit, examination or contest with respect to any claim for refund, credit or amended return that would give rise to a TRA Amount, except if such audit, examination or contest may give rise to an indemnification obligation by Purchaser under the Indemnification Agreement, in which case the provisions of Section 6(d)(i) of the Indemnification Agreement shall control. Veritas shall promptly forward to the Administrators all written notifications and other written communications, including if available the original envelope showing any postmark from any taxing authority received by Veritas or its Affiliates relating to the TRA Amount. (g) Assistance and Cooperation. After the Effective Time, Veritas shall (and shall cause its respective Affiliates to): (i) Use reasonable efforts to include in any Tax Returns filed by Veritas or its Affiliates applicable claims for refunds or credits in respect of the TRA Amount proposed by the Administrators subject to any applicable requirements of Section 6(c)(i) of the Indemnification Agreement; (ii) Cooperate fully in preparing for any audits of, or disputes with taxing authorities regarding the TRA Amount; (iii) Make available to the Administrators and to any taxing authority as reasonably requested all information, records, and documents relating to Taxes of Veritas, Seagate or any of their respective subsidiaries; (iv) Provide timely notice to the Administrators in writing of any pending or threatened Tax audits or assessments relating to refunds or credits included or potentially includable in the TRA Amount; and (v) Furnish the Administrators with copies of all correspondence received from any taxing authority in connection with any Tax audit which may affect refunds or credits included or potentially includable in the TRA Amount. 11 (h) Exculpation. In performing any duties under this Agreement, the Administrator shall not be liable to any party for damages, losses, or expenses, except to the extent resulting from the gross negligence or willful misconduct on the part of the Administrator. The Administrator shall not incur any such liability for (A) any act or failure to act made or omitted in good faith, or (B) any action taken or omitted in reliance upon any instrument, including any written statement or affidavit provided for in this Agreement that the Administrator shall in good faith believe to be genuine, nor will the Administrator be liable or responsible for forgeries, fraud, impersonations, or determining the scope of any representative authority. In addition, the Administrator may consult with legal counsel in connection with performing the Administrator's duties under this Agreement and shall be fully protected in any act taken, suffered, or permitted by him/her in good faith in accordance with the advice of counsel. The Administrator is not responsible for determining and verifying the authority of any person acting or purporting to act on behalf of any party to this Agreement. (i) Dragon Shares. Any Dragon Shares being held in escrow at the Effective Time shall, following release from escrow and delivery to Veritas, and subject to applicable legal and contractual restrictions, be transferred to the Administrator. Following receipt thereof, the Administrator shall use reasonable efforts to distribute these shares to holders of TRA Rights and/or sell such shares as promptly as practicable, in each case, in accordance with any applicable legal and contractual restrictions, and, following any such sale, shall deposit the net proceeds thereof into the Collection Account and distribute the same in accordance with paragraph (e) of this Section 5.15." 4. Corrections and Clarifications. The parties desire to make certain corrections and other clarifications to the terms of the Merger Agreement. Seagate, Veritas and Merger Sub hereby agree as follows: (a) Section 1.5(b) of the Merger Agreement is hereby amended by deleting such Section in its entirety and substituting therefor the following: "(b) Unless otherwise determined by Veritas, each share of Seagate Common Stock (i) held in the treasury of Seagate immediately prior to the Effective Time, (ii) owned by Merger Sub, Veritas or any direct or indirect wholly-owned subsidiary of Seagate or of Veritas immediately prior to the Effective Time or (iii) in respect of which a share of Suez Acquisition Company (Cayman) Limited or any successor, assignee or affiliate has been or will be issued to any party to a Rolled Agreement (as defined in the Stock Purchase Agreement), shall, in each case, be canceled and extinguished without any conversion thereof." (b) The definition of "Average Veritas Stock Price" in Section 1.11(a)(iv) of the Merger Agreement is hereby amended by deleting therefrom the phrase "as with respect to the VP Amount" and substituting therefor the phrase "or, with respect to the VP Amount". (c) Section 1.11 of the Merger Agreement is hereby amended to include the following definition of "Tax Return": "(xxx) "TAX RETURN" means all federal, state, local and foreign returns, estimates, information statements and reports relating to Taxes required to be filed by Seagate and each of its Subsidiaries with any Tax authority, including any claims for refunds or credits." 12 (d) Section 4.1 of the Merger Agreement is hereby amended by adding the phrase "are those set forth on Schedule I hereto" immediately after the words "only assets and properties owned or held by Seagate". (e) Section 5.4(b) of the Merger Agreement is hereby amended as follows: (i) By adding the phrase "(other than Section 7.3)" immediately after the words "For all purposes of and under this Agreement" in the second sentence thereof. (ii) By deleting the phrase "pursuant to which the stockholders of Seagate immediately preceding such transaction would hold less than fifteen percent (15%) of the equity interests in the surviving or resulting entity of such transaction" and substituting therefor the phrase "pursuant to which the stockholders of Seagate immediately preceding such transaction would hold less than eighty-five percent (85%) of the equity interests in the surviving or resulting entity of such transaction". (iii) By deleting the phrase "or (iv)" and substituting therefor the phrase "or (iii)". (f) Section 5.12 of the Merger Agreement is hereby amended as follows: (i) By deleting therefrom the phrase "Prior to the Seagate Stockholders Meeting," and substituting therefor the phrase "Prior to the date that the Proxy Statement is first mailed to Seagate stockholders and Veritas stockholders,". (ii) By deleting therefrom the phrase "but in no event later than the date the Proxy Statement is filed with the SEC," and substituting therefor the phrase "but in no event later than the date of the Seagate Stockholders' Meeting,". (g) Section 7.3(b)(iii) of the Merger Agreement is hereby amended by adding thereto the words "or Seagate" immediately after the words "if (A) this Agreement is terminated by Veritas". (h) Section 7.3(b)(iv) of the Merger Agreement is hereby amended by deleting therefrom, the phrase "Termination Date" each time such phrase appears, and substituting therefor each such time the phrase "date of such termination", and by deleting the word "the" immediately before the phrase "Seagate, (C) following the public announcement". (i) Section 7.3(b)(v) of the Merger Agreement is hereby amended by adding a ")" immediately after the words "other than an offer or proposal by Veritas". 5. Certain Expenses. Seagate agrees that it shall be responsible for paying two-thirds ( 2/3), and Veritas agrees that it shall be responsible for paying one-third ( 1/3), of (a) any additional filing fee owed to the SEC in respect of the Proxy Statement and the Registration Statement and (b) all printing costs incurred in preparing, revising and printing the Proxy Statement. 6. Consent. Suez hereby consents to the amendments to the Merger Agreement set forth in this Article II for all purposes of and under the Stock Purchase Agreement, and hereby further agrees to be bound by the terms of Section 1.11(a)(xxxiv) of the Merger Agreement, as amended hereby (definition of "Reserve Amount" and "Agreed TRA Amount"). 13 ARTICLE III AMENDMENT TO INDEMNIFICATION AGREEMENT Capitalized terms used in this Article III and not otherwise defined shall have the respective meanings assigned thereto in the Indemnification Agreement. (a) Veritas, Seagate and Suez agree that Section 6(c) of the Indemnification Agreement shall be amended by redesignating paragraph (ii) as paragraph (iii) and adding a new paragraph (ii) as follows: (ii) A copy of a draft of all Tax Returns relating to Seagate and the Retained Subsidiaries which are to be filed after the Stock Purchase Date, but which relate to a Pre-Purchase Tax Period or its Straddle Period, including the federal consolidated income Tax Return of the affiliated group of which Seagate is the common parent for the period ending with the Merger, shall be furnished to the Administrators (as defined in the Merger Agreement) at least 30 days prior to the due date for each such Tax Return for review and comment. SAC will consider in good faith any comments of the Administrators with respect to each such Tax Return. (b) Veritas, Seagate and Suez agree that the Indemnification Agreement shall be amended to add a new Section 6(h) as follows: "(h) SAC, on behalf of itself and the SAC Indemnitors, agrees and confirms that the inclusion in the first sentence of Section 6(a) hereof of the phrase "(other than Designated Liabilities)" is not intended to limit the indemnification rights of the Veritas Indemnitees under Section 6(a) hereof with respect to TRA Amounts distributed to former Seagate stockholders in respect of the TRA Rights. For the avoidance of doubt, any amounts paid under Section 5.15(e)(ii)(x) of the Merger Agreement or described in the proviso to the definition of "TRA Amount" in Section 1.11(a)(xxx) of the Merger Agreement shall reduce any Losses for which the SAC Indemnitors are required to indemnify the Veritas Indemnitees under Section 6(a) hereof." (c) Veritas, Seagate and Suez agree that the Indemnification Agreement shall be amended to add a new Section 6(i) as follows: "(i) On the Closing Date, SAC shall deposit an amount equal to $55 million into an escrow account to be held by an escrow agent under the terms of an escrow agreement, which agent and agreement each shall be reasonably satisfactory to SAC and Veritas. Such escrowed amount, together with all income earned thereon, shall be available as provided in the escrow agreement to Veritas to satisfy Losses attributable to Pre-Purchase Taxes to the extent that SAC fails to fulfill its obligations hereunder to indemnify the Veritas Indemnitees for such Losses attributable to Pre-Purchase Taxes, and any remaining amount shall be released to SAC pursuant to the terms of such escrow agreement. ARTICLE IV GENERAL PROVISIONS 1. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other party hereto, it being understood that each party hereto need not sign the same counterpart. 14 2. Except as expressly modified by this Agreement, all of the representations, warranties, terms, covenants, conditions and other provisions of the Merger Agreement and Stock Purchase Agreement shall remain in full force and effect in accordance with their respective terms. 3. Nothing in this Agreement shall be deemed to or construed as in any way making (i) Suez a party to the Merger Agreement or (ii) Veritas a party to the Stock Purchase Agreement. [Remainder of Page Intentionally Left Blank] 15 IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed by their duly authorized respective officers, as of the date first above written. VERITAS SOFTWARE CORPORATION By: /s/ Jay A. Jones Name: Jay A. Jones Title: VICTORY MERGER SUB, INC. By: /s/ Jay A. Jones Name: Jay A. Jones Title: SEAGATE TECHNOLOGY, INC. By: /s/ William L. Hudson Name: William L. Hudson Title: SUEZ ACQUISITION COMPANY (CAYMAN) LIMITED By: /s/ Kenneth Hao Name: Kenneth Hao Title: SEAGATE SOFTWARE HOLDINGS, INC. By: /s/ Charles C. Pope Name: Charles C. Pope Title: 16 EX-2.6 9 0009.txt CONSOLIDATED AMENDMENT NO. 2 TO STOCK PURCHASE AGREEMENT Exhibit 2.6 CONSOLIDATED AMENDMENT AND CONSENT NO. 2 CONSOLIDATED AMENDMENT NO. 2 TO STOCK PURCHASE AGREEMENT, AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, AND INDEMNIFICATION AGREEMENT, AND CONSENT THIS AMENDMENT NO. 2 TO STOCK PURCHASE AGREEMENT, AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, AND INDEMNIFICATION AGREEMENT, AND CONSENT (this "AGREEMENT") is made and entered into as of October 18, 2000 by and among Suez Acquisition Company (Cayman) Limited, a limited company organized under the laws of the Cayman Islands ("SUEZ"), Seagate Technology, Inc., a Delaware corporation ("SEAGATE"), Seagate Software Holdings, Inc., a Delaware corporation ("SSHI"), VERITAS Software Corporation, a Delaware corporation ("VERITAS"), and Victory Merger Sub, Inc., a Delaware corporation ("MERGER SUB"). RECITALS A. On March 29, 2000, Suez, Seagate and SSHI entered into a Stock Purchase Agreement (the "STOCK PURCHASE AGREEMENT") pursuant to which, among other things, Seagate and SSHI agreed to sell to Suez (or one of its Designees), and Suez agreed to purchase (or cause one of its Designees to purchase) from Seagate and SSHI, all outstanding Shares of the Sold Subsidiaries (as such terms are defined in the Stock Purchase Agreement) upon the terms and subject to the conditions set forth therein. Capitalized terms used but not otherwise defined in Article I hereof shall have the respective meanings ascribed thereto in the Stock Purchase Agreement. In April 2000, Suez, Seagate and SSHI agreed to reduce the amount stated in the definition of Required Cash under the Stock Purchase Agreement from $800,000,000 to $775,000,000. On August 29, 2000, Suez, Seagate, SSHI, Veritas and Merger Sub entered into a Consolidated Amendment to Stock Purchase Agreement, Agreement and Plan of Merger and Reorganization, and Indemnification Agreement, and Consent (the "First Consolidated Amendment"), pursuant to which Suez, Seagate and SSHI agreed to amend certain terms of the Stock Purchase Agreement. B. On October 13, 2000, Suez, Seagate, SSHI, Veritas and other defendants in purported class action lawsuits currently pending in the Chancery Court in Delaware entered into a memorandum of understanding with the plaintiffs in these lawsuits regarding the settlement of those lawsuits (the "Settlement"). Suez, Seagate and SSHI desire to further amend certain terms of the Stock Purchase Agreement to reflect the Settlement, as more fully set forth herein. C. On March 29, 2000, Veritas, Merger Sub and Seagate entered into an Agreement and Plan of Merger and Reorganization (the "MERGER AGREEMENT") pursuant to which, among other things, upon the terms and subject to the conditions of the Merger Agreement and in accordance with Delaware Law (as defined in the Merger Agreement), Veritas and Seagate agreed to consummate the Merger. Capitalized terms used but not otherwise defined in Article II hereof shall have the respective meanings ascribed thereto in the Merger Agreement. On August 29, 2000, Veritas, Merger Sub and Seagate agreed to amend certain terms of the Merger Agreement as provided in the First Consolidated Amendment. 1 D. Veritas, Merger Sub and Seagate desire to further amend certain terms of the Merger Agreement to reflect the Settlement, as more fully set forth herein. E. On March 29, 2000, Veritas, Seagate and Suez entered into an Indemnification Agreement (the "Indemnification Agreement") which, among other things, sets forth certain agreements to govern various tax matters, indemnity matters and other matters that may arise in connection with the transactions contemplated by the Stock Purchase Agreement and the Merger Agreement. On August 29, 2000, Veritas, Seagate and Suez agreed to amend certain terms of the Indemnification Agreement as provided in the First Consolidated Amendment. F. Veritas, Seagate and Suez desire to further amend certain terms of the Indemnification Agreement to reflect the terms of the Settlement, as more fully set forth herein. NOW, THEREFORE, in consideration of the foregoing premises, and the covenants, promises and representations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, the parties hereto hereby agree as follows: ARTICLE I AMENDMENTS TO STOCK PURCHASE AGREEMENT Seagate, Suez and SSHI hereby agree as follows: 1. Purchase and Sale of SSHI Shares. Section 2.2 of the Stock Purchase Agreement is amended and restated in its entirety as follows: "2.2 Purchase Price. The aggregate purchase price for the Shares shall be $2,050,000,000 in cash, minus the Rolled Option Value (the "Purchase Price"), plus the assumption of all Liabilities (other than Designated Liabilities) of Seller and SSHI." 2. Corrections and Clarifications. The definition of Adjustment Amount in Section 1.1(b) of the Stock Purchase Agreement is hereby amended to insert immediately following the language "excluding Taxes caused by or relating to the Split," the following: "and, other than as provided below, Taxes relating to the Canadian Reorganization (as defined below)". 3. Consent. VERITAS hereby consents to the amendments to the Stock Purchase Agreement set forth in this Article I for all purposes of and under the Merger Agreement. ARTICLE II AMENDMENT TO MERGER AGREEMENT Seagate, Merger Sub and VERITAS hereby agree as follows: 1. Amendment to Average Veritas Stock Price Definition. The definition of "Average Veritas Stock Price" in Section 1.11(a)(iv) of the Merger Agreement hereby is amended by deleting therefrom the phrase: ", or with respect to the VP Amount, preceding the date that Veritas makes its election". 2 2. Amendment to VP Amount Definition. The definition of "VP Amount" in Section 1.11(a)(xxxiii) of the Merger Agreement hereby is amended by deleting such definition in its entirety and replacing it with the following: " 'VP Amount' means either $0, $250 million or $500 million, at the election of Veritas, which election may be made at any time during the fifteen (15) consecutive trading days ending two (2) trading days immediately preceding the date of the Seagate Stockholders' Meeting." 3. Amendment to Available Amount Definition. The definition of "Available Amount" in Section 1.11(a)(ii) of the Merger Agreement hereby is amended by deleting such definition in its entirety and replacing it with the following: " 'Available Amount' means an amount equal to Cash held by Seagate immediately prior to the Effective Time, including net amounts received under the OD Documents, minus the sum of (i) the VP Amount, (ii) the Estimated Tax Withholding Amount, (iii) the Reserve Amount and (iv) the Litigation Holdback Amount." 4. Amendment to Stock Portion Definition. The definition of "Stock Portion" in Section 1.11(a)(xxvii) of the Merger Agreement hereby is amended by deleting from clause (ii)(x)(B) thereof the phrase "Average Veritas Stock Price" and substituting therefor the phrase "Average VP Veritas Stock Price". 5. Additional Definitions. Section 1.11(a) is hereby amended by adding the following new definitions at the end thereof: " 'Average VP Veritas Stock Price' means the average closing price of a share of Veritas Common Stock, as reported on the Nasdaq, for the five (5) consecutive trading days ending the trading day immediately preceding the date that the election referred to in the definition of "VP Amount" is made. "Settlement Documents" means the Memorandum of Understanding signed by litigation counsel to Seagate, Veritas, Suez and the other parties thereto on October 13, 2000 setting forth the principal terms relating to the settlement of the class action litigation referred to therein, as amended by any subsequent settlement documents executed and delivered by the parties thereto. "Litigation Holdback Amount" means $50,000,000. 6. TRA Amount. (a) Section 1.11(a)(xxxiv) of the Merger Agreement is hereby amended and restated in its entirety as follows: "Reserve Amount" shall mean $150 million. (b) The definition of "TRA Right" in Section 1.11(a)(xxi) of the Merger Agreement is hereby restated in its entirety as follows: " 'TRA Right' means a non-transferable right to receive from Veritas, when, as and if received by Veritas or its Affiliates, a stockholder's Pro Rata Portion of the TRA Amount as reduced pursuant to Section 5.15(e)(ii)(x) and (y) hereof and subject to Section 5.15(e)(i) hereof." (c) Section 5.15 of the Merger Agreement hereby is amended and restated in its entirety to read as follows: 3 "5.15 TRA Matters (a) Form. The TRA Rights shall be evidenced by a non-transferable document in form and substance reasonably satisfactory to Veritas and Seagate, and shall contain legends to the effect that they are non-negotiable instruments as well as such other legends as may be required by law. The rights of the holders of the TRA Rights to receive a distribution from the Collection Account (as defined in Section 5.15(b) hereof) shall terminate with respect to TRA Amounts on the 30(th) day after the settlement, expiration of the statute of limitations, or final determination (as defined in Section 1313(a) of the Code) with respect to the last audit, examination or contest in respect of a claim for refund, credit or amended return that would give rise to a TRA Amount. After the expiration date of the TRA Rights, any TRA Amounts received by Veritas and its Affiliates shall be the property of Veritas or such Affiliate without any obligation whatsoever to account therefor to holders of the TRA Rights; provided, however, that any TRA Amounts to be received after such expiration date in respect of any settlement, or final determination with respect to the last audit, examination or contest described in the prior sentence shall be the property of the holders of the TRA Rights and an amount of cash equal to any such TRA Amount shall be deposited in the Collection Account pursuant to Section 5.15(c) below. (b) Administration generally. (i) On or prior to the Effective Time, Seagate shall designate one or more persons (the "Administrators") who shall be responsible for overseeing collection of the TRA Amount and distributions with respect to the TRA Rights and coordinating activities with representatives of Veritas and Purchaser with respect to Seagate Taxes. Veritas and Seagate will, prior to the Effective Time, cooperate in good faith with respect to establishing procedures and structures designed to realize the aggregate value of the TRA Amount and minimize the amount of administrative costs. This may include the establishment of segregated accounts, pass-through trusts or similar devices (collectively, a "Collection Account") to receive periodic payments of cash amounts equal to the TRA Amount. (ii) The Administrators shall be entitled (x) to charge the Collection Account a fee of 1% for all amounts deposited therein and distributed to holders of the TRA Rights, and (y) to charge the Collection Account third-party expenses associated with administration of the TRA Rights. (iii) The Administrators shall pay to Veritas an amount on account of Taxes imposed on income earned on the assets held in the Collection Account, equal to 36% of all income and gain earned by the Collection Account. Such amount shall be paid no later than January 15 of each year in respect of income and gain earned in the preceding year or portion thereof during which the account is in existence. (c) Collection Account. Following the Effective Time, Veritas shall forward to the Collection Account (and notify the Administrators of) an amount in cash equal to any TRA Amount receipt (including the realization of any credit) by Seagate, within ten (10) business days of such receipt or, in the case of the Reserve Amount, within 2 business days of the Closing. (d) Interest. Any amounts in respect of the TRA Amounts not deposited in the Collection Account within the time period specified in Section 5.15(c) shall be subject to an interest charge of 8% per annum. 4 (e) Investment/Distributions. (i) Amounts deposited in the Collection Account shall be invested by the Administrators in short-term money markets instruments, and shall be distributed to holders of TRA Rights on each calendar quarterly end commencing with the first such day that is at least 45 days following the Closing Date (as defined in the Stock Purchase Agreement); provided, however, the amount available for distribution exceeds $5.0 million. Notwithstanding the immediately preceding sentence, the Administrators shall not distribute to the holders of the TRA Rights any amounts held in the Collection Account if such distribution would cause the balance in the Collection Account to be less than $150 million (including interest earned thereon, net of amounts in respect of applicable income taxes) (the "Retained TRA Amount") until such time as there is a settlement, expiration of the applicable statute of limitations, or final determination (as defined in Section 1313(a) of the Code) with respect to the last audit, examination or contest in respect of Seagate income taxes relating to the taxable period beginning July 1, 2000 and ending on the Closing Date (as defined herein) and any carryback arising in such taxable period and the taxable period beginning July 1, 1999 and ending June 30, 2000, provided, however, upon a settlement or a final determination (as defined in Section 1313(a) of the Code) with respect Seagate's Federal income taxes for the taxable period in which the Closing occurs and the taxable years to which any attribute arising in the taxable year in which the Closing occurs is carried back and the taxable period beginning July 1, 1999 and ending June 30, 2000, the remaining amount held in the Collection Account, less $25 million, shall be distributed immediately to the holders of the TRA Rights. (ii) The Retained TRA Amount shall be paid (x) first to the extent the Collection Account does not contain amounts in excess of the Retained TRA Amount, to pay third-party expenses associated with the administration of the TRA Right and to pay amounts in respect of Taxes imposed on income earned on the assets held in the Collection Account pursuant to Section 5.15(b)(ii)(y) and (iii) above, (y) second to Veritas for application in respect of Seagate income taxes (including interest and penalties, if any) relating to (A) the taxable period (or that portion of a taxable period) beginning July 1, 2000 and ending on or before the Closing Date (as defined herein) and any carryback arising in such taxable period or (B) the taxable period beginning on July 1, 1999 and ending on or before June 30, 2000 but solely with respect to Seagate income taxes attributable to the Canadian Reorganization as defined in the Stock Purchase Agreement; and (z) then third, the remainder (less the Administrators' fee as described in Section 5.15(b)(ii)(x) above) thereof, to the holders of the TRA Rights, pursuant to Section 5.15(e)(i) hereof. (f) Conduct of Audits and Other Procedural Matters. The Administrators shall have the right to control any audit, examination or contest with respect to any claim for refund, credit or amended return that would give rise to a TRA Amount, except if such audit, examination or contest may give rise to an indemnification obligation by Purchaser under the Indemnification Agreement, in which case the provisions of Section 6(d)(i) of the Indemnification Agreement shall control. Purchaser will consider in good faith any comments or recommendations of the Administrators with respect thereto. Veritas and Purchaser, as the case may be, shall promptly forward to the Administrators all written notifications and other written communications, including if available the original envelope showing any postmark from any taxing authority received by Veritas or its Affiliates relating to the TRA Amount. 5 (g) Assistance and Cooperation. After the Effective Time, Veritas shall (and shall cause its respective Affiliates to): (i) Use reasonable efforts to include in any Tax Returns filed by Veritas or its Affiliates applicable claims for refunds or credits in respect of the TRA Amount proposed by the Administrators subject to any applicable requirements of Section 6(c)(i) of the Indemnification Agreement; (ii) Cooperate fully in preparing for any audits of, or disputes with taxing authorities regarding the TRA Amount; (iii) Make available to the Administrators and to any taxing authority as reasonably requested all information, records, and documents relating to Taxes of Veritas, Seagate or any of their respective subsidiaries; (iv) Provide timely notice to the Administrators in writing of any pending or threatened Tax audits or assessments relating to refunds or credits included or potentially includable in the TRA Amount; and (v) Furnish the Administrators with copies of all correspondence received from any taxing authority in connection with any Tax audit which may affect refunds or credits included or potentially includable in the TRA Amount. (h) Exculpation. In performing any duties under this Agreement, the Administrator shall not be liable to any party for damages, losses, or expenses, except to the extent resulting from the gross negligence or willful misconduct on the part of the Administrator. The Administrator shall not incur any such liability for (A) any act or failure to act made or omitted in good faith, or (B) any action taken or omitted in reliance upon any instrument, including any written statement or affidavit provided for in this Agreement that the Administrator shall in good faith believe to be genuine, nor will the Administrator be liable or responsible for forgeries, fraud, impersonations, or determining the scope of any representative authority. In addition, the Administrator may consult with legal counsel in connection with performing the Administrator's duties under this Agreement and shall be fully protected in any act taken, suffered, or permitted by him/her in good faith in accordance with the advice of counsel. The Administrator is not responsible for determining and verifying the authority of any person acting or purporting to act on behalf of any party to this Agreement. (i) Dragon Shares. Any Dragon Shares being held in escrow at the Effective Time shall, following release from escrow and delivery to Veritas, and subject to applicable legal and contractual restrictions, be transferred to the Administrator. Following receipt thereof, the Administrator shall use reasonable efforts to distribute these shares to holders of TRA Rights and/or sell such shares as promptly as practicable, in each case, in accordance with any applicable legal and contractual restrictions, and, following any such sale, shall deposit the net proceeds thereof into the Collection Account and distribute the same in accordance with paragraph (e) of this Section 5.15." 7. Litigation Holdback Amount. A new Section 5.16 is hereby added to the Merger Agreement as follows: "5.16 Litigation Holdback Amount. Promptly following the satisfaction of all of the conditions described in paragraph (8) of the Settlement Documents, Veritas shall make available to the Exchange Agent for payment to each holder of record of Seagate Common Stock at the Effective Time such holder's pro rata portion of the Litigation 6 Holdback Amount plus interest thereon computed as described in such paragraph (8) of the Settlement Documents. 8. Consent. Suez hereby consents to the amendments to the Merger Agreement set forth in this Article II for all purposes of and under the Stock Purchase Agreement, and hereby further agrees to be bound by the terms of Sections 1.11(a)(xxxiv) (definition of "Reserve Amount") and Sections 5.15(e) and (f) of the Merger Agreement, each as amended hereby. ARTICLE III AMENDMENT TO INDEMNIFICATION AGREEMENT Capitalized terms used in this Article III and not otherwise defined shall have the respective meanings assigned thereto in the Indemnification Agreement. 1. Section 6(b) of the Indemnification Agreement is hereby amended to add at the end of the first sentence in the third paragraph thereof the following: "provided, however, that to the extent that any payment of a Loss made in respect of an assumed contingent liability relating to Taxes of Seagate does not exceed the amount of contingent liability for Taxes that was included in the amount realized in respect of the Stock Purchase, such payment shall (unless otherwise determined by the relevant tax authority) instead be treated as a payment of the amount realized, and not as an adjustment to such Purchase Price. 2. Section 6(c)(ii) of the Indemnification Agreement is hereby amended by redesignating paragraph (ii) as paragraph (iii) and adding a new paragraph (ii) as follows: "(ii) A copy of a draft of all Tax Returns relating to Seagate and the Retained Subsidiaries which are to be filed after the Stock Purchase Date, but which relate to a Pre-Purchase Tax Period or its Straddle Period, including the federal consolidated income Tax Return of the affiliated group of which Seagate is the common parent for the period ending with the Merger, shall be furnished to the Administrators (as defined in the Merger Agreement) at least 30 days prior to the due date for each such Tax Return for review and comment. SAC will consider in good faith any comments of the Administrators with respect to each such Tax Return." ARTICLE IV GENERAL PROVISIONS 1. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other party hereto, it being understood that each party hereto need not sign the same counterpart. 2. Except as expressly modified by this Agreement, all of the representations, warranties, terms, covenants, conditions and other provisions of the Merger Agreement and Stock Purchase Agreement shall remain in full force and effect in accordance with their respective terms. 3. Nothing in this Agreement shall be deemed to or construed as in any way making (i) Suez a party to the Merger Agreement or (ii) Veritas a party to the Stock Purchase Agreement. 7 4. Promptly, and in any event within ten (10) calendar days following such time (if any) as the conditions satisfied in paragraph (8) of the Settlement Documents have become incapable of being satisfied (as determined by Veritas, in its reasonable judgement), the Litigation Holdback Amount, together with interest thereon computed as provided in Section 5.16 of the Merger Agreement, shall be paid by Veritas to Suez. [Remainder of Page Intentionally Left Blank] 8 IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed by their duly authorized respective officers, as of the date first above written. VERITAS SOFTWARE CORPORATION By: /s/ Jay A. Jones ----------------------------------- Name: Jay A. Jones Title: VICTORY MERGER SUB, INC. By: /s/ Jay A. Jones ----------------------------------- Name: Jay A. Jones Title: SEAGATE TECHNOLOGY, INC. By: /s/ William L. Hudson ----------------------------------- Name: William L. Hudson Title: SUEZ ACQUISITION COMPANY (CAYMAN) LIMITED By: /s/ David Roux ----------------------------------- Name: David Roux Title: SEAGATE SOFTWARE HOLDINGS, INC. By: /s/ Stephen J. Luczo ----------------------------------- Name: Stephen J. Luczo Title: 9 EX-2.7 10 0010.txt LETTER AGREEMENT EXHIBIT 2.7 Suez Acquisition Company (Cayman) Limited c/o Silver Lake Partners, L.P. March 29, 2000 VERITAS Software Corporation 1600 Plymouth Street Mountain View, California 94043 Ladies and Gentlemen: This letter sets forth our agreement with respect to certain matters related to (i) the Stock Purchase Agreement between Suez Acquisition Company (Cayman) Limited ("SAC") and Seagate Technology, Inc. (the "Company") dated as of the date hereof (the "Stock Purchase Agreement") and (ii) the Agreement and Plan of Merger among VERITAS Software Corporation ("VERITAS"), Victory Acquisition Sub, Inc. and the Company dated as of the date hereof (the "Merger Agreement"). 1. No-Shop. Prior to termination of the Stock Purchase Agreement in accordance with its terms, VERITAS shall not (directly or indirectly through subsidiaries or otherwise), and shall direct its officers, directors, affiliates or employees or any investment banker, attorney or other advisor or representative retained by any of them not to, directly or indirectly, (i) solicit, initiate, encourage or induce the making, submission or announcement of any Seller Acquisition Proposal (as defined in the Stock Purchase Agreement), (ii) participate in any discussions, negotiations or other communications with any person regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes or may reasonably be expected to lead to, any Seller Acquisition Proposal, (iii) approve, endorse or recommend any Seller Acquisition Proposal, or (iv) enter into any letter of intent, contract, agreement, understanding or commitment contemplating or otherwise relating to any Seller Acquisition Transaction. VERITAS shall notify SAC promptly after receiving any inquiry or other communication regarding any Seller Acquisition Proposal. 2. Alternative Transaction Fee. In the event that: (i) the Stock Purchase Agreement is terminated pursuant to Sections 10.1(g) or (h), (ii) in the case of a termination by SAC of the Stock Purchase Agreement, SAC shall not be in breach of any of its representations and warranties, covenants or agreements under the Stock Purchase Agreement such that the Company would not then be required to consummate the transactions contemplated by the Stock Purchase Agreement and (iii) within 90 days of the date of such termination, VERITAS enters into any agreement or agreements with respect to a Seller Acquisition Transaction, VERITAS shall, prior to or simultaneously with entering into any such agreement or agreements, pay to SAC (or its designees), $50 million in immediately available funds. 3. Governing Law. This letter agreement will be governed by and construed and interpreted in accordance with the laws of the State of New York. 4. Counterparts. This letter agreement may be executed in separate counterparts, each of which shall constitute an original and all of which, taken together, shall constitute one and the same instrument. 5. Assignment. The rights and obligations of each party hereto may not be assigned to any other party (by operation of law or otherwise) without the written consent of the other party hereto. 6. Specific Performance. In view of the uniqueness of the agreements contained in this letter agreement and the transactions contemplated hereby and the fact that the parties hereto would not have an adequate remedy at law for money damages in the event that any obligation under this letter agreement is not performed in accordance with its terms, each of the parties hereto therefore agrees that each party hereto shall be entitled to specific enforcement of the terms of this letter agreement in addition to any other remedy to which such party may be entitled, at law or in equity. Very truly yours, SUEZ ACQUISITION COMPANY (CAYMAN) LIMITED By: /s/ JAMES A. DAVIDSON -------------------------------------- Name: James A. Davidson Title: Managing Member Accepted and Agreed as of the date first written above: VERITAS SOFTWARE CORPORATION By: /s/ MARK LESLIE ------------------------- 2 EX-2.8 11 0011.txt AGREEMENT AND PLAN OF REORGANIZATION EXHIBIT 2.8 AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG SEAGATE TECHNOLOGY, INC., TROUT ACQUISITION CORP. AND XIOTECH CORPORATION Dated as of December 3, 1999
TABLE OF CONTENTS Page ---- ARTICLE I THE MERGER.............................................. 2 1.1 The Merger................................................ 2 1.2 Effective Time............................................ 2 1.3 Effect of the Merger...................................... 2 1.4 Articles of Incorporation; Bylaws......................... 2 1.5 Directors and Officers.................................... 2 1.6 Aggregate Merger Consideration; Effect on Capital Stock... 3 1.7 Dissenters' Rights........................................ 7 1.8 Surrender of Certificates................................. 8 1.9 No Further Ownership Rights in Company Common Stock....... 9 1.10 Lost, Stolen or Destroyed Certificates.................... 9 1.11 Tax and Accounting Consequences........................... 10 1.12 Taking of Necessary Action; Further Action................ 10 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......... 10 2.1 Organization and Qualification............................ 10 2.2 Subsidiaries.............................................. 10 2.3 Company Capital Structure................................. 11 2.4 Authority................................................. 12 2.5 No Conflict............................................... 13 2.6 Consents.................................................. 13 2.7 Company Financial Statements.............................. 13 2.8 No Undisclosed Liabilities................................ 14 2.9 No Changes................................................ 14 2.10 Tax and Other Returns and Reports......................... 14 2.11 Restrictions on Business Activities....................... 16 2.12 Title to Properties; Absence of Liens and Encumbrances.... 16 2.13 Governmental Authorization................................ 17 2.14 Intellectual Property..................................... 17 2.15 Product Warranties; Defects; Liabilities.................. 22 2.16 Agreements, Contracts and Commitments..................... 22 2.17 Interested Party Transactions............................. 24 2.18 Compliance with Laws...................................... 24 2.19 Litigation................................................ 25 2.20 Insurance................................................. 25 2.21 Minute Books.............................................. 25 2.22 Environmental Matters..................................... 25 2.23 Brokers' and Finders' Fees................................ 27 2.24 Employee Matters and Benefit Plans........................ 27 2.25 Bank Accounts............................................. 32 2.26 Indemnification Obligations............................... 32 2.27 Board Approval............................................ 32
i
TABLE OF CONTENTS (continued) Page ---- 2.28 Representations Complete.................................. 32 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..................................................... 32 3.1 Organization of Parent and Merger Sub..................... 32 3.2 Authority................................................. 32 3.3 Parent Common Stock....................................... 33 3.4 SEC Filings; Parent Financial Statements.................. 33 3.5 Parent Capital Structure.................................. 34 3.6 Litigation................................................ 34 3.7 No Material Adverse Change................................ 34 3.8 Merger Sub................................................ 34 3.9 Brokers' and Finders' Fees................................ 34 3.10 Representations Complete.................................. 34 ARTICLE IV SECURITIES ACT COMPLIANCE; REGISTRATION................ 35 4.1 Securities Act Exemption.................................. 35 4.2 Stock Restrictions........................................ 35 4.3 The Company Shareholders' Restrictions Regarding Securities Law Matters.................................... 35 ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME..................... 36 5.1 Conduct of Business of the Company........................ 36 5.2 Reorganization............................................ 39 ARTICLE VI ADDITIONAL AGREEMENTS.................................. 40 6.1 Information Statement and Section 3(a)(10) Permit......... 40 6.2 Shareholder Approval...................................... 41 6.3 Access to Information..................................... 41 6.4 Confidentiality........................................... 41 6.5 Public Disclosure......................................... 41 6.6 Consents.................................................. 42 6.7 FIRPTA Compliance......................................... 42 6.8 Legal Conditions to the Merger............................ 42 6.9 Best Efforts; Additional Documents and Further Assurances. 42 6.10 Notification of Certain Matters........................... 43 6.11 Reorganization............................................ 43 6.12 Declaration of Registration Rights........................ 43 6.13 Form S-8.................................................. 43 6.14 New York Stock Exchange................................... 44 6.15 Voting Agreements......................................... 44 6.16 Non-Competition Agreements................................ 44 6.17 Blue Sky Laws............................................. 44 6.18 Benefit Arrangements...................................... 44
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TABLE OF CONTENTS (continued) Page ---- 6.19 Bonus Plan................................................ 44 6.20 Termination of Company Investor Rights.................... 45 6.21 No Solicitation........................................... 45 6.22 Termination of 401(k) Plan................................ 45 6.23 Termination of Company Severance Plans; Adoption of Parent Severance Plan..................................... 45 6.24 Export Laws............................................... 46 6.25 Lock-Up Agreements........................................ 46 6.26 Hart-Scott Rodino......................................... 46 6.27 Preparation of Tax Returns................................ 47 6.28 Company Headquarters...................................... 48 6.29 Indemnification........................................... 48 6.30 Employee Plan Compliance.................................. 48 ARTICLE VII CONDITIONS TO THE MERGER.............................. 49 7.1 Conditions to Obligations of Each Party to Effect the Merger.................................................... 49 7.2 Additional Conditions to Obligations of the Company....... 50 7.3 Additional Conditions to the Obligations of Parent and Merger Sub................................................ 51 ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW......................................................... 53 8.1 Survival of Representations and Warranties................ 53 8.2 Escrow Arrangements and Indemnification................... 53 ARTICLE IX TERMINATION, AMENDMENT AND WAIVER...................... 61 9.1 Termination............................................... 61 9.2 Effect of Termination..................................... 62 9.3 Amendment................................................. 63 9.4 Extension; Waiver......................................... 63 ARTICLE X GENERAL PROVISIONS...................................... 63 10.1 Notices................................................... 63 10.2 Expenses.................................................. 65 10.3 Interpretation............................................ 65 10.4 Counterparts.............................................. 65 10.5 Entire Agreement; Assignment.............................. 65 10.6 Severability.............................................. 66 10.7 Other Remedies............................................ 66 10.8 Governing Law............................................. 66 10.9 Rules of Construction..................................... 66 10.10 Specific Performance...................................... 66
-iii- INDEX OF SCHEDULES
Schedule Description - ----------- ------------------------------------ 2.3(a) Shareholder List 2.3(b) Option and Warrant Holder List 2.5 Conflicts 2.6 Governmental and Third Party Consents 2.8 Undisclosed Liabilities 2.9 No Changes 2.10 Tax Returns and Audits 2.12(a) Leased Real Property 2.12(b) Liens on Property 2.12(c) Equipment 2.13 Government Authorizations 2.14(b) Registered Intellectual Property Rights 2.14(c) IP Actions To Be Taken Within 120 Days of Closing Date; Special Status 2.14(h) Intellectual Property In-Licenses 2.14(j) Form of Proprietary Information, Confidentiality and Assignment Agreement 2.14(k) Third Party Ownership Rights to Licensed Technology or Intellectual Property 2.14(m) Form of "Shrink-Wrap" License; Outbound Licenses 2.14(n) Intellectual Property Obligations 2.14(t) Necessary Technology and Intellectual Property Rights 2.15 Product Warranties and Standard Forms of Agreements 2.16(a) Agreements, Contracts and Commitments 2.16(b) Breaches 2.17 Interested Party Transactions 2.19 Litigation 2.22 Hazardous Materials and Environmental Matters 2.23 Brokers/Finders Fees 2.24(b) Employee Benefit Plans and Employees 2.24(d) Employee Plan Compliance 2.24(g) Post-Employment Obligations 2.24(i)(i) Effect of Transaction 2.24(i)(ii) Excess Parachute Payments 2.24(j) Officers, Directors and Employees 2.24(k) Labor 2.25 Bank Accounts 6.15 Company Shareholders to Sign Voting Agreement 6.16 Employees to Sign Non-Competition Agreements
-v- AGREEMENT AND PLAN OF REORGANIZATION This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and entered into as of December 3, 1999 among Seagate Technology, Inc., a Delaware corporation ("Parent"), Trout Acquisition Corp., a Minnesota corporation and a wholly owned subsidiary of Parent ("Merger Sub"), XIOtech Corporation, a Minnesota corporation (the "Company"), Fredric R. Boswell and John F. Stapleton (each such natural person a "Securityholders Agent" and collectively, the "Securityholders Agents"). RECITALS A. Parent, Merger Sub and the Company intend to effect a merger (the "Merger") of Merger Sub with and into the Company in accordance with this Agreement and the Minnesota Business Corporation Act (the "Minnesota Law"). Upon consummation of the Merger, the Merger Sub will cease to exist, and the Company will be a wholly owned subsidiary of Parent. B. It is intended that the Merger qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). For accounting purposes, it is intended that the Merger be treated as a "purchase." C. The Board of Directors of the Company has (i) determined that the Merger is consistent with and in furtherance of the long-term strategy of the Company and fair to, and in the best interests of, the Company and its shareholders, (ii) approved this Agreement, the Merger and the other transactions contemplated by this Agreement and (iii) determined to unanimously recommend that the shareholders of the Company adopt and approve the principal terms of this Agreement and approve the Merger. D. The respective Boards of Directors of Parent and Merger Sub have approved this Agreement and the Merger. E. Concurrently with the execution of this Agreement, and as a condition and inducement to Parent's willingness to enter into this Agreement, each of the shareholders of the Company listed on Schedule 6.17 hereto is entering into a ------------- Voting Agreement substantially in the form attached hereto as Exhibit A (the --------- "Voting Agreement"). F. Concurrently with the execution of this Agreement, and as a condition and inducement to Parent's willingness to enter into this Agreement, the employees of the Company listed on Schedule 6.15 hereto are entering into Non- ------------- Competition Agreements substantially in the form attached hereto as Exhibit B --------- (the "Non-Competition Agreements"). NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, intending to be legally bound hereby the parties agree as follows: ARTICLE I THE MERGER 1.1 The Merger. At the Effective Time (as defined in Section 1.2) and ---------- subject to and upon the terms and conditions of this Agreement and Minnesota Law, the Merger Sub shall be merged with and into the Company, the separate corporate existence of the Merger Sub shall cease and the Company shall continue as the surviving corporation and as a wholly owned subsidiary of Parent. The Company as the surviving corporation after the Merger is referred to hereinafter sometimes as the "Surviving Corporation." 1.2 Effective Time. Unless this Agreement is earlier terminated pursuant -------------- to Section 9.1, the closing of the Merger (the "Closing") will take place as promptly as practicable, but no later than three business days, following satisfaction or waiver of the conditions set forth in Article VII, at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, California, unless another place or time is agreed to by Parent and the Company. The date upon which the Closing actually occurs is herein referred to as the "Closing Date." On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing an Articles of Merger, including a plan of merger, in substantially the form attached hereto as Exhibit C (the "Articles of Merger"), with the Secretary of State of the State - --------- of Minnesota, in accordance with the relevant provisions of Minnesota Law (the time of acceptance by the Secretary of State of Minnesota of such filing being referred to herein as the "Effective Time"). Merger Sub and the Company shall take such other actions as required to effect the Merger pursuant to Section 302A.651 of the Minnesota Revised Statutes. 1.3 Effect of the Merger. At the Effective Time, the effect of the Merger -------------------- shall be as provided in the applicable provisions of Minnesota Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all of the rights and property of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation. 1.4 Articles of Incorporation; Bylaws. --------------------------------- (a) Unless otherwise determined by Parent prior to the Effective Time, at the Effective Time, the Articles of Incorporation of the Surviving Corporation shall be the Articles of Incorporation of the Company as amended and restated by Parent in a form reasonably satisfactory to the Company prior to the Effective Time until thereafter amended as provided by law and such Articles of Incorporation. (b) The Bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended. 1.5 Directors and Officers. The director(s) of Merger Sub immediately ---------------------- prior to the Effective Time shall be the initial director(s) of the Surviving Corporation, each to hold office in accordance with the Articles of Incorporation and Bylaws of the Surviving Corporation. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the -2- Surviving Corporation, each to hold office in accordance with the Bylaws of the Surviving Corporation. 1.6 Aggregate Merger Consideration; Effect on Capital Stock. The ------------------------------------------------------- aggregate maximum number of shares of common stock of Parent ("Parent Common Stock") to be issued (including Parent Common Stock to be reserved for issuance upon exercise of any of the Company's options to be assumed by Parent) in exchange for the acquisition by Parent of all outstanding capital stock of the Company ("Company Capital Stock") and all outstanding unexpired and unexercised options, warrants or other rights to acquire or receive shares of Company Capital Stock shall be referred to herein as the "Aggregate Share Number." The Aggregate Share Number shall be the quotient of $360,000,000 divided by the Average Closing Price (as defined below). No adjustment shall be made in the number of shares of Parent Common Stock issued in the Merger as a result of any cash proceeds received by the Company from the date hereof to the Closing Date pursuant to the exercise of options or warrants to acquire Company Capital Stock. Subject to the terms and conditions of this Agreement, as of the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, the Company or the holder of any shares of Company Capital Stock, the holder of any options, warrants or other rights to acquire or receive shares of Company Capital Stock, the following shall occur (which is intended to comply fully with the liquidation preference provisions set forth in the Articles of Incorporation of the Company, as amended through the date hereof): (a) Conversion of Company Common Stock. Each share of common stock of ---------------------------------- the Company, no par value per share, ("Company Common Stock") issued and outstanding immediately prior to the Effective Time (other than any shares of Company Common Stock to be canceled pursuant to Section 1.6(e) and any "Dissenting Shares" (as defined and to the extent provided in Section 1.7(a))) will be canceled and extinguished and be converted automatically into the right to receive that number of shares of Parent Common Stock equal to the Common Exchange Ratio (as defined in Section 1.6(c) below) upon surrender of the certificate representing such share of Company Common Stock in the manner provided in Section 1.8. (b) Conversion of Company Preferred Stock. ------------------------------------- (i) Series A Preferred Stock. Each share of Series A Preferred ------------------------ Stock of the Company, par value $1.00 per share, ("Series A Preferred") issued and outstanding immediately prior to the Effective Time (other than any shares of Series A Preferred to be canceled pursuant to Section 1.6(e) and any Dissenting Shares (as defined and to the extent provided in Section 1.7(a)) will be canceled and extinguished and be converted automatically into the right to receive that number of shares of Parent Common Stock equal to the quotient computed by dividing (A) the sum of $1.00 (the "Series A Preference Amount") plus the Per Share Amount (as defined in Section 1.6(c) below), by (B) the Average Closing Price upon surrender of the certificate representing such share of Series A Preferred in the manner provided in Section 1.8. (ii) Series B Preferred Stock. Each share of Series B Preferred ------------------------ Stock of the Company, par value $1.00 per share, ("Series B Preferred") issued and outstanding immediately prior to the Effective Time (other than any shares of Series B Preferred to be canceled pursuant to Section 1.6(e) and any Dissenting Shares (as defined and to the extent provided in Section 1.7(a)) will be canceled and extinguished and be converted automatically into the right to receive that number of shares of Parent Common Stock equal to the quotient computed by dividing (A) the sum -3- of $1.25 (the "Series B Preference Amount") plus the Per Share Amount, by (B) the Average Closing Price upon surrender of the certificate representing such share of Series B Preferred in the manner provided in Section 1.8. (iii) Series C Preferred Stock. Each share of Series C Preferred ------------------------ Stock of the Company, par value $1.00 per share, ("Series C Preferred") issued and outstanding immediately prior to the Effective Time (other than any shares of Series C Preferred to be canceled pursuant to Section 1.6(e) and any Dissenting Shares (as defined and to the extent provided in Section 1.7(a)) will be canceled and extinguished and be converted automatically into the right to receive that number of shares of Parent Common Stock equal to the quotient computed by dividing (A) the sum of $2.07 (the "Series C Preference Amount") plus the Per Share Amount, by (B) the Average Closing Price upon surrender of the certificate representing such share of Series C Preferred in the manner provided in Section 1.8. (iv) Series D Preferred Stock. Each share of Series D Preferred ------------------------ Stock of the Company, par value $1.00 per share, ("Series D Preferred") issued and outstanding immediately prior to the Effective Time (other than any shares of Series D Preferred to be canceled pursuant to Section 1.6(e) and any Dissenting Shares (as defined and to the extent provided in Section 1.7(a)) will be canceled and extinguished and be converted automatically into the right to receive that number of shares of Parent Common Stock equal to the quotient computed by dividing (A) the sum of $6.00 (the "Series D Preference Amount") plus the Per Share Amount, by (B) the Average Closing Price upon surrender of the certificate representing such share of Series D Preferred in the manner provided in Section 1.8. (c) Definitions. ----------- (i) Common Exchange Ratio. The "Common Exchange Ratio" shall --------------------- be equal to the Per Share Amount divided by the Average Closing Price. (ii) Per Share Amount. The "Per Share Amount" shall be equal to ---------------- the quotient (rounded to the sixth decimal place) of (A) $360,000,000 minus the Total Preference Amount divided by (B) the sum of the Diluted Common Shares plus the Total Preferred Shares. (iii) Total Preference Amount. The "Total Preference Amount" ----------------------- shall be equal to the sum of (A) the Series A Preference Amount multiplied by the Total Series A Shares, plus (B) the Series B Preference Amount multiplied by the Total Series B Shares, plus (C) the Series B Preference Amount multiplied by the Total Series C Shares, plus (D) the Series D Preference Amount multiplied by the Total Series D Shares. (iv) Total Series A Shares. The "Total Series A Shares" shall be --------------------- equal to the number of shares of Series A Preferred outstanding immediately prior to the Effective Time (other than any shares of Series A Preferred to be canceled pursuant to Section 1.6(e) and any Dissenting Shares (as defined and to the extent provided in Section 1.7(a)). (v) Total Series B Shares. The "Total Series B Shares" shall --------------------- be equal to the number of shares of Series B Preferred outstanding immediately prior to the Effective Time -4- (other than any shares of Series B Preferred to be canceled pursuant to Section 1.6(e) and any Dissenting Shares (as defined and to the extent provided in Section 1.7(a)). (vi) Total Series C Shares. The "Total Series C Shares" shall --------------------- be equal to the number of shares of Series C Preferred outstanding immediately prior to the Effective Time (other than any shares of Series C Preferred to be canceled pursuant to Section 1.6(e) and any Dissenting Shares (as defined and to the extent provided in Section 1.7(a)). (vii) Total Series D Shares. The "Total Series Shares" shall be --------------------- equal to the number of shares of Series D Preferred outstanding immediately prior to the Effective Time (other than any shares of Series D Preferred to be canceled pursuant to Section 1.6(e) and any Dissenting Shares (as defined and to the extent provided in Section 1.7(a)). (viii) Average Closing Price. The "Average Closing Price" --------------------- shall mean the average of closing prices of the Parent Common Stock as reported on the New York Stock Exchange for the 20 trading days ending on and including the third day immediately preceding the Closing Date. (ix) Diluted Common Shares. The "Diluted Common Shares" shall --------------------- mean that number equal to the sum of (A) the number of shares of Company Common Stock issued and outstanding immediately prior to the Effective Time (regardless of whether such shares are unvested, subject to any right of repurchase, risk of forfeiture or other condition in favor of the Company at such time); plus (B) the number of shares of Company Common stock issuable upon exercise of the Company Options (as such term is defined in Section 1.6(f)) outstanding at the Effective Time (regardless of whether such Company Options are vested); plus (C) the number of shares of Company Common Stock issuable in connection with any other options, warrants, calls, rights, exchangeable or convertible securities, commitments or agreements of any character, written or oral, to which the Company is a party or by which it is bound obligating the Company to issue, deliver, sell or cause to be issued, delivered or sold any Company Capital Stock immediately prior to the Effective Time. (d) Escrow. A number of shares of Parent Common Stock to be issued at ------ the Effective Time pursuant to Section 1.6(a) and (b) hereof (none of which shares of Parent Common Stock shall be unvested, subject to any right of repurchase, risk of forfeiture or other condition in favor of the Surviving Corporation), determined by dividing $26 million by the Average Closing Price, shall be held in escrow (the "Escrow Amount") pursuant to Article VIII of this Agreement to compensate Parent and its affiliates (including the Surviving Corporation) for any "Losses" (as defined in Section 8.2 hereof) incurred in connection with this Agreement and the transactions contemplated hereby. (e) Cancellation of Parent-Owned and Company-Owned Stock. Each share ---------------------------------------------------- of Company Capital Stock owned by Merger Sub, Parent, the Company or any direct or indirect wholly owned subsidiary of Parent or of the Company immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof. -5- (f) Stock Options. At the Effective Time, all options to purchase ------------- Company Common Stock (each a "Company Option") then outstanding (whether or not exercisable at such time) under the Company's Amended and Restated 1996 Stock Option Plan (the "Option Plan") or otherwise, shall remain outstanding following the Effective Time and shall be assumed by Parent in accordance with provisions described below. (i) Each Company Option so assumed by Parent under this Agreement shall continue to have, and be subject to, the same terms and conditions set forth in the Option Plan and/or as provided in the respective option agreement governing such Company Option immediately prior to the Effective Time, except that (A) such Company Option shall be exercisable for that number of whole shares of Parent Common Stock equal to the product of the number of shares of Company Common Stock that were issuable upon exercise of such Company Option immediately prior to the Effective Time multiplied by the Common Exchange Ratio, rounded down to the nearest whole number of shares of Parent Common Stock and (B) the per share exercise price for the shares of Parent Common Stock issuable upon exercise of such assumed Company Option shall be equal to the quotient determined by dividing the exercise price per share of Company Common Stock at which such Company Option was exercisable immediately prior to the Effective Time by the Common Exchange Ratio, rounded up to the nearest whole cent. (ii) In the case of any Company Option to which Section 421 of the Code applies by reason of its qualification under Section 422 of the Code ("qualified stock option"), the option price, the number of shares purchasable pursuant to such assumed Parent Common Stock option and the terms and conditions of exercise of such assumed Parent Common Stock option shall be determined in order to comply with Section 424(a) of the Code. (iii) As soon as practicable after the Effective Time, Parent shall deliver to the holders of Company Options appropriate notices setting forth such holders' rights pursuant to the Option Plan, and the agreements evidencing the grants of such Company Options shall be deemed to be appropriately amended so that such Company Options shall represent rights to acquire Parent Common Stock on the same terms and conditions as contained in the outstanding Company Options (subject to the adjustments required by this Section 1.6(f) after giving effect to the assumption by Parent as set forth above). Parent shall comply with the terms of the Company Stock Plan and use good faith efforts to ensure, to the extent permitted by the Code and to the extent required by, and subject to the provisions of, the Option Plan, that Company Options which qualified as qualified stock options prior to the Effective Time continue to qualify as qualified stock options of Parent after the Effective Time. (iv) Notwithstanding anything to the contrary in this Section 1.6, in lieu of assuming outstanding Company Options in accordance with this Section 1.6(f), Parent may, at its election, cause such outstanding Company Options to be replaced by issuing substantially similar replacement stock options in substitution therefor pursuant to a stock option plan of Parent, which is substantially similar to the Option Plan. (g) Common Warrants. To the extent the warrant to purchase shares of --------------- Company Common Stock (the "Common Warrants") remain exercisable immediately prior to the Effective Time, the Common Warrants shall, in connection with the Merger and pursuant to its terms, be terminated and shall not be assumed by Parent. After the Effective Time, any unexercised portion of -6- the Common Warrants shall not represent any right to purchase any Company Capital Stock or any Parent Common Stock. (h) Series A Warrants. To the extent the warrant to purchase shares ----------------- of Series A Preferred (the "Series A Warrants") remain exercisable immediately prior to the Effective Time, the Series A Warrants shall, in connection with the Merger and pursuant to its terms, be terminated and shall not be assumed by Parent. After the Effective Time, any unexercised portion of the Series A Warrants shall not represent any right to purchase any Company Capital Stock or any Parent Common Stock. (i) Capital Stock of Merger Sub. Each share of common stock of Merger --------------------------- Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares shall continue to evidence ownership of such shares of capital stock of the Surviving Corporation. (j) Adjustments to Exchange Ratios. The Per Share Amount shall be ------------------------------ adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock or Company Capital Stock), reorganization, recapitalization or other like change with respect to Parent Common Stock or Company Capital Stock occurring after the date hereof and prior to the Effective Time. (k) Fractional Shares. No fraction of a share of Parent Common Stock ----------------- will be issued at the Effective Time, but in lieu thereof, each holder of shares of Company Capital Stock who would otherwise be entitled to a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock to be received by such holder) shall be entitled to receive from Parent an amount of cash (rounded to the nearest whole cent) equal to the product of (i) such fraction multiplied by (ii) the Average Closing Price. 1.7 Dissenters' Rights. ------------------ (a) Notwithstanding any provision of this Agreement to the contrary, any shares of Company Capital Stock held by a holder who has demanded and perfected dissenters' rights for such shares in accordance with Sections 302A.471 and 302A.473 of the Minnesota Revised Statutes and who, as of the Effective Time, has not effectively withdrawn or lost such appraisal or dissenters' rights ("Dissenting Shares"), shall not be converted into or represent a right to receive Parent Common Stock pursuant to Section 1.6, but the holder thereof shall only be entitled to such rights as are granted by Minnesota Law. From and after the Effective Time, a holder of Dissenting Shares shall not be entitled to exercise any of the voting rights or other rights of a shareholder of the Surviving Corporation. (b) Notwithstanding the provisions of Sections 1.6(a) and (b) hereof, if any holder of shares of Company Capital Stock who demands appraisal of such shares under Minnesota Law shall effectively withdraw or lose (through failure to perfect or otherwise) the right to appraisal, then, as of the later of the Effective Time and the occurrence of such event, such holder's shares shall automatically be converted into and represent only the right to receive Parent Common Stock -7- and fractional shares as provided in Section 1.6(a) or (b), as the case may be, without interest thereon, upon surrender of the certificate representing such shares. (c) The Company shall give Parent (i) prompt notice of any written demands for appraisal of any shares of Company Capital Stock, withdrawals of such demands, and any other instruments served pursuant to Minnesota Law and received by the Company and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands for appraisal under Minnesota Law. The Company shall not, except with the prior written consent of Parent, which will not be unreasonably withheld, voluntarily make any payment with respect to any demands for appraisal of capital stock of the Company or offer to settle or settle any such demands. 1.8 Surrender of Certificates. ------------------------- (a) Exchange Agent. Prior to the Effective Time, Parent shall -------------- designate Harris Trust Company of California to act as exchange agent (the "Exchange Agent") in the Merger. (b) Parent to Provide Parent Common Stock. Promptly after the ------------------------------------- Effective Time, Parent shall make available to the Exchange Agent for exchange in accordance with this Article I, the aggregate number of shares of Parent Common Stock issuable pursuant to Section 1.6 in exchange for outstanding shares of Company Capital Stock; provided, however, that, on behalf of the holders of -------- ------- Company Capital Stock, and pursuant to Article VIII hereof, Parent shall deposit into an escrow account a number of shares of Parent Common Stock equal to the Escrow Amount out of the aggregate number of shares of Parent Common Stock otherwise issuable pursuant to Section 1.6. The portion of the Escrow Amount contributed on behalf of each holder of Company Capital Stock shall be in proportion to the aggregate number of shares of Parent Common Stock which such holder would otherwise be entitled to receive under Section 1.6 by virtue of ownership of outstanding shares of Company Capital Stock. (c) Exchange Procedures. Promptly after the Effective Time, the ------------------- Surviving Corporation shall cause to be mailed to each holder of record of a certificate or certificates (the "Certificates") which immediately prior to the Effective Time represented outstanding shares of Company Capital Stock whose shares were converted into the right to receive shares of Parent Common Stock pursuant to Section 1.6, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Parent and the Company may agree) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of Parent Common Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive in exchange therefor a certificate representing the number of whole shares of Parent Common Stock (less the number of shares of Parent Common Stock to be deposited in the Escrow Fund on such holder's behalf pursuant to Article VIII hereof), plus cash in lieu of fractional shares in accordance with Section 1.6, to which such holder is entitled pursuant to Section 1.6, and the Certificate so surrendered shall forthwith be canceled. On the Effective Time, and subject to and in accordance with the provisions of Article VIII hereof, Parent shall cause to be distributed to the Escrow Agent (as defined in Article VIII) a certificate or certificates representing that number of -8- shares of Parent Common Stock equal to the Escrow Amount which shall be registered in the name of the Escrow Agent. As set forth in Section 8.2(c)(iii), such shares shall be beneficially owned by the holders on whose behalf such shares were deposited in the Escrow Fund and such shares shall be available to compensate Parent as provided in Article VIII. Until so surrendered, each outstanding Certificate that, prior to the Effective Time, represented shares of Company Capital Stock will be deemed from and after the Effective Time, for all corporate purposes, other than the payment of dividends, to evidence the ownership of the number of full shares of Parent Common Stock into which such shares of Company Capital Stock shall have been so converted and the right to receive an amount in cash in lieu of the issuance of any fractional shares in accordance with Section 1.6. (d) Distributions With Respect to Unexchanged Shares. No dividends or ------------------------------------------------ other distributions declared or made after the Effective Time with respect to Parent Common Stock with a record date after the Effective Time will be paid to the holder of any unsurrendered Certificate with respect to the shares of Parent Common Stock represented thereby until the holder of record of such Certificate shall surrender such Certificate. Subject to applicable law, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of Parent Common Stock issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Parent Common Stock. (e) Transfers of Ownership. If any certificate for shares of Parent ---------------------- Common Stock is to be issued in a name other than that in which the certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the certificate so surrendered will be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange will have paid to Parent or any agent designated by it any transfer or other taxes required by reason of the issuance of a certificate for shares of Parent Common Stock in any name other than that of the registered holder of the certificate surrendered, or established to the satisfaction of Parent or any agent designated by it that such tax has been paid or is not payable. (f) No Liability. Notwithstanding anything to the contrary in this ------------ Section 1.8, none of the Exchange Agent, the Surviving Corporation or any party hereto shall be liable to a holder of shares of Parent Common Stock or Company Capital Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. 1.9 No Further Ownership Rights in Company Common Stock. All shares of --------------------------------------------------- Parent Common Stock issued upon the surrender for exchange of shares of Company Capital Stock in accordance with the terms hereof (including any cash paid in respect thereof) shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Capital Stock, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Company Capital Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I. 1.10 Lost, Stolen or Destroyed Certificates. In the event any certificates evidencing shares of Company Capital Stock shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed certificates, upon the making of an affidavit of that fact by the holder thereof, such shares of Parent Common Stock and cash for fractional shares, if any, as -9- may be required pursuant to Section 1.6; provided, however, that Parent may, -------- ------- in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent or the Exchange Agent with respect to the certificates alleged to have been lost, stolen or destroyed. 1.11 Tax and Accounting Consequences. It is intended by the parties hereto ------------------------------- that the Merger shall (a) constitute a reorganization within the meaning of Section 368(a) of the Code (and this Agreement is intended to constitute a plan of reorganization for purposes of Section 368(a) of the Code) and (b) qualify for accounting treatment as a "purchase." 1.12 Taking of Necessary Action; Further Action. If, at any time after the ------------------------------------------ Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company and Merger Sub, the officers and directors of the Company and Merger Sub are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Parent and Merger Sub, subject to the exceptions specifically disclosed in writing in the disclosure letter dated as of the date hereof and referencing a specific representation supplied by the Company to Parent (the "Company Schedules"), as follows: 2.1 Organization and Qualification. The Company is a corporation duly ------------------------------ organized, validly existing and in good standing under the laws of the State of Minnesota. The Company has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted and to perform its obligations under and Contracts (as such term is defined in Section 2.16 hereto) by which it is bound. The Company is duly qualified or licensed to do business and is in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified or licensed would have a material adverse effect on the business, assets (including intangible assets), financial condition or results of operations of the Company (hereinafter referred to as a "Material Adverse Effect"); provided, however, that changes in economic conditions or changes in the industry and markets in which the Company competes shall not constitute a Material Adverse Effect, whether occurring at any time or from time to time. The Company has delivered a true and correct copy of its Articles of Incorporation and Bylaws, each as amended to date, to Parent. Such Articles of Incorporation and Bylaws are in full force and effect. Company is not in violation of any of the provisions of its Articles of Incorporation or Bylaws. 2.2 Subsidiaries. The Company does not have and has never had any ------------ subsidiaries or affiliated companies and does not otherwise own and has never otherwise owned, directly or indirectly, any shares of capital stock or any equity, debt or similar interest in or any interest convertible, exchangeable or exercisable for any equity, debt or similar interest in, or control, -10- directly or indirectly, any other corporation, partnership, association, joint venture or other business entity. Company has not agreed nor is Company obligated to make or be bound by any written, oral or other agreement, contract, sub-contract, lease, binding understanding, instrument, note, option, warranty, purchase order, license, sub-license, insurance policy, benefit plan, commitment or undertaking of any nature, as of the date hereof or as may hereafter be in effect under which it may become obligated to make, any future investment in or capital contribution to any other entity. 2.3 Company Capital Structure. ------------------------- (a) The authorized capital stock of the Company consists of 50,000,000 shares of authorized Common Stock, of which 2,839,698 shares are issued and outstanding and 25,000,000 shares of authorized Preferred Stock (the "Preferred Stock"). The authorized Preferred Stock consists of 1,900,000 shares of authorized Series A Preferred, 1,377,360 of which shares are issued and outstanding, 5,600,000 shares of authorized Series B Preferred, 5,085,400 of which shares are issued and outstanding, 5,320,000 shares of authorized Series C Preferred, 4,879,331 of which shares are issued and outstanding, 3,333,334 shares of authorized Series D Preferred, 1,643,334 of which shares are issued and outstanding and 7,469,305 of which are undesignated and are not issued or outstanding. The Company Capital Stock, including all shares subject to the Company's right of repurchase, is held of record by the persons, with the addresses of record and in the amounts set forth on Schedule 2.3(a) of the --------------- Company Schedules. Schedule 2.3(a) of the Company Schedules also indicates for --------------- each Company shareholder (i) the share certificate numbers held by such person and (ii) whether any shares of Company Capital Stock held by such shareholder are subject to a repurchase right in favor of the Company, the lapsing schedule for any such restricted shares, including the extent to which any such repurchase right has lapsed as of the date of this Agreement and whether (and to what extent) the lapsing will be accelerated by the transactions contemplated by this Agreement. All outstanding shares of Company Capital Stock are duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the Articles of Incorporation or Bylaws of the Company or any agreement to which the Company is a party or by which it is bound. All preferential rights of the Preferred Stock in connection with the sale of substantially all of the assets of the Company or a merger involving the Company are set forth in the Articles of Incorporation of the Company. Except as set forth in Schedule 2.3(a) of the Company Schedules, all issued and outstanding shares of Company Capital Stock have been offered, sold and delivered by the Company in compliance with applicable federal and state securities laws. (b) The Company has reserved 1,000,000 shares of Common Stock for issuance to employees and consultants pursuant to the Option Plan, of which 841,629 shares are subject to outstanding, unexercised options, and 18,673 shares remain available for future grant. Schedule 2.3(b) of the Company --------------- Schedules sets forth each outstanding Company Option, including the name of the holder of such option, the domicile address of such holder, an indication of whether such holder is an employee of the Company, the status of the option as either an incentive stock option under Section 422 of the Code or a nonstatutory stock option, the date of grant or issuance of such option, the number of shares of Common Stock subject to such option, the exercise price of such option and the vesting schedule for such option, including the extent vested to the date of this Agreement and whether and to what extent the exercisability of such option will be accelerated and become exercisable by the transactions contemplated by this Agreement. Company has made -11- available to Parent accurate and complete copies of all stock option plans pursuant to which the Company has granted such Company Stock Options that are currently outstanding and the form of all stock option agreements evidencing such Company Stock Options. Except as set forth in Section 2.3(b) of the Company Schedules, there are no commitments or agreements of any character to which the Company is bound obligating the Company to accelerate the vesting of any Company Stock Option as a result of the Merger. The Company has reserved 450,560 shares of Series A Preferred for issuance upon exercise of the Series A Warrants and 450,560 shares of Company Common Stock issuable upon conversion of the shares of Series A Preferred issuable upon exercise of the Series A Warrants. Schedule -------- 2.3(b) of the Company Schedules sets forth the name of the holders of the Common - ------ Warrants and Series A Warrants and exercise price of such Warrant. All issued and outstanding Company Options, Common Warrants and Series A Warrants have been offered, issued and delivered in compliance with applicable federal and state securities laws and all requirements set forth in applicable contracts, agreements and instruments. All shares of Company Common Stock and Series A Preferred subject to the issuance aforesaid, upon issuance in accordance with the terms and conditions specified in the instrument pursuant to which they are issuable, would be duly authorized, validly issued, fully paid and nonassessable. As a result of the Merger, Parent will be the record and sole beneficial owner of all Company Capital Stock and rights to acquire or receive Company Capital Stock. (c) Except for the Company Options, the Common Warrants and the Series A Warrants described in Schedule 2.3(b) of the Company Schedules, there are no --------------- subscriptions, options, warrants, equity securities, partnership interests or similar ownership interests, calls, rights (including preemptive rights), commitments or agreements of any character to which Company is a party or by which it is bound obligating Company to issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or acquisition of, any shares of capital stock, partnership interests or similar ownership interests of the Company or obligating the Company to grant, extend, accelerate the vesting of or enter into any such subscription, option, warrant, equity security, call, right, commitment or agreement. (d) As of the date of this Agreement, except as contemplated by this Agreement or set forth in Schedule 2.3(d) of the Company Schedules, there are no registration rights agreements, no voting trust, proxy or other agreement or understanding to which the Company is a party or by which it is bound with respect to any equity security of any class of the Company. 2.4 Authority. Subject only to the requisite approval of the Merger and --------- the principal terms of this Agreement by the Company's shareholders, the Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The vote required of the Company's shareholders to duly approve the principal terms of this Agreement and the Merger is that number of shares as would constitute a majority of the outstanding shares of (a) the Company Common Stock and Preferred Stock, voting together as a single class, (b) the Company Common Stock and Series A Preferred Stock, voting together as a single class, (c) the Series B Preferred Stock voting separately as a single class, and (d) the Series D Preferred Stock voting separately as a single class (in each case with each share of Preferred Stock being entitled to a number of votes equal to the number of whole shares of Common Stock into which such share of Preferred Stock could be converted on the record date for the vote). In addition, the consent of not less than 80% of the Series C Preferred Stock, voting separately as a single class, is required to duly -12- approve the principal terms of this Agreement and the Merger. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject only to the approval of the principal terms of this Agreement and the Merger by the Company's shareholders. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting the rights of creditors generally and by general equitable principles. 2.5 No Conflict. Assuming that all consents, waivers, approvals, orders, ----------- authorizations, registrations, declarations and filings have been duly made or obtained as contemplated by Section 2.6 hereof, and except as set forth on Schedule 2.5, subject only to the approval of the principal terms of this - ------------ Agreement and the Merger by the Company's shareholders, the execution and delivery of this Agreement by the Company does not, and, as of the Effective Time, the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under or require any consent, waiver or approval to continue to enjoy the benefits under (any such event, a "Conflict") (a) any provision of the Articles of Incorporation or Bylaws of the Company or (b) any material mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets. 2.6 Consents. No consent, waiver, approval, order or authorization of, or -------- registration, declaration or filing with, any court, administrative agency or commission or other federal, state, county, local or foreign governmental authority, instrumentality, agency or commission ("Governmental Entity") (so as not to trigger any Conflict), is required by or with respect to the Company in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby by the Company, except for (a) the filing of the Articles of Merger with the Minnesota Secretary of State, (b) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws, (c) the filing of such notices and the expiration of such waiting periods as required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and (d) such other consents, waivers, authorizations, filings, approvals and registrations which are set forth on Schedule 2.6. - ------------ 2.7 Company Financial Statements. The Company has delivered previously to ---------------------------- the Parent true and correct copies of the Company's audited balance sheets as of December 31, 1998 and as of December 31, 1997 and the related audited statement of income for the respective twelve-month periods then ended (the "Company Year- End Financials," and the Company's unaudited balance sheet as of September 30, 1999 and the related unaudited statement of income for the 9-month period then ended (the "Company Interim Financials," the Company Year-End Financials and the Company Interim Financials shall be collectively referred to as the "Company Financials"). The Company Year-End Financials and the Company Interim Financials are complete and correct in all material respects and have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods indicated, except for the -13- absence of footnotes and year-end adjustments in the case of the Company Interim Financials. The Company Year-End Financials and Company Interim Financials present fairly the financial condition of the Company as of the dates thereof and the operating results during the period indicated therein. The Company's unaudited Balance Sheet as of September 30, 1999 shall be referred to herein as the "Current Company Balance Sheet." 2.8 No Undisclosed Liabilities. Except as set forth in Schedule 2.8, the -------------------------- ------------ Company does not have any material liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in financial statements in accordance with GAAP), which individually or in the aggregate, (a) has not been reflected in the Current Company Balance Sheet or (b) has not arisen in the ordinary course of the Company's business since December 31, 1998, consistent with past practices, none of which is material to the business, results of operations or financial condition of the Company. 2.9 No Changes. Except as set forth in Schedule 2.9, since September 30, ---------- ------------ 1999 and through the date of this Agreement the Company has not taken any of the actions set forth in Section 5.1 hereof. 2.10 Tax and Other Returns and Reports. --------------------------------- (a) Definition of Taxes. For the purposes of this Agreement, "Tax" ------------------- or, collectively, "Taxes," means any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity. (b) Tax Returns and Audits. Except as set forth in Schedule 2.10: ---------------------- ------------- (i) The Company has prepared and filed all required federal, state, local and foreign returns, estimates, information statements and reports ("Returns") relating to any and all Taxes concerning or attributable to the Company or its operations and such Returns are true and correct and have been completed in accordance with applicable law. (ii) The Company: (A) has paid timely or accrued all Taxes it is required to pay or accrue and (B) has timely withheld (and paid over to the appropriate governmental authorities) with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld. (iii) The Company has not been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, proposed or assessed against the Company, nor has the Company executed any waiver of any statute of limitations on or extended the period for the assessment or collection of any Tax. -14- (iv) No audit or other examination of any Return of the Company is presently in progress, nor has the Company been notified of any request for such an audit or other examination. (v) The Company has no liabilities for unpaid federal, state, local and foreign Taxes which have not been accrued or reserved against in the Company Financials, whether asserted or unasserted, contingent or otherwise, and the Company has not incurred any liability for Taxes since the date of the Current Company Balance Sheet other than in the ordinary course of business consistent with past practice. (vi) The Company has provided to Parent copies of all federal and state income and all state sales and use Returns for all periods since the date of Company's incorporation. (vii) There are (and as of immediately following the Closing there will be) no liens, pledges, charges, claims, restrictions on transfer, mortgages, security interests or other encumbrances of any sort (collectively, "Liens") on the assets of the Company relating to or attributable to Taxes, other than Liens for Taxes not yet due and payable as of such time. (viii) There is no reasonable basis for the assertion of any claim relating or attributable to Taxes which, if adversely determined, would result in any Lien on the assets of the Company. (ix) None of the Company's assets are treated as "tax-exempt use property" within the meaning of Section 168(h) of the Code. (x) There is no contract, agreement, plan or arrangement to which the Company is a party, including but not limited to the provisions of this Agreement, covering any employee or former employee of the Company that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Section 280G, 404 or 162(m) of the Code. (xi) The Company has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the Company. (xii) The Company has (a) never been a member of an affiliated group (within the meaning of Code (S)1504(a)) filing a consolidated federal income Tax Return (other than a group the common parent of which was Company) and (b) no liability for the Taxes of any person (other than Company or any of its Subsidiaries) under Treas. Reg. (S) 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise. (xiii) The Company is not a party to any tax sharing, indemnification or allocation agreement and does not owe any amount under any such agreements. (xiv) The Company is not, and has not been at any time, a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code. -15- (xv) No adjustment or deficiency relating to any Return filed or required to be filed by the Company has been proposed in writing or, to the knowledge of the Company, informally by any Tax authority to the Company or any representative thereof except proposed adjustments or deficiencies that have been resolved prior to the date hereof. (xvi) The Company utilizes the accrual method of accounting for U.S. federal income tax purposes. (xvii) The Company has not constituted either a "distributing corporation" or a "controlled corporation" in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (x) in the two years prior to the date of this Agreement or (y) in a distribution which could otherwise constitute part of a "plan" or "series of related transactions" (within the meaning of Section 355(e) of the Code) in conjunction with the Merger. 2.11 Restrictions on Business Activities. There is no agreement ----------------------------------- (noncompete or otherwise), judgment, injunction, order or decree to which the Company is a party or otherwise binding upon the Company which has or reasonably would be expected to have the effect of prohibiting or impairing any business practice of the Company, any acquisition of property (tangible or intangible) by the Company or the conduct of business by the Company. Without limiting the foregoing, the Company has not entered into any agreement under which the Company is restricted from selling, licensing or otherwise distributing any of its products or services to any class of customers, in any geographic area, during any period of time or in any segment of the market. 2.12 Title to Properties; Absence of Liens and Encumbrances ------------------------------------------------------ (a) The Company does not own any real property, nor has it ever owned any real property. Schedule 2.12(a) sets forth a list of all real property ---------------- currently leased by the Company, the name of the lessor and the date of the lease and each amendment thereto. All such current leases are in full force and effect, are valid and effective in accordance with their respective terms, and the Company is not, nor to the best of the Company's knowledge, no other party is under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default). Neither the operations of the Company on such real property nor, to the Company's knowledge, such real property, including improvements thereon, violate any applicable building code, zoning requirement, or classification or statute relating to the particular property or such operations, and such non-violation is not dependent, in any instance, on so-called non-conforming use exceptions. (b) The Company has good and marketable title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens (as defined in Section 2.10(b)(vii)), except as reflected in the Company Financials or in Schedule 2.12(b) and except ---------------- for liens for taxes not yet due and payable, Liens imposed by law and incurred in the ordinary course of business for obligations not yet due to carriers, warehouse men, laborers and material men and Liens in respect of pledges or deposits under workers' compensation laws, and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby. -16- (c) Schedule 2.12(c) lists all fixed assets (the "Equipment") owned or ---------------- leased by the Company as of October 31, 1999, and since such date there have been no material additions or deletions to such Equipment. All facilities, machinery, equipment, fixtures, vehicles, and other properties owned, leased or used by the Company are (i) adequate for the conduct of the business of the Company as currently conducted and (ii) in good operating condition, regularly and properly maintained, subject to normal wear and tear and reasonably fit and usable for the purposes for which they are being used, except where a failure to be in such condition would not have a Material Adverse Effect on the Company. (d) The Company has not sold or otherwise released for distribution any of its customer files and other customer information relating to the Company's current and former customers (the "Company Customer Information"). No person other than the Company possesses any claims or rights with respect to use of the Company Customer Information. 2.13 Governmental Authorization. Schedule 2.13 accurately lists each -------------------------- ------------- material consent, license, permit, grant or other authorization issued to the Company by a Governmental Entity (a) pursuant to which the Company currently operates or holds any interest in any of its properties or (b) which is required for the operation of its business or the holding of any such interest (herein collectively called "Company Authorizations"). The Company Authorizations are in full force and effect and constitute all Company Authorizations required to permit the Company to operate or conduct its business in all material respects or hold any interest in its properties or assets in all material respects. The Company is in compliance in all material respects with the terms of the Company Authorizations. 2.14 Intellectual Property. --------------------- (a) Definitions. For all purposes of this Agreement, the following ----------- terms shall have the following respective meanings: (i) "Technology" shall mean any or all of the following: (A) works ---------- of authorship including, without limitation, computer programs, source code and executable code, whether embodied in software, firmware or otherwise, documentation, designs, files, net lists, records, data and mask works; (B) inventions (whether or not patentable), improvements and technology; (C) proprietary and confidential information, including technical data and customer and supplier lists, trade secrets and know how; (D) databases, data compilations and collections and technical data; (E) tools, methods and processes; and (F) all instantiations of the foregoing in any form and embodied in any media. "Intellectual Property Rights" shall mean any or all of the following and ---------------------------- all rights in, arising out of, or associated therewith: (A) all United States and foreign patents and utility models and applications therefor and all reissues, divisions, re-examinations, renewals, extensions, provisionals, continuations and continuations-in-part thereof and equivalent or similar rights anywhere in the world in inventions and discoveries including without limitation invention disclosures ("Patents"); (B) all trade secrets and other rights in know-how and confidential or proprietary information; (C) all copyrights, copyrights registrations and applications therefor and all other rights corresponding thereto throughout the world ("Copyrights"); (D) all mask works, mask work registrations and applications therefor, and any equivalent or similar rights in semiconductor masks, layouts, -17- architectures or topology ("Maskworks"); (E) all industrial designs and any registrations and applications therefor throughout the world; (F) all rights in World Wide Web addresses and domain names and applications and registrations therefor; (G) all trade dress, trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor and all goodwill associated therewith throughout the world ("Trademarks"); (H) all World Wide Web addresses, domain names and sites and (I) any similar, corresponding or equivalent rights to any of the foregoing anywhere in the world. (ii) "Company Intellectual Property" shall mean any Technology ----------------------------- and Intellectual Property Rights including the Company Registered Intellectual Property Rights (as defined below) that are owned (in whole or in part) by the Company. (iii) "Registered Intellectual Property Rights" shall mean all --------------------------------------- United States, international and foreign: (A) Patents, to the extent issued or the subject of pending patent applications (provisional or otherwise); (B) registered Trademarks, applications to register Trademarks, including intent-to- use applications, or other registrations or applications related to Trademarks and World Wide Web domain name registrations; (C) Copyright registrations and applications to register Copyrights; (D) Mask Work registrations and applications to register Mask Works; and (E) any other Technology that is the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by, any state, government or other public or private legal authority at any time. (iv) For all purposes in this Section 2.14, the term "Company" shall be deemed to refer to both Company and any of its subsidiaries. (b) Schedule 2.14(b) lists all Registered Intellectual Property Rights ---------------- owned by, filed in the name of, or applied for by, the Company (the "Company Registered Intellectual Property Rights") and lists any proceedings or actions before any court, tribunal (including the United States Patent and Trademark Office (the "PTO") or equivalent authority anywhere in the world) related to any of the Company Registered Intellectual Property Rights or Company Intellectual Property. (c) Each item of Company Registered Intellectual Property Rights is subsisting, and all necessary registration, maintenance and renewal fees in connection with such Company Registered Intellectual Property Rights have been paid and all necessary documents and certificates in connection with such Company Registered Intellectual Property Rights have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Company Registered Intellectual Property Rights. Except as set forth on Schedule 2.14(c), there are no actions that must be taken by the Company within - ---------------- one hundred twenty (120) days of the Closing Date, including the payment of any registration, maintenance or renewal fees or the filing of any responses to PTO office actions, documents, applications or certificates for the purposes of obtaining, maintaining, perfecting or preserving or renewing any Registered Intellectual Property Rights. In each case in which the Company has acquired any Technology or Intellectual Property Right from any person, the Company or such Subsidiary has obtained a valid and enforceable assignment sufficient to irrevocably transfer (subject to any statutory limits on transfer or rights of termination) all rights in such Technology and the associated Intellectual Property Rights (including the right to seek past and future damages with respect thereto) to the Company. To the maximum extent provided for by, and -18- in accordance with, applicable laws and regulations, the Company has recorded each such assignment of a Registered Intellectual Property Right assigned to the Company with the relevant Governmental Entity, including the PTO, the U.S. Copyright Office, or their respective equivalents in any relevant foreign jurisdiction, as the case may be. Except as set forth on Schedule 2.14(c), the ---------------- Company has not claimed a particular status, including "Small Business Status," in the application for any Intellectual Property Rights, which claim of status was not at the time made, or which has since become, inaccurate or false or that will no longer be true and accurate as a result of the Closing. (d) The Company has no knowledge of any facts or circumstances that would render any Company Intellectual Property invalid or unenforceable. Without limiting the foregoing, Company knows of no information, materials, facts or circumstances, including any information or fact that would constitute prior art, that would render any of the Company Registered Intellectual Property Rights invalid or unenforceable, or would adversely effect any pending application for any Company Registered Intellectual Property Right and the Company has not misrepresented, or failed to disclose, and has no knowledge of any misrepresentation or failure to disclose, any fact or circumstances in any application for any Company Registered Intellectual Property Right that would constitute fraud or a misrepresentation with respect to such application or that would otherwise affect the validity or enforceability of any Company Registered Intellectual Property Right. (e) Each item of Company Intellectual Property is free and clear of any Liens except for non-exclusive licenses granted to end-user customers in the ordinary course of business. The Company is the exclusive owner or exclusive licensee of all Company Intellectual Property. Without limiting the foregoing: (i) the Company is the exclusive owner of all Trademarks used in connection with the operation or conduct of the business of the Company, including the sale, licensing, distribution or provision of any products or services by the Company; and (ii) the Company owns exclusively, and has good title to, all registered copyrights that are products of the Company or which the Company otherwise purports to own. (f) All Company Intellectual Property will be fully transferable, alienable or licensable by Surviving Corporation and/or Parent without restriction and without payment of any kind to any third party. (g) To the extent that any Technology used in the operation of the Company's business has been developed or created by a third party for the Company, the Company has a written agreement with such third party with respect thereto and the Company thereby either (i) has obtained ownership of, and is the exclusive owner of, or (ii) has obtained a license (sufficient for the conduct of its business as currently conducted) to all such third party's Intellectual Property Rights in such Technology by operation of law or by valid assignment. (h) Except as set forth on Schedule 2.14(h) and with the exception of ---------------- "shrink-wrap" or similar widely-available commercial end-user licenses, all Technology used in or necessary to the conduct of Company's business as presently conducted or currently contemplated to be conducted by the Company was written and created solely by either (i) employees of the Company acting within the scope of their employment or (ii) by third parties who have validly and irrevocably assigned (subject to any statutory limits on transfer or rights of termination) all of their rights, -19- including Intellectual Property Rights therein, to the Company, and no third party owns or has any rights to any of the Company Intellectual Property. (i) Subject to any statutory limits on transfer or rights of termination, all employees of the Company have entered into a valid and binding written agreement with the Company sufficient to vest title in the Company of all Technology, including all accompanying Intellectual Property Rights, created by such employee in the scope of his or her employment with the Company. (j) The Company has taken all steps that are reasonably required to protect the Company's rights in confidential information and trade secrets of the Company or provided by any other person in confidence to the Company. Without limiting the foregoing, the Company has, and enforces, a policy requiring each employee, consultant and contractor to execute a proprietary information, confidentiality and assignment agreement, substantially in the form attached hereto as Schedule 2.14(j), and all current and former employees, ---------------- consultants and contractors of the Company have executed such an agreement. (k) Except as set forth on Schedule 2.14(k), no person who has ---------------- licensed Technology or Intellectual Property Rights to the Company has ownership rights or license rights to improvements made by the Company in such Technology or Intellectual Property Rights. (l) The Company has not transferred ownership of, or granted any exclusive license of or right to use, or authorized the retention of any exclusive rights to use or joint ownership of, any Technology or Intellectual Property Right that is or was Company Intellectual Property, to any other person. (m) Other than inbound "shrink-wrap" and similar publicly available commercial binary code end-user licenses and outbound "shrink-wrap" licenses in the form set forth on Schedule 2.14(m), the contracts, licenses and agreements ---------------- listed on Schedule 2.14(m) list all contracts, licenses and agreements to which ---------------- the Company is a party with respect to any Technology or Intellectual Property Rights. The Company is not in material breach of nor has the Company failed to perform under, any of the foregoing contracts, licenses or agreements and, to the Company's knowledge, no other party to any such contract, license or agreement is in breach thereof or has failed to perform thereunder. (n) Schedule 2.14(n) lists all material contracts, licenses and ---------------- agreements between the Company and any other person wherein or whereby the Company has agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any obligation or liability or provide a right of rescission with respect to the infringement or misappropriation by the Company or such other person of the Intellectual Property Rights of any person other than the Company. (o) To the knowledge of the Company, there are no contracts, licenses or agreements between the Company and any other person with respect to Company Intellectual Property under which there is any dispute regarding the scope of such agreement, or performance under such agreement, including with respect to any payments to be made or received by the Company thereunder. -20- (p) The operation of the business of the Company as it currently is conducted, including but not limited to the design, development, use, import, branding, advertising, promotion, marketing, manufacture and sale of the products, technology or services (including products, technology or services currently under development) of the Company does not and will not and will not when conducted by Parent and/or Surviving Corporation in substantially the same manner following the Closing, to the knowledge of the Company (except with respect to United States patents in existence on the date hereof as to which such knowledge qualifer shall not apply), infringe or misappropriate any Intellectual Property Right of any person, violate any right of any person (including any right to privacy or publicity) or constitute unfair competition or trade practices under the laws of any jurisdiction, and the Company has not received notice from any person claiming that such operation or any act, product, technology or service (including products, technology or services currently under development) of the Company infringes or misappropriates any Intellectual Property Right of any person or constitutes unfair competition or trade practices under the laws of any jurisdiction (nor does the Company have knowledge of any basis therefor). (q) To the Company's knowledge, no person is infringing or misappropriating any Company Intellectual Property Right. (r) No Company Intellectual Property or service of the Company is subject to any proceeding or outstanding decree, order, judgment or settlement agreement or stipulation that restricts in any manner the use, transfer or licensing thereof by the Company or may affect the validity, use or enforceability of such Company Intellectual Property. (s) No (i) product, technology, service or publication of the Company, (ii) material published or distributed by the Company or (iii) conduct or statement of the Company constitutes obscene material, a defamatory statement or material, false advertising or otherwise violates in any material respect any law or regulation (excluding laws relating to infringement of third party Intellectual Property Rights). (t) Neither this Agreement nor the transactions contemplated by this Agreement, including the assignment to Parent or Surviving Corporation, by operation of law or otherwise, of any contracts or agreements to which the Company is a party, will result in (i) either Parent's or the Surviving Corporation's granting to any third party any right to or with respect to any Technology or Intellectual Property Right owned by, or licensed to, either of them, (ii) either the Parent's or the Surviving Corporation's being bound by, or subject to, any non-compete or other restriction on the operation or scope of their respective businesses or (iii) either the Parent's or the Surviving Corporation's being obligated to pay any royalties or other amounts to any third party in excess of those payable by Parent or Surviving Corporation, respectively, prior to the Closing. (u) All of the Company's products (including products currently under development): (i) will record, store, process, calculate and present calendar dates falling on and after (and if applicable, spans of time including) January 1, 2000, and will calculate any information dependent on or relating to such dates in the same manner, and with the same functionality, data integrity and performance, as the products record, store, process, calculate and present calendar dates on or before December 31, 1999, or calculate any information dependent on or relating to such dates (collectively, "Year 2000 Compliant"); and (ii) will lose no functionality with respect to the introduction of records containing dates falling on or after January 1, 2000. All of the Company's Information Technology (as defined below) is Year 2000 Compliant, and will not cause an interruption in the ongoing operations of the Company's business on or after January 1, 2000. For purposes of the foregoing, the term "Information Technology" shall mean and include all software, hardware, firmware, telecommunications systems, network systems, embedded systems and other systems, components and/or services (other than general utility services including gas, electric, telephone and postal) that are owned or used by the Company in and are material to the conduct of its business, or purchased by the Company from third party suppliers. (v) The Company is not the exclusive licensee of any Technology or Intellectual Property Rights. 2.15 Product Warranties; Defects; Liabilities. Each Company Product has ---------------------------------------- been in all material respects in conformity with all applicable contractual commitments and all applicable express and implied warranties. The Company does not have any liability or obligation (and to the Company's knowledge, there is no current reasonable basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against the Company giving rise to any liability or obligation) for replacement or repair thereof or other damages in connection therewith except liabilities or obligations incurred in the ordinary course of business consistent with past practice which do not have a Material Adverse Effect on the Company. No Company Product is subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions of sale, license or lease or beyond that implied or imposed by applicable law. Schedule 2.15 includes a copy of the standard terms and ------------- conditions of sale, license or lease for each of the Company Products and copies of the Company's standard forms of merchant agreements, portal agreements and professional services agreements. 2.16 Agreements, Contracts and Commitments. Except as set forth on ------------------------------------- Schedule 2.16(a), the Company does not have, is not a party to nor is it bound - ---------------- by: (a) any collective bargaining agreements, (b) any employment or consulting agreement, contract or commitment with any officer, director, employee or member of the Company's Board of Directors, other than those that are terminable by the Company without liability of financial obligation of the Company, (c) any bonus, deferred compensation, pension, profit sharing or retirement plans, or any other employee benefit plans or arrangements, (d) any employment or consulting agreement with an employee or individual consultant or salesperson or consulting or sales agreement, under which a firm or other organization provides services to the Company, (e) any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, or under which payments are required to be made by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement, (f) any fidelity or surety bond or completion bond, (g) any lease of personal property having a value individually in excess of $50,000, (h) any agreement of indemnification or guaranty, except for indemnification or guarantees provided in the ordinary course of business in connection with the sale of the Company's products as set forth on Schedule 2.15, (i) any agreement, contract or commitment containing any covenant limiting in any respect the right of Company to engage in any line of business or to compete with any person or granting any exclusive distribution rights, (j) any agreement relating to capital expenditures and involving future payments in excess of $100,000, (k) any agreement, contract or commitment currently in force relating to the disposition or acquisition by Company after the date of this Agreement of a material amount of assets not in the ordinary course of business or pursuant to which Company has any material ownership interest in any corporation, partnership, joint venture or other business enterprise, (l) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit, including guaranties referred to in clause (h) hereof, (m) any purchase order or contract involving the expenditure by the Company of $200,000 or more for the Company's products or $100,000 or more or otherwise, (n) any construction contracts, (o) any dealer, distribution, joint marketing (including any pilot program), development, content provider, destination site or merchant agreement, (p) any agreement pursuant to which the Company has granted or may be obligated to grant in the future, to any party a source code license or option or other right to use or acquire source code, including any agreements which provide for source code escrow arrangements, (q) any sales representative, original equipment manufacturer, value added, remarketer or other agreement for distribution of the Company's products or services or the products or services of any other person or entity, (r) any agreement pursuant to which the Company has advanced or loaned any amount to any shareholder of the Company or any director, officer, employee or consultant other than business travel advances in the ordinary course of business consistent with past practice, (s) any settlement agreement entered into since the Company's initial incorporation, or (t) any other agreement that involves $100,000 or more or is not cancelable without penalty within thirty (30) days. Except for such alleged breaches, violations and defaults, and events that would constitute a breach, violation or default with the lapse of time, giving of notice, or both, as are all noted in Schedule 2.16(b), the Company has not ---------------- breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any agreement, contract or commitment required to be set forth on Schedule 2.16(a), Schedule ---------------- -------- 2.14(m) or Schedule 2.14(n) (any such agreement, contract or commitment, a - ------- ---------------- "Contract"). Each Contract is in full force and effect and, except as otherwise disclosed in Schedule 2.16(b), is not subject to any default thereunder of which ---------------- the Company has knowledge by any party obligated to the Company pursuant thereto. 2.17 Interested Party Transactions. Except as set forth on Schedule 2.17, ----------------------------- ------------- to the Company's knowledge, no officer, director or affiliate (as defined under Regulation C under the Securities Act) of the Company (nor any member of the immediate family of any of such persons, or any trust, partnership or corporation in which any of such persons has or has had an economic interest), has or has had, directly or indirectly, (a) an economic interest in any entity which furnished or sold, or furnishes or sells, services or products that the Company furnishes or sells, or proposes to furnish or sell, or (b) an economic interest in any entity that purchases from or sells or furnishes to, the Company, any goods or services or (c) a beneficial interest in any contract or agreement set forth in Schedule 2.16(a), Schedule 2.14(m) or Schedule 2.14(n); ---------------- ---------------- ---------------- provided, that ownership of less than five percent of the outstanding voting - -------- stock of a publicly traded corporation shall not be deemed an "economic interest in any entity" for purposes of this Section 2.17. There are no receivables of the Company owing by any director, officer, employee or consultant to the Company (or any member of the immediate family of any such persons, or any trust, partnership, or corporation in which any of such persons has an economic interest), other than advances in the ordinary and usual course of business for reimbursable business expenses (as determined in accordance with the Company's established employee reimbursement policies and consistent with past practice). None of the Company shareholders has agreed to, or assumed, any obligation or duty to guaranty or otherwise assume or incur any obligation or liability of the Company. 2.18 Compliance with Laws. Company is not in conflict with, or in default -------------------- or violation of any law, rule, regulation, order, judgment or decree applicable to Company or by which its properties is bound or affected other than, in each such case, those the outcome of which could not, individually or in the aggregate, reasonably be expected to have the effect of prohibiting or materially impairing any business practice of the Company, any acquisition of material property by the Company or the conduct of business by the Company. No investigation or review by any governmental or regulatory body or authority is pending or, to the knowledge of Company, threatened against Company or any of its officers, directors or employees, nor has any governmental or regulatory body or authority indicated an intention to conduct the same, other than, in each such case, those the outcome of which could not, individually or in the aggregate, reasonably be expected to have the effect of prohibiting or materially impairing any business practice of the Company, any acquisition of material property by the Company or the conduct of business by the Company. 2.19 Litigation. There is no action, suit or proceeding of any nature ---------- pending or to the Company's knowledge threatened against the Company, its properties or any of its officers, directors or employees, nor, to the knowledge of the Company, is there any reasonable basis therefor. Schedule 2.19 sets ------------- forth, with respect to any pending or threatened action, suit, proceeding or investigation, the forum, the parties thereto, the subject matter thereof and the amount of damages claimed or other remedy requested. The Company has not received any notice of and has no reason to believe that any Governmental Entity has at any time challenged or questioned the legal right of the Company to conduct its operations as presently or previously conducted. 2.20 Insurance. With respect to the insurance policies and fidelity bonds --------- covering the assets, business, equipment, properties, operations, employees, officers and directors of the Company, there is no claim by the Company pending under any of such policies or bonds as to which coverage has been denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and the Company is otherwise in material compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). The Company has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. 2.21 Minute Books. The minute books of the Company made available to ------------ Parent are the only minute books of the Company and contain an accurate summary of all meetings of directors (or committees thereof) and shareholders or actions by written consent since the time of incorporation of the Company. 2.22 Environmental Matters. (a) Environmental Compliance. The Company (a) has obtained all ------------------------ applicable and material permits, licenses and other authorizations that are required under Environmental Laws for the conduct of its business as currently conducted ("Environmental Permits"); (b) is in compliance with all material terms and conditions of such required permits, licenses and authorizations, and also is in compliance in all material respects with all other laws, rules, regulations, limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables applicable to the Company or its assets, or contained in any regulation, code, plan, order, decree, judgment, notice or demand letter issued, entered, promulgated or approved thereunder; (c) has not received written notice of any event, condition, circumstance, activity, practice, incident, action or plan which constitutes a violation of any Environmental Law applicable to the Company, any person or entity for which the Company is legally liable or any of the Company's current or past locations or assets for that is reasonably likely to interfere with the conduct of business as currently conducted or prevent continued compliance with Environmental Laws applicable to the conduct of its business as currently conducted or that would reasonably be expected to give rise to any common law or statutory liability, or otherwise form the basis of any Environmental Claim with respect to the Company or any person or entity whose liability for any Environmental Claim the Company has retained or assumed either contractually or by operation of law; (d) has not disposed of, released, discharged or emitted any Hazardous Materials into the soil, air, surface water, building materials or groundwater at any properties owned or leased at any time by the Company, or at any other property, or exposed any employee or other individual to any Hazardous Materials or condition in such a manner as would reasonably be expected to result in any material liability or result in any corrective or remedial action obligation; and (e) has taken all actions necessary under Environmental Laws to register any products or materials required to be registered by the Company (or any person for whom the Company has legal responsibility) thereunder. Except as set forth on Schedule 2.22, no Hazardous ------------- Materials are present in, on, or under (or, to the knowledge of the Company, in the vicinity of) any properties owned, leased or used at any time (including both land and improvements thereon) by the Company so as to reasonably be expected to give rise to any material liability or corrective or remedial obligation of the Company under any Environmental Laws or any contract binding on the Company. For the purposes of this Section 2.22, "Environmental Claim" means any notice, claim, act, cause of action or investigation by any person alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on or resulting from (a) the presence, or release into the environment, of any Hazardous Materials (b) any violation, or alleged violation, of any Environmental Laws, (c) the exposure of any person to a Hazardous Material or (d) the use, storage, disposal, discharge, transportation, emission, destruction, remediation or investigation of any Hazardous Material. "Environmental Laws" means all federal, state, local and foreign laws and regulations relating to pollution or the environment (including ambient air, surface water, ground water, land surface or subsurface strata) or the protection of human health and worker safety, including, without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of Hazardous Materials, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. "Hazardous Materials" means chemicals, pollutants, contaminants, wastes, toxic substances, radioactive and biological materials, asbestos-containing materials (ACM), hazardous substances, petroleum and petroleum products or any fraction thereof or other substance which is or has been designated as a threat to health or the environment, excluding, however, Hazardous Materials contained in products typically used for office and janitorial purposes properly, safely and legally maintained in accordance with Environmental Laws. (b) Hazardous Materials Activities: The Hazardous Material Activities ------------------------------ of the Company and its past or present subsidiaries (i) have been conducted in compliance with applicable Environmental Laws and (ii) have not resulted in the exposure of any person to a Hazardous Material in a manner which has or is reasonably expected to cause an adverse health effect to said person. For the purpose of the foregoing "Hazardous Materials Activity" is the transportation, transfer, recycling, storage, use, treatment, manufacture, investigation, removal, remediation, release, exposure of others to, sale, or distribution of any Hazardous Material or any product containing a Hazardous Material. (c) Effect of Transaction. To the best knowledge of the Company, no --------------------- circumstances exist which could cause any Environmental Permit to be revoked, modified, or rendered non-renewable upon payment of the permit fee or which could impose upon the Company or any Subsidiary the obligation to obtain any additional Environmental Permit. All Environmental Permits and all other consents and clearances required by any Environmental Law or any agreement to which the Company is bound as a condition to the performance and enforcement of this Agreement (including without limitation, all so called "ECRA" environmental clearances) which are required by any Governmental Authority in connection with the transactions contemplated by this Agreement have been obtained or will be obtained prior to the Closing. (d) Offsite Hazardous Material Disposal: The Company, its ----------------------------------- subsidiaries, and their respective agents, employees and contractors have transferred or released Hazardous Materials only to those disposal sites, transporters, recyclers, and handlers ("Disposal Site") described on Schedule 2.22; and no action, proceeding, liability or claim exists or, to the best knowledge of the Company is threatened, against any Disposal Site or against the Company or any person or entity for which the Company is legally responsible with respect to any transfer or release of Hazardous Materials to a Disposal Site and there is no valid basis for such claim. (e) Environmental Liabilities: Company has complied with all ------------------------- environmental disclosure, facility closure, and clearance obligations imposed upon Company with respect to this transaction or otherwise by applicable law. The Company is not aware of any other fact or circumstance, which could involve the Company, any of its past or present subsidiary, or any person or entity for which the Company is legally responsible in any environmental litigation or impose upon the Company, its past or present subsidiary, or any such person or entity any material environmental liability. (f) Disclosure of Environmental Matters: Company has delivered to ----------------------------------- Parent or made available for inspections by Parent and its agents and employees all records concerning the Environmental Activities of the Company and its past and present subsidiaries and all environmental audits and environmental assessments of any current or past Company facility conducted at the request of, or otherwise available to the Company. 2.23 Brokers' and Finders' Fees. Except as set forth on Schedule 2.23, the -------------------------- ------------- Company has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. Attached to Schedule 2.23 are copies of any written agreements and the ------------- summary of terms for any oral agreements with respect to such fees. 2.24 Employee Matters and Benefit Plans. ---------------------------------- (a) Definitions. With the exception of the definition of "Affiliate" ----------- set forth in Section 2.24(a)(i) below (such definition shall only apply to this Section 2.24 and Section 6.22 of this Agreement), for purposes of this Agreement, the following terms shall have the meanings set forth below: (i) "Affiliate" shall mean any other person or entity under common control with the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations thereunder; (ii) "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended; (iii) "Company Employee Plan" shall refer to any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether written, unwritten or otherwise, funded or unfunded, including without limitation, each "employee benefit plan", within the meaning of Section 3(3) of ERISA (as defined below) which is or has been maintained, contributed to, or required to be contributed to, by the Company or any Affiliate for the benefit of any Employee (as defined below), or with respect to which the Company or any Affiliate has or may have any liability or obligation; (iv) "DOL" shall mean the United States Department of Labor. (v) "Employee" shall mean any current, former, or retired employee, officer, director or consultant of the Company or any Affiliate; (vi) "Employee Agreement" shall refer to each management, employment, severance, consulting, relocation, repatriation, expatriation, visa, work permit or other agreement, contract or understanding between the Company or any Affiliate and any Employee; (vii) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended; (viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as amended; (ix) "International Employee Plan" shall mean each Company Employee Plan that has been adopted or maintained by the Company or any Affiliate, whether informally or formally, or with respect to which the Company or any Affiliate will or may have any liability, for the benefit of Employees who perform services outside the United States; (x) "IRS" shall mean the Internal Revenue Service; (xi) "Multiemployer Plan" shall mean any "Pension Plan" (as defined below) which is a "multiemployer plan", as defined in Section 3(37) of ERISA; and (xii) "Pension Plan" shall refer to each Company Employee Plan which is an "employee pension benefit plan", within the meaning of Section 3(2) of ERISA. (b) Schedule. Schedule 2.24(b) contains an accurate and complete list -------- ---------------- of each Company Employee Plan and each Employee Agreement. The Company does not have any plan or commitment to establish any new Company Employee Plan or Employee Agreement, to modify any Company Employee Plan or Employee Agreement (except to the extent required by law or to conform any such Company Employee Plan or Employee Agreement to the requirements of any applicable law, in each case as previously disclosed to Parent in writing, or as required by this Agreement or as required to maintain tax qualification), or to enter into any Company Employee Plan or Employee Agreement nor does it have any intention or commitment to do any of the foregoing. (c) Documents. The Company has provided to Parent correct and --------- complete copies of: (i) all documents embodying each Company Employee Plan and each Employee Agreement including, without limitation, all amendments thereto and all related trust documents; (ii) the most recent annual actuarial valuations, if any, prepared for each Company Employee Plan; (iii) the three most recent annual reports (Form Series 5500 and all schedules and financial statements attached thereto), if any, required under ERISA or the Code in connection with each Company Employee Plan; (iv) if the Company Employee Plan is funded, the most recent annual and periodic accounting of Company Employee Plan assets; (v) the most recent summary plan description together with the most recent summary(ies) of material modifications thereto, if any, required under ERISA with respect to each Company Employee Plan; (vi) all IRS determination, opinion, notification and advisory letters and copies of all applications and significant correspondence to or from the IRS or DOL, if any, with respect to any such application or letter; (vii) all material written agreements and contracts relating to each Company Employee Plan, including, but not limited to, administrative service agreements, group annuity contracts and group insurance contracts, if any; (viii) all communications, if any, material to any Employee or Employees relating to any Company Employee Plan and any proposed Company Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to the Company; (ix) all material correspondence, if any, to or from any governmental agency relating to any Company Employee Plan; (x) all COBRA forms and related notices presently being used, (or such forms and notices as required under comparable law); (xi) all policies pertaining to fiduciary liability insurance covering the fiduciaries for each Company Employee Plan, if any; (xii) discrimination tests, if any, for each Company Employee Plan for the three most recent plan years; and (xiii) all registration statements, annual reports (Form 11-K and all attachments thereto) and prospectuses, if any, prepared in connection with each Company Employee Plan. (d) Employee Plan Compliance. Except as set forth on Schedule ------------------------ -------- 2.24(d), (i) the Company has performed in all material respects all obligations - ------- required to be performed by it under, is not in default or violation of, and has no knowledge of any default or violation by any other party with respect to, each Company Employee Plan, and each Company Employee Plan has been established and maintained in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA or the Code; (ii) each Company Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code has either received a favorable determination, opinion, notification or advisory letter from the IRS with respect to each such Company Employee Plan as to its qualified status under the Code, including all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has a remaining period of time under applicable Treasury regulations or IRS pronouncements in which to apply for such a letter and make any amendments necessary to obtain a favorable determination as to the qualified status of each such Company Employee Plan; (iii) no "prohibited transaction", within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt under Section 4975 of the Code or Section 408 of ERISA (or any administrative class exemption issued thereunder), has occurred with respect to any Company Employee Plan; (iv) there are no actions, suits or claims pending, or, to the knowledge of the Company, threatened or anticipated (other than routine claims for benefits) against any Company Employee Plan or against the assets of any Company Employee Plan; (v) each Company Employee Plan (other than the Option Plan) can be amended, terminated or otherwise discontinued after the Effective Time, without material liability to the Company, Parent or any of its Affiliates (other than ordinary administration expenses); (vi) there are no audits, inquiries or proceedings pending or, to the knowledge of the Company or any Affiliates, threatened by the IRS or DOL with respect to any Company Employee Plan; (vii) neither the Company nor any Affiliate is subject to any penalty or tax with respect to any Company Employee Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the Code and (viii) no Employee has made a written request for the Company's health insurance plan or flexible benefits plan summary plan descriptions, and to the Company's knowledge, no Employee has made an oral request for such summary plan descriptions. (e) Pension Plans. Neither the Company nor any Affiliate has ever ------------- maintained, established, sponsored, participated in, or contributed to, any Pension Plan, which is subject to Title IV of ERISA or Section 412 of the Code. (f) Multiemployer and Multiple Employer Plans. At no time has the ----------------------------------------- Company or any Affiliate contributed to or been obligated to contribute to any Multiemployer Plan. Neither the Company nor any Affiliate has at any time ever maintained, established, sponsored, participated in or contributed to any multiple employer plan as described in Section 413(c) of the Code. (g) No Post-Employment Obligations. Except as set forth in Schedule ------------------------------ -------- 2.24(g), no Company Employee Plan provides, or reflects or represents any - ------- liability to provide, retiree health benefits to any person for any reason, except as may be required by COBRA or other applicable statute, and the Company has never represented, promised or contracted (whether in oral or written form) to any Employee (either individually or to Employees as a group) or any other person that such Employee(s) or other person would be provided with retiree health, except to the extent required by statute. (h) Health Care Compliance. Neither the Company nor any Affiliate ---------------------- has, prior to the Effective Time and in any material respect, violated any of the health care continuation requirements of COBRA, the requirements of FMLA, the requirements of the Health Insurance Portability and Accountability Act of 1996, the requirements of the Women's Health and Cancer Rights Act, the requirements of the Newborns' and Mothers' Health Protection Act of 1996 or any amendment to each such Act or any similar provisions of state law applicable to its Employees. (i) Effect of Transaction. --------------------- (i) Except as provided in Section 1.6 of this Agreement or as set forth on Schedule 2.25(i)(i), the execution of this Agreement and the ------------------- consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any Company Employee Plan, Employee Agreement, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Employee. (ii) Except as set forth on Schedule 2.24(i)(ii), no payment or -------------------- benefit which will or may be made by the Company or Parent or any of their respective affiliates with respect to any Employee resulting from the transactions contemplated by this Agreement or otherwise will be characterized as a "parachute payment", within the meaning of Section 280G(b)(2) of the Code. (j) Employment Matters. Schedule 2.24(j) lists all current officers, ------------------ ---------------- directors and employees of the Company. The Company (i) is in compliance in all respects with all applicable federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to Employees (including any immigration laws with respect to the same); (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries and other payments to Employees; (iii) is not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for Employees (other than routine payments to be made in the normal course of business and consistent with past practice). There are no pending, threatened or reasonably anticipated claims or actions against the Company under any workers compensation policy or long-term disability policy. Each person who is acting or has acted as a consultant to the Company is acting or acted as an "independent contractor" and could not, based on the facts and circumstances of his consultancy, reasonably be deemed to be or have been "employed" with the Company. Schedule 2.24(j) also sets forth all outstanding offers of employment, ---------------- whether written or oral, made to any employee or prospective employee, which offer has not been rejected by the offeree. (k) Labor. No work stoppage or labor strike against the Company is ----- pending, threatened or reasonably anticipated. The Company does not know of any activities or proceedings of any labor union to organize any Employees. Except as set forth in Schedule 2.24(k), there are no actions, suits, claims, labor ---------------- disputes or grievances pending, or, to the knowledge of the Company, threatened or reasonably anticipated relating to any labor, safety or discrimination matters involving any Employee, including, without limitation, charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, result in any material liability to the Company. The Company has not engaged in any unfair labor practices within the meaning of the National Labor Relations Act. Except as set forth in Schedule -------- 2.24(k), the Company is not presently, nor has it been in the past, a party to, - ------- or bound by, any collective bargaining agreement or union contract with respect to Employees and no collective bargaining agreement is being negotiated by the Company. (l) International Employee Plan. The Company does not now, nor has it --------------------------- ever had the obligation to, maintain, establish, sponsor, participate in or contribute to any International Employee Plan. (m) No Interference or Conflict. To the knowledge of the Company, no --------------------------- shareholder, officer, employee or consultant of the Company is obligated under any contract or agreement subject to any judgement, decree or order of any court or administrative agency that would interfere with such person's efforts to promote the interests of the Company or that would interfere with the Company's business. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company's business as presently conducted nor any activity of such officers, directors, employees or consultants in connection with the carrying on of the Company's business as presently conducted, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract or agreement under which any of such officers, directors, employees or consultants is now bound. 2.25 Bank Accounts. Schedule 2.25 constitutes a full and complete list of ------------- ------------- all the bank accounts and safe deposit boxes of the Company, the number of each such account or box, and the names of the persons authorized to draw on such accounts or to access such boxes. All cash in such accounts is held in demand deposits and is not subject to any restriction or documentation as to withdrawal. 2.26 Indemnification Obligations. The Company has no knowledge of any --------------------------- action, proceeding or other event pending or threatened against any officer or director of the Company which would give rise to any indemnification obligation of Company to its officers and directors under its Articles of Incorporation, Bylaws or any agreement between the Company and any of its officers or directors. 2.27 Board Approval. The Board of Directors of Company has, as of the date -------------- of this Agreement unanimously (a) approved and deemed advisable, subject to shareholder approval, this Agreement and the transactions contemplated hereby, (b) determined that the Merger is in the best interests of the shareholders of Company and is on terms that are fair to such shareholders and (c) recommended that the shareholders of Company approve the principal terms of this Agreement and approve the Merger. 2.28 Representations Complete. None of the representations or warranties ------------------------ made by the Company (as modified by the Company Schedules), nor any statement made in any Schedule or certificate furnished by the Company pursuant to this Agreement, or furnished in or in connection with documents mailed or delivered to the shareholders of the Company in connection with soliciting their consent to the principal terms of this Agreement and the Merger (to the extent that such documents were prepared by or include information provided by the Company), contains any untrue statement of a material fact, or omits to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Parent and Merger Sub represent and warrant to the Company as follows: 3.1 Organization of Parent and Merger Sub. Parent is a corporation duly ------------------------------------- organized, validly existing and in good standing under the laws of the State of Delaware. Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota. Each of Parent and Merger Sub has the corporate power to own its properties and to carry on its business as now being conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the failure to be so qualified would have a material adverse effect on Parent or Merger Sub or the ability of either to consummate the transactions contemplated hereby. 3.2 Authority. Parent and Merger Sub have all requisite corporate power --------- and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub. This Agreement has been duly executed and delivered by Parent and Merger Sub and constitutes the valid and binding obligations of Parent and Merger Sub, enforceable in accordance with its terms. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby and thereby will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a benefit under (a) any provision of the Certificate of Incorporation or Bylaws of Parent or the Certificate of Incorporation or Bylaws of Merger Sub or (b) any mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or representation applicable to Parent or on which Parent's business, financial condition or operations is substantially dependent, the breach, violation, default, termination or forfeiture of which would result in a material adverse effect upon the ability of Parent or Merger Sub to consummate the Merger, or a material adverse effect on Parent or Merger Sub. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity, is required by or with respect to Parent or Merger Sub in connection with the execution and delivery of this Agreement by Parent and Merger Sub or the consummation by Parent and Merger Sub of the transactions contemplated hereby except for (a) the filing of the Articles of Merger with the Secretary of State of the State of Minnesota, or (b) such consents, approvals, order, authorizations, registrations, declarations and filings as may be required under applicable state and federal securities laws or (c) approval pursuant to the HSR Act. 3.3 Parent Common Stock. The shares of Parent Common Stock to be issued ------------------- pursuant to the Merger and upon exercise of Company Options assumed by Parent hereunder will, when issued and delivered in accordance with this Agreement, be duly authorized, validly issued, fully paid and non-assessable; provided, however, that the Parent Common Stock to be issued hereunder will be subject to restrictions on transfer under applicable federal and state securities laws. 3.4 SEC Filings; Parent Financial Statements. ---------------------------------------- (a) Parent has timely filed all forms, reports, registration statements and documents required to be filed by Parent with the SEC and has made available to the Company such forms, reports, and documents in the form filed with the SEC. All such required forms, reports and documents (including those that Parent may file subsequent to the date hereof until the Closing) are referred to herein as the "Parent SEC Reports;" provided, that any Parent SEC Report shall be deemed to include all amendments to such report through the date hereof. As of their respective filing dates (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing), the Parent SEC Reports (i) complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Parent SEC Reports and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) Each of the consolidated financial statements of Parent (including, in each case, the notes thereto), included in the Parent SEC Reports (the "Parent Financial Statements"), including each Parent SEC Report filed after the date hereof until the Closing, (i) complied as to form in all material respects with the applicable rules and regulations of the SEC with respect thereto; (ii) was prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (other than the provision of notes to the financial statements for quarterly periods); and (iii) fairly presented the consolidated financial position of Parent and its subsidiaries at the respective dates thereof and the consolidated results of Parent's operations and cash flows for the periods indicated (subject, in the case of unaudited financial statements, to audit adjustments). There has been no change in Parent's accounting policies except as described in the notes to the Parent Financial Statements. 3.5 Parent Capital Structure. The authorized capital stock of the Parent ------------------------ consists of 600,000,000 shares of authorized Common Stock, $0.01 par value per share, of which 208,304,096 shares were issued and outstanding as of October 1, 1999 and 1,000,000 shares of authorized Preferred Stock, par value $0.01 per share, of which no shares were issued and outstanding as of October 1, 1999. 3.6 Litigation. Other than as set forth in the Parent SEC Reports, there ---------- is no action, suit or proceeding of any nature pending or to the Parent's knowledge threatened against the Parent, its properties or any of its officers, directors or employees, nor, to the knowledge of the Parent, is there any reasonable basis therefor. 3.7 No Material Adverse Change. Since the date of the balance sheet -------------------------- included in the Parent's most recently filed report on Form 10-Q, there has not occurred any material adverse change in the financial condition, liabilities, assets, business or results of operations of Parent. For purposes of this section, fluctuation in the trading price of Parent's Common Stock, as reported by the New York Stock Exchange, changes in economic conditions or changes in the industry and markets in which the Parent competes shall not constitute a material adverse change, whether occurring at any time or from time to time. 3.8 Merger Sub. All of the outstanding capital stock of Merger Sub is ---------- owned by Parent free and clear of any lien, claim or encumbrance or any agreement with respect thereto, since the date of its incorporation, Merger Sub has not engaged in any activity of any nature except in connection with or as contemplated by this Agreement and the Articles of Merger. 3.9 Brokers' and Finders' Fees. The Parent and Merger Sub have not -------------------------- incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 3.10 Representations Complete. None of the information provided by the ------------------------ Parent or Merger Sub (including information incorporated by reference from Parent SEC Reports) for the purpose of making statements or furnishing in or in connection with documents mailed or delivered to the shareholders of the Company in connection with soliciting their consent to the principal terms of this Agreement and the Merger (to the extent that such documents were prepared by or include information provided by the Parent or Merger Sub), contains any untrue statement of a material fact, or omits to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. ARTICLE IV SECURITIES ACT COMPLIANCE; REGISTRATION 4.1 Securities Act Exemption. In the event that the (i) Parent does not ------------------------ obtain a Section 3(a)(10) Permit (as defined in Section 6.1 hereof) or (ii) Parent, Company and the Securityholder Agents agree to withdraw the Parent's application for such Section 3(a)(10) Permit, then Parent and the Company agree that the Parent Common Stock to be issued pursuant to this Agreement will be issued pursuant to an exemption (other than under Section 3(a)(10)) from the registration requirements of the Securities Act or pursuant to a registration statement on Form S-4 under the Securities Act, as the parties may mutually agree If such Parent Common Stock is issued pursuant to such an exemption, prior to the Closing Date, each of the Company's shareholders shall have provided Parent such representations, warranties, certifications and additional information as Parent may reasonably request to ensure the availability of such exemption from the registration requirements of the Securities Act. 4.2 Stock Restrictions. If Parent obtains a Section 3(a)(10) Permit, the ------------------ certificates representing the shares of Parent Common Stock issued pursuant to this Agreement shall bear no restrictive legends (and no stop transfer orders shall be placed against the transfer thereof with Parent's transfer agent) except to the extent required pursuant to the Lock-Up Agreements (as defined in Section 6.25 hereunder). If such shares of Parent Common Stock are issued in reliance upon an exemption from the registration requirements of Section 5 of the Securities Act as set forth in Section 4(2) thereof, the certificates representing the shares of Parent Common Stock issued pursuant to this Agreement shall bear a restrictive legend (and stop transfer orders shall be placed against the transfer thereof with Parent's transfer agent) stating substantially as follows: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR HYPOTHE- CATED EXCEPT IN COMPLIANCE WITH RULE 144 IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT, OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION. 4.3 The Company Shareholders' Restrictions Regarding Securities Law --------------------------------------------------------------- Matters. Each shareholder of the Company, by virtue of the Merger and the - ------- conversion into Parent Common Stock of the Company Capital Stock held by such shareholder, shall be bound by the following provisions: (a) If Parent issues the shares of Parent Common Stock in the Merger in reliance on a Section 3(a)(10) Permit for an exemption from registration, such shareholder will not offer or sell any shares of Parent Common Stock except in compliance with Rule 145 promulgated under the Securities Act or otherwise dispose of any such shares except in compliance with the Securities Act and the rules and regulations thereunder. (b) In the event that the shares of Parent Common Stock to be issued pursuant to this Agreement are issued pursuant to an exemption from registration pursuant to Section 4(2) of the Securities Act, then such shareholder agrees that such shareholder will not sell, transfer or otherwise dispose of any shares of Parent Common Stock unless (i) such sale, transfer or other disposition is within the limitations of and in compliance with Rule 144 promulgated by the SEC under the Securities Act and the Shareholder furnishes Parent with reasonable proof of compliance with such Rule, (ii) in the opinion of counsel, reasonably satisfactory to Parent and its counsel, some other exemption from registration under the Securities Act is available with respect to any such proposed sale, transfer, or other disposition of Parent Common Stock or (iii) the offer and sale of Parent Common Stock is registered under the Securities Act. ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME 5.1 Conduct of Business of the Company. During the period from the date of ---------------------------------- this Agreement and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Effective Time, the Company agrees (except to the extent that Parent shall otherwise consent in writing or as contemplated by this Agreement) to carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due, to pay or perform other obligations when due, and, to the extent consistent with such business, to use all reasonable efforts consistent with past practice and policies to preserve intact its present business organization, keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees and others having business dealings with it, all with the goal of preserving unimpaired its goodwill and ongoing businesses at the Effective Time. The Company shall promptly notify Parent of any materially negative event involving or adversely affecting the Company or its business. In addition, except as permitted by the terms of this Agreement, without the prior written consent of Parent, during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Effective Time, Company shall not do any of the following: (a) Except as set forth in Schedule 5.1(a), waive any stock repurchase --------------- rights, accelerate, amend, or change the period of exercisability of any outstanding Company Options or Company Common Stock subject to vesting, or reprice Company Options granted under the Option Plan or authorize cash payments in exchange for any such options; (b) Make any payments or enter into any commitment or transaction outside of the ordinary course of business in excess of $100,000 or in the ordinary course of business in excess of $200,000; (c) Make any capital expenditure or capital commitment of $100,000 in any individual case or $200,000 in the aggregate (other than commitments to pay expenses incurred in connection with the transactions contemplated by this Agreement) (d) Permit the destruction of, damage to or loss of any material asset, business or customer of the Company (whether or not covered by insurance); (e) Change accounting methods, principles or practices (including any change in depreciation or amortization policies or rates), except as required by GAAP; (f) Except in the ordinary course of business, modify, amend or terminate any material contract or agreement to which the Company is a party or waive, release or assign any material rights or claims thereunder; (g) Transfer or license to any person or entity or otherwise extend, amend or modify any rights to the Company Intellectual Property Rights (other than pursuant to end-user licenses granted to customers of the Company in the ordinary course of business, provided that no such license shall (i) contain any right of refusal to the license, (ii) involve the transfer of product(s) to any person or entity in violation of applicable U.S. export laws and regulations) or enter into grants to future patent rights or (iii) contain a change in pricing or royalties set or charged by the Company to its customers or licensees; (h) Enter into or amend any agreements pursuant to which any other party is granted marketing, distribution or similar rights of any type or scope with respect to any products of the Company; (i) Amend or otherwise modify (or agree to do so), except in the ordinary course of business, or violate the terms of, any of the Contracts, including any material change in the pricing or royalties charged to the Company by persons who have licensed Intellectual Property to the Company; (j) Declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any Company Capital Stock, or split, combine or reclassify any Company Capital Stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any Company Capital Stock; (k) Purchase, redeem or otherwise acquire, directly or indirectly, any Company Capital Stock, except repurchases of unvested shares at cost in connection with the termination of the employment relationship with any employee or consultant pursuant to stock option or purchase agreements in effect on the date hereof; (l) Issue, grant, deliver, sell, pledge or authorize, or otherwise encumber or propose to do any of the foregoing, any Company Capital Stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities (except for the issuance of any Company Capital Stock upon exercise or conversion of presently outstanding Company Options, warrants or Preferred Stock, or the grant of stock options to new employees pursuant to outstanding written offers of employment); (m) Cause or permit any amendments to its Articles of Incorporation or Bylaws; (n) Acquire or agree to acquire by merging or consolidating with, or by purchasing any assets or equity securities of, or by any other manner, any business or any corporation, partnership, association, joint venture or other business organization or division thereof, or otherwise acquire or agree to acquire outside of the ordinary course of business any assets in any amount, or in the ordinary course of business in an amount in excess of $100,000 in the case of a single transaction or in excess of $200,000 in the aggregate; (o) Sell, lease, license, encumber or otherwise dispose of any properties or assets except sales of inventory in the ordinary course of business consistent with past practice and except for the sale, lease or disposition (other than through licensing) of a property or assets which are not material, individually or in the aggregate, to the business of Company; (p) Incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of Company, enter into any "keep well" or other agreement to maintain any financial statement condition or enter into any arrangement having the economic effect of any of the foregoing other than in connection with the financing of ordinary course trade payables consistent with past practice or the borrowing of working capital under lines of credit existing as of the date hereof and in the ordinary course of business; (q) Loan to any person or entity any funds or guarantee any indebtedness or debt securities of others other than advances to employees for travel and business expenses in the ordinary course of business, consistent with past practices; (r) Grant any or increase of any existing agreement to provide severance or termination pay (i) to any director or officer or (ii) to any other employee except payments made pursuant to written agreements outstanding on the date hereof and as disclosed in the Company Schedules, adopt any new severance , termination, indemnification or other agreement the benefits of which are contingent upon the occurrence of a transaction involving the Company of the nature contemplated hereunder; (s) Adopt or amend any employee benefit plan, or enter into any employment contract, extend employment offers, pay or agree to pay any special bonus or special remuneration to any director, officer, employee or consultant, or increase the salaries, wage rates or fringe benefits (including rights to severance or indemnification of its directors, officers, employees or consultants or the modification of any existing compensation or equity arrangements with such individuals or the change of vesting terms of any Company Options), except as consistent with the ordinary course of the business of the Company consistent with past practice or in accordance with existing contracts; (t) Effect or agree to effect, including by way of hiring or involuntary termination, any change in the Company's directors, officers or key employees; (u) Materially, revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business, or except as required by GAAP or applicable law, make any change in accounting methods, principles or practices; (v) Pay, discharge or satisfy, in an amount in excess of $100,000 (in any one case) or $200,000 (in the aggregate), any claim, liability or obligation other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in the Company Financial Statements (or the notes thereto) or that arose in the ordinary course of business subsequent to December 31, 1998 or expenses consistent with the provisions of this Agreement incurred in connection with any transaction contemplated hereby; (w) Make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; (x) Enter into any strategic alliance, joint development or joint marketing agreement other than such agreements entered into in the ordinary course of business consistent with past practice; (y) Commence a lawsuit other than (i) for the routine collection of bills, (ii) in such cases where it, in good faith, determines that failure to commence suit would result in the material impairment of a valuable aspect of its business, provided that it consults with Parent prior to the filing of such a suit or (iii) to enforce its rights hereunder or under any agreements related hereto; (z) Materially reduce the amount of any insurance coverage provided by or fail to renew any existing insurance policies; (aa) Engage in any action with the intent to directly or indirectly adversely impact any of the transactions contemplated by this Agreement; (bb) Engage in any action that could reasonably be expected to cause the Merger to fail to qualify as a "reorganization" under Section 368(a) of the Code whether or not otherwise permitted by the provisions of this Article V; (cc) Waive or release any material right or claim of the Company, including any write-off or other compromise of any account receivable of the Company; (dd) Engage in any other transaction except in the ordinary course of business as conducted on or prior to the date hereof and consistent with past practices; (ee) Cause any event or condition of any character that has or reasonably would be expected to have a Material Adverse Effect on the Company; or (ff) Take, or agree in writing or otherwise to take, any of the actions described in Sections 5.1(a) through (y) above, or any other action that would prevent the Company from performing or cause the Company not to perform its covenants hereunder. 5.2 Reorganization. From the date of this Agreement until the Effective -------------- Time, neither Parent nor any of its affiliates shall engage in any action that could reasonably be expected to cause the Merger to fail to qualify as a "reorganization" under Section 368(a) of the Code whether or not otherwise permitted by the provisions of this Article V. ARTICLE VI ADDITIONAL AGREEMENTS 6.1 Information Statement and Section 3(a)(10) Permit. ------------------------------------------------- (a) Preparation of Information Statement. As soon as practicable ------------------------------------ after the execution of this Agreement, the Company shall prepare, with the cooperation of Parent, an information statement and form of proxy for the shareholders of the Company to approve the principal terms of this Agreement and the Merger (such information statement, together with any amendments thereof or supplements thereto, in each case in the form or forms mailed to the Company's shareholders, the "Information Statement"). The Information Statement shall also constitute a disclosure document for the offer and issuance of the shares of Parent Common Stock to be received by the holders of Company Capital Stock in the Merger. Parent and the Company shall each use its best efforts to cause the Information Statement to comply in all material respects with applicable federal and state securities laws requirements. Each of Parent and the Company agrees to provide promptly to the other such information concerning its business and financial statements and affairs as, in the reasonable judgment of the providing party or its counsel, may be required or appropriate for inclusion in the Information Statement, or in any amendments or supplements thereto, and to cause its counsel and auditors to cooperate with the other's counsel and auditors in the preparation of the Information Statement. The Company will promptly advise Parent and Parent will promptly advise the Company, in writing if at any time prior to the Effective Time either the Company or Parent shall obtain knowledge of any facts that might make it necessary or appropriate to amend or supplement the Information Statement in order to make the statements contained or incorporated by reference therein not misleading or to comply with applicable law. The Information Statement shall contain the unanimous recommendation of the Board of Directors of the Company that the Company shareholders approve the principal terms of this Agreement and the Merger and the conclusion of the Board of Directors that the terms and conditions of the Merger are fair and reasonable to the shareholders of the Company. Anything to the contrary contained herein notwithstanding, the Company shall not include in the Information Statement any information with respect to Parent or its affiliates or associates, the form and content of which information shall not have been approved by Parent prior to such inclusion, which consent shall not be unreasonably withheld. (b) Section 3(a)(10) Permit. As promptly as practicable after the ----------------------- execution of this Agreement, Parent and the Company shall prepare the necessary documentation to seek a permit (a "3(a)(10) Permit") from the Commissioner of the Department of Corporations of the State of California (after a hearing before such Department) pursuant to Section 25121 of the California Corporate Securities Law of 1968, so that the issuance of Parent Common Stock and the assumption of the Company Options in the Merger shall be exempt from registration under Section 3(a)(10) of the Securities Act. If the shares of Parent Common Stock to be issued in connection with the Merger cannot be issued in a transaction exempt from registration pursuant to Section 3(a)(10) of the Securities Act of Section 25121 of the California Corporate Securities Law of 1968, then such shares shall be issued in a transaction exempt from registration under the Securities Act by reason of Section 4(2) thereof. In the event that the (i) Parent does not obtain a Section 3(a)(10) Permit or (ii) Parent, Company and the Securityholder Agents agree to withdraw Parent's application for such 3(a)(10) Permit prior to the Effective Time, then Parent, Company and the Securityholder Agents agree to take such actions to (A) issue the shares of Parent Common Stock in a private placement pursuant to Section 4(2) of the Securities Act and to facilitate the registration such shares for resale pursuant to Form S-3 under the Securities Act (as set forth in the Declaration of Registration Rights attached hereto as Exhibit D) or (B) facilitate the issuance of such Parent Common Stock pursuant - --------- to a registration statement on Form S-4 under the Securities Act. With regard to the 3(a)(10) hearing, if necessary, the Company will obtain from its shareholders holding a majority of the Company Capital Stock their consent to the jurisdiction of the California Department of Corporations. With regard to any exemptions from the Securities Act or state securities laws, the Company will use its reasonable best efforts to identify and obtain the approval of those of its shareholders, who are not "accredited" within the meaning of Rule 501 promulgated under the Securities Act, to appoint an accredited investor to act as a "purchasers representative" as such term is defined in Rule 501 for each such unaccredited stockholder. Such purchasers representative shall be reasonably accepted to Parent, and Parent's consent shall not be unreasonably withheld. 6.2 Shareholder Approval. As promptly as practicable after the execution -------------------- of this Agreement and at such time as Parent may request, the Company shall use its best efforts, in accordance with Minnesota Law and the Company's Articles of Incorporation and Bylaws, obtain the approval of the Company's shareholders of the principal terms of this Agreement and the Merger. The Company shall use its best efforts to ensure that the shareholder approval is solicited in compliance with Minnesota Law, the Articles of Incorporation and Bylaws of the Company and all other applicable legal requirements. The Company agrees to use its best efforts and to take all action necessary or advisable to secure the necessary votes required by Minnesota Law to effect the Merger. Parent will make a representative available to shareholders to answer any questions Company shareholders may have regarding the Parent's business, management and financial affairs. 6.3 Access to Information. The Company shall afford Parent and its --------------------- accountants, legal counsel and other representatives reasonable access during normal business hours during the period prior to the Effective Time to (a) all of the properties, books, contracts, commitments and records of the Company and (b) all other information concerning the business, properties, and personnel of the Company as Parent may reasonably request. The Company agrees to provide Parent and its accountants, legal counsel and other representatives copies of internal financial statements promptly upon request. No information or knowledge obtained in any investigation pursuant to this Section 6.3 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties to consummate the Merger. 6.4 Confidentiality. The parties acknowledge that the Company and Parent --------------- have previously executed confidentiality agreements dated November 5, 1999 and December 1, 1997 (the "Confidentiality Agreements"), which Confidentiality Agreements will continue in full force and effect in accordance with their terms. 6.5 Public Disclosure. Unless otherwise required by law (including, ----------------- without limitation, securities laws) or, as to Parent, by the rules and regulations of the New York Stock Exchange), prior to the Effective Time, no disclosure (whether or not in response to an inquiry) of the subject matter of this Agreement shall be made by any party hereto (other than disclosures to Company shareholders pursuant to Section 6.2) unless approved by Parent and the Company prior to release, provided that such approval shall not be unreasonably withheld. If any such press release or public announcement is so required, the party making such disclosure shall consult with the other party prior to making such disclosure, and the parties shall use all reasonable efforts, acting in good faith, to agree when a text for such disclosure that is satisfactory to both parties. The parties have agreed to the text of the joint press release announcing the signing of this Agreement. 6.6 Consents. The Company shall promptly apply for or otherwise seek and -------- use its reasonable best efforts to obtain all consents and approvals required to be obtained by it for the consummation of the Merger, including all consents, waivers or approvals under any of the Contracts in order to preserve the benefits thereunder for the Surviving Corporation and otherwise in connection with the Merger. All of such consents and approvals are set forth in Schedule -------- 2.5. - --- 6.7 FIRPTA Compliance. On the Closing Date, the Company shall deliver to ----------------- Parent a properly executed statement in a form reasonably acceptable to Parent for purposes of satisfying Parent's obligations under Treasury Regulation Section 1.1445-2(c)(3). 6.8 Legal Conditions to the Merger. Each of Parent, Merger Sub and the ------------------------------ Company will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on such party with respect to the Merger and will promptly cooperate with and furnish information to any other party hereto in connection with any such requirements imposed upon such other party in connection with the Merger. Each party will take all reasonable actions to obtain (and will cooperate with the other parties in obtaining) any consent, authorization, order or approval of or any registration, declaration or filing with, or an exemption by, any Governmental Entity, or other third party, required to be obtained or made by such party or its subsidiaries in connection with the Merger or the taking of any action contemplated thereby or by this Agreement; provided, however, that Parent shall not be required to agree to any divestiture by Parent or the Company or any of Parent's subsidiaries or affiliates of shares of capital stock or of any business, assets or property of Parent or its subsidiaries or affiliates or of the Company or its affiliates or the imposition of any material limitation on the ability of any of them to conduct their businesses or to own or exercise control of such assets, properties and stock. 6.9 Best Efforts; Additional Documents and Further Assurances. Each of the --------------------------------------------------------- parties agrees to use its best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated by this Agreement, including using best efforts to accomplish the following: (a) the taking of all acts necessary to cause the conditions precedent set forth in Article VI to be satisfied, (b) the obtaining of all necessary actions or nonactions, waivers, consents, approvals, orders and authorizations from Governmental Entities and the making of all necessary registrations, declarations and filings (including registrations, declarations and filings with Governmental Entities, if any) and the taking of all reasonable steps as may be necessary to avoid any suit, claim, action, investigation or proceeding by any Governmental Entity (provided, however, that Parent shall not be required to agree to any divestiture by Parent or the Company or any Parent's subsidiaries or affiliates of shares of capital stock or of any business, assets or property of Parent or its subsidiaries or affiliates or of the Company or its affiliates, or the imposition of any material limitation on the ability of any of them to conduct their businesses or to own or exercise control of such assets, properties and stock), (c) the obtaining of all necessary consents, approvals or waivers from third parties, (d) the defending of any suits, claims, actions, investigations or proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed and (e) the execution or delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement. 6.10 Notification of Certain Matters. The Company shall give prompt notice ------------------------------- to Parent, and Parent shall give prompt notice to the Company, of (a) the occurrence or non-occurrence of any event which is likely to cause any representation or warranty of the Company and Parent or Merger Sub, respectively, contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Effective Time except as contemplated by this Agreement (including the Company Schedules) and (b) any failure of the Company or Parent, as the case may be, to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to -------- ------- this Section 6.10 shall not limit or otherwise affect any remedies available to the party receiving such notice or affect the representations, warranties, covenants or agreements of the parties or conditions to the obligation of the parties under this Agreement. 6.11 Reorganization. It is the intent of the Company, Parent, Merger Sub -------------- and the Surviving Corporation that this Merger qualifies as a tax-free reorganization under Section 368(a) of the Code, and the Company, Parent, Merger Sub and the Surviving Corporation covenant and agree not to take any actions inconsistent with such intent. 6.12 Declaration of Registration Rights. In the event that (i) Parent does ---------------------------------- not obtain an exemption from registration pursuant to Section 3(a)(10) of the Securities Act prior to the Effective Time or (ii) Parent, Company and the Securityholder Agents agree to withdraw Parent's application to obtain a Section 3(a)(10) Permit prior to the Effective Time and (iii) Parent and the Company agree that the Parent Common Stock will be issued pursuant to an exemption from the registration requirements of the Securities Act, then Parent and the Company agree that the that the shareholders of the Company receiving Parent Common Stock in the Merger pursuant to Sections 1.6(a) and (b) hereto shall be entitled to the registration rights set forth in the Declaration of Registration Rights attached hereto as Exhibit D (the "Declaration of Registration Rights") and --------- which is hereby incorporated by reference. 6.13 Form S-8. Parent shall file a Registration Statement on Form S-8 with -------- the SEC covering the shares of Parent Common Stock issuable with respect to assumed Company Options on or prior to the Closing Date or the next business day upon which the Securities and Exchange Commission is open to accept such filings after the Effective Time and will use its reasonable best efforts to maintain the effectiveness of such registration statement thereafter for so long as any of such Company Options remain outstanding. 6.14 New York Stock Exchange. On or prior to the date of filing of the ----------------------- Registration Statement on Form S-8, as set forth in Section 6.13, the Parent shall apply for the listing on the New York Stock Exchange of shares of the Parent Common Stock issuable with respect to the assumed Company Options, upon official notice of issuance and shall take all other acts as necessary or appropriate to cause such shares to become and remain so listed. On or prior to the Closing Date (or if no exemption pursuant to Section 3(a)(10) is obtained the effective date of the Registration Statement provided for in the Declaration of Registration Rights), Parent shall apply for the listing on the New York Stock Exchange of the shares of Parent Common Stock issuable, in connection with the Merger, upon official notice of issuance and shall take all other acts as necessary or appropriate to cause such shares to become and remain so listed. 6.15 Voting Agreements. Concurrently with the execution of this ----------------- Agreement, the Company will cause the persons and entities listed on Schedule -------- 6.15 hereto to execute a Voting Agreement, agreeing, among other things, to vote - ---- in favor of the Merger and against any competing proposals. 6.16 Non-Competition Agreements. On or before the Closing, the Company -------------------------- will use its best efforts to cause the employees listed on Schedule 6.16 to ------------- execute a Non-Competition Agreement. 6.17 Blue Sky Laws. Parent shall use its reasonable best efforts to ------------- comply with the securities and blue sky laws of all jurisdictions that are applicable to the issuance of the Parent Common Stock pursuant hereto. The Company shall use its reasonable best efforts to assist Parent as may be necessary to comply with the securities and blue sky laws of all jurisdictions that are applicable in connection with the issuance of Parent Common Stock pursuant hereto. 6.18 Benefit Arrangements. Parent covenants and agrees that to the extent -------------------- permitted by applicable law and to the extent the existing benefit plans and arrangements provided by the Company to its employees are terminated on or after the Effective Time, such employees shall be entitled to benefits which are available or subsequently become available to Parent's employees, and on a basis which is on parity with Parent's employees. For purposes of satisfying the terms and conditions of such plans, Parent shall give full credit for eligibility or vesting and shall make commercially reasonable efforts to give full credit for benefit accrual for each participant's period of service at the Company prior to the Effective Time. 6.19 Bonus Plan. Parent covenants and agrees that it will adopt a bonus ---------- plan in the form attached hereto as Exhibit E (the "Bonus Plan") at the --------- Effective Time to provide bonus payments in the aggregate of a maximum of $10.0 million to all of the employees of the Company as of the date hereof who remain employed by the Parent or one of its subsidiaries on or after December 15, 2000. The Bonus Plan shall be reasonably acceptable to the Company. If any such person is not an employee of the Company immediately prior to the Effective Time and is no longer an employee of Parent or any of its subsidiaries on December 15, 2000, the bonus payment allocated to such person shall be retained by the Parent, unless such person is no longer an employee of the Parent or one of its subsidiaries as a result of (i) death, (ii) long-term disability as defined in the Bonus Plan or (iii) actual or constructive termination of such person's employment with the Parent or one of its subsidiaries without cause (as such terms are defined in the Bonus Plan and in each such instance set forth in (i), (ii) or (iii) Parent shall make such bonus payment to such employee. -44- 6.20 Termination of Company Investor Rights. The Company shall take such -------------------------------------- steps as may be necessary to provide for the termination as of the Closing of all Company investor rights granted by the Company to its shareholders and in effect prior to the Closing, including but not limited to rights of co-sale, voting, registration, first refusal, board observation or information or operational covenants. 6.21 No Solicitation. From and after the date of this Agreement until the --------------- earlier to occur of the Effective Time or termination of this Agreement pursuant to its terms, the Company will not, and the Company will instruct its directors, officers, employees, representatives, investment bankers, agents and affiliates not to, directly or indirectly, (a) solicit or encourage submission of any "Acquisition Proposal" (as defined herein) by any person, entity or group (other than Parent and its affiliates, agents, and representatives) or (b) participate in any discussions or negotiations with, or disclose any non-public information concerning the Company to, or afford access to the properties, books, or records of the Company, or otherwise assist or facilitate, or enter into any agreement or understanding with, any person, entity or group (other than Parent and its affiliates, agents, and representatives) in connection with any Acquisition Proposal with respect to the Company. For purposes of this Agreement, an "Acquisition Proposal" means any proposal or offer relating to (a) any merger, consolidation, sale or license of substantial assets or similar transactions involving the Company (other than sales or licenses of assets or inventory in the ordinary course of business or as permitted by this Agreement) or (b) sales by the Company of any Company Capital Stock (including, without limitation, by way of a tender offer or an exchange offer). The Company will immediately cease any and all existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. The Company will within one business day of receipt (a) notify Parent if, after the date of this Agreement, it receives any proposal or inquiry or request for information in connection with an Acquisition Proposal or potential Acquisition Proposal and (b) notify Parent of the significant terms and conditions of any such Acquisition Proposal including the identity of the party making an Acquisition Proposal. In addition, from and after the date of this Agreement, until the earlier to occur of the Effective Time or termination of this Agreement pursuant to its terms, the Company will not, and will instruct its directors, officers, employees, representatives, investment bankers, agents and affiliates not to, directly or indirectly, make or authorize any public statement, recommendation or solicitation in support of any Acquisition Proposal made by any person, entity or group (other than Parent). 6.22 Termination of 401(k) Plan. The Company agrees to adopt resolutions -------------------------- to terminate its 401(k) plan immediately prior to Closing, unless the Parent, in its sole and absolute discretion, agrees to sponsor and maintain such plans by providing the Company with written notice of such election at least three (3) days before the Effective Time. Unless the Parent provides such notice to the Company, the Parent shall receive from the Company evidence that the Company's Board of Directors has adopted resolutions to terminate the 401(k) plan (the form and substance of which resolutions shall be subject to review and approval of the Parent), effective as of the day immediately preceding the Closing Date but contingent on the Closing. 6.23 Termination of Company Severance Plans; Adoption of Parent Severance -------------------------------------------------------------------- Plan. The Company and its Affiliates, as applicable, each agrees to terminate - ---- any and all group severance, separation or salary continuation plans, programs or arrangements that are covered under ERISA immediately prior to Closing. The Parent shall receive from the Company evidence that the -45- Company's and each Affiliate's (as applicable) plan(s) has been terminated pursuant to resolution of each such entity's Board of Directors (the form and substance of which resolutions shall be subject to review and approval of the Parent), effective as of the day immediately preceding the Closing Date but contingent on the Closing. Parent covenants and agrees that it will adopt a severance plan in the form attached hereto as Exhibit F (the "Severance Plan") --------- at the Effective Time to provide severance payments to the employees of the Company as of the date hereof who remain employed by the Company as of the Effective Time. The Severance Plan shall be reasonably acceptable to the Company. 6.24 Export Laws. Promptly after the execution of this Agreement but in ----------- any event prior to the Effective Time, if it has not already done so, the Company shall apply to the U.S. Commerce Department's Bureau of Export Administration for export classification determinations for all of the Company's Products which (a) incorporate any encryption functions, features or characteristics; or (b) include an interface to any other software products with encryption functions, features or characteristics in order to confirm that all such products may be exported from the United States without an export license, under authority of a license exception, in accordance with the Export Administration Regulations, 15 C.F.R. Parts 730-774. 6.25 Lock-Up Agreements. Each of Philip Soran, John Guilder, Larry ------------------ Aszmann, Sue Hogue, Richard Blaschke and Todd Engle (collectively, the "Lock-up Holders") will enter into a lock-up agreement with the Parent substantially in the form attached hereto as Exhibit G (the "Lock-up Agreement"). Pursuant to such Lock-up Agreements, each of the Lock-up Holders will agree to limit sales or other dispositions of the Parent Common Stock he or she receives in connection with the closing of the Merger to: (i) 50% or less of such Parent Common Stock prior to June 15, 2000 and (ii) an additional 25% or less of such Parent Common Stock prior to December 1, 2000. In addition, such Lock-up Holders will agree to dispose of such shares of Parent Common Stock in compliance with applicable securities laws, including Rule 145, as promulgated under the Securities Act. 6.26 Hart-Scott Rodino. Parent, Sub and the Company will, and the Company ----------------- shall use its reasonable best efforts to cause any of its shareholders so required (the "Reporting Shareholders") to, as promptly as practicable prepare and file the applicable notices and forms (if any) required to be filed by them under the HSR Act or comparable laws of non-U.S. governmental entities, and comply promptly with any appropriate requests from the Federal Trade Commission, the United States Department of Justice or any other Governmental Antitrust Authority for additional information and documentary material. The parties hereto will not take any action that will have the effect of delaying, impairing or impeding the termination of any waiting period or the receipt of any required approvals of a Government Antitrust Authority. Without limiting the generality of the parties' undertakings pursuant to this Section 6.27, the parties shall use their reasonable best efforts to prevent the entry in a judicial or administrative proceeding brought under any antitrust law by any Governmental Antitrust Authority or any other party of any permanent or preliminary injunction or other order that would make consummation of the Merger in accordance with the terms of this Agreement unlawful under appropriate anti- trust laws or that would prevent or delay such consummation as a consequence of such laws; provided, however, that Parent shall not be required to agree to any divestiture by Parent or the Company or any Parent's subsidiaries or affiliates of shares of capital stock or of any business, assets or property of Parent or its subsidiaries or affiliates -46- or of the Company or its affiliates, or the imposition of any material limitation on the ability of any of them to conduct their businesses or to own or exercise control of such assets, properties and stock. Each party hereto shall promptly inform the other of any material communication between such party and the Federal Trade Commission, the Department of Justice or any other governmental antitrust authority regarding any of the transactions contemplated hereby. If any party or any affiliate of such party receives a request for additional information or for documents or any material from any such governmental antitrust authority with respect to the transactions contemplated hereby, then such party shall endeavor in good faith to make or cause to be made, as soon as reasonably practicable and after consultation with the other parties, an appropriate response in compliance with such request. Further, no written materials shall be submitted by any party to the Federal Trade Commission, the Department of Justice or any other governmental antitrust authority in connection with HSR Act compliance or the merger control regulations of any other state or country, nor shall any oral communications be initiated with such governmental entities by any party, without prior disclosure to and coordination with the other parties and their counsel. Each party hereto will cooperate in connection with reaching any understandings, undertakings or agreements (oral or written) involving the Federal Trade Commission, the Department of Justice or any other governmental antitrust authority in connection with the transactions contemplated hereby. 6.27 Preparation of Tax Returns. -------------------------- (a) Parent shall file (or cause to be filed) at its own expense, on or prior to the due date thereof, all Tax Returns of the Company required to be filed for all Tax periods ending on or before the Closing Date (each a "Pre- Closing Period") which have not been filed during a Pre-Closing Period (other than Tax Returns that were required to be filed during a Pre-Closing Period, which shall be filed (or caused to be filed) by Parent and will give rise to a right to indemnification under Section 8.2). Company or its representative shall have the right to participate in the preparation and filing of such Tax Returns. Parent and its affiliates covenant and agree that they shall not take any action or position with respect to the filing of such Tax Returns or positions taken on such Tax Returns that will cause the Company to breach any of the representations, warranties and covenants of the Company contained in this Agreement, unless Parent waives its right to indemnification under Section 8.2 with respect to such breach. If and only if Parent does not waive its right to indemnification under Section 8.2 with respect to any such breach described in the immediately preceding sentence, Parent shall provide the Securityholder Agents with a copy of appropriate workpapers, schedules, drafts and final copies of each Tax Return or election of the Company (including returns of all employee benefit plans) at least ten days before filing such Return or election and shall reasonably cooperate with any request by the Securityholder Agents in connection therewith. (b) Parent will file (or cause to be filed) all Tax Returns of the Company for all Tax periods ending after the Closing Date. (c) In the event that the Internal Revenue Service ("IRS") conducts an audit of the Company's Tax Returns for any periods ending after the Closing Date, such audit proceedings shall be the sole responsibility, and under the sole control, of Parent. In the event of an audit of the Company's Tax Returns for any Pre-Closing Period, if and only if Parent does not waive its right to indemnification under Section 8.2 with respect to matters under audit, the Securityholder Agents -47- shall be entitled to participate in such audit proceedings. In the event that the Securityholder Agents are entitled and elect in accordance with this paragraph to participate in such audit proceedings, any settlement with the IRS with respect to such audit proceedings may be entered into only with the prior written consent of Parent, which consent shall not be unreasonably withheld. Parent shall notify the Securityholder Agents promptly after receipt by Parent of written notice of pending audit proceedings for any Pre-Closing Period and shall indicate whether Parent waives its right to indemnification under Section 8.2 with respect to matters under audit. If, in accordance with the foregoing, the Securityholder Agents are entitled and elect to participate in such audit proceedings, it shall, within 30 calendar days after receiving such notice from Parent, notify Parent of its intent to do so. The parties agree to cooperate with each other in the conduct of any audit proceedings relating to the Company's Tax Returns. 6.28 Company Headquarters. For a period of one year from the Closing -------------------- Date, Parent shall not relocate the Company's headquarters from the Minneapolis, Minnesota metropolitan area. 6.29 Indemnification. --------------- (a) Upon the Effective Time, the Surviving Corporation or, to the extent the Surviving Corporation is unable to do so, Parent shall assume all of the obligations of the Company under the Company's existing indemnification agreements with each of the directors and officers of the Company, as such agreements relate to the indemnification of such persons for expenses and liabilities arising from facts or events which occurred on or before the Effective Time or relating to the Merger or transactions contemplated by this Agreement. (b) The Bylaws and Articles of Incorporation of the Surviving Corporation shall contain provisions identical with respect to indemnification to those set forth in the Bylaws and Articles of Incorporation of Merger Sub as in effect on the date hereof, which provisions shall not be amended, repealed or otherwise modified for a period of two years from the Effective Time in any manner that would adversely affect the rights thereunder of individuals who at the Effective Time were directors or officers of the Company. The Parent and Company agree that the provisions with respect to indemnification in the Bylaws and Articles of Incorporation of the Surviving Corporation shall be no less favorable to the directors and officers of the Company than those set forth in the Articles of Incorporation of the Company on the date hereof. 6.30 Employee Plan Compliance. The Company shall prepare, or have ------------------------ prepared on its behalf, in compliance with the requirements of ERISA, summary plan descriptions for both the Company health insurance plan and the Company flex plan; provided, however, that Parent shall have the opportunity to review and approve such summary plan descriptions (with Parent approval not to be unreasonably withheld), prior to the distribution thereof. The Company shall have prepared, have provided Parent the opportunity to review, and have distributed such summary plan descriptions by the later of: (i) thirty (30) days after the execution of this Agreement; or (ii) the Closing Date. -48- ARTICLE VII CONDITIONS TO THE MERGER 7.1 Conditions to Obligations of Each Party to Effect the Merger. The ------------------------------------------------------------ respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction at or prior to the Closing of the following conditions: (a) Shareholder Approval. The principal terms of this Agreement, the -------------------- Merger and the transactions contemplated hereby shall have been approved and adopted by the shareholders of the Company by the requisite vote under applicable law and the Company's Articles of Incorporation. (b) No Injunctions or Restraints; Illegality. No temporary ---------------------------------------- restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Merger shall be in effect. (c) Tax Opinions. Parent and the Company shall each have received ------------ written opinions from their counsel, Wilson Sonsini Goodrich & Rosati, P.C., and Dorsey & Whitney LLP, respectively, in form and substance reasonably satisfactory to them, to the effect that the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code. The parties to this Agreement agree to make reasonable representations as requested by such counsel for the purpose of rendering such opinion. (d) Closing Date Payment Schedule. Parent and the Company shall each ----------------------------- have reviewed and approved and the Company shall have executed and delivered a schedule (the "Closing Date Payment Schedule") reflecting, as of the Effective Time (i) for each holder of Company Capital Stock, the number of shares of Company Capital Stock held of record, the aggregate number of shares of Parent Common Stock payable to such holder in the Merger, the number of such shares payable promptly after the Effective Time (in accordance with Section 1.6) and payable into the Escrow Fund (as defined in Section 8.2(a)), the amount of cash payable to such holder for any fractional shares, the stock certificate numbers held by each such person and such person's federal tax identification number to the extent such number is known, and (ii) for each holder of Company Options, the number of shares of Company Common Stock issuable upon exercise thereof immediately prior to the Effective Time, the number of shares of Parent Common Stock issuable upon exercise thereof following their assumption by Parent (in accordance with Section 1.6(f)), and the per share exercise price thereof upon such assumption. (e) Governmental Approvals. Any waiting period applicable to the ---------------------- consummation of the Merger under the HSR Act shall have expired or been terminated and no action shall have been instituted by the Department of Justice or Federal Trade Commission challenging or seeking to enjoin the consummation of the Merger, which action shall not have been withdrawn or terminated, and all other material governmental filings, authorizations and approvals that are required for the consummation of the transactions contemplated hereby will have been duly made and obtained. -49- 7.2 Additional Conditions to Obligations of the Company. The obligations --------------------------------------------------- of the Company to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by the Company: (a) Representations, Warranties and Covenants. The representations ----------------------------------------- and warranties of Parent and Sub in this Agreement shall be true and correct in all material respects on and as of the Effective Time as though such representations and warranties were made on and as of such time, except that any such representation or warranty made as of a specified date (other than the date hereof) shall only need to have been true on and as of such date; provided that this condition shall be deemed satisfied solely for purposes of this Section 7.2(a) and not for any other purpose (including, without limitation, any purpose in Article VIII hereof), if all of the changes in the representations and warranties in Article III between the date hereof and the Effective Time do not, in the aggregate, have a Material Adverse Effect on Parent, and the Company shall have received a certificate to such effect signed by a duly authorized officer of Parent; (b) Agreements and Covenants. Parent and Merger Sub shall have ------------------------ performed or complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed or complied with by them on or prior to the Closing Date, and the Company shall have received a certificate to such effect signed by a duly authorized officer of Parent. (c) Legal Opinion. The Company shall have received a legal opinion ------------- from Wilson Sonsini Goodrich & Rosati, P.C., counsel to Parent and Merger Sub, in form and substance reasonably satisfactory to the Company and Wilson Sonsini Goodrich & Rosati. (d) No Material Adverse Change. There shall not have occurred any -------------------------- material adverse change in the business, assets (including intangible assets), financial condition or results of operations of Parent. For purposes of this condition, changes in the trading price of Parent's Common Stock, as reported on the New York Stock Exchange, changes in economic conditions or changes in the industry and markets in which the Parent competes shall not constitute a material adverse change, whether occurring at any time or from time to time. (e) Section 3(a)(10) Permit or Declaration of Registration Rights. ------------------------------------------------------------- Parent shall have obtained a permit from the Department of Corporations of the State of California upon which Parent can rely to issue the Parent Common Stock exempt from registration pursuant to Section 3(a)(10) of the Securities Act. In the event that Parent has not obtained such a Section 3(a)(10) Permit or the parties have agreed that Parent's application for a Section 3(a)(10) Permit be withdrawn, Parent shall have executed and delivered the Declaration of Registration Rights. (f) Affiliate Agreement. The shareholders of the Company who are ------------------- affiliates within the meaning of Rule 144 of the Securities Act shall have entered into an Affiliate Agreement regarding compliance with Rule 145 under the Securities Act (the "Affiliate Agreements") with the Parent in a form reasonably acceptable to the Parent and the Company. -50- (g) Bonus Plan. The Bonus Plan shall have been duly approved and ---------- adopted by Parent. (h) Severance Plan. The Severance Plan shall have been duly approved -------------- and adopted by Parent. (i) Escrow Agreement. Parent, Merger Sub and the Escrow Agent shall ---------------- have executed and delivered the Escrow Agreement in the form substantially agreeable to the Company, the Parent and the Escrow Agent (as such term is defined in Section 8.2 hereof) and consistent with Article VIII hereof. (j) Secretary's Certificate. Each of Parent and Merger Sub shall have ----------------------- delivered to the Company a copy of (i) the text of the resolutions adopted by the Board of Directors of Parent and Merger Sub authorizing the execution, delivery and performance of this Agreement and the Articles of Merger and the consummation of all of the transactions contemplated by this Agreement and the Articles of Merger and (ii) the certificates of incorporation and bylaws of Parent and Merger Sub, along with certificates executed on behalf of each of Parent and Merger Sub by such entity's corporate secretary certifying to the Company that such copies are true, correct and complete copies of such resolutions, certificate of incorporation and bylaws, respectively, and the such resolutions, certificate of incorporation and bylaws were duly adopted and have not been amended or rescinded. 7.3 Additional Conditions to the Obligations of Parent and Merger Sub. The ----------------------------------------------------------------- obligations of Parent and Merger Sub to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by Parent: (a) Representations and Warranties. The representations and ------------------------------ warranties of the Company set forth in this Agreement shall be true and correct (determined without regard to any materiality qualifiers, including without limitation "Material Adverse Effect") (i) as of the date hereof and (ii) as of the Closing Date, as though made on and as of the Closing Date (provided that in the cases of clauses (i) and (ii) any such representation and warranty made as of a specific date shall be true and correct as of such specific date); provided that this condition shall be deemed satisfied, solely for purposes of this Section 7.3(a) and not for any other purpose (including, without limitation, any purpose in Article VIII hereof), if all of the changes in the Company's representations and warranties from the date of this Agreement to the Effective Time do not individually or in the aggregate have a Material Adverse Effect on the Company and its subsidiaries taken as a whole and the Parent shall have received a certificate signed by the chief executive officer and the chief financial officer of the Company to such effect; (b) Agreements and Covenants. The Company shall have performed or ------------------------ complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date, and Parent and Merger Sub shall have received a certificate to such effect signed by the President and Chief Financial Officer of the Company; -51- (c) Third Party Consents. Parent shall have been furnished with -------------------- evidence satisfactory to it that the Company has obtained the consents, approvals and waivers set forth in Schedule 2.5. ------------ (d) Legal Opinion. Parent shall have received a legal opinion from ------------- Dorsey & Whitney LLP, legal counsel to the Company, in form and substance reasonably satisfactory to Parent and Dorsey & Whitney LLP. (e) No Material Adverse Change. There shall not have occurred any -------------------------- material adverse change in the business, assets (including intangible assets) financial condition or results of operations of the Company. For purposes of this condition, changes in economic conditions or changes in the industry or markets in which the Company competes shall not constitute a Material Adverse changes, whether occurring at anytime or from time to time. (f) Dissenters' Rights. Holders of not more than 3% of the ------------------ outstanding shares of Company Capital Stock shall have exercised, nor shall they have any rights or continued right to exercise, dissenters' rights under Minnesota Law with respect to the transactions contemplated by this Agreement. (g) Termination of Company Investor Rights. Parent shall have been -------------------------------------- furnished evidence satisfactory to it that all investor rights granted by the Company to its shareholders and in effect prior to the Closing, including but not limited to rights of co-sale, voting, registration, first refusal, board observation or information or operational covenants, shall have terminated as of the Closing. (h) Affiliate Agreement. The shareholders of the Company who are ------------------- affiliates within the meaning of Rule 144 of the Securities Act shall have entered into an Affiliate Agreement regarding compliance with Rule 145 under the Securities Act with the Parent in a form reasonably acceptable to the Parent and the Company. (i) Non-Competition Agreements. The Non-Competition Agreements as -------------------------- required by Section 6.16 hereof shall have been duly executed and delivered to Parent. (j) Lock-up Agreements. The Lock-up Agreements as required by Section ------------------ 6.27 shall have been duly executed and delivered to Parent. (k) Escrow Agreement. The Company and the Escrow Agent shall have ---------------- executed and delivered the Escrow Agreement in the form substantially agreeable to the Company, the Parent and the Escrow Agent (as such term is defined in Section 8.2 hereof) and consistent with Article VIII hereof. (l) Secretary's Certificate. The Company shall have delivered to ----------------------- Parent a copy of (i) the text of the resolutions adopted by the Board of Directors of the Company authorizing the execution, delivery and performance of this Agreement and the Articles of Merger and the consummation of all of the transactions contemplated by this Agreement and the Articles of Merger and (ii) the articles of incorporation and bylaws of the Company, along with a certificate executed on behalf of the Company by its corporate secretary certifying to Parent that such copies are true, -52- correct and complete copies of such resolutions, articles of incorporation and bylaws, respectively, and the such resolutions, articles of incorporation and bylaws were duly adopted and have not been amended or rescinded. ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW 8.1 Survival of Representations and Warranties. All of the Company's ------------------------------------------ representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement (each as modified by the Company Schedules) shall survive the Merger and continue until 5:00 p.m., Minnesota time, on the date which is one year following the Closing Date (the "Expiration Date"). The representations and warranties of Parent and Merger Sub in this Agreement or in any instrument delivered pursuant to this Agreement shall not survive the Effective Time or be of any further force and effect thereafter. 8.2 Escrow Arrangements and Indemnification. (a) Escrow Fund and Indemnification by the Company. At the Effective ---------------------------------------------- Time the Company's shareholders will be deemed to have received and deposited with the Escrow Agent (as defined below) the Escrow Amount (plus any additional shares as may be issued upon any stock split, stock dividend or recapitalization effected by Parent after the Effective Time) without any act of any shareholder pursuant to an Escrow Agreement to be negotiated by the Parent, Company and the Escrow Agent in a form reasonably satisfactory to them and consistent with this Article VIII (the "Escrow Agreement"). As soon as practicable after the Effective Time, the Escrow Amount, without any act of any Company shareholder, will be deposited by Parent with The Bank of New York (or other institution acceptable to Parent and the Securityholder Agents (as defined in Section 8.2(g) below)) as Escrow Agent (the "Escrow Agent"), such deposit to constitute an escrow fund (the "Escrow Fund") to be governed by the terms set forth herein and in the Escrow Agreement. The portion of the Escrow Amount contributed on behalf of each shareholder of the Company shall be in proportion to the aggregate Parent Common Stock, which such holder would otherwise be entitled under Sections 1.6(a) and (b) and shall be in the respective share amounts and percentages listed on the Closing Date Payment Schedule opposite each Company shareholder's name. All shares of Parent Common Stock contributed to the Escrow Fund shall not be unvested or subject to any right of repurchase, risk of forfeiture or other condition in favor of the Surviving Corporation. The Escrow Fund shall be available to compensate Parent and its affiliates (including the Surviving Corporation) for any claims, losses, liabilities, damages, deficiencies, costs and expenses, including reasonable attorneys' fees and expenses, and expenses of investigation and defense (hereinafter individually a "Loss" and collectively "Losses") incurred by Parent, its officers, directors, or affiliates (including the Surviving Corporation) directly or indirectly as a result of (i) any inaccuracy or breach of a representation or warranty of the Company contained herein (or in any certificate, instrument, schedule or document attached to this Agreement and delivered by the Company in connection with the Merger) or (ii) any failure by the Company to perform or comply with any covenant contained herein (or in any certificate, instrument, schedule or document attached to this Agreement and delivered by the Company in connection with the Merger); provided any such claims must be asserted on or before 5:00 p.m. (Minnesota Time) on the Expiration Date. Except as -53- otherwise provided herein, Parent may not receive any shares from the Escrow Fund unless and until Officer's Certificates (as defined in Section 8.2(d) below) identifying Losses, the aggregate amount of which exceed $500,000, have been delivered to the Escrow Agent as provided in paragraph (e) and such amount is determined pursuant to this Article VIII to be payable; in such case, Parent may recover shares from the Escrow Fund equal in value to all indemnified Losses (excluding any Losses within the $500,000 threshold) for which there is no objection or any objection had been resolved in accordance with the provisions of this Article VIII; provided, however, that to the extent Third Party Expenses -------- ------- (as defined in Section 10.2), incurred by the Company in connection with this Agreement and the Merger exceed $250,000 in the aggregate, such excess shall be deemed a Loss for purposes of Article VIII and shall be immediately reimbursable to Parent in accordance with this Article VIII (without regard to the $500,000 minimum threshold for Losses and without counting toward the $500,000 threshold). (b) Escrow Period; Distribution upon Termination of Escrow Periods. -------------------------------------------------------------- Subject to the following requirements, the Escrow Fund shall be in existence immediately following the Effective Time and shall terminate at 5:00 p.m., Minnesota time, on the Expiration Date (the "Escrow Period"); provided, however, -------- ------- that the Escrow Period shall not terminate with respect to such amount (or some portion thereof), that is necessary in the reasonable judgment of Parent, subject to the objection of the Securityholder Agents and the subsequent arbitration of the matter in the manner provided in Section 8.2(f) hereof, to satisfy any unsatisfied claims concerning facts and circumstances existing prior to the termination of such Escrow Period specified in any Officer's Certificate delivered to the Escrow Agent prior to termination of such Escrow Period. As soon as all such claims have been resolved, as evidenced by written memorandum of the Securityholder Agents and Parent, the Escrow Agent shall deliver to the shareholders of the Company the remaining portion of the Escrow Fund not required to satisfy such claims. Deliveries of Escrow Amounts to the shareholders of the Company pursuant to this Section 8.2(b) shall be made in proportion to their respective original contributions to the Escrow Fund (as set forth on the Closing Date Payment Schedule). At all times during the Escrow Period, the Company shareholders shall be deemed to be the record holders of their respective amounts of the Parent Common Stock comprising the Escrow Amount. (c) Protection of Escrow Fund. ------------------------- (i) The Escrow Agent shall hold and safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a trust fund in accordance with the terms of this Agreement and not as the property of Parent and shall hold and dispose of the Escrow Fund only in accordance with the terms hereof. (ii) Any shares of Parent Common Stock or other equity securities issued or distributed by Parent (including shares issued upon a stock split or stock dividend) ("New Shares") in respect of Parent Common Stock in the Escrow Fund which have not been released from the Escrow Fund shall be added to the Escrow Fund and become a part thereof. New Shares issued in respect of shares of Parent Common Stock which have been released from the Escrow Fund shall not be added to the Escrow Fund but shall be distributed to the recordholders thereof. Cash dividends on Parent Common Stock shall not be added to the Escrow Fund but shall be distributed to the recordholders thereof. -54- (iii) Each Company shareholder shall be deemed the record holder of, and shall have voting, dividend, distribution and all other rights with respect to the shares of Parent Common Stock contributed to the Escrow Fund by such shareholder (and on any voting securities and other equity securities added to the Escrow Fund in respect of such shares of Parent Common Stock). (d) Claims Upon Escrow Fund. ----------------------- (i) Upon receipt by the Escrow Agent at any time on or before the Expiration Date of a certificate signed by any officer of Parent (an "Officer's Certificate"): (A) stating that Parent has paid or properly accrued or reasonably anticipates that it will have to pay or accrue Losses, and (B) specifying in reasonable detail the individual items of Losses included in the amount so stated, the date each such item was paid or properly accrued, or the basis for such anticipated liability, and the nature of the misrepresentation, breach of warranty or covenant to which such item is related, the Escrow Agent shall, subject to the provisions of Section 8.2(e) hereof, deliver to Parent out of the Escrow Fund, as promptly as practicable, shares of Parent Common Stock held in the Escrow Fund in an amount equal to such Losses. (ii) For the purposes of determining the number of shares of Parent Common Stock to be delivered to Parent out of the Escrow Fund pursuant to Section 8.2(d)(i) hereof, the shares of Parent Common Stock shall be valued at the Average Closing Price. Parent and the Securityholder Agents shall certify such determined value in a certificate signed by both Parent and the Securityholder Agents, and shall deliver such certificate to the Escrow Agent. (e) Objections to Claims. At the time of delivery of any Officer's -------------------- Certificate to the Escrow Agent, Parent shall deliver a duplicate copy of such certificate to the Securityholder Agents and for a period of thirty (30) days after such delivery, the Escrow Agent shall not deliver to Parent any Escrow Amounts pursuant to Section 8.2(d) hereof unless the Escrow Agent shall have received written authorization from the Securityholder Agents to make such delivery. After the expiration of such thirty (30) day period, the Escrow Agent shall make delivery of shares of Parent Common Stock from the Escrow Fund in accordance with Section 8.2(d) hereof, provided that no such payment or delivery may be made if the Securityholder Agents shall object in a written statement to the claim made in the Officer's Certificate, and such statement shall have been delivered to the Escrow Agent prior to the expiration of such thirty (30) day period. -55- (f) Resolution of Conflicts; Arbitration. ------------------------------------ (i) In case the Securityholder Agents shall so object in writing to any claim or claims made in any Officer's Certificate, the Securityholder Agents and Parent shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If the Securityholder Agents and Parent should so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and distribute shares of Parent Common Stock from the Escrow Fund in accordance with the terms thereof. (ii) If no such agreement can be reached after good faith negotiation, and in any event not later than sixty (60) days after receipt of the written objection of the Securityholder Agents, either Parent or the Securityholder Agents may demand arbitration of the matter unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration; and in either such event the matter shall be settled by arbitration conducted by three arbitrators. Any such arbitration shall be held in Hennepin County, Minnesota under the American Arbitration Association Commercial Arbitration Rules then in effect. Parent and the Securityholder Agents shall each select one arbitrator, and the two arbitrators so selected shall select a third arbitrator, each of which arbitrators shall be independent, meaning that they may not be current or former employees or consultants or the Parent, Merger Sub, Company or Surviving Corporation. The arbitrators must disclosure any circumstances likely to affect their independence pursuant to Rule 19 of the American Arbitration Association Commercial Arbitration Rules. The period of discovery shall be limited to 60 days and limited to relevant information from the opposing parties about the subject matter of the dispute. The arbitrators shall rule upon motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys fees and costs, to the extent as a court of competent law or equity, should the arbitrators determine that discovery was sought without substantial justification or that discovery was refused or objected to without substantial justification. The decision of a majority of the three arbitrators as to the validity and amount of any claim in such Officer's Certificate shall be binding and conclusive upon the parties to this Agreement, and notwithstanding anything in Section 8.2(e) hereof, the Escrow Agent shall be entitled to act in accordance with such decision and make or withhold payments out of the Escrow Fund in accordance therewith. Such decision shall be written and shall be supported by written findings of fact and conclusions which shall set forth the award, judgment, decree or order awarded by the arbitrators. (iii) Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction. For purposes of this Section 8.2(f), in any arbitration hereunder in which any claim or the amount thereof stated in the Officer's Certificate is at issue, Parent shall be deemed to be the Non- Prevailing Party in the event that the arbitrators award Parent the sum of one- half ( 1/2) or less of the disputed amount plus any amounts not in dispute; otherwise, the shareholders of the Company as represented by the Securityholder Agents shall be deemed to be the Non-Prevailing Party. Each party to an arbitration shall pay its own expenses and one half of (i) the fees of each arbitrator and (ii) the administrative costs of the arbitration. -56- (g) Securityholder Agents of the Shareholders; Power of Attorney. ------------------------------------------------------------ (i) In the event that the Merger is approved, effective upon such vote, and without further act of any shareholder, Fredric R. Boswell and John F. Stapleton shall be appointed as agents and attorneys-in-fact (each such natural person a "Securityholder Agent" and collectively, the "Securityholder Agents") for each shareholder of the Company (except such shareholders, if any, as shall have perfected their dissenters' rights under Minnesota Law), for and on behalf of shareholders of the Company, to give and receive notices and communications, to authorize delivery to Parent of shares of Parent Common Stock from the Escrow Fund in satisfaction of claims by Parent, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of Securityholder Agents for the accomplishment of the foregoing. Such agency may be changed by the shareholders of the Company from time to time upon not less than thirty (30) days prior written notice to Parent; provided that the each of the persons acting as Securityholder Agents may not be removed unless holders of a majority in interest of the Escrow Fund agree to such removal and to the identity of the substituted agent. Any vacancy in either of the positions of Securityholder Agents may be filled by approval of the holders of a majority in interest of the Escrow Fund. No bond shall be required of the Securityholder Agents, and the Securityholder Agents shall not receive compensation for their services. The reasonable legal fees and expenses and other professional fees incurred by the Securityholder Agents in connection with the performance of such persons' duties hereunder shall be reimbursed from the Escrow Fund upon written request pursuant to Section 8.2(d) hereof; provided, however, that such expenses shall be paid from the Escrow Fund after all allowed claims shall have been paid or sufficient amounts thereof have been set aside. Notices or communications to or from the Securityholder Agents shall constitute notice to or from each of the shareholders of the Company. (ii) Neither or the Securityholder Agents shall be liable for any act done or omitted hereunder as Securityholder Agents while acting in good faith and in the exercise of reasonable judgment. The shareholders of the Company on whose behalf the Escrow Amount was contributed to the Escrow Fund shall jointly and severally indemnify each of the Securityholder Agents and hold each of the Securityholder Agents harmless against any loss, liability or expense incurred without negligence or bad faith on the part of such Securityholder Agent and arising out of or in connection with the acceptance or administration of the Securityholder Agents' duties hereunder, including the reasonable fees and expenses of any legal counsel retained by the Securityholder Agents. (h) Actions of the Securityholder Agents. A decision, act, consent or ------------------------------------ instruction of both of the Securityholder Agents shall constitute a decision of all the shareholders for whom a portion of the Escrow Amount otherwise issuable to them are deposited in the Escrow Fund and shall be final, binding and conclusive upon each of such shareholders, and the Escrow Agent and Parent may rely upon any such written decision, consent or instruction of the Securityholder Agents as being the decision, consent or instruction of each every such shareholder of the Company. The Escrow Agent and Parent are hereby relieved from any liability to any person for any acts done by them in accordance with such decision, consent or instruction of the Securityholder Agents. -57- (i) Third Party Claims. ------------------ (i) If any third party shall notify Parent or its affiliates hereto with respect to any matter (hereinafter referred to as a "Third Party Claim"), which may give rise to a claim by Parent against the Escrow Fund, then Parent shall give notice to the Securityholder Agents within 30 days of Parent becoming aware of any such Third Party Claim or of facts upon which any such Third Party Claim will be based (but in all events, at least five business days prior to the date that an answer to such Third Party Claim is due to be filed) setting forth such material information with respect to the Third Party Claim as is reasonably available to Parent; provided, however, that no delay or failure -------- ------- on the part of Parent in notifying the Securityholder Agents shall relieve the Securityholder Agents and the Company shareholders from any obligation hereunder unless the Securityholder Agents and the Company shareholders are thereby materially prejudiced (and then solely to the extent of such prejudice). The Securityholder Agents and the Company shareholders shall not be liable for any attorneys fees and expenses incurred by Parent prior to Parent's giving notice to the Securityholder Agents of a Third Party Claim. The notice from Parent to the Securityholder Agents shall set forth such material information with respect to the Third Party Claim as is then reasonably available to Parent. (ii) In case any Third Party Claim is asserted against Parent or its affiliates, and Parent notifies the Securityholder Agents thereof pursuant to Section 8.2(i)(a) hereinabove, the Securityholder Agents and the Company shareholders will be entitled, if the Securityholder Agents so elect by written notice delivered to Parent within 30 days after receiving Parent's notice, to assume the defense thereof, at the expense of the Company shareholders independent of the Escrow Fund, with counsel reasonably satisfactory to Parent, so long as: (A) Parent has reasonably determined that Losses which may be incurred as a result of the Third Party Claim do not exceed either individually, or when aggregated with all other Third Party Claims, the total dollar value of the Escrow Fund determined in accordance with Section 8.2(d)(ii) hereof; (B) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief; and (C) settlement of, or an adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of Parent, likely to establish a precedential custom or practice materially adverse to the continuing business interests of Parent. If the Securityholder Agents and the Company shareholders so assume any such defense, the Securityholder Agents and the Company shareholders shall conduct the defense of the Third Party Claim actively and diligently. The Securityholder Agents and the Company shareholders shall not compromise or settle such Third Party Claim or consent to entry of any judgment in respect thereof without the prior written consent of Parent and/or its affiliates, as applicable. (iii) In the event that the Securityholder Agents assume the defense of the Third Party Claim in accordance with Section 8.2(i)(ii) above, Parent or its affiliates may retain separate counsel and participate in the defense of the Third Party Claim, but the fees and expenses of such counsel shall be at the expense of Parent unless Parent or its affiliates shall reasonably -58- determine that there is a material conflict of interest between or among Parent or its affiliates and the Securityholder Agents and the Company shareholders with respect to such Third Party Claim, in which case the reasonable fees and expenses of such counsel will be borne by the Securityholder Agents and the Company shareholders out of the Escrow Fund. Parent or its affiliates will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Securityholder Agents. Parent will cooperate in the defense of the Third Party Claim and will provide full access to documents, assets, properties, books and records reasonably requested by Securityholder Agents and material to the claim and will make available all officers, directors and employees reasonably requested by Securityholder Agents for investigation, depositions and trial. (iv) In the event that the Securityholder Agents fail or elect not to assume the defense of Parent or its affiliates against such Third Party Claim, which Securityholder Agents had the right to assume under Section 8.2(i)(ii) above, Parent or its affiliates shall have the right to undertake the defense and Parent shall not compromise or settle such Third Party Claim or consent to entry of any judgment in respect thereof without the prior written consent of Securityholder Agents. In the event that the Securityholder Agents are not entitled to assume the defense of Parent or its affiliates against such Third Party Claim pursuant to Section 8.2(i)(ii) above, Parent or its affiliates shall have the right to undertake the defense, consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim in any manner it may deem appropriate (and Parent or its affiliates need not consult with, or obtain any consent from, the Securityholder Agents in connection therewith); provided, however, that except with the written consent of the Securityholder - -------- ------- Agents, no settlement of any such claim or consent to the entry of any judgment with respect to such Third Party Claim shall alone be determinative of the validity of the claim against the Escrow Fund. In each case, Parent or its affiliates shall conduct the defense of the Third Party Claim actively and diligently, and the Securityholder Agents will cooperate with Parent or its affiliates, and will use its best efforts to cause the Company's shareholders, to cooperate in the defense of that claim and will provide full access to documents, assets, properties, books and records reasonably requested by Parent and material to the claim and will make available all individuals reasonably requested by Parent for investigation, depositions and trial. (j) Escrow Agent's Duties. --------------------- (i) The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein, and as set forth in any additional written escrow instructions which the Escrow Agent may receive after the date of this Agreement which are signed by an officer of Parent and the Securityholder Agent, and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow Agent while acting in good faith and in the exercise of reasonable judgment, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. (ii) The Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person, excepting only orders or process of courts of law, and is hereby expressly authorized to comply with and obey orders, -59- judgments or decrees of any court. In case the Escrow Agent obeys or complies with any such order, judgment or decree of any court, the Escrow Agent shall not be liable to any of the parties hereto or to any other person by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. (iii) The Escrow Agent shall not be liable in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver this Agreement or any documents or papers deposited or called for hereunder. (iv) The Escrow Agent shall not be liable for the expiration of any rights under any statute of limitations with respect to this Agreement or any documents deposited with the Escrow Agent. (v) In performing any duties under the Agreement, the Escrow Agent shall not be liable to any party for damages, losses, or expenses, except for gross negligence or willful misconduct on the part of the Escrow Agent. The Escrow Agent shall not incur any such liability for (A) any act or failure to act made or omitted in good faith, or (B) any action taken or omitted in reliance upon any written instrument, including any written statement or affidavit provided for in this Agreement that the Escrow Agent shall in good faith believe to be genuine, nor will the Escrow Agent be liable or responsible for forgeries, fraud, impersonations, or determining the scope of any representative authority. In addition, the Escrow Agent may consult with the legal counsel in connection with Escrow Agent's duties under this Agreement and shall be fully protected in any act taken, suffered, or permitted by him/her in good faith in accordance with the advice of counsel. The Escrow Agent is not responsible for determining and verifying the authority of any person acting or purporting to act on behalf of any party to this Agreement. (vi) If any controversy arises between the parties to this Agreement, or with any other party, concerning the subject matter of this Agreement, its terms or conditions, the Escrow Agent will not be required to determine the controversy or to take any action regarding it. The Escrow Agent may hold all documents and shares of Parent Common Stock and may wait for settlement of any such controversy by final appropriate legal proceedings or other means as, in the Escrow Agent's discretion, the Escrow Agent may be required, despite what may be set forth elsewhere in this Agreement. In such event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow Agent may at its option, file an action of interpleader requiring the parties to answer and litigate any claims and rights among themselves. The Escrow Agent is authorized to deposit with the clerk of the court all documents and shares of Parent Common Stock held in escrow, except all cost, expenses, charges and reasonable attorney fees incurred by the Escrow Agent due to the interpleader action and which the parties jointly and severally agree to pay. Upon initiating such action, the Escrow Agent shall be fully released and discharged of and from all obligations and liability imposed by the terms of this Agreement. (vii) Parent and the Surviving Corporation agree jointly and severally to indemnify and hold Escrow Agent harmless against any and all losses, claims, damages, liabilities, and expenses, including reasonable costs of investigation, counsel fees, and disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent in connection with the performance of his/her duties under this Agreement, including but not limited to any litigation arising from this -60- Agreement or involving its subject matter; provided, however, that in the event -------- ------- the Securityholder Agents shall be the Non-Prevailing Party in connection with any claim or action initiated by a Company shareholder or Company shareholders, then such Company shareholder or Company shareholders shall be responsible for the indemnification of the Escrow Agent to the full extent provided by this paragraph. (viii) The Escrow Agent may resign at any time upon giving at least thirty (30) days written notice to the parties; provided, however, that no -------- ------- such resignation shall become effective until the appointment of a successor escrow agent which shall be accomplished as follows: the parties shall use their best efforts to mutually agree on a successor escrow agent within thirty (30) days after receiving such notice. If the parties fail to agree upon a successor escrow agent within such time, the Escrow Agent shall have the right to appoint a successor escrow agent authorized to do business in the state of Minnesota. The successor escrow agent shall execute and deliver an instrument accepting such appointment and it shall, without further acts, be vested with all the estates, properties, rights, powers, and duties of the predecessor escrow agent as if originally named as escrow agent. The Escrow Agent shall be discharged from any further duties and liability under this Agreement. (k) Fees. All fees of the Escrow Agent for performance of its duties ---- hereunder shall be paid by Parent. It is understood that the fees and usual charges agreed upon for services of the Escrow Agent shall be considered compensation for ordinary services as contemplated by this Agreement. In the event that the conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent renders any service not provided for in this Agreement, or if the parties request a substantial modification of its terms, or if any controversy arises, or if the Escrow Agent is made a party to, or intervenes in, any litigation pertaining to this escrow or its subject matter, the Escrow Agent shall be reasonably compensated for such extraordinary services and reimbursed for all costs, attorneys' fees, and expenses occasioned by such default, delay, controversy or litigation. Parent promises to pay these sums upon demand. (l) Maximum Liability and Remedies. Except for fraud, the rights of ------------------------------ Parent to make claims upon the Escrow Fund in accordance with this Article VIII shall be the sole and exclusive remedy of Parent and the Surviving Corporation after the Closing with respect to any representation, warranty, covenant or agreement made by Company under this Agreement and no former shareholder, option holder, warrant holder, director, officer, employee or agent of Company shall have any personal liability to Parent or the Surviving Corporation after the Closing in connection with the Merger. ARTICLE IX TERMINATION, AMENDMENT AND WAIVER 9.1 Termination. Except as provided in Section 9.2 below, this Agreement ----------- may be terminated and the Merger abandoned at any time prior to the Closing Date: (a) by mutual written consent duly authorized by the Board of Directors of the Company and Parent; -61- (b) by either Parent or the Company if: (i) the Closing Date has not occurred by February 29, 2000 (or March 31, 2000 if HSR Approval has not been obtained prior to February 29, 2000) (provided that the right to terminate this Agreement under this clause 9.1(b)(i) shall not be available to any party whose willful failure to fulfill any obligation hereunder has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date and such action or failure constitutes a breach of this Agreement); (ii) there shall be a final nonappealable order of a federal or state court in effect preventing consummation of the Merger; or (iii) there shall be any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Entity that would make consummation of the Merger illegal; (c) by Parent if there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger, by any Governmental Entity, which would: (i) prohibit Parent's or the Company's ownership or operation of any portion of the business of the Company or (ii) compel Parent or the Company to dispose of or hold separate, as a result of the Merger, any portion of the business or assets of the Company or Parent; (d) by Parent if it is not in material breach of its obligations under this Agreement and there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of the Company and as a result of such breach the conditions set forth in Section 7.3(a) or 7.3(b), as the case may be, would not then be satisfied; provided, -------- however, that if such breach is curable by the Company within 30 days through - ------- the exercise of its reasonable best efforts, then for so long as the Company continues to exercise such reasonable best efforts Parent may not terminate this Agreement under this Section 9.1(d) unless such breach is not cured within 30 days (but no cure period shall be required for a breach which by its nature cannot be cured); (e) by the Company if it is not in material breach of its obligations under this Agreement and there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of Parent or Merger Sub and as a result of such breach the conditions set forth in Section 7.2(a) or 7.2(b), as the case may be, would not then be satisfied; provided, however, that if such breach is curable by Parent or Merger Sub - -------- ------- within 30 days through the exercise of its reasonable best efforts, then for so long as Parent or Merger Sub continues to exercise such reasonable best efforts the Company may not terminate this Agreement under this Section 9.1(e) unless such breach is not cured within 30 days (but no cure period shall be required for a breach which by its nature cannot be cured). Where action is taken to terminate this Agreement pursuant to Section 9.1, it shall be sufficient for such action to be authorized by the Board of Directors (as applicable) of the party taking such action. 9.2 Effect of Termination. Except as set forth in Section 10.2, any --------------------- termination of this Agreement under Section 9.1 above will be effective immediately upon the delivery of written notice of the terminating party to the other parties hereto. In the event of the termination of this Agreement as provided in Section 9.1, this Agreement shall be of no further force or effect, except (a) as set forth in this Section 9.2 and Article X (general provisions, including expenses), each of which shall survive the termination of this Agreement, and (b) nothing herein shall relieve any party from liability for any breach of this Agreement. No termination of this Agreement shall affect the -62- obligations of the parties contained in the Confidentiality Agreement, all of which obligations shall survive termination of this Agreement. 9.3 Amendment. Except as is otherwise required by applicable law, prior --------- to the Closing, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed by Parent and the Company; provided, however, that after the approval of the Articles of Merger by the shareholders of the Company, no amendment may be made which reduces the Merger Consideration or which effects any changes which would materially adversely affect the shareholders of the Company without the further approval of the shareholders of the Company. Except as is otherwise required by applicable law, after the Closing, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed by Parent, the Securityholder Agents and by Company shareholders who receive more than 50% of the Parent Common Stock issued or to be issued pursuant to Section 1.6, or by all of the Company shareholders in the case of an amendment to Articles VIII. 9.4 Extension; Waiver. At any time prior to the Effective Time, Parent ----------------- and Merger Sub, on the one hand, and the Company, on the other, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations of the other party hereto, (b) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE X GENERAL PROVISIONS 10.1 Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed given on (i) the date thereof if delivered personally, (ii) the next business day if delivered by commercial delivery service, (iii) three business days after being mailed by registered or certified mail (return receipt requested) or (iv) the date thereof if sent via facsimile (with acknowledgment of complete transmission and a confirming copy sent by mail) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Parent or Merger Sub, to: Stephen J. Luczo Seagate Technology, Inc. 920 Disc Drive Scotts Valley, CA 95067 Telephone: (831) 439-2161 Facsimile: (831) 438-0754 -63- with a copy to: Thomas F. Mulvaney Seagate Technology, Inc. 920 Disc Drive Scotts Valley, CA 95067 Telephone: (831) 439-2781 Facsimile: (831) 438-6675 and Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 Attention: Larry W. Sonsini, Esq. and Chris F. Fennell, Esq. Telephone: (650) 493-9300 Facsimile: (650) 493-6811 (b) if to the Company, to: Philip Soran Sue Hogue XIOtech Corporation 6509 Flying Cloud Drive Eden Prairie, MN 55344 Telephone: (612) 828-5980 Facsimile: (612) 828-5987 with a copy to: Dorsey & Whitney Pillsbury Center South 120 South Sixth Street Minneapolis, MN 55402 Attention: Jay L. Swanson, Esq. Telephone: (612) 340-2763 Facsimile: (612) 340-8738 (c) if to the Securityholder Agents: Fredric R. Boswell St. Paul Venture Capital 138 River Road Andover, MA 01810 Telephone: (978) 837-3198 Facsimile: (978) 837-3199 -64- John F. Stapleton 300 Prairie Center Drive Eden Prairie, MN 55344 Telephone: (612) 942-1200 Facsimile: (612) 942-1205 (d) if to the Escrow Agent: The Bank of New York 101 Barclay Street, Floor 12 East New York, NY 10286 Attention: Matt Louis, Escrow Unit Telephone: (212) 815-7172 Facsimile: (212) 815-7181 10.2 Expenses. -------- (a) In the event the Merger is not consummated, all fees and expenses incurred in connection with the Merger including, without limitation, all legal, accounting, financial advisory, consulting and all other fees and expenses of third parties ("Third Party Expenses") incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby, shall be the obligation of the respective party incurring such fees and expenses. (b) Subject to the provisions of Section 8.2, in the event the Merger is consummated, the Surviving Corporation shall be responsible for the payment of all Third Party Expenses, including Third Party Expenses incurred by the Company. 10.3 Interpretation. The words "include," "includes" and "including" when -------------- used herein shall be deemed in each case to be followed by the words "without limitation." The word "agreement" when used herein shall be deemed in each case to mean any contract, commitment or other agreement, whether oral or written, that is legally binding. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 10.4 Counterparts. This Agreement may be executed in one or more ------------ counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. 10.5 Entire Agreement; Assignment. Except for the Confidentiality ---------------- Agreement, this Agreement, the schedules and Exhibits hereto, and the documents and instruments and other agreements among the parties hereto referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; -65- (b) are not intended to confer upon any other person any rights or remedies hereunder; and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided, except that Parent and Merger Sub may assign their respective rights and delegate their respective obligations hereunder to their respective affiliates. 10.6 Severability. In the event that any provision of this Agreement or ------------ the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 10.7 Other Remedies. Except as otherwise provided herein (including as set -------------- forth in Section 8.2(l)), any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. 10.8 Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof; provided, however, that the Articles of Merger shall be governed by Minnesota Law. Each of the parties hereto agrees that process may be served upon them in any manner authorized by the laws of the State of Delaware for such persons and waives and covenants not to assert or plead any objection which they might otherwise have to such jurisdiction and such process. 10.9 Rules of Construction. The parties hereto agree that they have been --------------------- represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 10.10 Specific Performance. The parties hereto agree that irreparable -------------------- damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. [Remainder of Page Left Blank Intentionally] -66- IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Securityholder Agents (as to Articles VI and VIII only) have caused this Agreement to be signed by their duly authorized respective officers, all as of the date first written above. XIOTECH CORPORATION SEAGATE TECHNOLOGY, INC. a Minnesota corporation a Delaware corporation By: /s/ Philip Soran By: /s/ Thomas F. Mulvaney ---------------------- ------------------------ Philip Soran Thomas F. Mulvaney Chief Executive Officer Senior Vice President SECURITYHOLDER AGENTS: TROUT ACQUISITION CORP. a Minnesota corporation /s/ Fredric R. Boswell By: /s/ Thomas F. Mulvaney - ------------------------- ------------------------ Fredric R. Boswell Thomas F. Mulvaney Senior Vice President and Secretary /s/ John F. Stapleton - ------------------------- John F. Stapleton Schedule 6.17 Employees to Sign Non-Competition Agreements -------------------------------------------- Philip Soran John Guilder Larry Aszmann Sue Hogue Richard Blaschke Todd Engle EX-3.1(A) 12 0012.txt MEMORANDUM OF ASSOCIATION OF NEW SEAGATE TECHNOLOGY INTERNATIONAL EXHIBIT 3.1(a) CONFORMED COPY AS AMENDED BY SPECIAL RESOLUTIONS PASSED 14TH OCTOBER 1991 AND 21ST NOVEMBER 2000. THE COMPANIES LAW COMPANY LIMITED BY SHARES ------------------------- MEMORANDUM OF ASSOCIATION OF SEAGATE TECHNOLOGY INTERNATIONAL l. The name of the Company is SEAGATE TECHNOLOGY INTERNATIONAL. 2. The Registered Office of the Company shall be at the offices of Maples and Calder, P.O. Box 309, George Town, Grand Cayman, Cayman Islands, British West Indies or at such other place as the Directors may from time to time decide. 3. The objects for which the Company is established are unrestricted and shall include, but without limitation, the following: (i) (a) To carry on business as investors, designers, manufacturers, traders and dealers of and in all types of equipment, machinery and goods, including without limitation computer hardware and equipment and any related patents, industrial rights and know how whether or not protected by law. (b) To carry on the business of an investment company and to act as promoters and entrepreneurs and to carry on business as financiers, capitalists, concessionaires, merchants, brokers, traders, dealers, agents, importers and exporters and to undertake and carry on and execute all kinds of investment, financial, commercial, mercantile, trading and other operations. 2 (c) To carry on whether as principals, agents or otherwise howsoever the business of realtors, developers, consultants, estate agents or managers, builders, contractors, engineers, manufacturers, dealers in or vendors of all types of property including services. (ii) To exercise and enforce all rights and powers conferred by or incidental to the ownership of any shares, stock, obligations or other securities including without prejudice to the generality of the foregoing all such powers of veto or control as may be conferred by virtue of the holding by the Company of some special proportion of the issued or nominal amount thereof, to provide managerial and other executive, supervisory and consultant services for or in relation to any company in which the Company is interested upon such terms as may be thought fit. (iii) To purchase or otherwise acquire, to sell, exchange, surrender, lease, mortgage, charge, convert, turn to account, dispose of and deal with real and personal property and rights of all kinds and, in particular, mortgages, debentures, produce, concessions, options, contracts, patents, annuities, licences, stocks, shares, bonds, policies, book debts, business concerns, undertakings, claims, privileges and choses in action of all kinds. (iv) To subscribe for, conditionally or unconditionally, to underwrite, issue on commission or otherwise, take, hold, deal in and convert stocks, shares and securities of all kinds and to enter into partnership or into any arrangement for sharing profits, reciprocal concessions or cooperation with any person or company and to promote and aid in promoting, to constitute, form or organise any company, syndicate or partnership of any kind, for the purpose of acquiring and undertaking any property and liabilities of the Company or of advancing, directly or indirectly, the objects of the Company or for any other purpose which the Company may think expedient. 3 (v) To stand surety for or to guarantee, support or secure the performance of all or any of the obligations of any person, firm or company whether or not related or affiliated to the Company in any manner and whether by personal covenant or by mortgage, charge or lien upon the whole or any part of the undertaking, property and assets of the Company, both present and future, including its uncalled capital or by any such method and whether or not the Company shall receive valuable consideration therefor. (vi) To engage in or carry on any other lawful trade, business or enterprise which may at any time appear to the Directors of the Company capable of being conveniently carried on in conjunction with any of the aforementioned businesses or activities or which may appear to the Directors or the Company likely to be profitable to the Company. In the interpretation of this Memorandum of Association in general and of this Clause 3 in particular no object, business or power specified or mentioned shall be limited or restricted by reference to or inference from any other object, business or power, or the name of the Company, or by the juxtaposition of two or more objects, businesses or powers and that, in the event of any ambiguity in this clause or elsewhere in this Memorandum of Association, the same shall be resolved by such interpretation and construction as will widen and enlarge and not restrict the objects, businesses and powers of and exercisable by the Company. 4. Except as prohibited or limited by the Companies Law (Cap. 22), the Company shall have full power and authority to carry out any object and shall have and be capable of from time to time and at all times exercising any and all of the powers at any time or from time to time exercisable by a natural person or body corporate in doing in any part of the world whether as principal, agent, contractor or otherwise whatever may be considered by it necessary for the 4 attainment of its objects and whatever else may be considered by it as incidental or conducive thereto or consequential thereon, including, but without in any way restricting the generality of the foregoing, the power to make any alterations or amendments to this Memorandum of Association and the Articles of Association of the Company considered necessary or convenient in the manner set out in the Articles of Association of the Company, and the power to do any of the following acts or things, viz: to pay all expenses of and incidental to the promotion, formation and incorporation of the Company; to register the Company to do business in any other jurisdiction; to sell, lease or dispose of any property of the Company; to draw, make, accept, endorse, discount, execute and issue promissory notes, debentures, bills of exchange, bills of lading, warrants and other negotiable or transferable instruments; to lend money or other assets and to act as guarantors; to borrow or raise money on the security of the undertaking or on all or any of the assets of the Company including uncalled capital or without security; to invest monies of the Company in such manner as the Directors determine; to promote other companies; to sell the undertaking of the Company for cash or any other consideration; to distribute assets in specie to members of the Company; to make charitable or benevolent donations; to pay pensions or gratuities or provide other benefits in cash or kind to Directors, officers, employees, past or present and their families; to carry on any trade or business and generally to do all acts and things which, in the opinion of the Company or the Directors, may be conveniently or profitably or usefully acquired and dealt with, carried on, executed or done by the Company in connection with the business aforesaid PROVIDED THAT the Company shall only carry on the businesses for which a licence is required under the laws of the Cayman Islands when so licensed under the terms of such laws. 5 5. The liability of each member is limited to the amount from time to time unpaid on such member's shares. 6. The share capital of the Company is US$900,000 divided into 450,000 Class A Shares of US$1.00 nominal or par value each and 450,000 Class B Shares of US$1.00 nominal or par value each with power for the Company insofar as is permitted by law, to redeem or purchase any of its shares and to increase or reduce the said capital subject to the provisions of the Companies Law (Cap. 22) and the Articles of Association and to issue any part of its capital, whether original, redeemed or increased with or without any preference, priority or special privilege or subject to any postponement of rights or to any conditions or restrictions and so that unless the conditions of issue shall otherwise expressly declare every issue of shares whether declared to be preference or otherwise shall be subject to the powers hereinbefore contained. 7. If the Company is registered as exempted, its operations will be carried on subject to the provisions of Section l90 of the Companies Law Cap. 22. WE the several persons whose names and addresses are subscribed are desirous of being formed into a company in pursuance of this Memorandum of Association and we respectively agree to take the number of shares in the capital of the Company set opposite our respective names. DATED the 10th day of May, 1984 SIGNATURE, ADDRESSES and NUMBER OF SHARES DESCRIPTION OF SUBSCRIBER TAKEN BY EACH - ------------------------- ------------- Antony Duckworth One Ordinary - ---------------------- Antony Duckworth, Solicitor P.O. Box 309, Grand Cayman John Dyke One Ordinary - ----------------- John Dyke, Solicitor P.O. Box 309, Grand Cayman Timothy Ridley One Ordinary - ----------------- Timothy Ridley Solicitor P.O. Box 309, Grand Cayman Jennifer Platten - ---------------- Witness to the above signatures I, D. O. Solomon, Dep. Registrar of Companies in and for the Cayman Islands DO HEREBY CERTIFY that this is a true and correct copy of the Memorandum of Association of this Company duly incorporated on the 14th day of May l984. D. O. Solomon DEP. REGISTRAR OF COMPANIES EX-3.1(B) 13 0013.txt ARTICLES OF ASSOCIATION OF SEAGATE TECHNOLOGY INTERNATIONAL EXHIBIT 3.1(b) CONFORMED COPY AS AMENDED BY SPECIAL RESOLUTIONS PASSED 14TH OCTOBER 1991 AND 21ST NOVEMBER 2000. THE COMPANIES LAW ----------------- COMPANY LIMITED BY SHARES ------------------------- ARTICLES OF ASSOCIATION OF SEAGATE TECHNOLOGY INTERNATIONAL l. In these Articles Table A in the Schedule to the Statute does not apply and, unless there be something in the subject or context inconsistent therewith, "Articles" means these Articles as originally framed or as from time to time altered by Special Resolution. "The Auditors" means the persons for the time being performing the duties of auditors of the Company. "The Company" means the above named Company. "Debenture" means debenture stock, mortgages, bonds and any other such securities of the Company whether constituting a charge on the assets of the Company or not. "The Directors" means the directors for the time being of the Company. "Dividend" includes bonus. "Member" shall bear the meaning ascribed to it in Section 35 of the Statute. "Month" means calendar month. "The Registered Office" means the registered office for the time being of the Company. "Paid-up" means paid-up and/or credited as paid-up. "Seal" means the common seal of the Company and includes every official seal. 2 "Secretary" includes an Assistant Secretary and any person appointed to perform the duties of Secretary of the Company. "Special Resolution" has the same meaning as in the Statute. "Statute" means the Companies Law of the Cayman Islands as amended and every statutory modification or re-enactment thereof for the time being in force. "Written" and "In Writing" include all modes of representing or reproducing words in visible form. Words importing the singular number only include the plural number and vice-versa. Words importing the masculine gender only include the feminine gender. Words importing persons only include corporations. 2. The business of the Company may be commenced as soon after incorporation as the Directors shall see fit, notwithstanding that part only of the shares may have been allotted. 3. The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the Company including the expenses of registration. CERTIFICATES FOR SHARES ----------------------- 4. Certificates representing shares of the Company shall be in such form as shall be determined by the Directors. Such certificates shall be under seal. All certificates for shares shall be consecutively numbered or otherwise identified and shall specify the shares to which they relate. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered in the register of members of the Company. All certificates surrendered to the Company for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled. The Directors may authorise certificates to be issued with the seal and authorised signature(s) affixed by some method or system of mechanical process. 5. Notwithstanding Article 4 of these Articles, if a share certificate be defaced, lost or destroyed, it may be renewed on payment of a fee of one dollar (US$l.00) or such less sum and on such terms (if any) as to evidence and indemnity and the payment of the expenses incurred by the Company in investigating evidence, as the Directors may prescribe. 3 ISSUE OF SHARES --------------- 6. (1) That the share capital of the Company with effect from the adoption of this amended Articles of Association is US$900,000.00 divided into 450,000 Class A Shares of US$1.00 par value each and 450,000 Class B Shares of US$1.00 par value each. (2) During such time as any Class A Share shall be in issue and outstanding, the Class B Shares shall not be entitled to attend or vote at or to receive notice of general meetings. (3) Class A Shares and Class B Shares shall rank pari passu for entitlement to dividends. (4) In a winding-up of the Company, the amount of assets available for distribution to the holders of Class A Shares shall be calculated in accordance with the formula as follows:- 30 x X = Y -- 100 where X is the aggregate amount of assets available for distribution to members; and where Y is the aggregate amount of assets available for distribution to the holders of Class A Shares. Each holder of a Class A Share shall be entitled to receive in respect of a distribution an amount of assets calculated in accordance with the following formula:- A x Y - B where A is the number of Class A Shares held by the shareholder in question; and where B is the number of Class A Shares in issue and outstanding. In a winding-up of the Company, the amount of assets available for distribution to the holders of Class B Shares shall be calculated in accordance with the formula as follows:- 70 x X = Z -- 100 where X is the aggregate amount of assets available for distribution to members; and where Z is the aggregate amount of assets available for distribution to the holders of Class B Shares. 4 Each holder of a Class B Share shall be entitled to receive in respect of a distribution an amount of assets calculated in accordance with the following formula:- C x Z - D where C is the number of Class B Shares held by the shareholder in question; and where D is the number of Class B Shares in issue and outstanding. (5) The Directors may allot, issue, grant options over or otherwise dispose of shares of the Company to such persons, at such times and on such other terms as they think proper. 7. The Company shall maintain a register of its members and every person whose name is entered as a member in the register of members shall be entitled without payment to receive within two months after allotment or lodgement of transfer (or within such other period as the conditions of issue shall provide) one certificate for all his shares or several certificates each for one or more of his shares upon payment of fifty cents (US$0.50) for every certificate after the first or such less sum as the Directors shall from time to time determine provided that in respect of a share or shares held jointly by several persons the Company shall not be bound to issue more than one certificate and delivery of a certificate for a share to one of the several joint holders shall be sufficient delivery to all such holders. TRANSFER OF SHARES ------------------ 8. The instrument of transfer of any share shall be in writing and shall be executed by or on behalf of the Transferor and the Transferor shall be deemed to remain the holder of a share until the name of the Transferee is entered in the register in respect thereof. 9. [Deleted by special resolution passed 21.11.00.] l0. The registration of transfers may be suspended at such time and for such periods as the Directors may from time to time determine, provided always that such registration shall not be suspended for more than forty-five days in any year. REDEEMABLE SHARES ----------------- ll. (a) Subject to the provisions of the Statute and the Memorandum of Association, shares may be issued on the terms that they are, or at the option of the Company or the holder are, to be redeemed on such terms and in such manner as the Company, before the issue of the shares, may by special resolution determine. (b) Subject to the provisions of the Statute and the Memorandum of Association, the Company may purchase its own shares, including any redeemable shares, provided that the manner of purchase has first been authorised by the Company in general 5 meeting and may make payment therefor in any manner authorised by the Statute, including out of capital. VARIATION OF RIGHTS OF SHARES ----------------------------- l2. If at any time the share capital of the Company is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound-up, be varied with the consent in writing of the holders of three-fourths of the issued shares of that class, or with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class. The provisions of these Articles relating to general meetings shall apply to every such general meeting of the holders of one class of shares except that the necessary quorum shall be one (l) person holding or representing by proxy at least one-third of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a poll. l3. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. COMMISSION ON SALE OF SHARES ---------------------------- l4. The Company may in so far as the Statute from time to time permits pay a commission to any person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any shares of the Company. Such commissions may be satisfied by the payment of cash or the lodgement of fully or partly paid-up shares or partly in one way and partly in the other. The Company may also on any issue of shares pay such brokerage as may be lawful. NON-RECOGNITION OF TRUSTS ------------------------- l5. No person shall be recognised by the Company as holding any share upon any trust and the Company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future, or partial interest in any share, or any interest in any fractional part of a share, or (except only as is otherwise provided by these Articles or the Statute) any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder. LIEN ON SHARES -------------- l6. The Company shall have a first and paramount lien and charge on all shares (whether fully paid-up or not) registered in the name of a member (whether solely or jointly with others) for all debts, liabilities or engagements to or with the Company (whether 6 presently payable or not) by such member or his estate, either alone or jointly with any other person, whether a member or not, but the Directors may at any time declare any share to be wholly or in part exempt from the provisions of this Article. The registration of a transfer of any such share shall operate as a waiver of the Company's lien (if any) thereon. The Company's lien (if any) on a share shall extend to all dividends or other monies payable in respect thereof. l7. The Company may sell, in such manner as the Directors think fit, any shares on which the Company has a lien, but no sale shall be made unless a sum in respect of which the lien exists is presently payable, nor until the expiration of fourteen days after a notice in writing stating and demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder or holders for the time being of the share, or the person, of which the Company has notice, entitled thereto by reason of his death or bankruptcy. l8. To give effect to any such sale the Directors may authorise some person to transfer the shares sold to the purchaser thereof. The purchaser shall be registered as theholder of the shares comprised in any such transfer, and he shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale. l9. The proceeds of such sale shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable and the residue, if any, shall (subject to a like lien for sums not presently payable as existed upon the shares before the sale) be paid to the person entitled to the shares at the date of the sale. CALL ON SHARES -------------- 20. (a) The Directors may from time to time make calls upon the members in respect of any monies unpaid on their shares (whether on account of the nominal value of the shares or by way of premium or otherwise) and not by the conditions of allotment thereof made payable at fixed terms, provided that no call shall exceed one-fourth of the nominal value of the share or be payable at less than one month from the date fixed for the payment of the last preceding call, and each member shall (subject to receiving at least fourteen days notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on the shares. A call may be revoked or postponed as the Directors may determine. A call may be made payable by instalments. (b) A call shall be deemed to have been made at the time when the resolution of the Directors authorising such call was passed. (c) The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof. 2l. If a sum called in respect of a share is not paid before or on a day appointed for payment thereof, the persons from whom the sum is due shall pay interest on the sum from the day appointed for payment thereof to the time of actual payment at such rate not 7 exceeding ten per cent per annum as the Directors may determine, but the Directors shall be at liberty to waive payment of such interest either wholly or in part. 22. Any sum which by the terms of issue of a share becomes payable on allotment or at any fixed date, whether on account of the nominal value of the share or by way of premium or otherwise, shall for the purposes of these Articles be deemed to be a call duly made, notified and payable on the date on which by the terms of issue the same becomes payable, and in the case of non-payment all the relevant provisions of theseArticles as to payment of interest forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified. 23. The Directors may, on the issue of shares, differentiate between the holders as to the amount of calls or interest to be paid and the times of payment. 24. (a) The Directors may, if they think fit, receive from any member willing to advance the same, all or any part of the monies uncalled and unpaid upon any shares held by him, and upon all or any of the monies so advanced may (until the same would but for such advances, become payable) pay interest at such rate not exceeding (unless the Company in general meeting shall otherwise direct) seven per cent (7%) per annum, as may be agreed upon between the Directors and the member paying such sum in advance. (b) No such sum paid in advance of calls shall entitle the member paying such sum to any portion of a dividend declared in respect of any period prior to the date upon which such sum would, but for such payment, become presently payable. FORFEITURE OF SHARES -------------------- 25. (a) If a member fails to pay any call or instalment of a call or to make any payment required by the terms of issue on the day appointed for payment thereof, the Directors may, at any time thereafter during such time as any part of the call, instalment or payment remains unpaid, give notice requiring payment of so much of the call, instalment or payment as is unpaid, together with any interest which may have accrued and all expenses that have been incurred by the Company by reason of such non-payment. Such notice shall name a day (not earlier than the expiration of fourteen days from the date of giving of the notice) on or before which the payment required by the notice is to be made, and shall state that, in the event of non-payment at or before the time appointed the shares in respect of which such notice was given will be liable to be forfeited. (b) If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Directors to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited share and not actually paid before the forfeiture. 8 (c) A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit and at any time before a sale or disposition theforfeiture may be cancelled on such terms as the Directors think fit. 26. A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares, but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture were payable by him to the Company in respect of the shares together with interest thereon, but his liability shall cease if and when the Company shall have received payment in full of all monies whenever payable in respect of the shares. 27. A certificate in writing under the hand of one Director and the Secretary of the Company that a share in the Company has been duly forfeited on a date stated in the declaration shall be conclusive evidence of the fact therein stated as against all persons claiming to be entitled to the share. The Company may receive the consideration given for the share on any sale or disposition thereof and may execute a transfer of the share in favour of the person to whom the share is sold or disposed of and he shall thereupon be registered as the holder of the share and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share. 28. The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of the share or by way of premium as if the same had been payable by virtue of a call duly made and notified. REGISTRATION OF EMPOWERING INSTRUMENTS -------------------------------------- 29. The Company shall be entitled to charge a fee not exceeding one dollar (US$l.00) on the registration of every probate, letters of administration, certificate of death or marriage, power of attorney, notice in lieu of distringas, or other instrument. TRANSMISSION OF SHARES ---------------------- 30. In case of the death of a member, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was a sole holder, shall be the only persons recognised by the Company as having any title to his interest in the shares, but nothing herein contained shall release the estate of any such deceased holder from any liability in respect of any shares which had been held by him solely or jointly with other persons. 3l. (a) Any person becoming entitled to a share in consequence of the death or bankruptcy of a member (or in any other way than by transfer) may, upon such evidence being produced as may from time to time be required by the Directors and subject as hereinafter provided, elect either to be registered himself as holder of the share or to make such transfer of the share to such other person nominated by him as the deceased or bankrupt person could have made and to have such person registered as the transferee thereof, but the Directors shall, in 9 either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by that member before his death or bankruptcy as the case may be. (b) If the person so becoming entitled shall elect to be registered himself as holder he shall deliver or send to the Company a notice in writing signed by him stating that he so elects. 32. A person becoming entitled to a share by reason of the death or bankruptcy of the holder (or in any other case than by transfer) shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as a member in respect of the share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company PROVIDED HOWEVER that the Directors may at any time give notice requiring any such person to elect either to be registered himself or to transfer the share and if the notice is not complied with within ninety days the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the share until the requirements of the notice have been complied with. AMENDMENT OF MEMORANDUM OF ASSOCIATION, CHANGE OF LOCATION OF REGISTERED OFFICE & ALTERATION OF CAPITAL ----------------------------------------------------- 33. (a) Subject to and in so far as permitted by the provisions of the Statute, the Company may from time to time by ordinary resolution alter or amend its Memorandum of Association otherwise than with respect to its name and objects and may, without restricting the generality of the foregoing: (i) increase the share capital by such sum to be divided into shares of such amount or without nominal or par value as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as the Company in general meeting may determine. (ii) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares; (iii) by subdivision of its existing shares or any of them divide the whole or any part of its share capital into shares of smaller amount than is fixed by the Memorandum of Association or into shares without nominal or par value; (iv) cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person. (b) All new shares created hereunder shall be subject to the same provisions with reference to the payment of calls, liens, transfer, transmission, forfeiture and otherwise as the shares in the original share capital. 10 (c) Subject to the provisions of the Statute the Company may by special resolution change its name or alter its objects. (d) Subject to the provisions of the Statute the Company may by special resolution reduce its share capital, any capital redemption reserve fund, or any share premium account. (e) Subject to the provisions of the Statute the Company may by resolution of the Directors change the location of its registered office. CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE ------------------------------------------------- 34. For the purpose of determining members entitled to notice of or to vote at any meeting of members or any adjournment thereof, or members entitled to receive payment of any dividend, or in order to make a determination of members for any other proper purpose, the Directors of the Company may provide that the register of members shall be closed for transfers for a stated period but not to exceed in any case forty (40) days. If the register of members shall be so closed for the purpose of determining members entitled to notice of or to vote at a meeting of members such register shall be so closed for at least ten (l0) days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the register of members. 35. In lieu of or apart from closing the register of members, the Directors may fix in advance a date as the record date for any such determination of members entitled to notice of or to vote at a meeting of the members and for the purposeof determining the members entitled to receive payment of any dividend the Directors may, at or within 90 days prior to the date of declaration of such dividend fix a subsequent date as the record date for such determination. 36. If the register of members is not so closed and no record date is fixed for the determination of members entitled to notice of or to vote at a meeting of members or members entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of members. When a determination of members entitled to vote at any meeting of members has been made as provided in this section, such determination shall apply to any adjournment thereof. GENERAL MEETING --------------- 37. (a) Subject to paragraph (c) hereof, the Company shall within one year of its incorporation and in each year of its existence thereafter hold a general meeting as its Annual General Meeting and shall specify the meeting as such in the notices calling it. The Annual General Meeting shall be held at such time and place as the Directors shall appoint and if no other time and place is prescribed by them, it shall be held at the registered office of the Company on the second Wednesday in December of each year at ten o'clock in the morning. 11 (b) At these meetings the report of the Directors (if any) shall be presented. (c) If the Company is exempted as defined in the Statute it may but shall not be obliged to hold an Annual General Meeting. 38. (a) The Directors may whenever they think fit, and they shall on the requisition of members of the Company holding at the date of the deposit of the requisition not less than onetenth of such of the paid-up capital of the Company as at the date of the deposit carries the right of voting at general meetings of the Company, proceed to convene a general meeting of the Company. (b) The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the Registered Office of the Company and may consist of several documents in like form each signed by one or more requisitionists. (c) If the Directors do not within twenty-one days from the date of the deposit of the requisition duly proceed to convene a general meeting, the requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three months after the expiration of the said twenty-one days. (d) A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by Directors. NOTICE OF GENERAL MEETINGS -------------------------- 39. At least five days' notice shall be given of an Annual General Meeting or any other general meeting. Every notice shall be exclusive of the day on which it is given or deemed to be given and of the day for which it is given and shall specify the place, the day and the hour of the meeting and the general nature of the business and shall be given in manner hereinafter mentioned or in such other manner if any as may be prescribed by the Company PROVIDED that a general meeting of the Company shall, whether or not the notice specified in this regulation has been given be deemed to have been duly called if it is so agreed: (a) in the case of a general meeting called as an Annual General Meeting by all the members entitled to attend and vote thereat or their proxies; and (b) in the case of any other general meeting by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than seventy-five per cent (75%) in nominal value or in the case of shares without nominal or par value seventy-five per cent (75%) of the shares in issue, or their proxies. 12 40. The accidental omission to give notice of a general meeting to, or the non-receipt of notice of a meeting by any person entitled to receive notice shall not invalidate the proceedings of that meeting. PROCEEDINGS AT GENERAL MEETINGS ------------------------------- 41. No business shall be transacted at any general meeting unless a quorum of members is present at the time when the meeting proceeds to business; two (2) members present in person or by proxy shall be a quorum provided always that if the Company has one shareholder of record the quorum shall be that one (l) member present in person or by proxy. 42. Subject and without prejudice to any provisions of the Statute, a resolution in writing (in one or more counterparts) signed by all members for the time being entitled to receive notice of and to attend and vote at general meetings (or being corporations by their duly authorised representatives) shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held. 43. If within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of members, shall be dissolved and in any other case it shall stand adjourned to the same day in the next week at the same time and place or to such other time or such other place as the directors may determine and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting the members present shall be a quorum. 44. The Chairman, if any, of the Board of Directors shall preside as Chairman at every general meeting of the Company, or if there is no such Chairman, or if he shall not be present within fifteen minutes after the time appointed for the holding of the meeting, or is unwilling to act, the Directors present shall elect one of their number to be Chairman of the meeting. 45. If at any general meeting no Director is willing to act as Chairman or if no Director is present within fifteen minutes after the time appointed for holding the meeting, the members present shall choose one of their number to be Chairman of the meeting. 46. The Chairman may, with the consent of any general meeting duly constituted hereunder, and shall if so directed by the meeting, adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a general meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in the case of an original meeting; save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned general meeting. 47. At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is, before or on the declaration of the result of the show of hands, demanded by the Chairman or any other member present in person or by proxy. 13 48. Unless a poll be so demanded a declaration by the Chairman that a resolution has on a show of hands been carried, or carried unanimously, or by a particular majority,or lost, and an entry to that effect in the Company's Minute Book containing the Minutes of the proceedings of the meeting shall be conclusive evidence of that fact without proof of the number or proportion of the votes recorded in favour of or against such resolution. 49. The demand for a poll may be withdrawn. 50. Except as provided in Article 52, if a poll is duly demanded it shall be taken in such manner as the Chairman directs and the result of the poll shall be deemed to be the resolution of the general meeting at which the poll was demanded. 51. In the case of an equality of votes, whether on a show of hands or on a poll, the Chairman of the general meeting at which the show of hands takes place or at which the poll is demanded, shall be entitled to a second or casting vote. 52. A poll demanded on the election of a Chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the Chairman of the general meeting directs and any business other than that upon which a poll has been demanded or is contingent thereon may be proceeded with pending the taking of the poll. VOTES OF MEMBERS ---------------- 53. Subject to any rights or restrictions for the time being attached to any class or classes of shares, on a show of hands every member of record present in person or by proxy at a general meeting shall have one vote and on a poll every member of record present in person or by proxy shall have one vote for each share registered in his name in the register. 54. In the case of joint holders of record the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members. 55. A member of unsound mind, or in respect of whom an order has been made by any court, having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee, receiver, curator bonis, or other person in the nature of a committee, receiver or curator bonis appointed by that court, and any such committee, receiver, curator bonis or other persons may vote by proxy. 56. No member shall be entitled to vote at any general meeting unless he is registered as a shareholder of the Company on the record date for such meeting nor unless all calls or other sums presently payable by him in respect of shares in the Company have been paid. 57. No objection shall be raised to the qualification of any voter except at the general meeting or adjourned general meeting at which the vote objected to is given or tendered 14 and every vote not disallowed at such general meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the Chairman of the general meeting whose decision shall be final and conclusive. 58. On a poll or on a show of hands votes may be given either personally or by proxy. PROXIES ------- 59. The instrument appointing a proxy shall be in writing and shall be executed under the hand of the appointor or of his attorney duly authorised in writing, or, if the appointor is a corporation under the hand of an officer or attorney duly authorised in that behalf. A proxy need not be a member of the Company. 60. The instrument appointing a proxy shall be deposited at the Registered Office of the Company or at such other place as is specified for that purpose in the notice convening the meeting no later than the time for holding the meeting, or adjourned meeting provided that the Chairman of the Meeting may at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited upon receipt of telex or cable confirmation from the appointor that the instrument of proxy duly signed is in the course of transmission to the Company. 61. The instrument appointing a proxy may be in any usual or common form and may be expressed to be for a particular meeting or any adjournment thereof or generally until revoked. An instrument appointing a proxy shall be deemed to include the power to demand or join or concur in demanding a poll. 62. A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the share in respect of which the proxy is given provided that no intimation in writing of such death, insanity, revocation or transfer as aforesaid shall have been received bythe Company at the office before the commencement of the general meeting, or adjourned meeting at which it is sought to use the proxy. 63. Any corporation which is a member of record of the Company may in accordance with its Articles or in the absence of such provision by resolution of its Directors or other governing body authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of members of the Company, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as the corporation could exercise if it were an individual member of record of the Company. 64. Shares of its own stock belonging to the Company or held by it in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time. 15 DIRECTORS --------- 65. There shall be a Board of Directors consisting of not less than one or more than ten persons (exclusive of Alternate Directors) PROVIDED HOWEVER that the Company may from time to time by ordinary resolution increase or reduce the limits in the number of Directors. The first Directors of the Company shall be determined in writing by the subscribers of the Memorandum of Association or a majority of them. 66. The remuneration to be paid to the Directors shall be such remuneration as the Directors shall determine. Such remuneration shall be deemed to accrue from day to day. The Directors shall also be entitled to be paid their travelling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the Directors, or any committee of the Directors, or general meetings of the Company, or otherwise in connection with the business of the Company, or to receive a fixed allowance in respect thereof as may be determined by the Directors from time to time, or a combination partly of one such method and partly the other. 67. The Directors may by resolution award special remuneration to any Director of the Company undertaking any special work or services for, or undertaking any special mission on behalf of, the Company other than his ordinary routine work as a Director. Any fees paid to a Director who is also counsel or solicitor to the Company, or otherwise serves it in a professional capacity shall be in addition to his remuneration as a Director. 68. A Director or Alternate Director may hold any other office or place of profit under the Company (other than the office of Auditor) in conjunction with his office of Director for such period and on such terms as to remuneration and otherwise as the Directors may determine. 69. A Director or Alternate Director may act by himself or his firm in a professional capacity for the Company and he or his firm shall be entitled to remuneration for professional services as if he were not a Director or Alternate Director. 70. A shareholding qualification for Directors may be fixed by the Company in general meeting, but unless and until so fixed no qualification shall be required. 71. A Director or Alternate Director of the Company may be or become a Director or other Officer of or otherwise interested in any company promoted by the Company or in which the Company may be interested as shareholder or otherwise and no such Director or Alternate Director shall be accountable to the Company for any remuneration or other benefits received by him as a Director or Officer of, or from his interest in, such other company. 72. No person shall be disqualified from the office of Director or Alternate Director or prevented by such office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any contract or transaction entered into by or on behalf of the Company in which any Director or Alternate Director shall be in any way 16 interested be or be liable to be avoided, nor shall any Director or Alternate Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or transaction by reason of such Director holding office or of the fiduciary relation thereby established. A Director (or his Alternate Director in his absence) shall be at liberty to vote in respect of any contract or transaction in which he is so interested as aforesaid PROVIDED HOWEVER that the nature of the interest of any Director or Alternate Director in any such contract or transaction shall be disclosed by him or the Alternate Director appointed by him at or prior to its consideration and any vote thereon. 73. A general notice that a Director or Alternate Director is a shareholder of any specified firm or company and is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure under Article 72 and after such general notice it shall not be necessary to give special notice relating to any particular transaction. ALTERNATE DIRECTORS ------------------- 74. Subject to the exception contained in Article 82, a Director who expects to be unable to attend Directors' Meetings because of absence, illness or otherwise may appoint any person to be an Alternate Director to act in his stead and such appointee whilst he holds office as an Alternate Director shall, in the event of absence therefrom of his appointor, be entitled to attend meetings of the Directors and to vote thereat and to do, in the place and stead of his appointor, any other act or thing which his appointor is permitted or required to do by virtue of his being a Director as if the Alternate Director were the appointor, other than appointment of an Alternate to himself, and he shall ipso facto vacate office if and when his appointor ceases to be a Director or removes the appointee from office. Any appointment or removal under this Article shall be effected by notice in writing under the hand of the Director making the same. POWERS AND DUTIES OF DIRECTORS ------------------------------ 75. The business of the Company shall be managed by the Directors (or a sole Director if only one is appointed) who may pay all expenses incurred in promoting, registering and setting up the Company, and may exercise all such powers of the Company as are not, from time to time by the Statute, or by these Articles, or such regulations, being not inconsistent with the aforesaid, as may be prescribed by the Company in general meeting required to be exercised by the Company in general meeting PROVIDED HOWEVER that no regulations made by the Company in general meeting shall invalidate any prior act of the Directors which would have been valid if that regulation had not been made. 76. The Directors may from time to time and at any time by powers of attorney appoint any company, firm, person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purpose and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such powers of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorneys as the Directors may think fit and may 17 also authorise any such attorney to delegate all or any of the powers, authorities and discretions vested in him. 77. All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for monies paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed as the case may be in suchmanner as the Directors shall from time to time by resolution determine. 78. The Directors shall cause Minutes to be made in books provided for the purpose : (a) of all appointments of Officers made by the Directors; (b) of the names of the Directors (including those represented thereat by an Alternate or by proxy) present at each meeting of the Directors and of any committee of the Directors; (c) of all resolutions and proceedings at all meetings of the Company and of the Directors and of Committees of Directors. 79. The Directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any Director who has held any other salaried office or place of profit with the Company or to his widow or dependents and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance. 80. The Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof and to issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the Company or of any third party. MANAGEMENT ---------- 81. (a) The Directors may from time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the three next following paragraphs shall be without prejudice to the general powers conferred by this paragraph. (b) The Directors from time to time and at any time may establish any committees, local boards or agencies for managing any of the affairs of the Company and may appoint any persons to be members of such committees or local boards or any managers or agents and may fix their remuneration. (c) The Directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorise the members for the time being of any such local board, or any of them to fill up any vacancies therein and to act notwithstanding vacancies 18 and any such appointment ordelegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any person so appointed and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby. (d) Any such delegates as aforesaid may be authorised by the Directors to subdelegate all or any of the powers, authorities, and discretions for the time being vested in them. MANAGING DIRECTORS ------------------ 82. The Directors may, from time to time, appoint one or more of their body (but not an Alternate Director) to the office of Managing Director for such term and at such remuneration (whether by way of salary, or commission, or participation in profits, or partly in one way and partly in another) as they may think fit but his appointment shall be subject to determination ipso facto if he ceases from any cause to be a Director and no Alternate Director appointed by him can act in his stead as a Director or Managing Director. 83. The Directors may entrust to and confer upon a Managing Director any of the powers exercisable by them upon such terms and conditions and with such restrictions as they may think fit and either collaterally with or to the exclusion of their own powers and may from time to time revoke, withdraw, alter or vary all or any of such powers. PROCEEDINGS OF DIRECTORS ------------------------ 84. Except as otherwise provided by these Articles, the Directors shall meet together for the despatch of business, convening, adjourning and otherwise regulating their meetings as they think fit. Questions arising at any meeting shall be decided by a majority of votes of the Directors and Alternate Directors present at a meeting at which there is a quorum, the vote of an Alternate Director not being counted if his appointor be present at such meeting. In case of an equality of votes, the Chairman shall have a second or casting vote. No meeting of the Directors shall be held in Singapore and any decision reached or resolution passed by the directors at any meeting which is purportedly held in Sinagpre shall be invalid and of no effect. 85. A Director or Alternate Director may, and the Secretary on the requisition of a Director or Alternate Director shall, at any time summon a meeting of the Directors by at least five days' notice in writing to every Director and Alternate Director which notice shall set forth the general nature of the business to be considered unless notice is waived by all the Directors (or their Alternates) either at, before or after the meeting is held and PROVIDED FURTHER if notice is given in person, by cable, telex or telecopy the same shall be deemed to have been given on the day it is delivered to theDirectors or transmitting organisation as the case may be. The provisions of Article 40 shall apply mutatis mutandis with respect to notices of meetings of Directors. 86. The quorum necessary for the transaction of the business of the Directors may be fixed by the Directors and unless so fixed shall be two, a Director and his appointed 19 Alternate Director being considered only one person for this purpose, PROVIDED ALWAYS that if there shall at any time be only a sole Director the quorum shall be one. For the purposes of this Article an Alternate Director or proxy appointed by a Director shall be counted in a quorum at a meeting at which the Director appointing him is not present. 87. The continuing Directors may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors the continuing Directors or Director may act for the purpose of increasing the number of Directors to that number, or of summoning a general meeting of the Company, but for no other purpose. 88. The Directors may elect a Chairman of their Board and determine the period for which he is to hold office; but if no such Chairman is elected, or if at any meeting the Chairman is not present within five minutes after the time appointed for holding the same, the Directors present may choose one of their number to be Chairman of the meeting. 89. The Directors may delegate any of their powers to committees consisting of such member or members of the Board of Directors (including Alternate Directors in the absence of their appointors) as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors. 90. A committee may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the members present, and in the case of an equality of votes the Chairman shall have a second or casting vote. 91. All acts done by any meeting of the Directors or of a committee of Directors (including any person acting as an Alternate Director) shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or Alternate Director, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and qualified to be a Director or Alternate Director as the case may be. 92. Members of the Board of Directors or of any committee thereof may participate in a meeting of the Board or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. A resolution in writing (in one or more counterparts), signed by all the Directors for the time being or all the members of a committee of Directors (an Alternate Director being entitled to sign such resolution on behalf of his appointor) shall be as valid and effectual as if it had been passed at a meeting of the Directors or committee as the case may be duly convened and held. 93. (a) A Director may be represented at any meetings of the Board of Directors by a proxy appointed by him in which event the presence or vote of the proxy shall for all purposes be deemed to be that of the Director. 20 (b) The provisions of Articles 59-62 shall mutatis mutandis apply to the appointment of proxies by Directors. VACATION OF OFFICE OF DIRECTOR ------------------------------ 94. The office of a Director shall be vacated: (a) If he gives notice in writing to the Company that he resigns the office of Director; (b) If he absents himself (without being represented by proxy or an Alternate Director appointed by him) from three consecutive meetings of the Board of Directors without special leave of absence from the Directors, and they pass a resolution that he has by reason of such absence vacated office; (c) If he dies, becomes bankrupt or makes any arrangement or composition with his creditors generally; (d) If he is found a lunatic or becomes of unsound mind. APPOINTMENT AND REMOVAL OF DIRECTORS ------------------------------------ 95. The Company may by ordinary resolution appoint any person to be a Director and may in like manner remove any Director and may in like manner appoint another person in his stead. 96. The Directors shall have power at any time and from time to time to appoint any person to be a Director, either to fill a casual vacancy or as an addition to the existing Directors but so that the total amount of Directors (exclusive of Alternate Directors) shall not at any time exceed the number fixed in accordance with these Articles. PRESUMPTION OF ASSENT --------------------- 97. A Director of the Company who is present at a meeting of the Board of Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the Minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Company immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action. SEAL ---- 98. The Seal shall only be used by the authority of the Directors or of a committee of the Directors authorised by the Directors in that behalf and every instrument to 21 which the Seal has been affixed shall be signed by one person who shall be either a Director or the Secretary or Secretary-Treasurer or some person appointed by the Directors for the purpose. PROVIDED THAT the Company may have for use in any territory district or place not situate in the Cayman Islands, an official seal which shall be a facsimile of the Common Seal of the Company with the addition on its face of the name of every territory district or place where it is to be used. PROVIDED FURTHER THAT a Director, Secretary or other officer or representative or attorney may without further authority of the Directors affix the Seal of the Company over his signature alone to any document of the Company required to be authenticated by him under Seal or to be filed with the Registrar of Companies in the Cayman Islands or elsewhere wheresoever. OFFICERS -------- 99. The Company may have a President, a Secretary or Secretary-Treasurer appointed by the Directors who may also from time to time appoint such other Officers as they consider necessary, all for such terms, at such remuneration and to perform such duties, and subject to such provisions as to disqualification and removal as the Directors from time to time prescribe. DIVIDENDS AND RESERVE --------------------- l00. Subject to the Statute, the Directors may from time to time declare dividends on shares of the Company outstanding and authorise payment of the same out of the funds of the Company and may from time to time pay to the members such interim dividends as appear to the Directors to be justified by the profits of the Company. l01. The Directors may, before declaring any dividends, set aside such sums as they think proper as a reserve or reserves which shall at the discretion of the Directors, be applicable for any purpose of the Company and pending such application may, at the like discretion, be employed in the business of the Company. l02. No dividend shall be payable except out of the profits of the Company, realised or unrealised. l03. Subject to the rights of persons, if any, entitled to shares with special rights as to dividends, if dividends are to be declared on a class of shares they shall be declared and paid according to the amounts paid or credited as paid on the shares of such class outstanding on the record date for such dividend as determined in accordance with these Articles but no amount paid or credited as paid on a share in advance of calls shall be treated for the purpose of this Article as paid on the share. l04. The Directors may deduct from any dividend payable to any member all sums of money (if any) presently payable by him to the Company on account of calls or otherwise. 22 l05. The Directors may declare that any dividend be paid wholly or partly by the distribution of specific assets and in particular of paid up shares, debentures, or debenture stock of any other company or in any one or more of such ways and where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular may issue fractional certificates and fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any members upon the footing of the value so fixed in order to adjust the rights of all members and may vest any such specific assets in trustees as may seem expedient to the Directors. l06. Any dividend, interest or other monies payable in cash in respect of shares may be paid by cheque or warrant sent through the post directed to the registered address of the holder or, in the case of joint holders, to the holder who is first named on the register of members or to such person and to such address as such holder or joint holders may in writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent. Any one of two or more joint holders may give effectual receipts for any dividends, bonuses, or other monies payable in respect of the share held by them as joint holders. l07. No dividend shall bear interest against the Company. CAPITALISATION -------------- l08. The Company may upon the recommendation of the Directors by ordinary resolution authorise the Directors to capitalise any sum standing to the credit of any of the Company's reserve accounts (including share premium account and capital redemption reserve fund) or any sum standing to the credit of profit and loss account or otherwise available for distribution and to appropriate such sum to members in the proportions in which such sum would have been divisible amongst them had the same been a distribution of profits by way of dividend and to apply such sum on their behalf in paying up in full unissued shares (not being redeemable shares) for allotment and distribution credited as fully paid up to and amongst them in the proportion aforesaid. In such event the Directors shall do all acts and things required to give effect to such capitalisation, with full power to the Directors to make such provisions as they think fit for the case of shares becoming distributable in fractions (including provisions whereby the benefit of fractional entitlements accrue to the Company rather than to the members concerned). The Directors may authorise any person to enter on behalf of all of the members interested into an agreement with the Company providing for such capitalisation and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned. BOOKS OF ACCOUNT ---------------- l09. The Directors shall cause proper books of account to be kept with respect to: (a) all sums of money received and expended by the Company and the matters in respect of which the receipt or expenditure takes place; 23 (b) all sales and purchases of goods by the Company; (c) the assets and liabilities of the Company. Proper books shall not be deemed to be kept if there are not kept such books of account as are necessary to give a true and fair view of the state of the Company's affairs and to explain its transactions. 110. The Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of members not being Directors and no member (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by Statute or authorised by the Directors or by the Company in general meeting. 111. The Directors shall from time to time cause to be prepared and to be laid before the Company in general meeting profit and loss accounts, balance sheets, group accounts (if any) and such other reports and accounts as may be required by law. AUDIT ----- 112. The Company may at any Annual General Meeting appoint an Auditor or Auditors of the Company who shall hold office until the next Annual General Meeting and may fix his or their remuneration. 113. The Directors may before the first Annual General Meeting appoint an Auditor or Auditors of the Company who shall hold office until the first Annual General Meeting unless previously removed by an ordinary resolution of the members in general meeting in which case the members at that meeting may appoint Auditors. The Directors may fill any casual vacancy in the office of Auditor but while any such vacancy continues the surviving or continuing Auditor or Auditors, if any, may act. The remuneration of any Auditor appointed by the Directors under this Article may be fixed by the Directors. 114. Every Auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and Officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors. 115. Auditors shall at the next Annual General Meeting following their appointment and at any other time during their term of office, upon request of the Directors or any general meeting of the members, make a report on the accounts of the Company in general meeting during their tenure of office. 24 NOTICES ------- 116. Notices shall be in writing and may be given by the Company to any member either personally or by sending it by post, cable, telex or telecopy to him or to his address as shown in the register of members, such notice, if mailed, to be forwarded airmail if the address be outside the Cayman Islands. 117. (a) Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, pre-paying and posting a letter containing the notice, and to have been effected at the expiration of sixty hours after the letter containing the same is posted as aforesaid. (b) Where a notice is sent by cable, telex, or telecopy, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organisation and to have been effected on the day the same is sent as aforesaid. 118. A notice may be given by the Company to the joint holders of record of a share by giving the notice to the joint holder first named on the register of members in respect of the share. 119. A notice may be given by the Company to the person or persons which the Company has been advised are entitled to a share or shares in consequence of the death or bankruptcy of a member by sending it through the post as aforesaid in a pre-paid letter addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt, or by any like description at the address supplied for that purpose by the persons claiming to be so entitled, or at the option of the Company by giving the notice in any manner in which the same might have been given if the death or bankruptcy had not occurred. 120. Notice of every general meeting shall be given in any manner hereinbefore authorised to: (a) every person shown as a member in the register of members as of the record date for such meeting except that in the case of joint holders the notice shall be sufficient if given to the joint holder first named in the register of members. (b) every person upon whom the ownership of a share devolves by reason of his being a legal personal representative or a trustee in bankruptcy of a member of record where the member of record but for his death or bankruptcy would be entitled to receive notice of the meeting; and No other person shall be entitled to receive notices of general meetings. 25 WINDING UP ---------- 121. If the Company shall be wound up the Liquidator may, with the sanction of a special resolution of the Company and any other sanction required by the Statute, divide amongst the members in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for such purpose set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members. The Liquidator may with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the Liquidator, with the like sanction, shall think fit, but so that no member shall be compelled to accept any shares or other securities whereon there is any liability. 122. If the Company shall be wound up, and the assets available for distribution amongst the members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively. And if in a winding up the assets available for distribution amongst the members shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed amongst the members in proportion to the capital paid up at the commencement of the winding up on the shares held by them respectively. This Article is to be without prejudice to the rights of the holders of shares issued upon special terms and conditions. INDEMNITY --------- 123. The Directors, Auditors and Officers for the time being of the Company and any trustee for the time being acting in relation to any of the affairs of the Company and their heirs, executors, administrators and personal representatives respectively shall be indemnified out of the assets of the Company from and against all actions, proceedings, costs, charges, losses, damages and expenses which they or any of them shall or may incur or sustain by reason of any act done or omitted in or about the execution of their duty in their respective offices or trusts, except such (if any) as they shall incur or sustain by or through their own wilful neglect or default respectively and no such Director, Auditor, Officer or trustee shall be answerable for the acts, receipts,neglects or defaults of any other Director, Auditor, Officer or trustee or for joining in any receipt for the sake of conformity or for the solvency or honesty of any banker or other persons with whom any monies or effects belonging to the Company may be lodged or deposited for safe custody or for any insufficiency of any security upon which any monies of the Company may be invested or for any other loss or damage due to any such cause as aforesaid or which may happen in or about the execution of his office or trust unless the same shall happen through the wilful neglect or default of such Director, Auditor, Officer or trustee. FISCAL YEAR ----------- 26 124. The Fiscal Year of the Company shall begin on the date of incorporation of the Company and the anniversary date thereof in each year ending the day prior to the anniversary date in each year unless the Directors prescribe some other period therefor. AMENDMENTS OF ARTICLES ---------------------- 125. Subject to the Statute, the Company may at any time and from time to time by special resolution alter or amend these Articles in whole or in part. 27 DATED this 10th day of May, 1984. Antony Duckworth - ---------------- Antony Duckworth, Solicitor P.O. Box 309, Grand Cayman John Dyke - --------- John Dyke, Solicitor P.O. Box 309, Grand Cayman Timothy Ridley - -------------- Timothy Ridley, Solicitor P.O. Box 309, Grand Cayman Jennifer Platten - ---------------- Witness to the above Signatures I, D. O. Solomon, Dep. Registrar of Companies in and for the Cayman Islands DO HEREBY CERTIFY that this is a true and correct copy of the Articles of Association of this Company duly incorporated on the 14th day of May, l984. D. O. Solomon ------------- Dep. Registrar of Companies EX-3.2(A) 14 0014.txt MEMORANDUM OF ASSOCIATION OF NEW SAC EXHIBIT 3.2(a) THE COMPANIES LAW (2000 REVISION) Company Limited by Shares MEMORANDUM OF ASSOCIATION OF NEW SAC 1. The name of the Company is NEW SAC. 2. The Registered Office of the Company will be situate at the offices of MAPLES & CALDER, P.O. BOX 309GT, UGLAND HOUSE, SOUTH CHURCH STREET, GEORGE TOWN, GRAND CAYMAN, CAYMAN ISLANDS or at such other location as the Directors may from time to time determine. 3. The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by any law as provided by Section 7(4) of The Companies Law (2000 Revision). 4. The Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit as provided by Section 27(2) of The Companies Law (2000 Revision). 5. Nothing in the preceding sections shall be deemed to permit the Company to carry on the business of a Bank or Trust Company without being licensed in that behalf under the provisions of the Banks & Trust Companies Law (2000 Second Revision), or to carry on Insurance Business from within the Cayman Islands or the business of an Insurance Manager, Agent, Sub-agent or Broker without being licensed in that behalf under the provisions of the Insurance Law (1999 Revision), or to carry on the business of Company Management without being licensed in that behalf under the provisions of the Companies Management Law (2000 Revision). 6. The Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands; Provided that nothing in this section shall be construed as to prevent the Company effecting and concluding contracts in the Cayman Islands, and exercising in the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands. 7. The liability of the members is limited to the amount, if any, unpaid on the shares respectively held by them. 8. The capital of the Company is US$22,000 comprising 100 million Ordinary Shares with a par value of US$0.0001 and having the rights and preferences attached thereto as set out in the Articles of Association (the "Ordinary Shares"); and 100 million Preferred Shares with a par value of US$0.0001 having the rights and preferences attached thereto as set out in the Articles of Association (the "Preferred Shares"); and 20 million Non-Voting Ordinary Shares with a par value of US$0.0001 having the rights and preferences attached thereto as set out in the Articles of Association (the "Non-Voting Ordinary Shares"); provided always that, subject to the provisions of The Companies Law (2000 Revision) and the Articles of Association, the Company shall have power to redeem or purchase any of its shares and to sub-divide or consolidate the said shares or any of them and to issue all or any part of its capital whether original, redeemed, increased or reduced with or without any preference, priority or special privilege or subject to any postponement of rights or to any conditions or restrictions whatsoever and so that unless the conditions of issue shall otherwise expressly provide every issue of shares whether stated to be Ordinary, Preferred, Non-Voting Ordinary or otherwise shall be subject to the powers on the part of the Company hereinbefore provided. 9. The Company may exercise the power contained in Section 224 of The Companies Law (2000 Revision) to deregister in the Cayman Islands and be registered by way of continuation in some other jurisdiction. EX-3.2(B) 15 0015.txt ARTICLES OF ASSOCIATION OF NEW SAC EXHIBIT 3.2(b) THE COMPANIES LAW (2000 REVISION) COMPANY LIMITED BY SHARES ARTICLES OF ASSOCIATION OF NEW SAC TABLE A The Regulations contained or incorporated in Table 'A' in the First Schedule of the Companies Law (2000 Revision) shall not apply to this Company and the following Articles shall comprise the Articles of Association of the Company as amended and restated on 17 November 2000. INTERPRETATION 1. In these Articles: "COMPANIES LAW" means the Companies Law (2000 Revision) of the Cayman Islands and any statutory amendment or re-enactment thereof. Where any provision of the Companies Law is referred to, the reference is to that provision as amended by any law for the time being in force; "COMPANY" means New SAC; "DESIGNATED SUBSIDIARY" means each of Seagate Technology Holdings, Seagate Technology HDD Holdings, Seagate Software (Cayman) Holdings, Seagate Technology SAN Holdings, Seagate Removable Storage Solutions Holdings, Seagate Technology Investment Holdings LLC and the shares of Iolon, Inc. held by Seagate Technology Investment Holdings LLC as of 22 November 2000; "DESIGNATED SUBSIDIARY DISTRIBUTION" means, with respect to a particular Designated Subsidiary, any dividend or distribution actually paid or made by the Company in respect of its share capital and which is attributable to the properties or assets of such Designated Subsidiary, as determined in good faith by the Board; provided, that any such dividend or distribution actually paid or made by the Company that consists of securities of such Designated Subsidiary shall be deemed to be a Designated Subsidiary Distribution with respect to such Designated Subsidiary and, provided, further, that (i) a Designated Subsidiary Distribution with respect to either Seagate Technology HDD Holdings or Seagate Technology SAN Holdings shall also be deemed to be a Designated Subsidiary Distribution with respect to Seagate Technology Holdings and (ii) a Designated Subsidiary Distribution with respect to Seagate Technology Holdings shall also be deemed to be a Designated Subsidiary Distribution with respect to Seagate Technology HDD Holdings and/or Seagate Technology SAN Holdings to the extent and only to the extent that such Designated Subsidiary Distribution with respect to Seagate Technology Holdings is attributable to the properties or assets of Seagate Technology HDD Holdings or Seagate Technology SAN Holdings, respectively, as determined in good faith by the Board. If any dividend or distribution is paid or made prior to a Liquidation Event and is not attributable to the properties or assets of any Designated Subsidiary or Designated Subsidiaries then such dividend or distribution shall be allocated among each Designated Subsidiary in the same proportion that the Preference Amount of each such Designated Subsidiary bears to the sum of all Preference Amounts and such allocated amount shall be deemed to be a Designated Subsidiary Distribution with respect to each such Designated Subsidiary; "DIRECTORS" and "BOARD OF DIRECTORS" and "BOARD" means the Directors of the Company for the time being, or as the case may be, the Directors assembled as a Board or as a committee thereof; "LIQUIDATION EVENT" means any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary; "MEMBER" means a person whose name is entered in the register of members as the holder of a share or shares and includes each subscriber of the Memorandum pending the issue to him of the subscriber share or shares; "MEMORANDUM OF ASSOCIATION" means the Memorandum of Association of the Company, as amended and re-stated from time to time; "NON-VOTING ORDINARY SHARES" has the meaning given thereto in the Memorandum of Association; "ORDINARY RESOLUTION" means a resolution: (a) passed by a simple majority of such Members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of the Company and where a poll is taken regard shall be had in computing a majority to the number of votes to which each Member is entitled; or (b) approved in writing by all of the Members entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Members and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments if more than one, is executed; "ORDINARY SHARES" has the meaning given thereto in the Memorandum of Association; "PAID UP" means paid up as to the par value and any premium payable in respect of the issue of any shares and includes credited as paid up; "PAYMENT IN FULL OF THE RELATED PREFERENCE AMOUNT" with respect to a particular Designated Subsidiary is deemed to have been made at such time as the aggregate amount of Designated Subsidiary Distributions with respect to such Designated Subsidiary paid and/or made in respect of the Preferred Shares equals the Preference Amount for such Designated Subsidiary; "PREFERENCE AMOUNT" means, with respect to each Designated Subsidiary, the amounts set out in Resolutions of the Board from time to time; "PREFERRED SHARES" has the meaning given thereto in the Memorandum of Association; "REGISTER OF MEMBERS" means the register to be kept by the Company in accordance with Section 40 of the Companies Law; "SEAL" means the Common Seal of the Company including any facsimile thereof; "SHARE" means any share in the capital of the Company, including a fraction of any share; "SIGNED" includes a signature or representation of a signature affixed by mechanical means; "TAX DISTRIBUTION" shall have the meaning given that term in the Shareholders Agreement, dated as of the date hereof (as the same may hereafter be amended from time to time), among the Company and the Shareholders party thereto. 2. In these Articles, save where the context requires otherwise: (a) words importing the singular number shall include the plural number and vice versa; (b) words importing the masculine gender only shall include the feminine gender; (c) words importing persons only shall include companies or associations or bodies of persons, whether corporate or not; (d) "may" shall be construed as permissive and "shall" shall be construed as imperative; (e) a reference to a dollar or dollars (or $) is a reference to dollars of the United States; and (f) references to a statutory enactment shall include reference to any amendment or re-enactment thereof for the time being in force. 3. Subject to the last two preceding Articles, any words defined in the Companies Law shall, if not inconsistent with the subject or context, bear the same meaning in these Articles. PRELIMINARY 4. The business of the Company may be commenced as soon after incorporation as the Directors see fit, notwithstanding that part only of the shares may have been allotted or issued. 5. The registered office of the Company shall be at such address in the Cayman Islands as the Directors shall from time to time determine. The Company may in addition establish and maintain such other offices and places of business and agencies in such places as the Directors may from time to time determine. SHARES 6. Subject as otherwise provided in these Articles, all shares in the capital of the Company for the time being and from time to time unissued shall be under the control of the Directors, and may be re-designated, allotted or disposed of in such manner, to such persons and on such terms as the Directors in their absolute discretion may think fit. 7. The Company may in so far as may be permitted by law, pay a commission to any person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any shares. Such commissions may be satisfied by the payment of cash or the lodgement of fully or partly paid-up shares or partly in one way and partly in the other. The Company may also on any issue of shares pay such brokerage as may be lawful. ORDINARY SHARES 8. The holders of Ordinary Shares shall be entitled to receive such dividends and distributions as may be declared, paid or made (or set apart for payment) from time to time by the Board; provided that, (i) prior to a Liquidation Event, no Designated Subsidiary Distribution with respect to any Designated Subsidiary shall be declared, paid or made (or set apart for payment) on or in respect of the Ordinary Shares prior to the Payment in Full of the Related Preference Amount with respect to such Designated Subsidiary and after Payment in Full of the Related Preference Amount with respect to such Designated Subsidiary, no Designated Subsidiary Distribution with respect to such Designated Subsidiary shall be declared, paid or made (or set apart for payment) on or in respect of the Preferred Shares; (ii) upon a Liquidation Event, no dividends or distributions shall be declared, paid or made (or set apart or payment) on or in respect of the Ordinary Shares until payment in full of the Liquidation Preference (as defined below) in respect of the outstanding Preferred Shares and (iii) prior to payment in full of the Liquidation Preference, no dividend or distribution shall be declared or made that is not a Designated Subsidiary Distribution or a Tax Distribution. Any Tax Distribution shall be made to holders of Ordinary Shares (including holders of unvested Ordinary Shares subject to a restricted share agreement with the Company for which an election under Section 83(b) of the United States Internal Revenue Code of 1986, as amended, has been made) on a pro rata basis, based on the number of the Ordinary Shares held by each such holder. Such dividends and distributions shall be paid and/or made as provided in these Articles. 9. After payment in full of the Liquidation Preference, any remaining assets of the Company legally available for distribution, if any, shall be distributed ratably among the holders of Ordinary Shares on a pro rata basis, based on the number of Ordinary Shares held by each such holder. 10. The value of any property not consisting of cash which is distributed by the Company to the holders of Ordinary Shares or Preferred Shares pursuant to these Articles of Association will equal the Fair Market Value of such property. For all purposes hereunder, the "Fair Market Value" of any property shall mean the fair market value thereof as determined in good faith by the Board; provided, however, that the value of any securities will be determined as follows: (i) if traded on a securities exchange or through the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such securities exchange or the Nasdaq National Market, as applicable, over the thirty (30) day period ending three (3) days prior to the date of distribution; (ii) if actively traded over-the-counter, the value shall be deemed to be the average of the closing or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the date of distribution; and (iii) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board. 11. Each holder of Ordinary Shares shall have one vote in respect of each Ordinary Share held by such holder with respect to any and all matters presented to the shareholders of the Company for their action or consideration. NON-VOTING ORDINARY SHARES 12. The Non-Voting Ordinary Shares shall have no voting rights. 13. The Non-Voting Ordinary Shares at any time or from time to time are convertible into Ordinary Shares at the option of the holder thereof on a share-for-share basis; provided, however, that the holder of any Non-Voting Ordinary Shares that were initially issued by the Company to August Capital III, L.P., whether or not as nominee, shall not be entitled to convert any Non-Voting Ordinary Shares into Ordinary Shares if such conversion would cause either (i) August Capital III, L.P., August Capital III Founders Fund, L.P. and August Capital Strategic Partners III, L.P. to, in the aggregate, be the owner of more than 9.6% of the shares of the Company that are entitled to vote or (ii) any of August Capital III, L.P., August Capital III Founders Fund, L.P., August Capital Strategic Partners III, L.P. or August Capital Management III, L.L.C. to be a "United States Shareholder" within the meaning of Section 951(b) of the United States Internal Revenue Code of 1986, as amended. Conversion will occur by way of redemption of the Non-Voting Ordinary Shares, and issue of Ordinary Shares. 14. The Non-Voting Ordinary Shares shall, except as set out in the Articles 12 and 13, have the same terms as the Ordinary Shares in all respects, and shall rank pari passu therewith. Reference to Ordinary Shares in Articles 8, 9 and 10 should be construed as referring to Ordinary Shares and Non-Voting Ordinary Shares. Without limiting the foregoing, any notices sent to a holder of Ordinary Shares pursuant to these Articles shall also be sent in the same manner to holders of Non-Voting Ordinary Shares. The Company shall not in any manner subdivide (by stock split, stock dividend or otherwise), or combine (by reverse stock split or otherwise) the outstanding Ordinary Shares of any class unless the outstanding Ordinary Shares of all other classes outstanding shall be proportionately subdivided or combined. All such subdivisions and combinations shall be payable only in Ordinary Shares to the holders of Ordinary Shares and in Non-Voting Ordinary Shares to the holders of Non-Voting Ordinary Shares. PREFERRED SHARES 15. The holders of Preferred Shares shall be entitled to receive such dividends and distributions as may be declared, paid or made (or set apart for payment) on or in respect of the Preferred Shares as may be declared, paid or made (or set apart for payment) from time to time by the Board. Dividends and distributions shall be paid and/or made in preference to dividends and distributions on or in respect of Ordinary Shares to the extent provided in these Articles. 16. The Preferred Shares may be issued in one or more series at such time or times and for consideration or considerations as the Board of Directors of the Company may determine. Each series shall be so designated as to distinguish the shares thereof from the shares of all other series and classes. 17. Upon any Liquidation Event, before any distribution or payment shall be made to the holders of any Ordinary Shares, the holders of Preferred Shares shall be entitled to be paid out of the remaining assets of the Company legally available for distribution with respect to all shares of Preferred Shares then outstanding an amount in cash (to be shared ratably by the holders of Preferred Shares) equal to US$100 per Preferred Share (such amount, the "Liquidation Preference") less the aggregate amount of all distributions and dividend made per Preferred Share. If upon any such liquidation, dissolution or winding up of the Company, if the remaining assets of the Company available for distribution to its shareholders shall be insufficient to pay the holders of Preferred Shares the full Liquidation Preference on each Preferred Share, the holders of Preferred Shares shall share ratably in any distribution of the remaining assets of the Company in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. 18. After payment in full of the Liquidation Preference on each Preferred Share, the Preferred Shares shall be redeemed in full by the Company to the extent that Preferred Shares are redeemed in full, such Shares shall be cancelled, and the nominal value of those Preferred Shares shall be diminished accordingly. The redemption shall not be taken as reducing the authorised share capital. 19. Holders of Preferred Shares shall have no voting rights. VARIATION OF RIGHTS ATTACHING TO SHARES 20. If at any time the share capital is divided into different classes of shares, the rights attaching to any class (unless otherwise provided by the terms of issue of the shares of that class) may be varied or abrogated with the consent in writing of the holders of two-thirds of the issued shares of that class, or with the sanction of a resolution passed by at least a two-thirds majority of the holders of shares of the class present in person or by proxy at a separate general meeting of the holders of the shares of the class. To every such separate general meeting the provisions of these Articles relating to general meetings of the Company shall mutatis mutandis apply, but so that the necessary quorum shall be at least one person holding or representing by proxy at least one-third of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a poll. 21. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied or abrogated by the creation or issue of further shares ranking pari passu therewith or the redemption or purchase of shares of any class by the Company. CERTIFICATES 22. Every person whose name is entered as a member in the Register of Members shall, without payment, be entitled to a certificate in the form determined by the Directors. Such certificate may be under the Seal. All certificates shall specify the share or shares held by that person and the amount paid up thereon, provided that in respect of a share or shares held jointly by several persons the Company shall not be bound to issue more than one certificate, and delivery of a certificate for a share to one of several joint holders shall be sufficient delivery to all. 23. If a share certificate is defaced, lost or destroyed it may be renewed on such terms, if any, as to evidence and indemnity as the Directors think fit. FRACTIONAL SHARES 24. The Directors may issue fractions of a share of any class of shares, and, if so issued, a fraction of a share (calculated to three decimal points) shall be subject to and carry the corresponding fraction of liabilities (whether with respect to any unpaid amount thereon, contribution, calls or otherwise), limitations, preferences, privileges, qualifications, restrictions, rights (including, without limitation, voting and participation rights) and other attributes of a whole share of the same class of shares. If more than one fraction of a share of the same class is issued to or acquired by the same Member such fractions shall be accumulated. For the avoidance of doubt, in these Articles the expression "share" shall include a fraction of a share. LIEN 25. The Company shall have a first priority lien and charge on every share (not being a fully paid up share) for all moneys (whether presently payable or not) called or payable at a fixed time in respect of that share, and the Company shall also have a first priority lien and charge on all shares (other than fully paid up shares) standing registered in the name of a single person for all moneys presently payable by him or his estate to the Company, but the Directors may at any time declare any share to be wholly or in part exempt from the provisions of this Article. The Company's lien, if any, on a share shall extend to all dividends payable thereon. 26. The Company may sell, in such manner as the Directors think fit, any shares on which the Company has a lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of 14 days after a notice in writing, stating and demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the share, or the persons entitled thereto by reason of his death or bankruptcy. 27. For giving effect to any such sale the Directors may authorise some person to transfer the shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the shares comprised in any such transfer and he shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale. 28. The proceeds of the sale shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable, and the residue shall (subject to a like lien for sums not presently payable as existed upon the shares prior to the sale) be paid to the person entitled to the shares at the date of the sale. CALLS ON SHARES 29. The Directors may from time to time make calls upon the Members in respect of any moneys unpaid on their shares, and each Member shall (subject to receiving at least 14 days notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on his shares. 30. The joint holders of a share shall be jointly and severally liable to pay calls in respect thereof. 31. If a sum called in respect of a share is not paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest upon the sum at the rate of eight per cent per annum from the day appointed for the payment thereof to the time of the actual payment, but the Directors shall be at liberty to waive payment of that interest wholly or in part. 32. The provisions of these Articles as to the liability of joint holders and as to payment of interest shall apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the amount of the share, or by way of premium, as if the same had become payable by virtue of a call duly made and notified. 33. The Directors may make arrangements on the issue of shares for a difference between the Members, or the particular shares, in the amount of calls to be paid and in the times of payment. 34. The Directors may, if they think fit, receive from any member willing to advance the same all or any part of the moneys uncalled and unpaid upon any shares held by him, and upon all or any of the moneys so advanced may (until the same would, but for such advance, become presently payable) pay interest at such rate (not exceeding without the sanction of an Ordinary Resolution, eight per cent per annum) as may be agreed upon between the Member paying the sum in advance and the Directors. FORFEITURE OF SHARES 35. If a Member fails to pay any call or instalment of a call on the day appointed for payment thereof, the Directors may, at any time thereafter during such time as any part of such call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued. 36. The notice shall name a further day (not earlier than the expiration of 14 days from the date of the notice) on or before which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed the shares in respect of which the call was made will be liable to be forfeited. 37. If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by notice has been made, be forfeited by a resolution of the Directors to that effect. 38. A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit, and at any time before a sale or disposition the forfeiture may be cancelled on such terms as the Directors think fit. 39. A person whose shares have been forfeited shall cease to be a Member in respect of the forfeited shares, but shall, notwithstanding, remain liable to pay to the Company all moneys which at the date of forfeiture were payable by him to the Company in respect of the shares, but his liability shall cease if and when the Company receives payment in full of the fully paid up amount of the shares. 40. A statutory declaration in writing that the declarant is a Director of the Company, and that a share in the Company has been duly forfeited on a date stated in the declaration, shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share. The Company may receive the consideration, if any, given for the share on any sale or disposition thereof and may execute a transfer of the share in favour of the person to whom the share is sold or disposed of and he shall thereupon be registered as the holder of the share, and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share. 41. The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which by the terms of issue of a share becomes due and payable, whether on account of the amount of the share, or by way of premium, as if the same had been payable by virtue of a call duly made and notified. TRANSFER OF SHARES 42. The instrument of transfer of any share shall be in any usual or common form or such other form as the Directors may approve and executed by or on behalf of the transferor and if in respect of a nil or partly paid up share or if so required by the Directors shall also be executed on behalf of the transferee and shall be accompanied by the certificate of the shares to which it relates and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer. The transferor shall be deemed to remain a holder of the share until the name of the transferee is entered in the Register of Members in respect thereof. 43. The Directors may in their absolute discretion decline to register any transfer of shares without assigning any reason therefor. If the Directors refuse to register a transfer of any shares, they shall within two months after the date on which the transfer was lodged with the Company send to the transferee notice of the refusal. 44. The registration of transfers may be suspended at such times and for such periods as the Directors may from time to time determine, provided always that such registration shall not be suspended for more than 45 days in any year. 45. All instruments of transfer which shall be registered shall be retained by the Company, but any instrument of transfer which the Directors may decline to register shall (except in any case of fraud) be returned to the person depositing the same. TRANSMISSION OF SHARES 46. The legal personal representative of a deceased sole holder of a share shall be the only person recognised by the Company as having any title to the share. In the case of a share registered in the name of two or more holders, the survivors or survivor, or the legal personal representatives of the deceased survivor, shall be the only person recognised by the Company as having any title to the share. 47. Any person becoming entitled to a share in consequence of the death or bankruptcy of a Member shall upon such evidence being produced as may from time to time be properly required by the Directors, have the right either to be registered as a member in respect of the share or, instead of being registered himself, to make such transfer of the share as the deceased or bankrupt person could have made; but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by the deceased or bankrupt person before the death or bankruptcy. 48. A person becoming entitled to a share by reason of the death or bankruptcy of the holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as a Member in respect of the share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company. ALTERATION OF CAPITAL 49. The Company may from time to time by Ordinary Resolution increase the share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe. 50. The Company may by Ordinary Resolution: (a) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares; (b) convert all or any of its paid up shares into stock and reconvert that stock into paid up shares of any denomination; (c) subdivide its existing shares, or any of them into shares of a smaller amount provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; (d) cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled. 51. The Company may by resolution reduce its share capital and any capital redemption reserve in any manner authorised by law. REDEMPTION AND PURCHASE OF OWN SHARES 52. Subject to the provisions of the Companies Law, the Company may: (a) issue shares on terms that they are to be redeemed or are liable to be redeemed at the option of the Company or the Member on such terms and in such manner as the Directors may, before the issue of such shares, determine; (b) purchase its own shares (including any redeemable shares) on such terms and in such manner as the Directors may determine and agree with the Member; and (c) make a payment in respect of the redemption or purchase of its own shares otherwise than out of profits or the proceeds of a fresh issue of shares. 53. Any share in respect of which notice of redemption has been given shall not be entitled to participate in the profits of the Company in respect of the period after the date specified as the date of redemption in the notice of redemption. 54. The redemption or purchase of any share shall not be deemed to give rise to the redemption or purchase of any other share. 55. The Directors may when making payments in respect of redemption or purchase of shares, if authorised by the terms of issue of the shares being redeemed or purchased or with the agreement of the holder of such shares, make such payment either in cash or in specie. CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE 56. For the purpose of determining those Members that are entitled to receive notice of, attend or vote at any meeting of Members or any adjournment thereof, or those Members that are entitled to receive payment of any dividend, or in order to make a determination as to who is a Member for any other purpose, the Directors may provide that the Register of Members shall be closed for transfers for a stated period but not to exceed in any case 40 days. If the Register of Members shall be so closed for the purpose of determining those Members that are entitled to receive notice of, attend or vote at a meeting of Members such register shall be so closed for at least 10 days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the Register of Members. 57. In lieu of or apart from closing the Register of Members, the Directors may fix in advance a date as the record date for any such determination of those Members that are entitled to receive notice of, attend or vote at a meeting of the Members and for the purpose of determining those Members that are entitled to receive payment of any dividend the Directors may, at or within 90 days prior to the date of declaration of such dividend fix a subsequent date as the record date for such determination. 58. If the Register of Members is not so closed and no record date is fixed for the determination of those Members entitled to receive notice of, attend or vote at a meeting of Members or those Members that are entitled to receive payment of a dividend, the date on which notice of the meeting is posted or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Members. When a determination of those Members that are entitled to receive notice of, attend or vote at a meeting of Members has been made as provided in this section, such determination shall apply to any adjournment thereof. GENERAL MEETINGS 59. The Directors may, whenever they think fit, convene a general meeting of the Company. No general meeting may be convened by any Member or Members of the Company. 60. All authorisations by way of resolution shall be passed by way of Ordinary Resolution, unless otherwise required by the Companies Law. 61. If at any time there are no Directors of the Company, any two Members (or if there is only one Member then that Member) entitled to vote at general meetings of the Company may convene a general meeting in the same manner as nearly as possible as that in which meetings may be convened by the Directors. NOTICE OF GENERAL MEETINGS 62. At least seven days notice counting from the date service is deemed to take place as provided in these Articles specifying the place, the day and the hour of the meeting and, in case of special business, the general nature of that business, shall be given in manner hereinafter provided or in such other manner (if any) as may be prescribed by the Company by Ordinary Resolution to such persons as are, under these Articles, entitled to receive such notices from the Company, but with the consent of all the Members entitled to receive notice of some particular meeting and attend and vote thereat, that meeting may be convened by such shorter notice or without notice and in such manner as those Members may think fit. 63. The accidental omission to give notice of a meeting to or the non-receipt of a notice of a meeting by any Member shall not invalidate the proceedings at any meeting. PROCEEDINGS AT GENERAL MEETINGS 64. A general meeting can be held by way of a telecommunication conference call. 65. All business carried out at a general meeting shall be deemed special with the exception of sanctioning a dividend, the consideration of the accounts, balance sheets, and ordinary report of the Directors and the Company's auditors, and the appointment and removal of Directors and the fixing of the remuneration of the Company's auditors. No special business shall be transacted at any general meeting without the consent of all Members entitled to receive notice of that meeting unless notice of such special business has been given in the notice convening that meeting. 66. No business shall be transacted at any general meeting unless a quorum of Members is present at the time when the meeting proceeds to business. Save as otherwise provided by these Articles, one or more Members holding at least a majority of the paid up voting share capital of the Company present in person or by proxy shall be a quorum. 67. If within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of Members, shall be dissolved. In any other case it shall stand adjourned to the same day in the next week, at the same time and place, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting the Member or Members present and entitled to vote shall be a quorum. 68. The chairman, if any, of the Board of Directors shall preside as chairman at every general meeting of the Company. 69. If there is no such chairman, or if at any meeting he is not present within fifteen minutes after the time appointed for holding the meeting or is unwilling to act as chairman, the Members present shall choose one of their number to be chairman. 70. The chairman may with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting) adjourn a meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a meeting is adjourned for 10 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting. 71. Subject to Article 73, a poll shall be taken in such manner as the chairman directs, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. 72. A poll demanded on the election of a chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the chairman of the meeting directs. VOTES OF MEMBERS 73. Subject to any rights and restrictions for the time being attached to any class or classes of shares as set out in Articles 11 and 19, on a poll every Member and every person representing a Member by proxy shall have one vote for each share of which he or the person represented by proxy is the holder. 74. In the case of joint holders the vote of the senior who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes of the joint holders and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members. 75. A Member of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may vote by his committee, or other person in the nature of a committee appointed by that court, and any such committee or other person, may on a poll, vote by proxy. 76. No Member shall be entitled to vote at any general meeting unless all calls or other sums presently payable by him in respect of shares in the Company have been paid. 77. On a poll votes may be given either personally or by proxy. 78. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under seal or under the hand of an officer or attorney duly authorised. A proxy need not be a Member of the Company. 79. An instrument appointing a proxy may be in any usual or common form or such other form as the Directors may approve. 80. The instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll. 81. A resolution in writing signed by all the Members for the time being entitled to receive notice of and to attend and vote at general meetings (or being corporations by their duly authorised representatives) shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held. CORPORATIONS ACTING BY REPRESENTATIVES AT MEETINGS 82. Any corporation which is a Member or a Director may by resolution of its directors or other governing body authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Members or of the Board of Directors or of a committee of Directors, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual Member or Director. DIRECTORS 83. The name of the first Director(s) shall either be determined in writing by a majority (or in the case of a sole subscriber that subscriber) of, or elected at a meeting of, the subscribers of the Memorandum of Association. 84. The Company may by Ordinary Resolution appoint any person to be a Director. 85. Subject to the provisions of these Articles, a Director shall hold office until such time as he is removed from office by the Company by Ordinary Resolution. 86. The Company may by Ordinary Resolution from time to time fix the maximum and minimum number of Directors to be appointed but unless such number is fixed as aforesaid the number of Directors shall be unlimited. 87. The remuneration of the Directors shall from time to time be determined by the Company by Ordinary Resolution. 88. The shareholding qualification for Directors may be fixed by the Company by Ordinary Resolution and unless and until so fixed no share qualification shall be required. 89. The Directors shall have power at any time and from time to time to appoint a person as Director, either as a result of a casual vacancy or as an additional Director, subject to the maximum number (if any) imposed by the Company by Ordinary Resolution. ALTERNATE DIRECTOR 90. A Director may in writing appoint another person to be his alternate to act in his place solely in the case of meetings of Directors held in the Cayman Islands pursuant to Section 194 of the Companies Law. Every such alternate shall be entitled to notice of such meetings of the Directors and to attend and vote thereat as a Director when the person appointing him is not personally present and where he is a Director to have a separate vote on behalf of the Director he is representing in addition to his own vote. A Director may at any time in writing revoke the appointment of an alternate appointed by him. Such alternate shall not be an officer of the Company and shall be deemed to be the agent of the Director appointing him. The remuneration of such alternate shall be payable out of the remuneration of the Director appointing him and the proportion thereof shall be agreed between them. 91. Any Director may appoint any person, whether or not a Director, to be the proxy of that Director to attend and vote on his behalf, in accordance with instructions given by that Director, or in the absence of such instructions at the discretion of the proxy, solely in the case of meetings of Directors held in the Cayman Islands pursuant to Section 194 of the Companies Law. The instrument appointing the proxy shall be in writing under the hand of the appointing Director and shall be in any usual or common form or such other form as the Directors may approve, and must be lodged with the chairman of the meeting of the Directors at which such proxy is to be used, or first used, prior to the commencement of the meeting. POWERS AND DUTIES OF DIRECTORS 92. Subject to the provisions of the Companies Law, these Articles and to any resolutions made in a general meeting, the business of the Company shall be managed by the Directors, who may pay all expenses incurred in setting up and registering the Company and may exercise all powers of the Company. No resolution made by the Company in general meeting shall invalidate any prior act of the Directors which would have been valid if that resolution had not been made. 93. The Directors may from time to time appoint any person, whether or not a director of the Company to hold such office in the Company as the Directors may think necessary for the administration of the Company, including without prejudice to the foregoing generality, the office of President, one or more Vice-Presidents, Treasurer, Assistant Treasurer, Manager or Controller, and for such term and at such remuneration (whether by way of salary or commission or participation in profits or partly in one way and partly in another), and with such powers and duties as the Directors may think fit. The Directors may also appoint one or more of their number to the office of Managing Director upon like terms, but any such appointment shall ipso facto determine if any Managing Director ceases from any cause to be a Director, or if the Company by Ordinary Resolution resolves that his tenure of office be terminated. 94. The Directors may appoint the Company Secretary (and if need be an Assistant Secretary or Assistant Secretaries) who shall hold office for such term, at such remuneration and upon such conditions and with such powers as they think fit. Any Secretary or Assistant Secretary so appointed by the Directors may be removed by the Directors. 95. The Directors may delegate any of their powers to committees consisting of such member or members of their body as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors. 96. The Directors may from time to time and at any time by power of attorney appoint any company, firm or person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretion (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Directors may think fit, and may also authorise any such attorney to delegate all or any of the powers, authorities and discretion vested in him. 97. The Directors may from, time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the three next following paragraphs shall be without prejudice to the general powers conferred by this paragraph. 98. The Directors from time to time and at any time may establish any committees, local boards or agencies for managing any of the affairs of the company and may appoint any persons to be members of such committees or local boards and may appoint any managers or agents of the Company and may fix the remuneration of any of the aforesaid. 99. The Directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorise the members for the time being of any such local board, or any of them to fill up any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any person so appointed and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby. 100. Any such delegates as aforesaid may be authorised by the Directors to subdelegate all or any of the powers, authorities, and discretion for the time being vested to them. BORROWING POWERS OF DIRECTORS 101. The Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the Company or of any third party. THE SEAL 102. The Seal of the Company shall not be affixed to any instrument except by the authority of a resolution of the Board of Directors provided always that such authority may be given prior to or after the affixing of the Seal and if given after may be in general form confirming a number of affixings of the Seal. The Seal shall be affixed in the presence of a Director or the Secretary (or an Assistant Secretary) of the Company or in the presence of any one or more persons as the Directors may appoint for the purpose and every person as aforesaid shall sign every instrument to which the Seal of the Company is so affixed in their presence. 103. The Company may maintain a facsimile of its Seal in such countries or places as the Directors may appoint and such facsimile Seal shall not be affixed to any instrument except by the authority of a resolution of the Board of Directors provided always that such authority may be given prior to or after the affixing of such facsimile Seal and if given after may be in general form confirming a number of affixings of such facsimile Seal. The facsimile Seal shall be affixed in the presence of such person or persons as the Directors shall for this purpose appoint and such person or persons as aforesaid shall sign every instrument to which the facsimile Seal of the Company is so affixed in their presence and such affixing of the facsimile Seal and signing as aforesaid shall have the same meaning and effect as if the Company Seal had been affixed in the presence of and the instrument signed by a Director or the Secretary (or an Assistant Secretary) of the Company or in the presence of any one or more persons as the Directors may appoint for the purpose. 104. Notwithstanding the foregoing, the Secretary or any Assistant Secretary shall have the authority to affix the Seal, or the facsimile Seal, to any instrument for the purposes of attesting authenticity of the matter contained therein but which does not create any obligation binding on the Company. DISQUALIFICATION OF DIRECTORS 105. The office of Director shall be vacated, if the Director: (a) becomes bankrupt or makes any arrangement or composition with his creditors; (b) is found to be or becomes of unsound mind; or (c) resigns his office by notice in writing to the Company. PROCEEDINGS OF DIRECTORS 106. The Directors may meet together (either within or without the Cayman Islands) for the despatch of business, adjourn, and otherwise regulate their meetings and proceedings as they think fit. Questions arising at any meeting shall be decided by a majority of votes. A Director may, and the Secretary or Assistant Secretary on the requisition of a Director shall, at any time summon a meeting of the Directors. 107. A Director or Directors may participate in any meeting of the Board of Directors, or of any committee appointed by the Board of Directors of which such Director or Directors are members, by means of telephone or similar communication equipment by way of which all persons participating in such meeting can hear each other and such participation shall be deemed to constitute presence in person at the meeting. 108. The quorum necessary for the transaction of the business of the Directors may be fixed by the Directors, and unless so fixed, if there be more than two Directors shall be two, and if there be two or less Directors shall be one. A Director represented by proxy or by an Alternate Director at any meeting shall be deemed to be present for the purposes of determining whether or not a quorum is present. 109. A Director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company shall declare the nature of his interest at a meeting of the Directors. A general notice given to the Directors by any Director to the effect that he is a member of any specified company or firm and is to be regarded as interested in any contract which may thereafter be made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract so made. A Director may vote in respect of any contract or proposed contract or arrangement notwithstanding that he may be interested therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the Directors at which any such contract or proposed contract or arrangement shall come before the meeting for consideration. 110. A Director may hold any other office or place of profit under the Company (other than the office of auditor) in conjunction with his office of Director for such period and on such terms (as to remuneration and otherwise) and no Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such other office or place of profit or as vendor, purchaser or otherwise, nor shall any such contract or arrangement entered into by or on behalf of the Company in which any Director is in any way interested, be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relation thereby established. A Director, notwithstanding his interest, may be counted in the quorum present at any meeting whereat he or any other Director is appointed to hold any such office or place of profit under the Company or whereat the terms of any such appointment are arranged and he may vote on any such appointment or arrangement. 111. Any Director may act by himself or his firm in a professional capacity for the Company, and he or his firm shall be entitled to remuneration for professional services as if he were not a Director; provided that nothing herein contained shall authorise a Director or his firm to act as auditor to the Company. 112. The Directors shall cause minutes to be made in books or loose-leaf folders provided for the purpose of recording: (a) all appointments of officers made by the Directors; (b) the names of the Directors present at each meeting of the Directors and of any committee of the Directors; and (c) all resolutions and proceedings at all meetings of the Company, and of the Directors and of committees of Directors. 113. When the chairman of a meeting of the Directors signs the minutes of such meeting the same shall be deemed to have been duly held notwithstanding that all the Directors have not actually come together or that there may have been a technical defect in the proceedings. 114. A resolution signed by all the Directors shall be as valid and effectual as if it had been passed at a meeting of the Directors duly called and constituted. When signed a resolution may consist of several documents each signed by one or more of the Directors. 115. The continuing Directors may act notwithstanding any vacancy in their body but if and so long as their number is reduced below the number fixed by or pursuant to the Articles of the Company as the necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number, or of summoning a general meeting of the Company, but for no other purpose. 116. The Directors may elect a chairman of their meetings and determine the period for which he is to hold office but if no such chairman is elected, or if at any meeting the chairman is not present within fifteen minutes after the time appointed for holding the same, the Directors present may choose one of their number to be chairman of the meeting. 117. A committee appointed by the Directors may elect a chairman of its meetings. If no such chairman is elected, or if at any meeting the chairman is not present within five minutes after the time appointed for holding the same, the members present may choose one of their number to be chairman of the meeting. 118. A committee appointed by the Directors may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the committee members present. 119. All acts done by any meeting of the Directors or of a committee of Directors, or by any person acting as a Director, shall notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such Director or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director. DIVIDENDS 120. Subject to any rights, preferences and restrictions for the time being attached to any class or classes of shares, the Directors may from time to time declare dividends (including interim dividends) and other distributions on shares in issue and authorise payment of the same out of the funds of the Company lawfully available therefor. 121. Subject to any rights, preferences and restrictions for the time being attached to any class or classes of shares, the Company by Ordinary Resolution may declare dividends, but no dividend shall exceed the amount recommended by the Directors. 122. The Directors may, before recommending or declaring any dividend, set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, at the discretion of the Directors be applicable for meeting contingencies, or for equalising dividends or for any other purpose to which those funds be properly applied and pending such application may, at the like discretion, either be employed in the business of the Company or be invested in such investments (other than shares of the Company) as the Directors may from time to time think fit. 123. Any dividend may be paid by cheque or warrant sent through the post to the registered address of the Member or person entitled thereto, or in the case of joint holders, to any one of such joint holders at his registered address or to such person and such address as the Member or person entitled, or such joint holders as the case may be, may direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent or to the order of such other person as the Member or person entitled, or such joint holders as the case may be, may direct. 124. The Directors when paying dividends to the Members in accordance with the foregoing provisions may make such payment either in cash or in specie. 125. No dividend shall be paid otherwise than out of profits or, subject to the restrictions of the Companies Law, the share premium account. 126. Subject to the rights of persons, if any, entitled to shares with special rights as to dividends, all dividends shall be declared and paid according to the amounts paid on the shares, but if and so long as nothing is paid up on any of the shares in the Company dividends may be declared and paid according to the amounts of the shares. No amount paid on a share in advance of calls shall, while carrying interest, be treated for the purposes of this Article as paid on the share. 127. If several persons are registered as joint holders of any share, any of them may give effectual receipts for any dividend or other moneys payable on or in respect of the share. 128. No dividend shall bear interest against the Company. ACCOUNTS AND AUDIT 129. The books of account relating to the Company's affairs shall be kept in such manner as may be determined from time to time by the Directors. 130. The books of account shall be kept at the registered office of the Company, or at such other place or places as the Directors think fit, and shall always be open to the inspection of the Directors. 131. The Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Members not being Directors, and no Member (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by law or authorised by the Directors or by the Company by Ordinary Resolution. 132. The accounts relating to the Company's affairs shall be audited in such manner and with such financial year end as may be determined from time to time by the Company by Ordinary Resolution or failing any such determination by the Directors or failing any determination as aforesaid shall not be audited. CAPITALISATION OF PROFITS 133. Subject to the Companies Law, the Board may, with the authority of an Ordinary Resolution: (a) resolve to capitalise an amount standing to the credit of reserves (including a share premium account, profit and loss account, and capital redemption reserve), whether or not available for distribution; (b) appropriate the sum resolved to be capitalised to the Members in proportion to the nominal amount of shares (whether or not fully paid) held by them respectively and apply that sum on their behalf in or towards: (i) paying up the amounts (if any) for the time being unpaid on shares held by them respectively, or (ii) paying up in full unissued shares or debentures of a nominal amount equal to that sum, and (iii) allot the shares or debentures, credited as fully paid, to the Members (or as they may direct) in those proportions, or partly in one way and partly in the other, but the share premium account, the capital redemption reserve and profits which are not available for distribution may, for the purposes of this Article, only be applied in paying up unissued shares to be allotted to members credited as fully paid; (c) make any arrangements it thinks fit to resolve a difficulty arising in the distribution of a capitalised reserve and in particular, without limitation, where shares or debentures become distributable in fractions the Board may deal with the fractions as it thinks fit; (d) authorise a person to enter (on behalf of all the Members concerned) an agreement with the Company providing for either: (i) the allotment to the members respectively, credited as fully paid, of shares or debentures to which they may be entitled on the capitalisation, or (ii) the payment by the Company on behalf of the Members (by the application of their respective proportions of the reserves resolved to be capitalised) of the amounts or part of the amounts remaining unpaid on their existing shares, (e) an agreement made under the authority being effective and binding on all those Members; and (f) generally do all acts and things required to give effect to the resolution. SHARE PREMIUM ACCOUNT 134. The Board of Directors shall in accordance with Section 34 of the Companies Law establish a share premium account and shall carry to the credit of such account from time to time a sum equal to the amount or value of the premium paid on the issue of any share. 135. There shall be debited to any share premium account on the redemption or purchase of a share the difference between the nominal value of such share and the redemption or purchase price provided always that at the discretion of the Board of Directors such sum may be paid out of the profits of the Company or, if permitted by Section 37 of the Companies Law, out of capital. NOTICES 136. Any notice or document may be served by the Company or by the person entitled to give notice to any Member either personally, by facsimile, by e-mail or by sending it through the post in a prepaid letter or via a recognised courier service, fees prepaid, addressed to the Member at his address as appearing in the Register of Members. In the case of joint holders of a share, all notices shall be given to that one of the joint holders whose name stands first in the Register of Members in respect of the joint holding, and notice so given shall be sufficient notice to all the joint holders. 137. Any Member present, either personally or by proxy, at any meeting of the Company shall for all purposes be deemed to have received due notice of such meeting and, where requisite, of the purposes for which such meeting was convened. 138. Any notice or other document, if served by (a) post, shall be deemed to have been served five days after the time when the letter containing the same is posted and if served by courier, shall be deemed to have been served five days after the time when the letter containing the same is delivered to the courier (in proving such service it shall be sufficient to prove that the letter containing the notice or document was properly addressed and duly posted or delivered to the courier), or, (b) facsimile, shall be deemed to have been served upon confirmation of receipt or (c) recognised delivery service, shall be deemed to have been served 48 hours after the time when the letter containing the same is delivered to the courier service and in proving such service it shall be sufficient to prove that the letter containing the notice or documents was properly addressed and duly posted or delivered to the courier. 139. Any notice or document delivered or sent by post to or left at the registered address of any Member in accordance with the terms of these Articles shall notwithstanding that such Member be then dead or bankrupt, and whether or not the Company has notice of his death or bankruptcy, be deemed to have been duly served in respect of any share registered in the name of such Member as sole or joint holder, unless his name shall at the time of the service of the notice or document, have been removed from the Register of Members as the holder of the share, and such service shall for all purposes be deemed a sufficient service of such notice or document on all persons interested (whether jointly with or as claiming through or under him) in the share. 140. Notice of every general meeting shall be given to: (a) all Members who have supplied to the Company an address for the giving of notices to them; and (b) every person entitled to a share in consequence of the death or bankruptcy of a Member, who but for his death or bankruptcy would be entitled to receive notice of the meeting. 141. No other person shall be entitled to receive notices of general meetings. INDEMNITY 141. Every Director (including for the purposes of this Article any Alternate Director appointed pursuant to the provisions of these Articles), Managing Director, agent, Secretary, Assistant Secretary, or other officer for the time being and from time to time of the Company (but not including the Company's auditor) and the personal representatives of the same shall be indemnified and secured harmless out of the assets and funds of the Company against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by him in or about the conduct of the Company's business or affairs or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by him in defending (whether successfully or otherwise) any civil proceedings concerning the Company or its affairs in any court whether in the Cayman Islands or elsewhere. 142. No such Director, Alternate Director, Managing Director, agent, Secretary, Assistant Secretary or other officer of the Company (but not including the Company's auditor) shall be liable (i) for the acts, receipts, neglects, defaults or omissions of any other such director or officer or agent of the Company or (ii) by reason of his having joined in any receipt for money not received by him personally or (iii) for any loss on account of defect of title to any property of the Company or (iv) on account of the insufficiency of any security in or upon which any money of the Company shall be invested or (v) for any loss incurred through any bank, broker or other agent or (vi) for any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgement or oversight on his part or (vii) for any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers authorities, or discretions of his office or in relation thereto, unless the same shall happen through his own dishonesty. NON-RECOGNITION OF TRUSTS 143. No person shall be recognised by the Company as holding any share upon any trust and the Company shall not, unless required by law, be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent or future interest in any of its shares or any other rights in respect thereof except an absolute right to the entirety thereof in each Member registered in the Register of Members. AMENDMENT OF ARTICLES OF ASSOCIATION 144. Subject to the Companies Law and the rights attaching to the various classes of shares, the Company may at any time and from time to time by resolution alter or amend these Articles in whole or in part. REGISTRATION BY WAY OF CONTINUATION 145. The Company may by resolution resolve to be registered by way of continuation in a jurisdiction outside the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing. In furtherance of a resolution adopted pursuant to this Article, the Directors may cause an application to be made to the Registrar of Companies to deregister the Company in the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing and may cause all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company. EX-3.3(A) 16 0016.txt CERTIFICATE OF INCORPORATION OF SEAGATE SOFTWARE INFORMATION MANAGEMENT EXHIBIT 3.3(a) CERTIFICATE OF INCORPORATION OF SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC. I. The name of this corporation is Seagate Software Information Management Group Holdings, Inc. II. The address of the corporation's registered office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. III. The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. IV. The corporation is authorized to issue 150,000,000 shares of capital stock, all of which shall be designated Common Stock, par value $.001 per share. V. The name and mailing address of the incorporator is: John T. Sheridan, Wilson Sonsini, Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, California 94304-1050. VI. The Board of Directors of the corporation is expressly authorized to make, alter or repeal Bylaws of the corporation, but the stockholders may make additional Bylaws and may alter or repeal any Bylaw whether adopted by them or otherwise. VII. Elections of directors need not be by written ballot except and to the extent provided in the Bylaws of the corporation. VIII. To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. The corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he or she, his or her testator or intestate is or was a director, officer or employee of the corporation or any predecessor of the corporation or serves or served at any other enterprise as a director, officer or employee at the request of the corporation or any predecessor to the corporation. Neither any amendment nor repeal of this Article VIII, nor the adoption of any provision of this corporation's Certificate of Incorporation inconsistent with this Article VIII, shall eliminate or reduce the effect of this Article VIII in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VIII, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. The Certificate of Incorporation of this corporation may be amended from time to time upon satisfaction of the requirements of the Delaware General Corporation Law. I, John T. Sheridan, sole incorporator named above, file and record this Certificate, and do certify that the facts herein stated are true, and I have accordingly hereunto set my hand this 24/th/ day of August, 1999. /s/ John T. Sheridan ----------------------- John T. Sheridan EX-3.3(B) 17 0017.txt AMENDMENT TO CERTIFICATE OF INCORPORATION OF CRYSTAL DECISIONS, INC. AMENDMENT TO CERTIFICATE OF INCORPORATION The Company's Certificate of Incorporation currently provides that the name of the Company is "Seagate Software Information Management Group Holdings, Inc." On February 9, 2001, the Board of Directors adopted resolutions setting forth the proposed amendment to the Company's Certificate of Incorporation (the "Amendment"), the advisability of the Amendment, and a call for submission of the Amendment for approval by written consent of the Company's stockholders. The text of Article I of the Certificate of Incorporation, as proposed to be amended will read: "The name of this corporation is Crystal Decisions, Inc." On February 9, 2001, New SAC (the "Majority Stockholder"), approved the Amendment pursuant to an Action by Written Consent of Stockholder. The Amendment will be effective 20 days after mailing to the Company's shareholders. Purpose and Effect of the Amendment The Board of Directors believes that it is in the Company's best interest to change the name of the Company in order to capture the goodwill and marketing benefit of our product names. For the Board of Directors of SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC. /s/ Gregory B. Kerfoot President and Chief Executive Officer Dated: March 8, 2001 EX-3.3(C) 18 0018.txt BYLAWS OF CRYSTAL DECISIONS, INC. EXHIBIT 3.3(c) BYLAWS OF SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC. TABLE OF CONTENTS Page ---- ARTICLE 1 - STOCKHOLDERS.......................................... 1 1.1 ANNUAL MEETINGS....................................... 1 1.2 SPECIAL MEETINGS...................................... 1 1.3 NOTICE OF MEETINGS.................................... 1 1.4 ADJOURNMENTS.......................................... 1 1.5 QUORUM................................................ 2 1.6 ORGANIZATION.......................................... 2 1.7 VOTING; PROXIES....................................... 2 1.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD................................................ 3 1.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE................. 3 1.10 ACTION BY CONSENT OF STOCKHOLDERS..................... 4 ARTICLE 2 - BOARD OF DIRECTORS.................................... 4 2.1 NUMBER; QUALIFICATIONS................................ 4 2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES............. 4 2.3 REGULAR MEETINGS...................................... 5 2.4 SPECIAL MEETINGS...................................... 5 2.5 TELEPHONIC MEETINGS PERMITTED......................... 5 2.6 QUORUM; VOTE REQUIRED FOR ACTION...................... 5 2.7 ORGANIZATION.......................................... 5 2.8 INFORMAL ACTION BY DIRECTORS.......................... 5 ARTICLE 3 - COMMITTEES............................................ 6 3.1 COMMITTEES............................................ 6 3.2 COMMITTEE RULES....................................... 6 ARTICLE 4 - OFFICERS.............................................. 6 4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES............... 6 4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS............... 7 -i- ARTICLE 5 - STOCK................................................. 7 5.1 CERTIFICATES.......................................... 7 5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW CERTIFICATES................................... 7 ARTICLE 6 - INDEMNIFICATION....................................... 8 6.1 RIGHT TO INDEMNIFICATION.............................. 8 6.2 PREPAYMENT OF EXPENSES................................ 8 6.3 CLAIMS................................................ 8 6.4 NON-EXCLUSIVITY OF RIGHTS............................. 8 6.5 OTHER INDEMNIFICATION................................. 9 6.6 AMENDMENT OR REPEAL................................... 9 ARTICLE 7 - MISCELLANEOUS......................................... 9 7.1 FISCAL YEAR........................................... 9 7.2 SEAL.................................................. 9 7.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND COMMITTEES.............................. 9 7.4 INTERESTED DIRECTORS; QUORUM.......................... 9 7.5 FORM OF RECORDS....................................... 10 7.6 AMENDMENT OF BYLAWS................................... 10 -ii- BYLAWS OF SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC. AMENDED AND RESTATED August 28, 2000 ---------------------------------------------------- ARTICLE 1 STOCKHOLDERS ------------ 1.1 ANNUAL MEETINGS --------------- An annual meeting of stockholders shall be held for the election of directors at such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting. 1.2 SPECIAL MEETINGS ---------------- Special meetings of stockholders for any purpose or purposes may be called at any time by the Board of Directors, the President or by a committee of the Board of Directors which has been duly designated by the Board of Directors and whose powers and authority, as expressly provided in a resolution of the Board of Directors, include the power to call such meetings, but such special meetings may not be called by any other person or persons. 1.3 NOTICE OF MEETINGS ------------------ Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the Certificate of Incorporation or these Bylaws, the written notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the mail, postage prepaid, directed to the stockholder at his or her address as it appears on the records of the corporation. 1.4 ADJOURNMENTS ------------ Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. -1- 1.5 QUORUM ------ Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, at each meeting of stockholders the presence in person or by proxy of the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. In the absence of a quorum, the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided in Section 1.4 of these Bylaws until a quorum shall attend. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. 1.6 ORGANIZATION ------------ Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in his or her absence by the Vice Chairman of the Board, if any, or in his or her absence by the President, or in his or her absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting. 1.7 VOTING; PROXIES --------------- Except as otherwise provided by the Certificate of Incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by him which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the corporation. Voting at meetings of stockholders need -2- not be by written ballot and need not be conducted by inspectors of election unless so determined by the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote thereon which are present in person or by proxy at such meeting. At all meetings of stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by law, the Certificate of Incorporation or these Bylaws, be decided by the vote of the holders of shares of stock having a majority of the votes which could be cast by the holders of all shares of stock entitled to vote thereon which are present in person or represented by proxy at the meeting. 1.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD ------------------------------------------------------- In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which record date: (1) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting; (2) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten (10) days from the date upon which the resolution fixing the record date is adopted by the Board of Directors; and (3) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action of the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation in accordance with applicable law, or, if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 1.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE ------------------------------------- The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in -3- alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. Upon the willful neglect or refusal of the directors to produce such a list at any meeting for the election of directors, they shall be ineligible for election to any office at such meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders. 1.10 ACTION BY CONSENT OF STOCKHOLDERS --------------------------------- Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE 2 BOARD OF DIRECTORS ------------------ 2.1 NUMBER; QUALIFICATIONS ---------------------- The corporation shall have one or more directors, the number thereof to be determined from time to time by resolution of the Board of Directors. Directors need not be stockholders. 2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES ----------------------------------------- The Board of Directors shall initially consist of the persons named as directors in the Certificate of Incorporation or as elected by the sole incorporator, and each director so elected shall hold office until the first annual meeting of stockholders or until his or her successor is elected and qualified. At the first annual meeting of stockholders and at each annual meeting thereafter, the stockholders shall elect directors each of whom shall hold office for a term of one (1) year or until his or her successor is elected and qualified. Any director may resign at any time upon written notice to the corporation. Any newly created directorship or any vacancy occurring in the Board of -4- Directors for any cause may be filled by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum, or by a plurality of the votes cast at a meeting of stockholders, and each director so elected shall hold office until the expiration of the term of office of the director whom he has replaced or until his or her successor is elected and qualified. 2.3 REGULAR MEETINGS ---------------- Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine, and if so determined notices thereof need not be given. 2.4 SPECIAL MEETINGS ---------------- Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the President, any Vice President, the Secretary, or by any two members of the Board of Directors. Notice of a special meeting of the Board of Directors shall be given by the person or persons calling the meeting at least twenty-four (24) hours before the special meeting. 2.5 TELEPHONIC MEETINGS PERMITTED ----------------------------- Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting thereof by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Bylaw shall constitute presence in person at such meeting. 2.6 QUORUM; VOTE REQUIRED FOR ACTION -------------------------------- At all meetings of the Board of Directors a majority of the whole Board of Directors shall constitute a quorum for the transaction of business. Except in cases in which the Certificate of Incorporation or these Bylaws otherwise provide, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. 2.7 ORGANIZATION ------------ Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in his or her absence by the Vice Chairman of the Board, if any, or in his or her absence by the President, or in his or her absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting. 2.8 INFORMAL ACTION BY DIRECTORS ---------------------------- -5- Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or such committee. ARTICLE 3 COMMITTEES ---------- 3.1 COMMITTEES ---------- The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one (1) or more committees, each committee to consist of one (1) or more of the directors of the corporation. The Board of Directors may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. 3.2 COMMITTEE RULES --------------- Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article 3 of these Bylaws. ARTICLE 4 OFFICERS -------- 4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE; ------------------------------------------------------------- RESIGNATION; REMOVAL; VACANCIES ------------------------------- The Board of Directors shall elect a President and Secretary, and it may, if it so determines, choose a Chairman of the Board and a Vice Chairman of the Board from among its members. The Board of Directors may also choose one or more Vice Presidents, one or more Assistant Secretaries, -6- a Treasurer and one or more Assistant Treasurers. Each such officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his or her election, and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice to the corporation. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the corporation. Any number of offices may be held by the same person. Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting. 4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS --------------------------------------- The officers of the corporation shall have such powers and duties in the management of the corporation as may be prescribed by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board of Directors. The Board of Directors may require any officer, agent or employee to give security for the faithful performance of his or her duties. ARTICLE 5 STOCK ----- 5.1 CERTIFICATES ------------ Every holder of stock shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the President or Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the corporation, certifying the number of shares owned by him or her in the corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent, or registrar at the date of issue. 5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW ------------------------------------------------------------- CERTIFICATES ------------ The corporation may issued a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his or her legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on -7- account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. ARTICLE 6 INDEMNIFICATION --------------- 6.1 RIGHT TO INDEMNIFICATION ------------------------ The corporation shall, or in the case of employees and agents of the corporation, may indemnify and hold harmless, to the fullest extent permitted by applicable law as is presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding") by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The corporation shall be required to indemnify a person in connection with a Proceeding initiated by such person only if the Proceeding was authorized by the Board of Directors of the corporation. 6.2 PREPAYMENT OF EXPENSES ---------------------- The corporation shall pay the expenses incurred in defending any Proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a director or officer in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately determined that the director or officer is not entitled to be indemnified under this Article or otherwise. 6.3 CLAIMS ------ If a claim for indemnification or payment of expenses under this Article is not paid in full after a written claim therefor has been received by the corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. 6.4 NON-EXCLUSIVITY OF RIGHTS ------------------------- -8- The rights conferred on any person by this Article 6 shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. 6.5 OTHER INDEMNIFICATION --------------------- The corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or non-profit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise. 6.6 AMENDMENT OR REPEAL ------------------- Any repeal or modification of the foregoing provisions of this Article 6 shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE 7 MISCELLANEOUS ------------- 7.1 FISCAL YEAR ----------- The Fiscal Year of the corporation shall be fixed by resolution of the board of directors, and may be changed at the discretion of the board of directors. 7.2 SEAL ---- The corporate seal shall have the name of the corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. 7.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND COMMITTEES ---------------------------------------------------------------------- Any written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. -9- 7.4 INTERESTED DIRECTORS; QUORUM ---------------------------- No contract or transaction between the corporation and one (1) or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one (1) or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or her or their votes are counted for such purpose, if: (1) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. 7.5 FORM OF RECORDS --------------- Any records maintained by the corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. 7.6 AMENDMENT OF BYLAWS ------------------- These Bylaws may be altered or repealed, and new Bylaws made, by the Board of Directors, but the stockholders may make additional Bylaws and may alter and repeal any Bylaws whether adopted by them or otherwise. -10- EX-3.4(A) 19 0019.txt AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION EXHIBIT 3.4(a) THE COMPANIES LAW (2000 REVISION) COMPANY LIMITED BY SHARES AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION OF SEAGATE TECHNOLOGY HOLDINGS Amended and Restated by Special Resolution of the Sole Shareholder dated _______________ l. The name of the Company is SEAGATE TECHNOLOGY HOLDINGS. 2. The Registered Office of the Company shall be at the offices of Maples and Calder, Attorneys-at-Law, Ugland House, P.O. Box 309, George Town, Grand Cayman, Cayman Islands, British West Indies or at such other place as the Directors may from time to time decide. 3. The objects for which the Company is established are unrestricted and shall include, but without limitation, the following: (a) (i) To carry on business as inventors, designers, manufacturers, traders and dealers of and in all types of equipment, machinery and goods, including without limitation computer hardware and equipment and any related patents, industrial rights and know how whether or not protected by law. (ii) To carry on the business of an investment company and to act as promoters and entrepreneurs and to carry on business as financiers, capitalists, concessionaires, merchants, brokers, traders, dealers, agents, importers and exporters and to undertake and carry on and execute all kinds of investment, financial, commercial, mercantile, trading and other operations. (iii) To carry on whether as principals, agents or otherwise howsoever the business of realtors, developers, consultants, estate agents or managers, builders, contractors, engineers, manufacturers, dealers in or vendors of all types of property including services. (b) To exercise and enforce all rights and powers conferred by or incidental to the ownership of any shares, stock, obligations or other securities including without prejudice to the generality of the foregoing all such powers of veto or control as may be conferred by virtue of the holding by the Company of some special proportion of the issued or nominal amount thereof, to provide managerial and other executive, supervisory and consultant services for or in relation to any company in which the Company is interested upon such terms as may be thought fit. (c) To purchase or otherwise acquire, to sell, exchange, surrender, lease, mortgage, charge, convert, turn to account, dispose of and deal with real and personal property and rights of all kinds and, in particular, mortgages, debentures, produce, concessions, options, contracts, patents, annuities, licences, stocks, shares, bonds, policies, book debts, business concerns, undertakings, claims, privileges and choses in action of all kinds. (d) To subscribe for, conditionally or unconditionally, to underwrite, issue on commission or otherwise, take, hold, deal in and convert stocks, shares and securities of all kinds and to enter into partnership or into any arrangement for sharing profits, reciprocal concessions or cooperation with any person or company and to promote and aid in promoting, to constitute, form or organise any company, syndicate or partnership of any kind, for the purpose of acquiring and undertaking any property and liabilities of the Company or of advancing, directly or indirectly, the objects of the Company or for any other purpose which the Company may think expedient. (e) To stand surety for or to guarantee, support or secure the performance of all or any of the obligations of any person, firm or company whether or not related or affiliated to the Company in any manner and whether by personal covenant or by mortgage, charge or lien upon the whole or any part of the undertaking, property and assets of the Company, both present and future, including its uncalled capital or by any such method and whether or not the Company shall receive valuable consideration therefor. (f) To engage in or carry on any other lawful trade, business or enterprise which may at any time appear to the Directors of the Company capable of being conveniently carried on in conjunction with any of the aforementioned businesses or activities or which may appear to the Directors of the Company likely to be profitable to the Company. In the interpretation of this Memorandum of Association in general and of this Clause 3 in particular no object, business or power specified or mentioned shall be limited or restricted by reference to or inference from any other object, business or power, or the name of the Company, or by the juxtaposition of two or more objects, businesses or powers and that, in the event of any ambiguity in this clause or elsewhere in this Memorandum of Association, the same shall be resolved by such interpretation and construction as will widen and enlarge and not restrict the objects, businesses and powers of and exercisable by the Company. 4. Except as prohibited or limited by the Companies Law (2000 Revision), the Company shall have full power and authority to carry out any object and shall have and be capable of from time to time and at all times exercising any and all of the powers at any time or from time to 2 time exercisable by a natural person or body corporate in doing in any part of the world whether as principal, agent, contractor or otherwise whatever may be considered by it necessary for the attainment of its objects and whatever else may be considered by it as incidental or conducive thereto or consequential thereon, including, but without in any way restricting the generality of the foregoing, the power to make any alterations or amendments to this Memorandum of Association and the Articles of Association of the Company considered necessary or convenient in the manner set out in the Articles of Association of the Company, and the power to do any of the following acts or things, viz: (a) to pay all expenses of and incidental to the promotion, formation and incorporation of the Company; (b) to register the Company to do business in any other jurisdiction; (c) to sell, lease or dispose of any property of the Company; (e) to draw, make, accept, endorse, discount, execute and issue promissory notes, debentures, bills of exchange, bills of lading, warrants and other negotiable or transferable instruments; (f) to lend money or other assets and to act as guarantors; (g) to borrow or raise money on the security of the undertaking or on all or any of the assets of the Company including uncalled capital or without security; (h) to invest monies of the Company in such manner as the Directors determine; (i) to promote other companies; (j) to sell the undertaking of the Company for cash or any other consideration; (k) to distribute assets in specie to Members of the Company; (l) to make charitable or benevolent donations; (m) to pay pensions or gratuities or provide other benefits in cash or kind to Directors, officers, employees, past or present and their families; (n) to purchase Directors and officers liability insurance; and (o) to carry on any trade or business and generally to do all acts and things which, in the opinion of the Company or the Directors, may be conveniently or profitably or usefully acquired and dealt with, carried on, executed or done by the Company in connection with the business aforesaid, provided that the Company shall only carry on the businesses for which a licence is required under the laws of the Cayman Islands when so licensed under the terms of such laws. 3 5. The liability of each Member is limited to the amount from time to time unpaid on such Member's shares. 6. The authorized share capital of the Company consists of (a) 600,000,000 common shares with a par value of US $0.00001 per share and having the rights and privileges attached thereto as provided in the Company's Articles of Association (the "COMMON SHARES") and (b) 450,000,000 preferred shares with a par value of US $0.00001 per share and having the rights and preferences attached thereto as provided in the Company's Articles of Association (the "PREFERRED SHARES"). Of the Preferred Shares, 400,000,000 shares are designated "SERIES A PREFERRED SHARES" and have the rights and preferences attached thereto as provided in the Company's Articles of Association. Subject to the provisions of The Companies Law (2000 Revision) and the Articles of Association, the Company shall have the power to redeem or purchase any of its shares, to subdivide or consolidate the said shares or any of them, and to issue all or any part of its capital, whether original, redeemed, increased, or reduced, with or without any preference, priority, or special privilege, or subject to any postponement of rights or to any conditions or restrictions whatsoever, and so that, unless the conditions of issue shall otherwise expressly provide, every issue of shares, whether stated to be Common Shares or Preferred Shares, shall be subject to the powers on the part of the Company hereinbefore provided. 7. If the Company is registered as exempted, its operations will be carried on subject to the provisions of Section 193 of the Companies Law (2000 Revision) and, subject to the provisions of the Companies Law (2000 Revision) and the Articles of Association, it shall have the power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands. 4 EX-3.4(B) 20 0020.txt AMENDED AND RESTATED ARTICLES OF ASSOCIATION EXHIBIT 3.4(B) THE COMPANIES LAW (2000 REVISION) COMPANY LIMITED BY SHARES AMENDED AND RESTATED ARTICLES OF ASSOCIATION OF SEAGATE TECHNOLOGY HOLDINGS Amended and Restated by Special Resolution of the Sole Shareholder dated _______________ INTERPRETATION 1. In these Articles Table A in the Schedule to the Statute does not apply and, unless there be something in the subject or context inconsistent therewith, "ARTICLES" means these Articles as originally framed or as from time to time altered by Special Resolution. "AUDITORS" means the persons for the time being performing the duties of auditors of the Company. "BOARD" means the board of directors of the Company. "COMMON SHARES" has the meaning given in the Company's Memorandum of Association. "COMPANY" means the above-named Company. "DEBENTURE" means debenture stock, mortgages, bonds and any other such securities of the Company whether constituting a charge on the assets of the Company or not. "DIRECTORS" means the directors for the time being of the Company. "DIVIDEND" includes bonus. "EXTRAORDINARY means any distribution to the holders of the DISTRIBUTION" Preferred Shares of (i) securities of any subsidiary of the Company in a spin-off or spin-out transaction or (ii) the proceeds from the sale or other disposition of the assets or outstanding capital stock of any such subsidiary. "FAIR MARKET VALUE" means: (a) in the case of property other than cash or securities, the market value of such property on the date in question as determined in good faith by the Board; and (b) in the case of securities, the average of the daily closing prices of the securities for the ten consecutive trading days ending on and including such date of determination. The closing price for each day shall be: (i) if the securities are listed on the NASDAQ National Market, the last reported sale price of such securities on the NASDAQ National Market, or any similar system of automated dissemination of quotations of securities prices then in common use, if so quoted, (ii) if the securities are not listed or admitted for trading as described in clause (i), the last reported sale price of such securities on the NYSE, or if such securities are listed or admitted for trading on any other national securities exchange, the last sale price, or the closing bid price if no sale occurred, of such securities on the principal securities exchange on which the securities are listed, or (iii) if not quoted or listed as described in clauses (i) or (ii), the mean between the high bid and low asked quotations for such securities as reported by the National Quotation Bureau Incorporated if at least two securities dealers have inserted both bid and asked quotations for the securities on at least five of the ten preceding Trading Days. If none of the conditions set forth above is met, the last reported sale price of the securities on any day or the average of such last reported sale prices for any period shall be the fair market value of the securities as determined by a member firm of the NYSE selected by the Company. "IPO" means a firm commitment underwriting public offering of the Common Shares pursuant to an effective registration statement filed under the U.S. Securities Act of 1933, as amended, which yields 2 the Company net proceeds in an amount not less than $75 million. "LIQUIDATION EVENT" means any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary. For purposes of these Articles, (a) a consolidation or merger of the Company with or into any other company or any subsidiary thereof, other than a merger or consolidation in which securities representing more than 50% of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Company's outstanding voting securities immediately prior to such transaction; (b) a sale of all, or substantially all, of the assets of the Company or (c) a series of transactions in which more than 50% of the voting power of the Company is disposed of shall be deemed to be within the purview of a liquidation, dissolution, or winding up. "MEMBER" shall bear the meaning as ascribed to it in the Statute. "MONTH" means calendar month. "PAID-UP" means paid-up and/or credited as paid-up. "PREFERRED SHARES" has the meaning given in the Company's Memorandum of Association. "REGISTERED OFFICE" means the registered office for the time being of the Company. "SEAL" means the common seal of the Company and includes every duplicate seal. "SECRETARY" includes an Assistant Secretary and any person appointed to perform the duties of Secretary of the Company. "SERIES A PREFERRED has the meaning given in the Company's SHARES" Memorandum of Association. "SERIES A STATED AMOUNT" means US $2.30 per Series A Preferred Share. 3 "SPECIAL RESOLUTION" has the same meaning as in the Statute and includes a resolution approved in writing as described therein. "STATUTE" means the Companies Law of the Cayman Islands as amended and every statutory modification or re-enactment thereof for the time being in force. "WRITTEN" and "IN WRITING" include all modes of representing or reproducing words in visible form. Words importing the singular number only include the plural number and vice-versa. Words importing the masculine gender only include the feminine gender. Words importing persons only include corporations. PRELIMINARY 2. The business of the Company may be commenced as soon after incorporation as the Directors shall see fit, notwithstanding that part only of the shares may have been allotted or issued. 3. The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the Company including the expenses of registration. SHARES 4. Except as otherwise provided in these Articles, all shares in the capital of the Company for the time being and from time to time unissued shall be under the control of the Board and may be re-designated, allotted, or disposed of in such manner, to such persons, and on such terms as the Board, in its discretion, may think fit. COMMON SHARES 5. The holders of Common Shares shall be entitled to receive such dividends and distributions as may be declared from time to time by the Board. Such dividends and distributions shall be from such assets lawfully available therefor as the Directors may determine and shall otherwise be paid and/or made as provided in these Articles. 6. After payment in full of the Liquidation Preference (as such term is defined below) to the holders of Preferred Shares who are entitled to such Liquidation Preference pursuant to a resolution of the Board or pursuant to these Articles (the "ELIGIBLE PREFERRED SHAREHOLDERS"), any remaining assets of the Company that are legally available for distribution, if any, shall be distributed ratably among (a) any Eligible Preferred Shareholder who (after having received the Liquidation Preference) has the right to participate in such distribution pursuant to a written resolution of the Board or pursuant to these Articles and 4 (b) the holders of Common Shares on a pro rata basis. 7. Any dividend distributed other than in cash by the Company to the holders of Common Shares pursuant to these Articles will be valued at the Fair Market Value of the property being transferred as such dividend. 8. Each holder of Common Shares shall have one vote in respect of each Common Share held by such holder at general meetings of the Company. PREFERRED SHARES 9. The Preferred Shares may be issued from time to time in one or more series pursuant to any resolution of the Board that provides for such issuance. The Board may determine the rights, preferences, privileges, and restrictions granted to, or imposed upon, any wholly unissued series of Preferred Shares and fix the number of shares of any series of Preferred Shares and the designation of any such series of Preferred Shares, in all cases on or prior to the issue of Preferred Shares of such series. The Board may increase or decrease (but not below the number of shares in any such series then outstanding) the number of authorized shares of any series subsequent to the issue of shares of that series. The authority of the Board with respect to each such class or series shall include, without limitation of the foregoing, the right to determine and fix (prior to issue): (a) the distinctive designation of such class or series and the number of shares to constitute such class or series; (b) the rate and frequency at which dividends on the shares of such class or series shall be declared and paid, or set aside for payment, whether dividends at the rate so determined shall be cumulative or accruing, and whether the shares of such class or series shall be entitled to any participating or other dividends in addition to dividends at the rate so determined, and if so, on what terms; (c) the right or obligation, if any, of the Company to redeem shares of the particular class or series of Preferred Shares and, if redeemable, the price, terms, and manner of such redemption; (d) the special and relative rights and preferences, if any, and the amount per share that the shares of such class or series of Preferred Shares shall be entitled to receive upon any Liquidation Event; (e) the terms and conditions, if any, whereby shares of such class or series shall be convertible into, or exchangeable for, shares of any other class or series, including the price or rate of conversion or exchange and the terms of adjustment, if any (such conversion or exchange to be by means of redemption and reissue of shares of the other class or series); (f) the obligation, if any, of the Company to redeem or purchase shares of such class or 5 series and the terms and conditions of such obligation; (g) the voting rights, in any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Shares; (h) the limitations, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Shares; and (i) such other preferences, powers, qualifications, special or relative rights, and privileges thereof as the Board, acting in accordance with these Articles, may deem advisable and not inconsistent with Cayman Islands law and the Statute. SERIES A PREFERRED SHARES 10. The holders of Series A Preferred Shares shall be entitled to receive and to participate in such dividends and distributions as may be declared from time to time by the Board. Such dividends and distributions shall be paid and/or made on a pari passu basis with dividends and distributions on or in respect of Common Shares. Such dividends may be made in cash or specie as the Directors determine. 11. Any dividend distributed other than in cash by the Company to the holders of Series A Preferred Shares pursuant to these Articles (including the Extraordinary Distributions) will be valued at the Fair Market Value of the property being transferred as such dividend. 12. (a) Following any Liquidation Event, before any distribution or payment shall be made to the holders of any Common Shares, the holders of Series A Preferred Shares shall be entitled to be paid out of the remaining assets of the Company that are legally available for distribution with respect to all Series A Preferred Shares then outstanding an amount in cash (to be shared ratably by the holders of Series A Preferred Shares) equal to the excess of (i) US $2.30 per Series A Preferred Share over (ii) the amount of any Extraordinary Distributions previously paid per Series A Preferred Share (the "LIQUIDATION PREFERENCE"). (b) After payment in full of the Liquidation Preference to the Eligible Preferred Shareholders, any remaining assets of the Company that are legally available for distribution shall be further distributed ratably among (i) the holders of Series A Preferred Shares, (ii) the holders of Common Shares, and (iii) any Eligible Preferred Shareholder (other than holders of Series A Preferred Shares) who has the right to participate in such distribution pursuant to a written resolution of the Board or pursuant to these Articles. (c) If, upon any such Liquidation Event, the remaining assets of the Company that are legally available for distribution to its shareholders are insufficient to pay the holders of Series A Preferred Shares the full Liquidation Preference on each Series A Preferred Share, then the holders of Series A Preferred Shares shall share ratably in any distribution of such remaining assets in proportion to the respective amounts 6 that would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. (d) Subject to Articles 24 and 25, at any time when Series A Preferred Shares are outstanding, without the written consent of the holders of a majority of the then outstanding Series A Preferred Shares, the Directors shall not create, or authorize the creation of, any additional class or series of shares that ranks senior to the Series A Preferred Shares with respect to the distribution of assets upon any Liquidation Event. 13. The payment in full of the Liquidation Preference on each Series A Preferred Share shall automatically constitute the redemption in full of that Series A Preferred Share. To the extent that Series A Preferred Shares are redeemed in full, such Series A Preferred Shares shall be cancelled, and the issued share capital of the Company shall be reduced by the nominal value of the shares so redeemed. The redemption shall not be taken as reducing the authorized share capital of the Company. 14. The holders of Series A Preferred Shares shall be entitled to vote upon any and all matters upon which holders of Common Shares have the right to vote. 15. With respect to each Series A Preferred Share held by the holders thereof, each such holder shall have a number of votes that is equal to the number of Common Shares into which the Series A Preferred Shares could be converted, and such votes shall be counted together with all other shares (including the Common Shares) of the Company and not separately as a class. 16. The Series A Preferred Shares shall be convertible into Common Shares as follows: (a) CONVERSION RIGHT Any holder of Series A Preferred Shares shall have the right, at such holder's option, at any time or from time to time, to convert any of such holder's Series A Preferred Shares into such number of Common Shares as is determined by (x) dividing the Series A Stated Amount by the Conversion Price (defined below) in effect at the time of the conversion and (y) multiplying such quotient by the number of Series A Preferred Shares to be converted. The "CONVERSION PRICE" shall initially be US $2.30 per share. Such Conversion Price shall be subject to adjustment as hereinafter provided. (b) MECHANICS OF CONVERSION Any holder of Series A Preferred Shares may exercise the conversion right specified herein by surrendering to the Company the certificate(s) for the Series A Preferred Shares to be converted, accompanied by written notice specifying the number of the shares to be converted. 7 Conversion shall be deemed to have been effected on the date when delivery of notice of an election to convert and certificates for shares is made (such date is referred to herein as the "CONVERSION DATE"). Subject to the provisions of subparagraph (d)(v), as promptly as practicable thereafter, the Company shall make appropriate entries in the Register of Members, cancel the relevant Series A Preferred Share certificates and issue and deliver to such holder certificate(s) for the number of full Common Shares to which such holder is entitled and a check or cash with respect to any fractional interest in a Common Share as provided in subparagraph (c). The person whose name has been entered on the Register of Members shall be the legal owner of the Common Shares on the applicable Conversion Date. Upon conversion of only a portion of the number of shares covered by a certificate representing the Series A Preferred Shares surrendered for conversion, the Company shall issue and deliver to such holder, at the expense of the Company, a new certificate covering the number of Series A Preferred Shares representing the unconverted portion of the certificate so surrendered. (c) FRACTIONAL SHARES No fractions of Common Shares shall be issued upon conversion of the Series A Preferred Shares. If more than one Series A Preferred Share shall be surrendered for conversion at any one time by the same holder, the number of full Common Shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of Series A Preferred Shares so surrendered. Instead of any fractions of Common Shares that would otherwise be issuable upon conversion of any Series A Preferred Shares, the Company shall pay a cash adjustment in respect of such fractional interest in an amount equal to that fractional interest multiplied by the then effective Conversion Price. (d) CONVERSION PRICE ADJUSTMENTS The Conversion Price shall be subject to adjustment from time to time as follows: (i) Bonus Issue, Subdivision or Split If the number of Common Shares outstanding at any time after the date hereof is increased by a bonus issue of Common Shares or by a subdivision of Common Shares, then, on the date such issue or subdivision is made, the Conversion Price shall be appropriately decreased so that the number of Common Shares issuable on conversion of any Series A Preferred Shares shall be increased in proportion to such increase of outstanding shares. 8 (ii) Combination If the number of Common Shares outstanding at any time after the date hereof is decreased by a combination of the outstanding Common Shares, then, on the effective date of such combination, the Conversion Price shall be appropriately increased so that the number of Common Shares issuable on conversion of any shares of Series A Preferred Shares shall be decreased in proportion to such decrease in outstanding shares. (iii) Consolidation, Merger, Sale, Lease or Conveyance In case of any consolidation with or merger of the Company with or into another company, or in case of any sale, lease, or conveyance to another company of the assets of the Company as an entirety or substantially as an entirety, each Series A Preferred Share shall after the date of such consolidation, merger, sale, lease, or conveyance be convertible into the number of shares or other securities or property (including cash) to which the Common Shares issuable (at the time of such consolidation, merger, sale, lease, or conveyance) upon conversion of such Series A Preferred Share would have been entitled upon such consolidation, merger, sale, lease, or conveyance; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interests thereafter of the holders of Series A Preferred Shares shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares or other securities or property thereafter deliverable on the conversion of the Series A Preferred Shares. (iv) Rounding of Calculations; Minimum Adjustment All calculations under this subparagraph (d) shall be made to the nearest cent (in U.S. currency) or to the nearest one hundredth (1/100th) of a share, as the case may be. (v) Timing of Issuance of Additional Common Shares Upon Certain Adjustments In any case in which the provisions of this subparagraph (d) shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (A) issuing to the holder of Series A Preferred Shares converted after such record date and before the occurrence of such event the additional Common Shares issuable upon such conversion by reason of the adjustment required by such event over and above the Common Shares issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount of cash in lieu of a fractional share of Common Share pursuant to subparagraph (c). 9 (e) AUTOMATIC CONVERSION Upon the closing of the IPO, each outstanding Series A Preferred Share shall automatically be converted into one or more Common Shares on the basis of the Conversion Price then in effect. Such automatic conversion shall be effected in substantially the same manner as set forth in subparagraph (b) of this Section 16, with the closing of the IPO to automatically constitute the Conversion Date. CERTIFICATES FOR SHARES 17. Certificates representing shares of the Company shall be in such form as shall be determined by the Directors. Such certificates may be under Seal. All certificates for shares shall be consecutively numbered or otherwise identified and shall specify the shares to which they relate. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered in the register of Members of the Company. All certificates surrendered to the Company for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled. The Directors may authorise certificates to be issued with the seal and authorised signature(s) affixed by some method or system of mechanical process. 18. Notwithstanding Article 17 of these Articles, if a share certificate be defaced, lost or destroyed, it may be renewed on payment of a fee of one dollar (US$l.00) or such less sum and on such terms (if any) as to evidence and indemnity and the payment of the expenses incurred by the Company in investigating evidence, as the Directors may prescribe. ISSUE OF SHARES 19. Subject to the provisions, if any, in that behalf hereinbefore contained or in the Memorandum of Association and without prejudice to any special rights previously conferred on the holders of existing shares, the Directors may allot, issue, grant options over or otherwise dispose of shares of the Company (including fractions of a share) with or without preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise and to such persons, at such times and on such other terms as they think proper. 20. The Company shall maintain a register of its Members and every person whose name is entered as a Member in the register of Members shall be entitled without payment to receive within two months after allotment or lodgement of transfer (or within such other period as the conditions of issue shall provide) one certificate for all his shares or several certificates each for one or more of his shares upon payment of fifty cents (US$0.50) for every certificate after the first or such less sum as the Directors shall from time to time determine provided that in respect of a share or shares held jointly by several persons the Company shall not be bound to issue more than one certificate and delivery of a certificate for a share to one of the several joint holders shall be sufficient delivery to all such holders. 10 TRANSFER OF SHARES 21. The instrument of transfer of any share shall be in writing and shall be executed by or on behalf of the transferor and the transferor shall be deemed to remain the holder of a share until the name of the transferee is entered in the register in respect thereof. 22. The registration of transfers may be suspended at such time and for such periods as the Directors may from time to time determine, provided always that such registration shall not be suspended for more than forty-five days in any year. REDEEMABLE SHARES 23. (a) Subject to the provisions of the Statute and the Memorandum of Association, shares may be issued on the terms that they are, or at the option of the Company or the holder are, to be redeemed on such terms and in such manner as the Company, before the issue of the shares, may by Special Resolution determine. (b) Subject to the provisions of the Statute and the Memorandum of Association, the Company may purchase its own shares (including fractions of a share), including any redeemable shares, provided that the manner of purchase has first been authorised by the Company in general meeting and may make payment therefor in any manner authorised by the Statute, including out of capital. VARIATION OF RIGHTS OF SHARES 24. If at any time the share capital of the Company is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may be varied with the consent in writing of the holders of three-fourths of the issued shares of that class, or with the sanction of a Special Resolution passed at a general meeting of the holders of the shares of that class. The provisions of these Articles relating to general meetings shall apply to every such general meeting of the holders of one class of shares except that the necessary quorum shall be one person holding or representing by proxy at least one-third of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a poll. 25. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. COMMISSION ON SALE OF SHARES 26. The Company may in so far as the Statute from time to time permits pay a commission to 11 any person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any shares of the Company. Such commissions may be satisfied by the payment of cash or the lodgement of fully or partly paid-up shares or partly in one way and partly in the other. The Company may also on any issue of shares pay such brokerage as may be lawful. NON-RECOGNITION OF TRUSTS 27. No person shall be recognised by the Company as holding any share upon any trust and the Company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future, or partial interest in any share, or any interest in any fractional part of a share, or (except only as is otherwise provided by these Articles or the Statute) any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder. LIEN ON SHARES 28. The Company shall have a first and paramount lien and charge on all shares (whether fully paid-up or not) registered in the name of a Member (whether solely or jointly with others) for all debts, liabilities or engagements to or with the Company (whether presently payable or not) by such Member or his estate, either alone or jointly with any other person, whether a Member or not, but the Directors may at any time declare any share to be wholly or in part exempt from the provisions of this Article. The registration of a transfer of any such share shall operate as a waiver of the Company's lien (if any) thereon. The Company's lien (if any) on a share shall extend to all dividends or other monies payable in respect thereof. 29. The Company may sell, in such manner as the Directors think fit, any shares on which the Company has a lien, but no sale shall be made unless a sum in respect of which the lien exists is presently payable, nor until the expiration of fourteen days after a notice in writing stating and demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder or holders for the time being of the share, or the person, of which the Company has notice, entitled thereto by reason of his death or bankruptcy. 30. To give effect to any such sale the Directors may authorise some person to transfer the shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the shares comprised in any such transfer, and he shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale. 31. The proceeds of such sale shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable and the residue, if any, shall (subject to a like lien for sums not presently payable as existed upon the shares before the sale) be paid to the person entitled to the shares at the date of the sale. 12 CALL ON SHARES 32. (a) The Directors may from time to time make calls upon the Members in respect of any monies unpaid on their shares (whether on account of the nominal value of the shares or by way of premium or otherwise) and not by the conditions of allotment thereof made payable at fixed terms, provided that no call shall be payable at less than one month from the date fixed for the payment of the last preceding call, and each Member shall (subject to receiving at least fourteen days notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on the shares. A call may be revoked or postponed as the Directors may determine. A call may be made payable by instalments. (b) A call shall be deemed to have been made at the time when the resolution of the Directors authorising such call was passed. (c) The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof. 33. If a sum called in respect of a share is not paid before or on a day appointed for payment thereof, the persons from whom the sum is due shall pay interest on the sum from the day appointed for payment thereof to the time of actual payment at such rate not exceeding ten per cent per annum as the Directors may determine, but the Directors shall be at liberty to waive payment of such interest either wholly or in part. 34. Any sum which by the terms of issue of a share becomes payable on allotment or at any fixed date, whether on account of the nominal value of the share or by way of premium or otherwise, shall for the purposes of these Articles be deemed to be a call duly made, notified and payable on the date on which by the terms of issue the same becomes payable, and in the case of non-payment all the relevant provisions of these Articles as to payment of interest forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified. 35. The Directors may, on the issue of shares, differentiate between the holders as to the amount of calls or interest to be paid and the times of payment. 36. (a) The Directors may, if they think fit, receive from any Member willing to advance the same, all or any part of the monies uncalled and unpaid upon any shares held by him, and upon all or any of the monies so advanced may (until the same would but for such advances, become payable) pay interest at such rate not exceeding (unless the Company in general meeting shall otherwise direct) seven per cent per annum, as may be agreed upon between the Directors and the Member paying such sum in advance. (b) No such sum paid in advance of calls shall entitle the Member paying such sum to any portion of a dividend declared in respect of any period prior to the date upon which such sum would, but for such payment, become presently payable. 13 FORFEITURE OF SHARES 37. (a) If a Member fails to pay any call or instalment of a call or to make any payment required by the terms of issue on the day appointed for payment thereof, the Directors may, at any time thereafter during such time as any part of the call, instalment or payment remains unpaid, give notice requiring payment of so much of the call, instalment or payment as is unpaid, together with any interest which may have accrued and all expenses that have been incurred by the Company by reason of such non-payment. Such notice shall name a day (not earlier than the expiration of fourteen days from the date of giving of the notice) on or before which the payment required by the notice is to be made, and shall state that, in the event of non-payment at or before the time appointed the shares in respect of which such notice was given will be liable to be forfeited. (b) If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Directors to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited share and not actually paid before the forfeiture. (c) A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit and at any time before a sale or disposition the forfeiture may be cancelled on such terms as the Directors think fit. 38. A person whose shares have been forfeited shall cease to be a Member in respect of the forfeited shares, but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture were payable by him to the Company in respect of the shares together with interest thereon, but his liability shall cease if and when the Company shall have received payment in full of all monies whenever payable in respect of the shares. 39. A certificate in writing under the hand of one Director or the Secretary of the Company that a share in the Company has been duly forfeited on a date stated in the declaration shall be conclusive evidence of the fact therein stated as against all persons claiming to be entitled to the share. The Company may receive the consideration given for the share on any sale or disposition thereof and may execute a transfer of the share in favour of the person to whom the share is sold or disposed of and he shall thereupon be registered as the holder of the share and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share. 40. The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of the share or by way of premium as if the same had been payable by virtue of a call duly made and notified. 14 REGISTRATION OF EMPOWERING INSTRUMENTS 41. The Company shall be entitled to charge a fee not exceeding one dollar (US$l.00) on the registration of every probate, letters of administration, certificate of death or marriage, power of attorney, notice in lieu of distringas, or other instrument. TRANSMISSION OF SHARES 42. In case of the death of a Member, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was a sole holder, shall be the only persons recognised by the Company as having any title to his interest in the shares, but nothing herein contained shall release the estate of any such deceased holder from any liability in respect of any shares which had been held by him solely or jointly with other persons. 43. (a) Any person becoming entitled to a share in consequence of the death or bankruptcy or liquidation or dissolution of a Member (or in any other way than by transfer) may, upon such evidence being produced as may from time to time be required by the Directors and subject as hereinafter provided, elect either to be registered himself as holder of the share or to make such transfer of the share to such other person nominated by him as the deceased or bankrupt person could have made and to have such person registered as the transferee thereof, but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by that Member before his death or bankruptcy as the case may be. (b) If the person so becoming entitled shall elect to be registered himself as holder he shall deliver or send to the Company a notice in writing signed by him stating that he so elects. 44. A person becoming entitled to a share by reason of the death or bankruptcy or liquidation or dissolution of the holder (or in any other case than by transfer) shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as a Member in respect of the share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company PROVIDED HOWEVER that the Directors may at any time give notice requiring any such person to elect either to be registered himself or to transfer the share and if the notice is not complied with within ninety days the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the share until the requirements of the notice have been complied with. AMENDMENT OF MEMORANDUM OF ASSOCIATION, CHANGE OF LOCATION OF REGISTERED OFFICE, AND ALTERATION OF CAPITAL 45. (a) Subject to and in so far as permitted by the provisions of the Statute, the Company may from time to time by ordinary resolution alter or amend its Memorandum of 15 Association otherwise than with respect to its name and objects and may, without restricting the generality of the foregoing: (i) increase the share capital by such sum to be divided into shares of such amount or without nominal or par value as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as the Company in general meeting may determine; (ii) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares; (iii) by subdivision of its existing shares or any of them divide the whole or any part of its share capital into shares of smaller amount than is fixed by the Memorandum of Association or into shares without nominal or par value; or (iv) cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person. (b) All new shares created hereunder shall be subject to the same provisions with reference to the payment of calls, liens, transfer, transmission, forfeiture and otherwise as the shares in the original share capital. (c) Subject to the provisions of the Statute, the Company may by Special Resolution change its name or alter its objects. (d) Without prejudice to Article 23 hereof and subject to the provisions of the Statute, the Company may by Special Resolution reduce its share capital and any capital redemption reserve fund. (e) Subject to the provisions of the Statute, the Company may by resolution of the Directors change the location of its registered office. CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE 46. For the purpose of determining Members entitled to notice of or to vote at any meeting of Members or any adjournment thereof, or Members entitled to receive payment of any dividend, or in order to make a determination of Members for any other proper purpose, the Directors of the Company may provide that the register of Members shall be closed for transfers for a stated period but not to exceed in any case forty days. If the register of Members shall be so closed for the purpose of determining Members entitled to notice of or to vote at a meeting of Members such register shall be so closed for at least ten days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the register of Members. 47. In lieu of or apart from closing the register of Members, the Directors may fix in advance a date as the record date for any such determination of Members entitled to notice of or to 16 vote at a meeting of the Members and for the purpose of determining the Members entitled to receive payment of any dividend the Directors may, at or within 90 days prior to the date of declaration of such dividend fix a subsequent date as the record date for such determination. 48. If the register of Members is not so closed and no record date is fixed for the determination of Members entitled to notice of or to vote at a meeting of Members or Members entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Members. When a determination of Members entitled to vote at any meeting of Members has been made as provided in this section, such determination shall apply to any adjournment thereof. GENERAL MEETING 49. (a) Subject to paragraph (c) hereof, the Company shall within one year of its incorporation and in each year of its existence thereafter hold a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it. The annual general meeting shall be held at such time and place as the Directors shall appoint and if no other time and place is prescribed by them, it shall be held at the registered office on the second Wednesday in December of each year at ten o'clock in the morning. (b) At these meetings the report of the Directors (if any) shall be presented. (c) If the Company is exempted as defined in the Statute it may but shall not be obliged to hold an annual general meeting. 50. (a) The Directors may whenever they think fit, and they shall on the requisition of Members of the Company holding at the date of the deposit of the requisition not less than one-tenth of such of the paid-up capital of the Company as at the date of the deposit carries the right of voting at general meetings of the Company, proceed to convene a general meeting of the Company. (b) The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the registered office of the Company and may consist of several documents in like form each signed by one or more requisitionists. (c) If the Directors do not within twenty-one days from the date of the deposit of the requisition duly proceed to convene a general meeting, the requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three months after the expiration of the said twenty-one days. (d) A general meeting convened as aforesaid by requisitionists shall be convened in the 17 same manner as nearly as possible as that in which general meetings are to be convened by Directors. NOTICE OF GENERAL MEETINGS 51. At least five days' notice shall be given of an annual general meeting or any other general meeting. Every notice shall be exclusive of the day on which it is given or deemed to be given and of the day for which it is given and shall specify the place, the day and the hour of the meeting and the general nature of the business and shall be given in manner hereinafter mentioned or in such other manner if any as may be prescribed by the Company PROVIDED that a general meeting of the Company shall, whether or not the notice specified in this regulation has been given and whether or not the provisions of Article 50 have been complied with, be deemed to have been duly convened if it is so agreed: (a) in the case of a general meeting called as an annual general meeting by all the Members entitled to attend and vote thereat or their proxies; and (b) in the case of any other general meeting by a majority in number of the Members having a right to attend and vote at the meeting, being a majority together holding not less than seventy-five per cent in nominal value or in the case of shares without nominal or par value seventy-five per cent of the shares in issue, or their proxies. 52. The accidental omission to give notice of a general meeting to, or the non-receipt of notice of a meeting by any person entitled to receive notice shall not invalidate the proceedings of that meeting. PROCEEDINGS AT GENERAL MEETINGS 53. No business shall be transacted at any general meeting unless a quorum of Members is present at the time when the meeting proceeds to business; two Members present in person or by proxy shall be a quorum provided always that if the Company has one Member of record the quorum shall be that one Member present in person or by proxy. 54. A resolution (including a Special Resolution) in writing (in one or more counterparts) signed by all Members for the time being entitled to receive notice of and to attend and vote at general meetings (or being corporations by their duly authorised representatives) shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held. 55. If within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of Members, shall be dissolved and in any other case it shall stand adjourned to the same day in the next week at the same time and place or to such other time or such other place as the Directors may determine and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the 18 meeting the Members present shall be a quorum. 56. The Chairman, if any, of the Board of Directors shall preside as Chairman at every general meeting of the Company, or if there is no such Chairman, or if he shall not be present within fifteen minutes after the time appointed for the holding of the meeting, or is unwilling to act, the Directors present shall elect one of their number to be Chairman of the meeting. 57. If at any general meeting no Director is willing to act as Chairman or if no Director is present within fifteen minutes after the time appointed for holding the meeting, the Members present shall choose one of their number to be Chairman of the meeting. 58. The Chairman may, with the consent of any general meeting duly constituted hereunder, and shall if so directed by the meeting, adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a general meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in the case of an original meeting; save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned general meeting. 59. At any general meeting a resolution put to the vote of the meeting shall be decided on a poll. 60. Unless a poll be so demanded a declaration by the Chairman that a resolution has on a show of hands been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the Company's Minute Book containing the Minutes of the proceedings of the meeting shall be conclusive evidence of that fact without proof of the number or proportion of the votes recorded in favour of or against such resolution. 61. The demand for a poll may be withdrawn. 62. Except as provided in Article 64, if a poll is duly demanded it shall be taken in such manner as the Chairman directs and the result of the poll shall be deemed to be the resolution of the general meeting at which the poll was demanded. 63. In the case of an equality of votes, whether on a show of hands or on a poll, the Chairman of the general meeting at which the show of hands takes place or at which the poll is demanded, shall be entitled to a second or casting vote. 64. A poll demanded on the election of a Chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the Chairman of the general meeting directs and any business other than that upon which a poll has been demanded or is contingent thereon may be proceeded with pending the taking of the poll. 19 VOTES OF MEMBERS 65. Subject to any rights or restrictions for the time being attached to any class or classes of shares, every Member of record present in person or by proxy shall have one vote for each share registered in his name in the register of Members. 66. In the case of joint holders of record the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of Members. 67. A Member of unsound mind, or in respect of whom an order has been made by any court, having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee, receiver, curator bonis, or other person in the nature of a committee, receiver or curator bonis appointed by that court, and any such committee, receiver, curator bonis or other persons may vote by proxy. 68. No Member shall be entitled to vote at any general meeting unless he is registered as a shareholder of the Company on the record date for such meeting nor unless all calls or other sums presently payable by him in respect of shares in the Company have been paid. 69. No objection shall be raised to the qualification of any voter except at the general meeting or adjourned general meeting at which the vote objected to is given or tendered and every vote not disallowed at such general meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the Chairman of the general meeting whose decision shall be final and conclusive. 70. On a poll votes may be given either personally or by proxy. PROXIES 71. The instrument appointing a proxy shall be in writing and shall be executed under the hand of the appointor or of his attorney duly authorised in writing, or, if the appointor is a corporation under the hand of an officer or attorney duly authorised in that behalf. A proxy need not be a Member of the Company. 72. The instrument appointing a proxy shall be deposited at the registered office of the Company or at such other place as is specified for that purpose in the notice convening the meeting no later than the time for holding the meeting, or adjourned meeting provided that the Chairman of the Meeting may at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited upon receipt of telex, cable or telecopy confirmation from the appointor that the instrument of proxy duly signed is in the course of transmission to the Company. 73. The instrument appointing a proxy may be in any usual or common form and may be expressed to be for a particular meeting or any adjournment thereof or generally until revoked. An instrument appointing a proxy shall be deemed to include the power to demand or join or concur in demanding a poll. 20 74. A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the share in respect of which the proxy is given provided that no intimation in writing of such death, insanity, revocation or transfer as aforesaid shall have been received by the Company at the registered office before the commencement of the general meeting, or adjourned meeting at which it is sought to use the proxy. 75. Any corporation which is a Member of record of the Company may in accordance with its Articles or in the absence of such provision by resolution of its Directors or other governing body authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Members of the Company, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as the corporation could exercise if it were an individual Member of record of the Company. 76. Shares of its own capital belonging to the Company or held by it in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time. DIRECTORS 77. There shall be a Board of Directors consisting of not less than one or more than ten persons (exclusive of alternate Directors) PROVIDED HOWEVER that the Company may from time to time by ordinary resolution increase or reduce the limits in the number of Directors. The first Directors of the Company shall be determined in writing by, or appointed by a resolution of, the subscribers of the Memorandum of Association or a majority of them. 78. The remuneration to be paid to the Directors shall be such remuneration as the Directors shall determine. Such remuneration shall be deemed to accrue from day to day. The Directors shall also be entitled to be paid their travelling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the Directors, or any committee of the Directors, or general meetings of the Company, or otherwise in connection with the business of the Company, or to receive a fixed allowance in respect thereof as may be determined by the Directors from time to time, or a combination partly of one such method and partly the other. 79. The Directors may by resolution award special remuneration to any Director of the Company undertaking any special work or services for, or undertaking any special mission on behalf of, the Company other than his ordinary routine work as a Director. Any fees paid to a Director who is also counsel or solicitor to the Company, or otherwise serves it in a professional capacity shall be in addition to his remuneration as a Director. 80. A Director or alternate Director may hold any other office or place of profit under the Company (other than the office of Auditor) in conjunction with his office of Director for such period and on such terms as to remuneration and otherwise as the Directors may determine. 21 81. A Director or alternate Director may act by himself or his firm in a professional capacity for the Company and he or his firm shall be entitled to remuneration for professional services as if he were not a Director or alternate Director. 82. A shareholding qualification for Directors may be fixed by the Company in general meeting, but unless and until so fixed no qualification shall be required. 83. A Director or alternate Director of the Company may be or become a director or other officer of or otherwise interested in any company promoted by the Company or in which the Company may be interested as shareholder or otherwise and no such Director or alternate Director shall be accountable to the Company for any remuneration or other benefits received by him as a director or officer of, or from his interest in, such other company. 84. No person shall be disqualified from the office of Director or alternate Director or prevented by such office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any contract or transaction entered into by or on behalf of the Company in which any Director or alternate Director shall be in any way interested be or be liable to be avoided, nor shall any Director or alternate Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or transaction by reason of such Director holding office or of the fiduciary relation thereby established. A Director (or his alternate Director in his absence) shall be at liberty to vote in respect of any contract or transaction in which he is so interested as aforesaid PROVIDED HOWEVER that the nature of the interest of any Director or alternate Director in any such contract or transaction shall be disclosed by him or the alternate Director appointed by him at or prior to its consideration and any vote thereon. 85. A general notice that a Director or alternate Director is a shareholder of any specified firm or company and is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure under Article 84 and after such general notice it shall not be necessary to give special notice relating to any particular transaction. ALTERNATE DIRECTORS 86. Subject to the exception contained in Article 94, a Director who expects to be unable to attend Directors' Meetings because of absence, illness or otherwise may appoint any person to be an alternate Director to act in his stead and such appointee whilst he holds office as an alternate Director shall, in the event of absence therefrom of his appointor, be entitled to attend meetings of the Directors and to vote thereat and to do, in the place and stead of his appointor, any other act or thing which his appointor is permitted or required to do by virtue of his being a Director as if the alternate Director were the appointor, other than appointment of an alternate to himself, and he shall ipso facto vacate office if and when his appointor ceases to be a Director or removes the appointee from office. Any appointment or removal under this Article shall be effected by notice in writing under the hand of the Director making the same. 22 POWERS AND DUTIES OF DIRECTORS 87. The business of the Company shall be managed by the Directors (or a sole Director if only one is appointed) who may pay all expenses incurred in promoting, registering and setting up the Company, and may exercise all such powers of the Company as are not, from time to time by the Statute, or by these Articles, or such regulations, being not inconsistent with the aforesaid, as may be prescribed by the Company in general meeting required to be exercised by the Company in general meeting PROVIDED HOWEVER that no regulations made by the Company in general meeting shall invalidate any prior act of the Directors which would have been valid if that regulation had not been made. 88. The Directors may from time to time and at any time by powers of attorney appoint any company, firm, person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purpose and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such powers of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorneys as the Directors may think fit and may also authorise any such attorney to delegate all or any of the powers, authorities and discretions vested in him. 89. All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for monies paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed as the case may be in such manner as the Directors shall from time to time by resolution determine. 90. The Directors shall cause minutes to be made in books provided for the purpose: (a) of all appointments of officers made by the Directors; (b) of the names of the Directors (including those represented thereat by an alternate or by proxy) present at each meeting of the Directors and of any committee of the Directors; (c) of all resolutions and proceedings at all meetings of the Company and of the Directors and of committees of Directors. 91. The Directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any Director who has held any other salaried office or place of profit with the Company or to his widow or dependants and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance. 92. The Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof and to issue debentures, debenture stock and other securities whether outright or as security for any 23 debt, liability or obligation of the Company or of any third party. MANAGEMENT 93. (a) The Directors may from time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the three next following paragraphs shall be without prejudice to the general powers conferred by this paragraph. (b) The Directors from time to time and at any time may establish any committees, local boards or agencies for managing any of the affairs of the Company and may appoint any persons to be members of such committees or local boards or any managers or agents and may fix their remuneration. (c) The Directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorise the members for the time being of any such local board, or any of them to fill up any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any person so appointed and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby. (d) Any such delegates as aforesaid may be authorised by the Directors to subdelegate all or any of the powers, authorities, and discretions for the time being vested in them. MANAGING DIRECTORS 94. The Directors may, from time to time, appoint one or more of their body (but not an alternate Director) to the office of Managing Director for such term and at such remuneration (whether by way of salary, or commission, or participation in profits, or partly in one way and partly in another) as they may think fit but his appointment shall be subject to determination ipso facto if he ceases from any cause to be a Director and no alternate Director appointed by him can act in his stead as a Director or Managing Director. 95. The Directors may entrust to and confer upon a Managing Director any of the powers exercisable by them upon such terms and conditions and with such restrictions as they may think fit and either collaterally with or to the exclusion of their own powers and may from time to time revoke, withdraw, alter or vary all or any of such powers. PROCEEDINGS OF DIRECTORS 96. Except as otherwise provided by these Articles, the Directors shall meet together for the 24 despatch of business, convening, adjourning and otherwise regulating their meetings as they think fit. Questions arising at any meeting shall be decided by a majority of votes of the Directors and alternate Directors present at a meeting at which there is a quorum, the vote of an alternate Director not being counted if his appointor be present at such meeting. In case of an equality of votes, the Chairman shall have a second or casting vote. 97. A Director or alternate Director may, and the Secretary on the requisition of a Director or alternate Director shall, at any time summon a meeting of the Directors by at least two days' notice in writing to every Director and alternate Director which notice shall set forth the general nature of the business to be considered unless notice is waived by all the Directors (or their alternates) either at, before or after the meeting is held and PROVIDED FURTHER if notice is given in person, by cable, telex or telecopy the same shall be deemed to have been given on the day it is delivered to the Directors or transmitting organisation as the case may be. The provisions of Article 52 shall apply mutatis mutandis with respect to notices of meetings of Directors. 98. The quorum necessary for the transaction of the business of the Directors may be fixed by the Directors and unless so fixed shall be two, a Director and his appointed alternate Director being considered only one person for this purpose, PROVIDED ALWAYS that if there shall at any time be only a sole Director the quorum shall be one. For the purposes of this Article an alternate Director or proxy appointed by a Director shall be counted in a quorum at a meeting at which the Director appointing him is not present. 99. The continuing Directors may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors the continuing Directors or Director may act for the purpose of increasing the number of Directors to that number, or of summoning a general meeting of the Company, but for no other purpose. 100. The Directors may elect a Chairman of their Board and determine the period for which he is to hold office; but if no such Chairman is elected, or if at any meeting the Chairman is not present within five minutes after the time appointed for holding the same, the Directors present may choose one of their number to be Chairman of the meeting. 101. The Directors may delegate any of their powers to committees consisting of such member or members of the Board of Directors (including Alternate Directors in the absence of their appointors) as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors. 102. A committee may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the members present, and in the case of an equality of votes the Chairman shall have a second or casting vote. 103. All acts done by any meeting of the Directors or of a committee of Directors (including any person acting as an alternate Director) shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or alternate 25 Director, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and qualified to be a Director or alternate Director as the case may be. 104. Members of the Board of Directors or of any committee thereof may participate in a meeting of the Board or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. A resolution in writing (in one or more counterparts), signed by all the Directors for the time being or all the members of a committee of Directors (an alternate Director being entitled to sign such resolution on behalf of his appointor) shall be as valid and effectual as if it had been passed at a meeting of the Directors or committee as the case may be duly convened and held. 105. (a) A Director may be represented at any meetings of the Board of Directors by a proxy appointed by him in which event the presence or vote of the proxy shall for all purposes be deemed to be that of the Director. (b) The provisions of Articles 71-74 shall mutatis mutandis apply to the appointment of proxies by Directors. VACATION OF OFFICE OF DIRECTOR 106. The office of a Director shall be vacated: (a) if he gives notice in writing to the Company that he resigns the office of Director; (b) if he absents himself (without being represented by proxy or an alternate Director appointed by him) from three consecutive meetings of the Board of Directors without special leave of absence from the Directors, and they pass a resolution that he has by reason of such absence vacated office; (c) if he dies, becomes bankrupt or makes any arrangement or composition with his creditors generally; (d) if he is found a lunatic or becomes of unsound mind. APPOINTMENT AND REMOVAL OF DIRECTORS 107. The Company may by ordinary resolution appoint any person to be a Director and may in like manner remove any Director and may in like manner appoint another person in his stead. 108. The Directors shall have power at any time and from time to time to appoint any person to be a Director, either to fill a casual vacancy or as an addition to the existing Directors but so that the total amount of Directors (exclusive of alternate Directors) shall not at any time 26 exceed the number fixed in accordance with these Articles. PRESUMPTION OF ASSENT 109. A Director of the Company who is present at a meeting of the Board of Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the Minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to such person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action. SEAL 110. (a) The Company may, if the Directors so determine, have a Seal which shall, subject to paragraph (c) hereof, only be used by the authority of the Directors or of a committee of the Directors authorised by the Directors in that behalf and every instrument to which the Seal has been affixed shall be signed by one person who shall be either a Director or the Secretary or Secretary-Treasurer or some person appointed by the Directors for the purpose. (b) The Company may have for use in any place or places outside the Cayman Islands a duplicate Seal or Seals each of which shall be a facsimile of the Common Seal of the Company and, if the Directors so determine, with the addition on its face of the name of every place where it is to be used. (c) A Director, Secretary or other officer or representative or attorney may without further authority of the Directors affix the Seal of the Company over his signature alone to any document of the Company required to be authenticated by him under Seal or to be filed with the Registrar of Companies in the Cayman Islands or elsewhere wheresoever. OFFICERS 111. The Company may have a President, a Secretary or Secretary-Treasurer appointed by the Directors who may also from time to time appoint such other officers as they consider necessary, all for such terms, at such remuneration and to perform such duties, and subject to such provisions as to disqualification and removal as the Directors from time to time prescribe. DIVIDENDS, DISTRIBUTIONS AND RESERVE 112. Subject to the Statute, the Directors may from time to time declare dividends (including interim dividends) and distributions on shares of the Company outstanding and authorise payment of the same out of the funds of the Company lawfully available therefor. 27 113. The Directors may, before declaring any dividends or distributions, set aside such sums as they think proper as a reserve or reserves which shall at the discretion of the Directors, be applicable for any purpose of the Company and pending such application may, at the like discretion, be employed in the business of the Company. 114. No dividend or distribution shall be payable except out of the profits of the Company, realised or unrealised, or out of the share premium account or as otherwise permitted by the Statute. 115. Subject to the rights of persons, if any, entitled to shares with special rights as to dividends or distributions, if dividends or distributions are to be declared on a class of shares they shall be declared and paid according to the amounts paid or credited as paid on the shares of such class outstanding on the record date for such dividend or distribution as determined in accordance with these Articles but no amount paid or credited as paid on a share in advance of calls shall be treated for the purpose of this Article as paid on the share. 116. The Directors may deduct from any dividend or distribution payable to any Member all sums of money (if any) presently payable by him to the Company on account of calls or otherwise. 117. The Directors may declare that any dividend or distribution be paid wholly or partly by the distribution of specific assets and in particular of paid up shares, debentures, or debenture stock of any other company or in any one or more of such ways and where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular may issue fractional certificates and fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any Members upon the footing of the value so fixed in order to adjust the rights of all Members and may vest any such specific assets in trustees as may seem expedient to the Directors. 118. Any dividend, distribution, interest or other monies payable in cash in respect of shares may be paid by cheque or warrant sent through the post directed to the registered address of the holder or, in the case of joint holders, to the holder who is first named on the register of Members or to such person and to such address as such holder or joint holders may in writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent. Any one of two or more joint holders may give effectual receipts for any dividends, bonuses, or other monies payable in respect of the share held by them as joint holders. 119. No dividend or distribution shall bear interest against the Company. CAPITALISATION 120. The Company may upon the recommendation of the Directors by ordinary resolution authorise the Directors to capitalise any sum standing to the credit of any of the Company's reserve accounts (including share premium account and capital redemption reserve fund) or 28 any sum standing to the credit of profit and loss account or otherwise available for distribution and to appropriate such sum to Members in the proportions in which such sum would have been divisible amongst them had the same been a distribution of profits by way of dividend and to apply such sum on their behalf in paying up in full unissued shares for allotment and distribution credited as fully paid up to and amongst them in the proportion aforesaid. In such event the Directors shall do all acts and things required to give effect to such capitalisation, with full power to the Directors to make such provisions as they think fit for the case of shares becoming distributable in fractions (including provisions whereby the benefit of fractional entitlements accrue to the Company rather than to the Members concerned). The Directors may authorise any person to enter on behalf of all of the Members interested into an agreement with the Company providing for such capitalisation and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned. BOOKS OF ACCOUNT 121. The Directors shall cause proper books of account to be kept with respect to: (a) all sums of money received and expended by the Company and the matters in respect of which the receipt or expenditure takes place; (b) all sales and purchases of goods by the Company; (c) the assets and liabilities of the Company. Proper books shall not be deemed to be kept if there are not kept such books of account as are necessary to give a true and fair view of the state of the Company's affairs and to explain its transactions. 122. The Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Members not being Directors and no Member (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by Statute or authorised by the Directors or by the Company in general meeting. 123. The Directors may from time to time cause to be prepared and to be laid before the Company in general meeting profit and loss accounts, balance sheets, group accounts (if any) and such other reports and accounts as may be required by law. AUDIT 124. The Company may at any annual general meeting appoint an Auditor or Auditors of the Company who shall hold office until the next annual general meeting and may fix his or their remuneration. 29 125. The Directors may before the first annual general meeting appoint an Auditor or Auditors of the Company who shall hold office until the first annual general meeting unless previously removed by an ordinary resolution of the Members in general meeting in which case the Members at that meeting may appoint Auditors. The Directors may fill any casual vacancy in the office of Auditor but while any such vacancy continues the surviving or continuing Auditor or Auditors, if any, may act. The remuneration of any Auditor appointed by the Directors under this Article may be fixed by the Directors. 126. Every Auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and Officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors. 127. Auditors shall at the next annual general meeting following their appointment and at any other time during their term of office, upon request of the Directors or any general meeting of the Members, make a report on the accounts of the Company in general meeting during their tenure of office. NOTICES 128. Notices shall be in writing and may be given by the Company to any Member either personally or by sending it by post, cable, telex or telecopy to him or to his address as shown in the register of Members, such notice, if mailed, to be forwarded airmail if the address be outside the Cayman Islands. 129. (a) Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, pre-paying and posting a letter containing the notice, and to have been effected at the expiration of sixty hours after the letter containing the same is posted as aforesaid. (b) Where a notice is sent by cable, telex, or telecopy, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organisation and to have been effected on the day the same is sent as aforesaid. 130. A notice may be given by the Company to the joint holders of record of a share by giving the notice to the joint holder first named on the register of Members in respect of the share. 131. A notice may be given by the Company to the person or persons which the Company has been advised are entitled to a share or shares in consequence of the death or bankruptcy of a Member by sending it through the post as aforesaid in a pre-paid letter addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt, or by any like description at the address supplied for that purpose by the persons claiming to be so entitled, or at the option of the Company by giving the notice in any manner in which the same might have been given if the death or bankruptcy had not occurred. 30 132. Notice of every general meeting shall be given in any manner hereinbefore authorised to: (a) every person shown as a Member in the register of Members as of the record date for such meeting except that in the case of joint holders the notice shall be sufficient if given to the joint holder first named in the register of Members. (b) every person upon whom the ownership of a share devolves by reason of his being a legal personal representative or a trustee in bankruptcy of a Member of record where the Member of record but for his death or bankruptcy would be entitled to receive notice of the meeting; and No other person shall be entitled to receive notices of general meetings. WINDING UP 133. Subject to the provisions of Articles 6 and 12, if the Company shall be wound up the liquidator may, with the sanction of a Special Resolution of the Company and any other sanction required by the Statute, divide amongst the Members in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for such purpose set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of Members. The liquidator may with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any shares or other securities whereon there is any liability. 134. Subject to the provisions of Articles 6 and 12, if the Company shall be wound up, and the assets available for distribution amongst the Members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Members in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively. And if in a winding up the assets available for distribution amongst the Members shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed amongst the Members in proportion to the capital paid up at the commencement of the winding up on the shares held by them respectively. This Article is to be without prejudice to the rights of the holders of shares issued upon special terms and conditions. INDEMNITY 135. The Directors and officers for the time being of the Company and any trustee for the time being acting in relation to any of the affairs of the Company and their heirs, executors, administrators and personal representatives respectively shall be indemnified out of the assets of the Company from and against all actions, proceedings, costs, charges, losses, damages and expenses which they or any of them shall or may incur or sustain by reason of 31 any act done or omitted in or about the execution of their duty in their respective offices or trusts, except such (if any) as they shall incur or sustain by or through their own wilful neglect or default respectively and no such Director, officer or trustee shall be answerable for the acts, receipts, neglects or defaults of any other Director, officer or trustee or for joining in any receipt for the sake of conformity or for the solvency or honesty of any banker or other persons with whom any monies or effects belonging to the Company may be lodged or deposited for safe custody or for any insufficiency of any security upon which any monies of the Company may be invested or for any other loss or damage due to any such cause as aforesaid or which may happen in or about the execution of his office or trust unless the same shall happen through the wilful neglect or default of such Director, Officer or trustee. FINANCIAL YEAR 136. Unless the Directors otherwise prescribe, the financial year of the Company shall end on 31st December in each year and, following the year of incorporation, shall begin on 1st January in each year. AMENDMENTS OF ARTICLES 137. Subject to the Statute, the Company may at any time and from time to time by Special Resolution alter or amend these Articles in whole or in part. TRANSFER BY WAY OF CONTINUATION 138. If the Company is exempted as defined in the Statute, it shall, subject to the provisions of the Statute and with the approval of a Special Resolution, have the power to register by way of continuation as a body corporate under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands. 32 EX-3.6(A) 21 0021.txt AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION Exhibit 3.6(a) THE COMPANIES LAW (2000 REVISION) COMPANY LIMITED BY SHARES AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION OF SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS Amended and Restated by Special Resolution of the Sole Shareholder dated _______________ l. The name of the Company is SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS. 2. The Registered Office of the Company shall be at the offices of Maples and Calder, Attorneys-at-Law, Ugland House, P.O. Box 309, George Town, Grand Cayman, Cayman Islands, British West Indies or at such other place as the Directors may from time to time decide. 3. The objects for which the Company is established are unrestricted and shall include, but without limitation, the following: (a) (i) To carry on business as inventors, designers, manufacturers, traders and dealers of and in all types of equipment, machinery and goods, including without limitation computer hardware and equipment and any related patents, industrial rights and know how whether or not protected by law. (ii) To carry on the business of an investment company and to act as promoters and entrepreneurs and to carry on business as financiers, capitalists, concessionaires, merchants, brokers, traders, dealers, agents, importers and exporters and to undertake and carry on and execute all kinds of investment, financial, commercial, mercantile, trading and other operations. (iii) To carry on whether as principals, agents or otherwise howsoever the business of realtors, developers, consultants, estate agents or managers, builders, contractors, engineers, manufacturers, dealers in or vendors of all types of property including services. (b) To exercise and enforce all rights and powers conferred by or incidental to the ownership of any shares, stock, obligations or other securities including without prejudice to the generality of the foregoing all such powers of veto or control as may be conferred by virtue of the holding by the Company of some special proportion of the issued or nominal amount thereof, to provide managerial and other executive, supervisory and consultant services for or in relation to any company in which the Company is interested upon such terms as may be thought fit. (c) To purchase or otherwise acquire, to sell, exchange, surrender, lease, mortgage, charge, convert, turn to account, dispose of and deal with real and personal property and rights of all kinds and, in particular, mortgages, debentures, produce, concessions, options, contracts, patents, annuities, licences, stocks, shares, bonds, policies, book debts, business concerns, undertakings, claims, privileges and choses in action of all kinds. (d) To subscribe for, conditionally or unconditionally, to underwrite, issue on commission or otherwise, take, hold, deal in and convert stocks, shares and securities of all kinds and to enter into partnership or into any arrangement for sharing profits, reciprocal concessions or cooperation with any person or company and to promote and aid in promoting, to constitute, form or organise any company, syndicate or partnership of any kind, for the purpose of acquiring and undertaking any property and liabilities of the Company or of advancing, directly or indirectly, the objects of the Company or for any other purpose which the Company may think expedient. (e) To stand surety for or to guarantee, support or secure the performance of all or any of the obligations of any person, firm or company whether or not related or affiliated to the Company in any manner and whether by personal covenant or by mortgage, charge or lien upon the whole or any part of the undertaking, property and assets of the Company, both present and future, including its uncalled capital or by any such method and whether or not the Company shall receive valuable consideration therefor. (f) To engage in or carry on any other lawful trade, business or enterprise which may at any time appear to the Directors of the Company capable of being conveniently carried on in conjunction with any of the aforementioned businesses or activities or which may appear to the Directors of the Company likely to be profitable to the Company. In the interpretation of this Memorandum of Association in general and of this Clause 3 in particular no object, business or power specified or mentioned shall be limited or restricted by reference to or inference from any other object, business or power, or the name of the Company, or by the juxtaposition of two or more objects, businesses or powers and that, in the event of any ambiguity in this clause or elsewhere in this Memorandum of Association, the same shall be resolved by such interpretation and construction as will widen and enlarge and not restrict the objects, businesses and powers of and exercisable by the Company. 4. Except as prohibited or limited by the Companies Law (2000 Revision), the Company shall have full power and authority to carry out any object and shall have and be capable of from time to time and at all times exercising any and all of the powers at any time or from time to 2 time exercisable by a natural person or body corporate in doing in any part of the world whether as principal, agent, contractor or otherwise whatever may be considered by it necessary for the attainment of its objects and whatever else may be considered by it as incidental or conducive thereto or consequential thereon, including, but without in any way restricting the generality of the foregoing, the power to make any alterations or amendments to this Memorandum of Association and the Articles of Association of the Company considered necessary or convenient in the manner set out in the Articles of Association of the Company, and the power to do any of the following acts or things, viz: (a) to pay all expenses of and incidental to the promotion, formation and incorporation of the Company; (b) to register the Company to do business in any other jurisdiction; (c) to sell, lease or dispose of any property of the Company; (e) to draw, make, accept, endorse, discount, execute and issue promissory notes, debentures, bills of exchange, bills of lading, warrants and other negotiable or transferable instruments; (f) to lend money or other assets and to act as guarantors; (g) to borrow or raise money on the security of the undertaking or on all or any of the assets of the Company including uncalled capital or without security; (h) to invest monies of the Company in such manner as the Directors determine; (i) to promote other companies; (j) to sell the undertaking of the Company for cash or any other consideration; (k) to distribute assets in specie to Members of the Company; (l) to make charitable or benevolent donations; (m) to pay pensions or gratuities or provide other benefits in cash or kind to Directors, officers, employees, past or present and their families; (n) to purchase Directors and officers liability insurance; and (o) to carry on any trade or business and generally to do all acts and things which, in the opinion of the Company or the Directors, may be conveniently or profitably or usefully acquired and dealt with, carried on, executed or done by the Company in connection with the business aforesaid, provided that the Company shall only carry on the businesses for which a licence is required under the laws of the Cayman Islands when so licensed under the terms of such laws. 3 5. The liability of each Member is limited to the amount from time to time unpaid on such Member's shares. 6. The authorized share capital of the Company consists of (a) 30,000,000 common shares with a par value of US $0.0001 per share and having the rights and privileges attached thereto as provided in the Company's Articles of Association (the "COMMON SHARES") and (b) 22,500,000 preferred shares with a par value of US $0.0001 per share and having the rights and preferences attached thereto as provided in the Company's Articles of Association (the "PREFERRED SHARES"). Of the Preferred Shares, 20,000,000 shares are designated "SERIES A PREFERRED SHARES" and have the rights and preferences attached thereto as provided in the Company's Articles of Association. Subject to the provisions of The Companies Law (2000 Revision) and the Articles of Association, the Company shall have the power to redeem or purchase any of its shares, to subdivide or consolidate the said shares or any of them, and to issue all or any part of its capital, whether original, redeemed, increased, or reduced, with or without any preference, priority, or special privilege, or subject to any postponement of rights or to any conditions or restrictions whatsoever, and so that, unless the conditions of issue shall otherwise expressly provide, every issue of shares, whether stated to be Common Shares or Preferred Shares, shall be subject to the powers on the part of the Company hereinbefore provided. 7. If the Company is registered as exempted, its operations will be carried on subject to the provisions of Section 193 of the Companies Law (2000 Revision) and, subject to the provisions of the Companies Law (2000 Revision) and the Articles of Association, it shall have the power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands. 4 EX-3.6(B) 22 0022.txt AMENDED AND RESTATED ARTICLES OF ASSOCIATION EXHIBIT 3.6(B) THE COMPANIES LAW (2000 REVISION) COMPANY LIMITED BY SHARES AMENDED AND RESTATED ARTICLES OF ASSOCIATION OF SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS Amended and Restated by Special Resolution of the Sole Shareholder dated _______________ INTERPRETATION 1. In these Articles Table A in the Schedule to the Statute does not apply and, unless there be something in the subject or context inconsistent therewith, "ARTICLES" means these Articles as originally framed or as from time to time altered by Special Resolution. "AUDITORS" means the persons for the time being performing the duties of auditors of the Company. "BOARD" means the board of directors of the Company. "COMMON SHARES" has the meaning given in the Company's Memorandum of Association. "COMPANY" means the above-named Company. "DEBENTURE" means debenture stock, mortgages, bonds and any other such securities of the Company whether constituting a charge on the assets of the Company or not. "DIRECTORS" means the directors for the time being of the Company. "DIVIDEND" includes bonus. "EXTRAORDINARY DISTRIBUTION" means any distribution to the holders of the Preferred Shares of (i) securities of any subsidiary of the Company in a spin-off or spin-out transaction or (ii) the proceeds from the sale or other disposition of the assets or outstanding capital stock of any such subsidiary. "FAIR MARKET VALUE" means: (a) in the case of property other than cash or securities, the market value of such property on the date in question as determined in good faith by the Board; and (b) in the case of securities, the average of the daily closing prices of the securities for the ten consecutive trading days ending on and including such date of determination. The closing price for each day shall be: (i) if the securities are listed on the NASDAQ National Market, the last reported sale price of such securities on the NASDAQ National Market, or any similar system of automated dissemination of quotations of securities prices then in common use, if so quoted, (ii) if the securities are not listed or admitted for trading as described in clause (i), the last reported sale price of such securities on the NYSE, or if such securities are listed or admitted for trading on any other national securities exchange, the last sale price, or the closing bid price if no sale occurred, of such securities on the principal securities exchange on which the securities are listed, or (iii) if not quoted or listed as described in clauses (i) or (ii), the mean between the high bid and low asked quotations for such securities as reported by the National Quotation Bureau Incorporated if at least two securities dealers have inserted both bid and asked quotations for the securities on at least five of the ten preceding Trading Days. If none of the conditions set forth above is met, the last reported sale price of the securities on any day or the average of such last reported sale prices for any period shall be the fair market value of the securities as determined by a member firm of the NYSE selected by the Company. "IPO" means a firm commitment underwriting public offering of the Common Shares pursuant to an effective registration statement filed under the U.S. Securities Act of 1933, as amended, which yields 2 the Company net proceeds in an amount not less than $25 million. "LIQUIDATION EVENT" means any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary. For purposes of these Articles, (a) a consolidation or merger of the Company with or into any other company or any subsidiary thereof, other than a merger or consolidation in which securities representing more than 50% of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Company's outstanding voting securities immediately prior to such transaction; (b) a sale of all, or substantially all, of the assets of the Company or (c) a series of transactions in which more than 50% of the voting power of the Company is disposed of shall be deemed to be within the purview of a liquidation, dissolution, or winding up. "MEMBER" shall bear the meaning as ascribed to it in the Statute. "MONTH" means calendar month. "PAID-UP" means paid-up and/or credited as paid-up. "PREFERRED SHARES" has the meaning given in the Company's Memorandum of Association. "REGISTERED OFFICE" means the registered office for the time being of the Company. "SEAL" means the common seal of the Company and includes every duplicate seal. "SECRETARY" includes an Assistant Secretary and any person appointed to perform the duties of Secretary of the Company. "SERIES A PREFERRED SHARES" has the meaning given in the Company's Memorandum of Association. "SERIES A STATED AMOUNT" means US $1.60 per Series A Preferred Share. 3 "SPECIAL RESOLUTION" has the same meaning as in the Statute and includes a resolution approved in writing as described therein. "STATUTE" means the Companies Law of the Cayman Islands as amended and every statutory modification or re-enactment thereof for the time being in force. "WRITTEN" and "IN WRITING" include all modes of representing or reproducing words in visible form. Words importing the singular number only include the plural number and vice-versa. Words importing the masculine gender only include the feminine gender. Words importing persons only include corporations. PRELIMINARY 2. The business of the Company may be commenced as soon after incorporation as the Directors shall see fit, notwithstanding that part only of the shares may have been allotted or issued. 3. The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the Company including the expenses of registration. SHARES 4. Except as otherwise provided in these Articles, all shares in the capital of the Company for the time being and from time to time unissued shall be under the control of the Board and may be re-designated, allotted, or disposed of in such manner, to such persons, and on such terms as the Board, in its discretion, may think fit. COMMON SHARES 5. The holders of Common Shares shall be entitled to receive such dividends and distributions as may be declared from time to time by the Board. Such dividends and distributions shall be from such assets lawfully available therefor as the Directors may determine and shall otherwise be paid and/or made as provided in these Articles. 6. After payment in full of the Liquidation Preference (as such term is defined below) to the holders of Preferred Shares who are entitled to such Liquidation Preference pursuant to a resolution of the Board or pursuant to these Articles (the "ELIGIBLE PREFERRED SHAREHOLDERS"), any remaining assets of the Company that are legally available for distribution, if any, shall be distributed ratably among (a) any Eligible Preferred Shareholder who (after having received the Liquidation Preference) has the right to participate in such distribution pursuant to a written resolution of the Board or pursuant to these Articles and 4 (b) the holders of Common Shares on a pro rata basis. 7. Any dividend distributed other than in cash by the Company to the holders of Common Shares pursuant to these Articles will be valued at the Fair Market Value of the property being transferred as such dividend. 8. Each holder of Common Shares shall have one vote in respect of each Common Share held by such holder at general meetings of the Company. PREFERRED SHARES 9. The Preferred Shares may be issued from time to time in one or more series pursuant to any resolution of the Board that provides for such issuance. The Board may determine the rights, preferences, privileges, and restrictions granted to, or imposed upon, any wholly unissued series of Preferred Shares and to fix the number of shares of any series of Preferred Shares and the designation of any such series of Preferred Shares, in all cases on or prior to the issue of Preferred Shares of such series. The Board may increase or decrease (but not below the number of shares in any such series then outstanding) the number of authorized shares of any series subsequent to the issue of shares of that series. The authority of the Board with respect to each such class or series shall include, without limitation of the foregoing, the right to determine and fix (prior to issue): (a) the distinctive designation of such class or series and the number of shares to constitute such class or series; (b) the rate and frequency at which dividends on the shares of such class or series shall be declared and paid, or set aside for payment, whether dividends at the rate so determined shall be cumulative or accruing, and whether the shares of such class or series shall be entitled to any participating or other dividends in addition to dividends at the rate so determined, and if so, on what terms; (c) the right or obligation, if any, of the Company to redeem shares of the particular class or series of Preferred Shares and, if redeemable, the price, terms, and manner of such redemption; (d) the special and relative rights and preferences, if any, and the amount per share that the shares of such class or series of Preferred Shares shall be entitled to receive upon any Liquidation Event; (e) the terms and conditions, if any, whereby shares of such class or series shall be convertible into, or exchangeable for, shares of any other class or series, including the price or rate of conversion or exchange and the terms of adjustment, if any (such conversion or exchange to be by means of redemption and reissue of shares of the other class or series); (f) the obligation, if any, of the Company to redeem or purchase shares of such class or 5 series and the terms and conditions of such obligation; (g) the voting rights, in any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Shares; (h) the limitations, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Shares; and (i) such other preferences, powers, qualifications, special or relative rights, and privileges thereof as the Board, acting in accordance with these Articles, may deem advisable and not inconsistent with Cayman Islands law and the Statute. SERIES A PREFERRED SHARES 10. The holders of Series A Preferred Shares shall be entitled to receive and to participate in such dividends and distributions as may be declared from time to time by the Board. Such dividends and distributions shall be paid and/or made on a pari passu basis with dividends and distributions on or in respect of Common Shares. Such dividends may be made in cash or specie as the Directors determine. 11. Any dividend distributed other than in cash by the Company to the holders of Series A Preferred Shares pursuant to these Articles (including the Extraordinary Distributions) will be valued at the Fair Market Value of the property being transferred as such dividend. 12. (a) Following any Liquidation Event, before any distribution or payment shall be made to the holders of any Common Shares, the holders of Series A Preferred Shares shall be entitled to be paid out of the remaining assets of the Company that are legally available for distribution with respect to all shares of Series A Preferred Shares then outstanding an amount in cash (to be shared ratably by the holders of Series A Preferred Shares) equal to the excess of (i) US $1.60 per Series A Preferred Share over (ii) the amount of any Extraordinary Distributions previously paid per Series A Preferred Share (the "LIQUIDATION PREFERENCE"). (b) After payment in full of the Liquidation Preference to the Eligible Preferred Shareholders, any remaining assets of the Company that are legally available for distribution shall be further distributed ratably among (i) the holders of Series A Preferred Shares, (ii) the holders of Common Shares, and (iii) any Eligible Preferred Shareholder (other than holders of Series A Preferred Shares) who has the right to participate in such distribution pursuant to a written resolution of the Board or pursuant to these Articles. (c) If, upon any such Liquidation Event, the remaining assets of the Company that are legally available for distribution to its shareholders are insufficient to pay the holders of Series A Preferred Shares the full Liquidation Preference on each Series A Preferred Share, then the holders of Series A Preferred Shares shall share ratably in any distribution of such remaining assets in proportion to the respective amounts 6 that would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. (d) Subject to Articles 24 and 25, at any time when Series A Preferred Shares are outstanding, without the written consent of the holders of a majority of the then outstanding Series A Preferred Shares, the Company shall not create, or authorize the creation of, any additional class or series of shares that ranks senior to the Series A Preferred Shares with respect to the distribution of assets upon any Liquidation Event. 13. The payment in full of the Liquidation Preference on each Series A Preferred Share shall automatically constitute the redemption in full of that Series A Preferred Share. To the extent that Series A Preferred Shares are redeemed in full, such Series A Preferred Shares shall be cancelled, and the issued share capital of the Company shall be reduced by the nominal value of the shares so redeemed. The redemption shall not be taken as reducing the authorized share capital of the Company. 14. The holders of Series A Preferred Shares shall be entitled to vote upon any and all matters upon which holders of Common Shares have the right to vote. 15. With respect to each Series A Preferred Share held by the holders thereof, each such holder shall have a number of votes that is equal to the number of Common Shares into which the Series A Preferred Shares could be converted, and such votes shall be counted together with all other shares (including the Common Shares) of the Company and not separately as a class. 16. The Series A Preferred Shares shall be convertible into Common Shares as follows: (a) CONVERSION RIGHT Any holder of Series A Preferred Shares shall have the right, at such holder's option, at any time or from time to time, to convert any of such holder's Series A Preferred Shares into such number of Common Shares as is determined by (x) dividing the Series A Stated Amount by the Conversion Price (defined below) in effect at the time of the conversion and (y) multiplying such quotient by the number of Series A Preferred Shares to be converted. The "CONVERSION Price" shall initially be US $1.60 per share. Such Conversion Price shall be subject to adjustment as hereinafter provided. (b) MECHANICS OF CONVERSION Any holder of Series A Preferred Shares may exercise the conversion right specified herein by surrendering to the Company the certificate(s) for the Series A Preferred Shares to be converted, accompanied by written notice specifying the number of the shares to be converted. 7 Conversion shall be deemed to have been effected on the date when delivery of notice of an election to convert and certificates for shares is made (such date is referred to herein as the "CONVERSION DATE"). Subject to the provisions of subparagraph (d)(v), as promptly as practicable thereafter, the Company shall make appropriate entries in the Register of Members, cancel the relevant Series A Preferred Share certificates and issue and deliver to such holder certificate(s) for the number of full Common Shares to which such holder is entitled and a check or cash with respect to any fractional interest in a Common Share as provided in subparagraph (c). The person whose name has been entered on the Register of Members shall be the legal owner of the Common Shares on the applicable Conversion Date. Upon conversion of only a portion of the number of shares covered by a certificate representing the Series A Preferred Shares surrendered for conversion, the Company shall issue and deliver to such holder, at the expense of the Company, a new certificate covering the number of Series A Preferred Shares representing the unconverted portion of the certificate so surrendered. (c) FRACTIONAL SHARES No fractions of Common Shares shall be issued upon conversion of the Series A Preferred Shares. If more than one Series A Preferred Share shall be surrendered for conversion at any one time by the same holder, the number of full Common Shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of Series A Preferred Shares so surrendered. Instead of any fractions of Common Shares that would otherwise be issuable upon conversion of any Series A Preferred Shares, the Company shall pay a cash adjustment in respect of such fractional interest in an amount equal to that fractional interest multiplied by the then effective Conversion Price. (d) CONVERSION PRICE ADJUSTMENTS The Conversion Price shall be subject to adjustment from time to time as follows: (i) Bonus Issue, Subdivision or Split If the number of Common Shares outstanding at any time after the date hereof is increased by a bonus issue of Common Shares or by a subdivision of Common Shares, then, on the date such issue or subdivision is made, the Conversion Price shall be appropriately decreased so that the number of Common Shares issuable on conversion of any Series A Preferred Shares shall be increased in proportion to such increase of outstanding shares. 8 (ii) Combination If the number of Common Shares outstanding at any time after the date hereof is decreased by a combination of the outstanding Common Shares, then, on the effective date of such combination, the Conversion Price shall be appropriately increased so that the number of Common Shares issuable on conversion of any shares of Series A Preferred Shares shall be decreased in proportion to such decrease in outstanding shares. (iii) Consolidation, Merger, Sale, Lease or Conveyance In case of any consolidation with or merger of the Company with or into another company, or in case of any sale, lease, or conveyance to another company of the assets of the Company as an entirety or substantially as an entirety, each Series A Preferred Share shall after the date of such consolidation, merger, sale, lease, or conveyance be convertible into the number of shares or other securities or property (including cash) to which the Common Shares issuable (at the time of such consolidation, merger, sale, lease, or conveyance) upon conversion of such Series A Preferred Share would have been entitled upon such consolidation, merger, sale, lease, or conveyance; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interests thereafter of the holders of Series A Preferred Shares shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares or other securities or property thereafter deliverable on the conversion of the Series A Preferred Shares. (iv) Rounding of Calculations; Minimum Adjustment All calculations under this subparagraph (d) shall be made to the nearest cent (in U.S. currency) or to the nearest one hundredth (1/100th) of a share, as the case may be. (v) Timing of Issuance of Additional Common Shares Upon Certain Adjustments In any case in which the provisions of this subparagraph (d) shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (A) issuing to the holder of Series A Preferred Shares converted after such record date and before the occurrence of such event the additional Common Shares issuable upon such conversion by reason of the adjustment required by such event over and above the Common Shares issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount of cash in lieu of a fractional share of Common Share pursuant to subparagraph (c). 9 (e) AUTOMATIC CONVERSION Upon the closing of the IPO, each outstanding Series A Preferred Share shall automatically be converted into one or more Common Shares on the basis of the Conversion Price then in effect. Such automatic conversion shall be effected in substantially the same manner as set forth in subparagraph (b) of this Section 16, with the closing of the IPO to automatically constitute the Conversion Date. CERTIFICATES FOR SHARES 17. Certificates representing shares of the Company shall be in such form as shall be determined by the Directors. Such certificates may be under Seal. All certificates for shares shall be consecutively numbered or otherwise identified and shall specify the shares to which they relate. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered in the register of Members of the Company. All certificates surrendered to the Company for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled. The Directors may authorise certificates to be issued with the seal and authorised signature(s) affixed by some method or system of mechanical process. 18. Notwithstanding Article 17 of these Articles, if a share certificate be defaced, lost or destroyed, it may be renewed on payment of a fee of one dollar (US$l.00) or such less sum and on such terms (if any) as to evidence and indemnity and the payment of the expenses incurred by the Company in investigating evidence, as the Directors may prescribe. ISSUE OF SHARES 19. Subject to the provisions, if any, in that behalf hereinbefore contained or in the Memorandum of Association and without prejudice to any special rights previously conferred on the holders of existing shares, the Directors may allot, issue, grant options over or otherwise dispose of shares of the Company (including fractions of a share) with or without preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise and to such persons, at such times and on such other terms as they think proper. 20. The Company shall maintain a register of its Members and every person whose name is entered as a Member in the register of Members shall be entitled without payment to receive within two months after allotment or lodgement of transfer (or within such other period as the conditions of issue shall provide) one certificate for all his shares or several certificates each for one or more of his shares upon payment of fifty cents (US$0.50) for every certificate after the first or such less sum as the Directors shall from time to time determine provided that in respect of a share or shares held jointly by several persons the Company shall not be bound to issue more than one certificate and delivery of a certificate for a share to one of the several joint holders shall be sufficient delivery to all such holders. 10 TRANSFER OF SHARES 21. The instrument of transfer of any share shall be in writing and shall be executed by or on behalf of the transferor and the transferor shall be deemed to remain the holder of a share until the name of the transferee is entered in the register in respect thereof. 22. The registration of transfers may be suspended at such time and for such periods as the Directors may from time to time determine, provided always that such registration shall not be suspended for more than forty-five days in any year. REDEEMABLE SHARES 23. (a) Subject to the provisions of the Statute and the Memorandum of Association, shares may be issued on the terms that they are, or at the option of the Company or the holder are, to be redeemed on such terms and in such manner as the Company, before the issue of the shares, may by Special Resolution determine. (b) Subject to the provisions of the Statute and the Memorandum of Association, the Company may purchase its own shares (including fractions of a share), including any redeemable shares, provided that the manner of purchase has first been authorised by the Company in general meeting and may make payment therefor in any manner authorised by the Statute, including out of capital. VARIATION OF RIGHTS OF SHARES 24. If at any time the share capital of the Company is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may be varied with the consent in writing of the holders of three-fourths of the issued shares of that class, or with the sanction of a Special Resolution passed at a general meeting of the holders of the shares of that class. The provisions of these Articles relating to general meetings shall apply to every such general meeting of the holders of one class of shares except that the necessary quorum shall be one person holding or representing by proxy at least one-third of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a poll. 25. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. COMMISSION ON SALE OF SHARES 26. The Company may in so far as the Statute from time to time permits pay a commission to 11 any person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any shares of the Company. Such commissions may be satisfied by the payment of cash or the lodgement of fully or partly paid-up shares or partly in one way and partly in the other. The Company may also on any issue of shares pay such brokerage as may be lawful. NON-RECOGNITION OF TRUSTS 27. No person shall be recognised by the Company as holding any share upon any trust and the Company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future, or partial interest in any share, or any interest in any fractional part of a share, or (except only as is otherwise provided by these Articles or the Statute) any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder. LIEN ON SHARES 28. The Company shall have a first and paramount lien and charge on all shares (whether fully paid-up or not) registered in the name of a Member (whether solely or jointly with others) for all debts, liabilities or engagements to or with the Company (whether presently payable or not) by such Member or his estate, either alone or jointly with any other person, whether a Member or not, but the Directors may at any time declare any share to be wholly or in part exempt from the provisions of this Article. The registration of a transfer of any such share shall operate as a waiver of the Company's lien (if any) thereon. The Company's lien (if any) on a share shall extend to all dividends or other monies payable in respect thereof. 29. The Company may sell, in such manner as the Directors think fit, any shares on which the Company has a lien, but no sale shall be made unless a sum in respect of which the lien exists is presently payable, nor until the expiration of fourteen days after a notice in writing stating and demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder or holders for the time being of the share, or the person, of which the Company has notice, entitled thereto by reason of his death or bankruptcy. 30. To give effect to any such sale the Directors may authorise some person to transfer the shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the shares comprised in any such transfer, and he shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale. 31. The proceeds of such sale shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable and the residue, if any, shall (subject to a like lien for sums not presently payable as existed upon the shares before the sale) be paid to the person entitled to the shares at the date of the sale. 12 CALL ON SHARES 32. (a) The Directors may from time to time make calls upon the Members in respect of any monies unpaid on their shares (whether on account of the nominal value of the shares or by way of premium or otherwise) and not by the conditions of allotment thereof made payable at fixed terms, provided that no call shall be payable at less than one month from the date fixed for the payment of the last preceding call, and each Member shall (subject to receiving at least fourteen days notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on the shares. A call may be revoked or postponed as the Directors may determine. A call may be made payable by instalments. (b) A call shall be deemed to have been made at the time when the resolution of the Directors authorising such call was passed. (c) The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof. 33. If a sum called in respect of a share is not paid before or on a day appointed for payment thereof, the persons from whom the sum is due shall pay interest on the sum from the day appointed for payment thereof to the time of actual payment at such rate not exceeding ten per cent per annum as the Directors may determine, but the Directors shall be at liberty to waive payment of such interest either wholly or in part. 34. Any sum which by the terms of issue of a share becomes payable on allotment or at any fixed date, whether on account of the nominal value of the share or by way of premium or otherwise, shall for the purposes of these Articles be deemed to be a call duly made, notified and payable on the date on which by the terms of issue the same becomes payable, and in the case of non-payment all the relevant provisions of these Articles as to payment of interest forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified. 35. The Directors may, on the issue of shares, differentiate between the holders as to the amount of calls or interest to be paid and the times of payment. 36. (a) The Directors may, if they think fit, receive from any Member willing to advance the same, all or any part of the monies uncalled and unpaid upon any shares held by him, and upon all or any of the monies so advanced may (until the same would but for such advances, become payable) pay interest at such rate not exceeding (unless the Company in general meeting shall otherwise direct) seven per cent per annum, as may be agreed upon between the Directors and the Member paying such sum in advance. (b) No such sum paid in advance of calls shall entitle the Member paying such sum to any portion of a dividend declared in respect of any period prior to the date upon which such sum would, but for such payment, become presently payable. 13 FORFEITURE OF SHARES 37. (a) If a Member fails to pay any call or instalment of a call or to make any payment required by the terms of issue on the day appointed for payment thereof, the Directors may, at any time thereafter during such time as any part of the call, instalment or payment remains unpaid, give notice requiring payment of so much of the call, instalment or payment as is unpaid, together with any interest which may have accrued and all expenses that have been incurred by the Company by reason of such non-payment. Such notice shall name a day (not earlier than the expiration of fourteen days from the date of giving of the notice) on or before which the payment required by the notice is to be made, and shall state that, in the event of non-payment at or before the time appointed the shares in respect of which such notice was given will be liable to be forfeited. (b) If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Directors to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited share and not actually paid before the forfeiture. (c) A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit and at any time before a sale or disposition the forfeiture may be cancelled on such terms as the Directors think fit. 38. A person whose shares have been forfeited shall cease to be a Member in respect of the forfeited shares, but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture were payable by him to the Company in respect of the shares together with interest thereon, but his liability shall cease if and when the Company shall have received payment in full of all monies whenever payable in respect of the shares. 39. A certificate in writing under the hand of one Director or the Secretary of the Company that a share in the Company has been duly forfeited on a date stated in the declaration shall be conclusive evidence of the fact therein stated as against all persons claiming to be entitled to the share. The Company may receive the consideration given for the share on any sale or disposition thereof and may execute a transfer of the share in favour of the person to whom the share is sold or disposed of and he shall thereupon be registered as the holder of the share and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share. 40. The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of the share or by way of premium as if the same had been payable by virtue of a call duly made and notified. 14 REGISTRATION OF EMPOWERING INSTRUMENTS 41. The Company shall be entitled to charge a fee not exceeding one dollar (US$l.00) on the registration of every probate, letters of administration, certificate of death or marriage, power of attorney, notice in lieu of distringas, or other instrument. TRANSMISSION OF SHARES 42. In case of the death of a Member, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was a sole holder, shall be the only persons recognised by the Company as having any title to his interest in the shares, but nothing herein contained shall release the estate of any such deceased holder from any liability in respect of any shares which had been held by him solely or jointly with other persons. 43. (a) Any person becoming entitled to a share in consequence of the death or bankruptcy or liquidation or dissolution of a Member (or in any other way than by transfer) may, upon such evidence being produced as may from time to time be required by the Directors and subject as hereinafter provided, elect either to be registered himself as holder of the share or to make such transfer of the share to such other person nominated by him as the deceased or bankrupt person could have made and to have such person registered as the transferee thereof, but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by that Member before his death or bankruptcy as the case may be. (b) If the person so becoming entitled shall elect to be registered himself as holder he shall deliver or send to the Company a notice in writing signed by him stating that he so elects. 44. A person becoming entitled to a share by reason of the death or bankruptcy or liquidation or dissolution of the holder (or in any other case than by transfer) shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as a Member in respect of the share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company PROVIDED HOWEVER that the Directors may at any time give notice requiring any such person to elect either to be registered himself or to transfer the share and if the notice is not complied with within ninety days the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the share until the requirements of the notice have been complied with. AMENDMENT OF MEMORANDUM OF ASSOCIATION, CHANGE OF LOCATION OF REGISTERED OFFICE, AND ALTERATION OF CAPITAL 45. (a) Subject to and in so far as permitted by the provisions of the Statute, the Company may from time to time by ordinary resolution alter or amend its Memorandum of 15 Association otherwise than with respect to its name and objects and may, without restricting the generality of the foregoing: (i) increase the share capital by such sum to be divided into shares of such amount or without nominal or par value as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as the Company in general meeting may determine; (ii) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares; (iii) by subdivision of its existing shares or any of them divide the whole or any part of its share capital into shares of smaller amount than is fixed by the Memorandum of Association or into shares without nominal or par value; or (iv) cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person. (b) All new shares created hereunder shall be subject to the same provisions with reference to the payment of calls, liens, transfer, transmission, forfeiture and otherwise as the shares in the original share capital. (c) Subject to the provisions of the Statute, the Company may by Special Resolution change its name or alter its objects. (d) Without prejudice to Article 23 hereof and subject to the provisions of the Statute, the Company may by Special Resolution reduce its share capital and any capital redemption reserve fund. (e) Subject to the provisions of the Statute, the Company may by resolution of the Directors change the location of its registered office. CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE 46. For the purpose of determining Members entitled to notice of or to vote at any meeting of Members or any adjournment thereof, or Members entitled to receive payment of any dividend, or in order to make a determination of Members for any other proper purpose, the Directors of the Company may provide that the register of Members shall be closed for transfers for a stated period but not to exceed in any case forty days. If the register of Members shall be so closed for the purpose of determining Members entitled to notice of or to vote at a meeting of Members such register shall be so closed for at least ten days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the register of Members. 47. In lieu of or apart from closing the register of Members, the Directors may fix in advance a date as the record date for any such determination of Members entitled to notice of or to 16 vote at a meeting of the Members and for the purpose of determining the Members entitled to receive payment of any dividend the Directors may, at or within 90 days prior to the date of declaration of such dividend fix a subsequent date as the record date for such determination. 48. If the register of Members is not so closed and no record date is fixed for the determination of Members entitled to notice of or to vote at a meeting of Members or Members entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Members. When a determination of Members entitled to vote at any meeting of Members has been made as provided in this section, such determination shall apply to any adjournment thereof. GENERAL MEETING 49. (a) Subject to paragraph (c) hereof, the Company shall within one year of its incorporation and in each year of its existence thereafter hold a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it. The annual general meeting shall be held at such time and place as the Directors shall appoint and if no other time and place is prescribed by them, it shall be held at the registered office on the second Wednesday in December of each year at ten o'clock in the morning. (b) At these meetings the report of the Directors (if any) shall be presented. (c) If the Company is exempted as defined in the Statute it may but shall not be obliged to hold an annual general meeting. 50. (a) The Directors may whenever they think fit, and they shall on the requisition of Members of the Company holding at the date of the deposit of the requisition not less than one-tenth of such of the paid-up capital of the Company as at the date of the deposit carries the right of voting at general meetings of the Company, proceed to convene a general meeting of the Company. (b) The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the registered office of the Company and may consist of several documents in like form each signed by one or more requisitionists. (c) If the Directors do not within twenty-one days from the date of the deposit of the requisition duly proceed to convene a general meeting, the requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three months after the expiration of the said twenty-one days. (d) A general meeting convened as aforesaid by requisitionists shall be convened in the 17 same manner as nearly as possible as that in which general meetings are to be convened by Directors. NOTICE OF GENERAL MEETINGS 51. At least five days' notice shall be given of an annual general meeting or any other general meeting. Every notice shall be exclusive of the day on which it is given or deemed to be given and of the day for which it is given and shall specify the place, the day and the hour of the meeting and the general nature of the business and shall be given in manner hereinafter mentioned or in such other manner if any as may be prescribed by the Company PROVIDED that a general meeting of the Company shall, whether or not the notice specified in this regulation has been given and whether or not the provisions of Article 50 have been complied with, be deemed to have been duly convened if it is so agreed: (a) in the case of a general meeting called as an annual general meeting by all the Members entitled to attend and vote thereat or their proxies; and (b) in the case of any other general meeting by a majority in number of the Members having a right to attend and vote at the meeting, being a majority together holding not less than seventy-five per cent in nominal value or in the case of shares without nominal or par value seventy-five per cent of the shares in issue, or their proxies. 52. The accidental omission to give notice of a general meeting to, or the non-receipt of notice of a meeting by any person entitled to receive notice shall not invalidate the proceedings of that meeting. PROCEEDINGS AT GENERAL MEETINGS 53. No business shall be transacted at any general meeting unless a quorum of Members is present at the time when the meeting proceeds to business; two Members present in person or by proxy shall be a quorum provided always that if the Company has one Member of record the quorum shall be that one Member present in person or by proxy. 54. A resolution (including a Special Resolution) in writing (in one or more counterparts) signed by all Members for the time being entitled to receive notice of and to attend and vote at general meetings (or being corporations by their duly authorised representatives) shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held. 55. If within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of Members, shall be dissolved and in any other case it shall stand adjourned to the same day in the next week at the same time and place or to such other time or such other place as the Directors may determine and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting the Members present shall be a quorum. 18 56. The Chairman, if any, of the Board of Directors shall preside as Chairman at every general meeting of the Company, or if there is no such Chairman, or if he shall not be present within fifteen minutes after the time appointed for the holding of the meeting, or is unwilling to act, the Directors present shall elect one of their number to be Chairman of the meeting. 57. If at any general meeting no Director is willing to act as Chairman or if no Director is present within fifteen minutes after the time appointed for holding the meeting, the Members present shall choose one of their number to be Chairman of the meeting. 58. The Chairman may, with the consent of any general meeting duly constituted hereunder, and shall if so directed by the meeting, adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a general meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in the case of an original meeting; save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned general meeting. 59. At any general meeting a resolution put to the vote of the meeting shall be decided on a poll. 60. Unless a poll be so demanded a declaration by the Chairman that a resolution has on a show of hands been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the Company's Minute Book containing the Minutes of the proceedings of the meeting shall be conclusive evidence of that fact without proof of the number or proportion of the votes recorded in favour of or against such resolution. 61. The demand for a poll may be withdrawn. 62. Except as provided in Article 64, if a poll is duly demanded it shall be taken in such manner as the Chairman directs and the result of the poll shall be deemed to be the resolution of the general meeting at which the poll was demanded. 63. In the case of an equality of votes, whether on a show of hands or on a poll, the Chairman of the general meeting at which the show of hands takes place or at which the poll is demanded, shall be entitled to a second or casting vote. 64. A poll demanded on the election of a Chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the Chairman of the general meeting directs and any business other than that upon which a poll has been demanded or is contingent thereon may be proceeded with pending the taking of the poll. 19 VOTES OF MEMBERS 65. Subject to any rights or restrictions for the time being attached to any class or classes of shares, on a show of hands every Member of record present in person or by proxy at a general meeting shall have one vote and on a poll every Member of record present in person or by proxy shall have one vote for each share registered in his name in the register of Members. 66. In the case of joint holders of record the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of Members. 67. A Member of unsound mind, or in respect of whom an order has been made by any court, having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee, receiver, curator bonis, or other person in the nature of a committee, receiver or curator bonis appointed by that court, and any such committee, receiver, curator bonis or other persons may vote by proxy. 68. No Member shall be entitled to vote at any general meeting unless he is registered as a shareholder of the Company on the record date for such meeting nor unless all calls or other sums presently payable by him in respect of shares in the Company have been paid. 69. No objection shall be raised to the qualification of any voter except at the general meeting or adjourned general meeting at which the vote objected to is given or tendered and every vote not disallowed at such general meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the Chairman of the general meeting whose decision shall be final and conclusive. 70. On a poll votes may be given either personally or by proxy. PROXIES 71. The instrument appointing a proxy shall be in writing and shall be executed under the hand of the appointor or of his attorney duly authorised in writing, or, if the appointor is a corporation under the hand of an officer or attorney duly authorised in that behalf. A proxy need not be a Member of the Company. 72. The instrument appointing a proxy shall be deposited at the registered office of the Company or at such other place as is specified for that purpose in the notice convening the meeting no later than the time for holding the meeting, or adjourned meeting provided that the Chairman of the Meeting may at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited upon receipt of telex, cable or telecopy confirmation from the appointor that the instrument of proxy duly signed is in the course of transmission to the Company. 73. The instrument appointing a proxy may be in any usual or common form and may be expressed to be for a particular meeting or any adjournment thereof or generally until 20 revoked. An instrument appointing a proxy shall be deemed to include the power to demand or join or concur in demanding a poll. 74. A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the share in respect of which the proxy is given provided that no intimation in writing of such death, insanity, revocation or transfer as aforesaid shall have been received by the Company at the registered office before the commencement of the general meeting, or adjourned meeting at which it is sought to use the proxy. 75. Any corporation which is a Member of record of the Company may in accordance with its Articles or in the absence of such provision by resolution of its Directors or other governing body authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Members of the Company, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as the corporation could exercise if it were an individual Member of record of the Company. 76. Shares of its own capital belonging to the Company or held by it in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time. DIRECTORS 77. There shall be a Board of Directors consisting of not less than one or more than ten persons (exclusive of alternate Directors) PROVIDED HOWEVER that the Company may from time to time by ordinary resolution increase or reduce the limits in the number of Directors. The first Directors of the Company shall be determined in writing by, or appointed by a resolution of, the subscribers of the Memorandum of Association or a majority of them. 78. The remuneration to be paid to the Directors shall be such remuneration as the Directors shall determine. Such remuneration shall be deemed to accrue from day to day. The Directors shall also be entitled to be paid their travelling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the Directors, or any committee of the Directors, or general meetings of the Company, or otherwise in connection with the business of the Company, or to receive a fixed allowance in respect thereof as may be determined by the Directors from time to time, or a combination partly of one such method and partly the other. 79. The Directors may by resolution award special remuneration to any Director of the Company undertaking any special work or services for, or undertaking any special mission on behalf of, the Company other than his ordinary routine work as a Director. Any fees paid to a Director who is also counsel or solicitor to the Company, or otherwise serves it in a professional capacity shall be in addition to his remuneration as a Director. 80. A Director or alternate Director may hold any other office or place of profit under the 21 Company (other than the office of Auditor) in conjunction with his office of Director for such period and on such terms as to remuneration and otherwise as the Directors may determine. 81. A Director or alternate Director may act by himself or his firm in a professional capacity for the Company and he or his firm shall be entitled to remuneration for professional services as if he were not a Director or alternate Director. 82. A shareholding qualification for Directors may be fixed by the Company in general meeting, but unless and until so fixed no qualification shall be required. 83. A Director or alternate Director of the Company may be or become a director or other officer of or otherwise interested in any company promoted by the Company or in which the Company may be interested as shareholder or otherwise and no such Director or alternate Director shall be accountable to the Company for any remuneration or other benefits received by him as a director or officer of, or from his interest in, such other company. 84. No person shall be disqualified from the office of Director or alternate Director or prevented by such office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any contract or transaction entered into by or on behalf of the Company in which any Director or alternate Director shall be in any way interested be or be liable to be avoided, nor shall any Director or alternate Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or transaction by reason of such Director holding office or of the fiduciary relation thereby established. A Director (or his alternate Director in his absence) shall be at liberty to vote in respect of any contract or transaction in which he is so interested as aforesaid PROVIDED HOWEVER that the nature of the interest of any Director or alternate Director in any such contract or transaction shall be disclosed by him or the alternate Director appointed by him at or prior to its consideration and any vote thereon. 85. A general notice that a Director or alternate Director is a shareholder of any specified firm or company and is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure under Article 84 and after such general notice it shall not be necessary to give special notice relating to any particular transaction. ALTERNATE DIRECTORS 86. Subject to the exception contained in Article 94, a Director who expects to be unable to attend Directors' Meetings because of absence, illness or otherwise may appoint any person to be an alternate Director to act in his stead and such appointee whilst he holds office as an alternate Director shall, in the event of absence therefrom of his appointor, be entitled to attend meetings of the Directors and to vote thereat and to do, in the place and stead of his appointor, any other act or thing which his appointor is permitted or required to do by virtue of his being a Director as if the alternate Director were the appointor, other than appointment of an alternate to himself, and he shall ipso facto vacate office if and when his appointor ceases to be a Director or removes the appointee from office. Any appointment 22 or removal under this Article shall be effected by notice in writing under the hand of the Director making the same. POWERS AND DUTIES OF DIRECTORS 87. The business of the Company shall be managed by the Directors (or a sole Director if only one is appointed) who may pay all expenses incurred in promoting, registering and setting up the Company, and may exercise all such powers of the Company as are not, from time to time by the Statute, or by these Articles, or such regulations, being not inconsistent with the aforesaid, as may be prescribed by the Company in general meeting required to be exercised by the Company in general meeting PROVIDED HOWEVER that no regulations made by the Company in general meeting shall invalidate any prior act of the Directors which would have been valid if that regulation had not been made. 88. The Directors may from time to time and at any time by powers of attorney appoint any company, firm, person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purpose and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such powers of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorneys as the Directors may think fit and may also authorise any such attorney to delegate all or any of the powers, authorities and discretions vested in him. 89. All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for monies paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed as the case may be in such manner as the Directors shall from time to time by resolution determine. 90. The Directors shall cause minutes to be made in books provided for the purpose: (a) of all appointments of officers made by the Directors; (b) of the names of the Directors (including those represented thereat by an alternate or by proxy) present at each meeting of the Directors and of any committee of the Directors; (c) of all resolutions and proceedings at all meetings of the Company and of the Directors and of committees of Directors. 91. The Directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any Director who has held any other salaried office or place of profit with the Company or to his widow or dependants and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance. 92. The Directors may exercise all the powers of the Company to borrow money and to 23 mortgage or charge its undertaking, property and uncalled capital or any part thereof and to issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the Company or of any third party. MANAGEMENT 93. (a) The Directors may from time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the three next following paragraphs shall be without prejudice to the general powers conferred by this paragraph. (b) The Directors from time to time and at any time may establish any committees, local boards or agencies for managing any of the affairs of the Company and may appoint any persons to be members of such committees or local boards or any managers or agents and may fix their remuneration. (c) The Directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorise the members for the time being of any such local board, or any of them to fill up any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any person so appointed and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby. (d) Any such delegates as aforesaid may be authorised by the Directors to subdelegate all or any of the powers, authorities, and discretions for the time being vested in them. MANAGING DIRECTORS 94. The Directors may, from time to time, appoint one or more of their body (but not an alternate Director) to the office of Managing Director for such term and at such remuneration (whether by way of salary, or commission, or participation in profits, or partly in one way and partly in another) as they may think fit but his appointment shall be subject to determination ipso facto if he ceases from any cause to be a Director and no alternate Director appointed by him can act in his stead as a Director or Managing Director. 95. The Directors may entrust to and confer upon a Managing Director any of the powers exercisable by them upon such terms and conditions and with such restrictions as they may think fit and either collaterally with or to the exclusion of their own powers and may from time to time revoke, withdraw, alter or vary all or any of such powers. 24 PROCEEDINGS OF DIRECTORS 96. Except as otherwise provided by these Articles, the Directors shall meet together for the despatch of business, convening, adjourning and otherwise regulating their meetings as they think fit. Questions arising at any meeting shall be decided by a majority of votes of the Directors and alternate Directors present at a meeting at which there is a quorum, the vote of an alternate Director not being counted if his appointor be present at such meeting. In case of an equality of votes, the Chairman shall have a second or casting vote. 97. A Director or alternate Director may, and the Secretary on the requisition of a Director or alternate Director shall, at any time summon a meeting of the Directors by at least two days' notice in writing to every Director and alternate Director which notice shall set forth the general nature of the business to be considered unless notice is waived by all the Directors (or their alternates) either at, before or after the meeting is held and PROVIDED FURTHER if notice is given in person, by cable, telex or telecopy the same shall be deemed to have been given on the day it is delivered to the Directors or transmitting organisation as the case may be. The provisions of Article 52 shall apply mutatis mutandis with respect to notices of meetings of Directors. 98. The quorum necessary for the transaction of the business of the Directors may be fixed by the Directors and unless so fixed shall be two, a Director and his appointed alternate Director being considered only one person for this purpose, PROVIDED ALWAYS that if there shall at any time be only a sole Director the quorum shall be one. For the purposes of this Article an alternate Director or proxy appointed by a Director shall be counted in a quorum at a meeting at which the Director appointing him is not present. 99. The continuing Directors may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors the continuing Directors or Director may act for the purpose of increasing the number of Directors to that number, or of summoning a general meeting of the Company, but for no other purpose. 100. The Directors may elect a Chairman of their Board and determine the period for which he is to hold office; but if no such Chairman is elected, or if at any meeting the Chairman is not present within five minutes after the time appointed for holding the same, the Directors present may choose one of their number to be Chairman of the meeting. 101. The Directors may delegate any of their powers to committees consisting of such member or members of the Board of Directors (including Alternate Directors in the absence of their appointors) as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors. 102. A committee may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the members present, and in the case of an equality of votes the Chairman shall have a second or casting vote. 103. All acts done by any meeting of the Directors or of a committee of Directors (including any 25 person acting as an alternate Director) shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or alternate Director, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and qualified to be a Director or alternate Director as the case may be. 104. Members of the Board of Directors or of any committee thereof may participate in a meeting of the Board or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. A resolution in writing (in one or more counterparts), signed by all the Directors for the time being or all the members of a committee of Directors (an alternate Director being entitled to sign such resolution on behalf of his appointor) shall be as valid and effectual as if it had been passed at a meeting of the Directors or committee as the case may be duly convened and held. 105. (a) A Director may be represented at any meetings of the Board of Directors by a proxy appointed by him in which event the presence or vote of the proxy shall for all purposes be deemed to be that of the Director. (b) The provisions of Articles 71-74 shall mutatis mutandis apply to the appointment of proxies by Directors. VACATION OF OFFICE OF DIRECTOR 106. The office of a Director shall be vacated: (a) if he gives notice in writing to the Company that he resigns the office of Director; (b) if he absents himself (without being represented by proxy or an alternate Director appointed by him) from three consecutive meetings of the Board of Directors without special leave of absence from the Directors, and they pass a resolution that he has by reason of such absence vacated office; (c) if he dies, becomes bankrupt or makes any arrangement or composition with his creditors generally; (d) if he is found a lunatic or becomes of unsound mind. APPOINTMENT AND REMOVAL OF DIRECTORS 107. The Company may by ordinary resolution appoint any person to be a Director and may in like manner remove any Director and may in like manner appoint another person in his stead. 108. The Directors shall have power at any time and from time to time to appoint any person to 26 be a Director, either to fill a casual vacancy or as an addition to the existing Directors but so that the total amount of Directors (exclusive of alternate Directors) shall not at any time exceed the number fixed in accordance with these Articles. PRESUMPTION OF ASSENT 109. A Director of the Company who is present at a meeting of the Board of Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the Minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to such person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action. SEAL 110. (a) The Company may, if the Directors so determine, have a Seal which shall, subject to paragraph (c) hereof, only be used by the authority of the Directors or of a committee of the Directors authorised by the Directors in that behalf and every instrument to which the Seal has been affixed shall be signed by one person who shall be either a Director or the Secretary or Secretary-Treasurer or some person appointed by the Directors for the purpose. (b) The Company may have for use in any place or places outside the Cayman Islands a duplicate Seal or Seals each of which shall be a facsimile of the Common Seal of the Company and, if the Directors so determine, with the addition on its face of the name of every place where it is to be used. (c) A Director, Secretary or other officer or representative or attorney may without further authority of the Directors affix the Seal of the Company over his signature alone to any document of the Company required to be authenticated by him under Seal or to be filed with the Registrar of Companies in the Cayman Islands or elsewhere wheresoever. OFFICERS 111. The Company may have a President, a Secretary or Secretary-Treasurer appointed by the Directors who may also from time to time appoint such other officers as they consider necessary, all for such terms, at such remuneration and to perform such duties, and subject to such provisions as to disqualification and removal as the Directors from time to time prescribe. DIVIDENDS, DISTRIBUTIONS AND RESERVE 112. Subject to the Statute, the Directors may from time to time declare dividends (including interim dividends) and distributions on shares of the Company outstanding and authorise 27 payment of the same out of the funds of the Company lawfully available therefor. 113. The Directors may, before declaring any dividends or distributions, set aside such sums as they think proper as a reserve or reserves which shall at the discretion of the Directors, be applicable for any purpose of the Company and pending such application may, at the like discretion, be employed in the business of the Company. 114. No dividend or distribution shall be payable except out of the profits of the Company, realised or unrealised, or out of the share premium account or as otherwise permitted by the Statute. 115. Subject to the rights of persons, if any, entitled to shares with special rights as to dividends or distributions, if dividends or distributions are to be declared on a class of shares they shall be declared and paid according to the amounts paid or credited as paid on the shares of such class outstanding on the record date for such dividend or distribution as determined in accordance with these Articles but no amount paid or credited as paid on a share in advance of calls shall be treated for the purpose of this Article as paid on the share. 116. The Directors may deduct from any dividend or distribution payable to any Member all sums of money (if any) presently payable by him to the Company on account of calls or otherwise. 117. The Directors may declare that any dividend or distribution be paid wholly or partly by the distribution of specific assets and in particular of paid up shares, debentures, or debenture stock of any other company or in any one or more of such ways and where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular may issue fractional certificates and fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any Members upon the footing of the value so fixed in order to adjust the rights of all Members and may vest any such specific assets in trustees as may seem expedient to the Directors. 118. Any dividend, distribution, interest or other monies payable in cash in respect of shares may be paid by cheque or warrant sent through the post directed to the registered address of the holder or, in the case of joint holders, to the holder who is first named on the register of Members or to such person and to such address as such holder or joint holders may in writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent. Any one of two or more joint holders may give effectual receipts for any dividends, bonuses, or other monies payable in respect of the share held by them as joint holders. 119. No dividend or distribution shall bear interest against the Company. CAPITALISATION 120. The Company may upon the recommendation of the Directors by ordinary resolution 28 authorise the Directors to capitalise any sum standing to the credit of any of the Company's reserve accounts (including share premium account and capital redemption reserve fund) or any sum standing to the credit of profit and loss account or otherwise available for distribution and to appropriate such sum to Members in the proportions in which such sum would have been divisible amongst them had the same been a distribution of profits by way of dividend and to apply such sum on their behalf in paying up in full unissued shares for allotment and distribution credited as fully paid up to and amongst them in the proportion aforesaid. In such event the Directors shall do all acts and things required to give effect to such capitalisation, with full power to the Directors to make such provisions as they think fit for the case of shares becoming distributable in fractions (including provisions whereby the benefit of fractional entitlements accrue to the Company rather than to the Members concerned). The Directors may authorise any person to enter on behalf of all of the Members interested into an agreement with the Company providing for such capitalisation and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned. BOOKS OF ACCOUNT 121. The Directors shall cause proper books of account to be kept with respect to: (a) all sums of money received and expended by the Company and the matters in respect of which the receipt or expenditure takes place; (b) all sales and purchases of goods by the Company; (c) the assets and liabilities of the Company. Proper books shall not be deemed to be kept if there are not kept such books of account as are necessary to give a true and fair view of the state of the Company's affairs and to explain its transactions. 122. The Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Members not being Directors and no Member (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by Statute or authorised by the Directors or by the Company in general meeting. 123. The Directors may from time to time cause to be prepared and to be laid before the Company in general meeting profit and loss accounts, balance sheets, group accounts (if any) and such other reports and accounts as may be required by law. AUDIT 124. The Company may at any annual general meeting appoint an Auditor or Auditors of the Company who shall hold office until the next annual general meeting and may fix his or their remuneration. 29 125. The Directors may before the first annual general meeting appoint an Auditor or Auditors of the Company who shall hold office until the first annual general meeting unless previously removed by an ordinary resolution of the Members in general meeting in which case the Members at that meeting may appoint Auditors. The Directors may fill any casual vacancy in the office of Auditor but while any such vacancy continues the surviving or continuing Auditor or Auditors, if any, may act. The remuneration of any Auditor appointed by the Directors under this Article may be fixed by the Directors. 126. Every Auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and Officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors. 127. Auditors shall at the next annual general meeting following their appointment and at any other time during their term of office, upon request of the Directors or any general meeting of the Members, make a report on the accounts of the Company in general meeting during their tenure of office. NOTICES 128. Notices shall be in writing and may be given by the Company to any Member either personally or by sending it by post, cable, telex or telecopy to him or to his address as shown in the register of Members, such notice, if mailed, to be forwarded airmail if the address be outside the Cayman Islands. 129. (a) Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, pre-paying and posting a letter containing the notice, and to have been effected at the expiration of sixty hours after the letter containing the same is posted as aforesaid. (b) Where a notice is sent by cable, telex, or telecopy, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organisation and to have been effected on the day the same is sent as aforesaid. 130. A notice may be given by the Company to the joint holders of record of a share by giving the notice to the joint holder first named on the register of Members in respect of the share. 131. A notice may be given by the Company to the person or persons which the Company has been advised are entitled to a share or shares in consequence of the death or bankruptcy of a Member by sending it through the post as aforesaid in a pre-paid letter addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt, or by any like description at the address supplied for that purpose by the persons claiming to be so entitled, or at the option of the Company by giving the notice in any manner in which the 30 same might have been given if the death or bankruptcy had not occurred. 132. Notice of every general meeting shall be given in any manner hereinbefore authorised to: (a) every person shown as a Member in the register of Members as of the record date for such meeting except that in the case of joint holders the notice shall be sufficient if given to the joint holder first named in the register of Members. (b) every person upon whom the ownership of a share devolves by reason of his being a legal personal representative or a trustee in bankruptcy of a Member of record where the Member of record but for his death or bankruptcy would be entitled to receive notice of the meeting; and No other person shall be entitled to receive notices of general meetings. WINDING UP 133. Subject to the provisions of Articles 6 and 12, if the Company shall be wound up the liquidator may, with the sanction of a Special Resolution of the Company and any other sanction required by the Statute, divide amongst the Members in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for such purpose set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of Members. The liquidator may with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any shares or other securities whereon there is any liability. 134. Subject to the provisions of Articles 6 and 12, if the Company shall be wound up, and the assets available for distribution amongst the Members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Members in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively. And if in a winding up the assets available for distribution amongst the Members shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed amongst the Members in proportion to the capital paid up at the commencement of the winding up on the shares held by them respectively. This Article is to be without prejudice to the rights of the holders of shares issued upon special terms and conditions. INDEMNITY 135. The Directors and officers for the time being of the Company and any trustee for the time being acting in relation to any of the affairs of the Company and their heirs, executors, administrators and personal representatives respectively shall be indemnified out of the 31 assets of the Company from and against all actions, proceedings, costs, charges, losses, damages and expenses which they or any of them shall or may incur or sustain by reason of any act done or omitted in or about the execution of their duty in their respective offices or trusts, except such (if any) as they shall incur or sustain by or through their own wilful neglect or default respectively and no such Director, officer or trustee shall be answerable for the acts, receipts, neglects or defaults of any other Director, officer or trustee or for joining in any receipt for the sake of conformity or for the solvency or honesty of any banker or other persons with whom any monies or effects belonging to the Company may be lodged or deposited for safe custody or for any insufficiency of any security upon which any monies of the Company may be invested or for any other loss or damage due to any such cause as aforesaid or which may happen in or about the execution of his office or trust unless the same shall happen through the wilful neglect or default of such Director, Officer or trustee. FINANCIAL YEAR 136. Unless the Directors otherwise prescribe, the financial year of the Company shall end on 31st December in each year and, following the year of incorporation, shall begin on 1st January in each year. AMENDMENTS OF ARTICLES 137. Subject to the Statute, the Company may at any time and from time to time by Special Resolution alter or amend these Articles in whole or in part. TRANSFER BY WAY OF CONTINUATION 138. If the Company is exempted as defined in the Statute, it shall, subject to the provisions of the Statute and with the approval of a Special Resolution, have the power to register by way of continuation as a body corporate under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands. 32 EX-4.2(A) 23 0023.txt INDENTURE DATED NOVEMBER 22, 2000 EXHIBIT 4.2(a) ================================================================================ SEAGATE TECHNOLOGY INTERNATIONAL 12 1/2% Senior Subordinated Notes due 2007 -------------- INDENTURE Dated as of November 22, 2000 -------------- THE BANK OF NEW YORK, as Trustee ================================================================================ TABLE OF CONTENTS
Page ARTICLE 1 Definitions and Incorporation by Reference SECTION 1.01. Definitions...............................................................................1 SECTION 1.02. Other Definitions........................................................................26 SECTION 1.03. Incorporation by Reference of Trust Indenture Act........................................27 SECTION 1.04. Rules of Construction....................................................................28 ARTICLE 2 The Securities SECTION 2.01. Amount of Securities; Issuable in Series.................................................28 SECTION 2.02. Form and Dating..........................................................................29 SECTION 2.03. Execution and Authentication.............................................................30 SECTION 2.04. Registrar and Paying Agent...............................................................30 SECTION 2.05. Paying Agent to Hold Money in Trust......................................................31 SECTION 2.06. Holder Lists.............................................................................32 SECTION 2.07. Transfer and Exchange....................................................................32 SECTION 2.08. Replacement Securities...................................................................33 SECTION 2.09. Outstanding Securities...................................................................33 SECTION 2.10. Temporary Securities.....................................................................34 SECTION 2.11. Cancelation..............................................................................34 SECTION 2.12. Defaulted Interest.......................................................................34 SECTION 2.13. CUSIP and ISIN Numbers...................................................................34 ARTICLE 3 Redemption SECTION 3.01. Notices to Trustee.......................................................................35 SECTION 3.02. Selection of Securities To Be Redeemed...................................................35 SECTION 3.03. Notice of Redemption.....................................................................35 SECTION 3.04. Effect of Notice of Redemption...........................................................36 SECTION 3.05. Deposit of Redemption Price..............................................................36 Page SECTION 3.06. Securities Redeemed in Part..............................................................37 ARTICLE 4 Covenants SECTION 4.01. Payment of Securities....................................................................37 SECTION 4.02. SEC Reports..............................................................................37 SECTION 4.03. Limitation on Indebtedness...............................................................38 SECTION 4.04. Limitation on Restricted Payments........................................................42 SECTION 4.05. Limitation on Restrictions on Distributions from Restricted Subsidiaries...................................................................51 SECTION 4.06. Limitation on Sales of Assets and Capital Stock..........................................52 SECTION 4.07. Limitation on Transactions with Affiliates...............................................56 SECTION 4.08. Change of Control........................................................................58 SECTION 4.09. Compliance Certificate...................................................................60 SECTION 4.10. Further Instruments and Acts.............................................................60 SECTION 4.11. Future Note Guarantors...................................................................60 SECTION 4.12. Additional Amounts.......................................................................60 SECTION 4.13. Guarantees of Additional Securities......................................................63 SECTION 4.14. Rigid Disc Drive Operations..............................................................63 SECTION 4.15. Amendment of Deferred Compensation Plans.................................................63 SECTION 4.16. Limitation on Lines of Business..........................................................63 SECTION 4.17. Designated Subsidiary Investments........................................................63 SECTION 4.18. Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries...................................................................64 ARTICLE 5 Successor Company SECTION 5.01. When Issuer May Merge or Transfer Asset..................................................65 ARTICLE 6 Defaults and Remedies SECTION 6.01. Events of Default........................................................................67 SECTION 6.02. Acceleration.............................................................................70 Page SECTION 6.03. Other Remedies...........................................................................71 SECTION 6.04. Waiver of Past Defaults..................................................................71 SECTION 6.05. Control by Majority......................................................................71 SECTION 6.06. Limitation on Suits......................................................................72 SECTION 6.07. Rights of Holders to Receive Payment.....................................................72 SECTION 6.08. Collection Suit by Trustee...............................................................72 SECTION 6.09. Trustee May File Proofs of Claim.........................................................72 SECTION 6.10. Priorities...............................................................................73 SECTION 6.11. Undertaking for Costs....................................................................73 SECTION 6.12. Waiver of Stay or Extension Laws.........................................................74 ARTICLE 7 Trustee SECTION 7.01. Duties of Trustee........................................................................74 SECTION 7.02. Rights of Trustee........................................................................75 SECTION 7.03. Individual Rights of Trustee.............................................................76 SECTION 7.04. Trustee's Disclaimer.....................................................................77 SECTION 7.05. Notice of Defaults.......................................................................77 SECTION 7.06. Reports by Trustee to Holders............................................................77 SECTION 7.07. Compensation and Indemnity...............................................................77 SECTION 7.08. Replacement of Trustee...................................................................78 SECTION 7.09. Successor Trustee by Merger..............................................................79 SECTION 7.10. Eligibility; Disqualification............................................................80 SECTION 7.11. Preferential Collection of Claims Against Issuer.........................................80 ARTICLE 8 Discharge of Indenture; Defeasance SECTION 8.01. Discharge of Liability on Securities; Defeasance.........................................80 SECTION 8.02. Conditions to Defeasance.................................................................81 SECTION 8.03. Application of Trust Money...............................................................83 SECTION 8.04. Repayment to Issuer......................................................................83 SECTION 8.05. Indemnity for Government Obligations.....................................................84 SECTION 8.06. Reinstatement............................................................................84 ARTICLE 9 Amendments Page SECTION 9.01. Without Consent of Holders...............................................................84 SECTION 9.02. With Consent of Holders..................................................................85 SECTION 9.03. Compliance with Trust Indenture Act......................................................87 SECTION 9.04. Revocation and Effect of Consents and Waivers............................................87 SECTION 9.05. Notation on or Exchange of Securities....................................................87 SECTION 9.06. Trustee to Sign Amendments...............................................................87 SECTION 9.07. Payment for Consent......................................................................88 ARTICLE 10 Subordination SECTION 10.01. Agreement To Subordinate................................................................88 SECTION 10.02. Liquidation, Dissolution, Bankruptcy....................................................88 SECTION 10.03. Default on Senior Indebtedness..........................................................89 SECTION 10.04. Acceleration of Payment of Securities...................................................90 SECTION 10.05. When Distribution Must Be Paid Over.....................................................90 SECTION 10.06. Subrogation.............................................................................90 SECTION 10.07. Relative Rights.........................................................................91 SECTION 10.08. Subordination May Not Be Impaired by Issuer.............................................91 SECTION 10.09. Rights of Trustee and Paying Agent......................................................91 SECTION 10.10. Distribution or Notice to Representative................................................92 SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit Right To Accelerate.....................................................................92 SECTION 10.12. Trust Monies Not Subordinated...........................................................92 SECTION 10.13. Trustee Entitled To Rely................................................................92 SECTION 10.14. Trustee To Effectuate Subordination.....................................................93 SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Indebtedness................................93 SECTION 10.16. Reliance by Holders of Senior Indebtedness on Subordination Provisions.....................................................................93 ARTICLE 11 Note Guarantees Page SECTION 11.01. Note Guarantees.........................................................................93 SECTION 11.02. Limitation on Liability.................................................................96 SECTION 11.03. Successors and Assigns..................................................................97 SECTION 11.04. No Waiver...............................................................................97 SECTION 11.05. Modification............................................................................97 SECTION 11.06. Execution of Supplemental Indenture for Future Note Guarantors.....................................................................98 SECTION 11.07. Non-Impairment..........................................................................98 ARTICLE 12 Subordination of the Note Guarantees SECTION 12.01. Agreement To Subordinate................................................................98 SECTION 12.02. Liquidation, Dissolution, Bankruptcy....................................................98 SECTION 12.03. Default on Designated Senior Indebtedness of a Note Guarantor...........................99 SECTION 12.04. Demand for Payment.....................................................................100 SECTION 12.05. When Distribution Must Be Paid Over....................................................101 SECTION 12.06. Subrogation............................................................................101 SECTION 12.07. Relative Rights........................................................................101 SECTION 12.08. Subordination May Not Be Impaired by a Note Guarantor..................................101 SECTION 12.09. Rights of Trustee and Paying Agent.....................................................101 SECTION 12.10. Distribution or Notice to Representative...............................................102 SECTION 12.11. Article 12 Not To Prevent Events of Default or Limit Right To Accelerate.................................................................102 SECTION 12.12. Trustee Entitled To Rely...............................................................102 SECTION 12.13. Trustee To Effectuate Subordination....................................................103 SECTION 12.14. Trustee Not Fiduciary for Holders of Senior Indebtedness of a Note Guarantor................................................................103 SECTION 12.15. Reliance by Holders of Senior Indebtedness of a Note Guarantor on Subordination Provisions.........................................103 SECTION 12.16. Defeasance.............................................................................103 ARTICLE 13 Miscellaneous SECTION 13.01. Trust Indenture Act Controls...........................................................104 SECTION 13.02. Notices ..............................................................................104 SECTION 13.03. Communication by Holders with Other Holders............................................105 SECTION 13.04. Certificate and Opinion as to Conditions Precedent.....................................105 SECTION 13.05. Statements Required in Certificate or Opinion..........................................105 SECTION 13.06. When Securities Disregarded............................................................105 SECTION 13.07. Rules by Trustee, Paying Agent and Registrar...........................................106 SECTION 13.08. Legal Holidays.........................................................................106 SECTION 13.09. GOVERNING LAW..........................................................................106 SECTION 13.10. Waiver of Immunities...................................................................106 SECTION 13.11. Consent to Jurisdiction; Appointment of Agent for Service of Process; Judgment Currency....................................................106 SECTION 13.12. No Recourse Against Others.............................................................108 SECTION 13.13. Successors.............................................................................108 SECTION 13.14. Multiple Originals.....................................................................108 SECTION 13.15. Table of Contents; Headings............................................................108 Appendix A - Provisions Relating to Original Securities, Additional Securities, Private Exchange Securities and Exchange Securities Exhibit A - Form of Initial Security Exhibit B - Form of Exchange Security Exhibit C - Form of Supplemental Indenture Exhibit D - Form of Transferee Letter of Representation
INDENTURE dated as of November 22, 2000, among NEW SAC, an exempted limited liability company incorporated under the laws of the Cayman Islands (the "Company"), SEAGATE TECHNOLOGY INTERNATIONAL, an exempted limited liability company incorporated under the laws of the Cayman Islands (the "Issuer"), each entity listed on Schedule I hereto (the Company and such entities collectively, the "Note Guarantors"), and THE BANK OF NEW YORK, a New York banking corporation, as trustee (the "Trustee"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of (a) the Issuer's 12 1/2% Senior Subordinated Notes due 2007 issued on the date hereof (the "Original Securities"), (b) any Additional Securities (as defined herein) that may be issued on any Issue Date (all such Securities in clauses (a) and (b) being referred to collectively as the "Initial Securities"), (c) if and when issued as provided in a Registration Agreement (as defined in Appendix A hereto (the "Appendix")), the Issuer's 12 1/2% Senior Subordinated Notes due 2007 issued in a Registered Exchange Offer in exchange for any Initial Securities (the "Exchange Securities") and (d) if and when issued as provided in a Registration Agreement, the Private Exchange Securities (as defined in the Appendix, and together with the Initial Securities and any Exchange Securities issued hereunder, the "Securities") issued in a Private Exchange (as defined in the Appendix). On the date hereof, $210,000,000 in aggregate principal amount of Securities will be issued. Subject to the conditions and in compliance with the covenants set forth herein, the Issuer may issue Additional Securities from time to time. ARTICLE 1 Definitions and Incorporation by Reference SECTION 1.01. Definitions. "Additional Assets" means (1) any property or assets (other than Indebtedness and Capital Stock) to be used by the Company or a Restricted Subsidiary in a Permitted Business; (2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (3) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; provided, however, that any such Restricted Subsidiary described in clauses (2) or (3) above is primarily engaged in a Permitted Business. "Additional Securities" means any 12 1/2% Senior Subordinated Notes due 2007 issued under the terms of this Indenture subsequent to the Closing Date. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of Sections 4.06 and 4.07 only, "Affiliate" shall also mean any beneficial owner of shares representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company, HDD Holdings or the Issuer or of rights or warrants to purchase such Voting Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Applicable Premium" means, with respect to a Security at any redemption date, the greater of (1) 1.0% of the principal amount of such Security and (2) the excess of (A) the present value of (1) the redemption price of such Security at November 15, 2004, (such redemption price being set forth in the table in paragraph 5 of such Security) plus (2) all required interest payments due on such Security through November 15, 2004, computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the then-outstanding principal amount of such Security. "Asset Disposition" means any sale, lease (other than an operating lease entered into in the ordinary course of business), transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of (1) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary), (2) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary or (3) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary (other than, in the case of (1), (2) and (3) above, (A) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Note Guarantor or a Wholly Owned Subsidiary, (B) for purposes of Section 4.06 only, a disposition that constitutes a Restricted Payment permitted by Section 4.04, (C) the disposition of all or substantially all of the assets of the Company in a manner permitted pursuant to Section 5.01, (D) any sale of Capital Stock (other than Disqualified Stock) of Intermediate Holdings or HDD Holdings, (E) any sale of Capital Stock in, or Indebtedness or other securities of, an Unrestricted Subsidiary, (F) a disposition of Temporary Cash Investments, (G) sales of assets received by the 2 Company or any Restricted Subsidiary upon the foreclosure of a lien, (H) issuances of (i) options, warrants or other rights to purchase common stock of a Restricted Subsidiary or (ii) shares of common stock of such Restricted Subsidiary upon exercise of such options, warrants or other rights to officers, directors and employees of such Restricted Subsidiary pursuant to the terms of agreements (including employment agreements) or employee or director benefit plans (or amendments thereto) approved by the Board of Directors in good faith; provided, however, that shares of common stock of such Restricted Subsidiary issued pursuant to the exercise of such options, warrants or other rights to purchase such common stock which are subject this clause (H) shall not exceed 25%, in the case of Seagate Removable Storage Solutions Holdings, or 20%, in the case of any other Restricted Subsidiary, of the outstanding shares of common stock of such Restricted Subsidiary, on a fully-diluted basis, (I) any sale of Capital Stock in CacheVision, Inc., e2open.com LLC or Iolon, Inc., (J) transfers of patents for microactuator and flexure-related technology to Hutchinson Technology Incorporated in connection with an interference action; provided, that the Company and its Subsidiaries shall have received (a) a fully paid-up license to such patents and (b) a contractual right to receive royalties from the license by Hutchinson Technology Incorporated of such patents to third parties, and (K) a disposition of assets with a Fair Market Value of less than $1.0 million. "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Securities, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (1) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or scheduled redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (2) the sum of all such payments. "Bank Indebtedness" means any and all amounts payable under or in respect of the Credit Agreement, the guarantees thereof, the collateral documents related thereto, any Hedging Agreements related thereto and any Refinancing Indebtedness with respect thereto, as amended from time to time, including principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Issuer or any Note Guarantor, whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof. It is understood and agreed that Refinancing Indebtedness in respect of 3 the Credit Agreement may be Incurred from time to time after termination of the Credit Agreement. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of the Board of Directors of the Company. "Business Day" means each day which is not a Legal Holiday. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Capitalized Lease Obligations" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty. "Change of Control" means the occurrence of any of the following events: (1) prior to the earliest to occur of (A) the first public offering of common stock of the Company, (B) the first public offering of common stock of Intermediate Holdings, (C) the first public offering of common stock of HDD Holdings or (D) the first public offering of common stock of the Issuer, the Permitted Holders cease to be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a majority in the aggregate of the total voting power of the Voting Stock of the Company, Intermediate Holdings, HDD Holdings or the Issuer whether as a result of issuance of securities of the Company, Intermediate Holdings, HDD Holdings or the Issuer, any merger, consolidation, liquidation or dissolution of the Company, Intermediate Holdings, HDD Holdings or the Issuer, any direct or indirect transfer of securities by any Permitted Holder or otherwise (for purposes of this clause (1) and clause (2) below, the Permitted Holders shall be deemed to beneficially own any Voting Stock of an entity (the "specified entity") held by any other entity (the "parent entity") so long as the Permitted Holders beneficially own (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent entity); (2) (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in clause (1) above, except that for purposes of this clause (2) such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 4 more than 35% of the total voting power of the Voting Stock of the Company, Intermediate Holdings, HDD Holdings or the Issuer and (B) the Permitted Holders "beneficially own" (as defined in clause (1) above), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Company, Intermediate Holdings, HDD Holdings or the Issuer than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be (for the purposes of this clause (2), such other person shall be deemed to beneficially own any Voting Stock of a specified entity held by a parent entity, if such other person is the beneficial owner (as defined in this clause (2)), directly or indirectly, of more than 35% of the voting power of the Voting Stock of such parent entity and the Permitted Holders "beneficially own" (as defined in clause (1) above), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent entity and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent entity); (3) during any period of two consecutive years, individuals who at the beginning of such period constituted the board of directors of the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be (together with any new directors whose election by such board of directors of the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, or whose nomination for election by the shareholders of the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, was approved by a vote of 66- 2/3% of the directors of the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the board of directors of the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, then in office; (4) the adoption of a plan relating to the liquidation or dissolution of the Company, Intermediate Holdings, HDD Holdings or the Issuer; or (5) the merger or consolidation of the Company, Intermediate Holdings, HDD Holdings or the Issuer with or into another Person or the merger of another Person with or into the Company, Intermediate Holdings, HDD Holdings or the Issuer, or the sale of all or substantially all the assets of the Company, Intermediate Holdings, HDD Holdings or the Issuer to another Person (other than a Person that is controlled by the Permitted Holders), and, in the case of any such merger or consolidation, the securities of the Company, Intermediate Holdings, HDD Holdings or the Issuer that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Company, Intermediate Holdings, HDD Holdings or the Issuer are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving Person or transferee that represent immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving Person or transferee. 5 "Closing Date" means the date of this Indenture. "Code" means the Internal Revenue Code of 1986, as amended. "Commodity Agreements" means with respect to any Person any agreement for the protection against fluctuations in commodity prices or similar agreements or arrangements to which such Person is a party or of which it is a beneficiary. "Consolidated Coverage Ratio" as of any date of determination means the ratio of: (1) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters ending at least 45 days prior to the date of such determination to (2) Consolidated Interest Expense for such four fiscal quarters; provided, however, that: (A) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (B) if the Company or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall be calculated on a pro forma basis as if such discharge had occurred on the first day of such period and as if the Company or such Restricted Subsidiary has not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness, (C) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets that are the subject of such Asset Disposition for such period or increased by an amount equal to the EBITDA (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing 6 Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (D) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person that becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period, and (E) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (C) or (D) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition of assets occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets or other Investment, the amount of income or earnings relating thereto, the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith and any operating expense reductions and other adjustments as described below, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of the Company and (i) shall, except as described below in clause (iii), comply with the requirements of Rule 11-02 of Regulation S-X of the SEC, (ii) may include adjustments for operating expense reductions that would be permitted by such Rule and (iii) in connection with acquisitions, purchases or mergers, may reflect adjustments not permitted by Rule 11-02 of Regulation S-X of the SEC for the elimination of operating expenses attributable to any terminated lease or contract, the related reduction in personnel or facility expenses as a result of such termination and the elimination of personnel expenses as a result of severance and of facilities expense as a result of the termination, closure or relocation of facilities, in each case if such termination, severance, closure or relocation has occurred at the time of such acquisition, purchase or merger or occurs within three months thereof. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term as at the date of determination in excess of 12 months). "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its Consolidated Restricted Subsidiaries, plus, to the extent Incurred by the Company and its Consolidated Restricted Subsidiaries in such period but 7 not included in such interest expense, without duplication: (1) interest expense attributable to Capitalized Lease Obligations and the interest expense attributable to leases constituting part of a Sale/Leaseback Transaction, (2) amortization of debt discount and debt issuance costs (other than any such costs associated with the Incurrence of Indebtedness on the Closing Date in connection with the Transactions), (3) capitalized interest, (4) noncash interest expense, (5) commissions, discounts and other fees and charges attributable to letters of credit and bankers' acceptance financing, (6) interest accruing on any Indebtedness of any other Person to the extent such Indebtedness is Guaranteed by the Company or any Restricted Subsidiary, (7) net costs associated with Hedging Obligations (including amortization of fees), (8) dividends in respect of all Disqualified Stock of the Issuer and all Preferred Stock of the Company and any of the Subsidiaries of the Company (other than the Issuer), to the extent held by Persons other than the Company, a Note Guarantor or a Wholly Owned Subsidiary (other than dividends payable solely in Capital Stock (other than Disqualified Stock)), (9) interest Incurred in connection with investments in discontinued operations and (10) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust. "Consolidated Net Income" means, for any period, the net income of the Company and its Consolidated Subsidiaries for such period; provided, however, that there shall not be included in such Consolidated Net Income (1) any net income of any Person (other than the Company) if such Person is not a Restricted Subsidiary, except that: (A) subject to the limitations contained in clause (4) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution made to a Restricted Subsidiary, to the limitations contained in clause (3) below) and (B) the Company's equity in a net loss of any such Person for such period shall be included in 8 determining such Consolidated Net Income; (2) any net income (or loss) of any Person acquired by the Company or a Subsidiary of the Company in a pooling of interests transaction for any period prior to the date of such acquisition; (3) any net income (or loss) of any Restricted Subsidiary other than the Issuer if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, except that: (A) subject to the limitations contained in clause (4) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution made to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (4) any gain (or loss) realized upon the sale or other disposition of any asset of the Company or its Consolidated Restricted Subsidiaries (including pursuant to any Sale/Leaseback Transaction) that is not sold or otherwise disposed of in the ordinary course of business and any gain (or loss) realized upon the sale or other disposition of any Capital Stock of any Person; (5) the net after tax effect of any extraordinary gain or loss (including all fees and expenses related to such extraordinary gain or loss); and (6) the cumulative effect of a change in accounting principles. Notwithstanding the foregoing, for the purpose of Section 4.04 only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under Section 4.04 (a)(5)(C)(iv) . "Consolidation" means the consolidation of the accounts of each of the Restricted Subsidiaries with those of the Company in accordance with GAAP consistently applied; provided, however, that "Consolidation" shall not include consolidation of the accounts of any Unrestricted Subsidiary, but the interest of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary shall be accounted for as an investment. The term "Consolidated" has a correlative meaning. "Credit Agreement" means the credit agreement dated as of November 22, 2000, as amended, restated, supplemented, waived, replaced (whether or not upon termination, and whether with the original lenders or otherwise), refinanced (in whole or in part), restructured, repaid, refunded or otherwise modified from time to time, among the Company, the Issuer, Seagate Technology (US) Holdings, Inc., the financial institutions party thereto as lenders and The Chase Manhattan Bank, as administrative agent (except to the extent that any such amendment, restatement, supplement, waiver, replacement, refinancing, restructuring, repayment, refunding or other modification thereto would be prohibited by the terms of the Indenture, unless otherwise agreed to by the Holders of at least a majority in aggregate principal amount of Securities at the time outstanding). "Currency Agreement" means with respect to any Person any foreign exchange contract, currency swap agreements or other similar agreement or arrangement to which such Person is a party or of which it is a beneficiary. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Deferred Compensation Plans" means (i) the deferred compensation plan dated as of November 22, 2000, of HDD Holdings (as amended, waived, supplemented or otherwise modified from time to time), (ii) the deferred compensation plan dated as of November 22, 2000, of Seagate Removable Storage Solutions Holdings (as amended, waived, supplemented or otherwise modified from time to time), (iii) the deferred compensation plan dated as of November 22, 2000, of Seagate Technology SAN Holdings (as amended, 9 waived, supplemented or otherwise modified from time to time) and (iv) any other plan established in lieu of, or to renew or replace, in whole or in part, any plan referred to in clause (i), (ii) or (iii) above or this clause (iv) and any other similar plan the purpose or effect of which is to provide to the participants therein substantially the economic equivalent of an equity participation in the Company or any of its Subsidiaries in lieu of such an equity participation or to provide the participants therein the benefits that they are entitled to on the Closing Date under the Plans described in clause (i), (ii) or (iii) above or this clause (iv) and (v) any Guarantee by the Company or any of its Subsidiaries of any obligation under any Deferred Compensation Plan referred to in clause (i), (ii), (iii) or (iv) above. "Designated Preferred Stock" means Preferred Stock of the Company (other than Disqualified Stock) that is issued for cash (other than to a Subsidiary of the Company or an employee stock ownership plan or trust established by the Company or any of its Subsidiaries) and is so designated as Designated Preferred Stock, pursuant to an Officer's Certificate, on the issuance date thereof, the cash proceeds of which are excluded from the calculation set forth in Section 4.04(a)(5)(C). "Designated Senior Indebtedness" of the Issuer means (1) the Bank Indebtedness and (2) any other Senior Indebtedness of the Issuer that, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $20 million and is specifically designated by the Issuer in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of this Indenture. "Designated Senior Indebtedness" of a Note Guarantor has a correlative meaning. "Designated Subsidiary" shall mean each of Seagate Technology SAN Holdings, Seagate Removable Storage Solutions Holdings and Seagate Software Information Management Group Holdings, Inc. and each of their Subsidiaries. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any event: (1) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (2) is convertible or exchangeable for Indebtedness or Disqualified Stock (excluding Capital Stock convertible or exchangeable solely at the option of the Company or a Restricted Subsidiary; provided, however, that any such conversion or exchange shall be deemed an Incurrence of Indebtedness or Disqualified Stock, as applicable) or (3) is redeemable at the option of the holder thereof, in whole or in part, in the case of each of clauses (1), (2) and (3) on or prior to 91 days after the Stated Maturity of the Securities; provided, 10 however, that if such Capital Stock is issued to any employee or to any plan for the benefit of employees of the Company or its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Company in order to satisfy applicable statutory or regulatory obligations or as a result of such employee's death or disability; provided further, however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to 91 days after the Stated Maturity of the Securities shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the provisions of Sections 4.06 and 4.08. "EBITDA" for any period means the Consolidated Net Income for such period, plus, without duplication, the following to the extent deducted in calculating such Consolidated Net Income: (1) income tax expense of the Company and its Consolidated Restricted Subsidiaries, (2) Consolidated Interest Expense, (3) depreciation expense of the Company and its Consolidated Restricted Subsidiaries, (4) amortization expense of the Company and its Consolidated Restricted Subsidiaries (excluding amortization expense attributable to a prepaid cash item that was paid in a prior period), (5) any annual management, consulting, monitoring and advisory fees paid by the Company and its Restricted Subsidiaries to any of the Sponsors, in an amount not to exceed $5 million in the aggregate in any calendar year, (6) any non-recurring charge relating to a restructuring plan of the Company and its Restricted Subsidiaries, and (7) all other noncash charges of the Company and its Consolidated Restricted Subsidiaries (excluding any such noncash charge to the extent it represents an accrual of or reserve for cash expenditures in any future period) less all noncash items of income of the Company and its Restricted Subsidiaries, in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and noncash charges of, a Restricted Subsidiary of the Company shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company or another Restricted Subsidiary by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders. "Equity Offering" means any public or private sale of common stock or Preferred Stock of the Company, Intermediate Holdings, HDD Holdings or the Issuer (other than Disqualified Stock) other than (i) public offerings with respect to the Company's, Intermediate Holdings', HDD Holdings' or the Issuer's common stock 11 registered on Form S-8 or any successor form, (ii) any such public or private sale that constitutes an Excluded Contribution and (iii) other issuances upon exercise of options by employees of the Company, Intermediate Holdings, HDD Holdings or the Issuer or any of their Restricted Subsidiaries. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Contributions" means the net cash proceeds received by the Company after the Closing Date from (i) contributions (other than from a Subsidiary of the Company) to its common equity capital and (ii) the sale (other than to a Subsidiary of the Company or to any Company or Subsidiary management equity plan or stock option plan or any other management or employee benefit plan or agreement) of Capital Stock (other than Disqualified Stock and Designated Preferred Stock) of the Company, in each case designated as Excluded Contributions pursuant to an Officers' Certificate executed by an Officer of the Company, the cash proceeds of which are excluded from the calculation set forth in Section 4.04(a)(5)(C). "Existing Notes" means the debt securities of Seagate Technology Inc. issued under the Indenture dated as of March 1, 1997, between Seagate Technology, Inc. and First Trust of California, National Association, as trustee, including any supplemental indentures thereto. "Existing Unrestricted Entity" means each of Seagate Technology Investments Holdings LLC and each of its Subsidiaries and entities in which it has made Investments (including CacheVision, Inc., Iolon, Inc. and e2open.com LLC) as of the Closing Date; provided, however, that each of the foregoing Persons shall cease to be an Existing Unrestricted Entity at the time that such Person becomes a Restricted Subsidiary. "Fair Market Value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. For all purposes of this Indenture, the Fair Market Value of property or assets which involve (a) an aggregate amount in excess of $25 million, shall be set forth in a resolution approved by the Board of Directors in good faith and (b) an aggregate amount in excess of $50 million, shall have been determined in writing by a nationally recognized appraisal or investment banking firm. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Closing Date, including those set forth in (1) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (2) statements and pronouncements of the Financial Accounting Standards Board, (3) such other statements by such other entities as approved by a significant segment of the accounting profession and (4) the rules and 12 regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC. All ratios and computations based on GAAP contained in this Indenture shall be computed in conformity with GAAP. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing any obligation. "HDD Holdings" means Seagate Technology HDD Holdings, an exempted limited liability company incorporated under the laws of the Cayman Islands and the parent company of the Issuer. "Hedging Agreement" means any Currency Agreement, any Interest Rate Agreement and any Commodity Agreement. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Hedging Agreement. "Holder" means the Person in whose name a Security is registered on the Registrar's books. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Person at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall not be deemed the Incurrence of Indebtedness. 13 "Indebtedness" means, with respect to any Person on any date of determination, without duplication: (1) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money; (2) the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (3) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto); (4) all obligations of such Person to pay the deferred and unpaid purchase price of property or services (except Trade Payables), which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services; (5) all Capitalized Lease Obligations and all Attributable Debt of such Person; (6) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of such Person, any Preferred Stock (but excluding, in each case, any accrued dividends); (7) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of Indebtedness of such Person shall be the lesser of (A) the Fair Market Value of such asset at such date of determination and (B) the amount of such Indebtedness of such other Persons; (8) Hedging Obligations of such Person; and (9) all obligations of the type referred to in clauses (1) through (8) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date and in no event shall it include any liabilities incurred under the Deferred Compensation Plans. "Indemnification Agreement" means that certain Indemnification Agreement dated as of March 29, 2000 among Seagate Technology, Inc., VERITAS Software Corporation and Suez Acquisition Company (Cayman) Limited, as amended from time to time on or prior to the Closing Date. "Indenture" means this Indenture as amended or supplemented from time to time. "Interest Rate Agreement" means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement to which such Person is party or of which it is a beneficiary. 14 "Intermediate Holdings" means Seagate Technology Holdings, an exempted limited liability company incorporated under the laws of the Cayman Islands and the parent company of HDD Holdings. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender) or other extension of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary" and Section 4.04, (1) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the Fair Market Value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (A) the Company's "Investment" in such Subsidiary at the time of such redesignation less (B) the portion (proportionate to the Company's equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation; and (2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its Fair Market Value at the time of such transfer. "Issue Date" , with respect to any Initial Securities, means the date on which such Initial Securities are originally issued. "Issuer" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor and, for purposes of any provision contained herein and required by the TIA, each other obligor on the indenture securities. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "liquidated damages" means any liquidated damages payable under a Registration Agreement. "Merger Agreement" means the Agreement and Plan of Merger and Reorganization dated as of March 29, 2000, by and among VERITAS Software Corporation, Victory Merger Sub, Inc. and Seagate Technology, Inc., as amended from time to time on or prior to the Closing Date. 15 "Moody's" means Moody's Investors Service, Inc. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise and proceeds from the sale or other disposition of any securities received as consideration, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other noncash form) therefrom, in each case net of (1) all legal, accounting, investment banking, title and recording tax expenses, commissions and other fees and expenses incurred, and all U.S. Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition, (2) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition, (3) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (4) appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition. "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Note Guarantee" means each Guarantee of the obligations with respect to the Securities issued by a Person pursuant to the terms of this Indenture. "Note Guarantor" means any Person that has issued a Note Guarantee. "Officer" means the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, the President, any Vice President, the Treasurer or the Secretary of the Issuer. "Officer" of a Note Guarantor has a correlative meaning. "Offering Memorandum" means the Offering Memorandum dated November 17, 2000, relating to the issuance of the Original Securities. "Officers' Certificate" means a certificate signed by two Officers. 16 "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Issuer, the Company or a Note Guarantor or the Trustee. "Permitted Business" means any business engaged in by the Company or any Restricted Subsidiary on the Closing Date and any Related Business. "Permitted Holders" means the Sponsors, members of management of the Company, Intermediate Holdings, HDD Holdings or the Issuer who own Capital Stock of the Company on the Closing Date and each of their Affiliates. "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in (1) the Company, a Restricted Subsidiary or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Permitted Business; (2) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that such Person's primary business is a Permitted Business; (3) Temporary Cash Investments; (4) receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (5) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (6) loans or advances to employees and directors made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary and not exceeding $5 million at any one time outstanding; (7) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; (8) any Person to the extent such Investment represents the noncash portion of the consideration received for an Asset Disposition that was made pursuant to and in compliance with Section 4.06; (9) any Person; provided, that such Investment exists on the Closing Date and any Investment that replaces or refunds such an Investment; provided, that the replacing or refunding Investment is in an amount that does not exceed the amount of the replaced or refunded Investment (valued at the time made and without giving effect to subsequent changes in value) and is made in the same Person as the replaced or refunded Investment; (10) Persons other than Restricted Subsidiaries (including, but not limited to, Iolon, Inc., CacheVision, Inc., e2open.com LLC and Seagate Technology Investments Holdings LLC) having an aggregate Fair Market Value, taken together with all other Investments made pursuant to this clause (10) that are at that time outstanding, not to exceed $150 million at the time of such Investment (with the Fair Market Value of each Investment being measured at the time 17 made and without giving effect to subsequent changes in value); provided, however, that not more than $75 million in aggregate Fair Market Value of such Investments may be made in any calendar year; (11) Hedging Agreements permitted under Section 4.03(b)(v); (12) any Person; provided, that the payment for such Investments consists solely of Capital Stock of the Company or its Subsidiaries (other than Disqualified Stock or, except in the case of the Company, Intermediate Holdings or HDD Holdings, Preferred Stock); (13) any Person; provided, that such Investment is acquired by the Company or any of its Restricted Subsidiaries (a) in exchange for any other Investment or accounts receivable held by the Company or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable or (b) as a result of a foreclosure by the Company or any of its Restricted Subsidiaries on a lien; (14) any Person consisting of Guarantees issued in accordance with Section 4.03; (15) any Person consisting of the licensing of intellectual property pursuant to joint ventures, strategic alliances or joint marketing arrangements with such Person, in each case made in the ordinary course of business; and (16) a vendor or supplier consisting of loans or advances to such vendor or supplier in connection with any guarantees to the Company or any Restricted Subsidiary of supply by, or to fund the supply capacity of, such vendor or supplier, in any case not to exceed $50 million at any one time outstanding. "Permitted Junior Securities" shall mean debt or equity securities of the Issuer or any successor corporation issued pursuant to a plan of reorganization or readjustment of the Issuer that are subordinated to the payment of all then-outstanding Senior Indebtedness of the Issuer to at least the same extent that the Securities are subordinated to the payment of all Senior Indebtedness of the Issuer on the Closing Date, so long as to the extent that any Senior Indebtedness of the Issuer outstanding on the date of consummation of any such plan or reorganization or readjustment is not paid in full in cash or Temporary Cash Investments on such date, the holders of any such Senior Indebtedness not so paid in full in cash or Temporary Cash Investments have consented to the terms of such plan or reorganization or readjustment. "Permitted Junior Securities" of a Note Guarantor shall have a correlative meaning. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) that is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. 18 "principal" of a Security means the principal of the Security plus the premium, if any, payable on the Security which is due or overdue or is to become due at the relevant time. "Publicly Traded Equity Securities" means equity securities of companies (other than any Affiliate of the Company) which are listed on the New York Stock Exchange, the Nasdaq National Market, or another recognized national securities exchange. "Purchase Money Indebtedness" means Indebtedness (1) consisting of the deferred purchase price of an asset, conditional sale obligations, obligations under any title retention agreement and other purchase money obligations, in each case where the maturity of such Indebtedness does not exceed the anticipated useful life of the asset being financed, and (2) Incurred to finance the acquisition by the Company or a Restricted Subsidiary of such asset, including additions and improvements; provided, however, that such Indebtedness is incurred within 180 days after the acquisition by the Company or such Restricted Subsidiary of such asset. "Qualified Releasing Event" means, with respect to any Designated Subsidiary, (a) a transfer by the Company or any Subsidiary of the Company of all the outstanding Capital Stock of such Designated Subsidiary, or (b) a bona fide underwritten initial public offering of shares of voting common stock of such Designated Subsidiary in which at least 10% of the aggregate outstanding shares of voting common stock of such Designated Subsidiary (calculated on a fully diluted basis after giving effect to all options to acquire voting common stock of such Designated Subsidiary then outstanding, regardless of whether such options are currently exercisable) is issued, in each case, to Persons other than (i) the Company, (ii) any Affiliate of the Company, (iii) any director, officer or employee of the Company or any Affiliate of the Company or (iv) any employee stock ownership plan or other trust established by the Company or any of its Subsidiaries. "Refinance" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means Indebtedness that is Incurred to refund, refinance, replace, renew, repay or extend (including pursuant to any defeasance or discharge mechanism) any Indebtedness of the Company or any Restricted Subsidiary existing on the Closing Date or Incurred in compliance with this Indenture (including Indebtedness of the Company that Refinances Refinancing Indebtedness); provided, however, that (1) the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced, (2) the Refinancing Indebtedness 19 has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced, (3) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being Refinanced and (4) if the Indebtedness being Refinanced is subordinated in right of payment to the Securities or a Note Guarantee, such Refinancing Indebtedness is subordinated in right of payment to the Securities or such Note Guarantee at least to the same extent as the Indebtedness being Refinanced; provided, however, that clauses (1) and (2) will not apply to any refunding or refinancing of any Senior Indebtedness; provided further, however, that Refinancing Indebtedness shall not include (i) Indebtedness of a Restricted Subsidiary (other than the Issuer) that Refinances Indebtedness of the Issuer or (ii) Indebtedness of the Company or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary. "Related Business" means any business related, ancillary or complementary to the businesses of the Company and the Restricted Subsidiaries on the Closing Date or which constitutes a reasonable extension or expansion of their businesses. "Representative" means the trustee, agent or representative (if any) for an issue of Senior Indebtedness. "Restricted Subsidiary" means the Issuer, HDD Holdings, Intermediate Holdings and any other Subsidiary of the Company other than an Unrestricted Subsidiary. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired by the Company or a Restricted Subsidiary whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or such Restricted Subsidiary leases it from such Person, other than leases between (i) the Company and a Note Guarantor or a Wholly Owned Subsidiary (ii) Note Guarantors, (iii) Wholly Owned Subsidiaries or (iv) a Note Guarantor and a Wholly Owned Subsidiary. "S&P" means Standard & Poor's Rating Service. "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of the Issuer secured by a Lien. "Secured Indebtedness" of a Note Guarantor has a correlative meaning. "Securities" means the Securities issued under this Indenture. 20 "Securities Act" means the Securities Act of 1933, as amended. "Senior Indebtedness" of the Issuer or any Note Guarantor means the principal of, premium (if any) and accrued and unpaid interest on (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization of the Issuer or any Note Guarantor, regardless of whether or not a claim for post-filing interest is allowed in such proceedings), and fees and other amounts (including expenses, reimbursement obligations under letters of credit and indemnities) owing in respect of, Bank Indebtedness and all other Indebtedness of the Issuer or any Note Guarantor, as applicable, whether outstanding on the Closing Date or thereafter Incurred, unless in the instrument creating or evidencing the same or pursuant to which the same is outstanding it is provided that such obligations are not superior in right of payment to the Securities or such Note Guarantor's Note Guarantee, as applicable; provided, however, that Senior Indebtedness of the Issuer or any Note Guarantor shall not include: (1) any obligation of the Issuer to the Company or any other Subsidiary of the Company or any obligation of such Note Guarantor to the Company or any other Subsidiary of the Company; (2) any liability for U.S. Federal, state, local or other taxes owed or owing by the Issuer or such Note Guarantor, as applicable; (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including Guarantees thereof or instruments evidencing such liabilities); (4) any Indebtedness or obligation of the Issuer or such Note Guarantor, as applicable (and any accrued and unpaid interest in respect thereof) that by its terms is subordinate or junior in any respect to any other Indebtedness or obligation of the Issuer or such Note Guarantor, as applicable, including any Senior Subordinated Indebtedness and any Subordinated Obligations of the Issuer or such Note Guarantor, as applicable; (5) any obligations with respect to any Deferred Compensation Plan; (6) any obligations with respect to any Capital Stock; or (7) any Indebtedness Incurred in violation of this Indenture. If any Senior Indebtedness is disallowed, avoided or subordinated pursuant to Section 548 of Title 11 of the United States Bankruptcy Code or any applicable state fraudulent conveyance law, such Senior Indebtedness will nevertheless constitute Senior Indebtedness. "Senior Subordinated Indebtedness" of the Issuer means the Securities and any other Indebtedness of the Issuer that specifically provides that such Indebtedness is to rank equally with the Securities in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Issuer which is not Senior Indebtedness. "Senior Subordinated Indebtedness" of a Note Guarantor has a correlative meaning. "Shareholders' Agreement" means each of (i) that certain Shareholders' Agreement to be entered as of the Closing Date among each of the Sponsors and the Company and (ii) that certain Management Shareholders Agreement to be entered as of the Closing Date among each of the members of the management group that will hold 21 ordinary shares of the Company on the Closing Date and the Company, each as in effect on the Closing Date. "Significant Subsidiary" means any Restricted Subsidiary other than the Issuer that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "Sponsors" means Silver Lake Capital Partners, L.P., Integral Capital Partners, TPG Partners III, L.P., August Capital, Chase Capital Partners and GS Capital Partners III, L.P. and each of their respective Affiliates that is a party to the Shareholders' Agreement. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred). "Stock Purchase Agreement" means that certain Stock Purchase Agreement dated as of March 29, 2000 among the Company, the Issuer and Seagate Software Holdings, Inc., as amended from time to time on or prior to the Closing Date. "Subordinated Obligation" means any Indebtedness of the Issuer (whether outstanding on the Closing Date or thereafter Incurred) that is subordinate or junior in right of payment to the Securities pursuant to a written agreement. "Subordinated Obligation" of a Note Guarantor has a correlative meaning. "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (1) such Person, (2) such Person and one or more Subsidiaries of such Person or (3) one or more Subsidiaries of such Person; provided, that HDD Holdings and Intermediate Holdings and their Subsidiaries shall each be deemed to be a Subsidiary of the Company at all times and for all purposes under this Indenture. "Temporary Cash Investments" means any of the following: (1) any investment in direct obligations of the United States of America or any agency thereof or obligations Guaranteed by the United States of America or any agency thereof, (2) investments in time deposit accounts, certificates of deposit and money market deposits maturing within one year of the date of acquisition thereof issued by a bank or 22 trust company that is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America having capital, surplus and undivided profits aggregating in excess of $250,000,000 (or the foreign currency equivalent thereof) and whose long-term debt is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act), (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into with a bank meeting the qualifications described in clause (2) above, (4) investments in commercial paper, maturing not more than one year after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc. ("S&P"), (5) investments in securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's Investors Service, Inc., and (6) securities issued by any foreign government or any political subdivision of any foreign government or any public instrumentality thereof having maturities of not more than six months from the date of acquisition thereof and, at the time of acquisition, having one of the two highest credit ratings obtainable from Moody's Investors Service, Inc. or S&P. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa- 77bbbb) as in effect on the Closing Date, except as provided in Section 9.03. "Total Assets" means the total consolidated assets of the Company and its Restricted Subsidiaries, as shown on the most recent balance sheet of the Company. "Trade Payables" means, with respect to any Person, any accounts payable or any indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person arising in the ordinary course of business in connection with the acquisition of goods or services. "Transactions" means the transactions contemplated by the Stock Purchase Agreement, the Merger Agreement, the Credit Agreement and the issuance of the Original Securities including, in each case, the payment of fees and expenses in connection therewith, all on the terms described in the Offering Memorandum. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled by, and published in, the most recent Federal Reserve Statistical Release H.15(519) which has become 23 publicly available at least two Business Days prior to the date fixed for redemption of the Securities following a Change of Control (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to November 15, 2004; provided, however, that if the period from the redemption date to November 15, 2004 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the redemption date to November 15, 2004, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "Trust Officer" means any officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Trustee" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor. "Uniform Commercial Code" means the New York Uniform Commercial Code as in effect from time to time. "Unrestricted Subsidiary" means Seagate Technology Investments Holdings LLC and (1) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company but excluding the Issuer, HDD Holdings and Intermediate Holdings) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (A) the Subsidiary to be so designated has total Consolidated assets of $1,000 or less or (B) if such Subsidiary has Consolidated assets greater than $1,000, then such designation would be permitted under Section 4.04. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under Section 4.03(a) or the Consolidated Coverage Ratio would be greater than such ratio immediately prior to such designation and (y) no Default shall have occurred and be continuing. Any such designation of a Subsidiary as a Restricted Subsidiary or Unrestricted Subsidiary by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. 24 "U.S. Dollar Equivalent" means with respect to any monetary amount in a currency other than U.S. dollars, at any time for determination thereof, the amount of U.S. dollars obtained by converting such foreign currency involved in such computation into U.S. dollars at the spot rate for the purchase of U.S. dollars with the applicable foreign currency as published in The Wall Street Journal in the "Exchange Rates" column under the heading "Currency Trading" on the date two Business Days prior to such determination. Except as described under Section 4.03, whenever it is necessary to determine whether the Company or the Restricted Subsidiaries have complied with any covenant in the Indenture or a Default has occurred and an amount is expressed in a currency other than U.S. dollars, such amount will be treated as the U.S. Dollar Equivalent determined as of the date such amount is initially determined in such currency. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option. "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or another Wholly Owned Subsidiary. SECTION 1.02. Other Definitions. Defined in Term Section - ---- ---------- "Additional Amounts"............................................. 4.12 "Affiliate Transaction".......................................... 4.07(a) "Appendix"....................................................... Preamble "Bankruptcy Law"................................................. 6.01 "beneficially own"............................................... 1.01 "Blockage Notice"................................................ 10.03 "Change of Control Offer"........................................ 4.08(b) "covenant defeasance option"..................................... 8.01(b) "Custodian"...................................................... 6.01 "Definitive Security"............................................ Appendix A "Designated Subsidiary Investments".............................. 4.04(b)(15) 25 Defined in Term Section - ---- ---------- "Event of Default"............................................... 6.01 "Exchange Securities"............................................ Preamble "Global Securities".............................................. Appendix A "Guarantee Blockage Notice"...................................... 12.03 "Guarantee Payment Blockage Period".............................. 12.03 "Guaranteed Obligations"......................................... 11.01(a) "incorporated provision"......................................... 13.01 "Initial Securities"............................................. Preamble "legal defeasance option"........................................ 8.01(b) "Legal Holiday".................................................. 13.08 "Notice of Default".............................................. 6.01 "Offer".......................................................... 4.06(b) "Offer Amount"................................................... 4.06(c)(ii) "Offer Period"................................................... 4.06(c)(ii) "Original Securities"............................................ Preamble "pay its Guarantee".............................................. 12.03 "pay the Securities"............................................ 10.03 "Paying Agent"................................................... 2.04(a) "Payment Blockage Period"........................................ 10.03 "Private Exchange"............................................... Appendix A "Private Exchange Securities".................................... Appendix A "protected purchaser"............................................ 2.08 "Purchase Date".................................................. 4.06(c)(i) "Registration Agreement"......................................... Appendix A "Registered Exchange Offer"...................................... Appendix A "Registrar"...................................................... 2.04(a) "Restricted Payment"............................................. 4.04(a) "Securities Custodian"........................................... Appendix A "Successor Company".............................................. 5.01(a)(i) SECTION 1.03. Incorporation by Reference of Trust Indenture Act. This Indenture is subject to the mandatory provisions of the TIA, which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities and the Note Guarantees. "indenture security holder" means a Holder. 26 "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Issuer, the Note Guarantors and any other obligor on the indenture securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.04. Rules of Construction. Unless the context otherwise requires: (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (c) "or" is not exclusive; (d) "including" means including without limitation; (e) words in the singular include the plural and words in the plural include the singular; (f) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured Indebtedness merely by virtue of its nature as unsecured Indebtedness; (g) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP; (h) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater; and (i) all references to "$" or "dollars" are to U.S. Dollars. 27 ARTICLE 2 The Securities SECTION 2.01. Amount of Securities; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture shall not be limited. The Securities may be issued in one or more series. All Securities of any one series shall be substantially identical except as to denomination. With respect to any Additional Securities issued after the Closing Date (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 2.07, 2.08, 2.09, 2.10 or 3.06 or the Appendix), there shall be (a) established in or pursuant to a resolution of the Board of Directors and (b) (i) set forth or determined in the manner provided in an Officers' Certificate or (ii) established in one or more indentures supplemental hereto, prior to the issuance of such Additional Securities: (1) whether such Additional Securities shall be issued as part of a new or existing series of Securities and the title of such Additional Securities (which shall distinguish the Additional Securities of the series from Securities of any other series); (2) the aggregate principal amount of such Additional Securities which may be authenticated and delivered under this Indenture; (3) the issue price and issuance date of such Additional Securities, including the date from which interest on such Additional Securities shall accrue; provided, however, that no Additional Securities may be issued at a price that would cause such Additional Securities to have "original issue discount" within the meaning of Section 1273 of the Code; (4) if applicable, that such Additional Securities shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the respective depositaries for such Global Securities, the form of any legend or legends which shall be borne by such Global Securities in addition to or in lieu of those set forth in Exhibit A hereto and any circumstances in addition to or in lieu of those set forth in Section 2.3 of the Appendix in which any such Global Security may be exchanged in whole or in part for Additional Securities registered, or any transfer of such Global Security in whole or in part may be registered, in the name or names of Persons other than the depositary for such Global Security or a nominee thereof; and 28 (5) if applicable, that such Additional Securities shall not be issued in the form of Initial Securities as set forth in Exhibit A, but shall be issued in the form of Exchange Securities as set forth in Exhibit B. If any of the terms of any Additional Securities are established by action taken pursuant to a resolution of the Board of Directors, a copy of an appropriate record of such action shall be certified by the Secretary or any Assistant Secretary of the Issuer and delivered to the Trustee at or prior to the delivery of the Officers' Certificate or the indenture supplemental hereto setting forth the terms of the Additional Securities. SECTION 2.02. Form and Dating. Provisions relating to the Original Securities, the Additional Securities, the Private Exchange Securities and the Exchange Securities are set forth in the Appendix, which is hereby incorporated in and expressly made a part of this Indenture. The (a) Original Securities and the Trustee's certificate of authentication, (b) Private Exchange Securities and the Trustee's certificate of authentication and (c) any Additional Securities (if issued as Transfer Restricted Securities) and the Trustee's certificate of authentication shall each be substantially in the form of Exhibit A hereto, which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities and any Additional Securities issued other than as Transfer Restricted Securities and the Trustee's certificate of authentication shall each be substantially in the form of Exhibit B hereto, which is hereby incorporated in and expressly made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Issuer or any Note Guarantor is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Issuer). Each Security shall be dated the date of its authentication. The Securities shall be issuable only in registered form without interest coupons and only in denominations of $1,000 and integral multiples thereof. SECTION 2.03. Execution and Authentication. One Officer of the Issuer shall sign the Securities for the Issuer by manual or facsimile signature. If an Officer of the Issuer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate and make available for delivery Securities as set forth in the Appendix. 29 The Trustee may appoint an authenticating agent reasonably acceptable to the Issuer to authenticate the Securities. Any such appointment shall be evidenced by an instrument signed by a Trust Officer, a copy of which shall be furnished to the Issuer. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as any Registrar, Paying Agent or agent for service of notices and demands. SECTION 2.04. Registrar and Paying Agent. (a) The Issuer shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar") and an office or agency where Securities may be presented for payment (the "Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Issuer may have one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent, and the term "Registrar" includes any co-registrars. The Issuer initially appoints the Trustee as (i) Registrar and Paying Agent in connection with the Securities and (ii) the Securities Custodian with respect to the Global Securities. (b) The Issuer shall enter into an appropriate agency agreement with any Registrar or Paying Agent not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Issuer shall notify the Trustee of the name and address of any such agent. If the Issuer fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07. The Company or any of its Wholly Owned Subsidiaries may act as Paying Agent or Registrar. (c) The Issuer may remove any Registrar or Paying Agent upon written notice to such Registrar or Paying Agent and to the Trustee; provided, however, that no such removal shall become effective until (i) acceptance of an appointment by a successor as evidenced by an appropriate agreement entered into by the Issuer and such successor Registrar or Paying Agent, as the case may be, and delivered to the Trustee or (ii) notification to the Trustee that the Trustee shall serve as Registrar or Paying Agent until the appointment of a successor in accordance with clause (i) above. The Registrar or Paying Agent may resign at any time upon written notice to the Issuer and the Trustee. SECTION 2.05. Paying Agent to Hold Money in Trust. Prior to each due date of the principal of and interest and liquidated damages (if any) on any Security, the Issuer shall deposit with the Paying Agent (or if the Issuer or a Wholly Owned Subsidiary is acting as Paying Agent, segregate and hold in trust for the benefit of the Persons entitled thereto) a sum sufficient to pay such principal, interest and liquidated damages (if any) when so becoming due. The Issuer shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of 30 Holders or the Trustee all money held by the Paying Agent for the payment of principal of and interest and liquidated damages (if any) on the Securities, and shall notify the Trustee of any default by the Issuer in making any such payment. If the Issuer or a Subsidiary of the Issuer acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Issuer at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by the Paying Agent. Upon complying with this Section, the Paying Agent shall have no further liability for the money delivered to the Trustee. SECTION 2.06. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, the Issuer shall furnish, or cause the Registrar to furnish, to the Trustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders. SECTION 2.07. Transfer and Exchange. The Securities shall be issued in registered form and shall be transferable only upon the surrender of a Security for registration of transfer and in compliance with the Appendix. When a Security is presented to the Registrar with a request to register a transfer, the Registrar shall register the transfer as requested if its requirements therefor are met. When Securities are presented to the Registrar with a request to exchange them for an equal principal amount of Securities of other denominations, the Registrar shall make the exchange as requested if the same requirements are met. To permit registration of transfers and exchanges, the Issuer shall execute and the Trustee shall authenticate Securities at the Registrar's request. The Issuer may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any transfer or exchange pursuant to this Section. The Issuer shall not be required to make and the Registrar need not register transfers or exchanges of Securities selected for redemption (except, in the case of Securities to be redeemed in part, the portion thereof not to be redeemed) or any Securities for a period of 15 days before the mailing of a notice of redemption of Securities to be redeemed. Prior to the due presentation for registration of transfer of any Security, the Issuer, the Note Guarantors, the Trustee, the Paying Agent, and the Registrar may deem and treat the Person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and (subject to paragraph 2 of the Securities) interest, if any, on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Issuer, any Note Guarantor, the Trustee, the Paying Agent, or the Registrar shall be affected by notice to the contrary. 31 Any Holder of a Global Security shall, by acceptance of such Global Security, agree that transfers of beneficial interest in such Global Security may be effected only through a book-entry system maintained by (a) the Holder of such Global Security (or its agent) or (b) any Holder of a beneficial interest in such Global Security, and that ownership of a beneficial interest in such Global Security shall be required to be reflected in a book entry. All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. SECTION 2.08. Replacement Securities. If a mutilated Security is surrendered to the Registrar or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Issuer shall issue and the Trustee shall authenticate a replacement Security if the requirements of Section 8-405 of the Uniform Commercial Code are met, such that the Holder (a) satisfies the Issuer or the Trustee within a reasonable time after such Holder has notice of such loss, destruction or wrongful taking and the Registrar does not register a transfer prior to receiving such notification, (b) makes such request to the Issuer or the Trustee prior to the Security being acquired by a protected purchaser as defined in Section 8-303 of the Uniform Commercial Code (a "protected purchaser") and (c) satisfies any other reasonable requirements of the Trustee. Such Holder shall furnish an indemnity bond sufficient in the judgment of the Trustee to protect the Issuer, the Trustee, the Paying Agent and the Registrar from any loss that any of them may suffer if a Security is replaced. The Issuer and the Trustee may charge the Holder for their expenses in replacing a Security. In the event any such mutilated, lost, destroyed or wrongfully taken Security has become or is about to become due and payable, the Issuer in its discretion may pay such Security instead of issuing a new Security in replacement thereof. Every replacement Security is an additional obligation of the Issuer. The provisions of this Section 2.08 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, lost, destroyed or wrongfully taken Securities. SECTION 2.09. Outstanding Securities. Securities outstanding at any time are all Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancelation, those paid pursuant to this Section 2.09 and those described in this Section as not outstanding. Subject to Section 13.06, a Security does not cease to be outstanding because the Issuer or an Affiliate of the Issuer holds the Security. 32 If a Security is replaced pursuant to Section 2.08, it ceases to be outstanding unless the Trustee and the Issuer receive proof satisfactory to them that the replaced Security is held by a protected purchaser. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal, interest and liquidated damages, if any, payable on that date with respect to the Securities (or portions thereof) to be redeemed or maturing, as the case may be, and the Paying Agent is not prohibited from paying such money to the Holders on that date pursuant to the terms of this Indenture then on and after that date such Securities (or portions thereof) cease to be outstanding and interest on them ceases to accrue. SECTION 2.10. Temporary Securities. In the event that Definitive Securities are to be issued under the terms of this Indenture, until such Definitive Securities are ready for delivery, the Issuer may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of Definitive Securities but may have variations that the Issuer considers appropriate for temporary Securities. Without unreasonable delay, the Issuer shall prepare and the Trustee shall authenticate Definitive Securities and deliver them in exchange for temporary Securities upon surrender of such temporary Securities at the office or agency of the Issuer, without charge to the Holder. SECTION 2.11. Cancelation. The Issuer at any time may deliver Securities to the Trustee for cancelation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Securities surrendered for registration of transfer, exchange, payment or cancelation and shall dispose of canceled Securities in accordance with its customary procedures or deliver canceled Securities to the Issuer pursuant to written direction by an Officer. The Issuer may not issue new Securities to replace Securities it has redeemed, paid or delivered to the Trustee for cancelation. The Trustee shall not authenticate Securities in place of canceled Securities other than pursuant to the terms of this Indenture. SECTION 2.12. Defaulted Interest. If the Issuer defaults in a payment of interest on the Securities, the Issuer shall pay the defaulted interest (plus interest on such defaulted interest to the extent lawful) in any lawful manner. The Issuer may pay the defaulted interest to the Persons who are Holders on a subsequent special record date. The Issuer shall fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Trustee and shall promptly mail or cause to be mailed to each Holder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. 33 SECTION 2.13. CUSIP and ISIN Numbers. The Issuer in issuing the Securities may use CUSIP and ISIN numbers (if then generally in use) and, if so, the Trustee shall use CUSIP and ISIN numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Issuer will promptly notify the Trustee of any change in the CUSIP or ISIN numbers. ARTICLE 3 Redemption SECTION 3.01. Notices to Trustee. If the Issuer elects to redeem Securities pursuant to paragraph 5 or 6 of the Securities, it shall notify the Trustee in writing of the redemption date and the principal amount of Securities to be redeemed. The Issuer shall give each notice to the Trustee provided for in this Section at least 60 days before the redemption date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate and an Opinion of Counsel from the Issuer to the effect that such redemption will comply with the conditions herein. Any such notice may be canceled at any time prior to 3 business days prior to the date the Trustee mails notice of such redemption to any Holder and shall thereby be void and of no effect. SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata or by lot or by a method that the Trustee in its sole discretion shall deem to be fair and appropriate. The Trustee shall make the selection from outstanding Securities not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Issuer promptly of the Securities or portions of Securities to be redeemed. SECTION 3.03. Notice of Redemption. (a) At least 30 days but not more than 60 days before a date for redemption of Securities, the Issuer shall mail a notice of redemption by first-class mail to each Holder of Securities to be redeemed at such Holder's registered address. 34 The notice shall identify the Securities to be redeemed and shall state: (i) the redemption date; (ii) the redemption price and the amount of accrued interest to the redemption date; (iii) the name and address of the Paying Agent; (iv) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (v) if fewer than all the outstanding Securities are to be redeemed, the certificate numbers and principal amounts of the particular Securities to be redeemed; (vi) that, unless the Issuer defaults in making such redemption payment or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest on Securities (or portion thereof) called for redemption ceases to accrue on and after the redemption date; (vii) the CUSIP or ISIN number, if any, printed on the Securities being redeemed; and (viii) that no representation is made as to the correctness or accuracy of the CUSIP or ISIN number, if any, listed in such notice or printed on the Securities. (b) At the Issuer's request, the Trustee shall give the notice of redemption in the Issuer's name and at the Issuer's expense. In such event, the Issuer shall provide the Trustee with the information required by this Section. SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date and at the redemption price stated in the notice. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price stated in the notice, plus accrued interest and liquidated damages, if any, to the redemption date; provided, however, that if the redemption date is after a regular record date and on or prior to the interest payment date, the accrued interest and liquidated damages, if any, shall be payable to the Holder of the redeemed Securities registered on the relevant record date. Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. 35 SECTION 3.05. Deposit of Redemption Price. Prior to 10:00 a.m., New York City time, on the redemption date, the Issuer shall deposit with the Paying Agent (or, if the Issuer or a Wholly Owned Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest and liquidated damages, if any, on all Securities or portions thereof to be redeemed on that date other than Securities or portions of Securities called for redemption that have been delivered by the Issuer to the Trustee for cancelation. On and after the redemption date, interest shall cease to accrue on Securities or portions thereof called for redemption so long as the Issuer has deposited with the Paying Agent funds sufficient to pay the principal of, plus accrued and unpaid interest and liquidated damages, if any, on, the Securities to be redeemed, unless the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture. SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Issuer shall execute and the Trustee shall authenticate for the Holder (at the Issuer's expense) a new Security equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE 4 Covenants SECTION 4.01. Payment of Securities. The Issuer shall promptly pay the principal of and interest and liquidated damages, if any, on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal, interest and liquidated damages, if any, shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal and interest then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Holders on that date pursuant to the terms of this Indenture. The Issuer shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. SECTION 4.02. SEC Reports. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the SEC, and provide the Trustee and Holders and prospective Holders (upon request) within 15 days after it files them with the SEC, copies of its annual report and the information, documents and other reports that are specified in Sections 13 and 15(d) of the Exchange Act provided, however, the Company shall not be so obligated to file such reports with the SEC if the SEC does not permit such filing, in 36 which event the Company will make available such information to the trustee, Holders and prospective Holders (upon request) within 15 days after the time the Company would be required to file such information with the SEC if it were subject to Section 13 or 15(d) of the Exchange Act. In addition, following a public equity offering, the Company shall furnish to the Trustee and the Holders, promptly upon their becoming available, copies of the annual report to shareholders and any other information provided by the Company to its public shareholders generally. The Company also shall comply with the other provisions of Section 314(a) of the TIA. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 4.03. Limitation on Indebtedness. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness; provided, however, that the Issuer or any Note Guarantor may Incur Indebtedness if on the date of such Incurrence and after giving effect thereto, the Consolidated Coverage Ratio would be at least 5.0:1. (b) Notwithstanding Section 4.03(a), the Company and the Restricted Subsidiaries may Incur the following Indebtedness: (i) Bank Indebtedness Incurred pursuant to the Credit Agreement in an aggregate principal amount not to exceed $900 million; (ii) Indebtedness of the Company owed to and held by any Note Guarantor or Wholly Owned Subsidiary or Indebtedness of a Note Guarantor or Wholly Owned Subsidiary owed to and held by the Company or another Note Guarantor or Wholly Owned Subsidiary; provided, however, that (1) any subsequent issuance or transfer of any Capital Stock or any other event that results in any such Note Guarantor or Wholly Owned Subsidiary ceasing to be a Note Guarantor or Wholly Owned Subsidiary, as applicable, or any subsequent transfer of any such Indebtedness (except to the Company or another Note Guarantor or Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof, (2) if the Issuer is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all obligations with respect to the Securities and (3) if a Note Guarantor is the obligor on such Indebtedness and such Indebtedness is owed to and held by a Restricted Subsidiary that is not a Note Guarantor, such Indebtedness is expressly subordinated to the prior payment in full in cash of all obligations of such Note Guarantor with respect to its Note Guarantee; 37 (iii) Indebtedness (1) represented by the Securities (not including any Additional Securities) and the Note Guarantees, (2) outstanding on the Closing Date (other than the Indebtedness described in clauses (i) and (ii) above); provided, however, that all Indebtedness of the Company and its Subsidiaries in respect of the Existing Notes shall only be permitted to be outstanding under this clause (2) until 45 days or, if the date of redemption of the Existing Notes shall be reasonably extended by the trustee under the indenture under which the Existing Notes were issued, the earlier of the extended date of redemption and 120 days following the Closing Date; provided, further, that Indebtedness under the Existing Notes shall only be permitted under this clause (2) to the extent that sufficient funds to effect the redemption of the Existing Notes remain deposited in trust for that purpose, on the terms described in the Offering Memorandum under "The Transactions -- Redemption of Existing Senior Notes", (3) consisting of Refinancing Indebtedness Incurred in respect of any Indebtedness described in this clause (iii) (including Indebtedness that is Refinancing Indebtedness) or Section 4.03(a) and (4) consisting of Guarantees by the Issuer or a Note Guarantor of Indebtedness or other obligations of the Company or any of its Restricted Subsidiaries so long as the Incurrence of such Indebtedness Incurred by the Company or such Restricted Subsidiary is permitted under the terms of this Indenture; provided that if such Indebtedness is by its express terms subordinated in right of payment to the Securities or the Note Guarantee of such Restricted Subsidiary, as applicable, any such Guarantee of such Note Guarantor with respect to such Indebtedness or other obligations shall be subordinated in right of payment to the Securities or such Note Guarantor's Note Guarantee with respect to the Securities substantially to the same extent as such Indebtedness is subordinated to the Securities or the Note Guarantee of such Restricted Subsidiary, as applicable; (iv) (1) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred in contemplation of, in connection with, as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Subsidiary of or was otherwise acquired by the Company); provided, however, that on the date that such Restricted Subsidiary is acquired by the Company, either (x) the Company would have been able to Incur $1.00 of additional Indebtedness pursuant to Section 4.03(a) after giving effect to the Incurrence of such Indebtedness pursuant to this clause (iv) or (y) the Consolidated Coverage Ratio after giving effect to such acquisition would be (A) greater than the Consolidated Coverage Ratio immediately prior to such acquisition and (B) at least 4.5:1 and (2) Refinancing Indebtedness Incurred by a Restricted Subsidiary in respect of Indebtedness Incurred by such Restricted Subsidiary pursuant to this clause (iv); 38 (v) Indebtedness (1) in respect of performance bonds, workman's compensation, completion guarantees, bankers' acceptances, letters of credit and bid, surety or appeal bonds provided by the Company and the Restricted Subsidiaries in the ordinary course of their business, and (2) under Hedging Agreements entered into for bona fide hedging purposes of the Company in the ordinary course of business or entered into in connection with the redemption of the Existing Notes; provided, however, that such Hedging Agreements do not increase the Indebtedness of the Company outstanding at any time other than as a result of fluctuations in interest rates, exchange rates, commodity prices or by reason of fees, indemnities and compensation payable thereunder; (vi) Purchase Money Indebtedness, mortgage financings, Capitalized Lease Obligations and Attributable Debt in respect of Sale/Leaseback Transactions in an aggregate principal amount not in excess of $125 million at any time outstanding; (vii) Indebtedness arising from agreements of the Company or a Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case Incurred in connection with the disposition of any business, assets or a subsidiary of the Company in accordance with the terms of this Indenture, other than guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; (viii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, provided that such Indebtedness is extinguished within five Business Days of its Incurrence; (ix) the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business; provided, however, that upon the drawing of such letters of credit, such obligations are reimbursed within 30 days following such drawing; (x) obligations arising from or representing deferred compensation to employees of the Company or its Subsidiaries that constitute or are deemed to be Indebtedness under GAAP and that are Incurred in the ordinary course of business; and (xi) Indebtedness (other than Indebtedness permitted to be Incurred pursuant to Section 4.03(a) or any other clause of this Section 4.03(b)) in an aggregate principal amount on the date of Incurrence that, when added to all other 39 Indebtedness Incurred pursuant to this clause (xi) and then outstanding, shall not exceed $75 million. (c) Notwithstanding the foregoing, the Issuer or any Note Guarantor shall not Incur any Indebtedness pursuant to Section 4.03(b) above if the proceeds thereof are used, directly or indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the Securities or such Note Guarantor's Note Guarantee to at least the same extent as such Subordinated Obligations. The Issuer shall not Incur any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness. In addition, the Issuer shall not Incur any Secured Indebtedness which is not Senior Indebtedness unless contemporaneously therewith effective provision is made to secure the Securities equally and ratably with (or on a senior basis to, in the case of Indebtedness subordinated in right of payment to the Securities) such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. A Note Guarantor shall not Incur any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness of such Note Guarantor unless such Indebtedness is Senior Subordinated Indebtedness of such Note Guarantor or is expressly subordinated in right of payment to Senior Subordinated Indebtedness of such Note Guarantor. In addition, a Note Guarantor shall not Incur any Secured Indebtedness that is not Senior Indebtedness of such Note Guarantor unless contemporaneously therewith effective provision is made to secure the Note Guarantee of such Note Guarantor equally and ratably with (or on a senior basis to, in the case of Indebtedness subordinated in right of payment to such Note Guarantee) such Secured Indebtedness for as long as such Secured Indebtedness is secured by a Lien. (d) Notwithstanding any other provision of this Section 4.03, the maximum amount of Indebtedness that the Company or any Restricted Subsidiary may Incur pursuant to this Section 4.03 shall not be deemed to be exceeded solely as a result of fluctuations in the exchange rates of currencies. For purposes of determining the outstanding principal amount of any particular Indebtedness Incurred pursuant to this Section 4.03, (i) Indebtedness Incurred pursuant to the Credit Agreement prior to or on the Closing Date shall be treated as Incurred pursuant to Section 4.03(b)(i), (ii) Indebtedness permitted by this Section 4.03 need not be permitted solely by reference to one provision permitting such Indebtedness but may be permitted in part by one such provision and in part by one or more other provisions of this Section 4.03 permitting such Indebtedness, (iii) in the event that Indebtedness meets the criteria of more than one of the types of Indebtedness described in this Section 4.03, the Issuer, in its sole discretion, shall classify such Indebtedness and only be required to include the amount of such Indebtedness in one of such clauses, provided, however, subject to clause (i) above, that at any time that the Company or a Note Guarantor is permitted to Incur at least $1.00 of additional Indebtedness pursuant to Section 4.03(a), the Issuer may reclassify 40 Indebtedness originally Incurred pursuant to one or more clauses of Section 4.03(b) as Indebtedness Incurred pursuant to Section 4.03(a), and (iv) for purposes of determining compliance with any U.S. dollar denominated restriction on the Incurrence of Indebtedness where the Indebtedness Incurred is denominated in a different currency, the amount of such Indebtedness will be the U.S. Dollar Equivalent determined on the date of the Incurrence of such Indebtedness, provided, however, that if any such Indebtedness denominated in a different currency is subject to a Currency Agreement with respect to the U.S. dollar covering all principal, premium, if any, and interest payable on such Indebtedness, the amount of such Indebtedness expressed in U.S. dollars shall be as provided in such Currency Agreement. The principal amount of any Refinancing Indebtedness Incurred in the same currency as the Indebtedness being Refinanced shall be the U.S. Dollar Equivalent of the Indebtedness Refinanced, except to the extent that (i) such U.S. Dollar Equivalent was determined based on a Currency Agreement, in which case the Refinancing Indebtedness shall be determined in accordance with the preceding sentence, and (ii) the principal amount of the Refinancing Indebtedness exceeds the principal amount of the Indebtedness being Refinanced, in which case the U.S. Dollar Equivalent of such excess, shall be determined on the date such Refinancing Indebtedness is Incurred. SECTION 4.04. Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to (1) declare or pay any dividend, make any distribution on or in respect of its Capital Stock or make any similar payment (including any payment in connection with any merger or consolidation involving the Company or any Subsidiary of the Company) to the direct or indirect holders of its Capital Stock except (x) dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock or, except in the case of the Company, Intermediate Holdings or HDD Holdings, Preferred Stock), (y) dividends or distributions payable to the Company or a Restricted Subsidiary (and, if such Restricted Subsidiary has shareholders other than the Company or other Restricted Subsidiaries, to its other shareholders on a pro rata basis) and (z) following a bona fide underwritten initial public offering of Capital Stock (other than Disqualified Stock) of Intermediate Holdings or HDD Holdings, dividends or distributions consisting of Capital Stock of the same class and series (or convertible into the same class and series) of Intermediate Holdings or HDD Holdings, as applicable; (2) purchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the Company held by any Person or any Capital Stock of a Restricted Subsidiary held by any Affiliate of the Company (other than a Restricted Subsidiary); (3) purchase, repurchase, redeem, retire, defease or otherwise acquire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment any Subordinated Obligations (other than (a) the purchase, repurchase, redemption, retirement, defeasance or other acquisition for value of Subordinated Obligations acquired in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition and (b) Indebtedness permitted under Section 4.03(b)(ii)); (4) make any distribution or 41 other payment (whether in cash, securities or other property or any combination thereof) under or in respect of any Deferred Compensation Plan; or (5) make any Investment (other than a Permitted Investment) in any Person (any such dividend, distribution, payment, purchase, redemption, repurchase, defeasance, retirement, or other acquisition or Investment being herein referred to as a "Restricted Payment") if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (A) a Default shall have occurred and be continuing (or would result therefrom); (B) the Company could not Incur at least $1.00 of additional Indebtedness under Section 4.03(a); or (C) the aggregate amount of such Restricted Payment and all other Restricted Payments (including, if the amount so expended is other than in cash, the Fair Market Value of such Restricted Payments) declared or made subsequent to the Closing Date would exceed the sum, without duplication, of: (i) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter immediately following the fiscal quarter during which the Closing Date occurs to the end of the most recent fiscal quarter ending at least 45 days prior to the date of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (ii) the aggregate Net Cash Proceeds received by the Company from contributions to its capital and from the issue or sale of its Capital Stock (other than Disqualified Stock, Excluded Contributions or Designated Preferred Stock) subsequent to the Closing Date (other than an issuance or sale to (x) a Subsidiary of the Company or (y) an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries); (iii) the amount by which Indebtedness of the Company or the Restricted Subsidiaries is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Closing Date of any Indebtedness of the Company or its Restricted Subsidiaries issued after the Closing Date which is convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash or the Fair Market Value of other property distributed by the Company or any Restricted Subsidiary upon such conversion or exchange); 42 (iv) an amount equal to the sum of (x) the net reduction in Investments (other than Permitted Investments) made by the Company or any Restricted Subsidiary in any Person (other than the Company or a Restricted Subsidiary) resulting from (A) Net Cash Proceeds received from repurchases, repayments or redemptions of such Investments by such Person, Net Cash Proceeds realized on the sale of such Investments, Net Cash Proceeds representing the return of capital (excluding dividends and distributions) and cash repayments of loans or advances which constituted Restricted Payments, in each case received by the Company or any Restricted Subsidiary or (B) to the extent such Person is an Unrestricted Subsidiary, the merger, consolidation or amalgamation of such Person with or into the Company or a Restricted Subsidiary; provided, that the surviving entity is the Company or a Restricted Subsidiary and (y) to the extent such Person is an Unrestricted Subsidiary, the portion (proportionate to the Company's equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that the foregoing sum shall not exceed, in the case of any such Person or Unrestricted Subsidiary, the amount of Investments (excluding Permitted Investments) previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary; and (v) the aggregate Net Cash Proceeds received by the Company or a Restricted Subsidiary from the issue or sale of Capital Stock (other than Disqualified Stock) of Intermediate Holdings or HDD Holdings in a bona fide underwritten public offering subsequent to the Closing Date (other than an issuance or sale to (x) the Company or a Subsidiary or Affiliate of the Company or (y) an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries). (b) The provisions of Section 4.04(a) shall not prohibit: (1) any purchase, repurchase, redemption, retirement or other acquisition for value of Capital Stock of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries); provided, however, that (A) such purchase, repurchase, redemption, retirement or other acquisition for value shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale applied in the manner set forth in 43 this clause (1) shall be excluded from the calculation of amounts under Section 4.04(a)(5)(C); (2) any prepayment, repayment, purchase, repurchase, redemption, retirement, defeasance or other acquisition for value of Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company that is permitted to be Incurred pursuant to Section 4.03(b); provided, however, that such prepayment, repayment, purchase, repurchase, redemption, retirement, defeasance or other acquisition for value shall be excluded in the calculation of the amount of Restricted Payments; (3) any prepayment, repayment, purchase, repurchase, redemption, retirement, defeasance or other acquisition for value of Subordinated Obligations from Net Available Cash to the extent permitted by Section 4.06; provided, however, that such prepayment, repayment, purchase, redemption, retirement, defeasance or other acquisition for value shall be excluded in the calculation of the amount of Restricted Payments; (4) dividends or distributions paid within 60 days after the date of declaration thereof if at such date of declaration such dividends or distributions would have complied with this Section 4.04; provided, however, that such dividends or distributions shall be included in the calculation of the amount of Restricted Payments; (5) any repurchase of Capital Stock deemed to occur upon exercise of stock options if such Capital Stock represents a portion of the exercise price of such options, provided, however, that such repurchase will be excluded in the calculation of the amount of Restricted Payments; (6) any purchase, repurchase, redemption, retirement or other acquisition for value of shares of, or options to purchase shares of, Capital Stock of the Company or any of its Subsidiaries from employees, former employees, directors or former directors of the Company or any of its Subsidiaries (or permitted transferees of such employees, former employees, directors or former directors), pursuant to the terms of agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors in good faith under which such individuals purchase or sell or are granted the option to purchase or sell, shares of such Capital Stock; provided, however, that the aggregate amount of such purchases, repurchases, redemptions, retirements and other acquisitions for value will not exceed $25 million in any calendar year (with unused amounts in any calendar year (together with any increase in such amounts for any calendar year permitted by the following proviso) being permitted to be carried over for the two succeeding calendar years); provided, further, that such amount in any calendar year may be increased by an amount not to exceed (i) the cash proceeds 44 received by the Company or any of its Restricted Subsidiaries in such calendar year from the sale of Capital Stock of the Company or any of its Restricted Subsidiaries (other than Disqualified Stock or Preferred Stock) to members of management or directors of the Company or any of its Restricted Subsidiaries that occurs after the Closing Date (provided that the amount of such cash proceeds utilized for any such repurchase, retirement, other acquisition or dividend will not increase the amount available for Restricted Payments under Section 4.04(a)(5)(C)) plus (ii) the cash proceeds of key man life insurance policies received by the Company and its Restricted Subsidiaries in such calendar year after the Closing Date; provided further, however, that such purchases, repurchases, redemptions, retirements and other acquisitions for value shall be excluded in the calculation of the amount of Restricted Payments; (7) the declaration and payment of dividends or distributions to holders of any class or series of Disqualified Stock of the Company or its Restricted Subsidiaries issued or Incurred in accordance with Section 4.03; provided, however, that such dividends or distributions shall be excluded in the calculation of the amount of Restricted Payments; (8) the payment of dividends on the Company's, Intermediate Holdings', HDD Holdings' or the Issuer's common stock following the first bona fide underwritten public offering of common stock of the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, after the Closing Date, of up to 6% per annum of the net proceeds received by the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, from such public offering; provided, however, that (A) the aggregate amount of all such dividends shall not exceed the aggregate amount of net proceeds received by the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, from such public offering and (B) such dividends shall be included in the calculation of the amount of Restricted Payments; (9) the payment of annual management, consulting, monitoring and advisory fees to any of the Sponsors; provided, that any such payment is permitted by Section 4.07; provided, further, that any such payment shall be excluded in the calculation of the amount of Restricted Payments; (10) the declaration and payment of dividends to holders of any class or series of Designated Preferred Stock issued after the Closing Date; provided, however, that (A) for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the declaration of any such dividend after giving effect to such dividend on a pro forma basis, the Consolidated Coverage Ratio would have been at least 5.0:1 and (B) the aggregate 45 amount of dividends declared and paid pursuant to this clause (10) shall not exceed the Net Cash Proceeds received by the Company from the sale of Designated Preferred Stock issued after the Closing Date; provided, further, that such dividends shall be excluded in the calculation of the amount of Restricted Payments; (11) payments which are contemplated by the Stock Purchase Agreement, the Indemnification Agreement and the Shareholders' Agreement and the related transactions on the terms described in the Offering Memorandum, including the payment of retention bonuses to senior managers of the Company and its Subsidiaries; provided, however, that such payments shall be excluded in the calculation of the amount of Restricted Payments; (12) Investments that are made with Excluded Contributions; provided, however, that such Investments shall be excluded in the calculation of the amount of Restricted Payments; (13) the declaration and payment of dividends or distributions on the Company's Capital Stock or payments in respect of Deferred Compensation Plans (i) consisting of Capital Stock (other than Disqualified Stock or Preferred Stock) of an Existing Unrestricted Entity or (ii) with the Net Cash Proceeds, property, assets or other forms of consideration received by the Company or a Restricted Subsidiary from the issue or sale of Capital Stock (other than Disqualified Stock or Preferred Stock) of an Existing Unrestricted Entity (other than an issuance or sale to (x) the Company or a Subsidiary or Affiliate of the Company or (y) an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries); provided that (A) no Default shall have occurred and be continuing or would occur as a result of such dividend or distribution, (B) with respect to any dividend or distribution made with consideration received by the Company or a Restricted Subsidiary as described in clause (ii) above, if the consideration for such issue or sale consists, in whole or in part, of any property, assets or other form of consideration other than cash, such dividends or distributions shall be paid in the form of cash, property, assets or such other form of consideration such that the relative proportions of cash, property, assets and such other form of consideration comprising such dividend or distribution shall be the same as the relative proportions of cash, property, assets and such other form of consideration comprising the consideration received upon such issue or sale, (C) with respect to dividends or distributions in the form of Capital Stock (other than Disqualified Stock or Preferred Stock) of an Existing Unrestricted Entity, such Existing Unrestricted Entity shall have previously consummated a bona fide underwritten initial public offering of Capital Stock (other than Disqualified Stock or Preferred Stock) of the same class and series as the Capital Stock to be dividended or distributed (or into which the Capital Stock to be dividended or 46 distributed is convertible) registered under the Securities Act, (D) such dividends or distributions shall be excluded in the calculation of the amount of Restricted Payments and (E) the Net Cash Proceeds and any value attributable to any property, assets or other form of consideration received in connection with such issue or sale described in clause (ii) above shall be excluded from the calculation of amounts under Section 4.04(a)(5)(C); (14) the declaration and payment of dividends on the Company's Capital Stock within 30 days after the end of any calendar year for the purpose of providing the holders of the Company's Capital Stock (the "Equity Holders") with cash (or Publicly Traded Equity Securities) to pay United States income taxes attributable to taxable income of the Company and its Subsidiaries for such calendar year attributed to the Equity Holders (such dividends, "Tax Distributions"); provided that (A) on the date of each such declaration and payment the Company is treated as a pass-through entity for United States Federal income tax purposes or a controlled foreign corporation for United States Federal income tax purposes, (B) the maximum amount of Tax Distributions that may be declared and paid pursuant to this clause (14) in any calendar year shall be equal to (x)(a) if the Company is a pass-through entity for United States Federal income tax purposes, the amount of taxable income of the Company for such calendar year (for the purposes of the calculation made pursuant to this clause (B)(x)(a), the taxable income of the Company shall be assumed to be the taxable income the Company would have had if it were a corporation incorporated in the United States, including any "Subpart F income" (within the meaning of Section 952 of the Code, which for the purposes of this clause (14) shall include income includable under Section 951(a)(1)(B) of the Code) of its subsidiaries that it would be required to include in its taxable income if it were such a corporation), reduced by the amount of taxable loss allocated to the Equity Holders for all prior calendar years (except to the extent such taxable losses have been previously taken into account with respect to a prior calendar year under this clause (B)(x)(a)) or (b) if the Company is a controlled foreign corporation, the aggregate amount of the Company's Subpart F income for such calendar year (and, to the extent such Subpart F income would be attributed to the Equity Holders, the Subpart F income of the Company's subsidiaries for such calendar year), multiplied by (y) 40%, (C) the Company shall have delivered to the Trustee at least 30 calendar days prior to the declaration of such Tax Distribution or any interim Tax Distribution pursuant to clause (F) below, a notice, certified by the Chief Financial Officer of the Company, setting forth in detail reasonably satisfactory to the Trustee the basis for the determination of the amount of such Tax Distribution, (D) if any Tax Distribution is made pursuant to this clause (14) in respect of any taxable income realized on any sale of any asset or Capital Stock, the consideration for which consists in whole or in part of Publicly 47 Traded Equity Securities, such Tax Distribution shall be made in the form of cash and Publicly Traded Equity Securities such that the ratio of cash to Publicly Traded Equity Securities comprising such Tax Distribution shall be the same as the ratio of cash to Publicly Traded Equity Securities comprising the consideration received upon such sale, to the extent that the Company is legally permitted to make such Tax Distribution in any form other than cash, (E) Tax Distributions in respect of any taxes attributable to the taxable income of an Unrestricted Subsidiary shall only be permitted if they are made with the proceeds of dividends or distributions from an Unrestricted Subsidiary that are received by the Company or a Restricted Subsidiary; provided, that the amount of such dividends and distributions will not increase the amount available for Restricted Payments under Section 4.04(a)(5)(C), (F)(i) interim Tax Distributions may be made during each calendar year on or shortly after April 10, June 10, September 10 and December 31 of such year for the purpose of providing the Equity Holders with cash to pay estimated United States income taxes attributable to taxable income of the Company and its Subsidiaries for such taxable year, based on good-faith estimates of such estimated tax liability made by the Company and (ii) if any such interim Tax Distributions are made by the Company during a taxable year, then within 30 calendar days after the end of such calendar year the Company shall deliver to the Trustee a determination of the maximum amount of Tax Distributions that may be made for such calendar year under clause (B) above, and if the aggregate interim Tax Distributions made for such calendar year exceed such maximum, then such excess amount ("Excess Interim Tax Distributions") shall be applied to reduce amounts payable under any clause of paragraph (b) for the next calendar year and to the extent not so applied, shall be carried forward for application against such amounts in a future calendar year, and (G)(i) any Tax Distributions (excluding any Excess Interim Tax Distributions) paid pursuant to this clause (14) shall be excluded in the calculation of the amount of Restricted Payments and (ii) any Excess Interim Tax Distributions shall be included in the amount of Restricted Payments; (15) the declaration and payment of dividends or distributions on the Company's Capital Stock or payments in respect of Deferred Compensation Plans with the Net Cash Proceeds received by the Company or a Restricted Subsidiary (other than a Designated Subsidiary) from an issue or sale (other than an issuance or sale to (x) the Company or a Subsidiary or Affiliate of the Company or (y) an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries) of Capital Stock (other than Preferred Stock or Disqualified Stock) of a Designated Subsidiary in an amount equal to such Net Cash Proceeds from such issuance or sale less the aggregate amount of all Investments (other than Investments which may be deemed to have been made as a result of services performed in the ordinary course of business) in such Designated Subsidiary made by the Company or a Restricted Subsidiary that are outstanding at such time (with the amount of any Investment being measured at the time such Investment was 48 made and not giving effect to any subsequent changes in value subject to Section 4.17) (such aggregate amount being hereinafter called "Designated Subsidiary Investments"); provided, however, that (A) after giving effect to such dividend or distribution or payments, the Company would be able to Incur an additional $1.00 of Indebtedness under Section 4.03(a), (B) at least 50% of the term loans under the Credit Agreement outstanding on the Closing Date (and any Indebtedness Refinancing such term loans) shall have been repaid, (C) the long-term senior unsecured debt of the Issuer shall be rated at least (x) Baa3 by Moody's and (y) BBB- by S&P, and each of Moody's and S&P shall have reaffirmed its rating of the long-term senior unsecured debt of the Issuer after having been informed of such dividend, distribution or payment and (D) no Default shall have occurred and be continuing or would occur as a result of such dividend or distribution; provided, further, that (X) such Net Cash Proceeds shall be excluded from the calculation of amounts under Section 4.04(a)(5)(C) and (Y) such dividends or distributions shall be excluded in the calculation of the amount of Restricted Payments; (16) the declaration and payment of dividends or distributions on the Company's Capital Stock or payments in respect of Deferred Compensation Plans (i) consisting of Capital Stock (other than Disqualified Stock or Preferred Stock) of a Designated Subsidiary or (ii) in the form of Publicly Traded Equity Securities received by the Company or a Restricted Subsidiary (other than a Designated Subsidiary) from the issuer of such Publicly Traded Equity Securities as consideration for the issue or sale of Capital Stock (other than Preferred Stock or Disqualified Stock) of a Designated Subsidiary; provided, however, that (A) with respect to dividends or distributions in the form of Capital Stock (other than Disqualified Stock or Preferred Stock) of a Designated Subsidiary as described in clause (i) above, such Designated Subsidiary shall have previously consummated a bona fide underwritten initial public offering of Capital Stock (other than Disqualified Stock or Preferred Stock) of the same class and series as the Capital Stock to be dividended or distributed (or into which the Capital Stock to be dividended or distributed is convertible) registered under the Securities Act, (B) the Company or a Restricted Subsidiary (other than a Designated Subsidiary) shall retain a portion of (I) in the event of a dividend or distribution in the form of Capital Stock (other than Disqualified Stock or Preferred Stock) of a Designated Subsidiary as described in clause (i) above, the Capital Stock of such Designated Subsidiary or (II) in the event of a dividend or distribution of Publicly Traded Equity Securities received as consideration for the sale of Capital Stock of a Designated Subsidiary as described in clause (ii) above, such Publicly Traded Equity Securities, in each case having a Fair Market Value at least equal to the amount of Designated Subsidiary Investments outstanding at such time, (C) after giving effect to such dividend or distribution the Company would be able to Incur an additional $1.00 of Indebtedness under Section 4.03(a), (D) at least 50% of the 49 term loans under the Credit Agreement outstanding on the Closing Date (and any Indebtedness Refinancing such term loans) shall have been repaid, (E) the long-term senior unsecured debt of the Issuer shall be rated at least (x) Baa3 by Moody's and (y) BBB- by S&P, and each of Moody's and S&P shall have reaffirmed its rating on the long-term senior unsecured debt of the Issuer after having been informed of such dividend, distribution or payment and (F) no Default shall have occurred and be continuing or would occur as a result of such dividend or distribution; provided, further, that (X) any value attributable to such Publicly Traded Equity Securities received as described in clause (ii) above shall be excluded from the calculation of amounts under Section 4.04(a)(5)(C) and (Y) such dividends or distributions shall be excluded in the calculation of the amount of Restricted Payments; and (17) other Restricted Payments in an aggregate amount not to exceed $25 million; provided, however, that such Restricted Payments shall be excluded in the calculation of the amount of Restricted Payments. SECTION 4.05. Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (1) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to the Company or any Restricted Subsidiary, (2) make any loans or advances to the Company or any Restricted Subsidiary or (3) transfer any of its property or assets to the Company or any Restricted Subsidiary, except: (A) any encumbrance or restriction pursuant to applicable law, rule, regulation, or order or an agreement in effect at or entered into on the Closing Date; (B) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, in contemplation of, or to provide all or any portion of the funds or credit support utilized to consummate the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was otherwise acquired by the Company) and outstanding on such date; (C) in the case of clause (3), any encumbrance or restriction 50 (i) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract, or (ii) contained in security agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the extent such encumbrance or restriction restricts the transfer of the property subject to such security agreements or mortgages; (D) with respect to a Restricted Subsidiary, any restriction imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; (E) any encumbrance or restriction on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; (F) customary provisions in joint venture agreements and other similar agreements entered into in the ordinary course of business; (G) any encumbrance or restriction contained in an agreement evidencing Indebtedness of a Restricted Subsidiary permitted to be Incurred subsequent to the Closing Date pursuant to Section 4.03; provided, however, that such encumbrance or restriction applies only in the event of and during the continuance of a default contained in such agreement; and (H) any encumbrances or restrictions of the type referred to in clauses (1), (2) and (3) above imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (A) through (G) above; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Board of Directors, no more restrictive with respect to such dividend and other payment restrictions than those contained in the dividend or other payment restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing. SECTION 4.06. Limitation on Sales of Assets and Capital Stock. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Disposition unless (1) the Company or such Restricted Subsidiary receives consideration (including by way of relief from, or by any other Person assuming sole responsibility for, any liabilities, contingent or otherwise) at the time of such Asset Disposition at least 51 equal to the Fair Market Value of the shares and assets subject to such Asset Disposition, (2) at least 75% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or Temporary Cash Investments and (3) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) (A) to the extent the Company elects (or is required by the terms of any Indebtedness), to prepay, repay, purchase, repurchase, redeem, retire, defease or otherwise acquire for value Senior Indebtedness of the Company or a Note Guarantor or Indebtedness (other than obligations in respect of Preferred Stock) of a Wholly Owned Subsidiary other than the Issuer or a Note Guarantor (in each case other than Indebtedness owed to the Company or an Affiliate of the Company and other than obligations in respect of Disqualified Stock) within one year after the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) to the extent the Company or such Restricted Subsidiary elects, to reinvest in Additional Assets (including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by the Company or another Restricted Subsidiary) within one year from the later of such Asset Disposition or the receipt of such Net Available Cash; (C) to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an Offer (as defined in Section 4.06(b)) to purchase Securities pursuant to and subject to the conditions set forth in Section 4.06(b); provided, however, that if the Issuer elects (or is required by the terms of any other Senior Subordinated Indebtedness), such Offer may be made ratably to purchase the Securities and other Senior Subordinated Indebtedness of the Issuer; and (D) to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), for any general corporate purpose permitted by the terms of this Indenture; provided, however that (X) in connection with any prepayment, repayment, purchase, repurchase, redemption, retirement, defeasance or other acquisition for value of Indebtedness pursuant to clause (A), (C) or (D) above, the Company or such Restricted Subsidiary shall retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid, purchased, repurchased, redeemed, retired, defeased or otherwise acquired for value and (Y) any Asset Disposition consisting of the sale of Capital Stock of a Designated Subsidiary shall not be subject to Section 4.06(a)(3). Notwithstanding the foregoing provisions of this Section 4.06, the Company and the Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with this Section 4.06(a) except to the extent that the aggregate Net Available Cash from all Asset Dispositions that is not applied in accordance with this Section 4.06(a) exceeds $15,000,000. For the purposes of this Section 4.06, the following are deemed to be cash: (A) the assumption of Indebtedness of (i) the Issuer (other than obligations in respect of Disqualified Stock of the Issuer) or (ii) the Company or any Restricted Subsidiary other than the Issuer (other than obligations in respect of Disqualified Stock and Preferred Stock of the Company or a Restricted Subsidiary that is a Note Guarantor) and the release 52 of the Issuer, the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition, (B) securities received by the Company or any Restricted Subsidiary in an Asset Disposition from the transferee with respect to which the Company or such Restricted Subsidiary shall use its reasonable best efforts to convert into cash within 90 days after the later to occur of (i) the consummation of such Asset Disposition or (ii) the expiration of any lock-up or similar restriction on the right of the Company or such Restricted Subsidiary to dispose of such securities; provided, that all the cash received upon such conversion shall be Net Available Cash for the purposes of, and applied in accordance with, this Section 4.06, (C) any assets related to a Permitted Business received in exchange for assets of comparable Fair Market Value in the good faith determination of the Board of Directors of the Company, and (D) Publicly Traded Equity Securities that are received in exchange for a sale of Capital Stock (other than Preferred Stock or Disqualified Stock) of a Designated Subsidiary. (b) In the event of an Asset Disposition that requires the purchase of Securities pursuant to Section 4.06(a)(3)(C), the Issuer shall be required (i) to purchase Securities tendered pursuant to an offer by the Issuer for the Securities (the "Offer") at a purchase price of 100% of their principal amount plus accrued and unpaid interest and liquidated damages thereon, if any, to the date of purchase (subject to the right of Holders of record on the relevant date to receive interest due on the relevant interest payment date) in accordance with the procedures (including prorating in the event of oversubscription), set forth in Section 4.06(c) and (ii) to purchase other Senior Subordinated Indebtedness of the Issuer on the terms and to the extent contemplated thereby (provided that in no event shall the Issuer offer to purchase such other Senior Subordinated Indebtedness of the Issuer at a purchase price in excess of 100% of its principal amount, plus accrued and unpaid interest thereon). If the aggregate purchase price of Securities (and other Senior Subordinated Indebtedness) tendered pursuant to the Offer is less than the Net Available Cash allotted to the purchase of the Securities (and other Senior Subordinated Indebtedness), the Issuer shall apply the remaining Net Available Cash in accordance with Section 4.06(a)(3)(D). The Issuer shall not be required to make an Offer for Securities (and other Senior Subordinated Indebtedness) pursuant to this Section 4.06 if the Net Available Cash available therefor (after application of the proceeds as provided in clauses (A) and (B) of Section 4.06(a)(3)) is less than $15 million for any particular Asset Disposition (which lesser amount shall be carried forward for purposes of determining whether an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). (c) (i) Promptly, and in any event within 10 days after the Issuer becomes obligated to make an Offer, the Issuer shall deliver to the Trustee and send, by first-class mail to each Holder, a written notice stating that the Holder may elect to have his Securities purchased by the Issuer either in whole or in part (subject to prorating as hereinafter described in the event the Offer is oversubscribed) in integral multiples of $1,000 of principal amount, at the applicable purchase price. The notice shall specify a 53 purchase date not less than 30 days nor more than 60 days after the date of such notice (the "Purchase Date") and shall contain such information concerning the business of the Company which the Issuer in good faith believes will enable such Holders to make an informed decision (which at a minimum shall include (1) the most recently filed Annual Report on Form 10-K (including audited consolidated financial statements) of the Company, the most recent subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form 8-K of the Company filed subsequent to such Quarterly Report, other than Current Reports describing Asset Dispositions otherwise described in the offering materials (or corresponding successor reports), (2) a description of material developments in the Company's business subsequent to the date of the latest of such reports, and (3) if material, appropriate pro forma financial information) and all instructions and materials necessary to tender Securities pursuant to the Offer, together with the address referred to in Section 4.06(c)(iii). (ii) Not later than the date upon which written notice of an Offer is delivered to the Trustee as provided above, the Issuer shall deliver to the Trustee an Officers' Certificate as to (1) the amount of the Offer (the "Offer Amount"), (2) the allocation of the Net Available Cash from the Asset Dispositions pursuant to which such Offer is being made and (3) the compliance of such allocation with the provisions of Section 4.06(a). On such date, the Issuer shall also irrevocably deposit with the Trustee or with a paying agent (or, if the Issuer is acting as its own paying agent, segregate and hold in trust) an amount equal to the Offer Amount to be invested in Temporary Cash Investments and to be held for payment in accordance with the provisions of this Section. Upon the expiration of the period for which the Offer remains open (the "Offer Period"), the Issuer shall deliver to the Trustee for cancelation the Securities or portions thereof that have been properly tendered to and are to be accepted by the Issuer. The Trustee (or the Paying Agent, if not the Trustee) shall, on the date of purchase, mail or deliver payment to each tendering Holder in the amount of the purchase price. In the event that the Offer Amount delivered by the Issuer to the Trustee is greater than the purchase price of the Securities (and other Senior Subordinated Indebtedness) tendered, the Trustee shall deliver the excess to the Issuer immediately after the expiration of the Offer Period for application in accordance with this Section 4.06. (iii) Holders electing to have a Security purchased shall be required to surrender the Security, with an appropriate form duly completed, to the Issuer at the address specified in the notice at least three Business Days prior to the Purchase Date. Holders shall be entitled to withdraw their election if the Trustee or the Issuer receives not later than one Business Day prior to the Purchase Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered by the Holder for purchase and a statement that such Holder is withdrawing his election to have such Security purchased. If at the expiration of the Offer Period the aggregate principal amount of Securities and any other Senior Subordinated Indebtedness included in the Offer surrendered by holders thereof exceeds the Offer Amount, the Issuer 54 shall select the Securities and other Senior Subordinated Indebtedness to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Issuer so that only Securities and other Senior Subordinated Indebtedness in denominations of $1,000, or integral multiples thereof, shall be purchased). Holders whose Securities are purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. (iv) At the time the Issuer delivers Securities to the Trustee which are to be accepted for purchase, the Issuer shall also deliver an Officers' Certificate stating that such Securities are to be accepted by the Issuer pursuant to and in accordance with the terms of this Section 4.06. A Security shall be deemed to have been accepted for purchase at the time the Trustee, directly or through an agent, mails or delivers payment therefor to the surrendering Holder. (v) The Issuer shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section, the Issuer shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof. SECTION 4.07. Limitation on Transactions with Affiliates. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into or conduct any transaction or series of related transactions (including, the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") unless such transaction is on terms (1) that are no less materially favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate, (2) that, in the event such Affiliate Transaction involves an aggregate amount in excess of $25 million, (A) are set forth in writing and (B) have been approved by a majority of the members of the Board of Directors having no personal stake in such Affiliate Transaction and (3) that, in the event such Affiliate Transaction involves an amount in excess of $50 million, have been determined by a nationally recognized appraisal or investment banking firm to be fair, from a financial standpoint, to the Company and its Restricted Subsidiaries. (b) The provisions of Section 4.07(a) shall not prohibit (1) any Restricted Payment permitted to be paid pursuant to Section 4.04, (2) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors in good faith, (3) the grant of stock options or similar rights to 55 employees and directors of the Company or any of its Restricted Subsidiaries pursuant to plans approved by the Board of Directors in good faith, (4) loans or advances to employees, directors or consultants in the ordinary course of business, which are approved by the Board of Directors in good faith in an amount not to exceed $10 million outstanding at any one time, (5) the payment of reasonable and customary fees to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company and its Subsidiaries, (6) any transaction between the Company and a Restricted Subsidiary or between Restricted Subsidiaries, (7) the existence of, or the performance by the Company or any of its Restricted Subsidiaries of its obligations under the terms of, any stockholders agreement (including any registration rights agreement or purchase agreement related thereto) to which it is a party as of the Closing Date on the terms described in the Offering Memorandum and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by the Company or any of its Restricted Subsidiaries of its obligations under, any future amendment to such existing agreement or under any similar agreement entered into after the Closing Date shall only be permitted by this clause (7) to the extent that the terms of any such amendment or new agreement are not disadvantageous to the Holders of the Securities in any material respect, (8) the issuance or sale of Capital Stock (other than Disqualified Stock) of the Company, Intermediate Holdings, HDD Holdings or the Issuer to any Permitted Holder, (9) the payment by the Company or any of its Restricted Subsidiaries of (i) annual management, consulting, monitoring and advisory fees and any related and reasonable out-of-pocket expenses to any of the Sponsors in an aggregate amount, for all the Sponsors, not to exceed $5 million in any calendar year and (ii) fees to any of the Sponsors paid for any financial advisory, financing, underwriting or placement services including, without limitation, in connection with any acquisition transaction or divestiture entered into by the Company or any Restricted Subsidiary; provided, however, that the aggregate amount of fees paid to all of the Sponsors under this clause (ii) in respect of any transaction shall not exceed the lesser of (A) 25% of the total amount of such transaction and (B) the greater of 2% of the total amount of such transaction and $2 million, (10) transactions with customers, clients, suppliers or purchasers or sellers of goods or services in each case in the ordinary course of business and otherwise in compliance with the terms of this Indenture which are fair to the Company or its Restricted Subsidiaries, in the good faith determination of the Board of Directors or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party, (11) any agreement as in effect as of the Closing Date on the terms described in the Offering Memorandum or any amendment thereto (so long as any such amendment is not disadvantageous to the Holders of the Securities in any material respect) or any transaction contemplated thereby, (12) the payment of all fees and expenses related to the Transactions, including fees to each of the Sponsors, on the terms described in the Offering Memorandum, or (13) any licensing agreement or similar agreement entered into in the ordinary course of business relating to the use of technology or intellectual property between any of the Company and its Subsidiaries, on the one hand, and any company or other Person which is an Affiliate 56 of the Company or its Subsidiaries by virtue of the fact that a Sponsor has made an Investment in or owns any Capital Stock of such company or other Person which are fair to the Company or its Restricted Subsidiaries, in the reasonable determination of the Board of Directors or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. SECTION 4.08. Change of Control. (a) Upon the occurrence of any, or if applicable, each Change of Control, each Holder shall have the right to require that the Issuer purchase all or any part of such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest and liquidated damages, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest and liquidated damages, if any, due on the relevant interest payment date), in accordance with the terms contemplated in Section 4.08(b); provided, however, that notwithstanding the occurrence of a Change of Control, the Issuer shall not be obligated to purchase the Securities pursuant to this Section 4.08 in the event that it has exercised its right to redeem all the Securities under paragraph 5 of the Securities. In the event that at the time of such Change of Control the terms of the Bank Indebtedness restrict or prohibit the repurchase of Securities pursuant to this Section 4.08, then prior to the mailing of the notice to Holders provided for in Section 4.08(b) below but in any event within 30 days following any Change of Control, the Issuer shall (i) repay in full all Bank Indebtedness or, if doing so will allow the purchase of Securities, offer to repay in full all Bank Indebtedness and repay the Bank Indebtedness of each lender who has accepted such offer or (ii) obtain the requisite consent under the agreements governing the Bank Indebtedness to permit the repurchase of the Securities as provided for in Section 4.08(b). If the Issuer does not repay Bank Indebtedness in accordance with clause (i) of the immediately preceding sentence or obtain the requisite consents in accordance with clause (ii) of the immediately preceding sentence, then the Issuer will remain prohibited from repurchasing Securities pursuant to this Section 4.08, and the Issuer's failure to purchase Securities shall constitute an Event of Default under Section 6.01(d). (b) Within 30 days following any Change of Control (except as provided in the proviso to the first sentence of Section 4.08(a)), the Issuer shall mail a notice to each Holder with a copy to the Trustee (the "Change of Control Offer") stating: (i) that a Change of Control has occurred and that such Holder has the right to require the Issuer to purchase all or a portion of such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest and liquidated damages, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest and liquidated damages, if any, on the relevant interest payment date); 57 (ii) the circumstances and relevant facts and financial information regarding such Change of Control; (iii) the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (iv) the instructions determined by the Issuer, consistent with this Section, that a Holder must follow in order to have its Securities purchased. (c) Holders electing to have a Security purchased shall be required to surrender the Security, with an appropriate form duly completed, to the Issuer at the address specified in the notice at least three Business Days prior to the purchase date. Holders shall be entitled to withdraw their election if the Trustee or the Issuer receives not later than one Business Day prior to the purchase date a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. Holders whose Securities are purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. (d) On the purchase date, all Securities purchased by the Issuer under this Section shall be delivered to the Trustee for cancelation, and the Issuer shall pay the purchase price plus accrued and unpaid interest and liquidated damages, if any, to the Holders entitled thereto. (e) Notwithstanding the foregoing provisions of this Section, the Issuer shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in Section 4.08(b) applicable to a Change of Control Offer made by the Issuer and purchases all Securities validly tendered and not withdrawn under such Change of Control Offer. (f) At the time the Issuer delivers Securities to the Trustee which are to be accepted for purchase, the Issuer shall also deliver an Officers' Certificate stating that such Securities are to be accepted by the Issuer pursuant to and in accordance with the terms of this Section 4.08. A Security shall be deemed to have been accepted for purchase at the time the Trustee, directly or through an agent, mails or delivers payment therefor to the surrendering Holder. (g) The Issuer shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions 58 of this Section, the Issuer shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof. SECTION 4.09. Compliance Certificate. The Issuer shall deliver to the Trustee within 120 days after the end of each fiscal year of the Issuer an Officers' Certificate stating that in the course of the performance by the signers of their duties as Officers of the Issuer they would normally have knowledge of any Default and whether or not the signers know of any Default that occurred during such period. If they do, the certificate shall describe the Default, its status and what action the Issuer is taking or proposes to take with respect thereto. The Issuer also shall comply with Section 314(a)(4) of the TIA. SECTION 4.10. Further Instruments and Acts. Upon request of the Trustee, the Issuer shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. SECTION 4.11. Future Note Guarantors. The Company shall cause (i) at any time that any Bank Indebtedness is outstanding, each Subsidiary of the Company (other than the Issuer) that Incurs or enters into a Guarantee of any Bank Indebtedness and (ii) at any time that no Bank Indebtedness is outstanding, each Restricted Subsidiary of the Company (other than the Issuer) that Incurs any Indebtedness, to become a Note Guarantor, and, if applicable, execute and deliver to the Trustee a supplemental indenture substantially in the form of Exhibit C pursuant to which such Restricted Subsidiary will Guarantee payment of the Securities. SECTION 4.12. Additional Amounts. The Issuer, which shall include any Successor Company (as such term is defined in Section 5.01(a)(i)), shall make all its payments under or with respect to the Securities and each Note Guarantor, which shall include any Successor Guarantor (as such term is defined in Section 5.01(b)(i)), shall make all payments under or with respect to the Note Guarantees free and clear of and without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment or other governmental charge (including penalties, interest and other liabilities related thereto) (hereinafter "Taxes") imposed or levied by or on behalf of the government of the Cayman Islands or any political subdivision or any authority or agency therein or thereof having power to tax, or within any other jurisdiction in which it is organized or is otherwise resident for tax purposes or any jurisdiction from or through which payment is made (each a "Relevant Taxing Jurisdiction"), unless the Issuer or any Note Guarantor, as the case may be, is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. If the Issuer or any Note Guarantor is so required to withhold or deduct any amount for or on account of Taxes imposed by a Relevant Taxing Jurisdiction from any payment made under or with respect to the 59 Securities or the Note Guarantees, the Issuer or the applicable Note Guarantor shall pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each Holder (including Additional Amounts) after such withholding or deduction shall not be less than the amount such Holder would have received if such Taxes had not been withheld or deducted; provided, however, that the foregoing obligation to pay Additional Amounts shall not apply to (1) any Taxes that would not have been so imposed but for the existence of any present or former connection between the relevant Holder (or between a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of power over the relevant Holder, if the relevant Holder is an estate, nominee, trust or corporation) and the Relevant Taxing Jurisdiction (other than the mere receipt of such payment or the ownership or holding outside of the Cayman Islands of such Securities but including, without limitation, such relevant Holder (or such fiduciary, settlor, beneficiary, member or shareholder or possessor) being or having been a citizen or resident thereof or being or having been present or engaged in a trade or business therein or having or having had a permanent establishment therein); or (2) any estate, inheritance, gift, sales, excise, transfer, personal property tax or similar tax, assessment or governmental charge; (3) any tax, assessment or other governmental charge that is imposed or withheld by reason of the failure by the Holder or the beneficial owner of the Securities to comply with a request of the Issuer or any Note Guarantor, as the case may be, addressed to the Holder (x) to provide information, documents or other evidence concerning the nationality, residence or identity of the Holder or such beneficial owner or (y) to make and deliver any declaration or other similar claim (other than a claim for refund of a tax, assessment or other governmental charge withheld by the Issuer) or satisfy any information or reporting requirements, which, in the case of (x) or (y), is required or imposed by a statute, treaty, regulation or administrative practice of the taxing jurisdiction as a precondition to exemption from all or part of such tax, assessment or other governmental charge or (4) any tax, assessment or other governmental charge that is payable otherwise than by withholding from payment of principal of, premium, if any, or interest on such Securities; nor shall the Issuer or any Note Guarantor, as applicable, be required to pay Additional Amounts (a) if the payment could have been made without such deduction or withholding if the beneficiary of the payment had presented the Securities for payment within 30 days after the date on which such payment or such Securities became due and payable or the date on which payment thereof is duly provided for, whichever is later (except to the extent that the holder would have been entitled to Additional Amounts had the Securities been presented on the last day of such 30-day period), (b) if, at the election of the relevant Holder, the payment of principal of (or premium, if any, on) or interest on such Securities could have been made through another paying agent without such deduction or withholding, or (c) with respect to any payment of principal of (or premium, if any, on) or interest on such Securities to any Holder who is a fiduciary, partnership or limited liability company that is treated as a partnership for U.S. federal income tax purposes or any person other than the sole beneficial owner of such payment, to the extent that a beneficiary or settlor with respect to such fiduciary, a member of such partnership or limited liability company that is treated as a partnership 60 for U.S. federal income tax purposes or the beneficial owner of such payment would not have been entitled to the Additional Amounts had such beneficiary, settlor, member or beneficial owner been the actual holder of such Securities. (b) The Issuer shall provide the Trustee with official receipts evidencing the payment of the Taxes with respect to which Additional Amounts are paid. (c) Whenever in this Indenture or in the Securities there is mentioned, in any context: (1) the payment of principal; (2) purchase prices in connection with a purchase of Securities; (3) interest; or (4) any other amount payable on or with respect to any of the Securities, such reference shall be deemed to include payment of Additional Amounts as required under this Section 4.12 to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. (d) The Issuer shall pay any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies and other duties (including interest and penalties) that arise in any jurisdiction from the execution, delivery, enforcement or registration of the Securities, this Indenture or any other document or instrument in relation thereof, or the receipt of any payments with respect to the Securities, excluding such taxes, charges or similar levies imposed by any jurisdiction outside of the Cayman Islands or the United States (or any political subdivision or taxing authority of either jurisdiction), the jurisdiction of incorporation of any successor of the Issuer, any jurisdiction through which payment is made or in which a paying agent is located or any jurisdiction in which the Issuer is organized or engaged in business for tax purposes, and the Issuer will agree to indemnify the Holders for any such taxes paid by such Holders. (e) The obligations arising under this Section 4.12 shall survive any termination, defeasance or discharge of this Indenture and will apply mutatis mutandis to any jurisdiction in which any successor Person to the Issuer or any Note Guarantor is organized or any political subdivision or taxing authority or agency thereof or therein. SECTION 4.13. Guarantees of Additional Securities. Notwithstanding any other provisions of this Indenture, the Issuer shall not issue any Additional Securities unless at the time of, and after giving effect to, the issuance of such Additional Securities, the Note Guarantee of each Note Guarantor shall be effective with respect to the full amount of the Securities outstanding at such time, and all administrative and regulatory approvals shall have been obtained with respect to such Note Guarantees. SECTION 4.14. Rigid Disc Drive Operations. The Company will not permit any Designated Subsidiary to own any material assets used in the rigid disc drive operations of the Company and its Subsidiaries. 61 SECTION 4.15. Amendment of Deferred Compensation Plans. The Company will not, and will not permit any Restricted Subsidiary to, (i) amend, modify or waive any of its rights under any Deferred Compensation Plan, except to the extent that such amendments, modifications or waivers, individually and in the aggregate, (1) would not reasonably be expected to be materially adverse to the Holders and (2) would not require the Company or any of its Subsidiaries to make any distributions or other payments (whether in cash, securities or other property or any combination thereof) that would be in violation of the covenants set forth in this Indenture, or (ii) adopt any Deferred Compensation Plan if the terms (including subordination terms) of such Deferred Compensation Plan that are material to the Holders are in any way less favorable to the Holders than the terms of the Deferred Compensation Plans in effect on the Closing Date. Notwithstanding clause (i) above, the Company will not, and will not permit any Restricted Subsidiary to, amend, modify or waive any of the subordination terms of any Deferred Compensation Plan in effect on the Closing Date. SECTION 4.16. Limitation on Lines of Business. The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any business, other than a Permitted Business. SECTION 4.17. Designated Subsidiary Investments. For the purposes of this Indenture, (1) the aggregate amount of Designated Subsidiary Investments on the Closing Date in each of Seagate Technology SAN Holdings and its Subsidiaries, Seagate Removable Storage Solutions Holdings and its Subsidiaries and Seagate Software Information Management Group Holdings, Inc. and its Subsidiaries shall be deemed to be $189.4 million, $31.5 million and $71.5 million, respectively and (2) following the Closing Date the aggregate amount of Designated Subsidiary Investments in each of such entities shall be based on such amounts outstanding on the Closing Date as set forth in clause (1) as adjusted to reflect further Investments (other than Investments which may be deemed to have been made as a result of services performed in the ordinary course of business) made and reductions in such Investments resulting from repurchases, repayments or redemptions of, or other returns of capital from, such Investments, in each case after the Closing Date. The Company shall provide to the Trustee and the Holders and prospective Holders (upon request) a statement of the amount of Designated Subsidiary Investments in each Designated Subsidiary as of the end of each fiscal quarter within 45 days of the end of such fiscal quarter. SECTION 4.18. Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, sell or otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any shares of its Capital Stock except: (1) to the Company or a Wholly Owned Subsidiary; 62 (2) if, immediately after giving effect to such issuance, sale or other disposition, neither the Company nor any of its Subsidiaries own any Capital Stock of such Restricted Subsidiary; provided, however, that if such Restricted Subsidiary is a Designated Subsidiary and if any of the proceeds of such issue, sale or other disposition are received by a Person other than the Company or a Restricted Subsidiary (other than a Designated Subsidiary), such Person shall dividend or distribute cash to the Company or a Restricted Subsidiary (other than a Designated Subsidiary) in an amount at least equal to the amount of (x) the Designated Subsidiary Investments with respect to such Designated Subsidiary or (y) if the proceeds of such issue or sale received by such Person are less than the amount of such Designated Subsidiary Investments in such Designated Subsidiary, such proceeds; provided, further, that such dividend or distribution shall be excluded from the calculation of amounts under Section 4.04(a)(5)(C); or (3) in compliance with the provisions of Section 4.06 and immediately after giving effect to such issuance, sale or other disposition, such Restricted Subsidiary either (A) continues to be a Restricted Subsidiary or (B) either (i) if such Restricted Subsidiary is not a Designated Subsidiary and would no longer be a Restricted Subsidiary, then the Investment of the Company in such Person (after giving effect to such issuance or sale) would have been permitted to be made in accordance with Section 4.04 as if made on the date of such issuance or sale and such Investment will be deemed to be an Investment for the purposes of Section 4.04 or (ii) if such Restricted Subsidiary is a Designated Subsidiary and would no longer be a Restricted Subsidiary, then if any of the proceeds of such issuance, sale, or other disposition are received by a Person other than the Company or a Restricted Subsidiary (other than a Designated Subsidiary), such Person shall dividend or distribute cash to the Company or a Restricted Subsidiary (other than a Designated Subsidiary) at least equal to the amount of (x) the Designated Subsidiary Investments with respect to such Designated Subsidiary or (y) if the proceeds of such issue or sale received by such Person are less than the amount of such Designated Subsidiary Investments in such Designated Subsidiary, such proceeds; provided, that (X) such dividend or distribution shall be excluded from the calculation of amounts under Section 4.04(a)(5)(C) and (Y) the remaining Investment of the 63 Company and the Restricted Subsidiaries in such Designated Subsidiary shall not be subject to Section 4.04. (b) The proceeds of any sale of such Capital Stock (other than a sale of Capital Stock of Intermediate Holdings, HDD Holdings or a Designated Subsidiary) permitted hereby will be treated as Net Available Cash from an Asset Disposition and must be applied in accordance with the terms of Section 4.06. ARTICLE 5 Successor Company SECTION 5.01. When Issuer May Merge or Transfer Assets. (a) The Issuer shall not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person, unless: (i) the resulting, surviving or transferee Person (the "Successor Company") shall be a corporation, partnership or limited liability company organized and existing under the laws of the Cayman Islands or the laws of any political subdivision thereof or the laws of the United States of America, any State thereof or the District of Columbia and (A) the Successor Company (if not the Issuer) shall expressly assume, by a supplemental indenture hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of the Issuer under the Securities and this Indenture and (B) if the Successor Company is a partnership or limited liability company, the Successor Company and a Subsidiary of the Successor Company which is a corporation organized and existing under the laws of the Cayman Islands or the laws of any political subdivision thereof or the laws of the United States of America, any State thereof or the District of Columbia shall execute and deliver to the Trustee, in form reasonably satisfactory to the Trustee, a supplemental indenture hereto pursuant to which each shall jointly and severally assume all of the obligations of the Issuer under the Securities and this Indenture; (ii) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company, the Company or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Company, the Company or such Restricted Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction, either (A) the Company would be able to Incur an additional $1.00 of Indebtedness pursuant to 64 Section 4.03(a) or (B) the Consolidated Coverage Ratio for the Successor Company would be (i) greater than the Consolidated Coverage Ratio for the Company immediately prior to the such merger, conveyance or transfer and (ii) at least 4.5:1; and (iv) the Issuer shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture. The Successor Company shall succeed to, and be substituted for, and may exercise every right and power of, the Issuer under this Indenture, but the predecessor Issuer in the case of a conveyance, transfer or lease of all or substantially all its assets shall not be released from the obligation to pay the principal of and interest on the Securities. (b) Each Note Guarantor shall not, and the Company shall not permit any Note Guarantor to, consolidate with or merge with or into, or convey, transfer or lease all or substantially all of its assets to any Person unless: (i) except in the case of a Note Guarantor that has been disposed of in its entirety to another Person, the resulting, surviving or transferee Person (the "Successor Guarantor") will be a corporation, partnership or limited liability company organized and existing under the laws of the jurisdiction under which such Note Guarantor was organized and existing or the laws of the United States of America, any State thereof or the District of Columbia, and such Person (if not such Note Guarantor) shall expressly assume, by a supplemental indenture hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of such Note Guarantor under its Note Guarantee; (ii) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Guarantor or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Guarantor or any Restricted Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; and (iii) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture. (c) Notwithstanding the foregoing and subject to the following proviso: (i) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Issuer or any Note Guarantor and (ii) the Company, Intermediate Holdings, HDD Holdings or the Issuer may merge with an Affiliate incorporated or organized solely for the purpose of reincorporating the Company, Intermediate Holdings, HDD Holdings or the Issuer, as the case may be, in another jurisdiction to realize tax or other benefits; provided, however, that in the case of any merger or consolidation in which the Issuer is a party if the resulting or surviving Person is a partnership or limited liability company, such Person and a Subsidiary of such Person 65 which is a corporation organized and existing under the laws of the Cayman Islands or the laws of any political subdivision thereof or the laws of the United States of America, any State thereof or the District of Columbia shall execute and deliver to the Trustee, in form reasonably satisfactory to the Trustee, a supplemental indenture pursuant to which each shall jointly and severally assume all of the obligations of the Issuer under the Securities and this Indenture. ARTICLE 6 Defaults and Remedies SECTION 6.01. Events of Default. An "Event of Default" occurs if: (a) the Issuer defaults in any payment of interest on any Security when the same becomes due and payable or in any payment of liquidated damages, whether or not such payment shall be prohibited by Article 10, and such default continues for a period of 30 days; (b) the Issuer (i) defaults in the payment of the principal of any Security when the same becomes due and payable at its Stated Maturity, upon required redemption or repurchase, upon declaration or otherwise, whether or not such payment shall be prohibited by Article 10 or (ii) fails to redeem or purchase Securities when required pursuant to this Indenture or the Securities, whether or not such redemption or purchase shall be prohibited by Article 10; (c) the Company or any Subsidiary fails to comply with Section 5.01; (d) the Company or any Subsidiary fails to comply with Section 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.11, 4.13, 4.14, 4.15, 4.16, or 4.17 (other than a failure to purchase Securities when required under Section 4.06 or 4.08) and such failure continues for 45 days after the notice specified below; (e) the Company or any Subsidiary fails to comply with any of its agreements in the Securities or this Indenture (other than those referred to in (a), (b), (c) or (d) above) and such failure continues for 60 days after the notice specified below; (f) Indebtedness of the Company, the Issuer or any Significant Subsidiary is not paid within any applicable grace period after final maturity or the acceleration by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $50 million or its foreign 66 currency equivalent at the time and such failure continues for 30 days after receipt of the notice specified below; (g) the Company, Intermediate Holdings, HDD Holdings, the Issuer or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case; (ii) consents to the entry of an order for relief against it in an involuntary case; (iii) consents to the appointment of a Custodian of it or for any substantial part of its property; or (iv) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; (h) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company, Intermediate Holdings, HDD Holdings, the Issuer or any Significant Subsidiary in an involuntary case; (ii) appoints a Custodian of the Company, Intermediate Holdings, HDD Holdings, the Issuer or any Significant Subsidiary or for any substantial part of its property; or (iii) orders the winding up or liquidation of the Company, Intermediate Holdings, HDD Holdings, the Issuer or any Significant Subsidiary; or any similar relief is granted under any foreign laws and the order or decree remains unstayed and in effect for 60 days; (i) any judgment or decree for the payment of money (other than judgments which are covered by enforceable insurance policies issued by reputable and creditworthy companies) in excess of $50 million or its foreign currency equivalent against the Company, the Issuer or any Significant Subsidiary and either (i) an enforcement proceeding has been commenced by any creditor upon such judgment or decree or (ii) there is a period of 60 days following the entry of such judgment or decree during which such judgment or decree is not discharged, waived or the execution thereof stayed; 67 (j) any Note Guarantee ceases to be in full force and effect (except as contemplated by the terms thereof) or any Note Guarantor or Person acting by or on behalf of such Note Guarantor denies or disaffirms its obligations under this Indenture or any Note Guarantee and such Default continues for 10 days after receipt of the notice specified below; (k) the Company or any Subsidiary in any proceeding before, or any filing with, any court, tribunal or governmental authority: (i) challenges the subordination provisions of any Deferred Compensation Plan; (ii) asserts that the subordination provisions of any Deferred Compensation Plan are invalid or unenforceable; or (iii) asserts that the obligations of the Issuer and the Note Guarantors in respect of the Securities and the Note Guarantees are not senior obligations under the subordination provisions of any Deferred Compensation Plan; or (l) any court, tribunal or government authority of competent jurisdiction: (i) judges the subordination provisions of any Deferred Compensation Plan to be invalid or unenforceable; or (ii) judges that the obligations of the Issuer and the Note Guarantors under the Securities and the Note Guarantees are not senior obligations under the subordination provisions of any Deferred Compensation Plan. The foregoing shall constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, United States Code, or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. A Default under clause (d), (e), (f) or (j) above is not an Event of Default until the Trustee notifies the Issuer or the Holders of at least 25% in principal amount of the outstanding Securities notify the Issuer and the Trustee of the Default and the 68 Company or the Subsidiary, as applicable, does not cure such Default within the time specified in clauses (d), (e), (f) or (j) above after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". The Issuer shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of any event which is, or with the giving of notice or the lapse of time or both would become, an Event of Default, its status and what action the Issuer is taking or proposes to take with respect thereto. SECTION 6.02. Acceleration. If an Event of Default (other than an Event of Default specified in Section 6.01(g) or (h) with respect to the Company, Intermediate Holdings, HDD Holdings or the Issuer) occurs and is continuing, the Trustee by notice to the Issuer, or the Holders of at least 25% in principal amount of the outstanding Securities by notice to the Issuer, may declare the principal of and accrued but unpaid interest on all the Securities to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default specified in Section 6.01(g) or (h) with respect to the Company, Intermediate Holdings, HDD Holdings or the Issuer occurs, the principal of and interest on all the Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. The Holders of a majority in principal amount of the Securities by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in principal amount of the Securities by notice to the Trustee may waive an existing Default or compliance with any provision of this Indenture and its consequences except (a) a Default in the payment of the principal of or interest on a Security, (b) a Default arising 69 from the failure to redeem or purchase any Security when required pursuant to the terms of this Indenture or (c) a Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each Holder affected. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION 6.05. Control by Majority. The Holders of a majority in principal amount of the Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with applicable law or this Indenture or, subject to Section 7.01, that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action under this Indenture, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. SECTION 6.06. Limitation on Suits. (a) Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no Holder may pursue any remedy with respect to this Indenture or the Securities unless: (i) the Holder gives to the Trustee written notice stating that an Event of Default is continuing; (ii) the Holders of at least 25% in principal amount of the Securities make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer to the Trustee security or indemnity reasonably satisfactory to it against any loss, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (v) the Holders of a majority in principal amount of the Securities do not give the Trustee a direction inconsistent with the request during such 60-day period. (b) A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of 70 principal of and liquidated damages and interest on the Securities held by such Holder, on or after the respective due dates expressed or provided for in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Issuer or any other obligor on the Securities for the whole amount then due and owing (together with interest on overdue principal and (to the extent lawful) on any unpaid interest at the rate provided for in the Securities) and the amounts provided for in Section 7.07. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Holders allowed in any judicial proceedings relative to the Company, the Issuer, any Note Guarantor or other Subsidiary, their creditors or their property and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.07. SECTION 6.10. Priorities. If the Trustee collects any money or property pursuant to this Article 6, it shall pay out the money or property in the following order: FIRST: to the Trustee for amounts due under Section 7.07; SECOND: to holders of Senior Indebtedness of the Issuer to the extent required by Article 10 and to holders of Senior Indebtedness of the Note Guarantors to the extent required by Article 12; THIRD: to Holders for amounts due and unpaid on the Securities for principal and interest, ratably, and any liquidated damages without preference or priority of any kind, according to the amounts due and payable on the Securities for principal, interest and any liquidated damages, respectively; and FOURTH: to the Issuer or any other obligor on the Securities. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section. At least 15 days before such record date, the Trustee 71 shall mail to each Holder and the Issuer a notice that states the record date, the payment date and amount to be paid. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in principal amount of the Securities. SECTION 6.12. Waiver of Stay or Extension Laws. Neither the Issuer nor any Note Guarantor (to the extent it may lawfully do so) shall at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Issuer and each Note Guarantor (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 7 Trustee SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith or gross negligence on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee 72 and conforming to the requirements of this Indenture. In case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05; and (iv) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Issuer. (f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA. SECTION 7.02. Rights of Trustee. (a) The Trustee may conclusively rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. 73 (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided, however, that the Trustee's conduct does not constitute wilful misconduct or negligence. (e) The Trustee may consult with counsel of its selection, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other paper or document unless requested in writing to do so by the Holders of not less than a majority in principal amount of the Securities at the time outstanding, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Issuer and the Note Guarantors, personally or by agent or attorney. (g) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Trust Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture. (h) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each duly authorized agent, custodian and other Person employed to act hereunder and acting within the limits of such person's actual authority. (i) The Trustee may request that the Issuer deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be 74 signed by any person authorized to sign an Officers' Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded. SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Issuer or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent or Registrar may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture, any Note Guarantee or the Securities, it shall not be accountable for the Issuer's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Issuer or any Note Guarantor in this Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee's certificate of authentication. The Trustee shall not be charged with knowledge of any Default or Event of Default under Sections 6.01(c), (d), (e), (f), (i), (j), (k) or (l) or of the identity of any Significant Subsidiary unless either (a) a Trust Officer shall have actual knowledge thereof or (b) the Trustee shall have received notice thereof in accordance with Section 13.02 hereof from the Issuer, any Note Guarantor or any Holder. SECTION 7.05. Notice of Defaults. If a Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Holder notice of the Default within the earlier of 90 days after it occurs or 30 days after it is actually known to a Trust Officer. Except in the case of a Default in payment of principal of or interest on any Security (including payments pursuant to the mandatory redemption provisions of such Security, if any), the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of the Holders. SECTION 7.06. Reports by Trustee to Holders. As promptly as practicable after each November 15 beginning with the November 15 following the date of this Indenture, and in any event prior to January 15 in each year, the Trustee shall mail to each Holder a brief report dated as of such November 15 that complies with Section 313(a) of the TIA if and to the extent required thereby. The Trustee shall also comply with Section 313(b) of the TIA. A copy of each report at the time of its mailing to Holders shall be filed with the SEC and each stock exchange (if any) on which the Securities are listed. The Issuer agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. 75 SECTION 7.07. Compensation and Indemnity. The Issuer shall pay to the Trustee from time to time reasonable compensation for its services as shall be agreed to in writing from time to time by the Issuer and the Trustee. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Issuer shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. The Issuer and each Note Guarantor, jointly and severally shall indemnify each of the Trustee and any predecessor Trustee against any and all loss, liability or expense (including reasonable attorneys' fees and expenses) incurred by or in connection with the acceptance and administration of this trust and the performance of its duties hereunder. The Trustee shall notify the Issuer of any claim for which it may seek indemnity promptly upon obtaining actual knowledge thereof; provided, however, that any failure so to notify the Issuer shall not relieve the Issuer or any Note Guarantor of its indemnity obligations hereunder. The Issuer shall defend the claim and the indemnified party shall provide reasonable cooperation at the Issuer's expense in the defense. Such indemnified parties may have separate counsel and the Issuer and the Note Guarantors, as applicable shall pay the fees and expenses of such counsel; provided, however, that the Issuer shall not be required to pay such fees and expenses if it assumes such indemnified parties' defense and, in such indemnified parties' reasonable judgment, there is no conflict of interest between the Issuer and the Note Guarantors, as applicable, and such parties in connection with such defense. The Issuer need not reimburse any expense or indemnify against any loss, liability or expense incurred by an indemnified party through such party's own wilful misconduct, negligence or bad faith. To secure the Issuer's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest and liquidated damages, if any, on particular Securities. The Issuer's payment obligations pursuant to this Section shall survive the satisfaction or discharge of this Indenture, any rejection or termination of this Indenture under any bankruptcy law or the resignation or removal of the Trustee. Without prejudice to any other rights available to the Trustee under applicable law, when the Trustee incurs expenses after the occurrence of a Default specified in Section 6.01(g) or (h) with respect to the Issuer, the expenses are intended to constitute expenses of administration under the Bankruptcy Law. SECTION 7.08. Replacement of Trustee. (a) The Trustee may resign at any time by so notifying the Issuer. The Holders of a majority in principal amount of the 76 Securities may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee. The Issuer shall remove the Trustee if: (i) the Trustee fails to comply with Section 7.10; (ii) the Trustee is adjudged bankrupt or insolvent; (iii) a receiver or other public officer takes charge of the Trustee or its property; or (iv) the Trustee otherwise becomes incapable of acting. (b) If the Trustee resigns, is removed by the Issuer or by the Holders of a majority in principal amount of the Securities and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Issuer shall promptly appoint a successor Trustee. (c) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Issuer. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07. (d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee at the expense of the Issuer. (e) If the Trustee fails to comply with Section 7.10, unless the Trustee's duty to resign is stayed as provided in Section 310(b) of the TIA, any Holder who has been a bona fide holder of a Security for at least six months may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (f) Notwithstanding the replacement of the Trustee pursuant to this Section, the Issuer's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust 77 business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of Section 310(a) of the TIA. The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with Section 310(b) of the TIA, subject to its right to apply for a stay of its duty to resign under the penultimate paragraph of Section 310(b) of the TIA; provided, however, that there shall be excluded from the operation of Section 310(b)(1) of the TIA any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Issuer are outstanding if the requirements for such exclusion set forth in Section 310(b)(1) of the TIA are met. SECTION 7.11. Preferential Collection of Claims Against Issuer. The Trustee shall comply with Section 311(a) of the TIA, excluding any creditor relationship listed in Section 311(b) of the TIA. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the TIA to the extent indicated. ARTICLE 8 Discharge of Indenture; Defeasance SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a) When (i) all outstanding Securities (other than Securities replaced or paid pursuant to Section 2.08) have been canceled or delivered to the Trustee for cancelation or (ii) all outstanding Securities have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to Article 3 hereof, and the Issuer irrevocably deposits with the Trustee funds in an amount sufficient or U.S. Government Obligations, the principal of and interest on which will be sufficient, or a combination thereof sufficient, in the written opinion of a nationally recognized firm of independent 78 public accountants delivered to the Trustee (which delivery shall only be required if U.S. Government Obligations have been so deposited), to pay the principal of, premium, if any, and interest and liquidated damages, if any, on the outstanding Securities when due at maturity or upon redemption of, including interest thereon to maturity or such redemption date (other than Securities replaced or paid pursuant to Section 2.08) and liquidated damages, if any, and if in either case the Issuer pays all other sums payable hereunder by the Issuer, then this Indenture shall, subject to Section 8.01(c), cease to be of further effect and the obligations of the Issuer and the Note Guarantors hereunder shall cease. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Issuer accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of the Issuer. (b) Subject to Sections 8.01(c) and 8.02, the Company and the Issuer at any time may terminate (i) all of their obligations under the Securities and this Indenture ("legal defeasance option") or (ii) their obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.11, 4.14, 4.15, 4.16, 4.17 and 4.18 and the operation of Section 5.01(a)(iii), 6.01(d), 6.01(f), 6.01(g) (other than with respect to the Company, Intermediate Holdings, HDD Holdings or the Issuer), 6.01(h) (other than with respect to the Company, Intermediate Holdings, HDD Holdings or the Issuer) and 6.01(i) ("covenant defeasance option"). The Company and the Issuer may exercise their legal defeasance option notwithstanding their prior exercise of their covenant defeasance option. In the event that the Company and the Issuer terminate all of their obligations under the Securities and this Indenture by exercising their legal defeasance option, the obligations under the Note Guarantees shall each be terminated simultaneously with the termination of such obligations. If the Company and the Issuer exercise their legal defeasance option, payment of the Securities may not be accelerated because of an Event of Default. If the Company and the Issuer exercise their covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Section 6.01(d), 6.01(f), 6.01(g) (other than with respect to the Company, Intermediate Holdings, HDD Holdings or the Issuer), 6.01(h) (other than with respect to the Company, Intermediate Holdings, HDD Holdings or the Issuer) or 6.01(i) or because of the failure of the Company and the Issuer to comply with Section 5.01(a)(iii). Upon satisfaction of the conditions set forth herein and upon request of the Issuer, the Trustee shall acknowledge in writing the discharge of those obligations that the Issuer and the Note Guarantors terminate. (c) Notwithstanding clauses (a) and (b) above, the Issuer's obligations in Sections 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 7.07, 7.08 and in this Article 8 shall survive until the Securities have been paid in full. Thereafter, the Issuer's obligations in Sections 7.07, 8.05 and 8.06 shall survive. 79 SECTION 8.02. Conditions to Defeasance. (a) The Issuer may exercise its legal defeasance option or its covenant defeasance option only if: (i) the Company or the Issuer irrevocably deposit in trust with the Trustee money in an amount sufficient or U.S. Government Obligations, the principal of and interest on which will be sufficient, or a combination thereof sufficient, to pay the principal of, and premium (if any), interest and liquidated damages (if any), on the Securities when due at maturity or redemption, as the case may be, including interest thereon to maturity or such redemption date; (ii) the Company and the Issuer deliver to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal of, premium, if any, interest and liquidated damages, if any on, all the Securities when due at maturity or redemption, as the case may be, including interest thereon to maturity or such redemption date; (iii) 123 days pass after the deposit is made and during the 123-day period no Default specified in Section 6.01(g) or (h) with respect to the Company, Intermediate Holdings, HDD Holdings or the Issuer occurs which is continuing at the end of the period; (iv) the deposit does not constitute a default under any other agreement binding on the Company or the Issuer and is not prohibited by Article 10; (v) the Company and the Issuer deliver to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (vi) in the case of the legal defeasance option, the Company and the Issuer shall have delivered to the Trustee an Opinion of Counsel, subject to customary assumptions and exclusions, stating that (1) the Issuer has received from, or there has been published by, the Internal Revenue Service a ruling, or (2) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders will not recognize income, gain or loss for U.S. Federal income or Cayman Islands tax purposes as a result of such deposit and defeasance and will be subject to U.S. Federal income tax (including withholding taxes) on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; 80 (vii) in the case of the covenant defeasance option, the Company and the Issuer shall have delivered to the Trustee an Opinion of Counsel, subject to customary assumptions and exclusions, to the effect that the Holders will not recognize income, gain or loss for U.S. Federal income or Cayman Islands tax purposes as a result of such deposit and defeasance and will be subject to U.S. Federal income or Cayman Islands tax (including withholding taxes) on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; and (viii) the Company and the Issuer deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, subject to customary assumptions and exclusions, each stating that all conditions precedent to the defeasance and discharge of the Securities as contemplated by this Article 8 have been complied with. (b) Before or after a deposit, the Issuer may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date in accordance with Article 3. SECTION 8.03. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article 8. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest and liquidated damages, if any, on the Securities. Money and securities so held in trust are not subject to Article 10 or 12. SECTION 8.04. Repayment to Issuer. The Trustee and the Paying Agent shall promptly turn over to the Issuer upon request any money or U.S. Government Obligations held by it as provided in this Article which, in the written opinion of nationally recognized firm of independent public accountants delivered to the Trustee (which delivery shall only be required if U.S. Government Obligations have been so deposited), are in excess of the amount thereof which would then be required to be deposited to effect an equivalent discharge or defeasance in accordance with this Article. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Issuer upon written request any money held by them for the payment of principal, premium, interest or liquidated damages that remains unclaimed for two years, and, thereafter, Holders entitled to the money must look to the Issuer for payment as general creditors, and the Trustee and the Paying Agent shall have no further liability with respect to such monies. SECTION 8.05. Indemnity for Government Obligations. The Issuer shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or 81 assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article 8 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's, the Restricted Subsidiaries', the Issuer's and the Note Guarantor's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article 8 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article 8; provided, however, that, if the Issuer has made any payment of principal of or interest or liquidated damages on, any Securities because of the reinstatement of its obligations, the Issuer shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE 9 Amendments SECTION 9.01. Without Consent of Holders. (a) The Issuer, the Note Guarantors and the Trustee may amend this Indenture or the Securities without notice to or consent of any Holder: (i) to cure any ambiguity, omission, defect or inconsistency; (ii) to comply with Article 5; (iii) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code; (iv) to make any change in Article 10 or Article 12 that would limit or terminate the benefits available to any holder of Senior Indebtedness of the Issuer or a Note Guarantor (or Representatives thereof) under Article 10 or Article 12, respectively; (v) to add additional Guarantees with respect to the Securities or to secure the Securities; 82 (vi) to add to the covenants of the Company and the Restricted Subsidiaries for the benefit of the Holders or to surrender any right or power herein conferred upon the Company or the Issuer; (vii) to comply with any requirement of the SEC in connection with qualifying, or maintaining the qualification of, this Indenture under the TIA; (viii) to make any change that does not adversely affect the rights of any Holder under the provisions of this Indenture; or (ix) to provide for the issuance, subject to Section 4.03, of the Exchange Securities, Private Exchange Securities or Additional Securities, which shall have terms substantially identical in all material respects to the Original Securities (except that the transfer restrictions contained in the Original Securities shall be modified or eliminated, as appropriate), and which shall be treated, together with any outstanding Original Securities, as a single issue of securities. (b) An amendment under this Section 9.01 may not make any change that adversely affects the rights under Article 10 or Article 12 of any holder of Senior Indebtedness of the Issuer or a Note Guarantor then outstanding unless the holders of such Senior Indebtedness (or any group or Representative thereof authorized to give a consent) consent to such change. After an amendment under this Section 9.01 becomes effective, the Issuer shall mail to Holders a notice briefly describing such amendment. The failure to give such notice to all Holders, or any defect therein, shall not impair or affect the validity of an amendment under this Section 9.01. SECTION 9.02. With Consent of Holders. (a) The Issuer, the Note Guarantors and the Trustee may amend this Indenture or the Securities without notice to any Holder but with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange for the Securities). However, without the consent of each Holder affected, an amendment may not: (i) reduce the amount of Securities whose Holders must consent to an amendment; (ii) reduce the rate of or extend the time for payment of interest or any liquidated damages on any Security; (iii) reduce the principal of or extend the Stated Maturity of any Security; 83 (iv) reduce the premium payable upon the redemption of any Security or change the time at which any Security may be redeemed in accordance with Article 3; (v) make any Security payable in money other than that stated in the Security; (vi) make any change in Article 10 or Article 12 that adversely affects the rights of any Holder under Article 10 or Article 12; (vii) make any change in Section 6.04 or 6.07 or the second sentence of this Section 9.02 or institute suit for the enforcement of any payment of, or with respect to, such Holder's Securities; (viii) modify the Note Guarantees in any manner adverse to the Holders; (ix) make any change in the provisions of paragraph 6 of the Securities that adversely affects the rights of any Holder or amend the terms of the Securities or this Indenture in a way that would result in the loss of an exemption from any of the Taxes described thereunder. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. An amendment under this Section 9.02 may not make any change that adversely affects the rights under Article 10 or Article 12 of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or any group or Representative thereof authorized to give a consent) consent to such change. After an amendment under this Section 9.02 becomes effective, the Issuer shall mail to Holders a notice briefly describing such amendment. The failure to give such notice to all Holders, or any defect therein, shall not impair or affect the validity of an amendment under this Section 9.02. SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04. Revocation and Effect of Consents and Waivers. (a) A consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the Security. However, any such Holder or subsequent Holder may revoke 84 the consent or waiver as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the date on which the Trustee receives an Officers' Certificate from the Issuer certifying that the requisite number of consents have been received. After an amendment or waiver becomes effective, it shall bind every Holder. An amendment or waiver becomes effective upon the (i) receipt by the Issuer or the Trustee of the requisite number of consents, (ii) satisfaction of conditions to effectiveness as set forth in this Indenture and any indenture supplemental hereto containing such amendment or waiver and (iii) execution of such amendment or waiver (or supplemental indenture) by the Issuer, the Note Guarantors and the Trustee. (b) The Issuer may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date. SECTION 9.05. Notation on or Exchange of Securities. If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Issuer or the Trustee so determines, the Issuer in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 9.06. Trustee to Sign Amendments. The Trustee shall sign any amendment authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 7.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture and that such amendment is the legal, valid and binding obligation of the Issuer and the Note Guarantors enforceable against them in accordance with its terms, subject to customary exceptions, and complies with the provisions hereof (including Section 9.03). SECTION 9.07. Payment for Consent. Neither the Issuer nor any Affiliate of the Issuer shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an 85 inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid to all Holders that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. ARTICLE 10 Subordination SECTION 10.01. Agreement To Subordinate. The Issuer agrees, and each Holder by accepting a Security agrees, that the Indebtedness evidenced by the Securities is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full of all Senior Indebtedness of the Issuer and that the subordination is for the benefit of and enforceable by the holders of such Senior Indebtedness. The Securities shall in all respects rank pari passu with all other Senior Subordinated Indebtedness of the Issuer and shall rank senior to all existing and future Subordinated Obligations of the Issuers; and only Indebtedness of the Issuer that is Senior Indebtedness of the Issuer shall rank senior to the Securities in accordance with the provisions set forth herein. For purposes of this Article 10, the Indebtedness evidenced by the Securities shall be deemed to include any liquidated damages payable pursuant to the provisions set forth in the Securities and the Registration Agreement. All provisions of this Article 10 shall be subject to Section 10.12. SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any payment or distribution of the assets of the Issuer to creditors upon a total or partial liquidation or a total or partial dissolution of the Issuer or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Issuer or its property: (a) holders of Senior Indebtedness of the Issuer shall be entitled to receive payment in full in cash of such Senior Indebtedness before Holders shall be entitled to receive any payment of principal of, premium (if any), or interest on or any other amount owing in respect of the Securities; and (b) until the Senior Indebtedness of the Issuer is paid in full in cash, any payment or distribution to which Holders would be entitled but for this Article 10 shall be made to holders of such Senior Indebtedness as their interests may appear, except that Holders may receive and retain (i) Permitted Junior Securities and (ii) payments made from the trust described in Section 8.01; provided, that on the date or dates the respective amounts were paid into the trust, such payments were made with respect to the Securities without violating this Article 10. 86 SECTION 10.03. Default on Senior Indebtedness. The Issuer may not pay the principal of, premium (if any), liquidated damages (if any) or interest on the Securities or make any deposit pursuant to Section 8.01 and may not otherwise purchase, repurchase, redeem or otherwise acquire or retire for value any Securities (collectively, "pay the Securities") if (a) any principal of, premium (if any) or interest on, or other amount owing in respect of any Designated Senior Indebtedness of the Issuer is not paid when due or (b) any other default on Designated Senior Indebtedness of the Issuer occurs and the maturity of such Designated Senior Indebtedness is accelerated in accordance with its terms unless, in either case, (i) the default has been cured or waived and any such acceleration has been rescinded or (ii) such Designated Senior Indebtedness has been paid in full in cash; provided, however, that the Issuer may pay the Securities without regard to the foregoing if the Issuer and the Trustee receive written notice approving such payment from the Representative of the Designated Senior Indebtedness with respect to which either of the events set forth in clause (a) or (b) of this sentence has occurred and is continuing. During the continuance of any default (other than a default described in clause (a) or (b) of the preceding sentence) with respect to any Designated Senior Indebtedness of the Issuer pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Issuer may not pay the Securities for a period (a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to the Issuer) of written notice (a "Blockage Notice") of such default from the Representative of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (a) by written notice to the Trustee and the Issuer from the Person or Persons who gave such Blockage Notice, (b) by repayment in full in cash of such Designated Senior Indebtedness or (c) because the default giving rise to such Blockage Notice is no longer continuing). Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this Section 10.03 and in the two immediately succeeding sentences), unless the holders of such Designated Senior Indebtedness or the Representative of such holders shall have accelerated the maturity of such Designated Senior Indebtedness, the Issuer may resume payments on the Securities after the end of such Payment Blockage Period, including any missed payments. Not more than one Blockage Notice may be given in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period; provided, however, that if any Blockage Notice within such 360-day period is given by or on behalf of any holders of Designated Senior Indebtedness other than the Bank Indebtedness, the Representative of the Bank Indebtedness may give another Blockage Notice within such period; provided further, however, that in no event may the total number of days during which any Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate during any 360 consecutive day period. For purposes of this Section 10.03, no default or event of default that existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated 87 Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis of the commencement of a subsequent Payment Blockage Period by the Representative of such Designated Senior Indebtedness, whether or not within a period of 360 consecutive days, unless such default or event of default shall have been cured or waived for a period of not less than 90 consecutive days. SECTION 10.04. Acceleration of Payment of Securities. If payment of the Securities is accelerated because of an Event of Default, the Issuer or the Trustee (provided, that the Trustee shall have received written notice from the Issuer, on which notice the Trustee shall be entitled to conclusively rely) shall promptly notify the holders of the Designated Senior Indebtedness of the Issuer (or their Representative) of the acceleration. If any Designated Senior Indebtedness of the Issuer is outstanding, the Issuer may not pay the Securities until five Business Days after such holders or the Representative of such Designated Senior Indebtedness receive notice of such acceleration and, thereafter, may pay the Securities only if this Article 10 otherwise permits payment at that time. SECTION 10.05. When Distribution Must Be Paid Over. If a distribution is made to Holders that because of this Article 10 should not have been made to them, the Holders who receive the distribution shall hold it in trust for holders of Senior Indebtedness of the Issuer and pay it over to them as their interests may appear. SECTION 10.06. Subrogation. After all Senior Indebtedness of the Issuer is paid in full in cash and until the Securities are paid in full in cash, Holders shall be subrogated to the rights of holders of such Senior Indebtedness to receive distributions applicable to Senior Indebtedness. A distribution made under this Article 10 to holders of such Senior Indebtedness which otherwise would have been made to Holders is not, as between the Issuer and Holders, a payment by the Issuer on such Senior Indebtedness. SECTION 10.07. Relative Rights. This Article 10 defines the relative rights of Holders and holders of Senior Indebtedness of the Issuer. Nothing in this Indenture shall: (a) impair, as between the Issuer and Holders, the obligation of the Issuer, which is absolute and unconditional, to pay principal of and premium, if any, interest and liquidated damages, if any, on the Securities in accordance with their terms; or (b) prevent the Trustee or any Holder from exercising its available remedies upon a Default, subject to the rights of holders of Senior Indebtedness of the Issuer to receive distributions otherwise payable to Holders. 88 SECTION 10.08. Subordination May Not Be Impaired by Issuer. No right of any holder of Senior Indebtedness of the Issuer to enforce the subordination of the Indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Issuer or by its failure to comply with this Indenture. SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding Section 10.03, the Trustee or Paying Agent may continue to make payments on the Securities and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless a Trust Officer of the Trustee receives notice reasonably satisfactory to it that payments may not be made under this Article 10, and, prior to the receipt of any such written notice, the Trustee, subject to TIA Sections 315(a) through 315(d), shall be entitled to assume (in the absence of actual knowledge to the contrary) that no such facts exist. The Issuer, the Registrar, the Paying Agent, a Representative or a holder of Senior Indebtedness of the Issuer may give the notice; provided, however, that, if an issue of Senior Indebtedness of the Issuer has a Representative, only the Representative may give the notice. The Trustee in its individual or any other capacity may hold Senior Indebtedness of the Issuer with the same rights it would have if it were not Trustee. The Registrar and the Paying Agent may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article 10 with respect to any Senior Indebtedness of the Issuer which may at any time be held by it, to the same extent as any other holder of such Senior Indebtedness; and nothing in Article 7 shall deprive the Trustee of any of its rights as such holder. Nothing in this Article 10 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07 or any other Section of this Indenture. SECTION 10.10. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness of the Issuer, the distribution may be made and the notice given to their Representative (if any). SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit Right To Accelerate. The failure to make a payment pursuant to the Securities by reason of any provision in this Article 10 shall not be construed as preventing the occurrence of a Default. Nothing in this Article 10 shall have any effect on the right of the Holders or the Trustee to accelerate the maturity of the Securities. SECTION 10.12. Trust Monies Not Subordinated. Notwithstanding anything contained herein to the contrary, payments from money or the proceeds of U.S. Government Obligations held in trust under Article 8 by the Trustee for the payment of principal of and premium, if any, interest and liquidated damages, if any, on the Securities shall not be subordinated to the prior payment of any Senior Indebtedness of the Issuer or subject to the restrictions set forth in this Article 10, and none of the Holders shall be 89 obligated to pay over any such amount to the Issuer or any holder of Senior Indebtedness of the Issuer or any other creditor of the Issuer. SECTION 10.13. Trustee Entitled To Rely. Upon any payment or distribution pursuant to this Article 10, the Trustee and the Holders shall be entitled to rely (a) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 10.02 are pending, (b) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Holders or (c) upon the Representatives for the holders of Senior Indebtedness of the Issuer for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of such Senior Indebtedness and other Indebtedness of the Issuer, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any Person as a holder of Senior Indebtedness of the Issuer to participate in any payment or distribution pursuant to this Article 10, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article 10, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all actions or omissions of actions by the Trustee pursuant to this Article 10. SECTION 10.14. Trustee To Effectuate Subordination. Each Holder by accepting a Security authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Holders and the holders of Senior Indebtedness of the Issuer as provided in this Article 10 and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Indebtedness. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants or obligations as are specifically set forth in this Article and no implied covenants or obligations with respect to holders of Senior Indebtedness shall be read into this Indenture against the Trustee. SECTION 10.16. Reliance by Holders of Senior Indebtedness on Subordination Provisions. Each Holder by accepting a Security acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness of the Issuer, whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such 90 holder of such Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. ARTICLE 11 Note Guarantees SECTION 11.01. Note Guarantees. (a) Each Note Guarantor hereby jointly and severally irrevocably and unconditionally guarantees, as a primary obligor and not merely as a surety, to each Holder and to the Trustee and its successors and assigns (i) the full and punctual payment when due, whether at Stated Maturity, by acceleration, by redemption or otherwise, of all obligations of the Issuer under this Indenture (including obligations to the Trustee) and the Securities, whether for payment of principal of, interest on or liquidated damages, if any, in respect of the Securities and all other monetary obligations of the Issuer under this Indenture and the Securities and (ii) the full and punctual performance within applicable grace periods of all other obligations of the Issuer whether for fees, expenses, indemnification or otherwise under this Indenture and the Securities (all the foregoing being hereinafter collectively called the "Guaranteed Obligations"). Each Note Guarantor further agrees that the Guaranteed Obligations may be extended or renewed, in whole or in part, without notice or further assent from each such Note Guarantor, and that each such Note Guarantor shall remain bound under this Article 11 notwithstanding any extension or renewal of any Guaranteed Obligation. (b) Each Note Guarantor waives presentation to, demand of payment from and protest to the Issuer of any of the Guaranteed Obligations and also waives notice of protest for nonpayment. Each Note Guarantor waives notice of any default under the Securities or the Guaranteed Obligations. The obligations of each Note Guarantor hereunder shall not be affected by (i) the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Issuer or any other Person under this Indenture, the Securities or any other agreement or otherwise; (ii) any extension or renewal of any thereof; (iii) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Securities or any other agreement; (iv) the release of any security held by any Holder or the Trustee for the Guaranteed Obligations or any of them; (v) the failure of any Holder or Trustee to exercise any right or remedy against any other guarantor of the Guaranteed Obligations; or (vi) any change in the ownership of such Note Guarantor, except as provided in Section 11.02(b). (c) Each Note Guarantor hereby waives any right to which it may be entitled to have its obligations hereunder divided among the Note Guarantors, such that such Note Guarantor's obligations would be less than the full amount claimed. Each Note 91 Guarantor hereby waives any right to which it may be entitled to have the assets of the Issuer first be used and depleted as payment of the Issuer's or such Note Guarantor's obligations hereunder prior to any amounts being claimed from or paid by such Note Guarantor hereunder. Each Note Guarantor hereby waives any right to which it may be entitled to require that the Issuer be sued prior to an action being initiated against such Note Guarantor. (d) Each Note Guarantor further agrees that its Note Guarantee herein constitutes a guarantee of payment, performance and compliance when due (and not a guarantee of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Guaranteed Obligations. (e) The Note Guarantee of each Note Guarantor is, to the extent and in the manner set forth in Article 12, subordinated and subject in right of payment to the prior payment in full in cash of the principal of and premium, if any, and interest on all Senior Indebtedness of the relevant Note Guarantor and is made subject to such provisions of this Indenture. (f) Except as expressly set forth in Sections 8.01(b), 11.02 and 11.06, the obligations of each Note Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, to the extent permitted by applicable law, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Guaranteed Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Note Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce any remedy under this Indenture, the Securities or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, wilful or otherwise, in the performance of the obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of any Note Guarantor or would otherwise operate as a discharge of any Note Guarantor as a matter of law or equity. (g) Each Note Guarantor agrees that its Note Guarantee shall remain in full force and effect until payment in full of all the Guaranteed Obligations. Each Note Guarantor further agrees that its Note Guarantee herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest or liquidated damages, if any, on any Guaranteed Obligation is rescinded or must otherwise be restored by any Holder or the Trustee upon the bankruptcy or reorganization of the Issuer or otherwise. 92 (h) In furtherance of the foregoing and not in limitation of any other right which any Holder or the Trustee has at law or in equity against any Note Guarantor by virtue hereof, upon the failure of the Issuer to pay the principal of or interest or liquidated damages, if any, on any Guaranteed Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, or to perform or comply with any other Guaranteed Obligation, each Note Guarantor hereby promises to and shall, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of (i) the unpaid principal amount of such Guaranteed Obligations, (ii) accrued and unpaid interest on such Guaranteed Obligations (but only to the extent not prohibited by law) and (iii) all other monetary obligations of the Company to the Holders and the Trustee. (i) Each Note Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any Guaranteed Obligations guaranteed hereby until payment in full of all Guaranteed Obligations and all obligations to which the Guaranteed Obligations are subordinated as provided in Article 12. Each Note Guarantor further agrees that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the Guaranteed Obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of any Note Guarantee herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Guaranteed Obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of such Guaranteed Obligations as provided in Article 6, such Guaranteed Obligations (whether or not due and payable) shall forthwith become due and payable by such Note Guarantor for the purposes of this Section 11.01. (j) Each Note Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees and expenses) incurred by the Trustee or any Holder in enforcing any rights under this Section 11.01. (k) Upon request of the Trustee, each Note Guarantor shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. SECTION 11.02. Limitation on Liability. (a) Any term or provision of this Indenture to the contrary notwithstanding, the maximum aggregate amount of the Guaranteed Obligations guaranteed hereunder by any Note Guarantor shall not exceed the maximum amount that can be hereby guaranteed without rendering this Indenture, as it relates to such Note Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. 93 (b) A Note Guarantee as to any Note Guarantor that is a Subsidiary of the Company (other than Intermediate Holdings or HDD Holdings) shall terminate and be of no further force or effect and such Note Guarantor shall be deemed to be released from all obligations under this Article 11 upon (i) the merger or consolidation of such Note Guarantor with or into any Person other than the Company or a Subsidiary or Affiliate of the Company where such Note Guarantor is not the surviving entity of such consolidation or merger or (ii) the sale by the Company or any Subsidiary of the Company (or any pledgee of the Company or any Subsidiary of the Company) of the Capital Stock of such Note Guarantor, where, after such sale, such Note Guarantor is no longer a Subsidiary of the Company; provided, however, that each such merger, consolidation or sale (or, in the case of a sale by such a pledgee, the disposition of the proceeds of such sale) shall comply with Section 4.06 and Section 5.01(b). At the request of the Company, the Trustee shall execute and deliver an appropriate instrument evidencing such release (in the form provided by the Company). (c) A Note Guarantee of any Note Guarantor that is a Subsidiary of the Company shall terminate and be of no further force or effect and such Note Guarantor shall be deemed to be released from all obligations under this Article 11 upon the Company's designation of such Note Guarantor as an Unrestricted Subsidiary; provided that such designation complies with the other applicable provisions of this Indenture. (d) At any time that Bank Indebtedness is outstanding, if any Subsidiary of the Company is released from its Guarantee of, and all pledges and security interests granted in connection with, the Credit Agreement, then such Subsidiary shall, at the option of the Company, be released and relieved of any obligations under its Note Guarantee. (e) (i) At any time that no Bank Indebtedness is outstanding, each Subsidiary of the Company (other than Intermediate Holdings or HDD Holdings) that has no outstanding Indebtedness shall, at the option of the Company, be released from its Note Guarantee; provided, that following any such release the Company shall comply with the provisions of Section 4.11 with respect to such Subsidiary and (ii) each Designated Subsidiary (and each Subsidiary of such Designated Subsidiary) shall be released from its Note Guarantee upon the first Qualified Releasing Event with respect to such Designated Subsidiary. (f) A Note Guarantee of any Note Guarantor that is a Subsidiary of the Company shall terminate and be of no further force or effect and such Note Guarantor shall be deemed to be released from all obligations under this Article 11 upon such Note Guarantor ceasing to be a Subsidiary of the Company as a result of any foreclosure on any pledge or security interest securing Bank Indebtedness or other exercise of remedies in respect thereof if such Note Guarantor is released from its Guarantee of, and all pledges and security interests granted in connection with, the Credit Agreement. 94 SECTION 11.03. Successors and Assigns. This Article 11 shall be binding upon each Note Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Securities shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture. SECTION 11.04. No Waiver. Neither a failure nor a delay on the part of either the Trustee or the Holders in exercising any right, power or privilege under this Article 11 shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article 11 at law, in equity, by statute or otherwise. SECTION 11.05. Modification. No modification, amendment or waiver of any provision of this Article 11, nor the consent to any departure by any Note Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any Note Guarantor in any case shall entitle such Note Guarantor to any other or further notice or demand in the same, similar or other circumstances. SECTION 11.06. Execution of Supplemental Indenture for Future Note Guarantors. Each Subsidiary of the Company which is required to become a Note Guarantor pursuant to Section 4.11 shall promptly execute and deliver to the Trustee a supplemental indenture in the form of Exhibit C hereto pursuant to which such Subsidiary shall become a Note Guarantor under this Article 11 and shall guarantee the Guaranteed Obligations. Concurrently with the execution and delivery of such supplemental indenture, the Issuer shall deliver to the Trustee an Opinion of Counsel and an Officers' Certificate to the effect that such supplemental indenture has been duly authorized, executed and delivered by such Subsidiary and that, subject to the application of bankruptcy, insolvency, moratorium, fraudulent conveyance or transfer and other similar laws relating to creditors' rights generally and to the principles of equity, whether considered in a proceeding at law or in equity, the Note Guarantee of such Note Guarantor is a legal, valid and binding obligation of such Note Guarantor, enforceable against such Note Guarantor in accordance with its terms and or to such other matters as the Trustee may reasonably request. SECTION 11.07. Non-Impairment. The failure to endorse a Note Guarantee on any Security shall not affect or impair the validity thereof. 95 ARTICLE 12 Subordination of the Note Guarantees SECTION 12.01. Agreement To Subordinate. Each Note Guarantor agrees, and each Holder by accepting a Security agrees, that the obligations of a Note Guarantor hereunder are subordinated in right of payment, to the extent and in the manner provided in this Article 12, to the prior payment in full in cash of all Senior Indebtedness of such Note Guarantor and that the subordination is for the benefit of and enforceable by the holders of such Senior Indebtedness of such Note Guarantor. The obligations hereunder with respect to a Note Guarantor shall in all respects rank pari passu with all other Senior Subordinated Indebtedness of such Note Guarantor and shall rank senior to all existing and future Subordinated Obligations of such Note Guarantor; and only Indebtedness of such Note Guarantor that is Senior Indebtedness of such Note Guarantor shall rank senior to the obligations of such Note Guarantor in accordance with the provisions set forth herein. SECTION 12.02. Liquidation, Dissolution, Bankruptcy. Upon any payment or distribution of the assets of a Note Guarantor to creditors upon a total or partial liquidation or a total or partial dissolution of such Note Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to such Note Guarantor or its property: (a) holders of Senior Indebtedness of such Note Guarantor shall be entitled to receive payment in full in cash of such Senior Indebtedness before Holders shall be entitled to receive any payment pursuant to any Guaranteed Obligations from such Note Guarantor; and (b) until the Senior Indebtedness of such Note Guarantor is paid in full in cash, any payment or distribution to which Holders would be entitled but for this Article 12 shall be made to holders of such Senior Indebtedness as their respective interests may appear, except that Holders may receive and retain (i) Permitted Junior Securities and (ii) payments made from the trust described under Section 8.01 so long as, on the date or dates the respective amounts were paid into the trust, such payments were made with respect to the Securities without violating this Article 12). SECTION 12.03. Default on Designated Senior Indebtedness of a Note Guarantor. A Note Guarantor may not make any payment pursuant to any of the Guaranteed Obligations or purchase, repurchase, redeem or otherwise acquire or retire for value any Securities (collectively, "pay its Guarantee") if (a) any principal of, premium (if any) or interest on or other amount owing in respect of any Designated Senior Indebtedness of such Note Guarantor is not paid when due or (b) any other default on 96 Designated Senior Indebtedness of such Note Guarantor occurs and the maturity of such Designated Senior Indebtedness is accelerated in accordance with its terms unless, in either case, (i) the default has been cured or waived and any such acceleration has been rescinded or (ii) such Designated Senior Indebtedness has been paid in full in cash; provided, however, that such Guarantor may pay its Guarantee without regard to the foregoing if such Note Guarantor and the Trustee receive written notice approving such payment from the Representative of the Designated Senior Indebtedness with respect to which either of the events in clause (a) or (b) of this sentence has occurred and is continuing. During the continuance of any default (other than a default described in clause (a) or (b) of the preceding sentence) with respect to any Designated Senior Indebtedness of a Note Guarantor pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, such Note Guarantor may not pay its Guarantee for a period (a "Guarantee Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to such Note Guarantor and the Issuer) of written notice (a "Guarantee Blockage Notice") of such default from the Representative of such Designated Senior Indebtedness of such Note Guarantor specifying an election to effect a Guarantee Payment Blockage Period and ending 179 days thereafter (or earlier if such Guarantee Payment Blockage Period is terminated (a) by written notice to the Trustee (with a copy to such Note Guarantor and the Issuer) from the Person or Persons who gave such Guarantee Blockage Notice, (b) by the repayment in full in cash of such Designated Senior Indebtedness or (c) because the default giving rise to such Guarantee Blockage Notice is no longer continuing). Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this Section 12.03 and in the two immediately succeeding sentences), unless the holders of such Designated Senior Indebtedness or the Representative of such holders shall have accelerated the maturity of such Designated Senior Indebtedness, such Note Guarantor may resume payments of its Note Guarantee after the end of such Guarantee Payment Blockage Period, including any missed payments. Not more than one Guarantee Blockage Notice may be given with respect to a Note Guarantor in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness of such Note Guarantor during such period; provided, however, that if any Guarantee Blockage Notice within such 360-day period is given by or on behalf of any holders of Designated Senior Indebtedness of such Note Guarantor other than the Bank Indebtedness, the Representative of the Bank Indebtedness may give another Guarantee Blockage Notice within such period; provided further, however, that in no event may the total number of days during which any Guarantee Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate during any 360 consecutive day period. For purposes of this Section 12.03, no Default or Event of Default that existed or was continuing on the date of the commencement of any Guarantee Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Guarantee Payment Blockage Period shall be, or be made, the basis of the commencement of a subsequent Guarantee Payment 97 Blockage Period by the Representative of such Designated Senior Indebtedness, whether or not within a period of 360 consecutive days, unless such Default or Event of Default shall have been cured or waived for a period of not less than 90 consecutive days. SECTION 12.04. Demand for Payment. If payment of the Securities is accelerated because of an Event of Default and a demand for payment is made on a Note Guarantor pursuant to Article 11, the Trustee (provided that the Trustee shall have received written notice from the Issuer or such Note Guarantor, on which notice the Trustee shall be entitled to conclusively rely) shall promptly notify the holders of the Designated Senior Indebtedness of such Note Guarantor (or their Representative) of such demand. If any Designated Senior Indebtedness of such Note Guarantor is outstanding, such Note Guarantor may not pay its Guarantee until five Business Days after such holders or the Representative of the Designated Senior Indebtedness of such Note Guarantor receive notice of such demand and, thereafter, may pay its Guarantee only if this Article 12 otherwise permits payment at that time. SECTION 12.05. When Distribution Must Be Paid Over. If a distribution is made to Holders that because of this Article 12 should not have been made to them, the Holders who receive the distribution shall hold it in trust for holders of the Senior Indebtedness of the relevant Note Guarantor and pay it over to them as their respective interests may appear. SECTION 12.06. Subrogation. After all Senior Indebtedness of a Note Guarantor is paid in full in cash and until the Securities are paid in full in cash, Holders shall be subrogated to the rights of holders of Senior Indebtedness of such Note Guarantor to receive distributions applicable to Senior Indebtedness of such Note Guarantor. A distribution made under this Article 12 to holders of Senior Indebtedness of such Note Guarantor which otherwise would have been made to Holders is not, as between such Note Guarantor and Holders, a payment by such Note Guarantor on Senior Indebtedness of such Note Guarantor. SECTION 12.07. Relative Rights. This Article 12 defines the relative rights of Holders and holders of Senior Indebtedness of a Note Guarantor. Nothing in this Indenture shall: (a) impair, as between a Note Guarantor and Holders, the obligation of a Note Guarantor which is absolute and unconditional, to make payments with respect to the Guaranteed Obligations to the extent set forth in Article 11; or (b) prevent the Trustee or any Holder from exercising its available remedies upon a default by a Note Guarantor under its obligations with respect to the Guaranteed Obligations, subject to the rights of holders of Senior Indebtedness of such Note Guarantor to receive distributions otherwise payable to Holders. 98 SECTION 12.08. Subordination May Not Be Impaired by a Note Guarantor. No right of any holder of Senior Indebtedness of a Note Guarantor to enforce the subordination of the obligations of such Note Guarantor hereunder shall be impaired by any act or failure to act by such Guarantor or by its failure to comply with this Indenture. SECTION 12.09. Rights of Trustee and Paying Agent. Notwithstanding Section 12.03, the Trustee or the Paying Agent may continue to make payments on the Securities and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless a Trust Officer of the Trustee receives notice reasonably satisfactory to it that payments may not be made under this Article 12, and, prior to the receipt of any such written notice, the Trustee, subject to TIA Sections 315(a) through 315(d), shall be entitled to assume (in the absence of actual knowledge to the contrary) that no such facts exist. A Note Guarantor, the Registrar or co-registrar, the Paying Agent, a Representative or a holder of Senior Indebtedness of a Note Guarantor may give the notice; provided, however, that if an issue of Senior Indebtedness of a Note Guarantor has a Representative, only the Representative may give the notice. The Trustee in its individual or any other capacity may hold Senior Indebtedness of a Note Guarantor with the same rights it would have if it were not Trustee. The Registrar and co-registrar and the Paying Agent may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article 12 with respect to any Senior Indebtedness of a Note Guarantor which may at any time be held by it, to the same extent as any other holder of such Senior Indebtedness of such Note Guarantor; and nothing in Article 7 shall deprive the Trustee of any of its rights as such holder. Nothing in this Article 12 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07 or any other applicable Section of this Indenture. SECTION 12.10. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness of a Note Guarantor, the distribution may be made and the notice given to their Representative (if any). SECTION 12.11. Article 12 Not To Prevent Events of Default or Limit Right To Accelerate. The failure of a Note Guarantor to make a payment on any of its obligations by reason of any provision in this Article 12 shall not be construed as preventing the occurrence of a default by such Note Guarantor under such obligations. Nothing in this Article 12 shall have any effect on the right of the Holders or the Trustee to make a demand for payment on a Note Guarantor pursuant to Article 11. SECTION 12.12. Trustee Entitled To Rely. Upon any payment or distribution pursuant to this Article 12, the Trustee and the Holders shall be entitled to 99 rely (a) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 12.02 are pending, (b) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Holders or (c) upon the Representatives for the holders of Senior Indebtedness of a Note Guarantor for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness of a Note Guarantor and other Indebtedness of a Note Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 12. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any Person as a holder of Senior Indebtedness of a Note Guarantor to participate in any payment or distribution pursuant to this Article 12, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness of such Note Guarantor held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article 12, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all actions or omissions of actions by the Trustee pursuant to this Article 12. SECTION 12.13. Trustee To Effectuate Subordination. Each Holder by accepting a Security authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Holders and the holders of Senior Indebtedness of each of the Note Guarantors as provided in this Article 12 and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 12.14. Trustee Not Fiduciary for Holders of Senior Indebtedness of a Note Guarantor. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants or obligations as are specifically set forth in this Article and no implied covenants or obligations with respect to holders of Senior Indebtedness shall be read into this Indenture against the Trustee. SECTION 12.15. Reliance by Holders of Senior Indebtedness of a Note Guarantor on Subordination Provisions. Each Holder by accepting a Security acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness of a Note Guarantor, whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. 100 SECTION 12.16. Defeasance. Notwithstanding anything contained herein to the contrary, payments from money or the proceeds of U.S. Government Obligations held in trust under Article 8 by the Trustee for the payment of principal of, and interest and liquidated damages, if any, on, the Securities shall not be subordinated to the prior payment of any Senior Indebtedness of any Note Guarantor or be subject to the restrictions set forth in this Article 12, and none of the Holders shall be obligated to pay over any such amount to a Note Guarantor or any holder of Senior Indebtedness of Note Guarantor or any other creditor of a Note Guarantor. ARTICLE 13 Miscellaneous SECTION 13.01. Trust Indenture Act Controls. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by, or with another provision (an "incorporated provision") included in this Indenture by operation of, Sections 310 to 318 of the TIA, inclusive, such imposed duties or incorporated provision shall control. SECTION 13.02. Notices. Any notice or communication shall be in writing and delivered in person or mailed by first-class mail addressed as follows: if to the Issuer or any Note Guarantor: c/o Seagate Technology International 920 Disc Drive P.O. Box 66360 Scotts Valley, CA. 95067 Attention of: William L. Hudson, Senior Vice President, General Counsel and Secretary (Telephone: (831) 439-5370; Facsimile: (831) 438-6675) and Glen A. Peterson, Vice President, Corporate Finance and Treasurer (Telephone: (831) 439-2870; Facsimile: (831) 438-8931); with a copy to Simpson Thacher & Bartlett 245 Lexington Avenue 101 New York, New York, 10017 Attention of: Rise Norman (Telephone (212-455-2000); Facsimile (212) 455-2502) if to the Trustee: The Bank of New York 101 Barclay Street, Floor 21 West New York, NY 10286 Attention of: Corporate Trust Trustee Administration The Issuer or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Holder shall be mailed, first class mail, to the Holder at the Holder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 13.03. Communication by Holders with Other Holders. Holders may communicate pursuant to Section 312(b) of the TIA with other Holders with respect to their rights under this Indenture or the Securities. The Issuer, the Trustee, the Registrar and anyone else shall have the protection of Section 312(c) of the TIA. SECTION 13.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Issuer to the Trustee to take or refrain from taking any action under this Indenture, the Issuer shall furnish to the Trustee: (a) an Officers' Certificate in form reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel in form reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with. 102 SECTION 13.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include: (a) a statement that the individual making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. SECTION 13.06. When Securities Disregarded. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Issuer, the Company, any other Note Guarantor or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer, the Company or any other Note Guarantor shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which a Trust Officer of the Trustee actually knows are so owned shall be so disregarded. Subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination. SECTION 13.07. Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of Holders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 13.08. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or other day on which banking institutions are not required by law or regulation to be open in the State of New York. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected. 103 SECTION 13.09. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 13.10. Waiver of Immunities. To the extent that the Company or any of its Subsidiaries or any of their respective properties, assets or revenues may have or may hereafter become entitled to, or have attributed to it, any right of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding, from the giving of any relief in any such legal action, suit or proceeding, from setoff or counterclaim, from the competent jurisdiction of any court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution of judgment, or from execution of judgment, or from other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, in any competent jurisdiction in which proceedings may at any time be commenced, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Indenture or the Securities and the transactions contemplated hereby, the Issuer and each Note Guarantor hereby irrevocably and unconditionally waives and agrees not to plead or claim, any such immunity and consent to such relief and enforcement. SECTION 13.11. Consent to Jurisdiction; Appointment of Agent for Service of Process; Judgment Currency. (a) The Issuer and each of the Note Guarantors agrees that any suit, action or proceeding against the Issuer or any Note Guarantor arising out of or relating to this Indenture or the Securities may be instituted in any state or U.S. Federal court in the Borough of Manhattan, The City of New York, New York, and any appellate court from any thereof, and each of them irrevocably submits to the non-exclusive jurisdiction of such courts in any suit, action or proceeding. The Issuer and each of the Note Guarantors irrevocably waives, to the fullest extent permitted by law, any objection to any suit, action, or proceeding that may be brought in connection with this Indenture or the Securities, including such actions, suits or proceedings relating to securities laws of the United States of America or any state thereof, in such courts whether on the grounds of venue, residence or domicile or on the ground that any such suit, action or proceeding has been brought in an inconvenient forum. The Issuer and each Note Guarantor agrees that final judgment in any such suit, action or proceeding brought in such court shall be conclusive and binding upon the Issuer or any Note Guarantor, as the case may be, and may be enforced in any court to the jurisdiction of which the Issuer or any Note Guarantor, as the case may be, is subject by a suit upon such judgment; provided that service of process is affected upon the Issuer or any Note Guarantor, as the case may be, in the manner provided by this Section 13.11. (b) The Issuer and each Note Guarantor organized under the laws of any jurisdiction other than the United Sates, any state thereof or the District of Columbia irrevocably appoints CT Corporation System Inc., with offices on the date hereof at 111 Eighth Avenue, 13th Floor, New York, New York 10011, as its authorized agent (the 104 "Authorized Agent"), upon whom process may be served in any suit, action or proceeding arising out of or relating to this Indenture of the Securities or the transactions contemplated herein which may be instituted in any state or U.S. Federal court in the Borough of Manhattan, The City of New York, New York, and expressly accepts the non-exclusive jurisdiction of any such court in respect of any such suit, action or proceeding. The Issuer and each Note Guarantor hereby represents and warrants that the Authorized Agent has accepted such appointment and has agreed to act as said agent for service of process, and the Issuer and the Note Guarantors agree to take any and all action, including the filing of any and all documents that may be necessary to continue such respective appointment in full force and effect for a period of seven years from the date of this Indenture. Service of process upon the Authorized Agent shall be deemed, in every respect, effective service of process upon the Issuer and the Note Guarantors. Notwithstanding the foregoing, any action involving the Issuer or any Note Guarantor arising out of or relating to this Indenture or the Securities may be instituted in any court of competent jurisdiction in any other jurisdiction. (c) Each of the parties to this Indenture hereby irrevocably waives all right to a trial by jury in any action, proceeding or counterclaim arising out of or relating to the Securities, this Indenture, any Note Guarantee or the transactions contemplated hereby or thereby. SECTION 13.12. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Issuer or any of the Note Guarantors, shall not have any liability for any obligations of the Issuer or any of the Note Guarantors under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Holder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 13.13. Successors. All agreements of the Issuer and each Note Guarantor in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 13.14. Multiple Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION 13.15. Table of Contents; Headings. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. 105 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. SEAGATE TECHNOLOGY INTERNATIONAL, by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President NEW SAC, by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY HOLDINGS, by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY HDD HOLDINGS, by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President 106 SEAGATE TECHNOLOGY CHINA HOLDING COMPANY, by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY ASIA HOLDINGS, by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY (IRELAND), by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY MEDIA (IRELAND), by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President 107 SEAGATE TECHNOLOGY FAR EAST HOLDINGS, by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY (PHILIPPINES), by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY SAN HOLDINGS, by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS, INC. by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President 108 SEAGATE REMOVABLE STORAGE SOLUTIONS INTERNATIONAL by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE SOFTWARE (CAYMAN) HOLDINGS by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY (US) HOLDINGS, INC. by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY LLC, by SEAGATE TECHNOLOGY (US) HOLDINGS, INC., as Managing Member by /S/ KENNETH HAO ---------------------------------------- Name: Kenneth Hao Title: Vice President 109 SEAGATE US LLC, by SEAGATE TECHNOLOGY LLC, as Sole Member by SEAGATE TECHNOLOGY (US) HOLDINGS, INC., as Managing Member by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President REDWOOD ACQUISITION CORPORATION, by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE REMOVABLE STORAGE SOLUTIONS (US) HOLDINGS, INC., by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President 110 SEAGATE REMOVABLE STORAGE SOLUTIONS LLC, by SEAGATE REMOVABLE STORAGE SOLUTIONS (US) HOLDINGS, INC., as Sole Member by /S/ KENNETH HAO ---------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE RSS LLC, by SEAGATE REMOVABLE STORAGE SOLUTIONS LLC, as Sole Member by SEAGATE REMOVABLE STORAGE SOLUTIONS (US) HOLDINGS, INC., as Sole Member by /S/ KENNETH HAO ---------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC., by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President 111 QUINTA CORPORATION, by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President XIOTECH CORPORATION, by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY (THAILAND) LIMITED, by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY-REYNOSA S. DE R.L. DE C.V., by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President 112 NIPPON SEAGATE INC., by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President NIPPON SEAGATE SOFTWARE, INC., by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE SINGAPORE DISTRIBUTION PTE LTD, by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE SOFTWARE INFORMATION PTE LTD, by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President 113 SEAGATE DISTRIBUTION (UK) LIMITED, by: /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President Witnessed by /s/ Laura Moss ----------------------------------- Name: Laura Moss Address: 320 Park Avenue NY, NY 10022 SEAGATE TECHNOLOGY (MARLOW) LIMITED, by: /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP LIMITED, by: /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President XIOTECH (CANADA) LTD, by: /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President 114 SEAGATE SOFTWARE (CANADA), INC., by /S/ KENNETH HAO -------------------------------------------- Name: Kenneth Hao Title: Vice President THE BANK OF NEW YORK, as Trustee by /S/ VAN K. BROWN -------------------------------------------- Name: Van K. Brown Title: Vice President 115 APPENDIX A PROVISIONS RELATING TO ORIGINAL SECURITIES, ADDITIONAL SECURITIES, PRIVATE EXCHANGE SECURITIES AND EXCHANGE SECURITIES 1. Definitions 1.1 Definitions For the purposes of this Appendix A the following terms shall have the meanings indicated below: "Applicable Procedures" means, with respect to any transfer or transaction involving a Regulation S Global Security or beneficial interest therein, the rules and procedures of the Depositary for such Global Security, Euroclear and Clearstream, in each case to the extent applicable to such transaction and as in effect from time to time. "Clearstream" means Clearstream Banking, societe anonyme, or any successor securities clearing agency. "Definitive Security" means a certificated Initial Security, Private Exchange Security or Exchange Security (bearing the Restricted Securities Legend if the transfer of such Security is restricted by applicable law) that does not include the Global Securities Legend. "Depositary" means The Depository Trust Company, its nominees and their respective successors. "Euroclear" means the Euroclear Clearance System or any successor securities clearing agency. "Global Securities Legend" means the legend set forth under that caption in Exhibit A to this Indenture. "IAI" means an institutional "accredited investor" as described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Initial Purchasers" means Chase Securities Inc., Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. "Private Exchange" means an offer by the Issuer, pursuant to a Registration Agreement, to issue and deliver to certain purchasers, in exchange for the Initial Securities held by such purchasers as part of their initial distribution, a like aggregate principal amount of Private Exchange Securities. "Private Exchange Securities" means the Securities of the Issuer issued in exchange for Initial Securities pursuant to this Indenture in connection with a Private Exchange pursuant to a Registration Agreement. "Purchase Agreement" means (a) the Purchase Agreement dated November 17, 2000, among the Issuer, the Note Guarantors and the Initial Purchasers and (b) any other similar Purchase Agreement relating to Additional Securities. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Registered Exchange Offer" means the offer by the Issuer, pursuant to a Registration Agreement, to certain Holders of Initial Securities, to issue and deliver to such Holders, in exchange for their Initial Securities, a like aggregate principal amount of Exchange Securities registered under the Securities Act. "Registration Agreement" means (a) the Exchange and Registration Rights Agreement dated November 22, 2000, among the Issuer, the Note Guarantors and the Initial Purchasers and (b) any other similar Exchange and Registration Rights Agreement relating to Additional Securities. "Regulation S" means Regulation S under the Securities Act. "Regulation S Securities" means all Initial Securities offered and sold outside the United States in reliance on Regulation S. "Restricted Period", with respect to any Securities, means the period of 40 consecutive days beginning on and including the later of (a) the day on which such Securities are first offered to persons other than distributors (as defined in Regulation S under the Securities Act) in reliance on Regulation S, notice of which day shall be promptly given by the Issuer to the Trustee, and (b) the Issue Date with respect to such Securities. "Restricted Securities Legend" means the legend set forth in Section 2.3(e)(i) herein. "Rule 501" means Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Rule 144A" means Rule 144A under the Securities Act. "Rule 144A Securities" means all Initial Securities offered and sold to QIBs in reliance on Rule 144A. "Securities Act" means the Securities Act of 1933, as amended. 2 "Securities Custodian" means the custodian with respect to a Global Security (as appointed by the Depositary) or any successor person thereto, who shall initially be the Trustee. "Shelf Registration Statement" means a registration statement filed by the Issuer in connection with the offer and sale of Initial Securities pursuant to the Registration Agreement. "Transfer Restricted Securities" means Definitive Securities and any other Securities that bear or are required to bear the Restricted Securities Legend. 1.2 Other Definitions Term: Defined in Section: ---- ------------------ "Agent Members".........................................................2.1(c) "IAI Global Security"...................................................2.1(b) "Global Security".......................................................2.1(b) "Regulation S Global Security"..........................................2.1(b) "Rule 144A Global Security".............................................2.1(b) Terms not otherwise defined herein shall have the meaning assigned to such terms in this Indenture. 2. The Securities 2.1 Form and Dating (a) The Initial Securities issued on the date hereof will be (i) offered and sold by the Issuer pursuant to a Purchase Agreement and (ii) resold, initially only to (1) QIBs in reliance on Rule 144A and (2) Persons other than U.S. Persons (as defined in Regulation S) in reliance on Regulation S. Such Initial Securities may thereafter be transferred to, among others, QIBs, purchasers in reliance on Regulation S and, except as set forth below, IAIs in accordance with Rule 501. Additional Securities offered after the date hereof may be offered and sold by the Issuer from time to time pursuant to one or more Purchase Agreements in accordance with applicable law. (b) Global Securities. Rule 144A Securities shall be issued initially in the form of one or more permanent global Securities in definitive, fully registered form (collectively, the "Rule 144A Global Security") and Regulation S Securities shall be issued initially in the form of one or more global permanent Securities (collectively, the "Regulation S Global Security"), in each case without interest coupons and bearing the Global Securities Legend and Restricted Securities Legend, which shall be deposited on behalf of the 3 purchasers of the Securities represented thereby with the Securities Custodian, and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Issuer and authenticated by the Trustee as provided in this Indenture. One or more global securities in definitive, fully registered form without interest coupons and bearing the Global Securities Legend and the Restricted Securities Legend (collectively, the "IAI Global Security") shall also be issued on the Closing Date, deposited with the Securities Custodian, and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Issuer and authenticated by the Trustee as provided in this Indenture to accommodate transfers of beneficial interests in the Securities to IAIs subsequent to the initial distribution. Beneficial ownership interests in the Regulation S Global Security shall not be exchangeable for interests in the Rule 144A Global Security, the IAI Global Security or any other Security without a Restricted Securities Legend until the expiration of the Restricted Period. The Rule 144A Global Security, the IAI Global Security and the Regulation S Global Security are each referred to herein as a "Global Security" and are collectively referred to herein as "Global Securities", provided, that the term "Global Security" when used in Sections 2.1(b) (third paragraph), 2.1(e), 2.3(g)(i), 2.3(h)(i) and 2.4 shall also include any Security in global form issued in connection with a Registered Exchange Offer or Private Exchange. The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee as hereinafter provided. (c) Book-Entry Provisions. This Section 2.1(c) shall apply only to a Global Security deposited with or on behalf of the Depositary. The Issuer shall execute and the Trustee shall, in accordance with this Section 2.1(c) and Section 2.2 and pursuant to an order of the Issuer, authenticate and deliver initially one or more Global Securities that (i) shall be registered in the name of the Depositary for such Global Security or Global Securities or the nominee of such Depositary and (ii) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary's instructions or held by the Trustee as Securities Custodian. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary or by the Trustee as Securities Custodian or under such Global Security, and the Depositary may be treated by the Issuer, the Note Guarantors, the Trustee and any agent of the Issuer, the Note Guarantors or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Issuer, the Note Guarantors, the Trustee or any agent of the Issuer, the Note Guarantors or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Security. 4 (d) Definitive Securities. Except as provided in Section 2.3 or 2.4, owners of beneficial interests in Global Securities shall not be entitled to receive physical delivery of certificated Securities. 2.2 Authentication. The Trustee shall authenticate and make available for delivery upon a written order of the Issuer signed by two Officers (a) Original Securities for original issue on the date hereof in an aggregate principal amount of $210,000,000, (b) subject to the terms of this Indenture, Additional Securities and (3) the (i) Exchange Securities for issue only in a Registered Exchange Offer and (ii) Private Exchange Securities for issue only in a Private Exchange, in the case of each of (i) and (ii) pursuant to a Registration Agreement and for a like principal amount of Initial Securities exchanged pursuant thereto. Such order shall specify the amount of the Securities to be authenticated, the date on which the original issue of Securities is to be authenticated and whether the Securities are to be Initial Securities, Exchange Securities or Private Exchange Securities. 2.3 Transfer and Exchange. (a) Transfer and Exchange of Definitive Securities. When Definitive Securities are presented to the Registrar with a request: (i) to register the transfer of such Definitive Securities; or (ii) to exchange such Definitive Securities for an equal principal amount of Definitive Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Definitive Securities surrendered for transfer or exchange: (1) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Issuer and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (2) in the case of Transfer Restricted Securities, are accompanied by the following additional information and documents, as applicable: (A) if such Definitive Securities are being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect (in the form set forth on the reverse side of the Initial Security); or (B) if such Definitive Securities are being transferred to the Issuer, a certification to that effect (in the form set forth on the reverse side of the Initial Security); or 5 (C) if such Definitive Securities are being transferred pursuant to an exemption from registration in accordance with Rule 144 under the Securities Act or in reliance upon another exemption from the registration requirements of the Securities Act, (x) a certification to that effect (in the form set forth on the reverse side of the Initial Security) and (y) if the Issuer so requests, an opinion of counsel or other evidence reasonably satisfactory to it as to the compliance with the restrictions set forth in the legend set forth in Section 2.3(e)(i). (b) Restrictions on Transfer of a Definitive Security for a Beneficial Interest in a Global Security. A Definitive Security may not be exchanged for a beneficial interest in a Global Security except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Definitive Security, duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Issuer and the Registrar, together with: (i) certification (in the form set forth on the reverse side of the Initial Security) that such Definitive Security is being transferred (1) to a QIB in accordance with Rule 144A, (2) to an IAI that has furnished to the Trustee a signed letter substantially in the form of Exhibit D or (3) outside the United States in an offshore transaction within the meaning of Regulation S and in compliance with Rule 904 under the Securities Act; and (ii) written instructions directing the Trustee to make, or to direct the Securities Custodian to make, an adjustment on its books and records with respect to such Global Security to reflect an increase in the aggregate principal amount of the Securities represented by the Global Security, such instructions to contain information regarding the Depositary account to be credited with such increase, then the Trustee shall cancel such Definitive Security and cause, or direct the Securities Custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Securities Custodian, the aggregate principal amount of Securities represented by the Global Security to be increased by the aggregate principal amount of the Definitive Security to be exchanged and shall credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Global Security equal to the principal amount of the Definitive Security so canceled. If no Global Securities are then outstanding and the Global Security has not been previously exchanged for certificated securities pursuant to Section 2.4, the Issuer shall issue and the Trustee shall authenticate, upon written order of the Issuer in the form of an Officers' Certificate, a new Global Security in the appropriate principal amount. (c) Transfer and Exchange of Global Securities. (i) The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the 6 Depositary, in accordance with this Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depositary therefor. A transferor of a beneficial interest in a Global Security shall deliver a written order given in accordance with the Depositary's procedures containing information regarding the participant account of the Depositary to be credited with a beneficial interest in such Global Security or another Global Security and such account shall be credited in accordance with such order with a beneficial interest in the applicable Global Security and the account of the Person making the transfer shall be debited by an amount equal to the beneficial interest in the Global Security being transferred. Transfers by an owner of a beneficial interest in the Rule 144A Global Security or the IAI Global Security to a transferee who takes delivery of such interest through the Regulation S Global Security, whether before or after the expiration of the Restricted Period, shall be made only upon receipt by the Trustee of a certification in the form provided on the reverse of the Initial Securities from the transferor to the effect that such transfer is being made in accordance with Regulation S or (if available) Rule 144 under the Securities Act and that, if such transfer is being made prior to the expiration of the Restricted Period, the interest transferred shall be held immediately thereafter through Euroclear or Clearstream. In the case of a transfer of a beneficial interest in either the Regulation S Global Security or the Rule 144A Global Security for an interest in the IAI Global Security, the transferee must furnish a signed letter substantially in the form of Exhibit D to the Trustee. (ii) If the proposed transfer is a transfer of a beneficial interest in one Global Security to a beneficial interest in another Global Security, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Security to which such interest is being transferred in an amount equal to the principal amount of the interest to be so transferred, and the Registrar shall reflect on its books and records the date and a corresponding decrease in the principal amount of Global Security from which such interest is being transferred. (iii) Notwithstanding any other provisions of this Appendix (other than the provisions set forth in Section 2.4), a Global Security may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (iv) In the event that a Global Security is exchanged for Definitive Securities pursuant to Section 2.4 prior to the consummation of a Registered Exchange Offer or the effectiveness of a Shelf Registration Statement with respect to such Securities, such Securities may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this Section 2.3 (including the certification requirements set forth on the reverse of the Initial Securities intended to ensure that such transfers comply with Rule 144A, Regulation S or such other 7 applicable exemption from registration under the Securities Act, as the case may be) and such other procedures as may from time to time be adopted by the Issuer. (d) Restrictions on Transfer of Regulation S Global Security. (i) Prior to the expiration of the Restricted Period, interests in the Regulation S Global Security may only be held through Euroclear or Clearstream. During the Restricted Period, beneficial ownership interests in the Regulation S Global Security may only be sold, pledged or transferred through Euroclear or Clearstream in accordance with the Applicable Procedures and only (1) to the Issuer, (2) so long as such security is eligible for resale pursuant to Rule 144A, to a person whom the selling holder reasonably believes is a QIB that purchases for its own account or for the account of a QIB to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, (3) in an offshore transaction in accordance with Regulation S, (4) pursuant to an exemption from registration under the Securities Act provided by Rule 144 (if applicable) under the Securities Act, (5) to an IAI purchasing for its own account, or for the account of such an IAI, in a minimum principal amount of Securities of $250,000 or (6) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. Prior to the expiration of the Restricted Period, transfers by an owner of a beneficial interest in the Regulation S Global Security to a transferee who takes delivery of such interest through the Rule 144A Global Security or the IAI Global Security shall be made only in accordance with Applicable Procedures and upon receipt by the Trustee of a written certification from the transferor of the beneficial interest in the form provided on the reverse of the Initial Security to the effect that such transfer is being made to (1) a person whom the transferor reasonably believes is a QIB within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A or (2) an IAI purchasing for its own account, or for the account of such an IAI, in a minimum principal amount of the Securities of $250,000. Such written certification shall no longer be required after the expiration of the Restricted Period. In the case of a transfer of a beneficial interest in the Regulation S Global Security for an interest in the IAI Global Security, the transferee must furnish a signed letter substantially in the form of Exhibit D to the Trustee. (ii) Upon the expiration of the Restricted Period, beneficial ownership interests in the Regulation S Global Security shall be transferable in accordance with applicable law and the other terms of this Indenture. (e) Legend. (i) Except as permitted by the following paragraphs (ii), (iii) or (iv), each Security certificate evidencing the Global Securities and the Definitive Securities (and all Securities issued in exchange therefor or in substitution thereof) shall bear a 8 legend in substantially the following form (each defined term in the legend being defined as such for purposes of the legend only): "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL ACCREDITED INVESTOR ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) 9 TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE." Each Definitive Security shall bear the following additional legend: "IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS." (ii) Upon any sale or transfer of a Transfer Restricted Security that is a Definitive Security, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Definitive Security that does not bear the legends set forth above and rescind any restriction on the transfer of such Transfer Restricted Security if the Holder certifies in writing to the Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Initial Security). (iii) After a transfer of any Original or Additional Securities or Private Exchange Securities during the period of the effectiveness of a Shelf Registration Statement with respect to such Original or Additional Securities or Private Exchange Securities, as the case may be, all requirements pertaining to the Restricted Securities Legend on such Original or Additional Securities or such Private Exchange Securities shall cease to apply and the requirements that any such Original or Additional Securities or such Private Exchange Securities be issued in global form shall continue to apply. (iv) Upon the consummation of a Registered Exchange Offer with respect to the Original or Additional Securities pursuant to which Holders of such Original or Additional Securities are offered Exchange Securities in exchange for their Original or Additional Securities, all requirements pertaining to Original or Additional Securities that Original or Additional Securities be issued in global form shall continue to apply, and Exchange Securities in global form without the Restricted Securities Legend shall be available to Holders that exchange such Securities in such Registered Exchange Offer. (v) Upon the consummation of a Private Exchange with respect to the Original or Additional Securities pursuant to which Holders of such Original or Additional Securities are offered Private Exchange Securities in exchange for their 10 Original or Additional Securities, all requirements pertaining to such Original or Additional Securities that Original or Additional Securities be issued in global form shall continue to apply, and Private Exchange Securities in global form with the Restricted Securities Legend shall be available to Holders that exchange such Original or Additional Securities in such Private Exchange. (vi) Upon a sale or transfer after the expiration of the Restricted Period of any Initial Security acquired pursuant to Regulation S, all requirements that such Initial Security bear the Restricted Securities Legend shall cease to apply and the requirements requiring any such Initial Security be issued in global form shall continue to apply. (vii) Any Additional Securities sold in a registered offering shall not be required to bear the Restricted Securities Legend. (f) Cancelation or Adjustment of Global Security. At such time as all beneficial interests in a Global Security have either been exchanged for Definitive Securities, transferred, redeemed, repurchased or canceled, such Global Security shall be returned by the Depositary to the Trustee for cancelation or retained and canceled by the Trustee. At any time prior to such cancelation, if any beneficial interest in a Global Security is exchanged for Definitive Securities, transferred in exchange for an interest in another Global Security, redeemed, repurchased or canceled, the principal amount of Securities represented by such Global Security shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Securities Custodian for such Global Security) with respect to such Global Security, by the Trustee or the Securities Custodian, to reflect such reduction. (g) Obligations with Respect to Transfers and Exchanges of Securities. (i) To permit registrations of transfers and exchanges, the Issuer shall execute and the Trustee shall authenticate, Definitive Securities and Global Securities at the Registrar's request. (ii) No service charge shall be made for any registration of transfer or exchange, but the Issuer may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchanges pursuant to Sections 2.07, 3.06, 4.06, 4.08 and 9.05 of this Indenture). (iii) Prior to the due presentation for registration of transfer of any Security, the Issuer, the Trustee, the Paying Agent or the Registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and 11 for all other purposes whatsoever, whether or not such Security is overdue, and none of the Issuer, the Trustee, the Paying Agent or the Registrar shall be affected by notice to the contrary. (iv) All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. (h) No Obligation of the Trustee. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security, a member of, or a participant in the Depositary or any other Person with respect to the accuracy of the records of the Depositary or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depositary) of any notice (including any notice of redemption or repurchase) or the payment of any amount, under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders under the Securities shall be given or made only to the registered Holders (which shall be the Depositary or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through the Depositary subject to the applicable rules and procedures of the Depositary. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depositary with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depositary participants, members or beneficial owners in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. 2.4 Definitive Securities (a) A Global Security deposited with the Depositary or with the Trustee as Securities Custodian pursuant to Section 2.1 or issued in connection with a Registered Exchange Offer or Private Exchange shall be transferred to the beneficial owners thereof in the form of Definitive Securities in an aggregate principal amount equal to the principal 12 amount of such Global Security, in exchange for such Global Security, only if such transfer complies with Section 2.3 and (i) the Depositary notifies the Issuer that it is unwilling or unable to continue as a Depositary for such Global Security or if at any time the Depositary ceases to be a "clearing agency" registered under the Exchange Act, and a successor depositary is not appointed by the Issuer within 90 days of such notice or after the Issuer becomes aware of such cessation, or (ii) an Event of Default has occurred and is continuing or (iii) the Issuer, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of certificated Securities under this Indenture. (b) Any Global Security that is transferable to the beneficial owners thereof pursuant to this Section 2.4 shall be surrendered by the Depositary to the Trustee, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Security, an equal aggregate principal amount of Definitive Securities of authorized denominations. Any portion of a Global Security transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 and any integral multiple thereof and registered in such names as the Depositary shall direct. Any certificated Initial Security in the form of a Definitive Security delivered in exchange for an interest in the Global Security shall, except as otherwise provided by Section 2.3(e), bear the Restricted Securities Legend. (c) Subject to the provisions of Section 2.4(b), the registered Holder of a Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. (d) In the event of the occurrence of any of the events specified in Section 2.4(a)(i), (ii) or (iii), the Issuer will promptly make available to the Trustee a reasonable supply of Definitive Securities in fully registered form without interest coupons. 13 SCHEDULE I Note Guarantors
Name Jurisdiction of Organization - ---- ---------------------------- New SAC Cayman Islands Seagate Technology Holdings Cayman Islands Seagate Technology HDD Holdings Cayman Islands Seagate Technology China Holding Company Cayman Islands Seagate Technology Asia Holdings Cayman Islands Seagate Technology (Ireland) Cayman Islands/ Located in Northern Ireland Seagate Technology Media (Ireland) Cayman Islands/ Located in Northern Ireland Seagate Technology Far East Holdings Cayman Islands Seagate Technology (Philippines) Cayman Islands Seagate Technology SAN Holdings Cayman Islands Seagate Removable Storage Solutions Holdings Cayman Islands Seagate Removable Storage Solutions International Cayman Islands Seagate Software (Cayman) Holdings Cayman Islands Seagate Technology (US) Holdings, Inc. Delaware Seagate Technology LLC Delaware Seagate US LLC Delaware Redwood Acquisition Corporation Delaware Seagate Removable Storage Solutions (US) Holdings, Inc. Delaware Seagate Removable Storage Solutions LLC Delaware Seagate RSS LLC Delaware Seagate Software Information Management Group Delaware Holdings, Inc.
Name Jurisdiction of Organization - ---- ---------------------------- Quinta Corporation California XIOtech Corporation Minnesota Seagate Technology (Thailand) Limited Thailand Seagate Technology-Reynosa, S. de R.L. de C.V. Mexico Nippon Seagate Inc. Japan Nippon Seagate Software, Inc. Japan Seagate Singapore Distribution Pte Ltd Singapore Seagate Software Information Pte Ltd Singapore Seagate Distribution (UK) Limited Scotland Seagate Technology (Marlow) Limited England & Wales Seagate Software Information Management Group Limited England & Wales XIOtech (Canada) Limited Canada Seagate Software(Canada), Inc. Canada
2 EXHIBIT A [FORM OF FACE OF INITIAL SECURITY] [Global Securities Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO DTC, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. [Restricted Securities Legend] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL ACCREDITED INVESTOR ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. Each Definitive Security shall bear the following additional legend: IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. 2 No. $__________ 12 1/2% Senior Subordinated Note due 2007 CUSIP No. ______ ISIN No.____ SEAGATE TECHNOLOGY INTERNATIONAL, an exempted limited liability company incorporated under the laws of the Cayman Islands, promises to pay to Cede & Co., or registered assigns, the principal sum [of Dollars] [listed on the Schedule of Increases or Decreases in Global Security attached hereto] on November 15, 2007. Interest Payment Dates: May 15 and November 15. Record Dates: May 1 and November 1. Additional provisions of this Security are set forth on the other side of this Security. IN WITNESS WHEREOF, the parties have caused this instrument to be duly executed. SEAGATE TECHNOLOGY INTERNATIONAL, by ---------------------------------------- Name: Title: Dated: TRUSTEE'S CERTIFICATE OF AUTHENTICATION THE BANK OF NEW YORK as Trustee, certifies that this is one of the Securities referred to in the Indenture. By: --------------------------------- Authorized Signatory */ If the Security is to be issued in global form, add the Global Securities Legend and the attachment from Exhibit A captioned "TO BE ATTACHED TO GLOBAL SECURITIES--SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY". 2 [FORM OF REVERSE SIDE OF INITIAL SECURITY] 12 1/2% Senior Subordinated Note due 2007 1. Interest (a) SEAGATE TECHNOLOGY INTERNATIONAL, an exempted limited liability company incorporated under the laws of the Cayman Islands (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Issuer"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Issuer shall pay interest semiannually on May 15 and November 15 of each year. Interest on the Securities shall accrue from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from November 22, 2000 until the principal hereof is due. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. (b) Liquidated Damages. The Holder of this Security is entitled to the benefits of an Exchange and Registration Rights Agreement, dated as of November 22, 2000, among the Issuer, New SAC, Seagate Technology Holdings, Seagate Technology HDD Holdings, Seagate Technology (US) Holdings, Inc., Seagate Technology LLC, Seagate US LLC, Redwood Acquisition Corporation, Quinta Corporation, Seagate Technology International, Seagate Technology (Thailand) Limited, Seagate Technology China Holding Co., Seagate Technology Asia Holdings, Seagate Technology (Ireland), Seagate Technology Media (Ireland), Seagate Technology Reynosa S. de R.L. de C.V., Nippon Seagate Inc., Seagate Singapore Distribution Pte Ltd, Seagate Distribution (UK) Limited, Seagate Technology (Marlow) Limited, Seagate Technology Far East Holdings, Seagate Technology (Philippines), Seagate Technology (SAN) Holdings, XIOtech Corporation, XIOtech (Canada) Ltd., Seagate Removable Storage Solutions Holdings, Seagate Removable Storage Solutions (US) Holdings, Inc., Seagate Removable Storage Solutions LLC, Seagate RSS LLC, Seagate Removable Storage Solutions International, Seagate Software (Cayman) Holdings, Seagate Software Information Management Group Holdings, Inc., Seagate Software Information Management Group (Canada), Inc., Nippon Seagate Software KK, Seagate Software Information Pte Ltd, Seagate Software Information Management Group Limited, (collectively, the "Note Guarantors") and the Initial Purchasers named therein (the "Registration Agreement"). Capitalized terms used in this paragraph (b) but not defined herein have the meanings assigned to them in the Registration Agreement. If (i) the Shelf Registration Statement or Exchange Offer Registration Statement, as applicable under the Registration Agreement, is not filed with the SEC on or prior to 150 days after the Issue Date, (ii) the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is not declared effective within 270 days after the Issue Date (or in the case of a Shelf Registration Statement required to be filed in response to a change in law or the applicable interpretations of the SEC's staff, if later, within 60 days after publication of the 3 change in law or interpretation), (iii) the Registered Exchange Offer is not consummated on or prior to 300 days after the Issue Date, other than in the event that the Issuer and the Note Guarantors file a Shelf Registration Statement, or (iv) the Shelf Registration Statement is filed and declared effective within 270 days after the Issue Date (or in the case of a Shelf Registration Statement required to be filed in response to a change in law or the applicable interpretations of the SEC's staff, if later, within 60 days after publication of the change in law or interpretation, but in no event within 270 days after the Issue Date) but shall thereafter cease to be effective (other than at any time that the Issuer and the Note Guarantors are not obligated to maintain the effectiveness thereof including as set forth in Sections 2(c) and 3(b) of the Registration Agreement) without being succeeded within 60 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default"), the Issuer shall pay liquidated damages to each Holder of Transfer Restricted Securities, during the period of such Registration Default, in an amount equal to $0.192 per week per $1,000 principal amount of the Securities constituting Transfer Restricted Securities held by such Holder until the applicable Registration Statement is filed or declared effective, the Registered Exchange Offer is consummated or the Shelf Registration Statement again becomes effective, as the case may be. All accrued liquidated damages shall be paid to Holders in the same manner as interest payments on the Securities on semi-annual payment dates which correspond to interest payment dates for the Securities. Following the cure of all Registration Defaults, the accrual of liquidated damages shall cease. The Trustee shall have no responsibility with respect to the determination of the amount of any such liquidated damages. For purposes of the foregoing, "Transfer Restricted Securities" means (i) each Initial Security until the date on which such Initial Security has been exchanged for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) each Initial Security or Private Exchange Security until the date on which such Initial Security or Private Exchange Security has been effectively registered under the Securities Act and disposed of in accordance with a Shelf Registration Statement or (iii) each Initial Security or Private Exchange Security until the date on which such Initial Security or Private Exchange Security is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary in this Section 1(b) or Section 3(b) of the Registration Agreement, the Issuer and the Note Guarantors shall not be required to pay liquidated damages to a Holder of Transfer Restricted Securities if such Holder failed to comply with its obligations to make the representations set forth in the second to last paragraph of Section 1 of the Registration Agreement or failed to provide the information required to be provided by it, if any, pursuant to Section 4(n) of the Registration Agreement. 2. Method of Payment The Issuer shall pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders at the close of business on the May 1 or November 1 next preceding the interest payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent 4 to collect principal payments. The Issuer shall pay principal, premium, if any, liquidated damages, if any, and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. Payments in respect of the Securities represented by a Global Security (including principal, premium, if any, liquidated damages, if any, and interest) shall be made by wire transfer of immediately available funds to the accounts specified by The Depository Trust Company or any successor depositary. The Issuer shall make all payments in respect of a certificated Security (including principal, premium, if any, interest and liquidated damages, if any), at the office of the Paying Agent, except that, at the option of the Issuer, payment of interest or liquidated damages may be made by mailing a check to the registered address of each Holder thereof; provided, however, that payments on the Securities may also be made, in the case of a Holder of at least $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 3. Paying Agent and Registrar Initially, The Bank of New York, a New York banking corporation (the "Trustee"), will act as Paying Agent and Registrar. The Issuer may appoint and change any Paying Agent or Registrar without notice. The Company or any of its Wholly Owned Subsidiaries may act as Paying Agent or Registrar. 4. Indenture The Issuer issued the Securities under an Indenture dated as of November 22, 2000 (the "Indenture"), among the Issuer, the Note Guarantors and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all terms and provisions of the Indenture, and Holders are referred to the Indenture and the TIA for a statement of such terms and provisions. The Securities are senior subordinated unsecured obligations of the Issuer. This Security is one of the [Original] [Additional] [Initial] [Private Exchange] Securities referred to in the Indenture. The Securities include the Original Securities, the Additional Securities and any Exchange Securities and Private Exchange Securities issued in exchange for Initial Securities pursuant to the Indenture. The Original Securities, the Additional Securities and any Exchange Securities and Private Exchange Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries (including the Issuer) to, among 5 other things, make certain Investments and other Restricted Payments, pay dividends and other distributions, incur Indebtedness, enter into consensual restrictions upon the payment of certain dividends and distributions by such Restricted Subsidiaries (including the Issuer), issue or sell shares of capital stock of such Restricted Subsidiaries, enter into or permit certain transactions with Affiliates, enter into certain lines of businesses, conduct rigid disc drive operations at certain subsidiaries, amend Deferred Compensation Plans and make asset sales. The Indenture also imposes limitations on the ability of the Issuer and each Note Guarantor to consolidate or merge with or into any other Person or convey, transfer or lease all or substantially all its property. To guarantee the due and punctual payment of the principal of and premium, if any, interest and liquidated damages, if any, on the Securities and all other amounts payable by the Issuer under the Indenture and the Securities when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Securities and the Indenture, the Note Guarantors have jointly and severally unconditionally guaranteed the Guaranteed Obligations on a senior subordinated basis pursuant to the terms of the Indenture. 5. Optional Redemption Except as described below, the Issuer may not redeem the Securities prior to November 15, 2004. On or after such date, the Issuer may redeem the Securities, in whole or in part, on one or more occasions, on not less than 30 nor more than 60 days prior notice, at the following redemption prices (expressed as percentages of principal amount), plus accrued and unpaid interest and liquidated damages, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest and liquidated damages, if any, due on the relevant interest payment date), if redeemed during the 12-month period commencing on November 15 of the years set forth below: REDEMPTION YEAR PRICE --------------------------------------------------- 2004 106.250% 2005 103.313% 2006 and thereafter 100.000% In addition, at any time and from time to time on or prior to November 15, 2003, the Issuer may, on one or more occasions, redeem up to a maximum of 35% of the original aggregate principal amount of the Securities (calculated giving effect to any issuance of Additional Securities) with the Net Cash Proceeds of one or more Equity Offerings (i) by the Issuer or (ii) by the Company, Intermediate Holdings or HDD Holdings to the extent the Net Cash Proceeds thereof are contributed to the Issuer or used to purchase Capital Stock (other than Disqualified Stock) of the Issuer from the Issuer, at a redemption price equal to 6 112.5% of the principal amount thereof, plus accrued and unpaid interest and liquidated damages thereon, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that after giving effect to any such redemption: (i) at least 65% of the original aggregate principal amount of the Securities (calculated giving effect to any issuance of Additional Securities) remains outstanding, and (ii) any such redemption shall be made within 90 days of such Equity Offering upon not less than 30 nor more than 60 days notice mailed to each Holder of Securities being redeemed and otherwise in accordance with the procedures set forth in the Indenture. In addition, at any time on or prior to November 15, 2004, the Securities may be redeemed as a whole but not in part at the option of the Issuer upon the occurrence of a, or if applicable each, Change of Control, upon not less than 30 or more than 60 days' prior notice (but in no event may any such redemption occur more than 90 days after the occurrence of such Change of Control) mailed by first-class mail to each Holder's registered address, at a redemption price equal to the sum of (1) the principal amount thereof and (2) the Applicable Premium as of, and accrued and unpaid interest, if any, to, the redemption date (subject to the right of Holders on the relevant record date to receive interest due on the relevant interest payment date). 6. Redemption for Changes in Withholding Taxes (a) The Issuer, which shall include any Successor Company (as such term is defined in Section 5.01(a)(i) of the Indenture) shall be entitled to redeem the Securities, at its option, at any time as a whole but not in part, upon not less than 30 nor more than 60 days' notice given as provided in Article 3 of the Indenture, at an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest (if any) and liquidated damages, if any, to the date fixed for such payment (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), in the event the Issuer has become or would become obligated to pay, on the next date on which any amount would be payable with respect to the Securities, any Additional Amounts as a result of: (1) a change in or an amendment to the laws (including any regulations or ruling promulgated thereunder) of (x) the Cayman Islands, (y) any jurisdiction, other than the United States, from or through which payment on the Securities is made or (z) any other jurisdiction, other than the United States, in which the Issuer or a Successor Company is organized (or any political subdivision or taxing authority thereof or therein), which change or amendment is announced or becomes effective on or after the Closing Date (and, in the case of a Successor Company, becomes effective after the date of that entity's assumption of the Issuer's obligations under the Securities); or (2) any change in or amendment to any official position regarding the application or interpretation of such laws, regulations or rulings, or any execution of or amendment to, any treaty or treaties affecting taxation to which such jurisdiction (or such political subdivision or taxing authority) is a party, which change or amendment is announced or becomes effective on or after the Closing Date; and, in the case of clauses (1) and (2) 7 above, the Issuer or the Successor Company, if applicable, cannot avoid such obligation by taking reasonable measures available to it. (b) Prior to the notice of redemption given in accordance with the foregoing paragraph 6(a), the Issuer or the Successor Company, if applicable, shall deliver to the Trustee an officers' certificate to the effect that the Issuer or the Successor Company, if applicable, cannot avoid its obligation to pay Additional Amounts by taking reasonable measures available to it. The Issuer or the Successor Company, if applicable, shall also deliver an opinion of independent legal counsel of recognized standing stating that the Issuer or the Successor Company, if applicable, would be obligated to pay Additional Amounts as a result of a change in tax laws or regulations or the application or interpretation of such laws or regulations. 7. Additional Amounts. (a) The Issuer, which shall include any Successor Company (as such term is defined in Section 5.01(a)(i) of the Indenture), shall make all its payments under or with respect to the Securities and each Note Guarantor, which shall include any Successor Guarantor (as such term is defined in the Indenture), shall make all payments under or with respect to the Note Guarantees free and clear of and without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment or other governmental charge (including penalties, interest and other liabilities related thereto) (hereinafter "Taxes") imposed or levied by or on behalf of the government of the Cayman Islands or any political subdivision or any authority or agency therein or thereof having power to tax, or within any other jurisdiction in which it is organized or is otherwise resident for tax purposes or any jurisdiction from or through which payment is made (each a "Relevant Taxing Jurisdiction"), unless the Issuer or any Note Guarantor, as the case may be, is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. If the Issuer or any Note Guarantor is so required to withhold or deduct any amount for or on account of Taxes imposed by a Relevant Taxing Jurisdiction from any payment made under or with respect to the Notes or the Note Guarantees, the Issuer or the applicable Note Guarantor shall pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each Holder (including Additional Amounts) after such withholding or deduction shall not be less than the amount such Holder would have received if such Taxes had not been withheld or deducted; provided, however, that the foregoing obligation to pay Additional Amounts shall not apply to (1) any Taxes that would not have been so imposed but for the existence of any present or former connection between the relevant Holder (or between a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of power over the relevant Holder, if the relevant Holder is an estate, nominee, trust or corporation) and the Relevant Taxing Jurisdiction (other than the mere receipt of such payment or the ownership or holding outside of the Cayman Islands of such Securities but including, without limitation, such relevant Holder (or such fiduciary, settlor, beneficiary, member or shareholder or possessor) being or 8 having been a citizen or resident thereof or being or having been present or engaged in a trade or business therein or having or having had a permanent establishment therein); or (2) any estate, inheritance, gift, sales, excise, transfer, personal property tax or similar tax, assessment or governmental charge; (3) any tax, assessment or other governmental charge that is imposed or withheld by reason of the failure by the Holder or the beneficial owner of the Securities to comply with a request of the Issuer or any Note Guarantor, as the case may be, addressed to the Holder (x) to provide information, documents or other evidence concerning the nationality, residence or identity of the Holder or such beneficial owner or (y) to make and deliver any declaration or other similar claim (other than a claim for refund of a tax, assessment or other governmental charge withheld by the Issuer) or satisfy any information or reporting requirements, which, in the case of (x) or (y), is required or imposed by a statute, treaty, regulation or administrative practice of the taxing jurisdiction as a precondition to exemption from all or part of such tax, assessment or other governmental charge or (4) any tax, assessment or other governmental charge that is payable otherwise than by withholding from payment of principal of, premium, if any, or interest on such Securities; nor shall the Issuer or any Note Guarantor, as applicable, be required to pay Additional Amounts (a) if the payment could have been made without such deduction or withholding if the beneficiary of the payment had presented the Securities for payment within 30 days after the date on which such payment or such Securities became due and payable or the date on which payment thereof is duly provided for, whichever is later (except to the extent that the holder would have been entitled to Additional Amounts had the Securities been presented on the last day of such 30-day period), (b) if, at the election of the relevant Holder, the payment of principal of (or premium, if any, on) or interest on such Securities could have been made through another paying agent without such deduction or withholding, or (c) with respect to any payment of principal of (or premium, if any, on) or interest on such Securities to any Holder who is a fiduciary, partnership or limited liability company that is treated as a partnership for U.S. federal income tax purposes or any person other than the sole beneficial owner of such payment, to the extent that a beneficiary or settlor with respect to such fiduciary, a member of such partnership or limited liability company that is treated as a partnership for U.S. federal income tax purposes or the beneficial owner of such payment would not have been entitled to the Additional Amounts had such beneficiary, settlor, member or beneficial owner been the actual holder of such Securities. (b) The Issuer shall provide the Trustee with official receipts evidencing the payment of the Taxes with respect to which Additional Amounts are paid. (c) Whenever in the Indenture or in the Securities there is mentioned, in any context: (1) the payment of principal; (2) purchase prices in connection with a purchase of Securities; (3) interest; or (4) any other amount payable on or with respect to any of the Securities, such reference shall be deemed to include payment of Additional Amounts as required under this paragraph 7 to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. 9 (d) The Issuer shall pay any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies and other duties (including interest and penalties) that arise in any jurisdiction from the execution, delivery, enforcement or registration of the Securities, this Indenture or any other document or instrument in relation thereof, or the receipt of any payments with respect to the Securities, excluding such taxes, charges or similar levies imposed by any jurisdiction outside of the Cayman Islands or the United States (or any political subdivision or taxing authority of either jurisdiction), the jurisdiction of incorporation of any successor of the Issuer, any jurisdiction through which payment is made or in which a paying agent is located or any jurisdiction in which the Issuer is organized or engaged in business for tax purposes, and the Issuer will agree to indemnify the Holders for any such taxes paid by such Holders. (e) The obligations arising under this paragraph shall survive any termination, defeasance or discharge of this Indenture and will apply mutatis mutandis to any jurisdiction in which any successor Person to the Issuer or any Note Guarantor is organized or any political subdivision or taxing authority or agency thereof or therein. 8. Sinking Fund The Securities are not subject to any sinking fund. 9. Notice of Redemption Notice of redemption will be mailed by first-class mail at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his or her registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued and unpaid interest and liquidated damages, if any, on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 10. Repurchase of Securities at the Option of Holders upon Change of Control and Asset Dispositions Upon a Change of Control, each Holder of Securities will have the right, subject to certain conditions specified in the Indenture, to require the Issuer to repurchase all or any part of the Securities of such Holder at a purchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued and unpaid interest and liquidated damages, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due and liquidated damages, if any, due on the relevant 10 interest payment date that is on or prior to the date of purchase) as provided in, and subject to the terms of, the Indenture. In accordance with Section 4.06 of the Indenture, the Issuer will be required to offer to purchase Securities upon the occurrence of certain events at a purchase price equal to 100% of the principal amount of the Securities. 11. Subordination The Securities and Note Guarantees are subordinated to Senior Indebtedness. To the extent provided in the Indenture, Senior Indebtedness must be paid before the Securities and Note Guarantees may be paid. The Issuer and each Note Guarantor agrees, and each Holder by accepting a Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give it effect and appoints the Trustee as attorney-in-fact for such purpose. 12. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. Upon any transfer or exchange, the Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or to transfer or exchange any Securities for a period of 15 days prior to the mailing of a notice of redemption of Securities to be redeemed. 13. Persons Deemed Owners Except as provided in paragraph 2 hereof, the registered Holder of this Security may be treated as the owner of it for all purposes. 14. Unclaimed Money If money for the payment of principal, interest or liquidated damages, if any, remains unclaimed for two years, the Trustee and the Paying Agent shall pay the money back to the Issuer at its written request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look to the Issuer for payment as general creditors and the Trustee and the Paying Agent shall have no further liability with respect to such monies. 11 15. Discharge and Defeasance Subject to certain conditions, the Issuer at any time may terminate some of or all its obligations under the Securities and the Indenture if the Issuer deposits with the Trustee money or U.S. Government Obligations for the payment of principal of, and interest and liquidated damages, if any, on, the Securities to redemption or maturity, as the case may be. 16. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended without prior notice to any Holder but with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities and (ii) any Default or compliance with any provision may be waived with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder, the Issuer, the Note Guarantors and the Trustee may amend the Indenture or the Securities (i) to cure any ambiguity, omission, defect or inconsistency; (ii) to comply with Article 5 of the Indenture; (iii) to provide for uncertificated Securities in addition to or in place of certificated Securities; (iv) to add Note Guarantees with respect to the Securities; (v) to secure the Securities; (vi) to add additional covenants for the benefit of the Holders or to surrender rights and powers conferred on the Company or the Issuer; (vii) to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA; (viii) to make any change that does not adversely affect the rights of any Holder; (ix) to make any change in the subordination provisions of the Indenture that would limit or terminate the benefits available to any holder of Senior Indebtedness of the Issuer (or any Representative thereof) under such subordination provisions; or (x) to provide for the issuance of the Exchange Securities, Private Exchange Securities, or Additional Securities in compliance with Section 4.03. 17. Defaults and Remedies If an Event of Default occurs (other than an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company, Intermediate Holdings, HDD Holdings or the Issuer) and is continuing, the Trustee or the Holders of at least 25% in principal amount of the outstanding Securities may declare the principal of and accrued but unpaid interest on all the Securities to be due and payable. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company, Intermediate Holdings, HDD Holdings or the Issuer occurs, the principal of and interest on all the Securities shall become immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in principal amount of the outstanding Securities may rescind any such acceleration with respect to the Securities and its consequences. 12 If an Event of Default occurs and is continuing, the Trustee shall be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense and certain other conditions are complied with. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no Holder may pursue any remedy with respect to the Indenture or the Securities unless (i) such Holder has previously given the Trustee notice that an Event of Default is continuing, (ii) Holders of at least 25% in principal amount of the outstanding Securities have requested the Trustee in writing to pursue the remedy, (iii) such Holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity and (v) the Holders of a majority in principal amount of the outstanding Securities have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount of the outstanding Securities are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. 18. Trustee Dealings with the Issuer Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Issuer or its Affiliates and may otherwise deal with the Issuer or its Affiliates with the same rights it would have if it were not Trustee. 19. No Recourse Against Others A director, officer, employee or stockholder, as such, of the Issuer or any of the Note Guarantors shall not have any liability for any obligations of the Issuer under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Holder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 13 20. Authentication This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 21. Abbreviations Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 22. Governing Law THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 23. CUSIP and ISIN Numbers The Issuer has caused CUSIP and ISIN numbers to be printed on the Securities and has directed the Trustee to use CUSIP and ISIN numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. THE ISSUER WILL FURNISH TO ANY HOLDER OF SECURITIES UPON WRITTEN REQUEST AND WITHOUT CHARGE TO THE HOLDER A COPY OF THE INDENTURE WHICH HAS IN IT THE TEXT OF THIS SECURITY. 14 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Issuer. The agent may substitute another to act for him. - ------------------------------------------------------------ Date: Your Signature: ----------------- ---------------------- - ------------------------------------------------------------ Sign exactly as your name appears on the other side of this Security. 15 CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER RESTRICTED SECURITIES This certificate relates to $_________ principal amount of Securities held in (check applicable space) ____ book-entry or _____ definitive form by the undersigned. The undersigned (check one box below): [ ] has requested the Trustee by written order to deliver in exchange for its beneficial interest in the Global Security held by the Depositary a Security or Securities in definitive, registered form of authorized denominations and an aggregate principal amount equal to its beneficial interest in such Global Security (or the portion thereof indicated above); [ ] has requested the Trustee by written order to exchange or register the transfer of a Security or Securities. In connection with any transfer of any of the Securities evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that such Securities are being transferred in accordance with its terms: CHECK ONE BOX BELOW (1) [ ]to the Issuer; or (2) [ ]to the Registrar for registration in the name of the Holder, without transfer; or (3) [ ]pursuant to an effective registration statement under the Securities Act of 1933; or (4) [ ]inside the United States to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (5) [ ]outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 904 under the Securities Act of 1933 and such Security shall be held immediately after the transfer through Euroclear or Clearstream until the expiration of the Restricted Period (as defined in the Indenture); or 16 (6) [ ]to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933) that has furnished to the Trustee a signed letter containing certain representations and agreements; or (7) [ ]pursuant to another available exemption from registration provided by Rule 144 under the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any Person other than the registered Holder thereof; provided, however, that if box (5), (6) or (7) is checked, the Trustee may require, prior to registering any such transfer of the Securities, such legal opinions, certifications and other information as the Issuer has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933. --------------------------------- Your Signature Signature Guarantee: Date: ------------------- --------------------------------- Signature must be guaranteed Signature of Signature by a participant in a Guarantee recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee - ------------------------------------------------------------ TO BE COMPLETED BY PURCHASER IF (4) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuer as the undersigned has requested pursuant to Rule 144A or has determined not to 17 request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ------------------- --------------------------- NOTICE: To be executed by an executive officer 18 [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The initial principal amount of this Global Security is $[ ]. The following increases or decreases in this Global Security have been made:
Date of Amount of decrease in Amount of increase in Principal amount of this Signature of authorized Exchange Principal Amount of this Principal Amount of this Global Security following signatory of Trustee or Global Security Global Security such decrease or increase Securities Custodian
19 OPTION OF HOLDER TO ELECT PURCHASE IF YOU WANT TO ELECT TO HAVE THIS SECURITY PURCHASED BY THE ISSUER PURSUANT TO SECTION 4.06 (ASSET DISPOSITION) OR 4.08 (CHANGE OF CONTROL) OF THE INDENTURE, CHECK ONE OF THE FOLLOWING BOXES: ASSET DISPOSITION [ ] CHANGE OF CONTROL [ ] IF YOU WANT TO ELECT TO HAVE ONLY PART OF THIS SECURITY PURCHASED BY THE ISSUER PURSUANT TO SECTION 4.06 OR 4.08 OF THE INDENTURE, STATE THE AMOUNT ($1,000 OR AN INTEGRAL MULTIPLE THEREOF): $ DATE: YOUR SIGNATURE: ------------------ ---------------------- (SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE OF THE SECURITY) SIGNATURE GUARANTEE: --------------------------------------- SIGNATURE MUST BE GUARANTEED BY A PARTICIPANT IN A RECOGNIZED SIGNATURE GUARANTY MEDALLION PROGRAM OR OTHER SIGNATURE GUARANTOR ACCEPTABLE TO THE TRUSTEE 20 EXHIBIT B [FORM OF FACE OF EXCHANGE SECURITY] [Global Securities Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO DTC, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. No. $__________ 12 1/2% Senior Subordinated Note due 2007 CUSIP No. ______ ISIN No. ____ SEAGATE TECHNOLOGY INTERNATIONAL, an exempted limited liability company incorporated under the laws of the Cayman Islands, promises to pay to Cede & Co., or registered assigns, the principal sum [of Dollars] [listed on the Schedule of Increases or Decreases in Global Security attached hereto] on November 15, 2007. Interest Payment Dates: May 15 and November 15. Record Dates: May 1 and November 1. 2 Additional provisions of this Security are set forth on the other side of this Security. IN WITNESS WHEREOF, the parties have caused this instrument to be duly executed. SEAGATE TECHNOLOGY INTERNATIONAL, by ------------------------------------ Name: Title: Dated: TRUSTEE'S CERTIFICATE OF AUTHENTICATION THE BANK OF NEW YORK, as Trustee, certifies that this is one of the Securities referred to in the Indenture. by ----------------------------- Authorized Signatory */ If the Security is to be issued in global form, add the Global Securities Legend and the attachment from Exhibit A captioned "TO BE ATTACHED TO GLOBAL SECURITIES--SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY". 3 [FORM OF REVERSE SIDE OF EXCHANGE SECURITY] 12 1/2% Senior Subordinated Note due 2007 1. Interest. SEAGATE TECHNOLOGY INTERNATIONAL, an exempted limited liability company incorporated under the laws of the Cayman Islands (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Issuer"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Issuer shall pay interest semiannually on May 15 and November 15 of each year. Interest on the Securities shall accrue from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from November 22, 2000 until the principal hereof is due. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment The Issuer shall pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders at the close of business on the May 1 or November 1 next preceding the interest payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Issuer shall pay principal, premium, if any, and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. Payments in respect of the Securities represented by a Global Security (including principal, premium, if any, and interest) shall be made by wire transfer of immediately available funds to the accounts specified by The Depository Trust Company or any successor depositary. The Issuer shall make all payments in respect of a certificated Security (including principal, premium, if any, and interest), at the office of the Paying Agent, except that, at the option of the Issuer, payment of interest may be made by mailing a check to the registered address of each Holder thereof; provided, however, that payments on the Securities may also be made, in the case of a Holder of at least $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 3. Paying Agent and Registrar Initially, The Bank of New York, a New York banking corporation (the "Trustee"), will act as Paying Agent and Registrar. The Issuer may appoint and change any 4 Paying Agent or Registrar without notice. The Company or any of its Wholly Owned Subsidiaries may act as Paying Agent or Registrar. 4. Indenture The Issuer issued the Securities under an Indenture dated as of November 22, 2000 (the "Indenture"), among the Issuer, the Note Guarantors and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all terms and provisions of the Indenture, and Holders are referred to the Indenture and the TIA for a statement of such terms and provisions. The Securities are senior subordinated unsecured obligations of the Issuer. This Security is one of the [Exchange] [Additional] Securities referred to in the Indenture. The Securities include the [Original] [Initial] Securities, [the Additional Securities] and any Exchange Securities and Private Exchange Securities issued in exchange for the Initial Securities pursuant to the Indenture. The [Original] [Initial] Securities, [the Additional Securities], the Exchange Securities and the Private Exchange Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries (including the Issuer) to, among other things, make certain Investments and other Restricted Payments, pay dividends and other distributions, incur Indebtedness, enter into consensual restrictions upon the payment of certain dividends and distributions by such Restricted Subsidiaries, issue or sell shares of capital stock of such Restricted Subsidiaries (including the Issuer), enter into or permit certain transactions with Affiliates, enter into certain lines of businesses, conduct rigid disc drive operations at certain subsidiaries, amend Deferred Compensation Plans and make Asset Sales. The Indenture also imposes limitations on the ability of the Issuer and each Note Guarantor to consolidate or merge with or into any other Person or convey, transfer or lease all or substantially all of its property. To guarantee the due and punctual payment of the principal of and premium, if any, and interest on the Securities and all other amounts payable by the Issuer under the Indenture and the Securities when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Securities and the Indenture, the Note Guarantors have, jointly and severally, unconditionally guaranteed the Guaranteed Obligations on a senior subordinated basis pursuant to the terms of the Indenture. 5. Optional Redemption Except as described below, the Issuer may not redeem the Securities prior to November 15, 2004. On or after such date, the Issuer may redeem the Securities, in whole or 5 in part, on not less than 30 nor more than 60 days prior notice, at the following redemption prices (expressed as percentages of principal amount), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on November 15 of the years set forth below: REDEMPTION YEAR PRICE ------------------------------------------------- 2004 106.250% 2005 103.313% 2006 and thereafter 100.000% In addition, at any time and from time to time on or prior to November 15, 2003, the Issuer may redeem up to a maximum of 35% of the original aggregate principal amount of the Securities (calculated giving effect to any issuance of Additional Securities) with the Net Cash Proceeds of one or more Equity Offerings (i) by the Issuer or (ii) by the Company, Intermediate Holdings or HDD Holdings to the extent the Net Cash Proceeds thereof are contributed to the Issuer or used to purchase Capital Stock (other than Disqualified Stock) of the Issuer from the Issuer, at a redemption price equal to 112.5% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that after giving effect to any such redemption: (1) at least 65% of the original aggregate principal amount of the Securities (calculated giving effect to any issuance of Additional Securities) remains outstanding and (2) any such redemption shall be made within 90 days of such Equity Offering upon not less than 30 nor more than 60 days notice mailed to each Holder of Securities being redeemed and otherwise in accordance with the procedures set forth in the Indenture. In addition, at any time on or prior to November 15, 2004, the Securities may be redeemed as a whole but not in part at the option of the Issuer upon the occurrence of a, or if applicable each, Change of Control, upon not less than 30 or more than 60 days' prior notice (but in no event may any such redemption occur more than 90 days after the occurrence of such Change of Control) mailed by first-class mail to each Holder's registered address, at a redemption price equal to the sum of (1) the principal amount thereof and (2) the Applicable Premium as of, and accrued and unpaid interest, if any, to, the redemption date (subject to the right of Holders on the relevant record date to receive interest due on the relevant interest payment date). 6. Redemption for Changes in Withholding Taxes (a) The Issuer, which shall include any Successor Company (as such term is defined in Section 5.01(a)(i) of the Indenture) shall be entitled to redeem the Securities, at its option, at any time as a whole but not in part, upon not less than 30 nor more than 60 days' 6 notice given as provided in Article 3 of the Indenture, at an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest (if any) and liquidated damages, if any, to the date fixed for such payment (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), in the event the Issuer has become or would become obligated to pay, on the next date on which any amount would be payable with respect to the Securities, any Additional Amounts as a result of: (1) a change in or an amendment to the laws (including any regulations or ruling promulgated thereunder) of (x) the Cayman Islands, (y) any jurisdiction, other than the United States, from or through which payment on the Securities is made or (z) any other jurisdiction, other than the United States, in which the Issuer or a Successor Company is organized (or any political subdivision or taxing authority thereof or therein), which change or amendment is announced or becomes effective on or after the Closing Date (and, in the case of a Successor Company, becomes effective after the date of that entity's assumption of the Issuer's obligations under the Securities); or (2) any change in or amendment to any official position regarding the application or interpretation of such laws, regulations or rulings, or any execution of or amendment to, any treaty or treaties affecting taxation to which such jurisdiction (or such political subdivision or taxing authority) is a party, which change or amendment is announced or becomes effective on or after the Closing Date; and, in the case of clauses (1) and (2) above, the Issuer or the Successor Company, if applicable, cannot avoid such obligation by taking reasonable measures available to it. (b) Prior to the notice of redemption given in accordance with the foregoing paragraph 6(a), the Issuer or the Successor Company, if applicable, shall deliver to the Trustee an officers' certificate to the effect that the Issuer or the Successor Company, if applicable, cannot avoid its obligation to pay Additional Amounts by taking reasonable measures available to it. The Issuer or the Successor Company, if applicable, shall also deliver an opinion of independent legal counsel of recognized standing stating that the Issuer or the Successor Company, if applicable, would be obligated to pay Additional Amounts as a result of a change in tax laws or regulations or the application or interpretation of such laws or regulations. 7. Additional Amounts. (a) The Issuer, which shall include any Successor Company (as such term is defined in Section 5.01(a)(i) of the Indenture), shall make all its payments under or with respect to the Securities and each Note Guarantor, which shall include any Successor Guarantor (as such term is defined in the Indenture), shall make all payments under or with respect to the Note Guarantees free and clear of and without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment or other governmental charge (including penalties, interest and other liabilities related thereto) (hereinafter "Taxes") imposed or levied by or on behalf of the government of the Cayman Islands or any political subdivision or any authority or agency therein or thereof having power to tax, or within any other jurisdiction in which it is organized or is otherwise resident for tax purposes or any 7 jurisdiction from or through which payment is made (each a "Relevant Taxing Jurisdiction"), unless the Issuer or any Note Guarantor, as the case may be, is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. If the Issuer or any Note Guarantor is so required to withhold or deduct any amount for or on account of Taxes imposed by a Relevant Taxing Jurisdiction from any payment made under or with respect to the Notes or the Note Guarantees, the Issuer or the applicable Note Guarantor shall pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each Holder (including Additional Amounts) after such withholding or deduction shall not be less than the amount such Holder would have received if such Taxes had not been withheld or deducted; provided, however, that the foregoing obligation to pay Additional Amounts shall not apply to (1) any Taxes that would not have been so imposed but for the existence of any present or former connection between the relevant Holder (or between a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of power over the relevant Holder, if the relevant Holder is an estate, nominee, trust or corporation) and the Relevant Taxing Jurisdiction (other than the mere receipt of such payment or the ownership or holding outside of the Cayman Islands of such Securities but including, without limitation, such relevant Holder (or such fiduciary, settlor, beneficiary, member or shareholder or possessor) being or having been a citizen or resident thereof or being or having been present or engaged in a trade or business therein or having or having had a permanent establishment therein); or (2) any estate, inheritance, gift, sales, excise, transfer, personal property tax or similar tax, assessment or governmental charge; (3) any tax, assessment or other governmental charge that is imposed or withheld by reason of the failure by the Holder or the beneficial owner of the Securities to comply with a request of the Issuer or any Note Guarantor, as the case may be, addressed to the Holder (x) to provide information, documents or other evidence concerning the nationality, residence or identity of the Holder or such beneficial owner or (y) to make and deliver any declaration or other similar claim (other than a claim for refund of a tax, assessment or other governmental charge withheld by the Issuer) or satisfy any information or reporting requirements, which, in the case of (x) or (y), is required or imposed by a statute, treaty, regulation or administrative practice of the taxing jurisdiction as a precondition to exemption from all or part of such tax, assessment or other governmental charge or (4) any tax, assessment or other governmental charge that is payable otherwise than by withholding from payment of principal of, premium, if any, or interest on such Securities; nor shall the Issuer or any Note Guarantor, as applicable, be required to pay Additional Amounts (a) if the payment could have been made without such deduction or withholding if the beneficiary of the payment had presented the Securities for payment within 30 days after the date on which such payment or such Securities became due and payable or the date on which payment thereof is duly provided for, whichever is later (except to the extent that the holder would have been entitled to Additional Amounts had the Securities been presented on the last day of such 30-day period), (b) if, at the election of the relevant Holder, the payment of principal of (or premium, if any, on) or interest on such Securities could have been made through another paying agent without such deduction or withholding, or (c) with respect to any payment of principal of (or premium, if any, on) or interest on such Securities to any Holder who is a fiduciary, partnership or limited 8 liability company that is treated as a partnership for U.S. federal income tax purposes or any person other than the sole beneficial owner of such payment, to the extent that a beneficiary or settlor with respect to such fiduciary, a member of such partnership or limited liability company that is treated as a partnership for U.S. federal income tax purposes or the beneficial owner of such payment would not have been entitled to the Additional Amounts had such beneficiary, settlor, member or beneficial owner been the actual holder of such Securities. (b) The Issuer shall provide the Trustee with official receipts evidencing the payment of the Taxes with respect to which Additional Amounts are paid. (c) Whenever in the Indenture or in the Securities there is mentioned, in any context: (1) the payment of principal; (2) purchase prices in connection with a purchase of Securities; (3) interest; or (4) any other amount payable on or with respect to any of the Securities, such reference shall be deemed to include payment of Additional Amounts as required under this paragraph 7 to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. (d) The Issuer shall pay any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies and other duties (including interest and penalties) that arise in any jurisdiction from the execution, delivery, enforcement or registration of the Securities, this Indenture or any other document or instrument in relation thereof, or the receipt of any payments with respect to the Securities, excluding such taxes, charges or similar levies imposed by any jurisdiction outside of the Cayman Islands or the United States (or any political subdivision or taxing authority of either jurisdiction), the jurisdiction of incorporation of any successor of the Issuer, any jurisdiction through which payment is made or in which a paying agent is located or any jurisdiction in which the Issuer is organized or engaged in business for tax purposes, and the Issuer will agree to indemnify the Holders for any such taxes paid by such Holders. (e) The obligations arising under this paragraph shall survive any termination, defeasance or discharge of this Indenture and will apply mutatis mutandis to any jurisdiction in which any successor Person to the Issuer or any Note Guarantor is organized or any political subdivision or taxing authority or agency thereof or therein. 8. Sinking Fund The Securities are not subject to any sinking fund. 9. Notice of Redemption Notice of redemption will be mailed by first-class mail at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his or her registered address. Securities in denominations larger than $1,000 may be 9 redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued and unpaid interest and liquidated damages, if any, on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 10. Repurchase of Securities at the Option of Holders upon Change of Control and Asset Dispositions Upon a Change of Control, each Holder of Securities will have the right, subject to certain conditions specified in the Indenture, to require the Issuer to repurchase all or any part of the Securities of such Holder at a purchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of purchase) as provided in, and subject to the terms of, the Indenture. In accordance with Section 4.06 of the Indenture, the Issuer will be required to offer to purchase Securities upon the occurrence of certain events. 11. Subordination The Securities and Note Guarantees are subordinated to Senior Indebtedness, as defined in the Indenture. To the extent provided in the Indenture, Senior Indebtedness must be paid before the Securities may be paid. The Issuer and each Note Guarantor agrees, and each Holder by accepting a Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give it effect and appoints the Trustee as attorney-in-fact for such purpose. 12. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. Upon any transfer or exchange, the Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or to transfer or exchange any Securities for a period of 15 days prior to the mailing of a notice of redemption of Securities to be redeemed. 10 13. Persons Deemed Owners Except as provided in paragraph 2 hereof, the registered Holder of this Security may be treated as the owner of it for all purposes. 14. Unclaimed Money If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agent shall pay the money back to the Issuer at its written request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look to the Issuer for payment as general creditors and the Trustee and the Paying Agent shall have no further liability with respect to such monies. 15. Discharge and Defeasance Subject to certain conditions, the Issuer at any time may terminate some of or all its obligations under the Securities and the Indenture if the Issuer deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 16. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended without prior notice to any Holder but with the written consent of the Holders of at least a majority in aggregate principal amount of the outstanding Securities and (ii) any default may be waived with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder, the Issuer, the Note Guarantors and the Trustee may amend the Indenture or the Securities (i) to cure any ambiguity, omission, defect or inconsistency; (ii) to comply with Article 5 of the Indenture; (iii) to provide for uncertificated Securities in addition to or in place of certificated Securities; (iv) to add Note Guarantees with respect to the Securities; (v) to secure the Securities; (vi) to add additional covenants or to surrender rights and powers conferred on the Issuer; (vii) to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA; (viii) to make any change that does not adversely affect the rights of any Holder; (ix) to make any change in the subordination provisions of the Indenture that would limit or terminate the benefits available to any holder of Senior Indebtedness of the Issuer (or any Representative thereof) under such subordination provisions; or (x) to provide for the issuance of the Exchange Securities, Private Exchange Securities or Additional Securities. 11 17. Defaults and Remedies If an Event of Default occurs (other than an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company Intermediate Holdings, HDD Holdings or the Issuer) and is continuing, the Trustee or the Holders of at least 25% in principal amount of the outstanding Securities may declare the principal of and accrued but unpaid interest on all the Securities to be due and payable. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company, Intermediate Holdings, HDD Holdings or the Issuer occurs, the principal of and interest on all the Securities shall become immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in principal amount of the outstanding Securities may rescind any such acceleration with respect to the Securities and its consequences. If an Event of Default occurs and is continuing, the Trustee shall be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense and certain other conditions are complied with. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no Holder may pursue any remedy with respect to the Indenture or the Securities unless (i) such Holder has previously given the Trustee notice that an Event of Default is continuing, (ii) Holders of at least 25% in principal amount of the outstanding Securities have requested the Trustee in writing to pursue the remedy, (iii) such Holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity and (v) the Holders of a majority in principal amount of the outstanding Securities have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount of the outstanding Securities are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. 18. Trustee Dealings with the Issuer Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Issuer or its 12 Affiliates and may otherwise deal with the Issuer or its Affiliates with the same rights it would have if it were not Trustee. 19. No Recourse Against Others A director, officer, employee or stockholder, as such, of the Issuer or any of the Note Guarantors shall not have any liability for any obligations of the Issuer under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Holder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 20. Authentication This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 21. Abbreviations Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 22. Governing Law THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 23. CUSIP and ISIN Numbers The Issuer has caused CUSIP and ISIN numbers to be printed on the Securities and has directed the Trustee to use CUSIP and ISIN numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. THE ISSUER WILL FURNISH TO ANY HOLDER OF SECURITIES UPON WRITTEN REQUEST AND WITHOUT CHARGE TO THE HOLDER A COPY OF THE INDENTURE WHICH HAS IN IT THE TEXT OF THIS SECURITY. 13 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Issuer. The agent may substitute another to act for him. - ------------------------------------------------------------ Date: Your Signature: ---------------- --------------------- - ------------------------------------------------------------ Sign exactly as your name appears on the other side of this Security. Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee. 14 OPTION OF HOLDER TO ELECT PURCHASE IF YOU WANT TO ELECT TO HAVE THIS SECURITY PURCHASED BY THE ISSUER PURSUANT TO SECTION 4.06 (ASSET DISPOSITION) OR 4.08 (CHANGE OF CONTROL) OF THE INDENTURE, CHECK ONE OF THE FOLLOWING BOXES: ASSET DISPOSITION [ ] CHANGE OF CONTROL [ ] IF YOU WANT TO ELECT TO HAVE ONLY PART OF THIS SECURITY PURCHASED BY THE ISSUER PURSUANT TO SECTION 4.06 OR 4.08 OF THE INDENTURE, STATE THE AMOUNT ($1,000 OR AN INTEGRAL MULTIPLE THEREOF): $ DATE: YOUR SIGNATURE: ------------------ -------------------- (SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE OF THE SECURITY) SIGNATURE GUARANTEE: --------------------------------------- SIGNATURE MUST BE GUARANTEED BY A PARTICIPANT IN A RECOGNIZED SIGNATURE GUARANTY MEDALLION PROGRAM OR OTHER SIGNATURE GUARANTOR ACCEPTABLE TO THE TRUSTEE. 15 [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The initial principal amount of this Global Security is $[ ]. The following increases or decreases in this Global Security have been made:
Date of Amount of decrease in Amount of increase in Principal amount of this Signature of authorized Exchange Principal Amount of this Principal Amount of this Global Security following signatory of Trustee or Global Security Global Security such decrease or increase Securities Custodian
16 EXHIBIT C FORM OF SUPPLEMENTAL INDENTURE SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated as of , among [GUARANTOR] (the "New Guarantor"), a subsidiary of NEW SAC (or its successor), an exempted limited liability company incorporated under the laws of the Cayman Islands (the "Company"), the Company, SEAGATE TECHNOLOGY INTERNATIONAL (or its successor), an exempted limited liability company incorporated under the laws of the Cayman Islands (the "Issuer"), [EXISTING NOTE GUARANTORS] and THE BANK OF NEW YORK, a New York banking corporation, as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H : WHEREAS the Issuer and [EXISTING NOTE GUARANTORS] (the "Existing Guarantors") have heretofore executed and delivered to the Trustee an Indenture (the "Indenture") dated as of November 22, 2000, providing for the issuance of 12 1/2% Senior Subordinated Notes due 2007 (the "Securities"); WHEREAS Section 4.11 of the Indenture provides that under certain circumstances the Company is required to cause the New Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which the New Guarantor shall unconditionally guarantee all the Issuer's obligations under the Securities pursuant to a Note Guarantee on the terms and conditions set forth herein; and WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee, the Company, the Issuer and the Existing Guarantors are authorized to execute and deliver this Supplemental Indenture; NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Guarantor, the Issuer, the Existing Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Securities as follows: 1. Agreement to Guarantee. The New Guarantor hereby agrees, jointly and severally with all the Existing Guarantors, to unconditionally guarantee the Issuer's obligations under the Securities on the terms and subject to the conditions set forth in Articles 11 and 12 of the Indenture and to be bound by all other applicable provisions of the Indenture and the Securities (including, without limitation, Sections 13.10 and 13.11 of the Indenture). 2. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby. 3. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 4. Trustee Makes No Representation. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture. 5. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 6. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction thereof. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written. [NEW GUARANTOR], by --------------------------------- Name: Title: SEAGATE TECHNOLOGY INTERNATIONAL, by --------------------------------- Name: Title: 2 [EXISTING NOTE GUARANTORS], by --------------------------------- Name: Title: THE BANK OF NEW YORK, as Trustee, by --------------------------------- Name: Title: 3 EXHIBIT D Form of Transferee Letter of Representation Seagate Technology International 700 Ang Mo Kio Avenue #5 Singapore 569877 Ladies and Gentlemen: This certificate is delivered to request a transfer of $[ ] principal amount of the 12 1/2% Senior Subordinated Notes due 2007 (the "Securities") of Seagate Technology International (the "Issuer"). Upon transfer, the Securities would be registered in the name of the new beneficial owner as follows: Name: ---------------------------- Address: ------------------------- Taxpayer ID Number: -------------- The undersigned represents and warrants to you that: 1. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the "Securities Act")), purchasing for our own account or for the account of such an institutional "accredited investor" at least $250,000 principal amount of the Securities, and we are acquiring the Securities not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Securities, and we invest in or purchase securities similar to the Securities in the normal course of our business. We, and any accounts for which we are acting, are each able to bear the economic risk of our or its investment. 2. We understand that the Securities have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Securities to offer, sell or otherwise transfer such Securities prior to the date that is two years after the later of the date of original issue and the last date on which the Issuer or any affiliate of the Issuer was the owner of such Securities (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the Issuer, (b) pursuant to a registration statement that has been declared effective under the Securities Act, (c) in a transaction complying with the requirements of Rule 144A under the Securities Act ("Rule 144A"), to a person we reasonably believe is a qualified institutional buyer under Rule 144A (a "QIB") that is purchasing for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing for its own account or for the account of such an institutional "accredited investor," in each case in a minimum principal amount of Securities of $250,000, or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and in compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Securities is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Issuer and the Trustee, which shall provide, among other things, that the transferee is an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring such Securities for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Issuer and the Trustee reserve the right prior to the offer, sale or other transfer prior to the Resale Restriction Termination Date of the Securities pursuant to clause (d), (e) or (f) above to require the delivery of an opinion of counsel, certifications or other information satisfactory to the Issuer and the Trustee. TRANSFEREE: , --------------------------- by: ----------------------------------- 2 EX-4.2(B) 24 0024.txt SUPPLEMENTAL INDENTURE DATED FEBRUARY 16, 2001 SUPPLEMENTAL INDENTURE dated as of February 16, 2001 among SEAGATE TECHNOLOGY (MALAYSIA) HOLDING COMPANY (the "New Guarantor"), a subsidiary of SEAGATE TECHNOLOGY INTERNATIONAL, an exempted limited liability company incorporated under the laws of the Cayman Islands (the "Issuer"), NEW SAC, an exempted limited liability company incorporated under the laws of the Cayman Islands (the "Company"), the Issuer, each entity listed on Schedule I hereto (the Company and such entities collectively, the "Existing Guarantors") and THE BANK OF NEW YORK, a New York banking corporation, as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H : WHEREAS the Issuer and Existing Guarantors have heretofore executed and delivered to the Trustee an Indenture (the "Indenture") dated as of November 22, 2000, providing for the issuance and guarantee of 12 1/2% Senior Subordinated Notes due 2007 (the "Securities"); WHEREAS Section 4.11 of the Indenture provides that under certain circumstances the Company is required to cause the New Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which the New Guarantor shall unconditionally guarantee all the Issuer's obligations under the Securities pursuant to a Note Guarantee on the terms and conditions set forth herein; and WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee, the Issuer and the Existing Guarantors are authorized to execute and deliver this Supplemental Indenture; NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Guarantor, the Issuer, the Existing Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Securities as follows: 1. Agreement to Guarantee. The New Guarantor hereby agrees, jointly and severally with all the Existing Guarantors, to unconditionally guarantee the Issuer's obligations under the Securities on the terms and subject to the conditions set forth in Articles 11 and 12 of the Indenture and to be bound by all other applicable provisions of the Indenture and the Securities (including, without limitation, Sections 13.10 and 13.11 of the Indenture). 2. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby. 3. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 4. Trustee Makes No Representation. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture. 5. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 6. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction thereof. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written. SEAGATE TECHNOLOGY (MALAYSIA) HOLDING COMPANY, by: /s/ William L. Hudson ------------------------------------ Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE TECHNOLOGY INTERNATIONAL, by: /s/ William L. Hudson ------------------------------------ Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary NEW SAC by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary QUINTA CORPORATION by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE TECHNOLOGY (US) HOLDINGS INC. by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE TECHNOLOGY LLC by: SEAGATE TECHNOLOGY (US) HOLDINGS INC., as Managing Member by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE REMOVABLE STORAGE SOLUTIONS (US) HOLDINGS, INC. by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE REMOVABLE STORAGE SOLUTIONS LLC by: SEAGATE REMOVABLE STORAGE SOLUTIONS (US) HOLDINGS, INC., as Managing Member by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE RSS LLC by: SEAGATE TECHNOLOGY LLC, as Sole Member by: SEAGATE TECHNOLOGY (US) HOLDINGS, INC., as Managing Member by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE US LLC by: SEAGATE TECHNOLOGY LLC as Sole Member by: SEAGATE TECHNOLOGY (US) HOLDINGS, INC., as Managing Member by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary REDWOOD ACQUISITION CORPORATION by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC. by: /s/ Susan J. Wolfe ------------------------------------- Name: Susan J. Wolfe Title: VP, General Counsel and Corporate Secretary XIOTECH CORPORATION by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary XIOTECH (CANADA) LIMITED by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE SOFTWARE (CANADA), INC. by: /s/ Susan J. Wolfe ------------------------------------- Name: Susan J. Wolfe Title: VP, General Counsel and Corporate Secretary SEAGATE TECHNOLOGY HOLDINGS by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE TECHNOLOGY HDD HOLDINGS by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE TECHNOLOGY CHINA HOLDING COMPANY, by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE TECHNOLOGY ASIA HOLDINGS by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE TECHNOLOGY (IRELAND) by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE TECHNOLOGY MEDIA (IRELAND) by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE TECHNOLOGY FAR EAST HOLDINGS by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE TECHNOLOGY (PHILIPPINES) by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE TECHNOLOGY (SAN) HOLDINGS by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS, INC. by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE REMOVABLE STORAGE SOLUTIONS INTERNATIONAL by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE SOFTWARE (CAYMAN) HOLDINGS by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Senior Vice President, General Counsel and Corporate Secretary SEAGATE TECHNOLOGY (MARLOW) LIMITED by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Director SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP LIMITED by: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Director NIPPON SEAGATE, INC. by: /s/ William L. Hudson ------------------------------------- Name: William L. Hudson Title: Director NIPPON SEAGATE SOFTWARE, INC. by: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Director SEAGATE TECHNOLOGY-- REYNOSA S. DE R.L. DE C.V. by: /s/ Thomas F. Mulvaney ------------------------------------- Name: Thomas F. Mulvaney Title: Director SEAGATE DISTRIBUTION (UK) LIMITED by: /s/ William L. Hudson ------------------------------------------ Name: William L. Hudson Title: Director witnessed by: /s/ Donna Florio-Norris --------------------------- Name: Donna Florio-Norris Address: 920 Disc Drive Scotts Valley, CA 95066 SEAGATE SINGAPORE DISTRIBUTION PTE LTD by: /s/ William L. Hudson ------------------------------------------ Name: William L. Hudson Title: Director SEAGATE SOFTWARE PTE. LTD by: /s/ Stephen J. Luczo ------------------------------------ Name: Stephen J. Luczo Title: Director SEAGATE TECHNOLOGY (THAILAND) LIMITED by: /s/ Patrick J. O'Malley ------------------------------------ Name: Patrick J. O'Malley Title: Director THE BANK OF NEW YORK, as Trustee by: /s/ Michael Pitfick ------------------------------------ Name: Michael Pitfick Title: Assistant Treasurer SCHEDULE I Existing Note Guarantors
Name Jurisdiction of Organization - ---- ---------------------------- New SAC Cayman Islands Seagate Technology Holdings Cayman Islands Seagate Technology HDD Holdings Cayman Islands Seagate Technology China Holding Company Cayman Islands Seagate Technology Asia Holdings Cayman Islands Seagate Technology (Ireland) Cayman Islands/ Located in Northern Ireland Seagate Technology (Media) Ireland Cayman Islands/ Located in Northern Ireland Seagate Technology Far East Holdings Cayman Islands Seagate Technology (Philippines) Cayman Islands Seagate Technology SAN Holdings Cayman Islands Seagate Removable Storage Solutions Holdings Cayman Islands Seagate Removable Storage Solutions International Cayman Islands Seagate Software (Cayman) Holdings Cayman Islands Seagate Technology (US) Holdings, Inc. Delaware Seagate Technology LLC Delaware Seagate US LLC Delaware Redwood Acquisition Corporation Delaware Seagate Removable Storage Solutions (US) Holdings, Inc. Delaware Seagate Removable Storage Solutions LLC Delaware Seagate RSS LLC Delaware Seagate Software Information Management Group Delaware Holdings, Inc.
Name Jurisdiction of Organization - ---- ---------------------------- Quinta Corporation California XIOtech Corporation Minnesota Seagate Technology (Thailand) Limited Thailand Seagate Technology-Reynosa, S. de R.L. de C.V. Mexico Nippon Seagate Inc. Japan Nippon Seagate Software, Inc. Japan Seagate Singapore Distribution Pte Ltd Singapore Seagate Software Information Pte Ltd Singapore Seagate Distribution (UK) Limited Scotland Seagate Technology (Marlow) Limited England & Wales Seagate Software Information Management Group Limited England & Wales XIOtech (Canada) Limited Canada Seagate Software (Canada), Inc. Canada
EX-4.3 25 0025.txt EXCHANGE AND REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.3 EXECUTION COPY SEAGATE TECHNOLOGY INTERNATIONAL $210,000,000 12.5% SENIOR SUBORDINATED NOTES DUE 2007 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT November 22, 2000 CHASE SECURITIES INC. GOLDMAN, SACHS & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED c/o Chase Securities Inc. 270 Park Avenue, 4th floor New York, New York 10017 Ladies and Gentlemen: Seagate Technology International, an exempted limited liability company incorporated under the laws of the Cayman Islands (the "Issuer"), proposes to issue and sell to Chase Securities Inc. ("CSI"), Goldman, Sachs & Co. ("Goldman") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill", and together with Goldman and CSI, the "Initial Purchasers"), upon the terms and subject to the conditions set forth in a purchase agreement dated November 17, 2000 (the "Purchase Agreement"), $210,000,000 aggregate principal amount of its 12.5% Senior Subordinated Notes due 2007 (the "Securities") to be jointly and severally guaranteed on an unsecured senior subordinated basis by each entity listed on Schedule I hereto (such entities collectively, the "Note Guarantors"). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Purchase Agreement. As an inducement to the Initial Purchasers to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Initial Purchasers thereunder, the Issuer and the Note Guarantors agree with the Initial Purchasers, for the benefit of the holders (including the Initial Purchasers) of the Securities, the Exchange Securities (as defined herein) and the Private Exchange Securities (as defined herein) (collectively, the "Holders"), as follows: 1. Registered Exchange Offer. The Issuer and the Note Guarantors shall (i) prepare and, not later than 150 days following the date of original issuance of the 2 Securities (the "Issue Date"), file with the Commission a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act with respect to a proposed offer to the Holders of the Securities (the "Registered Exchange Offer") to issue and deliver to such Holders, in exchange for the Securities, a like aggregate principal amount of debt securities of the Issuer (the "Exchange Securities") that are identical in all material respects to the Securities, except for the transfer restrictions relating to the Securities, (ii) use their reasonable best efforts to cause the Exchange Offer Registration Statement to become effective under the Securities Act no later than 270 days after the Issue Date and the Registered Exchange Offer to be consummated no later than 300 days after the Issue Date and (iii) keep the Exchange Offer Registration Statement effective for not less than 20 business days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "Exchange Offer Registration Period"). The Exchange Securities will be issued under the Indenture or an indenture (the "Exchange Securities Indenture") between the Issuer, the Note Guarantors and the Trustee or such other bank or trust company that is reasonably satisfactory to the Initial Purchasers, as trustee (the "Exchange Securities Trustee"), such indenture to be identical in all material respects to the Indenture, except for the transfer restrictions relating to the Securities (as described above). Upon the effectiveness of the Exchange Offer Registration Statement, the Issuer shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder electing to exchange Securities for Exchange Securities (assuming that such Holder (a) is not an affiliate (as defined in Rule 405 of the Securities Act) of the Issuer or an Exchanging Dealer (as defined herein) not complying with the requirements of the next sentence, (b) is not an Initial Purchaser holding Securities that have, or that are reasonably likely to have, the status of an unsold allotment in an initial distribution, (c) acquires the Exchange Securities in the ordinary course of such Holder's business and (d) has no arrangements or understandings with any person to participate in the distribution of the Exchange Securities) and to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Issuer, the Note Guarantors, the Initial Purchasers and each Exchanging Dealer acknowledge that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, each Holder that is a broker-dealer electing to exchange Securities, acquired for its own account as a result of market-making activities or other trading activities, for Exchange Securities (an "Exchanging Dealer"), is required to deliver a prospectus containing substantially the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer. 3 If, prior to the consummation of the Registered Exchange Offer, any Holder holds any Securities acquired by it that have, or that are reasonably likely to be determined to have, the status of an unsold allotment in an initial distribution, or any Holder is not entitled to participate in the Registered Exchange Offer, the Issuer shall, upon the request of any such Holder, simultaneously with the delivery of the Exchange Securities in the Registered Exchange Offer, issue and deliver to any such Holder, in exchange for the Securities held by such Holder (the "Private Exchange"), a like aggregate principal amount of debt securities of the Issuer (the "Private Exchange Securities") that are identical in all material respects to the Exchange Securities, except for the transfer restrictions relating to such Private Exchange Securities. The Private Exchange Securities will be issued under the same indenture as the Exchange Securities, and the Issuer shall use its reasonable best efforts to cause the Private Exchange Securities to bear the same CUSIP number as the Exchange Securities. In connection with the Registered Exchange Offer, the Issuer shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 20 business days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York City time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply in all respects with all laws that are applicable to the Registered Exchange Offer. As soon as practicable after the close of the Registered Exchange Offer and any Private Exchange, as the case may be, the Issuer shall: (a) accept for exchange all Securities tendered and not validly withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; 4 (b) deliver to the Trustee for cancelation all Securities so accepted for exchange; and (c) cause the Trustee or the Exchange Securities Trustee, as the case may be, promptly to authenticate and deliver to each Holder, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Securities of such Holder so accepted for exchange. The Issuer and the Note Guarantors shall use their reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein in order to permit such prospectus to be used by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer, such period shall be the lesser of 90 days and the date on which all Exchanging Dealers have sold all Exchange Securities held by them and (ii) the Issuer shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 90 days after the consummation of the Registered Exchange Offer. The Indenture or the Exchange Securities Indenture, as the case may be, shall provide that the Securities, the Exchange Securities and the Private Exchange Securities shall vote and consent together on all matters as one class and that none of the Securities, the Exchange Securities or the Private Exchange Securities will have the right to vote or consent as a separate class on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Securities surrendered in exchange therefor or, if no interest has been paid on the Securities, from the Issue Date. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Issuer that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act and (iii) such Holder is not an affiliate of the Issuer or, if it is such an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. 5 Notwithstanding any other provisions hereof, the Issuer and the Note Guarantors will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not, as of the consummation of the Registered Exchange Offer, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. Shelf Registration. If (i) because of any change in law or applicable interpretations thereof by the Commission's staff the Issuer is not permitted to effect the Registered Exchange Offer as contemplated by Section 1 hereof, or (ii) any Securities validly tendered pursuant to the Registered Exchange Offer are not exchanged for Exchange Securities within 300 days after the Issue Date, or (iii) any Initial Purchaser so requests with respect to Securities or Private Exchange Securities not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by it following the consummation of the Registered Exchange Offer, or (iv) any applicable law or interpretations do not permit any Holder to participate in the Registered Exchange Offer, or (v) any Holder that participates in the Registered Exchange Offer does not receive freely transferable Exchange Securities in exchange for tendered Securities, or (vi) the Issuer so elects, then the following provisions shall apply: (a) The Issuer and the Note Guarantors shall use their reasonable best efforts to file as promptly as practicable with the Commission, and thereafter shall use their reasonable best efforts to cause to be declared effective, a shelf registration statement on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities (as defined below) by the Holders thereof from time to time in accordance with the methods of distribution set forth in such registration statement (hereafter, a "Shelf Registration Statement" and, together with any Exchange Offer Registration Statement, a "Registration Statement"). (b) The Issuer and the Note Guarantors shall use their reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus forming part thereof to be used by Holders of Transfer Restricted Securities for a period ending on the earlier of (i) two years from the Issue Date or such shorter period that will terminate when all the Transfer Restricted Securities covered by the Shelf Registration Statement have been sold 6 pursuant thereto and (ii) the date on which the Securities become eligible for resale without volume restrictions pursuant to Rule 144 under the Securities Act (in any such case, such period being called the "Shelf Registration Period"). The Issuer and the Note Guarantors shall be deemed not to have used their reasonable best efforts to keep the Shelf Registration Statement effective during the requisite period if any of them voluntarily take any action that would result in Holders of Transfer Restricted Securities covered thereby not being able to offer and sell such Transfer Restricted Securities during that period, unless such action is (A) required by applicable law or (B) such action was permitted by Section 2(c). (c) Notwithstanding the provisions of Section 2(b) (but subject to the provisions of Section 3(b)), the Issuer and the Note Guarantors may issue a notice that the Shelf Registration Statement is unusable pending the announcement of a material corporate transaction and may issue any notice suspending use of the Shelf Registration Statement required under applicable securities laws to be issued. (d) Notwithstanding any other provisions hereof, the Issuer and the Note Guarantors will ensure that (i) any Shelf Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Shelf Registration Statement and any amendment thereto (in either case, other than with respect to information included therein in reliance upon or in conformity with written information furnished to the Issuer by or on behalf of any Holder specifically for use therein (the "Holders' Information") does not, at the time that it became effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Shelf Registration Statement, and any supplement to such prospectus (in either case, other than with respect to Holders' Information), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 3. Liquidated Damages. (a) The parties hereto agree that the Holders of Transfer Restricted Securities will suffer damages if the Issuer and the Note Guarantors fail to fulfill their obligations under Section 1 or Section 2, as applicable, and that it would not be feasible to ascertain the extent of such damages. Accordingly, if (i) 7 the applicable Registration Statement is not filed with the Commission on or prior to 150 days after the Issue Date, (ii) the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is not declared effective within 270 days after the Issue Date (or in the case of a Shelf Registration Statement required to be filed in response to a change in law or the applicable interpretations of Commission's staff, if later, within 60 days after publication of the change in law or interpretation), (iii) the Registered Exchange Offer is not consummated on or prior to 300 days after the Issue Date, other than in the event that the Issuer and the Note Guarantors file a Shelf Registration Statement, or (iv) the Shelf Registration Statement is filed and declared effective within 270 days after the Issue Date (or in the case of a Shelf Registration Statement required to be filed in response to a change in law or the applicable interpretations of Commission's staff, if later, within 60 days after publication of the change in law or interpretation but in no event within 270 days after the Issue Date) but shall thereafter cease to be effective (other than at any time that the Issuer and the Note Guarantors are not obligated to maintain the effectiveness thereof, including as set forth in Sections 2(c) and 3(b)) without being succeeded within 45 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default"), the Issuer and the Note Guarantors will be jointly and severally obligated to pay liquidated damages to each Holder of Transfer Restricted Securities, during the period of one or more such Registration Defaults, in an amount equal to $ 0.192 per week per $1,000 principal amount of Transfer Restricted Securities held by such Holder until (i) the applicable Registration Statement is filed, (ii) the Exchange Offer Registration Statement is declared effective and the Registered Exchange Offer is consummated, (iii) the Shelf Registration Statement is declared effective or (iv) the Shelf Registration Statement again becomes effective, as the case may be. Following the cure of all Registration Defaults, the accrual of liquidated damages will cease. As used herein, the term "Transfer Restricted Securities" means (i) each Security until the date on which such Security has been exchanged for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) each Security or Private Exchange Security until the date on which it has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iii) each Security or Private Exchange Security until the date on which it is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary in this Section 3(a) or Section 3(b), the Issuer and the Note Guarantors shall not be required to pay liquidated damages to a Holder of Transfer Restricted Securities if such Holder failed to comply with its obligations to make the representations set forth in the second to last paragraph of Section 1 or failed to provide the information required to be provided by it, if any, pursuant to Section 4(n). (b) Notwithstanding the foregoing provisions of Section 3(a), the Issuer and the Note Guarantors may issue a notice that the Shelf Registration Statement is unusable pending the announcement of a material corporate transaction and may issue any notice suspending use of the Shelf Registration Statement required under applicable 8 securities laws to be issued and, in the event that the aggregate number of days in any consecutive twelve-month period for which all such notices are issued and effective exceeds 60 days in the aggregate, then the Issuer and the Note Guarantors will be jointly and severally obligated to pay liquidated damages to each Holder of Transfer Restricted Securities in an amount equal to $0.192 per week per $1,000 principal amount of Securities constituting Transfer Restricted Securities held by such Holder. Upon the Issuer and the Note Guarantors declaring that the Shelf Registration Statement is useable after the period of time described in the preceding sentence, accrual of liquidated damages shall cease; provided, however, that if after any such cessation of the accrual of liquidated damages, the Shelf Registration Statement again ceases to be useable beyond the period permitted above, liquidated damages will again accrue pursuant to the foregoing provisions. (c) The Issuer shall notify the Trustee and the paying agent under the Indenture (the "Paying Agent") immediately upon the happening of each and every Registration Default. The Issuer and the Note Guarantors shall pay the liquidated damages due on the Transfer Restricted Securities by depositing with the Paying Agent (which may not be the Issuer for these purposes), in trust, for the benefit of the Holders thereof, prior to 10:00 a.m., New York City time, on the next interest payment date specified by the Indenture and the Securities, sums sufficient to pay the liquidated damages then due. The liquidated damages due shall be payable on each interest payment date specified by the Indenture and the Securities to the record holder entitled to receive the interest payment to be made on such date. Each obligation to pay liquidated damages shall be deemed to accrue from and including the date of the applicable Registration Default. (d) The parties hereto agree that the liquidated damages provided for in this Section 3 constitute a reasonable estimate of and are intended to constitute the sole damages that will be suffered by Holders of Transfer Restricted Securities by reason of the failure of (i) the Shelf Registration Statement or the Exchange Offer Registration Statement to be filed, (ii) the Shelf Registration Statement to remain effective or (iii) the Exchange Offer Registration Statement to be declared effective and the Registered Exchange Offer to be consummated, in each case to the extent required by this Agreement. 4. Registration Procedures. In connection with any Registration Statement, the following provisions shall apply: (a) The Issuer shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" 9 section of the prospectus forming a part of the Exchange Offer Registration Statement, and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; and (iii) if requested by any Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement. (b) The Issuer shall advise each Initial Purchaser, each Exchanging Dealer and the Holders (if applicable) and, if requested by any such person, confirm such advice in writing (which advice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when any Registration Statement and any amendment thereto has been filed with the Commission and when such Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission after the effective date of any Registration Statement for amendments or supplements to such Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Issuer of any notification with respect to the suspension of the qualification of the Securities, the Exchange Securities or the Private Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event after the effective date of any Registration Statement that requires the making of any changes in any Registration Statement or the prospectus included therein in order that the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 10 (c) The Issuer and the Note Guarantors will make every reasonable effort to obtain the withdrawal at the earliest possible time of any order suspending the effectiveness of any Registration Statement. (d) The Issuer will furnish to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, at least one conformed copy of such Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Issuer will, during the Shelf Registration Period, promptly deliver to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, as many copies of the prospectus (including each preliminary prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request; and the Issuer consents to the use of such prospectus or any amendment or supplement thereto by each of the selling Holders of Transfer Restricted Securities in connection with the offer and sale of the Transfer Restricted Securities covered by such prospectus or any amendment or supplement thereto. (f) The Issuer will furnish to each Initial Purchaser and each Exchanging Dealer, and to any other Holder who so requests, without charge, at least one conformed copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any Initial Purchaser or Exchanging Dealer or any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (g) The Issuer will, during the Exchange Offer Registration Period or the Shelf Registration Period, as applicable, promptly deliver to each Initial Purchaser, each Exchanging Dealer and such other persons that are required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement or the Shelf Registration Statement and any amendment or supplement 11 thereto as such Initial Purchaser, Exchanging Dealer or other persons may reasonably request; and the Issuer and the Note Guarantors consent to the use of such prospectus or any amendment or supplement thereto by any such Initial Purchaser, Exchanging Dealer or other persons, as applicable, as aforesaid. (h) Prior to the effective date of any Registration Statement, the Issuer and the Note Guarantors will use their reasonable best efforts to register or qualify, or cooperate with the Holders of Securities, Exchange Securities or Private Exchange Securities included therein and their respective counsel in connection with the registration or qualification of, such Securities, Exchange Securities or Private Exchange Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any such Holder reasonably requests in writing and do any and all other acts or things reasonably necessary to enable the offer and sale in such jurisdictions of the Securities, Exchange Securities or Private Exchange Securities covered by such Registration Statement; provided that the Issuer and the Note Guarantors will not be required to qualify generally to do business in any jurisdiction where they are not then so qualified or to take any action which would subject them to general service of process or to taxation in any such jurisdiction where they are not then so subject. (i) The Issuer and the Note Guarantors will cooperate with the Holders of Securities, Exchange Securities or Private Exchange Securities to facilitate the timely preparation and delivery of certificates representing Securities, Exchange Securities or Private Exchange Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders thereof may request in writing at least three business days prior to the closing date of any sales of Securities, Exchange Securities or Private Exchange Securities pursuant to such Registration Statement. (j) If any event contemplated by Section 4(b)(ii) through (v) occurs during the period for which the Issuer and the Note Guarantors are required to maintain an effective Registration Statement, the Issuer and the Note Guarantors will promptly prepare and file with the Commission a post-effective amendment to the Registration Statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to purchasers of the Securities, Exchange Securities or Private Exchange Securities from a Holder, the prospectus will not include an untrue statement of a material fact or omit to state a 12 material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (k) Not later than the effective date of the applicable Registration Statement, the Issuer will provide a CUSIP number for the Securities, the Exchange Securities and the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Issuer. (l) The Issuer and the Note Guarantors will comply with all applicable rules and regulations of the Commission and the Issuer will make generally available to its security holders as soon as practicable after the effective date of the applicable Registration Statement an earning statement satisfying the provisions of Section 11(a) of the Securities Act. (m) The Issuer and the Note Guarantors will cause the Indenture or the Exchange Securities Indenture, as the case may be, to be qualified under the Trust Indenture Act as required by applicable law in a timely manner. (n) The Issuer may require each Holder of Transfer Restricted Securities to be registered pursuant to any Shelf Registration Statement to furnish to the Issuer such information concerning the Holder and the distribution of such Transfer Restricted Securities as the Issuer may from time to time reasonably require for inclusion in such Shelf Registration Statement, and the Issuer may exclude from such registration the Transfer Restricted Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request. (o) In the case of a Shelf Registration Statement, each Holder of Transfer Restricted Securities to be registered pursuant thereto agrees by acquisition of such Transfer Restricted Securities that, upon receipt of any notice from the Issuer pursuant to Sections 2(c), 3(b) or 4(b)(ii) through (v), such Holder will discontinue disposition of such Transfer Restricted Securities until such Holder's receipt of copies of the supplemental or amended prospectus contemplated by Section 4(j) or until advised in writing (the "Advice") by the Issuer that the use of the applicable prospectus may be resumed. If the Issuer shall give any notice under Sections 2(c), 3(b) or 4(b)(ii) through (v) during the period that the Issuer is required to maintain an effective Registration Statement (the "Effectiveness Period"), such Effectiveness Period shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each seller of Transfer Restricted Securities covered by such Registration Statement shall have received (x) the copies of the supplemental or amended prospectus contemplated by Section 4(j) (if an amended or supplemental prospectus is required) or (y) the Advice (if no amended or supplemental prospectus is required). (p) In the case of a Shelf Registration Statement, the Issuer and the Note Guarantors shall enter into such customary agreements (including, if requested by the Holders of a majority in aggregate principle amount of the Exchange Securities, an underwriting agreement in customary form) and take all such other action, if any, as Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold or the managing underwriters (if any) shall reasonably request in order to facilitate any disposition of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement. (q) In the case of a Shelf Registration Statement, the Issuer shall (i) make reasonably available for inspection by a representative of, and Special Counsel (as defined below) acting for, Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold and any underwriter participating in any disposition of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement, all relevant financial and other records, pertinent corporate documents and properties of the Issuer and its subsidiaries and (ii) use its reasonable best efforts to have its officers, directors, employees, accountants and counsel supply all relevant information reasonably requested by such representative, Special Counsel or any such underwriter (an "Inspector") in connection with such Shelf Registration Statement; provided, however, that such Inspector shall first agree in writing with the Issuer that any information that is reasonably and in good faith designated by the Issuer in writing as confidential at the time of delivery of such information shall be kept confidential by such Inspector, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any 14 disclosure requirements pursuant to Federal securities laws in connection with the filing of such Registration Statement or the use of any prospectus), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard such information by such Inspector or (iv) such information becomes available to such Inspector from a source other than the Issuer and its subsidiaries and such source is not known, after due inquiry, by the relevant Holder to be bound by a confidentiality agreement; provided further, that the foregoing investigation shall be coordinated on behalf of the Holders by one representative designated by and on behalf of such Holders and any such confidential information shall be available from such representative to such Holders so long as any Holder agrees to be bound by such confidentiality agreement. (r) In the case of a Shelf Registration Statement, the Issuer shall, if requested by Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold, their Special Counsel or the managing underwriters (if any) in connection with such Shelf Registration Statement, use its reasonable best efforts to cause (i) its counsel to deliver an opinion relating to the Shelf Registration Statement and the Securities, Exchange Securities or Private Exchange Securities, as applicable, in customary form, (ii) its officers to execute and deliver all customary documents and certificates requested by Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold, their Special Counsel or the managing underwriters (if any) and (iii) its independent public accountants to provide a comfort letter or letters in customary form, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. 5. Registration Expenses. The Issuer and the Note Guarantors will jointly and severally bear all expenses incurred in connection with the performance of its obligations under Sections 1, 2, 3 and 4, other than in connection with the Exchange Offer Registration Statement, and the Issuer will reimburse the Initial Purchasers and the Holders for the reasonable fees and disbursements of one firm of attorneys (in addition to any local counsel) chosen by the Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities to be sold pursuant to each Registration Statement (the "Special Counsel") acting for the Initial Purchasers or Holders in connection therewith which counsel shall be approved by the Issuer (such approval to not be unreasonably withheld). Each Initial Purchaser and Holder shall pay all expenses of its counsel other than as set forth in the preceding sentence, underwriting discounts and commissions (prior to the reduction thereof with 15 respect to selling concessions, if any) and transfer taxes, if any, relating to the sale or disposition of such Initial Purchaser's or Holder's Securities pursuant to the Shelf Registration Statement. 6. Indemnification. (a) In the event of a Shelf Registration Statement or in connection with any prospectus delivery pursuant to an Exchange Offer Registration Statement by an Initial Purchaser or Exchanging Dealer, as applicable, the Issuer and the Note Guarantors shall jointly and severally indemnify and hold harmless each Holder (including, without limitation, any such Initial Purchaser or any such Exchanging Dealer), its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls such Holder within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6 and Section 7 as a Holder) from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, without limitation, any loss, claim, damage, liability or action relating to purchases and sales of Securities, Exchange Securities or Private Exchange Securities), to which that Holder may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse each Holder promptly upon demand for any legal or other expenses reasonably incurred by that Holder in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Issuer and the Note Guarantors shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with any Holders' Information; and provided, further, that with respect to any such untrue statement in or omission from any related preliminary prospectus, the indemnity agreement contained in this Section 6(a) shall not inure to the benefit of any Holder from whom the person asserting any such loss, claim, damage, liability or action received Securities, Exchange Securities or Private Exchange Securities to the extent that such loss, claim, damage, liability or action of or with respect to such Holder results from the fact that both (A) a copy of the final prospectus was not sent or given to such person at or prior to the written confirmation of the sale of such Securities, Exchange Securities or Private Exchange Securities to such person and (B) the untrue statement in or omission from the related preliminary prospectus was corrected in the final prospectus unless, in either case, such failure to deliver the final prospectus was a result of non-compliance by the Issuer with Section 4(d), 4(e), 4(f) or 4(g). 16 (b) In the event of a Shelf Registration Statement, each Holder shall indemnify and hold harmless the Issuer, its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls the Issuer within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6(b) and Section 7 as the Issuer), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Issuer may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with any Holders' Information furnished to the Issuer by such Holder, and shall reimburse the Issuer for any legal or other expenses reasonably incurred by the Issuer in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that no such Holder shall be liable for any indemnity claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 6 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 6. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than the reasonable costs of investigation; provided, however, that an indemnified party shall have 17 the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel for the indemnified party will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based upon advice of counsel to the indemnified party) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based upon advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm of attorneys (in addition to any local counsel) at any one time for all such indemnified party or parties. Each indemnified party, as a condition of the indemnity agreements contained in Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. 7. Contribution. If the indemnification provided for in Section 6 is unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Issuer from the offering and sale of the Securities, on the one hand, and by a Holder from receiving Securities, Exchange Securities or Private Exchange Securities, as applicable, registered under the Securities Act, on the other, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Issuer and 18 the Note Guarantors, on the one hand, and such Holder, on the other, with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Issuer and the Note Guarantors, on the one hand, and a Holder, on the other, with respect to such offering and such sale shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities (before deducting expenses) received by or on behalf of the Issuer as set forth in the table on the cover of the Offering Memorandum, on the one hand, bear to the total proceeds received by such Holder with respect to its sale of Securities, Exchange Securities or Private Exchange Securities, on the other. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to the Issuer and the Note Guarantors or information supplied by the Issuer and the Note Guarantors, on the one hand, or to any Holders' Information supplied by such Holder, on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 7 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7 shall be deemed to include, for purposes of this Section 7, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 7, an indemnifying party that is a Holder of Securities, Exchange Securities or Private Exchange Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Securities, Exchange Securities or Private Exchange Securities sold by such indemnifying party to any purchaser exceeds the amount of any damages which such indemnifying party has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 8. Rules 144 and 144A. The Issuer shall use its reasonable best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Issuer is not required to file such reports, it will, upon the written request of any Holder of Transfer Restricted Securities, make publicly available other information so long as necessary to permit sales of such Holder's securities pursuant to Rules 144 and 144A. The Issuer and the Note Guarantors covenant that they will take such further action as any Holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including, 19 without limitation, the requirements of Rule 144A(d)(4)). Upon the written request of any Holder of Transfer Restricted Securities, the Issuer and the Note Guarantors shall deliver to such Holder a written statement as to whether they have complied with such requirements. Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to require the Issuer to register any of its securities pursuant to the Exchange Act. 9. Underwritten Registrations. If any of the Transfer Restricted Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities included in such offering, subject to the consent of the Issuer (which shall not be unreasonably withheld or delayed), and such Holders shall be responsible for all underwriting commissions and discounts in connection therewith. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 10. Miscellaneous. (a) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Issuer has obtained the written consent of Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities, taken as a single class. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose Securities, Exchange Securities or Private Exchange Securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities being sold by such Holders pursuant to such Registration Statement. (b) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail, telecopier or air courier guaranteeing next-day delivery: (1) if to a Holder, at the most current address given by such Holder to the Issuer in accordance with the provisions of this Section 10(b), which address initially is, with respect to each Holder, the address of such Holder maintained by 20 the registrar under the Indenture, with a copy in like manner to CSI, Goldman, and Merrill; (2) if to an Initial Purchaser, initially at its address set forth in the Purchase Agreement; (3) if to the Issuer, initially at the address of the Issuer set forth in the Purchase Agreement; and (4) if to the Note Guarantors, initially at the addresses set forth in the Purchase Agreement. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being delivered to a next-day air courier; five business days after being deposited in the mail; and when receipt is acknowledged by the recipient's telecopier machine, if sent by telecopier. (c) Successors And Assigns. This Agreement shall be binding upon the Issuer, the Note Guarantors and their respective successors and assigns. (d) Counterparts. This Agreement may be executed in any number of counterparts (which may be delivered in original form or by telecopier) and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (e) Definition of Terms. For purposes of this Agreement, (a) the term "business day" means any day on which the New York Stock Exchange, Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405 under the Securities Act and (c) except where otherwise expressly provided, the term "affiliate" has the meaning set forth in Rule 405 under the Securities Act. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (h) Waiver of Immunities. To the extent that the Issuer or any of the Note Guarantors or any of their respective properties, assets or revenues may have or 21 may hereafter become entitled to, or have attributed to it, any right of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding, from the giving of any relief in any such legal action, suit or proceeding, from setoff or counterclaim, from the competent jurisdiction of any court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution of judgment, or from execution of judgment, or from other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, in any competent jurisdiction in which proceedings may at any time be commenced, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Agreement and the transactions contemplated hereby, the Issuer and each Note Guarantor hereby irrevocably and unconditionally waives and agrees not to plead or claim, any such immunity and consent to such relief and enforcement. (i) Consent to Jurisdiction; Appointment of Agent for Service of Process; Judgment Currency. (1) The Issuer and each of the Note Guarantors agrees that any suit, action or proceeding against the Issuer or any Note Guarantor arising out of or relating to this Agreement may be instituted in any state or U.S. Federal court in the Borough of Manhattan, The City of New York, New York, and any appellate court from any thereof, and each of them irrevocably submits to the non-exclusive jurisdiction of such courts in any suit, action or proceeding. The Issuer and each of the Note Guarantors irrevocably waives, to the fullest extent permitted by law, any objection to any suit, action, or proceeding that may be brought in connection with this Agreement, including such actions, suits or proceedings relating to securities laws of the United States of America or any state thereof, in such courts whether on the grounds of venue, residence or domicile or on the ground that any such suit, action or proceeding has been brought in an inconvenient forum. The Issuer and each Note Guarantor agrees that final judgment in any such suit, action or proceeding brought in such court shall be conclusive and binding upon the Issuer or any Note Guarantor, as the case may be, and may be enforced in any court to the jurisdiction of which the Issuer or any Note Guarantor, as the case may be, is subject by a suit upon such judgment; provided that service of process is affected upon the Issuer or any Note Guarantor, as the case may be, in the manner provided by this Section. (2) The Issuer and each Note Guarantor organized under the laws of any jurisdiction other than the United Sates, any state thereof or the District of Columbia irrevocably appoints CT Corporation System Inc., with offices on the date hereof at 1633 Broadway, New York, New York 10019, as its authorized agent (the "Authorized Agent"), upon whom process may be served in any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated herein which may be instituted in any state or U.S. Federal court in the Borough of Manhattan, The City of New York, New York, and expressly accepts the non-exclusive jurisdiction of any such court in respect of any such suit, action or proceeding. The Issuer and each Note Guarantor hereby represents and warrants that the Authorized Agent has accepted such 22 appointment and has agreed to act as said agent for service of process, and the Issuer and the Note Guarantors agree to take any and all action, including the filing of any and all documents that may be necessary to continue such respective appointment in full force and effect for a period of seven years from the date of this Agreement. Service of process upon the Authorized Agent shall be deemed, in every respect, effective service of process upon the Issuer and the Note Guarantors. Notwithstanding the foregoing, any action involving the Issuer or any Note Guarantor arising out of or relating to this Agreement may be instituted in any court of competent jurisdiction in any other jurisdiction. (3) Any action, suit or proceeding brought by the Issuer or any Note Guarantor against any Initial Purchaser arising out of or based upon this Agreement and the transactions contemplated herein shall be brought solely in a U.S. Federal or state court in the Borough of Manhattan, The City of New York, New York, and neither the Issuer or any Note Guarantor shall initiate or seek to initiate, in the Cayman Islands or any other jurisdiction other than in such New York courts, any action, suit or proceeding against any Initial Purchaser arising out of or based upon this Agreement and the transactions contemplated herein. The foregoing shall apply, without limitation, to any action seeking to obtain any injunction or declaratory judgment against the enforcement of, or a declaratory judgment concerning, any claim by any Initial Purchaser in respect of this Agreement and any transaction contemplated herein, and any action challenging the enforceability of or seeking to invalidate in any respect the submission by the Issuer or any Note Guarantor hereunder to the jurisdiction of such New York courts or the designation, pursuant to this Section, of the laws of the State of New York as the law applicable to this Agreement. (4) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder into any currency other than United States dollars, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange shall be the rate at which in accordance with normal banking procedures the Initial Purchasers, the Issuer, or any Note Guarantor could purchase United States dollars with the other currency in New York City on the business day preceding that on which final judgment is given. The obligation of any Initial Purchaser, the Issuer or any Note Guarantor in respect of the sum due shall, notwithstanding any judgment in a currency other than United States dollars, not be discharged until the first business day following receipt by such Initial Purchaser, the Issuer or such Note Guarantor of any sum adjudged to be so due in such other currency, on which (and only to the extent that) such Initial purchaser, the Issuer or such Note Guarantor may in accordance 23 with normal banking procedures purchase United States dollars with such other currency; if the United States dollars so purchased are less than the sum originally due to any Initial Purchaser, the Issuer or any Note Guarantor hereunder, such Initial Purchaser, the Issuer or such Note Guarantor agrees, as applicable, as a separate obligation and notwithstanding any such judgment, to indemnify such Initial Purchaser, the Issuer or such Note Guarantor against such loss. If the United States dollars so purchased are greater than the sum originally due to such Initial Purchaser, the Issuer or such Note Guarantor, such Initial Purchaser, the Issuer or such Note Guarantor agrees to pay to such Initial Purchaser, the Issuer or such Note Guarantor, as the case may be, an amount equal to the excess of the United States dollars so purchased over the sum originally due to such Initial Purchaser, the Issuer or such Note Guarantor. (5) The provisions of this Section shall survive any termination or cancelation of this Agreement. (j) No Inconsistent Agreements. The Issuer and each Note Guarantor represents, warrants and agrees that (i) it has not entered into, shall not, on or after the date of this Agreement, enter into any agreement that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof, (ii) it has not previously entered into any agreement which remains in effect granting any registration rights with respect to any of its debt securities to any person and (iii) (with respect to the Issuer) without limiting the generality of the foregoing, without the written consent of the Holders of a majority in aggregate principal amount of the then outstanding Transfer Restricted Securities, it shall not grant to any person the right to request the Issuer to register any debt securities of the Issuer under the Securities Act unless the rights so granted are not in conflict or inconsistent with the provisions of this Agreement. (i) No Piggyback on Registrations. Neither the Issuer nor any of its security holders (other than the Holders of Transfer Restricted Securities in such capacity) shall have the right to include any securities of the Issuer in any Shelf Registration or Registered Exchange Offer other than Transfer Restricted Securities. (j) Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best 24 efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 25 Please confirm that the foregoing correctly sets forth the agreement among the Issuer, the Note Guarantors and the Initial Purchasers. Very truly yours, SEAGATE TECHNOLOGY INTERNATIONAL, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President NEW SAC, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY HOLDINGS, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY HDD HOLDINGS by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President 26 SEAGATE TECHNOLOGY CHINA HOLDING COMPANY, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY ASIA HOLDINGS, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY (IRELAND), by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY MEDIA (IRELAND), by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President 27 SEAGATE TECHNOLOGY FAR EAST HOLDINGS, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY (PHILIPPINES), by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY (SAN) HOLDINGS, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President 28 SEAGATE REMOVABLE STORAGE SOLUTIONS INTERNATIONAL, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE SOFTWARE (CAYMAN) HOLDINGS, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY (US) HOLDINGS, INC., by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY LLC, by SEAGATE TECHNOLOGY (US) HOLDINGS, INC., as Managing Member by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President 29 SEAGATE US LLC, by SEAGATE TECHNOLOGY LLC, as Sole Member by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President REDWOOD ACQUISITION CORPORATION, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE REMOVABLE STORAGE SOLUTIONS (US) HOLDINGS, INC., by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE REMOVABLE STORAGE SOLUTIONS LLC, by SEAGATE REMOVABLE STORAGE SOLUTIONS (US) HOLDINGS, INC., as Sole Member by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President 30 SEAGATE RSS LLC, by SEAGATE REMOVABLE STORAGE SOLUTIONS LLC, as Sole Member by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC., by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President QUINTA CORPORATION, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President XIOTECH CORPORATION, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President 31 SEAGATE TECHNOLOGY (THAILAND) LIMITED, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY-REYNOSA S. DE R.L. DE C.V., by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President NIPPON SEAGATE INC., by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President NIPPON SEAGATE SOFTWARE, INC., by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President 32 SEAGATE SINGAPORE DISTRIBUTION PTE LTD, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE SOFTWARE INFORMATION PTE LTD, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE DISTRIBUTION (UK) LIMITED, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY (MARLOW) LIMITED, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President 33 SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP LIMITED, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President XIOTECH (CANADA) LIMITED, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE SOFTWARE (CANADA), INC., by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President 34 Accepted: CHASE SECURITIES INC., by /s/ Sean Holland --------------------------------------------------- Authorized Signatory GOLDMAN, SACHS & CO., by /s/ Goldman, Sachs & Co. --------------------------------------------------- Authorized Signatory MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, by /s/ Michael Senft ---------------------------------------------------- Authorized Signatory SCHEDULE I NOTE GUARANTORS
Name Jurisdiction of Organization - ---- ---------------------------- New SAC Cayman Islands Seagate Technology Holdings Cayman Islands Seagate Technology HDD Holdings Cayman Islands Seagate Technology China Holding Company Cayman Islands Seagate Technology Asia Holdings Cayman Islands Seagate Technology (Ireland) Cayman Islands/ Located in Northern Ireland Seagate Technology Media (Ireland) Cayman Islands/ Located in Northern Ireland Seagate Technology Far East Holdings Cayman Islands Seagate Technology (Philippines) Cayman Islands Seagate Technology (SAN) Holdings Cayman Islands Seagate Removable Storage Solutions Holdings Cayman Islands Seagate Removable Storage Solutions International Cayman Islands Seagate Software (Cayman) Holdings Cayman Islands Seagate Technology (US) Holdings, Inc. Delaware Seagate Technology LLC Delaware Seagate US LLC Delaware Redwood Acquisition Corporation Delaware Seagate Removable Storage Solutions (US) Holdings, Inc Delaware Seagate Removable Storage Solutions LLC Delaware Seagate RSS LLC Delaware Seagate Software Information Management Group Delaware Holdings, Inc.
Name Jurisdiction of Organization - ---- ---------------------------- Quinta Corporation California XIOtech Corporation Minnesota Seagate Technology (Thailand) Limited Thailand Seagate Technology-Reynosa, S. de R.L. de C.V. Mexico Nippon Seagate Inc. Japan Nippon Seagate Software, Inc. Japan Seagate Singapore Distribution Pte Ltd Singapore Seagate Software Information Pte Ltd Singapore Seagate Distribution (UK) Limited Scotland Seagate Technology (Marlow) Limited England & Wales Seagate Software Information Management Group Limited England & Wales XIOtech (Canada) Limited Canada Seagate Software (Canada), Inc. Canada
ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Issuer has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution". ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Securities, where such Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution". ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired as a result of market-making activities or other trading activities. The Issuer has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until 40 days after the commencement of the offering, all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus. The Issuer will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Registered Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Registered Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Issuer will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Issuer has agreed to pay all expenses incident to the Registered Exchange Offer other than commissions or concessions of any broker-dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. ANNEX D |_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: Address: If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. EX-5.1 26 0026.txt FORM OF OPINION OF SIMPSON THACHER AND BARTLETT EXHIBIT 5.1 [Date] SEAGATE TECHNOLOGY INTERNATIONAL and the Guarantors of the Notes listed in the Table of Additional Registrant Guarantors in the Registration Statement 920 Disc Drive P.O. Box 66360 Scotts Valley, California 95067 Ladies and Gentlemen: We have acted as United States counsel to Seagate Technology International, an exempted limited liability company incorporated under the laws of the Cayman Islands (the "Company"), New SAC, an exempted limited liability company incorporated under the laws of the Cayman Islands and certain of its subsidiaries (individually, a "Guarantor" and collectively, the "Guarantors"), listed in the Registration Statement (as defined below), in connection with the Registration Statement on Form S-4 (the "Registration Statement") filed by the Company and the Guarantors with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended, relating to the issuance by the Company of $210,000,000 aggregate principal amount of 12 1/2% Senior Subordinated Notes Due 2007 (the "Exchange Securities") and the issuance by the Guarantors of guarantees (the "Guarantees"), with respect to the Exchange Securities. The Exchange Securities and the Guarantees will be issued under an Indenture dated as of November 22, 2000 (the "Indenture") among the Company, the Guarantors and The Bank of New York, as trustee (the "Trustee"). The Exchange Securities will be offered by the Company in exchange for $210,000,000 aggregate principal amount of its outstanding 12 1/2% Senior Subordinated Notes due 2007. We have examined the Registration Statement and the Indenture, which has been filed with the Commission as an exhibit to the Registration Statement. We also have examined the originals or copies, certified or otherwise identified to our satisfaction, of such records, agreements, instruments and other documents and have made such other and further investigations as we have deemed relevant and necessary in connection with the opinions expressed herein. As to questions of fact material to this opinion, we have relied upon certificates of public officials and of officers and representatives of the Company and the Guarantors. In rendering the opinions set forth below, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as duplicates or certified or conformed copies, and the authenticity of the originals of such latter documents. We also have assumed that the Indenture is the valid and legally binding obligation of the Trustee. We have assumed further that (1) the Company and the Guarantors other than those incorporated in, or organized or formed under the laws of, the State of Delaware (such guarantors, the "Non-Delaware Guarantors") are validly existing and in good standing under the laws of the jurisdictions in which each of them is organized and have duly authorized, executed and delivered the Indenture in accordance with their respective charter documents and by-laws or, as the case may be, their equivalent constitutive documents, and the laws of the jurisdictions in which each of them is organized, (2) the execution, delivery and performance by the Company and the Non-Delaware Guarantors of the Indenture, the Exchange Securities and the Guarantees of the Non-Delaware Guarantors do not violate the laws of the jurisdictions in which each of them is organized or any other applicable laws (excepting the laws of the State of New York and the federal laws of the United States) and (3) the execution, delivery and performance by the Company and the Non-Delaware Guarantors of the Indenture, the Exchange Securities and the Guarantees of the Non-Delaware Guarantors do not constitute a breach or violation of any agreement or instrument which is binding upon the Company or the Non-Delaware Guarantors. Based upon the foregoing, and subject to the qualifications and limitations stated herein, we are of the opinion that: 1. When the Exchange Securities have been duly executed, authenticated, issued and delivered in accordance with the provisions of the Indenture upon the exchange, the Exchange Securities will constitute valid and legally binding obligations of the Company enforceable against the Company in accordance with their terms. 2. When the Exchange Securities have been duly executed, authenticated, issued and delivered in accordance with the provisions of the Indenture upon the exchange and when the Guarantees have been duly issued, the Guarantees will constitute valid and legally binding obligations of the Guarantors enforceable against the Guarantors in accordance with their terms. Our opinions set forth above are subject to the effects of (1) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, (2) general equitable principles (whether considered in a proceeding in equity or at law), (3) an implied covenant of good faith and fair dealing and (4) the effects of the possible judicial application of foreign laws or foreign governmental or judicial action affecting creditors' rights. We are members of the Bar of the State of New York, and we do not express any opinion herein concerning any law other than the Delaware General Corporation Law (including the Statutory provisions, all applicable provisions of the Delaware Constitution and reported judicial decisions interpreting the foregoing), the law of the State of New York and the federal law of the United States. We hereby consent to the filing of this opinion letter as Exhibit 5 to the Registration Statement and to the use of our name under the caption "Legal Matters" in the Prospectus included in the Registration Statement. Very truly yours, SIMPSON THACHER & BARTLETT EX-10.1 27 0027.txt CREDIT AGREEMENT Exhibit 10.1 Execution Copy ================================================================================ CREDIT AGREEMENT dated as of November 22, 2000, among NEW SAC, SEAGATE TECHNOLOGY INTERNATIONAL, as Cayman Borrower, SEAGATE TECHNOLOGY (US) HOLDINGS, INC., as U.S. Borrower, The Lenders Party Hereto and THE CHASE MANHATTAN BANK, as Administrative Agent -------------------------- CHASE SECURITIES INC., as Book Manager and Lead Arranger GOLDMAN SACHS CREDIT PARTNERS L.P., as Documentation Agent THE BANK OF NOVA SCOTIA, as Documentation Agent MERRILL LYNCH CAPITAL CORPORATION, as Documentation Agent ================================================================================ TABLE OF CONTENTS Page ARTICLE I Definitions SECTION 1.01. Defined Terms .............................................. 1 SECTION 1.02. Classification of Loans and Borrowings ..................... 53 SECTION 1.03. Terms Generally ............................................ 53 SECTION 1.04. Accounting Terms; GAAP ..................................... 54 SECTION 1.05. Interim Financial Calculations ............................. 54 SECTION 1.06. Exchange Rates ............................................. 56 ARTICLE II The Credits SECTION 2.01. Commitments ................................................ 56 SECTION 2.02. Loans and Borrowings ....................................... 57 SECTION 2.03. Requests for Borrowings .................................... 58 SECTION 2.04. Swingline Loans ............................................ 59 SECTION 2.05. Letters of Credit .......................................... 61 SECTION 2.06. Funding of Borrowings ...................................... 69 SECTION 2.07. Interest Elections ......................................... 70 SECTION 2.08. Termination and Reduction of Commitments ................... 72 SECTION 2.09. Repayment of Loans; Evidence of Debt ....................... 72 SECTION 2.10. Amortization of Term Loans ................................. 74 SECTION 2.11. Prepayment of Loans ........................................ 76 SECTION 2.12. Fees ....................................................... 80 SECTION 2.13. Interest ................................................... 82 SECTION 2.14. Alternate Rate of Interest ................................. 83 SECTION 2.15. Increased Costs ............................................ 84 SECTION 2.16. Break Funding Payments ..................................... 85 SECTION 2.17. Taxes ...................................................... 86 SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-offs 88 SECTION 2.19. Mitigation Obligations; Replacement of Lenders ............. 90 SECTION 2.20. Change in Law .............................................. 91 3 Page ARTICLE III Representations and Warranties SECTION 3.01. Organization; Powers ....................................... 92 SECTION 3.02. Authorization; Enforceability .............................. 92 SECTION 3.03. Governmental Approvals; No Conflicts ....................... 93 SECTION 3.04. Financial Condition; No Material Adverse Change ............ 93 SECTION 3.05. Properties ................................................. 94 SECTION 3.06. Litigation and Environmental Matters ....................... 95 SECTION 3.07. Compliance with Laws and Agreements ........................ 96 SECTION 3.08. Investment and Holding Company Status ...................... 96 SECTION 3.09. Taxes ...................................................... 96 SECTION 3.10. ERISA ...................................................... 96 SECTION 3.11. Disclosure ................................................. 96 SECTION 3.12. Subsidiaries ............................................... 97 SECTION 3.13. Insurance .................................................. 97 SECTION 3.14. Labor Matters .............................................. 97 SECTION 3.15. Solvency ................................................... 98 SECTION 3.16. Senior Indebtedness ........................................ 98 ARTICLE IV Conditions SECTION 4.01. Effective Date ............................................. 98 SECTION 4.02. Each Credit Event ..........................................103 ARTICLE V Affirmative Covenants SECTION 5.01. Financial Statements and Other Information .................104 SECTION 5.02. Notices of Material Events .................................106 SECTION 5.03. Information Regarding Collateral ...........................107 SECTION 5.04. Existence; Conduct of Business .............................108 SECTION 5.05. Payment of Obligations .....................................108 SECTION 5.06. Maintenance of Properties ..................................109 SECTION 5.07. Insurance ..................................................109 SECTION 5.08. Casualty and Condemnation ..................................109 SECTION 5.09. Books and Records; Inspection and Audit Rights .............109 SECTION 5.10. Compliance with Laws .......................................110 4 Page SECTION 5.11. Use of Proceeds and Letters of Credit ......................110 SECTION 5.12. Additional Subsidiaries ....................................110 SECTION 5.13. Further Assurances .........................................111 SECTION 5.14. Interest Rate Protection ...................................111 SECTION 5.15. Cash Account ...............................................111 ARTICLE VI Negative Covenants SECTION 6.01. Indebtedness; Certain Equity Securities ....................112 SECTION 6.02. Liens ......................................................114 SECTION 6.03. Fundamental Changes ........................................116 SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions ..118 SECTION 6.05. Asset Sales ................................................121 SECTION 6.06. Sale and Leaseback Transactions ............................124 SECTION 6.07. Hedging Agreements .........................................124 SECTION 6.08. Restricted Payments; Certain Payments of Indebtedness ......124 SECTION 6.09. Transactions with Affiliates ...............................128 SECTION 6.10. Restrictive Agreements .....................................128 SECTION 6.11. Amendment of Material Documents ............................129 SECTION 6.12. Interest Expense Coverage Ratio ............................130 SECTION 6.13. Fixed Charge Coverage Ratio ................................130 SECTION 6.14. Net Leverage Ratio .........................................131 ARTICLE VII Events of Default SECTION 7.01. Events of Default ..........................................131 SECTION 7.02. Exclusion of Immaterial Subsidiaries .......................135 ARTICLE VIII The Administrative Agent SECTION 8.01. The Administrative Agent ...................................135 5 Page ARTICLE IX Miscellaneous SECTION 9.01. Notices ....................................................138 SECTION 9.02. Waivers; Amendments ........................................139 SECTION 9.03. Expenses; Indemnity; Damage Waiver .........................141 SECTION 9.04. Successors and Assigns .....................................143 SECTION 9.05. Survival ...................................................149 SECTION 9.06. Counterparts; Integration; Effectiveness ...................150 SECTION 9.07. Severability ...............................................150 SECTION 9.08. Right of Setoff ............................................150 SECTION 9.09. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS .151 SECTION 9.10. WAIVER OF JURY TRIAL .......................................152 SECTION 9.11. Headings ...................................................152 SECTION 9.12. Confidentiality ............................................152 SECTION 9.13. Interest Rate Limitation ...................................153 SECTION 9.14. Judgment Currency ..........................................153 SECTION 9.15. Joint and Several Liability ................................154 ARTICLE X Collection Allocation Mechanism SECTION 10.01. Implementation of CAM ......................................155 SECTION 10.02. Letters of Credit ..........................................156 SCHEDULES: Schedule 1.01(a) -- Mortgaged Properties Schedule 1.01(b) -- Foreign Subsidiaries of the U.S. Borrower Schedule 1.01(c) -- Moribund Subsidiaries Schedule 1.02 -- Jurisdictions of Core Loan Parties Schedule 2.01 -- Commitments Schedule 2.05(a) -- Existing Letters of Credit Schedule 2.05(b) -- Outside Letters of Credit Schedule 3.05 -- Real Property Schedule 3.06 -- Disclosed Matters Schedule 3.12 -- Subsidiaries Schedule 3.13 -- Insurance Schedule 6.01 -- Existing Indebtedness Schedule 6.02 -- Existing Liens Schedule 6.04 -- Existing Investments Schedule 6.04(r)(A) -- Existing Investment Businesses 6 Page Schedule 6.04(r)(B) -- Historical Investment in Investment Businesses and Permitted Spinoff Subsidiaries Schedule 6.07 -- Existing Hedging Agreements Schedule 6.10 -- Existing Restrictions 7 EXHIBITS: Exhibit A -- Form of Assignment and Acceptance Exhibit B-1 (A)-(D) -- Forms of Opinion of Borrowers' United States Counsel Exhibit B-2 -- Form of Opinion of Borrowers' Cayman Islands Counsel Exhibit B-3 -- Form of Opinion of Borrowers' Singapore Counsel Exhibit B-4 -- Form of Opinion of Borrowers' Northern Ireland Counsel Exhibit B-5 -- Form of Opinion of Borrower's Netherlands Counsel Exhibit B-6 -- Form of Opinion of Borrowers' Scotland Counsel Exhibit B-7 -- Form of Opinion of United States Local Counsel Exhibit B-8 -- Form of Opinion of Borrower's Thai Counsel Exhibit B-9 -- Form of Opinion of Borrowers' counsel for other Jurisdictions of Core Loan Parties Exhibit C-1 -- Form of U.S. Security Agreement Exhibit C-2 -- Form of Cayman Security Agreement Exhibit C-3 -- Form of Singapore Security Agreement Exhibit C-4 -- Form of Northern Ireland Floating Debenture and Supplemental Guarantee Mortgage Exhibit C-5 -- Form of Netherlands Security Agreement Exhibit C-6 -- Form of Scotland Security Agreement Exhibit D-1 -- Form of U.S. Pledge Agreement Exhibit D-2 -- Form of Cayman Pledge Agreement Exhibit D-3 -- Form of Singapore Pledge Agreement Exhibit D-4 -- Form of Scotland Pledge Agreement Exhibit E -- Form of Indemnity, Subrogation and Contribution Agreement Exhibit F -- Form of U.S. Guarantee Agreement CREDIT AGREEMENT dated as of November 22, 2000, among NEW SAC, SEAGATE TECHNOLOGY INTERNATIONAL, SEAGATE TECHNOLOGY (US) HOLDINGS, INC., the LENDERS party hereto and THE CHASE MANHATTAN BANK, as Administrative Agent. The parties hereto agree as follows: ARTICLE I Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Acquired Business" means all the assets of the Company and its subsidiaries other than the Designated Assets (as defined in the Purchase Agreement). "Acquisition" means (a) the purchase by the U.S. Borrower, Intermediate Holdings, HDD Holdings, Seagate SAN, Seagate Software (Cayman) Holdings, Seagate Removable Storage Solutions (Cayman) Holdings or Seagate Removable Storage Solutions (U.S.) Holdings, Inc., from the Company or SSH, as applicable, of all the outstanding capital stock of the Cayman Borrower (after giving effect to the Repurchase) and the other Sold Subsidiaries (as defined in the Purchase Agreement) other than Seagate Technology Investments, Inc., and (b) the merger of Investment Holdings with Seagate Technology Investments, Inc., with Investment Holdings being the surviving entity of such merger. "Acquisition Documents" means the Purchase Agreement, the Shareholders' Agreements, the Indemnification Agreement and the Side Letter. "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. 2 "Administrative Agent" means The Chase Manhattan Bank, in its capacity as administrative agent for the Lenders hereunder. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. Notwithstanding the foregoing, no individual shall be deemed to be an Affiliate of a Person solely by reason of his or her being an officer or director of such Person. "Alternate Base Rate" means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Alternative Currency" means any currency that is freely available, freely transferable and freely convertible into dollars and in which dealings in deposits are carried on in the New York, London or Tokyo interbank markets, provided that such currency is reasonably acceptable to the Administrative Agent and the applicable Issuing Bank. "Alternative Currency LC Exposure" means, at any time, the sum of (a) the Dollar Equivalent of the aggregate undrawn and unexpired amount of all outstanding Alternative Currency Letters of Credit at such time plus (b) the Dollar Equivalent of the aggregate principal amount of all LC Disbursements in respect of Alternative Currency Letters of Credit that have not yet been reimbursed at such time. "Alternative Currency Letter of Credit" means a Letter of Credit denominated in an Alternative Currency. "Applicable Margin" means, for any day (a) with respect to any Tranche B Term Loan, (i) 2.00% per annum, in the case of an ABR Loan, or (ii) 3.00% per annum, in the case of a Eurodollar Loan, and (b) with respect to any ABR Loan or Eurodollar Loan that is a Revolving Loan or a Tranche A Term Loan, or with respect to the commitment fees payable hereunder, as the case may be, the applicable margin per annum set forth below under the caption "ABR Spread", 3 "Eurodollar Spread" or "Commitment Fee Rate", as the case may be, based upon the Leverage Ratio as of the most recent determination date, provided that until the delivery to the Administrative Agent, pursuant to Section 5.01(b), of Holdings's consolidated financial statements for Holdings's first fiscal quarter ending after the Effective Date, the "Applicable Margin" for purposes of clause (b) above shall be the applicable margin per annum set forth below in Category 1: - -------------------------------------------------------------------------------- ABR Eurodollar Commitment Fee Leverage Ratio: Spread Spread Rate - -------------------------------------------------------------------------------- Category 1 Equal to or greater 1.50% 2.50% 0.50% than 1.00 to 1.00 - -------------------------------------------------------------------------------- Category 2 Less than 1.00 to 1.00 1.25% 2.25% 0.50% but equal to or greater than 0.50 to 1.00 - -------------------------------------------------------------------------------- Category 3 Less than 0.50 to 1.00 1.00% 2.00% 0.50% but equal to or greater than 0.25 to 1.00 - -------------------------------------------------------------------------------- Category 4 0.75% 1.75% 0.50% Less than 0.25 to 1.00 - -------------------------------------------------------------------------------- For purposes of the foregoing, (a) the Leverage Ratio shall be determined as of the end of each fiscal quarter of Holdings's fiscal year based upon Holdings's consolidated financial statements delivered pursuant to Section 5.01(a) or (b) and (b) each change in the Applicable Margin resulting from a change in the Leverage Ratio shall be effective during the period commencing on and including the first Business Day after the date of delivery to the Administrative Agent of such consolidated financial statements indicating such change and ending on the date immediately preceding the effective date of the next such change, provided that the Leverage Ratio shall be deemed to be in Category 1 (i) at any time that an Event of Default has occurred and is continuing or (ii) at the option of the Administrative Agent or at the request of the Required Lenders if Holdings fails to deliver the consolidated financial statements required to be delivered by it pursuant to Section 5.01(a) or (b), during the period from the expiration of the time for delivery thereof until such consolidated financial statements are delivered. "Applicable Percentage" means, with respect to any Revolving Lender, the percentage of the total Revolving Commitments represented by such Lender's Revolving Commitment. If the Revolving Commitments have terminated or 4 expired, the Applicable Percentages shall be determined based upon the Revolving Commitments most recently in effect, giving effect to any assignments. "Approved Cash Account Jurisdiction" means Singapore, Thailand, England or any other jurisdiction requested by the Cayman Borrower in which the Administrative Agent is satisfied that, taking into account all legal and practical considerations, (i) a first priority security interest can be created and perfected over a bank account or securities account created in such jurisdiction by the Cayman Borrower in favor of the Collateral Agent for the benefit of the Secured Parties and (ii) the Collateral Agent for the benefit of the Secured Parties will be able substantially to realize the benefits intended to be created by such security interest, provided that no jurisdiction shall be considered an Approved Cash Account Jurisdiction unless and until the Cayman Borrower has delivered to the Administrative Agent an opinion of counsel for such jurisdiction, in form and substance reasonably satisfactory to the Administrative Agent. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent. "Attributable Equity Interest" means, for any Person: (a) with respect to HDD Holdings, the sum of (i) the product of (A) the percentage (expressed as a decimal) of the aggregate equity value represented by the issued and outstanding Equity Interests in Holdings held by such Person, multiplied by (B) the percentage (expressed as a decimal) of the aggregate equity value represented by the issued and outstanding Equity Interests in Intermediate Holdings held directly by Holdings, multiplied by (C) the percentage (expressed as a decimal) of the aggregate equity value represented by the issued and outstanding Equity Interests in HDD Holdings held directly by Intermediate Holdings, plus (ii) the product of (A) the percentage (expressed as a decimal) of the aggregate equity value represented by the issued and outstanding Equity Interests in Intermediate Holdings held directly by such Person multiplied by (B) the percentage (expressed as a decimal) of the aggregate equity value represented by the issued and outstanding Equity Interests in HDD Holdings held directly by Intermediate Holdings, plus (iii) the product of (A) the 5 percentage (expressed as a decimal) of the aggregate equity value represented by the issued and outstanding Equity Interests in Holdings held directly by such Person multiplied by (B) the percentage (expressed as a decimal) of the aggregate equity value represented by the issued and outstanding Equity Interests in HDD Holdings held directly by Holdings, plus (iv) the percentage (expressed as a decimal) of the aggregate equity value represented by the issued and outstanding Equity Interests in HDD Holdings held directly by such Person; and (b) with respect to Intermediate Holdings, the sum of (i) the product of (A) the percentage (expressed as a decimal) of the aggregate equity value represented by the issued and outstanding Equity Interests in Holdings held by such Person, multiplied by (B) the percentage (expressed as a decimal) of the aggregate equity value represented by the issued and outstanding Equity Interests in Intermediate Holdings held directly by Holdings, plus (ii) the percentage (expressed as a decimal) of the aggregate equity value represented by the issued and outstanding Equity Interests in Intermediate Holdings held directly by such Person. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrower Equity Interests" means shares of the capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity interests in Holdings, either Borrower or any Subsidiary or any warrants, options or other rights to acquire such interests. "Borrowing" means (a) Loans of the same Class and Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect, or (b) a Swingline Loan. "Borrowing Request" means a request by the Cayman Borrower or the U.S. Borrower for a Borrowing in accordance with Section 2.03. "Borrowers" means the Cayman Borrower and the U.S. Borrower. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed, provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude 6 any day on which banks are not open for dealings in dollar deposits in the London interbank market. "CacheVision" means CacheVision, Inc., a Delaware corporation. "Calculation Date" means (a) the last Business Day of each calendar month and (b) if on the last Business Day of any calendar week the total Revolving Exposures exceed 75% of the total Revolving Commitments (giving effect to any reductions in the Revolving Commitments scheduled to occur on such day), such Business Day. "CAM" shall mean the mechanism for the allocation and exchange of interests in the Loans, participations in Letters of Credit and collections thereunder established under Article X. "CAM Exchange" shall mean the exchange of the Lenders' interests provided for in Section 10.01. "CAM Exchange Date" shall mean the first date after the Effective Date on which there shall occur (a) any event described in paragraph (h) or (i) of Section 7.01 with respect to either Borrower or (b) an acceleration of the maturity of Loans pursuant to Section 7.01. "CAM Percentage" shall mean, as to each Lender, a fraction, expressed as a decimal, of which (a) the numerator shall be the sum of (i) the aggregate Obligations owed to such Lender, (ii) the LC Exposure, if any, of such Lender, and (iii) the Swingline Exposure, if any, of such Lender, in each case immediately prior to the CAM Exchange Date, and (b) the denominator shall be the sum of (i) the aggregate Obligations owed to all the Lenders and (ii) the aggregate LC Exposure of all the Lenders, in each case immediately prior to the CAM Exchange Date; provided that, for purposes of clause (a) above, the Obligations owed to the Swingline Lender will be deemed not to include any Swingline Loans except to the extent provided in clause (a)(iii) above. "Capital Expenditures" means, for any period, without duplication, (a) the additions to property, plant and equipment and other capital expenditures of Holdings and its consolidated subsidiaries that are (or would be) set forth in a consolidated statement of cash flows of Holdings for such period prepared in accordance with GAAP and (b) Capital Lease Obligations incurred by Holdings and its consolidated subsidiaries during such period, provided that the term "Capital Expenditures" (i) shall be net of landlord construction allowances, (ii) shall not include expenditures 7 to the extent they are made with the proceeds of the issuance of Equity Interests of Holdings, either Borrower or any Subsidiary after the Effective Date, (iii) shall not include expenditures of proceeds of insurance settlements, condemnation awards and other settlements in respect of lost, destroyed, damaged or condemned assets, equipment or other property to the extent such expenditures are made to replace or repair such lost, destroyed, damaged or condemned assets, equipment or other property or otherwise to acquire properties useful in the business of Holdings, either Borrower or any of the Subsidiaries within 365 days of receipt of such proceeds, and (iv) shall not include the purchase price of equipment to the extent the consideration therefor consists of used or surplus equipment being traded in at such time or the proceeds of a concurrent sale of such used or surplus equipment, in each case in the ordinary course of business. For the purpose of calculating Capital Expenditures, (a) the capital expenditures and Capital Lease Obligations of the Excluded Subsidiaries shall be excluded and (b) any amounts expended in respect of an acquisition or other investment that is made pursuant to Section 6.04 (h) or (r) shall be deemed not to constitute Capital Expenditures to the extent such amounts reduce the available amounts under Section 6.04(h) or (r). "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Cash Accounts" means (a) the U.S. Cash Account as such term is defined in the U.S. Security Agreement, (b) the Custody Account as such term is defined in the U.S. Pledge Agreement and (c) bank accounts and securities accounts in the Cayman Islands and the Approved Cash Account Jurisdictions, provided that such bank accounts and securities accounts described in this clause (c) are subject to a perfected first priority security interest in favor of the Collateral Agent for the benefit of the Secured Parties pursuant to the applicable Security Document. "Cayman Borrower" means Seagate Technology International, an exempted limited liability company organized under the laws of the Cayman Islands. 8 "Cayman Pledge Agreements" means the Equitable Share Mortgages, dated as of the Effective Date, substantially in the form of Exhibit D-2, between each Loan Party that owns Equity Interests of any Person organized under the laws of the Cayman Islands that would constitute Collateral if such Loan Party executed a Cayman Pledge Agreement and the Collateral Agent for the benefit of the Secured Parties. "Cayman Security Agreements" means the Deeds of Charge, dated as of the Effective Date, substantially in the form of Exhibit C-2, between each Loan Party that is incorporated or organized under the laws of the Cayman Islands or that owns Collateral located in the Cayman Islands and the Collateral Agent for the benefit of the Secured Parties. "Cayman Tranche A Term Loan" means a Loan made pursuant to clause (a) of Section 2.01. "Cayman Tranche B Term Loan" means a Loan made pursuant to clause (c) of Section 2.01. "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. (section) 9601 et seq. "Change in Control" means: (a) the acquisition of direct ownership, beneficially or of record, by any Person other than HDD Holdings of any Equity Interest in the Cayman Borrower; (b) the acquisition of direct ownership, beneficially or of record, by any Person other than HDD Holdings of any Equity Interest in the U.S. Borrower; (c) at any time, with respect to Holdings: (i) the failure by the Permitted Holders collectively to own (and retain the right to vote), directly or indirectly, beneficially and of record, Equity Interests in Holdings representing at least 51% of each of the aggregate ordinary voting power and aggregate equity value represented by the issued and outstanding Equity Interests in Holdings; or (ii) the failure by TPG and SLP collectively to own (and retain the right to vote), directly or indirectly, beneficially and of record, Equity Interests in Holdings representing more than 40% of each of the 9 aggregate ordinary voting power and the aggregate equity value represented by the issued and outstanding Equity Interests in Holdings; or (iii) the failure by SLP and TPG collectively to have the ability to appoint the majority of the board of directors of Holdings; (d) prior to an IPO of HDD Holdings, the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person other than Intermediate Holdings of any Equity Interest in HDD Holdings; (e) prior to an IPO of Intermediate Holdings, the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person other than Holdings of any Equity Interest in Intermediate Holdings (other than the acquisition of Equity Interests in Intermediate Holdings by Permitted Optionholders pursuant to the exercise of Permitted Options); (f) after an IPO of Intermediate Holdings: (i) the failure by Holdings to own (and retain the right to vote), directly, beneficially and of record, Equity Interests in Intermediate Holdings representing more than 15% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests in Intermediate Holdings; or (ii) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) other than TPG or SLP of Equity Interests representing a greater percentage of the aggregate ordinary voting power of Intermediate Holdings than the percentage of such voting power owned, directly, beneficially and of record, by Holdings; (g) after an IPO of HDD Holdings: (i) the failure by Intermediate Holdings to own (and retain the right to vote), directly, beneficially and of record, Equity Interests in HDD Holdings representing more than 15% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests in HDD Holdings; or 10 (ii) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) other than TPG or SLP of Equity Interests representing a greater percentage of the aggregate ordinary voting power of HDD Holdings than the percentage of such voting power owned, directly, beneficially and of record, by Intermediate Holdings; (h) after an IPO of HDD Holdings or Intermediate Holdings: (i) the failure by (A) the Permitted Holders collectively to own an Attributable Equity Interest of at least 15% in each of HDD Holdings and Intermediate Holdings or (B) TPG and SLP collectively to own an Attributable Equity Interest of at least 10% in each of HDD Holdings and Intermediate Holdings; or (ii) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of an Attributable Equity Interest in any of HDD Holdings or Intermediate Holdings, greater than the Attributable Equity Interest in HDD Holdings or Intermediate Holdings, as applicable, collectively held by TPG and SLP; (i) occupation of a majority of the seats (other than vacant seats) on the board of directors of Holdings, HDD Holdings or Intermediate Holdings by Persons who were neither (i) nominated by at least 66-2/3% of the board of directors of Holdings, HDD Holdings or Intermediate Holdings, as applicable, nor (ii) appointed by a vote of 66-2/3% of directors so nominated; or (j) the occurrence of a "Change of Control", as defined in the Subordinated Debt Documents. "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or the Issuing Bank (or, for purposes of Section 2.15(b), by any lending office of such Lender or by such Lender's or the Issuing Bank's holding company, if any) 11 with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Class", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans, Tranche A Term Loans, Tranche B Term Loans or Swingline Loans and, when used in reference to any Commitment, refers to whether such Commitment is a Revolving Commitment, Tranche A Commitment or Tranche B Commitment. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Collateral" means any and all "Collateral", as defined in any applicable Security Document. "Collateral Agent" means the "Collateral Agent", as defined in any applicable Security Document. "Collateral and Guarantee Requirement" means the requirement that: (a) on the Effective Date, the Administrative Agent shall have received from each Loan Party a counterpart of each of (i) the applicable Guarantee Agreement, (ii) in the case of any Loan Party that executes the U.S. Guarantee Agreement, the Indemnity, Subrogation and Contribution Agreement, (iii) in the case of any Loan Party that is a U.S. Loan Party or that owns any Equity Interests in any Person that is organized under the laws of the United States that would constitute Collateral if such Loan Party executed the U.S. Pledge Agreement, the U.S. Pledge Agreement, (iv) in the case of any Loan Party that is a U.S. Loan Party or that owns any Collateral located in the United States, the U.S. Security Agreement, (v) in the case of any Loan Party that owns any Equity Interests in a Person that is incorporated or organized under the laws of the Cayman Islands and that would constitute Collateral if such Loan Party executed a Cayman Pledge Agreement, a Cayman Pledge Agreement, (vi) in the case of any Loan Party that is incorporated or organized under the laws of the Cayman Islands or owns any Collateral located in the Cayman Islands, a Cayman Security Agreement, (vii) in the case of any Loan Party that is organized under the laws of Singapore or that owns any Collateral located in Singapore, the Singapore Security Agreement, (viii) in the case of any Loan Party that owns Equity Interests in a Person that is 12 organized under the laws of Singapore and that would constitute Collateral if such Loan Party executed a Singapore Pledge Agreement, a Singapore Pledge Agreement, (ix) in the case of any Loan Party that is organized under the laws of Northern Ireland or that owns any Collateral located in Northern Ireland, a Northern Ireland Security Agreement, (x) in the case of any Loan Party that is organized under the laws of the Netherlands or that owns any Collateral located in the Netherlands, the Netherlands Security Agreement, (xi) in the case of any Loan Party that is organized under the laws of Scotland, or that owns any Collateral located in Scotland, the Scotland Security Agreement and (xii) in the case of any Loan Party that owns any Equity Interests in a Person organized under the laws of Scotland and that would constitute Collateral if such Loan Party executed the Scotland Pledge Agreement, the Scotland Pledge Agreement, and (xiii) in the case of Seagate Technology (Thailand) Limited, the Thai Mortgages, in each case duly executed and delivered on behalf of such Loan Party; (b) in the case of any Subsidiary created or acquired by Holdings, either Borrower or any Subsidiary after the Effective Date that is not a Foreign Subsidiary, such Subsidiary shall execute and deliver to the Administrative Agent a supplement to each of the U.S. Guarantee Agreement, the Indemnity, Subrogation and Contribution Agreement and each applicable Security Document, in the form specified therein; (c) in the case of any Foreign Subsidiary created or acquired by Holdings, either Borrower or any Subsidiary after the Effective Date that gives a Guarantee of the Subordinated Debt, such Foreign Subsidiary shall execute and deliver to the Administrative Agent a supplement to or a counterpart of the applicable Guarantee Agreement, as applicable, and, if such Foreign Subsidiary executes the U.S. Guarantee Agreement, a supplement to the Indemnity, Subrogation and Contribution Agreement; (d) in the case of any Foreign Subsidiary created or acquired by Holdings, either Borrower or any Subsidiary after the Effective Date that (i) is organized under the laws of the Netherlands, Northern Ireland, Scotland, or Singapore, (ii) on the date on which such Foreign Subsidiary is created or acquired, would, on a pro forma basis after giving effect to such creation or acquisition and any related transfers of assets to such Foreign Subsidiary, (A) hold at least 13 10% of the consolidated total assets of Holdings and its subsidiaries as reflected on Holdings's consolidated balance sheet (as adjusted to give effect to such creation or acquisition) as of the last day of the most recently ended fiscal quarter for which a balance sheet has been delivered to the Administrative Agent pursuant to Section 5.01(a) or (b) or (B) account for at least 10% of Consolidated EBITDA for the four fiscal quarter period ended on such day as reflected in the certificate for such period (as adjusted to give effect to such creation or acquisition) delivered to the Administrative Agent pursuant to Section 5.01(c) or (iii) at the end of any fiscal quarter after the date on which such Foreign Subsidiary is created or acquired (A) hold at least 10% of the consolidated total assets of Holdings and its subsidiaries as reflected on Holdings's consolidated balance sheet (as adjusted to give effect to such creation or acquisition) for such date delivered to the Administrative Agent pursuant to Section 5.01(a) or (b) or (B) accounts for at least 10% of Consolidated EBITDA for the four fiscal quarter period ended on such date as reflected in the certificate for such period (as adjusted to give effect to such creation or acquisition) delivered to the Administrative Agent pursuant to Section 5.01(c), such Foreign Subsidiary (if not organized under the laws of Malaysia) shall execute and deliver to the Administrative Agent (x) a supplement to or a counterpart of the applicable Guarantee Agreement, (y) if such Foreign Subsidiary executes the U.S. Guarantee Agreement, a supplement to the Indemnity, Subrogation and Contribution Agreement and (z) a counterpart of one or more security or pledge agreements or similar documents or instruments, which (as applicable) may include a Singapore Security Agreement, a Singapore Pledge Agreement, the Scotland Pledge Agreement, the Scotland Security Agreement, the Netherlands Security Agreement, a Northern Ireland Security Agreement or a Netherlands-law pledge agreement on terms substantially similar to those contained in the U.S. Pledge Agreement (collectively, a "Foreign Security Agreement"), that (1) create perfected Liens on substantially all tangible and intangible assets (including Equity Interests in other Subsidiaries of such Foreign Subsidiary), other than assets that the Administrative Agent has made a determination to exclude, prior to any other Lien on any of such assets (other than Liens expressly permitted to be prior to the Liens created by such a Foreign Security Agreement pursuant to Section 6.02), (2) provide rights and benefits to the Collateral Agent 14 and the other Secured Parties with respect to such assets substantially identical to the rights and benefits provided by the U.S. Security Agreement and the U.S. Pledge Agreement (except as prohibited by applicable law) and (3) are otherwise in form and substance reasonably satisfactory to the Administrative Agent, in each case duly executed and delivered on behalf of such Loan Party; (e) in the case of a Foreign Subsidiary created or acquired by Holdings, either Borrower or any Subsidiary after the Effective Date to which neither the preceding clause (c) or (d) applies and that the Cayman Borrower designates as a Subsidiary Loan Party, such Foreign Subsidiary shall execute and deliver to the Administrative Agent a supplement to or counterpart of the applicable Guarantee Agreement, and, if such Foreign Subsidiary executes the U.S. Guarantee Agreement, a supplement to the Indemnity, Subrogation and Contribution Agreement (except as prohibited by applicable law); (f) all outstanding Equity Interests of each Borrower and each Subsidiary (except that, if such Subsidiary is (i) a Foreign Subsidiary identified on Schedule 1.01(b) and (ii) a direct or indirect subsidiary of the U.S. Borrower, shares of common stock of such Subsidiary to be pledged pursuant to the applicable Pledge Agreement may be limited to 65% of the outstanding common stock of such Subsidiary) owned directly by or directly on behalf of any Loan Party that is required hereunder to become party to any Pledge Agreement or Foreign Security Agreement shall have been pledged pursuant to the applicable Pledge Agreement and, unless the Administrative Agent shall otherwise agree (which agreement shall not be unreasonably withheld), the Administrative Agent shall have received certificates or other instruments representing all such Equity Interests, together with stock powers or other instruments of transfer with respect thereto endorsed in blank; (g) all Indebtedness of Holdings, each Borrower and each Subsidiary and each Excluded Subsidiary that is owing to any Loan Party that is required hereunder to become party to a Pledge Agreement or a Foreign Security Agreement shall be evidenced by a promissory note and shall have been pledged pursuant to the applicable Pledge Agreement and, unless the Administrative Agent shall otherwise agree (which agreement shall not be unreasonably withheld), the 15 Administrative Agent shall have received all such promissory notes, together with instruments of transfer with respect thereto endorsed in blank; (h) all documents and instruments, including Uniform Commercial Code financing statements, required by law or reasonably requested by the Administrative Agent to be filed, registered or recorded to (i) create the Liens intended to be created by the Security Documents and (ii) perfect such Liens to the extent required by, and with the priority required by, the applicable Security Document, shall have been filed, registered or recorded or delivered to the Administrative Agent for filing, registration or recording; (i) the Administrative Agent shall have received (i) counterparts of a Mortgage with respect to each Mortgaged Property duly executed and delivered by the record owner of such Mortgaged Property, (ii) a policy or policies of title insurance issued by a nationally recognized title insurance company insuring the Lien of each such Mortgage in respect of a Mortgaged Property located in the United States or, if reasonably requested by the Administrative Agent and available on commercially reasonable terms, outside the United States as a valid first Lien on the Mortgaged Property described therein, free of any other Liens except as expressly permitted by Section 6.02, together with such endorsements, coinsurance and reinsurance as the Administrative Agent or the Required Lenders may reasonably request, and (iii) such surveys, abstracts, appraisals, legal opinions and other documents as the Administrative Agent or the Required Lenders may reasonably request with respect to any such Mortgage or Mortgaged Property; and (j) each Loan Party shall have obtained all material consents and approvals required to be obtained by it in connection with the execution and delivery of all Security Documents to which it is a party, the performance of its obligations thereunder and the granting by it of the Liens thereunder. "Commitment" means a Revolving Commitment, Tranche A Commitment or Tranche B Commitment, or any combination thereof (as the context requires). "Company" means Seagate Technology, Inc., a Delaware corporation. 16 "Consolidated Cash Interest Expense" means, for any period (subject to Section 1.05), the excess of (a) the sum of (i) the interest expense (including imputed interest expense in respect of Capital Lease Obligations) of Holdings, the Borrowers and the Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, plus (ii) any interest accrued during such period in respect of Indebtedness of Holdings, either Borrower or any Subsidiary that is required to be capitalized rather than included in consolidated interest expense for such period in accordance with GAAP, plus (iii) any cash payments made during such period in respect of obligations referred to in clause (b)(ii) below that were amortized or accrued in a previous period, minus (b) the sum of (i) to the extent included in such consolidated interest expense for such period, non-cash amounts attributable to amortization of financing costs paid in a previous period, plus (ii) to the extent included in such consolidated interest expense for such period, non-cash amounts attributable to amortization of debt discounts or accrued interest or dividends payable in kind for such period. For purposes of calculating Consolidated Cash Interest Expense, the interest expense (and other items referred to in the preceding sentence) of the Excluded Subsidiaries shall be excluded. "Consolidated EBITDA" means, for any period (subject to Section 1.05), Consolidated Net Income for such period plus (a) without duplication and to the extent deducted in determining such Consolidated Net Income, the sum of (i) consolidated interest expense for such period, (ii) consolidated income tax expense for such period, (iii) all amounts attributable to depreciation and amortization for such period, (iv) all extraordinary charges during such period, (v) noncash expenses during such period resulting from (A) the grant of stock or stock options to management and employees of Holdings, either Borrower or any of the Subsidiaries or (B) the treatment of such options under variable plan accounting, (vi) the aggregate amount of deferred financing expenses for such period, (vii) all other noncash charges, noncash expenses or noncash losses of Holdings, either Borrower or any of the Subsidiaries for such period (excluding any such charge, expense or loss incurred in the ordinary course of business that constitutes an accrual of or a reserve for cash charges for any future period), provided, however, that cash payments made in such period or in any future period (other than payments made under the terms of the Deferred Compensation Plans to, or for the benefit of, participants in such Deferred Compensation Plans) in respect of such noncash charges, expenses or losses (excluding any such charge, expense or loss incurred in the ordinary course of business that 17 constitutes an accrual of or a reserve for cash charges for any future period) shall be subtracted from Consolidated Net Income in calculating Consolidated EBITDA in the period when such payments are made, (viii) any non-recurring fees, expenses or charges realized by Holdings, either Borrower or any of the Subsidiaries for such period related to any offering of Equity Interests or incurrence of Indebtedness permitted to be issued or incurred under Section 6.01 (whether or not successful) and fees, expenses and charges related to the Transactions and (ix) any charges for the portion of such period ended on or before June 27, 2003, that are associated with the restructuring of the manufacturing operations of the Borrowers and the Subsidiaries, provided that such charges shall not be in excess of $126,200,000 for the period of three fiscal years ending June 27, 2003, and minus (b) without duplication and to the extent included in determining such Consolidated Net Income, (i) any extraordinary gains for such period, (ii) interest income for such period and (iii) all noncash items increasing Consolidated Net Income for such period (excluding any items that represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period that are described in the parenthetical to clause (a)(vii) above), all determined on a consolidated basis in accordance with GAAP. For purposes of calculating Consolidated EBITDA for any period, any payment made or received by Holdings, either Borrower or any of the Subsidiaries pursuant to the Indemnification Agreement (any such payment, an "Indemnification Payment") shall be treated in the manner in which the loss, cost, expense or payment that gave rise to such Indemnification Payment (the "Underlying Payment") would have been treated if such Underlying Payment had been made or received, as applicable, directly by or to Holdings, the Borrower or any of the Subsidiaries. For purposes of calculating the Leverage Ratio or the Net Leverage Ratio or the Fixed Charge Coverage Ratio as of any date, if Holdings, either Borrower or any consolidated Subsidiary has made any material Permitted Acquisition or material sale, transfer, lease or other disposition of assets outside of the ordinary course of business permitted by Section 6.05 during the period of four consecutive fiscal quarters ending on the date on which the most recent fiscal quarter ended, Consolidated EBITDA for the relevant period for testing compliance shall be calculated after giving pro forma effect thereto, as if such Permitted Acquisition or sale, transfer, lease or other disposition of assets outside of the ordinary course of business (and any related incurrence, repayment or assumption of Indebtedness with any new Indebtedness being deemed to be amortized over the applicable testing period in accordance with its terms) had occurred on the first day of 18 the relevant period for testing compliance. Any pro forma calculations pursuant to the immediately preceding sentence shall be determined in good faith by a Financial Officer of Holdings and may include adjustments (a) for all purposes under this Agreement, for operating expense reductions that would be permitted pursuant to Article XI of Regulation S-X under the Securities Act of 1933 or (b) for all purposes under this Agreement other than for purposes of determining whether any acquisition complies with clause (d) of the definition of the term Permitted Acquisition, to eliminate the actual, historical operating expenses attributable to any lease or other contract, any personnel or any facility as a direct result of the termination of such lease or other contract, the termination of such personnel or the closing of such facility, in each case only if such termination or closing has been effected within three months after a Permitted Acquisition in connection with such Permitted Acquisition, provided that Holdings's calculation of such adjustments is set forth in a certificate signed by a Financial Officer. For purposes of calculating Consolidated EBITDA, the Excluded Subsidiaries shall be disregarded (except to the extent of the amount of dividends or other distributions actually paid by the Excluded Subsidiaries to Holdings, either Borrower or any of the consolidated Subsidiaries). "Consolidated Fixed Charges" means, for any period (subject to Section 1.05), the sum of (a) Consolidated Cash Interest Expense for such period and (b) Capital Expenditures for such period. For purposes of calculating compliance with Section 6.13 as of any date, if Holdings, either Borrower or any consolidated Subsidiary has made any material Permitted Acquisition or material sale, transfer, lease or other disposition of assets outside of the ordinary course of business permitted by Section 6.05 during the period of four consecutive fiscal quarters ending on the date on which the most recent fiscal quarter ended, Consolidated Fixed Charges for the relevant period for testing compliance shall be calculated after giving pro forma effect thereto, as if such Permitted Acquisition or sale, transfer, lease or other disposition of assets outside of the ordinary course of business (and any related incurrence, repayment or assumption of Indebtedness with any new Indebtedness being deemed to be amortized over the applicable testing period in accordance with its terms) had occurred on the first day of the relevant period for testing compliance. "Consolidated Net Cash Interest Expense" means, for any period (subject to Section 1.05), the excess of (a) Consolidated Cash Interest Expense for such period minus 19 (b) cash interest income of Holdings, the Borrowers and the Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. For purposes of calculating Consolidated Net Cash Interest Expense, the Excluded Subsidiaries shall be excluded. "Consolidated Net Income" means, for any period, the net income or loss of Holdings, the Borrowers and the Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, provided that there shall be excluded from such net income or loss (a) the income of any Person (that is not a consolidated Subsidiary) in which any other Person (other than Holdings, either Borrower or any consolidated Subsidiary or any director holding qualifying shares in compliance with applicable law) owns an Equity Interest, except to the extent of the amount of dividends or other distributions actually paid to Holdings, either Borrower or any of the consolidated Subsidiaries by such Person during such period, (b) the income or loss of any Person accrued prior to the date on which it becomes a Subsidiary or is merged into or consolidated with Holdings, either Borrower or any consolidated Subsidiary or the date on which such Person's assets are acquired by Holdings, either Borrower or any consolidated Subsidiary, (c) the income or loss of the Excluded Subsidiaries (except to the extent of the amount of dividends or other distributions actually paid by the Excluded Subsidiaries to Holdings, either Borrower or any of the consolidated Subsidiaries during such period) and (d) minority interest expense attributable to HDD Holdings or Intermediate Holdings as a result of a Permitted HDD Holdings Equity Sale or a Permitted Intermediate Holdings Equity Sale. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. The terms "Controlling" and "Controlled" have meanings correlative thereto. "Convertible Securities" has the meaning assigned to such term in the definition of the term Distributable Liquidity Event Proceeds. "Core Loan Party" means Holdings, each Borrower and any Subsidiary Loan Party that executes a Guarantee Agreement and is organized under the laws of (i) the United States of America or any State thereof or the District of Columbia, (ii) the Cayman Islands, (iii) any jurisdiction listed on Schedule 1.02 hereto or (iv) any other jurisdiction requested by the Cayman Borrower in which the 20 Administrative Agent is satisfied that, taking into account all legal and practical considerations, the Collateral Agent for the benefit of the Lenders will be able substantially to realize the benefits intended to be created by such Subsidiary's Guarantee of the Obligations and any Collateral pledged in connection therewith, provided that any Subsidiary Loan Party organized under the laws of any jurisdiction other than the United States, the Cayman Islands, Northern Ireland, Scotland, Singapore or another jurisdiction in respect of which the Cayman Borrower has previously complied with the requirement of this proviso shall not be considered a Core Loan Party unless and until the Cayman Borrower has delivered to the Administrative Agent an opinion of counsel for such jurisdiction, in form and substance reasonably satisfactory to the Administrative Agent, substantially in the form of Exhibit B-9 (with such modifications thereto as are reasonably acceptable to the Administrative Agent). For the avoidance of doubt, any Person organized in any of the jurisdictions described in clauses (i) through (iv) of the previous sentence that is not a Loan Party is not a Core Loan Party. "Default" means any event or condition that constitutes an Event of Default or that upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Deferred Compensation Plans" means (i) the deferred compensation plan dated as of November 22, 2000, of HDD Holdings (as amended, waived, supplemented or otherwise modified from time to time), (ii) the deferred compensation plan dated as of November 22, 2000, of Tape Holdings (as amended, waived, supplemented or otherwise modified from time to time), (iii) the deferred compensation plan dated as of November 22, 2000, of Seagate SAN (as amended, waived, supplemented or otherwise modified from time to time), (iv) any other plan established in lieu of, or to renew or replace, in whole or in part, any plan referred to in clause (i), (ii) or (iii) above or this clause (iv) and any other similar plan the purpose or effect of which is to provide to the participants therein substantially the economic equivalent of an equity participation in Holdings or any of its subsidiaries in lieu of such an equity participation or to provide the participants therein the benefits to which they are entitled on the Effective Date under the plans described in clauses (i), (ii), or (iii) above or this clause (iv) and (v) any Guarantee by Holdings or any of its subsidiaries of any obligation under any Deferred Compensation Plan referred to in clause (i), (ii), (iii) or (iv) above. 21 "Denmark Holdings" means Seagate Technology (Denmark) ApS, an anpartsselskab organized under the laws of Denmark. "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.06. "Distributable Liquidity Event Proceeds" means (a) with respect to a Permitted Liquidity Event that is a sale of Equity Interests in Intermediate Holdings or HDD Holdings, the Net Proceeds and the Net Public Equity Proceeds received by Holdings or Intermediate Holdings (without duplication), as applicable, of such Permitted Liquidity Event; (b) with respect to a Permitted Liquidity Event referred to in subclause (ii) of each of clauses (a) and (b) of the definition of the term Permitted Liquidity Event in respect of Intermediate Holdings or HDD Holdings, the Publicly Traded Equity Securities held by Holdings, either Borrower or any Subsidiary (other than a Permitted Spinoff Subsidiary or any subsidiary thereof) in Intermediate Holdings or HDD Holdings, as applicable, excluding a portion of such Publicly Traded Equity Securities having a fair market value (as determined reasonably and in good faith by the chief financial officer of Holdings, provided that the fair market value of any Publicly Traded Equity Securities referred to in clause (b) of the definition of the term Publicly Traded Equity Securities ("Convertible Securities") shall be equal to the fair market value (as determined reasonably and in good faith by the chief financial officer of Holdings) of the Publicly Traded Equity Securities that would be issued upon the conversion of such Convertible Securities) equal to the sum of all amounts referred to in clauses (i), (ii) and (iii) of the definition of the term Net Public Equity Proceeds that would be payable in connection with such Permitted Liquidity Event. (c) with respect to a Permitted Liquidity Event in respect of an Investment Business (including any Permitted Liquidity Event referred to in subclause (i) of clause (f) of the definition of the term Permitted Liquidity Event) or a Permitted Spinoff Subsidiary (other than a Liquidity Event referred to in subclause (iv) of each of clauses (c), (d) and (e) and subclause (ii) of clause (f) of the definition of the term Permitted Liquidity Event), (i) an amount in cash equal to the positive difference (if any) between (A) the Net Proceeds of such Permitted Liquidity Event received by Holdings, either Borrower or any Subsidiary 22 (other than a Permitted Spinoff Subsidiary) and (B) the Historical Investment in such Investment Business or such Permitted Spinoff Subsidiary, as applicable, to the extent that such positive difference has not been reinvested pursuant to Section 6.04(r), (s) or (t) and (ii) the Net Public Equity Proceeds of such Permitted Liquidity Event received by Holdings, either Borrower or any Subsidiary (other than a Permitted Spinoff Subsidiary), excluding a portion of such Net Public Equity Proceeds having a fair market value (as determined reasonably and in good faith by the chief financial officer of Holdings) equal to the positive difference (if any) between (A) the Historical Investment in such Investment Business or such Permitted Spinoff Subsidiary, as applicable, and (B) the amount referred to in clause (i)(A) above, provided that the Distributable Liquidity Event Proceeds with respect to any Permitted Liquidity Event for any Rollover Investment shall be deemed to be none unless and until the Historical Investment in each Investment Business that is an Original Investment with respect to such Rollover Investment has been returned in full to Holdings, the Borrowers or the Subsidiaries; and (d) with respect to a Permitted Liquidity Event referred to in subclause (iv) of each of clauses (c), (d) and (e) and subclause (ii) of clause (f) of the definition of the term Permitted Liquidity Event in respect of an Investment Business or a Permitted Spinoff Subsidiary, the Publicly Traded Equity Securities held by Holdings, either Borrower or any Subsidiary (other than a Permitted Spinoff Subsidiary or any subsidiary thereof) in such Investment Business or Permitted Spinoff Subsidiary, excluding a portion of such Publicly Traded Equity Securities having a fair market value (as determined reasonably and in good faith by the chief financial officer of Holdings, provided that the fair market value of any Convertible Securities shall be equal to the fair market value (as determined reasonably and in good faith by the chief financial officer of Holdings) of the Publicly Traded Equity Securities that would be issued upon the conversion of such Convertible Securities) equal to the sum of (i) the Historical Investment in such Investment Business or such Permitted Spinoff Subsidiary, as applicable, and (ii) the sum of all amounts referred to in clauses (i), (ii) and (iii) of the definition of the term Net Public Equity Proceeds that would be payable in connection with such Permitted Liquidity Event, provided that the Distributable Liquidity Event Proceeds with respect to any such Permitted Liquidity Event for any Rollover Investment shall be deemed to be none unless and until the Historical Investment in each Investment Business that is an Original Investment with 23 respect to such Rollover Investment has been returned in full to Holdings, the Borrowers or the Subsidiaries. Notwithstanding anything in paragraphs (c) and (d) to the contrary, to the extent that the Distributable Liquidity Event Proceeds of any Permitted Liquidity Event in respect of any Person have been reduced by the amount (the "Returned Historical Amount") of the Historical Investment in such Person arising from any investments in such Person outstanding immediately prior to such Permitted Liquidity Event (the "Returned Investments"), the Distributable Liquidity Event Proceeds of any future Permitted Liquidity Event in respect of such Person shall not be required to be reduced by the Returned Historical Amount in respect of such Returned Investments (it being understood that (i) any portion of the Historical Investment in such Person other than the portion that constitutes the Returned Historical Amount of Returned Investments shall reduce the Distributable Liquidity Event Proceeds of a future Permitted Liquidity Event with respect to such Person in accordance with paragraphs (c) and (d) above and (ii) any Returned Historical Amount that is invested in any Person pursuant to Section 6.04(r), (s) or (t) shall increase the Historical Investment in such Person by such amount). "Documentation Agents" means Goldman Sachs Credit Partners L.P., Merrill Lynch Capital Corporation, and The Bank of Nova Scotia. "dollars" or "$" refers to lawful money of the United States of America. "Dollar Equivalent" means, on any date of determination, (a) for the purposes of determining compliance with Article VI or the existence of an Event of Default under Article VII, with respect to any amount denominated in a currency other than dollars, the equivalent in dollars of such amount, determined in good faith by the Borrower in a manner consistent with the way such amount is or would be reflected on Holdings's audited consolidated financial statements for the fiscal year in which such determination is made, and (b) for the purposes of Article II, with respect to any amount denominated in an Alternative Currency, the equivalent in dollars of such amount, determined by the Administrative Agent pursuant to Section 1.06(a) using the applicable Exchange Rate with respect to such Alternative Currency. "E2 Open" means e2open.com LLC, a Delaware limited liability company. 24 "Effective Date" means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02). "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by or with any Governmental Authority, relating to the environment, preservation or reclamation of natural resources or the presence, management, Release or threatened Release of any Hazardous Material. "Environmental Liability" means any liabilities, obligations, damages, claims, actions, suits, judgements or orders, contingent or otherwise (including any costs of environmental remediation, administrative oversight costs, fines, penalties or indemnities), of Holdings, the Borrower or any Subsidiary resulting from or relating to (a) the non-compliance with any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the Release or threatened Release of any Hazardous Materials or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "Equity Contribution" means the contribution by the Investors and certain continuing members of management as common equity in the form of (a) not less than $1,100,000,000 (less the dollar amount of the Equity Rollover and the Management Loans) in cash, of which not less than $350,000,000 will be contributed by SLP, to Holdings and (b) the obligation of continuing management of HDD Holdings, Seagate SAN and Tape Holdings pursuant to the Rollover Agreements to make cash payments as equity to Holdings on the Effective Date in an aggregate amount equal to the aggregate principal amount of the Management Loans. "Equity Interests" means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person. "Equity Rollover" means the investment of not less than $150,000,000 and not more than $250,000,000 in Holdings and the other Loan Parties by the continuing management of HDD Holdings, Tape Holdings and Seagate SAN or either Borrower by means of the surrender on the Effective Date of Equity Interests, or options, warrants or other rights to acquire Equity Interests, in the Company or any of its 25 subsidiaries in exchange for Equity Interests, or options, warrants or other rights to acquire Equity Interests, in Holdings or rights under one or more Deferred Compensation Plans. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by either Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by either Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan under Section 4042 of ERISA; (f) the incurrence by either Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by either Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from either Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "Event of Default" has the meaning assigned to such term in Article VII. 26 "Excess Cash Flow" means, for any fiscal year, the sum (without duplication) of: (a) Consolidated Net Income for such fiscal year, adjusted to exclude any gains or losses attributable to Prepayment Events; plus (b) depreciation, amortization and other non-cash charges or losses deducted in determining such Consolidated Net Income for such fiscal year; plus (c) the sum of (i) the amount, if any, by which Net Working Capital decreased during such fiscal year plus (ii) the net amount, if any, by which the consolidated deferred revenues of Holdings, the Borrowers and the consolidated Subsidiaries increased during such fiscal year; minus (d) the sum of (i) any non-cash gains included in determining such Consolidated Net Income for such fiscal year plus (ii) the amount, if any, by which Net Working Capital increased during such fiscal year plus (iii) the net amount, if any, by which the consolidated deferred revenues of Holdings, the Borrowers and the consolidated Subsidiaries decreased during such fiscal year; minus (e) Capital Expenditures for such fiscal year (except (i) to the extent attributable to the incurrence of Capital Lease Obligations or otherwise financed by incurring Long-Term Indebtedness or (ii) Capital Expenditures made pursuant to the first proviso of Section 2.11(c)); minus (f) the aggregate principal amount of Long-Term Indebtedness repaid or prepaid by the Borrowers and the consolidated Subsidiaries during such fiscal year, excluding (i) Indebtedness in respect of Revolving Loans and Letters of Credit, (ii) Term Loans prepaid pursuant to Section 2.11(a), 2.11(c), (d) or (e) and (iii) repayments or prepayments of Long-Term Indebtedness financed by incurring other Long-Term Indebtedness; minus (g) the aggregate amount of all prepayments of Revolving Loans made during such period to the extent accompanying reductions of the total Revolving Commitments; minus (h) the aggregate amount of Restricted Payments permitted under Section 6.08 (other than 27 Section 6.08(a)(v)) made during such period in cash; minus (i) the aggregate amount of investments permitted under Section 6.04(h), (r), (s), (t) or (to the extent not reflected as a reduction in Consolidated Net Income) (u) made during such period in cash (except to the extent financed by incurring Long-Term Indebtedness or made pursuant to the first proviso of Section 2.11(c) or made using the proceeds of any sale of assets referred to in Section 6.05(c) or (h)). For the purpose of calculating Excess Cash Flow, all amounts referred to in clauses (a) through (h) above attributable to the Excluded Subsidiaries shall be excluded. "Exchange Rate" means, on any day, with respect to any Alternative Currency, the rate at which such Alternative Currency may be exchanged into dollars, as set forth at approximately 11:00 a.m., New York City time, on such day on the applicable Reuters World Spot Page. In the event that any such rate does not appear on any Reuters World Spot Page, the Exchange Rate shall be determined by reference to such other publicly available service for displaying exchange rates reasonably selected by the Administrative Agent in consultation with the Cayman Borrower for such purpose or, at the discretion of the Administrative Agent in consultation with the Cayman Borrower, such Exchange Rate shall instead be the arithmetic average of the spot rates of exchange of the Administrative Agent in the market where its foreign currency exchange operations in respect of such Alternative Currency are then being conducted, at or about 10:00 a.m., local time, on such day for the purchase of the applicable Alternative Currency for delivery two Business Days later, provided that, if at the time of any such determination, for any reason, no such spot rate is being quoted, the Administrative Agent may use any other reasonable method it deems appropriate to determine such rate, and such determination shall be presumed correct absent manifest error. "Excluded Subsidiaries" means each Investment Business that is a subsidiary of Holdings. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrowers hereunder, (a) doing business, income or franchise taxes (i) imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such 28 recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located or (ii) as a result of a present or former connection between such recipient and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from such Lender's, Issuing Bank's or any other recipient's having executed, delivered or performed its obligations or received a payment under, or enforced, any Loan Document), (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction described in clause (a) above and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Cayman Borrower under Section 2.19(b)), any withholding tax (other than a withholding tax levied upon any amounts payable to such Foreign Lender in respect of any interest in any Loan acquired by such Foreign Lender pursuant to the CAM Exchange) that (i) is in effect and would apply to amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from a Borrower with respect to any withholding tax pursuant to Section 2.17(a), or (ii) is attributable to such Foreign Lender's failure to comply with Section 2.17(e). "Existing Letter of Credit" means each letter of credit previously issued for the account of, or guaranteed by, either Borrower or a Subsidiary that (a) is outstanding on the Effective Date and (b) is listed on Schedule 2.05(a). "Existing Notes" means the Company's 7.125% Senior Notes due 2004, 7.37% Senior Notes due 2007, 7.875% Senior Debentures due 2017 and 7.45% Senior Debentures due 2037. "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. 29 "Financial Officer" means the chief financial officer, principal accounting officer, treasurer or controller of Holdings or the applicable Borrower. "Financing Transactions" means (a) the execution, delivery and performance by each Loan Party of the Loan Documents to which it is to be a party, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder, (b) the execution, delivery and performance by each Loan Party of the Subordinated Debt Documents to which it is to be a party, the issuance of the Subordinated Debt and the use of the proceeds thereof and the Equity Contribution and the Equity Rollover. "Fixed Charge Coverage Ratio" has the meaning assigned to such term in Section 6.13. "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than (a) the United States of America, any State thereof or the District of Columbia or (b) the jurisdiction in which the applicable Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "Foreign Security Agreement" has the meaning assigned to such term in paragraph (d) of the definition of the term "Collateral and Guarantee Requirement". "Foreign Subsidiary" means any Subsidiary that is organized under the laws of a jurisdiction other than (a) the United States of America or any State thereof or the District of Columbia or (b) the Cayman Islands. "Foreign Subsidiary Guarantee Agreement" means an agreement between any Foreign Subsidiary and the Collateral Agent that (x) provides a Guarantee of the Obligations by such Foreign Subsidiary in favor of, and other rights and benefits to, the Collateral Agent and the other Secured Parties substantially identical to the Guarantee of the Obligations and the other rights and benefits provided by the U.S. Guarantee Agreement (except as prohibited by applicable law) and (y) is otherwise in form and substance reasonably satisfactory to the Administrative Agent. "Funded Indebtedness" means as of any date, (a) the aggregate principal amount of Indebtedness of Holdings, the Borrowers and the Subsidiaries outstanding as of such date, in the amount that would be reflected on a balance sheet prepared as of such date on a consolidated 30 basis in accordance with GAAP, and (b) without duplication, the aggregate amount of any Guarantee by Holdings, either Borrower or any Subsidiary of any such Indebtedness of any other Person. "GAAP" means generally accepted accounting principles in the United States of America. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation, provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. "Guarantee Agreements" means (a) with respect to each U.S. Loan Party, each Loan Party organized under the laws of the Cayman Islands and each other Loan Party reasonably designated by the Administrative Agent, the U.S. Guarantee Agreement and (b) with respect to each other Loan Party, a Foreign Subsidiary Guarantee Agreement. "Hazardous Materials" means all explosive, radioactive, hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes, and all 31 substances or wastes of any nature regulated pursuant to any Environmental Law, including any material listed as a hazardous substance under Section 101(14) of CERCLA. "HDD Holdings" means Seagate Technology HDD Holdings, an exempted limited liability company existing and organized under the laws of the Cayman Islands. "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Historical Investment" means, on any date of determination, with respect to any Person, the sum of (a) the aggregate amount of all equity investments (whether in the form of capital contributions or otherwise) made at any time prior to such date (including the portion, if any, of the consideration paid by Holdings and its subsidiaries in respect of the Transactions allocated to the purchase of such Person) by Holdings, the Borrowers and the Subsidiaries (other than a Subsidiary that is a subsidiary of such Person) in such Person that remain outstanding on such date and (b) the aggregate amount of (i) Indebtedness owed by such Person to, and (ii) Indebtedness of such Person and other obligations of such Person for the payment of money subject to a Guarantee by, Holdings, the Borrowers and the Subsidiaries (other than Subsidiaries that are subsidiaries of such Person) on such date, it being understood that, except as otherwise provided in the last sentence of this definition, (A) the amount of any investment not made in cash or tangible property in any Person shall be determined in good faith by Holdings and shall take into account the valuation of such investment implied by the percentage equity stake in such Person issued in connection with any investment in such Person made in cash or tangible property and (B) the Historical Investment as of the Effective Date in each Investment Business and Permitted Spinoff Subsidiary shall be deemed to be the amount specified for such Investment Business or Permitted Spinoff Subsidiary on Schedule 6.04(r)(B). In the case of one or more Investment Businesses (each, a "Rollover Investment") the Equity Interests of which have been acquired in whole or in part using the proceeds (the "Rollover Proceeds") of the disposition of (a) Equity Interests or assets of another Investment Business or (b) other assets received as the consideration for any disposition referred to in clause (a) above or in this clause (b) (an "Original Investment"), the portion of the Historical Investment in each such Rollover Investment attributable to the investment 32 of Rollover Proceeds shall be calculated so that, as of any date, the amount of the aggregate Net Proceeds and Net Public Equity Proceeds received upon the occurrence of Permitted Liquidity Events on or prior to such date with respect to all such Rollover Investments that constitute Distributable Liquidity Event Proceeds shall not exceed (or be required to be less than) the amount of Net Proceeds and Net Public Equity Proceeds that would constitute Distributable Liquidity Event Proceeds if Holdings had received the same amount of Net Proceeds and Net Public Equity Proceeds as a result of a Permitted Liquidity Event with respect to such Original Investment occurring on such date. Notwithstanding the foregoing, (i) the portion of the Historical Investment in any Investment Business attributable to the investment in such Investment Business of all or any portion of the Net Proceeds from the sale of Equity Interests in GlobeSpan, Inc. that were held by Investment Holdings on the Effective Date shall be deemed to be the amount of such Net Proceeds and (ii) in the event that Holdings or Intermediate Holdings is required to make any loan, capital contribution or other payment to SAN Holdings or Tape Holdings solely for the purpose of permitting a Permitted Liquidity Event Distribution to participants in a Deferred Compensation Plan, the Historical Investment in SAN Holdings or Tape Holdings, as applicable, shall not be increased by the amount of such loan, capital contribution or other payment. "Holdings" means New SAC, an exempted limited liability company incorporated and existing under the laws of the Cayman Islands. "Hutchinson Settlement" means the settlement of a patent interference action with Hutchinson Technology relating to certain patent applications held by Seagate Technology LLC with respect to flexure-based microactuators and certain patents and patent applications held by Seagate Technology LLC with respect to flexures (the "Transferred Patents"), which settlement will involve the transfer of the Transferred Patents to Hutchinson Technology in exchange for (i) a royalty free license from Hutchinson Technology of their patents with respect to this technology and (ii) royalties from licenses by Hutchinson Technology of the Transferred Patents, together with a cross-license between Seagate Technology LLC and Hutchinson Technology with respect to interconnect circuitry patents. "Hutchinson Technology" means Hutchinson Technology Incorporated. 33 "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. Notwithstanding anything to the contrary in this paragraph, the term "Indebtedness" shall not include (a) obligations under Hedging Agreements, (b) agreements providing for indemnification, purchase price adjustments or similar obligations incurred or assumed in connection with the acquisition or disposition of assets or stock or (c) liabilities incurred under the Deferred Compensation Plans. "Indemnification Agreement" means the indemnification agreement dated as of March 29, 2000, among Holdings, the Company and Veritas, inter alia, in connection with the Acquisition, as amended on August 29, 2000, and October 18, 2000. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Indemnity, Subrogation and Contribution Agreement" means the Indemnity, Subrogation and Contribution Agreement, substantially in the form of Exhibit E, among the 34 Borrowers, the Subsidiary Loan Parties and the Collateral Agent. "Information Memorandum" means the Confidential Information Memorandum dated July 24, 2000, relating to the Cayman Borrower and the Transactions. "Interest Election Request" means a request by the applicable Borrower to convert or continue a Revolving Borrowing or Term Borrowing in accordance with Section 2.07. "Interest Payment Date" means (a) with respect to any ABR Loan (other than a Swingline Loan), the last day of each March, June, September and December, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period, and (c) with respect to any Swingline Loan, the day that such Loan is required to be repaid. "Interest Period" means, with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months (or 9 or 12 months if consented to by all the applicable Lenders) thereafter, as the applicable Borrower may elect, provided that (a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (b) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Intermediate Holdings" means Seagate Technology Holdings, an exempted limited liability company incorporated and existing under the laws of the Cayman Islands. "Investment Business" means Iolon, Inc., a Delaware corporation, CacheVision, E2 Open, any other Person 35 identified on Schedule 6.04(r)(A) and any other Person in which Investment Holdings acquires Equity Interests after the Effective Date, provided that the acquisition of such Equity Interests constitutes a Strategic Investment permitted under Section 6.04(r). "Investment Holdings" means Seagate Technology Investment Holdings LLC, a Delaware limited liability company. "Investors" means SLP, TPG, August Capital, Chase Capital Partners, Goldman Sachs Capital Partners III, L.L.C. and Integral Capital Partners. "IPO" means, with respect to any Person, a bona fide underwritten initial public offering of voting common stock of such Person in which at least 10% of the aggregate voting common stock of such Person (calculated on a fully diluted basis after giving effect to all options to acquire voting common stock of such Person, then outstanding, regardless of whether such options are then currently exercisable), is issued to Persons other than the Investors, Holdings and their respective Affiliates (including all directors, officers and employees of Holdings, either Borrower and any Subsidiary). "Issuing Bank" means, as the context may require, (a) The Chase Manhattan Bank, with respect to Letters of Credit issued by it, (b) any other Revolving Lender that becomes an Issuing Bank pursuant to Section 2.05(l), with respect to Letters of Credit issued by it, and (c) any Revolving Lender that has issued an Existing Letter of Credit, with respect to such Existing Letter of Credit and, in each case, its successors in such capacity as provided in Section 2.05(i). The Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate. "LC Disbursement" means a payment made by the Issuing Bank pursuant to a Letter of Credit. "LC Exposure" means, at any time, the sum of (a) the aggregate undrawn and unexpired amount of all outstanding Letters of Credit denominated in dollars at such time plus (b) the aggregate amount of all LC Disbursements that were made in dollars and that have not yet been reimbursed by or on behalf of the Cayman Borrower at such time plus (c) the Alternative Currency LC Exposure at such time. The LC Exposure of any Revolving Lender at any time 36 shall be its Applicable Percentage of the total LC Exposure at such time. "Lender Affiliate" means, (a) with respect to any Lender, (i) an Affiliate of such Lender or (ii) an entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by such Lender or an Affiliate of such Lender and (b) with respect to any Lender that is a fund that invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Lenders" means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. Unless the context otherwise requires, the term "Lenders" includes the Swingline Lender. "Letter of Credit" means any letter of credit (including each Existing Letter of Credit) issued pursuant to this Agreement. "Leverage Ratio" means, on any date, the ratio of Funded Indebtedness on such date to Consolidated EBITDA for the period of four consecutive fiscal quarters of Holdings ended on such date (or, if such date is not the last day of a fiscal quarter, ended on the last day of the fiscal quarter of Holdings most recently ended prior to such date). "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Dow Jones Market Service (or on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations comparable to those currently provided on such page of such service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at 37 which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan Documents" means this Agreement, the Guarantee Agreements, the Indemnity, Subrogation and Contribution Agreement, the Security Documents and the Promissory Notes. "Loan Parties" means Holdings, the Borrowers and the Subsidiary Loan Parties. "Loans" means the loans made by the Lenders to either Borrower pursuant to this Agreement. "Long-Term Indebtedness" means any Indebtedness that, in accordance with GAAP, constitutes (or, when incurred, constituted) a long-term liability. "Management Loans" means the loans by the Cayman Borrower made pursuant to Section 6.04(x) in an aggregate principal amount not to exceed $10,000,000 to certain continuing members of management on the Effective Date. "Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations, properties or financial condition of Holdings, the Borrowers and the Subsidiaries, taken as a whole, (b) the ability of the Loan Parties to perform their obligations under the Loan Documents or (c) any material rights of or benefits available to the Lenders under the Loan Documents. "Material Indebtedness" means Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one or more Hedging Agreements, of any one or more of Holdings, the Borrowers and the Subsidiaries in an aggregate principal amount exceeding $20,000,000. For 38 purposes of determining Material Indebtedness, the "principal amount" of the obligations of Holdings, a Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that Holdings, such Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. "Moody's" means Moody's Investors Service, Inc. "Moribund Subsidiary" means a Subsidiary listed on Schedule 1.01(c), provided that (a) such Subsidiary has begun a dissolution, liquidation, winding up or similar process before or within 180 days after the Effective Date, and such Subsidiary is actively and in good faith pursuing the completion of such dissolution, liquidation, winding up or similar process, (b) such Subsidiary has no business or operations and conducts no activities other than those activities reasonably necessary to the dissolution of such Subsidiary, (c) such Subsidiary does not incur any Indebtedness or other liabilities (other than reasonable fees of attorneys and accountants and other de minimis fees in connection with such dissolution, liquidation, winding up or similar process) after the Effective Date and (d) the Moribund Subsidiaries as a group shall not have more than $5,000,000 in assets. Notwithstanding anything to the contrary in the preceding sentence, Seagate Technology Media Mexico S.A. de C.V. ("STMM") shall be a Moribund Subsidiary provided that (a) STMM conducts no business, operations or activities other than those necessary to complete the liquidation thereof, (b) STMM does not own any assets other than those assets owned by it on the Effective Date and (c) STMM and the Borrowers use their best efforts to complete the liquidation of STMM as soon as reasonably practicable, and, in any event, such liquidation is completed on or prior to the third anniversary of the Effective Date. "Mortgage" means a mortgage, deed of trust, assignment of leases and rents, leasehold mortgage or other security document granting a Lien on any Mortgaged Property to secure the Obligations. Each Mortgage shall be reasonably satisfactory in form and substance to the Collateral Agent. "Mortgaged Property" means, initially, each parcel of real property and the improvements thereto owned by a Loan Party and identified on Schedule 1.01, and includes each other parcel of real property and improvements thereto with respect to which a Mortgage is granted pursuant to Section 5.12 or 5.13. 39 "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Netherlands Holdings" means Seagate Technology (Netherlands) BV. "Netherlands Security Agreement" means the Security Agreement, dated as of the Effective Date, substantially in the form of Exhibit C-5, among the Borrowers, Holdings, the Subsidiary Loan Parties that are organized under the laws of the Netherlands or that own Collateral located in the Netherlands and the Collateral Agent for the benefit of the Secured Parties. "Net Leverage Ratio" means, on any date, the ratio of (a) the excess of (i) Funded Indebtedness as of such date over (ii) the sum of (A) the amount of cash held by Holdings, either Borrower or any Subsidiary (other than cash held by the Excluded Subsidiaries), provided that in the case of any Subsidiary that is not a Core Loan Party and in which Holdings does not directly or indirectly hold 100% of the outstanding Equity Interests as of such date, the amount of cash held by such Subsidiary shall be deemed to be equal to the product of (1) the actual amount of cash held by such Subsidiary on such date and (2) the percentage of such Subsidiary's total outstanding Equity Interests held by Holdings, the Borrowers and the Subsidiaries on such date and (B) the carrying value of Permitted Investments reflected as cash or short-term investments on Holdings's consolidated balance sheet on such date (other than Permitted Investments held by the Excluded Subsidiaries), provided that in the case of any Subsidiary that is not a Core Loan Party and in which Holdings does not directly or indirectly hold 100% of the outstanding Equity Interests, the carrying value of the Permitted Investments held by such Subsidiary shall be deemed to be the product of (1) the actual carrying value of the Permitted Investments held by such Subsidiary on such date and (2) the percentage of such Subsidiary's total outstanding Equity Interests held by Holdings on such date to (b) Consolidated EBITDA for the period of four consecutive fiscal quarters of Holdings ended on such date (or, if such date is not the last day of a fiscal quarter, ended on the last day of the fiscal quarter of Holdings most recently ended prior to such date). "Net Proceeds" means, with respect to any event, (a) the cash proceeds received in respect of such event, including (i) any cash received in respect of any non-cash proceeds, but only as and when received, (ii) in the case of a casualty or other insured damage, insurance proceeds in excess of $1,000,000, and (iii) in the case of a 40 condemnation or similar event, condemnation awards and similar payments in excess of $1,000,000, net of (b) the sum of (i) all reasonable fees and out-of-pocket expenses (including underwriting discounts and commissions and collection expenses) paid or payable by Holdings, the Borrowers and the Subsidiaries to third parties in connection with such event, (ii) in the case of a sale, transfer or other disposition of an asset (including pursuant to a sale and leaseback transaction or a casualty or a condemnation or similar proceeding), the amount of all payments required to be made by Holdings, the Borrowers and the Subsidiaries as a result of such event to repay Indebtedness (other than Loans) secured by such asset or otherwise subject to mandatory prepayment as a result of such event, and (iii) the amount of all taxes paid (or reasonably estimated to be payable) by Holdings, the Borrowers and the Subsidiaries plus the amount of all distributions that Holdings would be permitted to effect pursuant to Section 6.08(a)(vii) and the amount of any reserves established by Holdings, the Borrowers and the Subsidiaries to fund contingent liabilities reasonably estimated to be payable, in each case during the year that such event occurred or the next succeeding year and that are directly attributable to such event (as determined reasonably and in good faith by the chief financial officer of Holdings). "Net Public Equity Proceeds" means, with respect to any event, the Publicly Traded Equity Securities received in respect of such event, excluding a portion of such Publicly Traded Equity Securities having a fair market value (as determined reasonably and in good faith by the chief financial officer of Holdings) equal to the sum of (i) all reasonable fees and out-of-pocket expenses (including underwriting discounts and commissions and collection expenses) paid or payable by Holdings, the Borrowers and the Subsidiaries to third parties in connection with such event, (ii) the amount of all payments required to be made by Holdings, the Borrowers and the Subsidiaries as a result of such event to repay Indebtedness (other than Loans) secured by such asset or otherwise subject to mandatory prepayment as a result of such event, and (iii) the amount of all taxes paid (or reasonably estimated to be payable) by Holdings, the Borrowers and the Subsidiaries plus the amount of all distributions that Holdings would be permitted to effect pursuant to Section 6.08(a)(vii) and the amount of any reserves established by Holdings, the Borrowers and the Subsidiaries to fund contingent liabilities reasonably estimated to be payable, in each case during the year that such event occurred or the next succeeding year and that are directly attributable to such event (as determined 41 reasonably and in good faith by the chief financial officer of Holdings). "Net Working Capital" means, at any date, (a) the consolidated current assets and non-current deferred income tax assets of Holdings, the Borrowers and their consolidated subsidiaries as of such date (excluding cash and Permitted Investments) minus (b) the consolidated current liabilities and non-current deferred income tax liabilities of Holdings, the Borrowers and their consolidated subsidiaries as of such date (excluding current liabilities that constitute Indebtedness and current liabilities incurred under the Deferred Compensation Plans). Net Working Capital at any date may be a positive or negative number. Net Working Capital increases when it becomes more positive or less negative and decreases when it becomes less positive or more negative. For the purpose of calculating Net Working Capital, the assets and liabilities of the Excluded Subsidiaries shall be excluded. "Northern Ireland Security Agreement" means the Floating Debenture and Guarantee Mortgage, substantially in the form of Exhibit C-4, dated as of the Effective Date between the Loan Parties that are organized under the laws of Northern Ireland or that own Collateral located in Northern Ireland and the Collateral Agent for the benefit of the Secured Parties. "Obligations" has the meaning assigned to such term in the U.S. Security Agreement. "Original Investment" has the meaning assigned to such term in the definition of the term Historical Investment. "Other Taxes" means any and all current or future recording, stamp, documentary, excise, transfer, sales, property or similar taxes, charges or levies arising from any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document. "Outside Letter of Credit" means each letter of credit previously issued for the account of, or guaranteed by, a Borrower or a Subsidiary that (a) is outstanding on the Effective Date and (b) is listed on Schedule 2.05(b). "Participant" has the meaning assigned to such term in Section 9.04(e). 42 "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Perfection Certificate" means a certificate in the form of Annex 1 to the U.S. Security Agreement or any other form approved by the Cayman Borrower and the Administrative Agent. "Permitted Acquisition" means any acquisition (whether by purchase, merger, consolidation or otherwise) by the Borrower or any consolidated Subsidiary of all or substantially all the assets of, or at least 90% of the Equity Interests in, a Person or division or line of business of a Person not preceded by an unsolicited tender offer for such Person if, at the time of and immediately after giving effect thereto, (a) no Default has occurred and is continuing or would result therefrom, (b) the principal business of such Person is reasonably related to a business in which the Borrowers and the Subsidiaries were engaged on the Effective Date, (c) each Subsidiary formed for the purpose of or resulting from such acquisition shall be a Core Loan Party and all of the Equity Interests of such Core Loan Party are owned directly by a Borrower or a consolidated Core Loan Party and all actions required to be taken with respect to such acquired or newly formed Core Loan Party under Sections 5.12 and 5.13 shall have been taken, (d) Holdings, the Borrowers and the Subsidiaries are in compliance, on a pro forma basis after giving effect to such acquisition (giving effect to any reductions in operating expenses permitted to be included for this purpose in the calculation set forth in the definition of the term Consolidated EBITDA), with the covenants contained in Sections 6.12, 6.13 and 6.14 recomputed as at the last day of the most recently ended fiscal quarter of Holdings for which financial statements are available, as if such acquisition (and any related incurrence or repayment of Indebtedness, with any new Indebtedness being deemed to be amortized over the applicable testing period in accordance with its terms) had occurred on the first day of each relevant period for testing such compliance and (e) Holdings has delivered to the Administrative Agent an officers' certificate to the effect set forth in clauses (a), (b), (c) and (d) above, together with all relevant financial information for the Person or assets to be acquired and reasonably detailed calculations demonstrating satisfaction of the requirement set forth in clause (d) above. 43 "Permitted Encumbrances" means: (a) Liens imposed by law for taxes or other governmental charges that are not yet due or are being contested in compliance with Section 5.05; (b) landlords', carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.05; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) Liens (other than Liens on Collateral other than cash) to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) judgment liens in respect of judgments that do not constitute an Event of Default under clause (k) of Section 7.01; (f) easements, zoning restrictions, licenses, reservations, covenants, utility easements, building restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business and minor defects or irregularities in title that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of Holdings, either Borrower or any Subsidiary; (g) any interest or title of a lessor under any lease permitted by this Agreement; (h) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (i) leases or subleases granted to other Persons and not interfering in any material respect with the 44 business of Holdings, either Borrower and the Subsidiaries, taken as a whole; and (j) licenses of intellectual property granted in the ordinary course of business; provided that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness. "Permitted HDD Holdings Equity Sales" means (a) the issuance and sale by HDD Holdings of Equity Interests in HDD Holdings pursuant to an IPO of HDD Holdings and, subsequent to an IPO of HDD Holdings, pursuant to any other offering, provided that the Net Proceeds from such issuance and sale are retained by HDD Holdings or its subsidiaries to fund the operations of businesses permitted by Section 6.03(b), or (b) subsequent to an IPO of HDD Holdings, the sale for cash or Publicly Traded Equity Securities by Intermediate Holdings of Equity Interests in HDD Holdings held by Intermediate Holdings to any Person (other than Holdings, any of its subsidiaries or Affiliates or any employee stock ownership plan or other trust established by Holdings or any of its subsidiaries), provided, in each case, that a Permitted Intermediate Holdings Equity Sale has not occurred. "Permitted Holders" means the Investors and any officer or member of the Board of Directors of Holdings, a Borrower or any Subsidiary who owns Equity Interests of Holdings on the Effective Date. "Permitted Intermediate Holdings Equity Sales" means (a) the issuance and sale by Intermediate Holdings of Equity Interests in Intermediate Holdings pursuant to an IPO of Intermediate Holdings and, subsequent to an IPO of Intermediate Holdings, pursuant to any other offering, provided that the Net Proceeds from such issuance and sale are retained by Intermediate Holdings or its subsidiaries to fund the operations of businesses permitted by Section 6.03(b), or (b) subsequent to an IPO of Intermediate Holdings, the sale for cash or Publicly Traded Equity Securities by Holdings of Equity Interests in Intermediate Holdings held by Holdings to any Person (other than any subsidiary or other Affiliate of Holdings or any employee stock ownership plan or other trust established by Holdings or any of its subsidiaries), provided, in each case, that a Permitted HDD Holdings Equity Sale has not occurred. 45 "Permitted Investments" means: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America); (b) investments in commercial paper maturing not more than one year after the date of acquisition thereof and having, at such date of acquisition, one of the two highest credit ratings obtainable from S&P or from Moody's; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing not more than one year after the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts and overnight bank deposits issued or offered by, any commercial bank organized under the laws of the United States of America or any State thereof or any foreign country recognized by the United States of America that has a combined capital and surplus and undivided profits of not less than $250,000,000 (or the foreign currency equivalent thereof); (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above or clause (e) or (f) below and entered into with a financial institution satisfying the criteria described in clause (c) above; (e) securities issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof having maturities of not more than two years from the date of acquisition thereof and, at the time of acquisition, having one of the two highest credit ratings obtainable from S&P or from Moody's; (f) securities issued by any foreign government or any political subdivision of any foreign government or any public instrumentality thereof having maturities of not more than six months from the date of acquisition thereof and, at the time of acquisition, having one of the two highest credit ratings obtainable from S&P or from Moody's; 46 (g) investments in corporate bonds or notes having maturities of not more than two years from the date of acquisition thereof and having, at such date of acquisition, one of the two highest credit ratings obtainable from S&P or from Moody's, provided that the aggregate principal amount of Permitted Investments acquired pursuant to this paragraph shall not at any time exceed 10% of the aggregate principal amount (and liquidation preference) of Permitted Investments held by Holdings, the Borrowers and the Subsidiaries; (h) auction rate preferred stock having maturities of not more than 60 days from the date of acquisition thereof, provided that (i) at the date of such acquisition, the long-term senior unsecured debt of the issuer of such preferred stock shall have one of the two highest credit ratings obtainable from S&P or from Moody's and (ii) the aggregate liquidation preference of Permitted Investments acquired pursuant to this paragraph shall not at any time exceed 5% of the aggregate principal amount (and liquidation preference) of Permitted Investments held by Holdings, the Borrower and the Subsidiaries; and (i) investments in funds that invest solely in one or more types of securities described in clauses (a) through (h) above. "Permitted Liquidity Event" means: (a) following an IPO of Intermediate Holdings, (i) one or more sales by Holdings of Equity Interests in Intermediate Holdings held by Holdings to any Person (other than any subsidiary or other Affiliate of Holdings or any employee stock ownership plan or other trust established by Holdings or any of its subsidiaries or any director, officer or employee of Holdings or any Affiliate of Holdings) or (ii) the distribution by Holdings to the Investors of Equity Interests in Intermediate Holdings held by Holdings that are the same class and series (or convertible into the same class and series) as the Equity Interests sold pursuant to such IPO, provided, in each case, that no Permitted Liquidity Event described in clause (b) of this definition has occurred; (b) following an IPO of HDD Holdings, (i) one or more sales by Intermediate Holdings of Equity Interests in HDD Holdings held by Intermediate Holdings to any Person (other than Holdings, any subsidiary or other Affiliate of Holdings or any employee stock ownership plan or other trust established by Holdings or any of its subsidiaries or any 47 director, officer or employee of Holdings or any Affiliate of Holdings) or (ii) the distribution by Intermediate Holdings to Holdings and by Holdings to the Investors of Equity Interests in HDD Holdings held by Intermediate Holdings that are of the same class and series (or convertible into the same class and series) as the Equity Interests sold pursuant to such IPO, provided, in each case, that no Permitted Liquidity Event described in clause (a) of this definition has occurred; (c) (i) one or more sales by Seagate SAN of Equity Interests in XIOtech Corporation held by Seagate SAN, (ii) the sale of all or substantially all the assets of XIOtech Corporation or (iii) the sale of Publicly Traded Equity Securities received as consideration for any sale described in this paragraph (including this clause (iii)) to any Person (other than any subsidiary or other Affiliate of Holdings or any employee stock ownership plan or other trust established by Holdings or any of its subsidiaries or any director, officer or employee of Holdings or any Affiliate of Holdings) or (iv) following an IPO of XIOtech Corporation, the distribution by Seagate SAN to Holdings and by Holdings to the Investors of Equity Interests in XIOtech Corporation held by Seagate SAN that are the same class and series (or convertible into the same class and series) as the Equity Interests sold pursuant to such IPO; (d) (i) one or more sales by Holdings of Equity Interests in Seagate Software held by Holdings, (ii) the sale of all or substantially all the assets of Seagate Software or (iii) the sale of Publicly Traded Equity Securities received as consideration for any sale described in this paragraph (including this clause (iii)) to any Person (other than any subsidiary or other Affiliate of Holdings or any employee stock ownership plan or other trust established by Holdings or any of its subsidiaries or any director, officer or employee of Holdings or any Affiliate of Holdings) or (iv) following an IPO of Seagate Software, the distribution by Holdings to the Investors of Equity Interests in Seagate Software held by Holdings that are the same class and series (or convertible into the same class and series) as the Equity Interests sold pursuant to such IPO; (e) (i) one or more sales by Holdings of Equity Interests in Tape Holdings held by Holdings, (ii) the sale of all or substantially all the assets of Tape Holdings or (iii) the sale of Publicly Traded Equity Securities received as consideration for any sale described in this paragraph (including this clause (iii)) to any Person (other than any subsidiary or other Affiliate of Holdings or any employee 48 stock ownership plan or other trust established by Holdings or any of its subsidiaries or any director, officer or employee of Holdings or any Affiliate of Holdings) or (iv) following an IPO of Tape Holdings, the distribution by Holdings to the Investors of Equity Interests in Tape Holdings held by Holdings that are the same class and series (or convertible into the same class and series) as the Equity Interests sold pursuant to such IPO; and (f) (i) one or more sales of assets permitted by Section 6.05(h) (other than (A) sales of Equity Interests in GlobeSpan, Inc. or (B) the sale of all or substantially all the assets of GlobeSpan, Inc.) to any Person (other than any subsidiary or other Affiliate of Holdings or any employee stock ownership plan or other trust established by Holdings or any of its subsidiaries or any director, officer or employee of Holdings or any Affiliate of Holdings) or (ii) following an IPO of any Investment Business, the distribution by Investment Holdings to Holdings and by Holdings to the Investors of Equity Interests in such Investment Business held by Investment Holdings that are the same class and series (or convertible into the same class and series) as the Equity Interests sold pursuant to such IPO. "Permitted Liquidity Event Distribution" means the distribution of Distributable Liquidity Event Proceeds, provided that, (i) in the case of a distribution of proceeds of a Permitted Liquidity Event referred to in clause (c), (d) or (e) of the definition of the term Permitted Liquidity Event (other than any distribution of such proceeds pursuant to Section 6.08(a)(v) to, or for the account of, participants in Deferred Compensation Plans if such distribution is made subsequent to the distribution to the Investors of proceeds in respect of the same Permitted Liquidity Event as a result of a portion of such participants' interests in Deferred Compensation Plans having been unvested at the time of such distribution to the Investors), (A) the long-term senior unsecured debt of either the Cayman Borrower or HDD Holdings shall be rated Baa3 or better by Moody's and BBB- or better by S&P at the time of such distribution, and each of Moody's and S&P shall have reaffirmed such minimum rating by it of the long-term senior unsecured debt of either the Cayman Borrower or HDD Holdings assuming that such distribution was made, (B) the Borrowers shall have repaid Term Loans in an aggregate principal amount equal to at least 50% of the aggregate principal amount of the Term Loans outstanding upon consummation of the Financing Transactions on the Effective Date and (C) the Fixed Charge Coverage Ratio on the last day of the most recently completed fiscal quarter of Holdings 49 ended on or prior to the date of such distribution (calculated on a pro forma basis giving effect to such Permitted Liquidity Event and such proposed distribution) shall be at least 2.00 to 1.00, (ii) in the case of any Permitted Liquidity Event Distribution to participants in a Deferred Compensation Plan (or to SAN Holdings or Tape Holdings for the purpose of making a Permitted Liquidity Event Distribution to participants in a Deferred Compensation Plan), the aggregate amount of such Permitted Liquidity Event Distribution shall not exceed 20% of the Distributable Liquidity Event Proceeds of the Permitted Liquidity Event giving rise to such Permitted Liquidity Event Distribution and (iii) if the participants in a Deferred Compensation Plan ("Entitled Participants") are entitled to receive a portion of the Distributable Liquidity Event Proceeds available for a Permitted Liquidity Event Distribution (or would be so entitled, but for the failure of such participants' interest in such Deferred Compensation Plan to have vested at the time of such Permitted Liquidity Event Distribution), (a) no distribution of such Distributable Liquidity Event Proceeds shall be made to the Investors to the extent that the amount of such Distributable Liquidity Event Proceeds exceeds the amount thereof to which the Investors are entitled after deducting amounts to which participants in the applicable Deferred Compensation Plan are (or, upon vesting, would be) entitled under the applicable Deferred Compensation Plan and (b) no distribution of such Distributable Liquidity Event Proceeds shall be made to the Entitled Participants to the extent that the amount of such Distributable Liquidity Event Proceeds exceeds the amount thereof to which the Entitled Participants are (or, upon vesting, would be) entitled under the applicable Deferred Compensation Plan. "Permitted Optionholder" means a holder of Permitted Options or any equity securities issued upon the exercise of Permitted Options. "Permitted Options" has the meaning assigned to such term in Section 6.05(e). "Permitted Option Subsidiary" means (a) Intermediate Holdings, (b) Tape Holdings and (c) any Subsidiary that owns no assets other than the capital stock of XIOtech Corporation. "Permitted Spinoff" means, with respect to any Permitted Spinoff Subsidiary, (a) a transfer by Holdings, either Borrower or any Subsidiary to a Person other than Holdings, either Borrower or any Subsidiary of all the outstanding capital stock of such Permitted Spinoff 50 Subsidiary, or (b) a bona fide underwritten initial public offering of the common stock of such Permitted Spinoff Subsidiary in which at least 10% of the aggregate voting common stock of such Permitted Spinoff Subsidiary (calculated on a fully diluted basis after giving effect to all options to acquire voting common stock of such Permitted Spinoff Subsidiary then outstanding, regardless of whether such options are then currently exercisable) is issued to Persons other than Holdings, the Borrowers and the Subsidiaries, provided that (i) in the case of clause (a) of this definition, all the consideration received by Holdings, the applicable Borrower or the applicable Subsidiary is Publicly Traded Equity Securities or cash and (ii) the Net Proceeds and Net Public Equity Proceeds (excluding, in the case of clause (a) of this definition, any proceeds (A) required to be paid to Permitted Optionholders as consideration for Permitted Options (or Equity Interests issued or issuable upon exercise of Permitted Options) held by such Permitted Optionholders in respect of such Permitted Spinoff Subsidiary or (B) that constitute Distributable Liquidity Event Proceeds) from such transfer or offering (or from the sale of any Publicly Traded Equity Securities received in connection therewith) are retained by Holdings, such Borrower or such Subsidiary to fund the operations of businesses permitted under Section 6.03(b). "Permitted Spinoff Subsidiaries" means (i) any of XIOtech Corporation, Tape Holdings and Seagate Software and (ii) any Subsidiary that owns no assets other than (A) all the capital stock (other than capital stock issued to Permitted Optionholders upon the exercise of Permitted Options) of any one or more of XIOtech Corporation, Tape Holdings and Seagate Software or (B) all the capital stock (other than capital stock issued to Permitted Optionholders upon the exercise of Permitted Options) of a Subsidiary that owns no assets other than all the capital stock of one or more of XIOtech Corporation, Tape Holdings and Seagate Software, provided that the Cayman Borrower may elect to irrevocably exclude any of the foregoing Subsidiaries from the definition of Permitted Spinoff Subsidiary by giving written notice to the Administrative Agent of such election if no Permitted Spinoff has been effected with respect to such Subsidiary. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions 51 of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which either Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pledge Agreements" means the Cayman Pledge Agreements, the Singapore Pledge Agreement, the Scotland Pledge Agreement and the U.S. Pledge Agreement. "Prepayment Event" means: (a) any sale, transfer or other disposition (including pursuant to a sale and leaseback transaction) of any property or asset of Holdings, either Borrower or any Subsidiary, including any Equity Interest owned by it, other than (i) dispositions described in clauses (a), (b), (c), (d), (e), (h), (j) and (l) of Section 6.05 and (ii) other dispositions resulting in aggregate Net Proceeds not exceeding $1,000,000 during any fiscal year of Holdings; or (b) any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of Holdings, either Borrower or any Subsidiary, including any Equity Interest owned by it, but only to the extent that the Net Proceeds therefrom have not been applied (i) to repair, restore or replace such property or asset; or (ii) to purchase Equity Interests of a Person primarily engaged in a business permitted by Section 6.03(b) to the extent permitted by Section 6.04, in each case within 365 days after receipt of such Net Proceeds; or (c) the incurrence by Holdings, either Borrower or any Subsidiary of any Indebtedness, other than Indebtedness permitted by Section 6.01. "Prime Rate" means the rate of interest per annum publicly announced from time to time by The Chase Manhattan Bank as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Promissory Notes" means any promissory notes delivered pursuant to Section 2.09(e). "Publicly Traded Equity Security" means (a) an equity security that is listed on The New York Stock 52 Exchange, The NASDAQ National Market or another recognized national securities exchange registered with the United States Securities and Exchange Commission (b) an equity security that is convertible at the option of the holder thereof into an equity security referred to in clause (a) above. "Purchase Agreement" means the Stock Purchase Agreement entered into as of March 29, 2000, by and among SAC, the Company and SSH, as amended by (i) that certain Consolidated Amendment to Stock Purchase Agreement, Agreement and Plan of Merger and Reorganization, and Indemnification Agreement, and Consent, dated as of August 29, 2000, among SAC, the Company, SSH, Veritas and Veritas Merger Sub, and (ii) that certain Consolidated Amendment No. 2 to Stock Purchase Agreement, Agreement and Plan of Merger and Reorganization, and Indemnification Agreement, and Consent dated as of October 18, 2000, by and among SAC, the Company, SSH, Veritas and Veritas Merger Sub. "Register" has the meaning set forth in Section 9.04(c). "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Release" means any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture. "Repurchase" means the repurchase by the Cayman Borrower of its ordinary shares for an aggregate purchase price of $1,614,975,972.00. "Required Lenders" means, at any time, Lenders having Revolving Exposures, Term Loans and unused Commitments representing more than 50% of the sum of the total Revolving Exposures, outstanding Term Loans and unused Commitments at such time. "Reset Date" has the meaning assigned to such term in Section 1.06(a). "Restricted Indebtedness" means Indebtedness of Holdings, either Borrower or any Subsidiary, the payment, 53 prepayment, redemption, repurchase or defeasance of which is restricted under Section 6.08. "Restricted Payment" means (i) any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in Holdings, either Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Equity Interests in Holdings, either Borrower or any Subsidiary or any option, warrant or other right to acquire any such Equity Interests in Holdings, either Borrower or any Subsidiary and (ii) any distribution or other payment (whether in cash, securities or other property or any combination thereof) under or in respect of any Deferred Compensation Plan. "Revolving Availability Period" means the period from and including the Effective Date to but excluding the earlier of the Revolving Maturity Date and the date of termination of the Revolving Commitments. "Revolving Commitment" means, with respect to each Lender, the commitment, if any, of such Lender to make Revolving Loans and to acquire participations in Letters of Credit and Swingline Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Revolving Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable. The initial aggregate amount of the Lenders' Revolving Commitments is $200,000,000. "Revolving Exposure" means, with respect to any Lender at any time, the sum of (a) the outstanding principal amount of such Lender's Revolving Loans and (b) such Lender's LC Exposure and Swingline Exposure at such time. "Revolving Lender" means a Lender with a Revolving Commitment or, if the Revolving Commitments have terminated or expired, a Lender with Revolving Exposure. "Revolving Loan" means a Loan made pursuant to clause (e) of Section 2.01. 54 "Revolving Maturity Date" means November 22, 2005, or, if such day is not a Business Day, the Business Day immediately preceding such day. "Rollover Agreements" means the agreements dated as of November 22, 2000, among HDD Holdings, Seagate SAN and Tape Holdings, respectively, Holdings and certain continuing members of management. "Rollover Investment" has the meaning assigned to such term in the definition of the term Historical Investment. "SAC" means Suez Acquisition Company (Cayman) Limited, an exempted limited company incorporated and existing under the laws of the Cayman Islands. "S&P" means Standard & Poor's Rating Service. "Scotland Pledge Agreement" means the Shares Pledge, dated as of the Effective Date, substantially in the form of Exhibit D-4, among each Loan Party that owns Equity Interests in a Person that is organized under the laws of Scotland and that would constitute Collateral if such Loan Party executed the Scotland Pledge Agreement and the Collateral Agent for the benefit of the Secured Parties. "Scotland Security Agreement" means a Bond and Floating Charge, dated as of the Effective Date, substantially in the form of Exhibit C-6, between each Loan Party that is organized under the laws of Scotland or that owns any Collateral located in Scotland and the Collateral Agent for the benefit of the Secured Parties. "Seagate SAN" means Seagate Technology SAN Holdings, an exempted limited liability company organized and existing under the laws of the Cayman Islands. "Seagate Software" means Seagate Software Information Management Group Holdings, Inc., a Delaware corporation. "Secured Parties" has the meaning assigned to such term in the U.S. Security Agreement. "Security Agreements" means the Cayman Security Agreements, the Netherlands Security Agreement, the Northern Ireland Security Agreement, the Singapore Security Agreements, the Scotland Security Agreement and the U.S. Security Agreement. 55 "Security Documents" means the Security Agreements, the Pledge Agreements, the Mortgages, any other Foreign Security Agreements and each other security agreement or other instrument or document executed and delivered pursuant to Section 5.12 or 5.13 to secure any of the Obligations. "Shareholders' Agreements" means (a) the Shareholders' Agreement, dated as of November 22, 2000, among Silver Lake Partners, L.P., SAC Investments, L.P., August Capital, Chase Capital Partners, GS Capital Partners III, L.P. and Staenberg Venture Partners II, L.P., and (b) the Management Stockholders' Agreement, dated as of November 22, 2000, among Holdings, the management shareholders parties thereto and each other individual who from time to time executes a joinder agreement thereto pursuant to the terms thereof. "Side Letter" means the letter agreement dated as of March 29, 2000, between Holdings and Veritas setting forth certain matters with respect to the Acquisition. "Singapore Pledge Agreement" means the Shares Charge, dated as of the Effective Date, substantially in the form of Exhibit D-3, among the Borrowers, Holdings, the Subsidiary Loan Parties that own Equity Interests in a Person that is organized under the laws of Singapore and that would constitute Collateral if such Loan Party executed the Singapore Pledge Agreement and the Collateral Agent for the benefit of the Secured Parties. "Singapore Security Agreements" means, collectively, the Singapore Debentures and the Assignments of Trade Receivables, substantially in the form of Exhibit C-3--A and C-3--B, respectively, dated as of the Effective Date and between each Subsidiary Loan Party that is organized under the laws of Singapore or that owns any Collateral located in Singapore and the Collateral Agent for the benefit of the Secured Parties. "SLP" means Silver Lake Partners, L.P. and its Affiliates, provided that no such Affiliate shall be deemed to be a member of SLP to the extent it ceases to be Controlled by, or under common Control with, Silver Lake Partners, L.P. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental 56 reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "SSH" means Seagate Software Holdings, Inc., a Delaware corporation. "Strategic Investments" means investments in Equity Interests in Persons that are primarily engaged in businesses of the type conducted by the Borrowers and the Subsidiaries on the date hereof or businesses reasonably related, ancillary or complementary thereto. "Subordinated Debt" means the 12 1/2% Senior Subordinated Notes due 2007 to be issued by the Cayman Borrower on or prior to the Effective Date in the aggregate principal amount of $210,000,000 and the Indebtedness represented thereby (including the Note Guarantees, the Exchange Notes (as each is defined in the Subordinated Debt Documents), the guarantees of the Exchange Notes and any replacement notes). "Subordinated Debt Documents" means the indenture under which the Subordinated Debt is issued and all other instruments, agreements and other documents evidencing or governing the Subordinated Debt or providing for any Guarantee or other right in respect thereof. "subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as 57 of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Subsidiary" means any subsidiary of Holdings other than the Borrowers, provided that the Excluded Subsidiaries shall be deemed not to be Subsidiaries for all purposes of this Agreement and, at all times (including after an IPO of either HDD Holdings or Intermediate Holdings), HDD Holdings, Intermediate Holdings and their respective subsidiaries (other than the Excluded Subsidiaries) shall be deemed to be Subsidiaries for all purposes of this Agreement. For purposes of the representations and warranties made herein on (and the conditions to borrowing on) the Effective Date, the Acquisition shall be assumed to have already been consummated. "Subsidiary Loan Party" means (a) any Subsidiary (other than (i) a Permitted Spinoff Subsidiary in respect of which a Permitted Spinoff has been consummated (and any subsidiaries thereof) and (ii) any Moribund Subsidiary) that (A) is not a Foreign Subsidiary or (B) is a Foreign Subsidiary that (1) has given a Guarantee of the Subordinated Debt or (2) meets the requirements set forth in any of clause (i), clause (ii) or clause (iii) of paragraph (d) of the definition of the term Collateral and Guarantee Requirement and (b) any other Foreign Subsidiary that the Cayman Borrower designates as a Subsidiary Loan Party in a written notice to the Administrative Agent. "Swingline Exposure" means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Lender at any time shall be its Applicable Percentage of the total Swingline Exposure at such time. "Swingline Lender" means The Chase Manhattan Bank, in its capacity as lender of Swingline Loans hereunder. "Swingline Loan" means a Loan made pursuant to Section 2.04. "Synthetic Purchase Agreement" means any swap, derivative or other agreement or combination of agreements pursuant to which Holdings, a Borrower or a Subsidiary is or may become obligated to make (a) any payment in connection with a purchase by any third party from a Person other than Holdings, a Borrower or a Subsidiary of any Borrower Equity Interest or Restricted Indebtedness or (b) any payment the amount of which is determined by reference to the price or 58 value at any time of any Borrower Equity Interest or Restricted Indebtedness, provided that no phantom stock or similar plan providing for payments only to current or former directors, officers or employees of Holdings, the Borrowers or the Subsidiaries (or to their heirs or estates) shall be deemed to be a Synthetic Purchase Agreement. "Tape Holdings" means Seagate Removable Storage Solutions Holdings, an exempted limited liability company incorporated and existing under the laws of the Cayman Islands. "Taxes" means any and all current or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Term Loans" means Tranche A Term Loans and Tranche B Term Loans. "Thai Mortgages" means the Mortgages relating to the properties located at Korat-90 Moo 9, Tambol Soong Nern, Amphur Soong Nern, KM225 Mitraphap Hwy, Nakorn Ratchasima, Thailand and M0023 Teparuk Road, Teparuk Sub-Assembly, Tambol, Amphor Muang, Thailand. "TPG" means TPG Partners III, L.P. and its Affiliates, provided that no such Affiliate shall be deemed to be a member of TPG to the extent it ceases to be Controlled by, or under common Control with, TPG Partners III, L.P. "Tranche", when used in reference to any Borrowing, refers to whether such Borrowing consists of Revolving Loans, Tranche A Term Loans or Tranche B Term Loans. "Tranche A Commitment" means, with respect to each Lender, the commitment, if any, of such Lender to make Tranche A Term Loans hereunder on the Effective Date, expressed as an amount representing the maximum principal amount of the Tranche A Term Loans to be made by such Lender hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Tranche A Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Tranche A Commitment, as applicable. The initial aggregate amount of the Lenders' Tranche A Commitments is $200,000,000. 59 "Tranche A Lender" means a Lender with a Tranche A Commitment or an outstanding Tranche A Term Loan. "Tranche A Maturity Date" means November 22, 2005, or if such date is not a Business Day, the Business Day immediately preceding such day. "Tranche A Term Loans" means the Cayman Tranche A Term Loans and the U.S. Tranche A Term Loans. "Tranche B Commitment" means, with respect to each Lender, the commitment, if any, of such Lender to make Tranche B Term Loans hereunder on the Effective Date, expressed as an amount representing the maximum principal amount of the Tranche B Term Loans to be made by such Lender hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Tranche B Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Tranche B Commitment, as applicable. The initial aggregate amount of the Lenders' Tranche B Commitments is $ 500,000,000. "Tranche B Lender" means a Lender with a Tranche B Commitment or an outstanding Tranche B Term Loan. "Tranche B Maturity Date" means November 22, 2006, or if such date is not a Business Day, the Business Day immediately preceding such day. "Tranche B Term Loans" means the Cayman Tranche B Term Loans and the U.S. Tranche B Term Loans. "Transactions" means the Acquisition, the Repurchase and the payment of fees and expenses in an aggregate amount not to exceed $125,000,000 in connection with the Acquisition and the Financing Transactions. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate. "U.S. Borrower" means Seagate Technology (US) Holdings, Inc., a Delaware corporation. "U.S. Guarantee Agreement" means the U.S. Guarantee Agreement, dated as of the Effective Date, 60 substantially in the form of Exhibit F, among Holdings, the U.S. Loan Parties, the Subsidiary Loan Parties that are organized under the laws of the Cayman Islands, the other applicable Subsidiary Loan Parties and the Collateral Agent for the benefit of the Secured Parties. "U.S. Loan Parties" means any Loan Parties that are organized under the laws of the United States of America or any State thereof or the District of Columbia. "U.S. Pledge Agreement" means the Pledge Agreement, dated as of the Effective Date, substantially in the form of Exhibit D-1, among the U.S. Loan Parties and each other Loan Party that owns Equity Interests in a Person that is organized under the laws of the United States of America and that would constitute Collateral if such loan Party executed the U.S. Pledge Agreement and the Collateral Agent for the benefit of the Secured Parties. "U.S. Security Agreement" means the U.S. Security Agreement, dated as of the Effective Date, substantially in the form of Exhibit C-1, among the U.S. Loan Parties and the Collateral Agent for the benefit of the Secured Parties. "U.S. Tranche A Term Loan" means a Loan made pursuant to clause (b) of Section 2.01. "U.S. Tranche B Term Loan" means a Loan made pursuant to clause (d) of Section 2.01. "Veritas" means VERITAS Software Corporation, a Delaware corporation. "Veritas Merger Sub" means Victory Merger Sub, Inc., a Delaware corporation. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving Borrowing"). 61 SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time, provided that, if the Cayman Borrower notifies the Administrative Agent that the Cayman Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Cayman Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. For the purposes of determining compliance under Sections 6.01, 6.02, 6.04, 6.05, 6.06, 6.08, 6.09 and 6.15 with respect to any amount in a currency other than Dollars, such amount shall be deemed to equal the Dollar Equivalent thereof (determined in 62 good faith by the Cayman Borrower) at the time such amount was incurred or expended, as the case may be. SECTION 1.05. Interim Financial Calculations. For purposes of determining the Leverage Ratio and the Net Leverage Ratio and for purposes of determining compliance with Sections 6.12, 6.13 and 6.14: (a) for any period of four consecutive fiscal quarters ended on or prior to March 30, 2001, Consolidated EBITDA (including up to $124,500,000 of restructuring charges for the fiscal year ended June 30, 2000) shall be deemed to be the Consolidated EBITDA of Holdings, the Borrowers and the Subsidiaries (or their respective predecessor entities) for such period determined on a consolidated basis in accordance with GAAP (it being understood that Consolidated EBITDA for the fiscal quarter ended (i) June 30, 2000, was $192,000,000, (ii) September 29, 2000, was $235,000,000 and (iii) December 29, 2000, shall be equal to the product of (A) Consolidated EBITDA for the period of one fiscal month ending on December 29, 2000, and (B) a fraction the numerator of which is three and the denominator of which is one); (b) (i) Consolidated Cash Interest Expense and Consolidated Net Cash Interest Expense, in each case, for the period of four consecutive fiscal quarters ending on March 30, 2001, shall be equal to the product of (A) Consolidated Cash Interest Expense and Consolidated Net Cash Interest Expense, respectively, for the period of four fiscal months ending on March 30, 2001, and (B) a fraction the numerator of which is 12 and the denominator of which is four, (ii) Consolidated Cash Interest Expense and Consolidated Net Cash Interest Expense, in each case for the period of four consecutive fiscal quarters ending on June 29, 2001, shall be equal to the product of (A) Consolidated Cash Interest Expense and Consolidated Net Cash Interest Expense, respectively, for the period of seven fiscal months ended on June 29, 2001, and (B) a fraction the numerator of which is twelve and the denominator of which is seven and (iii) Consolidated Cash Interest Expense and Consolidated Net Cash Interest Expense, respectively, for the period of four consecutive fiscal quarters ended on September 30, 2001, shall be equal to the product of (A) Consolidated Cash Interest Expense and Consolidated Net Cash Interest Expense, respectively, for the period of ten fiscal months ending on 63 September 30, 2001, and a fraction the numerator of which is 12 and the denominator of which is ten; and (c) for any period of four consecutive fiscal quarters ended on or prior to September 30, 2001, Capital Expenditures shall be deemed to be the Capital Expenditures of Holdings, the Borrowers and the Subsidiaries (or their respective predecessor entities) for such period determined on a consolidated basis in accordance with GAAP (it being understood that Capital Expenditures for the fiscal quarter ended (i) June 30, 2000, was $195,000,000, (ii) September 29, 2000, was $145,000,000 and (iii) December 29, 2000 shall be equal to the product of (A) Capital Expenditures for the period of one fiscal month ending on December 29, 2000, and (B) a fraction the numerator of which is three and the denominator of which is one). SECTION 1.06. Exchange Rates. (a) Not later than 1:00 p.m., New York City time, on each Calculation Date, the Administrative Agent shall (i) determine the Exchange Rate as of such Calculation Date to be used for calculating the Dollar Equivalent amounts of each Alternative Currency in which an outstanding Alternative Currency Letter of Credit or unreimbursed LC Disbursement is denominated and (ii) give notice thereof to the Cayman Borrower. The Exchange Rates so determined shall become effective on the first Business Day immediately following the relevant Calculation Date (a "Reset Date"), shall remain effective until the next succeeding Reset Date and shall for all purposes of this Agreement (other than converting into dollars under Sections 2.05(d), (e), (h), (j) and (k) and 2.12(b) the obligations of the Cayman Borrower and the Revolving Lenders in respect of LC Disbursements that have not been reimbursed when due) be the Exchange Rates employed in converting any amounts between the applicable currencies. (b) Not later than 5:00 p.m., New York City time, on each Reset Date, the Administrative Agent shall (i) determine the Alternative Currency LC Exposure on such date (after giving effect to any Alternative Currency Letters of Credit issued, renewed or terminated or requested to be issued, renewed or terminated on such date) and (ii) notify the Cayman Borrower and each Issuing Bank of the results of such determination. 64 ARTICLE II The Credits SECTION 2.01. Commitments. Subject to the terms and conditions set forth herein, each Lender agrees (a) to make a Tranche A Term Loan to the Cayman Borrower on the Effective Date in a principal amount not exceeding 85.71% of its Tranche A Commitment, (b) to make a Tranche A Term Loan to the U.S. Borrower on the Effective Date in a principal amount not exceeding 14.29% of its Tranche A Commitment, (c) to make a Tranche B Term Loan to the Cayman Borrower on the Effective Date in a principal amount not exceeding 85.71% of its Tranche B Commitment, (d) to make a Tranche B Term Loan to the U.S. Borrower on the Effective Date in a principal amount not exceeding 14.29% of its Tranche B Commitment and (e) to make Revolving Loans to the Cayman Borrower from time to time during the Revolving Availability Period in an aggregate principal amount that will not result in such Lender's Revolving Exposure exceeding such Lender's Revolving Commitment, provided that (i) the aggregate principal amount of the Revolving Loans made on the Effective Date shall not exceed the lesser of $66,000,000 and the portion of the Adjustment Amount (as defined in the Purchase Agreement) attributable to clause (i) of the definition of the term Adjustment Amount set forth in the Purchase Agreement and (ii) all Revolving Loans made on the Effective Date shall be prepaid in full prior to 2:00 p.m., New York City time, on the Effective Date. Within the foregoing limits and subject to the terms and conditions set forth herein, the Cayman Borrower may borrow, prepay and reborrow Revolving Loans. Amounts repaid or prepaid in respect of Term Loans may not be reborrowed. SECTION 2.02. Loans and Borrowings. (a) Each Loan (other than a Swingline Loan) shall be made as part of a Borrowing consisting of Loans of the same Class and Type made by the Lenders ratably in accordance with their respective Commitments of the applicable Class. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder, provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.14, each Revolving Borrowing and Term Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the applicable Borrower may request in accordance herewith, provided that all Borrowings made on the Effective Date shall be ABR Borrowings. Each Swingline Loan shall be an ABR Loan. Each Lender at its 65 option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan, provided that (i) any exercise of such option shall not affect the obligation of the Borrowers to repay such Loan in accordance with the terms of this Agreement and (ii) the Borrowers shall not be required to make any greater payment under Section 2.15 or Section 2.17 to the applicable Lender than such Lender would have been entitled to receive if such Lender had not exercised such option. (c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $20,000,000. At the time that each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $500,000 and not less than $10,000,000, provided that an ABR Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Revolving Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.05(e). Each Swingline Loan shall be in an amount that is an integral multiple of $100,000 and not less than $500,000. Borrowings of more than one Type and Class may be outstanding at the same time, provided that there shall not at any time be more than a total of six Eurodollar Borrowings outstanding with respect to any Tranche of Borrowings. (d) Notwithstanding any other provision of this Agreement, the Borrowers shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Revolving Maturity Date, Tranche A Maturity Date or Tranche B Maturity Date, as applicable. SECTION 2.03. Requests for Borrowings. To request a Revolving Borrowing or Term Borrowing, the applicable Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 1:00 p.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 2:00 p.m., New York City time, one Business Day before the date of the proposed Borrowing, provided that any such notice of an ABR Revolving Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.05(e) may be given not later than 1:00 p.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to 66 the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the applicable Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) in the case of a Borrowing requested by the Cayman Borrower, whether the requested Borrowing is to be a Revolving Borrowing, Tranche A Term Borrowing or Tranche B Term Borrowing and, in the case of a Borrowing requested by the U.S. Borrower, whether the requested Borrowing is to be a Tranche A Term Borrowing or a Tranche B Term Borrowing; (ii) the aggregate amount of such Borrowing; (iii) the date of such Borrowing, which shall be a Business Day; (iv) subject to the proviso to the first sentence of Section 2.02(b), whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; (v) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (vi) the location and number of the applicable Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.06. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Revolving Borrowing, then the applicable Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.04. Swingline Loans. (a) Subject to the terms and conditions set forth herein, the Swingline Lender agrees to make Swingline Loans to the Cayman Borrower from time to time during the Revolving Availability Period, in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of outstanding Swingline Loans exceeding 67 $20,000,000 or (ii) the sum of the total Revolving Exposures exceeding the total Revolving Commitments, provided that (A) the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Loan and (B) no Swingline Loans will be made on the Effective Date. Within the foregoing limits and subject to the terms and conditions set forth herein, the Cayman Borrower may borrow, prepay and reborrow Swingline Loans. (b) To request a Swingline Loan, the Cayman Borrower shall notify the Administrative Agent of such request by telephone (confirmed by telecopy), not later than 2:00 p.m., New York City time, on the day of a proposed Swingline Loan. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day) and amount of the requested Swingline Loan. The Administrative Agent will promptly advise the Swingline Lender of any such notice received from the Cayman Borrower. The Swingline Lender shall make each Swingline Loan available to the Cayman Borrower by means of a credit to the general deposit account of the Cayman Borrower with the Swingline Lender (or, in the case of a Swingline Loan made to finance the reimbursement of an LC Disbursement as provided in Section 2.05(e), by remittance to the Issuing Bank) by 4:00 p.m., New York City time, on the requested date of such Swingline Loan. (c) The Swingline Lender may by written notice given to the Administrative Agent not later than 12:30 p.m., New York City time, on any Business Day require the Revolving Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which Revolving Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Revolving Lender, specifying in such notice such Lender's Applicable Percentage of such Swingline Loan or Swingline Loans. Each Revolving Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Administrative Agent, for the account of the Swingline Lender, such Lender's Applicable Percentage of such Swingline Loan or Swingline Loans. Each Revolving Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Revolving Lender shall comply with its obligation under this 68 paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis mutandis, to the payment obligations of the Revolving Lenders), and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Revolving Lenders. The Administrative Agent shall notify the Cayman Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph, and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Cayman Borrower (or other party on behalf of the Cayman Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Revolving Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Cayman Borrower of any default in the payment thereof. SECTION 2.05. Letters of Credit. (a) General. Upon the satisfaction (or waiver in accordance with Section 9.02) of the conditions specified in Section 4.01 on the Effective Date, each Existing Letter of Credit will automatically, without any action on the part of any Person, be deemed to be a Letter of Credit issued hereunder for the account of the Cayman Borrower for all purposes of this Agreement and the other Loan Documents. In addition, subject to the terms and conditions set forth herein, the Cayman Borrower may request the issuance of Letters of Credit for its own account, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time during the Revolving Availability Period and prior to the date that is five Business Days prior to the Revolving Maturity Date. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Cayman Borrower to, or entered into by the Cayman Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Cayman Borrower shall 69 hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the currency in which such Letter of Credit is to be denominated (which shall be dollars or, subject to Section 2.20, an Alternative Currency), the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Bank, the Cayman Borrower also shall submit a letter of credit application on the Issuing Bank's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Cayman Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed $100,000,000 and (ii) the total Revolving Exposures shall not exceed the total Revolving Commitments. (c) Expiration Date. Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, (A) in the case of any renewal or extension thereof, one year after such renewal or extension, or (B) in the case of an Existing Letter of Credit having a later expiration date, such expiration date) and (ii) the date that is five Business Days prior to the Revolving Maturity Date. (d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Revolving Lender, and each Revolving Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit (including each Existing Letter Credit) equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to pay to the 70 Administrative Agent in dollars, for the account of the Issuing Bank, such Lender's Applicable Percentage of (i) each LC Disbursement made by the Issuing Bank in dollars and (ii) the Dollar Equivalent, using the Exchange Rates on the date such payment is required, of each LC Disbursement made by the Issuing Bank in an Alternative Currency and, in each case, not reimbursed by the Cayman Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Cayman Borrower for any reason (or, if such reimbursement payment was refunded in an Alternative Currency, the Dollar Equivalent thereof using the Exchange Rates on the date of such refund). Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Cayman Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement, in dollars or (subject to the two immediately succeeding sentences) the applicable Alternative Currency, not later than 2:00 p.m., New York City time, on the Business Day immediately following the date on which the Cayman Borrower receives notice of such LC Disbursement, provided that, in the case of any LC Disbursement made in dollars, the Cayman Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 or 2.04 that such payment be financed with an ABR Revolving Borrowing or Swingline Loan in an equivalent amount and, to the extent so financed, the Cayman Borrower's obligation to make such payment shall be discharged and replaced by the resulting ABR Revolving Borrowing or Swingline Loan. If the Cayman Borrower's reimbursement of, or obligation to reimburse, any amounts in any Alternative Currency would subject the Administrative Agent, the Issuing Bank or any Lender to any stamp duty, ad valorem charge or similar tax that would not be payable if such reimbursement were made or required to be made in dollars, the Cayman Borrower shall reimburse each LC Disbursement made in such Alternative Currency in dollars, in an amount equal to the Dollar Equivalent, calculated using the applicable Exchange Rate on the date such LC Disbursement is made, of such LC Disbursement. If the Cayman Borrower fails to make such payment when due, then (i) if such payment relates to an 71 Alternative Currency Letter of Credit, automatically and with no further action required, the Cayman Borrower's obligation to reimburse the applicable LC Disbursement shall be permanently converted into an obligation to reimburse the Dollar Equivalent, calculated using the Exchange Rates on the date when such payment was due, of such LC Disbursement and (ii) the Administrative Agent shall promptly notify the Issuing Bank and each other Revolving Lender of the applicable LC Disbursement, the Dollar Equivalent thereof (if such LC Disbursement relates to an Alternative Currency Letter of Credit), the payment then due from the Cayman Borrower in respect thereof and, in the case of a Revolving Lender, such Lender's Applicable Percentage thereof. Promptly following receipt of such notice, each Revolving Lender shall pay to the Administrative Agent in dollars its Applicable Percentage of the payment then due from the Cayman Borrower (determined as provided in clause (i) above, if such payment relates to an Alternative Currency Letter of Credit), in the same manner as provided in Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis mutandis, to the payment obligations of the Revolving Lenders), and the Administrative Agent shall promptly pay to the applicable Issuing Bank in dollars the amounts so received by it from the Revolving Lenders. Promptly following receipt by the Administrative Agent of any payment from the Cayman Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to such Issuing Bank or, to the extent that Revolving Lenders have made payments pursuant to this paragraph to reimburse such Issuing Bank, then to such Lenders and the Issuing Bank as their interests may appear. Any payment made by a Revolving Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than the funding of ABR Revolving Loans or a Swingline Loan as contemplated above) shall not constitute a Loan and shall not relieve the Cayman Borrower of its obligation to reimburse such LC Disbursement. (f) Obligations Absolute. The Cayman Borrower's obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit, any application for the issuance of a Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a 72 Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Cayman Borrower's obligations hereunder. None of the Administrative Agent, the Lenders, the Issuing Bank or any of their Related Parties shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank, provided that the foregoing provisions of this paragraph (f) shall not be construed to excuse the Issuing Bank from liability to the Cayman Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrowers to the extent permitted by applicable law) suffered by the Cayman Borrower that are caused by (i) the Issuing Bank's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof or (ii) the Issuing Bank's failure to issue a Letter of Credit in accordance with the terms of this Agreement when requested by the Cayman Borrower pursuant to Section 2.05(b). The parties hereto expressly agree that, in the absence of gross negligence or wilful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination and each issuance of (or failure to issue) a Letter of Credit. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented that appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. (g) Disbursement Procedures. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under 73 a Letter of Credit. The Issuing Bank shall promptly notify the Administrative Agent and the Cayman Borrower by telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder, provided that any failure to give or delay in giving such notice shall not relieve the Cayman Borrower of its obligation to reimburse the Issuing Bank and the Revolving Lenders with respect to any such LC Disbursement. (h) Interim Interest. If the Issuing Bank shall make any LC Disbursement, then, unless the Cayman Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Cayman Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Revolving Loans, provided that, if the Cayman Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.13(c) shall apply, provided further that, in the case of an LC Disbursement made under an Alternative Currency Letter of Credit, the amount of interest due with respect thereto shall (i) in the case of any LC Disbursement that is reimbursed on or before the Business Day immediately succeeding such LC Disbursement, (A) be payable in the applicable Alternative Currency and (B) bear interest at a rate equal to the rate reasonably determined by the applicable Issuing Bank to be the cost to such Issuing Bank of funding such LC Disbursement plus the Applicable Margin applicable to Eurodollar Loans at such time and (ii) in the case of any LC Disbursement that is reimbursed after the Business Day immediately succeeding such LC Disbursement (A) be payable in dollars, (B) accrue on the Dollar Equivalent, calculated using the Exchange Rates on the date such LC Disbursement was made, of such LC Disbursement and (C) bear interest at the rate per annum then applicable to ABR Revolving Loans, subject to Section 2.13(c). Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Revolving Lender pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment. (i) Replacement of the Issuing Bank. Any Issuing Bank may be replaced at any time by written agreement among the Cayman Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall notify the Lenders of any such replacement of the Issuing Bank. At the time any such 74 replacement shall become effective, the Cayman Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit. (j) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that the Cayman Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Revolving Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, the Cayman Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in dollars and in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon, provided that (i) the portions of such amount attributable to undrawn Alternative Currency Letters of Credit or LC Disbursements in an Alternative Currency that the Cayman Borrower is not late in reimbursing shall be deposited in the applicable Alternative Currencies in the actual amounts of such undrawn Letters of Credit and LC Disbursements and (ii) upon the occurrence of any Event of Default with respect to the Cayman Borrower described in clause (h) or (i) of Section 7.01 the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable in dollars, without demand or other notice of any kind. For the purposes of this paragraph, the Alternative Currency LC Exposure shall be calculated using the Exchange Rates on the date notice demanding cash collateralization is delivered to the Cayman Borrower. The Cayman Borrower also shall deposit cash collateral pursuant to this paragraph as and to the extent required by Section 2.11(b). Each such deposit pursuant to this paragraph or pursuant to Section 2.11(b) shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Cayman 75 Borrower under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Cayman Borrower's risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Cayman Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Revolving Lenders with LC Exposure representing greater than 50% of the total LC Exposure), be applied to satisfy other obligations of the Cayman Borrower under this Agreement. If the Cayman Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Cayman Borrower within three Business Days after all Events of Default have been cured or waived. If the Cayman Borrower is required to provide an amount of cash collateral hereunder pursuant to Section 2.11(b), such amount (to the extent not applied as aforesaid) shall be returned to the Cayman Borrower as and to the extent that, after giving effect to such return, the Cayman Borrower would remain in compliance with Section 2.11(b) and no Event of Default shall have occurred and be continuing. (k) Conversion. In the event that the Loans become immediately due and payable on any date pursuant to Section 7.01, all amounts (i) that the Cayman Borrower is at the time or thereafter becomes required to reimburse or otherwise pay to the Administrative Agent in respect of LC Disbursements made under any Alternative Currency Letter of Credit (other than amounts in respect of which the Cayman Borrower has deposited cash collateral pursuant to Section 2.05(j), if such cash collateral was deposited in the applicable Alternative Currency to the extent so deposited or applied), (ii) that the Revolving Lenders are at the time or thereafter become required to pay to the Administrative Agent and the Administrative Agent is at the time or thereafter becomes required to distribute to the Issuing Bank pursuant to paragraph (e) of this Section in respect of unreimbursed LC Disbursements made under any Alternative Currency Letter of Credit and (iii) of each Revolving Lender's participation in any Alternative Currency Letter of Credit under which an LC Disbursement has been 76 made shall, automatically and with no further action required, be converted into the Dollar Equivalent, calculated using the Exchange Rates on such date (or in the case of any LC Disbursement made after such date, on the date such LC Disbursement is made), of such amounts. On and after such conversion, all amounts accruing and owed to the Administrative Agent, the Issuing Bank or any Lender in respect of the Obligations described in this paragraph shall accrue and be payable in dollars at the rates otherwise applicable hereunder. (l) The Cayman Borrower may, at any time and from time to time with the consent of the Administrative Agent (which consent shall not be unreasonably withheld) and such Revolving Lender, designate one or more additional Revolving Lenders to act as an issuing bank under the terms of this Agreement, provided that the total number of Revolving Lenders so designated at any time plus the total number of Issuing Banks pursuant to clause (c) of the definition of the term "Issuing Bank" at such time shall not exceed 6. Any Revolving Lender designated as an Issuing Bank pursuant to this paragraph (l) shall be deemed to be an "Issuing Bank" for the purposes of this Agreement (in addition to being a Revolving Lender) with respect to Letters of Credit issued by such Revolving Lender. (m) Each Issuing Bank will report in writing to the Administrative Agent (i) on the first Business Day of each week, the aggregate face amount of Letters of Credit issued by it and outstanding as of the last Business Day of the preceding week, (ii) on or prior to each Business Day on which an Issuing Bank expects to issue, amend, renew or extend any Letter of Credit, the date of such issuance or amendment, and the aggregate face amount of Letters of Credit to be issued, amended, renewed or extended by it and outstanding after giving effect to such issuance, amendment, renewal or extension (and such Issuing Bank shall advise the Administrative Agent on such Business Day whether such issuance, amendment, renewal or extension occurred and whether the amount thereof changed), (iii) on each Business Day on which an Issuing Bank makes any LC Disbursement, the date of such LC Disbursement and the amount of such LC Disbursement and (iv) on any Business Day on which the Cayman Borrower fails to reimburse an LC Disbursement required to be reimbursed to such Issuing Bank on such day, the date of such failure and amount of such LC Disbursement. SECTION 2.06. Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the 77 account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders, provided that Swingline Loans shall be made as provided in Section 2.04. The Administrative Agent will make such Loans available to the applicable Borrower by promptly crediting the amounts so received, in like funds, to an account of such Borrower maintained with the Administrative Agent in New York City and designated by such Borrower in the applicable Borrowing Request, provided that ABR Revolving Loans and Swingline Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.05(e) shall be remitted by the Administrative Agent to the Issuing Bank. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the applicable Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the applicable Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to such Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of such Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. (c) Nothing in this Section 2.06 shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that the Borrowers may have against any Lender as a result of any default by any such Lender hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to fulfill its Commitments hereunder). SECTION 2.07. Interest Elections. (a) Each Revolving Borrowing and Term Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial 78 Interest Period as specified in such Borrowing Request. Thereafter, the applicable Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The applicable Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings, which may not be converted or continued. (b) To make an election pursuant to this Section, the applicable Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if such Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the applicable Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". 79 If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the applicable Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the applicable Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the applicable Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. SECTION 2.08. Termination and Reduction of Commitments. (a) Unless previously terminated, (i) the Tranche A Commitments and Tranche B Commitments shall terminate at 5:00 p.m., New York City time, on the Effective Date and (ii) the Revolving Commitments shall terminate on the Revolving Maturity Date. (b) The Cayman Borrower and the U.S. Borrower, as applicable, may, without premium or penalty, at any time terminate, or from time to time reduce, the Commitments of any Class, provided that (i) each reduction of the Commitments of any Class shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000 and (ii) the Cayman Borrower shall not terminate or reduce the Revolving Commitments if, after giving effect to any concurrent prepayment of the Revolving Loans in accordance with Section 2.11, the sum of the Revolving Exposures would exceed the total Revolving Commitments. (c) The applicable Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any 80 notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by either of the Borrowers pursuant to this Section shall be irrevocable, provided that a notice of termination of the Revolving Commitments delivered by the Cayman Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Cayman Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments of any Class shall be permanent. Each reduction of the Commitments of any Class shall be made ratably among the Lenders in accordance with their respective Commitments of such Class. SECTION 2.09. Repayment of Loans; Evidence of Debt. (a) The Borrowers hereby unconditionally promise to pay (i) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan of such Lender on the Revolving Maturity Date, (ii) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Term Loan of such Lender as provided in Section 2.10 and (iii) to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of the Revolving Maturity Date and the first date after such Swingline Loan is made that is the 15th or last day of a calendar month and is at least five Business Days after such Swingline Loan is made, provided that on each date that a Revolving Borrowing is made, the Cayman Borrower shall repay all Swingline Loans that were outstanding on the date such Borrowing was requested. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of each Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof, which accounts the Administrative Agent will make available to either Borrower upon its reasonable request. 81 (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein, provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrowers to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans of any Class made by it be evidenced by a promissory note. In such event, the applicable Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Cayman Borrower and the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). SECTION 2.10. Amortization of Term Loans. (a) Subject to adjustment pursuant to paragraph (f) of this Section, the Cayman Borrower shall repay Cayman Tranche A Term Loans on each date set forth below in the aggregate principal amount set forth opposite such date: Date Amount ---- ------ March 31, 2001 $2,142,750 September 30, 2001 $2,142,750 March 31, 2002 $12,856,500 September 30, 2002 $12,856,500 March 31, 2003 $17,142,000 September 30, 2003 $17,142,000 March 31, 2004 $21,427,500 September 30, 2004 $21,427,500 March 31, 2005 $25,713,000 Tranche A Maturity Date $38,569,500 (b) Subject to adjustment pursuant to paragraph (f) of this Section, the U.S. Borrower shall repay 82 U.S. Tranche A Term Loans on each date set forth below in the aggregate principal amount set forth opposite such date: Date Amount ---- ------ March 31, 2001 $357,250 September 30, 2001 $357,250 March 31, 2002 $2,143,500 September 30, 2002 $2,143,500 March 31, 2003 $2,858,000 September 30, 2003 $2,858,000 March 31, 2004 $3,572,500 September 30, 2004 $3,572,500 March 31, 2005 $4,287,000 Tranche A Maturity Date $6,430,500 (c) Subject to adjustment pursuant to paragraph (f) of this Section, the Cayman Borrower shall repay Cayman Tranche B Term Loans on each date set forth below in the aggregate principal amount set forth opposite such date: Date Amount ---- ------ March 31, 2001 $ 2,142,750 September 30, 2001 $ 2,142,750 March 31, 2002 $ 2,142,750 September 30, 2002 $ 2,142,750 March 31, 2003 $ 2,142,750 September 30, 2003 $ 2,142,750 March 31, 2004 $ 2,142,750 September 30, 2004 $ 2,142,750 March 31, 2005 $ 2,142,750 September 30, 2005 $ 2,142,750 March 31, 2006 $203,561,250 Tranche B Maturity Date $203,561,250 (d) Subject to adjustment pursuant to paragraph (f) of this Section, the U.S. Borrower shall repay 83 U.S. Tranche B Term Loans on each date set forth below in the aggregate principal amount set forth opposite such date: Date Amount ---- ------ March 31, 2001 $ 357,250 September 30, 2001 $ 357,250 March 31, 2002 $ 357,250 September 30, 2002 $ 357,250 March 31, 2003 $ 357,250 September 30, 2003 $ 357,250 March 31, 2004 $ 357,250 September 30, 2004 $ 357,250 March 31, 2005 $ 357,250 September 30, 2005 $ 357,250 March 31, 2006 $33,938,750 Tranche B Maturity Date $33,938,750 (e) To the extent not previously paid, (i) all Tranche A Term Loans shall be due and payable on the Tranche A Maturity Date and (ii) all Tranche B Term Loans shall be due and payable on the Tranche B Maturity Date. (f) Any prepayment of a Term Borrowing of any Class shall be applied to reduce the subsequent scheduled repayments of the Term Borrowings of such Class to be made pursuant to this Section ratably, provided that any prepayment made pursuant to Section 2.11(a) or (e) shall be applied to reduce the scheduled repayments of the Term Borrowings of such Class to be made pursuant to this Section in order of maturity or ratably at the Cayman Borrower's discretion. If the initial aggregate amount of the Lenders' Term Commitments of any Class exceeds the aggregate principal amount of Term Loans of such Class that are made on the Effective Date, then the scheduled repayments of Term Borrowings of such Class to be made pursuant to this Section shall be reduced ratably by an aggregate amount equal to such excess. (g) Prior to any repayment of any portion of any Term Borrowings of either Class made by either Borrower hereunder, the Borrowers shall select the Borrowing or Borrowings of the applicable Class to be repaid and shall notify the Administrative Agent by telephone (confirmed by telecopy) of such selection not later than 11:00 a.m., New 84 York City time, three Business Days before the scheduled date of such repayment. Each repayment of a portion of any Borrowing made by either Borrower shall be applied ratably to the Loans of such Borrower included in the repaid Borrowing. Repayments of Term Borrowings shall be accompanied by accrued interest on the amount repaid. SECTION 2.11. Prepayment of Loans. (a) Each Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, without premium or penalty (but subject to Section 2.16), subject to the requirements of this Section. (b) In the event and on each occasion that the sum of the Revolving Exposures exceeds the total Revolving Commitments, the Cayman Borrower shall prepay Revolving Borrowings or Swingline Borrowings (or, if no such Borrowings are outstanding, deposit cash collateral in an account with the Administrative Agent pursuant to Section 2.05(j)) in an aggregate amount equal to such excess. (c) In the event and on each occasion that any Net Proceeds are received by or on behalf of Holdings, either Borrower or any Subsidiary in respect of any Prepayment Event described in paragraph (a) or (b) of the definition of the term "Prepayment Event", the Borrowers shall, within five Business Days after such Net Proceeds are received, prepay Term Borrowings in an aggregate amount equal to the amount of such Net Proceeds (excluding, in the case of a sale or other disposition of Equity Interests in a Permitted Option Subsidiary or Seagate Software as described in clause (a) of the definition of the term Prepayment Event, any proceeds required to be paid to Permitted Optionholders as consideration for Permitted Options (or Equity Interests issued or issuable upon exercise of Permitted Options) held by such Permitted Optionholders in respect of such Permitted Option Subsidiary or Seagate Software), provided that, in the case of any event described in clause (a) of the definition of the term "Prepayment Event", if the Cayman Borrower shall deliver to the Administrative Agent a certificate of a Financial Officer to the effect that Holdings, the Borrowers and the Subsidiaries intend to apply the Net Proceeds from such event (or a portion thereof specified in such certificate), within 365 days after receipt of such Net Proceeds, (i) to acquire real property, equipment or other assets to be used in the business of the Borrowers and the Subsidiaries or (ii) to purchase Equity Interests of a Person primarily engaged in a business permitted by Section 6.03(b) to the extent permitted by Section 6.04, and certifying that no Default 85 has occurred and is continuing, then no prepayment shall be required pursuant to this paragraph in respect of the Net Proceeds in respect of such event (or the portion of such Net Proceeds specified in such certificate, if applicable) except to the extent of any such Net Proceeds therefrom that have not been so applied by the end of such 365-day period, at which time a prepayment shall be required in an amount equal to such Net Proceeds that have not been so applied. (d) In the event and on each occasion that any Net Proceeds are received by or on behalf of Holdings, either Borrower or any Subsidiary in respect of any Prepayment Event described in paragraph (c) of the definition of the term "Prepayment Event", the Borrowers shall, within five Business Days after such Net Proceeds are received, prepay Term Borrowings in an aggregate amount equal to 75% of the amount of such Net Proceeds. (e) Following the end of each fiscal year of the Cayman Borrower, commencing with the fiscal year ending June 29, 2002, the Borrowers shall prepay Term Borrowings in an aggregate amount equal to the positive difference (if any) between (i) 75% of Excess Cash Flow for such fiscal year and (ii) the aggregate principal amount of Term Borrowings prepaid during such fiscal year pursuant to Section 2.11(a), provided that (A) if, at the end of such fiscal year, the Leverage Ratio is less than or equal to 0.75 to 1.00, then the percentage referred to in clause (i) of this paragraph (e) shall be reduced to 50% and (B) if, at the end of such fiscal year, the Leverage Ratio is less than or equal to 0.50 to 1.00, then the percentage referred to in clause (i) of this paragraph (e) shall be reduced to 25%. Each prepayment pursuant to this paragraph shall be made on or before the date on which financial statements are delivered pursuant to Section 5.01 with respect to the fiscal year for which Excess Cash Flow is being calculated (and in any event within 90 days after the end of such fiscal year). (f) Prior to any optional or mandatory prepayment of Borrowings hereunder, the Borrowers shall select the Borrowing or Borrowings to be prepaid and shall specify such selection in the notice of such prepayment pursuant to paragraph (g) of this Section. In the event of any optional or mandatory prepayment of Term Borrowings made at a time when Term Borrowings of more than one Class remain outstanding, the Borrowers shall select Term Borrowings to be prepaid so that the aggregate amount of such prepayment is allocated between the Tranche A Term Borrowings and the Tranche B Term Borrowings pro rata based on the aggregate principal amount of outstanding Borrowings of each such 86 Class, provided that, so long as and to the extent that any Tranche A Term Borrowing remains outstanding, (i) any Tranche B Lender may elect, by notice to the Administrative Agent by telephone (confirmed by telecopy) at least one Business Day prior to the prepayment date, to decline all or any portion of any prepayment of its Tranche B Term Loans pursuant to paragraph (e) of this Section or, if the Cayman Borrower has consented to the availability of such election pursuant to this paragraph (f), pursuant to paragraph (a) of this Section, in which case the aggregate amount of the prepayment that would have been applied to prepay Tranche B Term Loans but was so declined shall be applied to prepay Tranche A Term Borrowings and (ii) at the election of the Cayman Borrower, the first $15,000,000 in aggregate (A) mandatory prepayments that would otherwise be made pursuant to Section 2.11(e) to Lenders holding Tranche B Term Loans or (B) optional prepayments that would otherwise be made pursuant to Section 2.11(a) to Lenders holding Tranche B Term Loans, in either case shall be applied to prepay Tranche A Term Borrowings. An amount equal to 85.71% of the portion of any optional or mandatory prepayment of Term Borrowings that is allocated pursuant to this paragraph (f) to the Tranche A Term Borrowings shall be made by the Cayman Borrower in respect of the Cayman Tranche A Term Loans and an amount equal to 14.29% of the portion of any optional or mandatory prepayment of Term Borrowings that is allocated pursuant to this paragraph (f) to the Tranche A Term Borrowings shall be made by the U.S. Borrower in respect of the U.S. Tranche A Term Loans. An amount equal to 85.71% of the portion of any optional or mandatory prepayment of Term Borrowings that is allocated pursuant to this paragraph (f) to the Tranche B Term Borrowings shall be made by the Cayman Borrower in respect of the Cayman Tranche B Term Loans and an amount equal to 14.29% of the portion of any optional or mandatory prepayment of Term Borrowings that is allocated pursuant to this paragraph (f) to the Tranche B Term Borrowings shall be made by the U.S. Borrower in respect of the U.S. Tranche B Term Loans. (g) The Cayman Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by telephone (confirmed by telecopy) of any prepayment hereunder (other than a prepayment required by the proviso to Section 2.01(e)) (i) in the case of prepayment of a Eurodollar Borrowing, not later than 1:00 p.m., New York City time, three Business Days before the date of prepayment, (ii) in the case of prepayment of an ABR Borrowing, not later than 2:00 p.m., New York City time, one Business Day prior to the date of prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 87 2:00 p.m., New York City time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date, the principal amount of each Borrowing or portion thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably detailed calculation of the amount of such prepayment, provided that, if a notice of optional prepayment of any Loans is given in connection with a conditional notice of termination of the Revolving Commitments as contemplated by Section 2.08, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.08. Promptly following receipt of any such notice (other than a notice relating solely to Swingline Loans), the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02, except as necessary to apply fully the required amount of a mandatory prepayment. Each prepayment of a portion of any Borrowing made by either Borrower shall be applied ratably to the Loans of such Borrower included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.13. (h) In the event that the amount of any prepayment required to be made pursuant to paragraph (c), (d) or (e) above shall exceed the aggregate principal amount of the outstanding ABR Loans of the Class required to be prepaid (the amount of any such excess being called the "Excess Amount"), the Borrowers shall have the right, in lieu of making such prepayment in full, to prepay all the outstanding applicable ABR Loans of such Class and to deposit an amount equal to the Excess Amount with the Collateral Agent in a cash collateral account maintained (pursuant to documentation reasonably satisfactory to the Administrative Agent) by and in the sole dominion and control of the Collateral Agent. Any amounts so deposited shall be held by the Collateral Agent as collateral for the Obligations and applied to the prepayment of the applicable Eurodollar Loans on the next succeeding Interest Payment Date applicable thereto. On any Business Day on which (i) collected amounts remain on deposit in or to the credit of such cash collateral account after giving effect to the payments made on such day pursuant to this Section 2.11(h) and (ii) the Cayman Borrower shall have delivered to the Collateral Agent a written request or a telephonic request (which shall be promptly confirmed in writing) that such remaining collected amounts be invested in the Permitted Investments specified in such request, the Collateral Agent shall use its reasonable efforts to invest such remaining collected amounts in such Permitted Investments, provided 88 that the Collateral Agent shall have continuous dominion and full control over any such investments (and over any interest that accrues thereon) to the same extent that it has dominion and control over such cash collateral account and no Permitted Investment shall mature after the Interest Payment Date on which it is to be applied. The Borrowers shall not have the right to withdraw any amount from such cash collateral account until the applicable Eurodollar Loans and accrued interest thereon are paid in full and, in any event, if a Default then exists or would result. SECTION 2.12. Fees. (a) The Cayman Borrower agrees to pay to the Administrative Agent for the account of each Revolving Lender a commitment fee, which shall accrue at the Applicable Margin on the average daily unused amount of the Revolving Commitment of such Revolving Lender during the period from and including the Effective Date to but excluding the date on which such Commitment terminates. Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Revolving Commitments terminate, commencing on the first such date to occur after the date hereof. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). For purposes of computing commitment fees, a Revolving Commitment of a Lender shall be deemed to be used to the extent of the outstanding Revolving Loans and LC Exposure of such Lender (and the Swingline Exposure of such Lender shall be disregarded for such purpose). (b) The Cayman Borrower agrees to pay (i) to the Administrative Agent for the account of each Revolving Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the same Applicable Margin as interest on Eurodollar Revolving Loans on the average daily amount of such Lender's LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Lender's Revolving Commitment terminates and the date on which such Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue at per annum rate, separately agreed upon between the Cayman Borrower and the Issuing Bank, on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date of termination of the Revolving Commitments and the date on 89 which there ceases to be any LC Exposure, as well as the Issuing Bank's standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the Effective Date, provided that all such fees shall be payable on the date on which the Revolving Commitments terminate and any such fees accruing after the date on which the Revolving Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). For the purposes of calculating the average daily amount of the LC Exposure for any period under this Section 2.12(b), the average daily amount of the Alternative Currency LC Exposure for such period shall be calculated by multiplying (x) the average daily balance of each Alternative Currency Letter of Credit (expressed in the currency in which such Alternative Currency Letter of Credit is denominated) by (y) the Exchange Rate for each such Alternative Currency in effect on the last Business Day of such period or by such other reasonable method that the Administrative Agent deems appropriate. (c) The Cayman Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Cayman Borrower and the Administrative Agent. (d) All fees payable hereunder shall be paid on the dates due, in immediately available funds in dollars, to the Administrative Agent (or to the Issuing Bank, in the case of fees payable to it) for distribution, in the case of commitment fees and participation fees, to the Lenders entitled thereto. Fees paid shall not be refundable under any circumstances. SECTION 2.13. Interest. (a) The Loans comprising each ABR Borrowing (including each Swingline Loan) shall bear interest at the Alternate Base Rate plus the Applicable Margin. (b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin. 90 (c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrowers hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, to the fullest extent permitted by applicable law, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Revolving Loans as provided in paragraph (a) of this Section. (d) Accrued interest on each Loan shall be payable in arrears (i) on each Interest Payment Date for such Loan, (ii) in the case of Revolving Loans, upon termination of the Revolving Commitments and (iii) in the case of Term Loans, on the Tranche A Maturity Date or Tranche B Maturity Date, as applicable, provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Revolving Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or Adjusted LIBO Rate shall be determined by the Administrative Agent in accordance with the terms hereof, and such determination shall be prima facie evidence thereof. SECTION 2.14. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be prima facie evidence thereof) that adequate and reasonable means do not exist for 91 ascertaining the Adjusted LIBO Rate for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Cayman Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Cayman Borrower and the Lenders that the circumstances giving rise to such notice no longer exist (it being understood that the Administrative Agent will use commercially reasonable efforts to give such notice as soon as practicable after such circumstances no longer exist), (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing. SECTION 2.15. Increased Costs. (a) If any Change in Law (except with respect to Taxes which shall be governed by Section 2.17) shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing Bank; or (ii) impose on any Lender or the Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or the Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or otherwise), then the applicable Borrower will pay to such Lender or the Issuing 92 Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered. (b) If any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on a Lender's or the Issuing Bank's capital or on the capital of such Lender's or the Issuing Bank's holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level below that which such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company could have achieved but for such Change in Law (taking into consideration such Lender's or the Issuing Bank's policies and the policies of such Lender's or the Issuing Bank's holding company with respect to capital adequacy), then from time to time the applicable Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company for any such reduction suffered. (c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section, and setting forth in reasonable detail the basis on which such amount or amounts were calculated and stating that such calculation has been made in a manner consistent with the treatment given by such Lender or Issuing Bank to similar businesses in similar circumstances, shall be delivered to the Cayman Borrower and shall be prima facie evidence thereof. The applicable Borrower shall pay such Lender or the Issuing Bank, as the case may be, the amount shown as due on any such certificate within 15 days after receipt thereof. (d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's or the Issuing Bank's right to demand such compensation, provided that the Borrowers shall not be required to compensate a Lender or the Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Lender or the Issuing Bank, as the case may be, notifies the Cayman Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's or the Issuing 93 Bank's intention to claim compensation therefor, and provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. SECTION 2.16. Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.11(g) and is revoked in accordance therewith) or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Cayman Borrower pursuant to Section 2.19, then, in any such event, the applicable Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss (other than lost profits), cost or expense to any Lender shall be deemed to include an amount reasonably determined by such Lender to be the excess, if any, of (i) the amount of interest that would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate that such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section, and setting forth in reasonable detail the basis on which such amount or amounts were calculated, shall be delivered to the Cayman Borrower and shall be prima facie evidence thereof. The applicable Borrower shall pay such Lender the amount shown as due on any such certificate within 15 days after receipt thereof. SECTION 2.17. Taxes. (a) Any and all payments by or on account of any obligation of either Borrower hereunder or under any other Loan Document shall be made free and clear of and without deduction for any Indemnified 94 Taxes or Other Taxes, provided that if either Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the applicable Borrower shall make such deductions and (iii) the applicable Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the applicable Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The applicable Borrower shall indemnify the Administrative Agent, each Lender and the Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of such Borrower hereunder or under any other Loan Document (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Cayman Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender or the Issuing Bank, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by either Borrower to a Governmental Authority, the applicable Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender (or Participant) that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which a Borrower is located, or under any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall 95 deliver to the Cayman Borrower (with a copy to the Administrative Agent) (or in the case of a Participant, to the Foreign Lender from which the related participation was purchased), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Cayman Borrower as will permit such payments to be made without withholding or at a reduced rate, provided that such Foreign Lender (or Participant) has received written notice from the Cayman Borrower advising it of the availability of such exemption or reduction and supplying all applicable documentation. In addition, each Foreign Lender (or Participant) shall deliver substitute forms promptly upon the obsolescence or invalidity of any form previously delivered by such Foreign Lender (or Participant), provided that such Foreign Lender (or Participant) has received written notice from the Cayman Borrower advising it of such obsolescence and supplying such substitute forms. (f) If the Administrative Agent or a Lender or the Issuing Bank determines, in its sole discretion, that it has received a refund of any Taxes as to which it has been indemnified by either Borrower or with respect to which either Borrower has paid additional amounts pursuant to this Section 2.17, which the Administrative Agent or such Lender or the Issuing Bank is able to identify as such, it shall pay such refund to such Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by such Borrower under this Section 2.17 with respect to the Taxes giving rise to such refund), net of all reasonable out-of-pocket expenses of the Administrative Agent or such Lender or the Issuing Bank and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, however, that each Borrower agrees to pay, upon the request of the Administrative Agent or such Lender or the Issuing Bank, the amount paid to such Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender or the Issuing Bank in the event the Administrative Agent or such Lender or the Issuing Bank is required to repay such refund to such Governmental Authority. Nothing contained in this Section 2.17(f) shall require the Administrative Agent or any Lender or the Issuing Bank to make available its tax returns (or any other information relating to its Taxes that it deems confidential) to either Borrower or any other Person. SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) Each Borrower shall make each payment required to be made by it hereunder or 96 under any other Loan Document (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to the time expressly required hereunder or under such other Loan Document for such payment (or, if no such time is expressly required, prior to 2:00 p.m., New York City time), on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, except payments to be made directly to the Issuing Bank or Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto and payments pursuant to other Loan Documents shall be made to the Persons specified therein. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment under any Loan Document shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. Except as provided in Section 2.05(e), all payments under each Loan Document shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans, Term Loans or participations in LC Disbursements or Swingline Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans, Term Loans and participations in LC Disbursements and Swingline Loans and accrued interest 97 thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans, Term Loans and participations in LC Disbursements and Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans, Term Loans and participations in LC Disbursements and Swingline Loans, provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrowers pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to a Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrowers consent to the foregoing and agree, to the extent they may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against each Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Borrower in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Cayman Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that the applicable Borrower will not make such payment, the Administrative Agent may assume that such Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if the applicable Borrower has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. 98 (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.04(c), 2.05(d) or (e), 2.06(b), 2.18(d) or 9.03(c), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.19. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.15, or if either Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the reasonable judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If any Lender requests compensation under Section 2.15, or if either Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, or if any Lender defaults in its obligation to fund Loans hereunder, then the Cayman Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that (i) the Cayman Borrower shall have received the prior written consent of the Administrative Agent (and, if a Revolving Commitment is being assigned, the Issuing Bank and Swingline Lender), which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements and Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, 99 from the assignee (to the extent of such outstanding principal and accrued interest and fees) or either Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17, such assignment will result in a material reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the applicable Borrower to require such assignment and delegation cease to apply. Nothing in this Section 2.19 shall be deemed to prejudice any rights that either Borrower may have against any Lender as a result of any default by any such Lender in its obligations to fund Loans hereunder. SECTION 2.20. Change in Law. Notwithstanding any other provision of this Agreement, if, after the date hereof, (i) any Change in Law shall make it unlawful for any Issuing Bank to issue Letters of Credit denominated in an Alternative Currency, or (ii) there shall have occurred any change in national or international financial, political or economic conditions (including the imposition of or any change in exchange controls) or currency exchange rates that would make it impracticable for any Issuing Bank to issue Letters of Credit denominated in such Alternative Currency for the account of the Cayman Borrower, then by prompt written notice thereof to the Cayman Borrower and to the Administrative Agent (which notice shall be withdrawn whenever such circumstances no longer exist), such Issuing Bank may declare that Letters of Credit will not thereafter be issued by it in the affected Alternative Currency or Alternative Currencies, whereupon the affected Alternative Currency or Alternative Currencies shall be deemed (for the duration of such declaration) not to constitute an Alternative Currency for purposes of the issuance of Letters of Credit by such Issuing Bank. ARTICLE III Representations and Warranties Each of Holdings and the Borrowers represents and warrants to the Lenders with respect to itself and its subsidiaries that: SECTION 3.01. Organization; Powers. Each of Holdings, the Borrowers and the Subsidiaries is duly incorporated or organized, validly existing and in good standing under the laws of the jurisdiction of its 100 organization or incorporation, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. SECTION 3.02. Authorization; Enforceability. The Transactions to be entered into by each Loan Party are within such Loan Party's powers and have been duly authorized by all necessary action. This Agreement has been duly executed and delivered by each of Holdings and the Borrowers and constitutes, and each other Loan Document to which any Loan Party (other than a Subsidiary Loan Party that is a Subsidiary Loan Party solely pursuant to clause (b) of the definition of the term "Subsidiary Loan Party") is to be a party, when executed and delivered by such Loan Party, will constitute, a legal, valid and binding obligation of Holdings, such Borrower or such Loan Party (as the case may be), enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other laws affecting creditors' rights generally and to general principles of equity and an implied covenant of good faith and fair dealing, regardless of whether considered in a proceeding in equity or at law. SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by or before, any Governmental Authority, except such as have been obtained or made and are in full force and effect and except filings necessary to perfect Liens created under the Loan Documents and, except where the failure to obtain such consent or approval or to make such registration or filing, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, (b) will not violate any applicable law or regulation in any material respect or the memorandum and articles of association, charter, by-laws or other organizational documents of Holdings, either Borrower or any of the Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, material agreement or other material instrument binding upon Holdings, either Borrower or any of the Subsidiaries or any of their assets, or give rise to a right thereunder to require any payment to be made by Holdings, either Borrower or any of the Subsidiaries, except for violations or payments that, individually and in the aggregate, could not reasonably be expected to have a 101 Material Adverse Effect, and (d) will not result in the creation or imposition of any Lien on any asset of Holdings, either Borrower or any of the Subsidiaries, except Liens created under the Loan Documents. SECTION 3.04. Financial Condition; No Material Adverse Change. (a) Holdings has heretofore furnished to the Lenders (i) the consolidated statements of income, stockholders' equity and cash flows of the Company as of and for the fiscal years ended June 30, 1998, June 30, 1999, and June 30, 2000, and (ii) the consolidated balance sheets of the Company as of June 30, 1999, and June 30, 2000, in each case reported on by Ernst & Young, independent public accountants. Such financial statements present fairly, in all material respects, the consolidated financial position and results of operations and cash flows of the Acquired Company as of such dates and for such periods in accordance with GAAP. (b) Holdings has heretofore furnished to the Lenders its pro forma consolidated balance sheet as of June 30, 2000, and its pro forma statements of income stockholders' equity and cash flows as of and for the fiscal year ended June 30, 2000, in each case prepared giving effect to the Transactions as if the Transactions had occurred on such date. Such pro forma consolidated financial statements (i) have been prepared in good faith based on assumptions made known to the Lenders (which assumptions are believed by Holdings and the Borrowers to be reasonable at the time of preparation) and upon information not known to be incorrect or unreasonable in any material respect and (ii) accurately reflect in all material respects all adjustments necessary to give effect to the Transactions. (c) Holdings has heretofore furnished to the Lenders unaudited summary financial statements of the Company for each fiscal month ended after June 30, 2000, and at least 30 days prior to the date hereof. Such financial statements present fairly, in all material respects, the consolidated financial position and results of operations and cash flows of the Company and its consolidated subsidiaries as of such dates and for such periods in accordance with GAAP. (d) Except as disclosed in the financial statements referred to in paragraphs (a) and (b) above or the notes thereto or in the Information Memorandum and except for the Disclosed Matters, after giving effect to the Transactions, none of Holdings, the Borrowers or the Subsidiaries has, as of the Effective Date, any material 102 contingent liabilities, unusual long-term commitments or unrealized losses. (e) Since June 30, 2000, there has been no material adverse change in the business, financial condition or results of operations of Holdings, the Borrowers and the Subsidiaries, taken as a whole. SECTION 3.05. Properties. (a) Holdings, each Borrower and each of the Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business (including its Mortgaged Properties), except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes and subject to Permitted Encumbrances. (b) Holdings, each Borrower and each of the Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by Holdings, the Borrowers and the Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (c) Schedule 3.05 sets forth the address of each real property that is owned or leased by either Borrower or any of the Subsidiaries as of the Effective Date after giving effect to the Transactions. (d) As of the Effective Date, none of Holdings, either Borrower or any of the Subsidiaries has received notice of, or has knowledge of, any material pending or contemplated condemnation proceeding affecting any Mortgaged Property or any sale or disposition thereof in lieu of condemnation. Neither any Mortgaged Property nor any interest therein is subject to any right of first refusal, option or other contractual right to purchase such Mortgaged Property or interest therein. SECTION 3.06. Litigation and Environmental Matters. (a) Except for the Disclosed Matters, there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of Holdings or the Borrowers, threatened against or affecting Holdings, either Borrower or any of the Subsidiaries (i) that could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii)(x) that involve any of the Loan 103 Documents or the Transactions, (y) that are not frivolous and (z) if adversely determined, would reasonably be expected to be adverse to the interests of the Lenders. (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, none of Holdings, either Borrower or any of the Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. (c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. SECTION 3.07. Compliance with Laws and Agreements. Each of Holdings, the Borrowers and the Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. SECTION 3.08. Investment and Holding Company Status. None of Holdings, either Borrower or any of the Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 3.09. Taxes. Holdings, each Borrower and each of the Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) any Taxes that are being contested in good faith by appropriate proceedings and for which Holdings, such Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. 104 SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, would reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of all such underfunded Plans by an amount that, if it were required to be fully paid, would reasonably be expected to result in a Material Adverse Effect. Neither of the Borrowers nor any of the ERISA Affiliates has engaged in a transaction with respect to any employee benefit plan that would reasonably be expected to result in a Material Adverse Effect. SECTION 3.11. Disclosure. Holdings and the Borrowers have disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which Holdings, either Borrower or any of the Subsidiaries is subject, and all other matters known to any of them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. The Information Memorandum and the other reports, financial statements, certificates or other information furnished by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder or thereunder (as modified or supplemented by other information so furnished), taken as a whole, do not contain any material misstatement of fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, provided that, (a) with respect to projected financial information, Holdings and the Borrowers represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time and (b) with respect to information regarding the hard disc drive market and other industry data, Holdings and the Borrowers represent only that such information was prepared by third-party industry research firms, and although Holdings and the Borrowers believe such information is reliable, Holdings and the Borrowers cannot guarantee the accuracy and completeness of the information and have not independently verified such information. SECTION 3.12. Subsidiaries. Schedule 3.12 sets forth the name of, and the ownership interest of Holdings, each Borrower and each Subsidiary in, each Subsidiary and 105 identifies each Subsidiary that is a Subsidiary Loan Party, in each case as of the Effective Date. SECTION 3.13. Insurance. Schedule 3.13 sets forth a description of all insurance maintained by or on behalf of Holdings, the Borrowers and the Subsidiaries as of the Effective Date. As of the Effective Date, all premiums in respect of such insurance that are required to have been paid have been paid. Holdings and the Borrowers believe that the insurance maintained by or on behalf of Holdings, the Borrowers and the Subsidiaries is adequate in all material respects. SECTION 3.14. Labor Matters. As of the Effective Date, there are no material strikes, lockouts or slowdowns against Holdings, either Borrower or any Subsidiary pending or, to the knowledge of Holdings or the Borrowers, threatened. Except as could not be reasonably expected to result in a Material Adverse Effect, (a) the hours worked by and payments made to employees of Holdings, the Borrowers and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters, (b) all payments due from Holdings, either Borrower or any Subsidiary, or for which any claim may be made against Holdings, either Borrower or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of Holdings, such Borrower or such Subsidiary and (c) the consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which Holdings, either Borrower or any Subsidiary is bound. SECTION 3.15. Solvency. Immediately after the consummation of the Transactions to occur on the Effective Date and immediately following the making of each Loan made on the Effective Date and after giving effect to the application of the proceeds of such Loans, (a) the fair value of the assets (including all rights under the Indemnity, Subrogation and Contribution Agreement and any similar agreement) of each Core Loan Party, at a fair valuation, will exceed its debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable value of the property of each Core Loan Party will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) each Core Loan Party will be able to pay its debts and liabilities, 106 subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) each Core Loan Party will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted following the Effective Date. SECTION 3.16. Senior Indebtedness. The Obligations constitute "Senior Indebtedness" under and as defined in the Subordinated Debt Documents. ARTICLE IV Conditions SECTION 4.01. Effective Date. The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02): (a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement. (b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of each of (i)(A) Simpson Thacher & Bartlett, United States counsel for the Borrowers, substantially in the form of Exhibit B-1(A), (B) William L. Hudson, General Counsel of Holdings, substantially in the form of Exhibit B-1(B), (C) Susan Wolfe, General Counsel of Seagate Software, substantially in the form of Exhibit B-1(C), (D) Dorsey & Whitney LLP, counsel to XIOtech Corporation, substantially in the form of Exhibit B-1(D), (ii) Walkers, Cayman Islands counsel for the Borrowers, substantially in the form of Exhibit B-2, (iii) Lee & Lee, Singapore counsel for the Borrowers, substantially in the form of Exhibit B-3, (iv) L'Estrange & Brett Solicitors, Northern Ireland counsel for the Borrowers, substantially in the form of Exhibit B-4, (v) Clifford Chance, Netherlands counsel for the Administrative Agent, substantially in the form of Exhibit B-5, 107 (vi) Burness, Scotland counsel for the Borrowers, substantially in the form of Exhibit B-6, (vii) United States local counsel in each jurisdiction where a Mortgaged Property is located, substantially in the form of Exhibit B-7, (viii) Siam Premier, Thailand counsel for the Administrative Agent, substantially in the form of Exhibit B-8, and (ix) local counsel for the Borrowers in each jurisdiction listed on Schedule 1.02 from which an opinion of counsel is not otherwise required pursuant to this paragraph, in substantially the form of Exhibit B-9, and, in the case of each such opinion required by this paragraph, covering such other matters relating to the Loan Parties, the Loan Documents or the Transactions as the Required Lenders shall reasonably request. Each of Holdings and the Borrowers hereby requests such counsel to deliver such opinions. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization or incorporation, existence and good standing of each Loan Party, the authorization of the Transactions and any other legal matters relating to the Loan Parties, the Loan Documents or the Transactions, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel. (d) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Cayman Borrower, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02. (e) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all reasonable out-of-pocket expenses (including reasonable fees, charges and disbursements of counsel) required to be reimbursed or paid by any Loan Party hereunder or under any other Loan Document. (f) The requirements set forth in paragraphs (a), (f), (g), (h), (i) and (j) of the Collateral and Guarantee Requirement shall have been satisfied and the Administrative Agent shall have received (i) a completed Perfection Certificate dated the Effective Date and signed by an executive officer or Financial 108 Officer of the Cayman Borrower, together with all attachments contemplated thereby, including the results of a search of the Uniform Commercial Code (or equivalent) filings made with respect to the Loan Parties in the jurisdictions contemplated by the Perfection Certificate and copies of the financing statements (or similar documents) disclosed by such search and evidence reasonably satisfactory to the Administrative Agent that the Liens indicated by such financing statements (or similar documents) are permitted by Section 6.02 or have been or simultaneously are being released and (ii) evidence that the Cash Accounts in compliance with the terms of the applicable Security Documents shall have been established. (g) The Administrative Agent shall have received evidence that the insurance required by Section 5.07 and the Security Documents is in effect. (h) Holdings shall have received gross cash proceeds of not less than $1,100,000,000 (less the amount of the Equity Rollover and the Management Loans) and the Rollover Agreements shall have been executed by the parties thereto. (i) The Cayman Borrower shall have received or shall receive substantially simultaneously gross cash proceeds of not less than $200,000,000 from the issuance of the Subordinated Debt. The terms and conditions of the Subordinated Debt and the provisions of the Subordinated Debt Documents and all material documentation related thereto shall be reasonably satisfactory to the Administrative Agent. The Administrative Agent shall have received copies of the Subordinated Debt Documents, certified by a Financial Officer as complete and correct. (j) All material documentation entered into in connection with the Acquisition Documents shall have been executed by all parties thereto in a form reasonably acceptable to the Administrative Agent. (k) All applicable waiting periods and appeal periods shall have expired, in each case without the imposition of any materially burdensome conditions on the consummation of the Transactions. There shall be no governmental or judicial action, actual or threatened, that has or could have a reasonable likelihood of restraining, preventing or imposing materially burdensome conditions on the consummation of 109 the Transactions. The Acquisition and the other Transactions shall have been, or substantially simultaneously with the initial funding of Loans on the Effective Date shall be, consummated in accordance with the Acquisition Documents and applicable law (including all applicable restrictions on dividends, distributions or intercompany transfers), without any amendment to or waiver of any terms or conditions of the Acquisition Documents that are materially adverse to the Lenders and not approved by the Administrative Agent. The Administrative Agent shall have received copies of the Acquisition Documents and all certificates, opinions and other documents delivered thereunder, certified by a Financial Officer as complete and correct. (l) The Administrative Agent shall have received a pro forma consolidated balance sheet of Holdings as of June 30, 2000, reflecting all pro forma adjustments as if the Transactions had been consummated on such date, together with a certificate of Holdings to the effect that such pro forma balance sheet fairly presents in all material respects the pro forma financial position of Holdings and its subsidiaries. The Administrative Agent shall be reasonably satisfied that such balance sheet and the transactions in connection with the Transactions and the financing arrangements contemplated hereby are consistent with the sources and uses described in Annex II to the Summary of Principal Terms and Conditions with respect to the credit facilities contemplated hereby and are not materially inconsistent with the information or projections and the financial model delivered to the Administrative Agent prior to the date hereof. After giving effect to the Transactions, (i) none of Holdings, either Borrower or any of the Subsidiaries shall have outstanding any preferred shares or shares of preferred stock (other than shares set forth on Schedule 3.12) or any Indebtedness, other than (A) Indebtedness incurred under the Loan Documents, (B) the Subordinated Debt and (C) the Indebtedness set forth in Schedule 6.01, (ii) the Cayman Borrower shall have outstanding no ordinary shares other than ordinary shares owned by HDD Holdings, (iii) the U.S. Borrower shall have outstanding no common stock other than common stock owned by HDD Holdings, (iv) HDD Holdings shall have outstanding no common stock other than common stock owned by Intermediate Holdings and (v) Intermediate Holdings shall have outstanding no ordinary shares other than ordinary shares owned by Holdings and common stock issued upon exercise of Permitted Options to Permitted Optionholders. 110 (m) The Administrative Agent shall have received a solvency letter, in form and substance satisfactory to the Administrative Agent, from Valuation Research or another firm reasonably acceptable to the Administrative Agent, with respect to the solvency of the Loan Parties after giving effect to the Transactions. (n) As of the Effective Date, immediately after giving effect to the Transactions and the other transactions contemplated by the Acquisition Documents, the Core Loan Parties will have on deposit in the Cash Accounts cash in an amount that, when added to the aggregate principal amount (and liquidation value) of Permitted Investments then held in the Cash Accounts, equals at least $750,000,000, and the Administrative Agent shall have received a certificate from the Cayman Borrower to the foregoing effect. (o) The Administrative Agent shall have received audited financial statements of the Company as of the end of and for the fiscal years 1998, 1999 and 2000 and unaudited summary financial statements of the Company for each fiscal month ended after June 30, 2000, and at least 30 days prior to the Effective Date, together with a certificate of the Cayman Borrower to the effect that such financial statements fairly present in all material respects the financial position and results of operations of the Company as of such dates and for such periods in accordance with GAAP, and the Administrative Agent shall be reasonably satisfied that such financial statements are not materially inconsistent with the information or projections and the financial model delivered to the Administrative Agent prior to the date hereof. Holdings and the Borrowers will also have provided such other financial information as the Administrative Agent may reasonably request in connection with the Acquisition. (p) The Administrative Agent shall be reasonably satisfied that no legal or other restrictions exist that would prevent the transfer to the Borrowers by the Subsidiaries of the funds required to service the Indebtedness outstanding under the Loan Documents and the Subordinated Debt Documents. The Administrative Agent shall notify the Cayman Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not 111 become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 5:00 p.m., New York City time, on November 30, 2000 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). SECTION 4.02. Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to receipt of the request therefor in accordance herewith and to the satisfaction of the following conditions: (a) The representations and warranties of each Loan Party set forth in the Loan Documents shall be true and correct in all material respects on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct in all material respects as of such earlier date). (b) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing. Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by Holdings and each Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. For purposes of the foregoing, the term "Borrowing" shall not include the continuation or conversion of Loans in which the aggregate amount of such Loans is not being increased. ARTICLE V Affirmative Covenants Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, each of 112 Holdings and each Borrower covenants and agrees with the Lenders that: SECTION 5.01. Financial Statements and Other Information. Holdings will furnish to the Administrative Agent: (a) within 90 days after the end of each fiscal year of Holdings, its audited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Ernst & Young or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit or any other material qualification or exception) to the effect that such consolidated financial statements present fairly in all material respects the consolidated financial condition and results of operations of Holdings, the Borrowers and the consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year of Holdings, its unaudited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then-elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the consolidated financial condition and results of operations of Holdings, the Borrowers and the consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with any delivery of financial statements under paragraph (a) or (b) above, a certificate of a Financial Officer of Holdings (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably 113 detailed calculations demonstrating compliance with Sections 6.12, 6.13 and 6.14, (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of Holdings's audited financial statements referred to in Section 3.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate, (iv) identifying any Permitted Acquisitions that have been consummated since the end of the previous fiscal quarter, including the date on which each such Permitted Acquisition was consummated and the consideration therefor, (v) identifying any Prepayment Events that have occurred since the end of the previous fiscal quarter and setting forth a reasonably detailed calculation of the Net Proceeds received from Prepayment Events since the end of such previous fiscal quarter and (vi) specifying the Historical Investment in each Permitted Spinoff Subsidiary and Investment Business as of the date of such financial statements; (d) concurrently with any delivery of financial statements under paragraph (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines); (e) concurrently with any delivery of financial statements under paragraph (a) above with respect to any fiscal year, a detailed consolidated operating and capital expenditure budget for the following fiscal year (including a projected consolidated balance sheet and related statements of projected operations and cash flows as of the end of and for such fiscal year and setting forth any material assumptions used for purposes of preparing such budget) and, promptly when available, any significant revisions of such budget; (f) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by Holdings, either Borrower or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or, in the event that Holdings becomes a publicly traded company, distributed by Holdings to its shareholders generally, as the case may be; and 114 (g) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of Holdings, either Borrower or any Subsidiary, or compliance with the terms of any Loan Document, as the Administrative Agent or any Lender may reasonably request. SECTION 5.02. Notices of Material Events. Holdings and each Borrower will furnish, promptly upon Holdings's or such Borrower's obtaining knowledge thereof, to the Administrative Agent written notice of the following: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting Holdings, either Borrower or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of Holdings, the Borrowers and the Subsidiaries in an aggregate amount exceeding $10,000,000; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of Holdings or the applicable Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 5.03. Information Regarding Collateral. (a) Holdings will furnish to the Administrative Agent prompt written notice of any change (i) in the corporate name of any Loan Party that executes any Security Document or in any trade name used to identify such Loan Party in the conduct of its business or in the ownership of its properties, (ii) in the location of any such Loan Party's chief executive office, such Loan Party's principal place of business, any office in which such Loan Party maintains books or records relating to Collateral owned by it or, to the extent that such Collateral has an aggregate fair market value in excess of $10,000,000, any office or facility at 115 which Collateral owned by it is located (including the establishment of any such new office or facility), (iii) in any Loan Party's identity or corporate structure or (iv) in the Federal Taxpayer Identification Number of any Loan Party that executes any Security Document. Holdings agrees not to effect or permit any change referred to in the preceding sentence unless all filings, if any, have been made, or will have been made within the applicable statutory period, under the Uniform Commercial Code or otherwise that are required in order for the Collateral Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral for the benefit of the Secured Parties. Holdings also agrees promptly to notify the Administrative Agent if any material portion of the Collateral is damaged or destroyed. (b) Each year, at the time of delivery of annual financial statements with respect to the preceding fiscal year pursuant to paragraph (a) of Section 5.01, Holdings shall deliver to the Administrative Agent a certificate of a Financial Officer of Holdings (i) setting forth all changes in the information set forth in Section 2 of the Perfection Certificate or confirming that there has been no change in such information, in either case since the date of the Perfection Certificate delivered on the Effective Date or the date of the most recent certificate delivered pursuant to this Section, and (ii) certifying that all Uniform Commercial Code financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations, including all refilings, rerecordings and reregistrations, containing a description of the Collateral have been filed of record or have been delivered to the Administrative Agent for filing in each governmental, municipal or other appropriate office in each jurisdiction identified pursuant to clause (i) above to the extent necessary to protect and perfect the security interests under the Security Documents for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period). SECTION 5.04. Existence; Conduct of Business. Each of Holdings and each Borrower will, and will cause each of its subsidiaries that is a Subsidiary to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect (a) its legal existence and (b) the rights, contracts, licenses, permits, privileges, franchises, patents, copyrights, trademarks and trade names used in the conduct of the business of Holdings, the Borrowers and the Subsidiaries taken as a whole, except, in the case of clause (b) of this Section 5.04, to the extent 116 that the failure to take any such action could not reasonably be expected to have a Material Adverse Effect, and provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03 or any sale of assets permitted under Section 6.05. SECTION 5.05. Payment of Obligations. Each of Holdings and each Borrower will, and will cause each of its subsidiaries that is a Subsidiary to, pay its Material Indebtedness and other material obligations not constituting Indebtedness, including Tax liabilities, before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) Holdings, the applicable Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP, (c) such contest effectively suspends collection of the contested obligation and the enforcement of any Lien securing such obligation and (d) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.06. Maintenance of Properties. Each of Holdings and each Borrower will, and will cause each of its subsidiaries that is a Subsidiary to, keep and maintain all property material to the conduct of the business of Holdings, the Borrowers and the Subsidiaries, taken as a whole, in good working order and condition, ordinary wear and tear excepted. SECTION 5.07. Insurance. Each of Holdings and each Borrower will, and will cause each of its subsidiaries that is a Subsidiary to, maintain, with financially sound and reputable insurance companies (a) insurance in such amounts (with no greater risk retention) and against such risks as are customarily maintained by companies of established repute engaged in the same or similar businesses operating in the same or similar locations and (b) all insurance required to be maintained pursuant to the Security Documents. Holdings will furnish to the Administrative Agent, upon request, information in reasonable detail as to the insurance so maintained. SECTION 5.08. Casualty and Condemnation. Holdings (a) will furnish to the Administrative Agent and the Lenders prompt written notice of any casualty or other insured damage to any material portion of any Collateral or the commencement of any action or proceeding for the taking of any material portion of the Collateral or any part thereof or interest therein under power of eminent domain or 117 by condemnation or similar proceeding and (b) will cause the Net Proceeds of any such event (whether in the form of insurance proceeds, condemnation awards or otherwise) to be applied in accordance with Section 2.11. SECTION 5.09. Books and Records; Inspection and Audit Rights. Each of Holdings and each Borrower will, and will cause each of its subsidiaries that is a Subsidiary to, keep proper books of record and account in which full, true and correct entries are made of all material dealings and transactions in relation to its business and activities. Each of Holdings and each Borrower will, and will cause each of its subsidiaries that is a Subsidiary to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and at such reasonable intervals as may be reasonably requested, provided that any such visit or inspection by a Lender other than the Administrative Agent shall be coordinated by (and any request for such a visit or inspection shall be presented through) the Administrative Agent. SECTION 5.10. Compliance with Laws. Each of Holdings and each Borrower will, and will cause each of its subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.11. Use of Proceeds and Letters of Credit. The proceeds of the Term Loans, together with other existing cash of Holdings, the Borrowers and the Subsidiaries in an amount equal to the difference between $150,000,000 and the aggregate principal amount of Revolving Loans made on the Effective Date, the proceeds of the Revolving Loans made on the Effective Date and the proceeds of the Subordinated Debt, will be used on the Effective Date, only for the payment of (a) amounts payable under the Acquisition Documents as consideration for the Repurchase and (b) fees and expenses payable in connection with the Transactions (including compensation to members of senior management of the Sold Subsidiaries terminated in connection with the Transactions). The proceeds of the Revolving Loans made after the Effective Date and Swingline Loans will be used only for general corporate purposes. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any 118 of the Regulations of the Board, including Regulations T, U and X. Letters of Credit will be issued only to support obligations of the Borrowers or any Subsidiary incurred in the ordinary course of business. SECTION 5.12. Additional Subsidiaries. If any additional Subsidiary is formed or acquired (or any Moribund Subsidiary that would otherwise be a Loan Party ceases to be a Moribund Subsidiary) after the Effective Date, Holdings will, (a) within ten Business Days after such Subsidiary is formed or acquired, notify the Administrative Agent and the Lenders thereof (and, if such Subsidiary is or will become a Subsidiary Loan Party, identifying the subclause of the definition of the term Subsidiary Loan Party pursuant to which it became or will become a Subsidiary Loan Party) and (b) within 30 Business Days after such Subsidiary is formed or acquired (or, if such Subsidiary is a Foreign Subsidiary (i) to which clause (d)(i) or (d)(ii) of the definition of the term Collateral and Guarantee Requirement applies, within 60 Business Days after such Foreign Subsidiary is formed or acquired or (ii) to which clause (d) (iii) of the definition of the term Collateral and Guarantee Requirement applies, within 60 Business Days after the financial statements pursuant to which such Foreign Subsidiary has become subject to clause (d)(iii) of the definition of the term Collateral and Guarantee Requirement have been delivered to the Administrative Agent), cause the Collateral and Guarantee Requirement to be satisfied with respect to such Subsidiary (if it is a Subsidiary Loan Party) and with respect to any Equity Interest in or Indebtedness of such Subsidiary owned by or on behalf of any Loan Party (except that, if such Subsidiary is (A) a Foreign Subsidiary and (B) a direct or indirect subsidiary of the U.S. Borrower, shares of common stock of such Subsidiary to be pledged pursuant to the applicable Pledge Agreement may be limited to 65% of the outstanding common stock of such Subsidiary). SECTION 5.13. Further Assurances. (a) Each of Holdings and each Borrower will, and will cause each of its subsidiaries that is a Subsidiary Loan Party to, execute any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust, charges and other documents), that may be required under any applicable law, or that the Administrative Agent or the Required Lenders may reasonably request, to cause the Collateral and Guarantee Requirement to be and remain satisfied, all at the expense of the Loan Parties. Holdings and the Borrowers also agree to provide to the Administrative Agent, from time to time upon request, evidence reasonably satisfactory to 119 the Administrative Agent as to the perfection and priority of the Liens created or intended to be created by the Security Documents. (b) If any material assets (including any real property or improvements thereto or any interest therein) are acquired by either Borrower or any Subsidiary Loan Party after the Effective Date (other than assets constituting Collateral under any Security Document that become subject to the Lien of such Security Document upon acquisition thereof), the Cayman Borrower will notify the Administrative Agent, and, if requested by the Administrative Agent or the Required Lenders, the Cayman Borrower will cause such assets to be subjected to a Lien securing the Obligations and will take, and cause the Subsidiary Loan Parties to take, such actions as shall be necessary or reasonably requested by the Administrative Agent to grant and perfect such Liens, including actions described in paragraph (a) of this Section (except, in the case of the Foreign Subsidiaries, as provided by applicable law), all at the expense of the Loan Parties. SECTION 5.14. Interest Rate Protection. As promptly as practicable, and in any event within 90 days after the Effective Date, the Borrowers will enter into, and thereafter for a period of not less than two years after the Effective Date will maintain in effect, one or more interest rate protection agreements on such terms and with such parties as shall be reasonably satisfactory to the Administrative Agent, the effect of which shall be to ensure that at least 50% of the outstanding Long-Term Indebtedness of Holdings, the Borrowers and the consolidated Subsidiaries is effectively subject to a fixed rate of interest. SECTION 5.15. Cash Accounts. (a) The Borrowers and/or the other Core Loan Parties will at all times maintain the Cash Accounts in the United States, the Cayman Islands or an Approved Cash Account Jurisdiction and (b) each of Holdings and each Borrower will, and will cause each of the Subsidiaries to, keep all its cash and Permitted Investments (other than (i) up to $100,000,000 in cash in the aggregate for Holdings, the Borrowers and the Subsidiaries combined that is required for working capital purposes and (ii) additional cash and Permitted Investments to the extent the deposit thereof in the Cash Accounts would cause the aggregate amount of cash and carrying value of Permitted Investments in the Cash Accounts to exceed $500,000,000) on deposit in the Cash Accounts, provided, that (i) no Foreign Subsidiary shall be required to deposit any amount in the Cash Accounts if the deposit of such amount (or any distributions necessary to effect such 120 deposit) would result in a material and adverse tax consequence to any Loan Party and (ii) to the extent applicable local law allows any Foreign Subsidiary to make deposits into the Cash Accounts (or any distributions necessary to effect such deposits) only at regular intervals, such Foreign Subsidiary shall not be required to deposit any amounts into the Cash Accounts except at the intervals permitted by such local law. ARTICLE VI Negative Covenants Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed, each of Holdings and each Borrower covenants and agrees with the Lenders that: SECTION 6.01. Indebtedness; Certain Equity Securities. (a) Each Borrower will not, and each of Holdings and each Borrower will not permit any of its subsidiaries that are Subsidiaries to, create, incur, assume or permit to exist any Indebtedness, except: (i) Indebtedness created under the Loan Documents; (ii) the Subordinated Debt; (iii) Indebtedness existing on the date hereof and set forth in Schedule 6.01 and extensions, renewals, refinancings and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or result in an earlier maturity date or decreased weighted average life thereof; (iv) Indebtedness of either Borrower to Holdings, to any Subsidiary or to the other Borrower and of any Subsidiary to either Borrower, Holdings or any other Subsidiary, provided that Indebtedness of any Subsidiary that is not a Core Loan Party to either Borrower or any Core Loan Party shall be subject to Section 6.04; (v) Guarantees by either Borrower of Indebtedness of Holdings, any Subsidiary or of the other Borrower, by Holdings of Indebtedness of either Borrower or any Subsidiary and by any Subsidiary of Indebtedness of Holdings, either Borrower or any other Subsidiary, 121 provided that such Indebtedness is otherwise permitted hereunder, and provided further that Guarantees by Holdings, either Borrower or any Core Loan Party of Indebtedness of any Subsidiary that is not a Core Loan Party shall be subject to Section 6.04; (vi) Indebtedness of either Borrower or any Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof (provided that such Indebtedness is incurred prior to or within 180 days after such acquisition or the completion of such construction or improvement), and extensions, renewals, refinancings and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof, provided that the aggregate principal amount of Indebtedness permitted by this clause (vi) shall not exceed $100,000,000 at any time outstanding; (vii) Indebtedness of either Borrower or any Subsidiary in respect of workers' compensation claims, self-insurance obligations, performance bonds, surety, appeal or similar bonds and completion guarantees provided by the Borrowers and the Subsidiaries in the ordinary course of their business, provided that upon the incurrence of Indebtedness with respect to reimbursement type obligations regarding workers' compensation claims, such obligations are reimbursed within 30 days following such drawing or incurrence; (viii) Indebtedness of either Borrower or any Subsidiary that was Indebtedness of any other Person existing at the time such other Person was merged with or became a Subsidiary, including Indebtedness incurred in connection with, or in contemplation of, such other Person's merging with or becoming a Subsidiary, and extensions, renewals, refinancings and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or result in an earlier maturity date or decreased weighted average life thereof, provided that the aggregate principal amount of Indebtedness permitted under this clause (viii) shall not exceed $25,000,000 at any time outstanding; (ix) other Indebtedness in an aggregate principal amount not exceeding $50,000,000 at any time outstanding, provided that the aggregate principal 122 amount of Indebtedness of the Subsidiaries that are not Core Loan Parties permitted by this clause (ix) shall not exceed $25,000,000 at any time outstanding; (x) Indebtedness in respect of letters of credit (including the Outside Letters of Credit) not issued under this Agreement and issued in the ordinary course of the applicable Borrower's or Subsidiary's business, provided that the aggregate face amount of undrawn and unexpired letters of credit issued and outstanding pursuant to this clause (x) plus the aggregate amounts drawn but not reimbursed under letters of credit issued pursuant to this clause (x) shall not exceed $100,000,000 at any time; (xi) Indebtedness representing deferred compensation to employees of the Borrowers or the Subsidiaries incurred in the ordinary course of the applicable Borrower's or Subsidiary's business, consistent with the historical practices of such Borrower or such Subsidiary; and (xii) Indebtedness under the Existing Notes, provided x that (a) such Indebtedness shall be permitted to be outstanding only until 45 days after the Effective Date, or if the trustee under the indenture under which a series of Existing Notes has been issued reasonably extends the date of redemption for such Existing Notes, the Existing Notes of such series shall be permitted to be outstanding until the earlier of the extended date of redemption and 120 days after the Effective Date and (b) Indebtedness under the Existing Notes shall be permitted only to the extent that (i) funds sufficient to effect the redemption of such Existing Notes and the repayment in full of all amounts due thereunder (including in respect of principal, interest, premium, penalties and fees) remain irrevocably deposited in a trust maintained for the sole purpose of such redemption and repayment and (ii) the indenture under which the Existing Notes were issued has been terminated in accordance with Section 401 of such indenture. (b) Neither Holdings nor HDD Holdings will create, incur, assume or permit to exist any Indebtedness except (i) Indebtedness created under the Loan Documents, (ii) the Subordinated Debt and (iii) Indebtedness permitted under clause (a)(iv) of this Section 6.01. (c) Neither Holdings nor the Borrowers will, nor will any of them permit any of its subsidiaries that are 123 Subsidiaries to, issue any preferred shares or other preferred Equity Interests, except that (i) Holdings may issue preferred shares or other preferred Equity Interests of Holdings that do not require mandatory cash dividends or redemptions and do not provide for any right on the part of the holder to require redemption, repurchase or repayment thereof, in each case prior to the date that is 91 days after November 22, 2006, (ii) Intermediate Holdings or HDD Holdings, as applicable, may issue to Holdings its preferred shares or other preferred Equity Interests that do not require mandatory cash dividends or redemptions and do not provide for any right on the part of the holder to require redemption, repurchase or repayment thereof, in each case prior to the date that is 91 days after November 22, 2006, and (iii) Holdings, either Borrower or any Subsidiary may issue directors' qualifying shares or shares required by applicable law to be held by a Person other than Holdings, either Borrower or any Subsidiary. SECTION 6.02. Liens. (a) The Borrowers will not, and each of Holdings and the Borrowers will not permit any of its subsidiaries that are Subsidiaries to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (i) Liens created under the Loan Documents; (ii) Permitted Encumbrances; (iii) any Lien on any property or asset of either Borrower or any Subsidiary existing on the date hereof and set forth in Schedule 6.02, provided that (i) such Lien shall not apply to any other property or asset of either Borrower or any Subsidiary and (ii) such Lien shall secure only those obligations that it secures on the date hereof and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; (iv) any Lien existing on any property or asset prior to the acquisition thereof by either Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary, provided that (A) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary , as the case may be, (B) such Lien shall not apply to any other property or assets of either Borrower or any Subsidiary 124 and (C) such Lien shall secure only those obligations that it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; (v) Liens on fixed or capital assets acquired, constructed or improved by either Borrower or any Subsidiary, provided that (A) such Liens secure Indebtedness permitted by clause (vi) of Section 6.01(a), (B) such security interests and the Indebtedness secured thereby are incurred prior to or within 180 days after such acquisition or the completion of such construction or improvement, (C) the Indebtedness secured thereby does not exceed 100% of the cost of acquiring, constructing or improving such fixed or capital assets and (D) such security interests shall not apply to any other property or assets of either Borrower or any Subsidiary; (vi) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of setoff or similar rights; (vii) Liens in favor of a landlord on leasehold improvements in leased premises; (viii) Liens arising by operation of law, including Liens imposed pursuant to Environmental Laws or ERISA, that secure obligations in an aggregate amount not to exceed $5,000,000 at any time outstanding; (ix) "Permitted Encumbrances" under and as such term is defined in the respective Mortgages in respect of the applicable Mortgaged Properties; (x) Liens arising from Permitted Investments described in clause (d) of the definition of the term Permitted Investments; and (xi) Other Liens securing obligations not exceeding $10,000,000 at any one time outstanding. (b) Neither Holdings nor HDD Holdings will create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect thereof, except Liens created under the Security Documents and Permitted Encumbrances. 125 SECTION 6.03. Fundamental Changes. (a) Neither Holdings nor the Borrowers will, nor will any of them permit any of its subsidiaries that are Subsidiaries to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) any Person may merge with Holdings or either Borrower in a transaction in which the surviving entity is a Person organized or existing under the laws of the United States of America, any State thereof, the District of Columbia or the Cayman Islands and, if such surviving entity is not Holdings or the applicable Borrower, as the case may be, such Person expressly assumes, in writing, all the obligations of Holdings or such Borrower, as the case may be, under the Loan Documents, (ii) any Person may merge with any Subsidiary in a transaction in which the surviving entity is a Subsidiary and (if any party to such merger is a Core Loan Party) is a Core Loan Party and (iii) any Subsidiary (other than a Core Loan Party) may liquidate or dissolve if the Cayman Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrowers and is not materially disadvantageous to the Lenders, provided that any such merger described in clauses (i) or (ii) hereof involving a Person that is not a wholly owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Sections 6.04 and 6.08. (b) The Borrowers will not, and each of Holdings and the Borrowers will not permit any of its subsidiaries that are Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrowers and the Subsidiaries on the date of execution of this Agreement and businesses reasonably related, ancillary or complementary thereto. (c) Holdings will not engage in any business or activity other than the ownership of capital stock of (i) Intermediate Holdings and (ii) other Subsidiaries and activities incidental thereto. Holdings will not own or acquire any assets (other than shares of capital stock of Intermediate Holdings and other Subsidiaries, cash and Permitted Investments) or incur any liabilities (other than liabilities under the Loan Documents, subordinated Guarantees by Holdings of the Subordinated Debt and of obligations of the Borrowers and the Subsidiaries under leases of real property, obligations under any stock option plans or other benefit plans for management or employees of Holdings, the Borrowers and the Subsidiaries, liabilities imposed by law, including tax liabilities, and other 126 liabilities incidental to its existence and permitted business and activities). (d) Intermediate Holdings will not engage in any business or activity other than the ownership of all the outstanding capital stock of SAN Holdings and HDD Holdings and activities incidental thereto. Intermediate Holdings will not own or acquire any assets (other than shares of capital stock of SAN Holdings and HDD Holdings, cash and Permitted Investments) or incur any liabilities (other than liabilities under the Loan Documents, subordinated Guarantees by Intermediate Holdings of the Subordinated Debt and of obligations of the Borrowers and the other Subsidiaries under leases of real property, liabilities imposed by law, including tax liabilities, and other liabilities incidental to its existence and permitted business activities). (e) HDD Holdings will not engage in any business or activity other than the ownership of all the outstanding capital stock of the U.S. Borrower and the Cayman Borrower and activities incidental thereto. HDD Holdings will not own or acquire any assets (other than shares of capital stock of the U.S. Borrower and the Cayman Borrower, cash and Permitted Investments) or incur any liabilities (other than liabilities under the Loan Documents, a subordinated Guarantee of the obligations of Tape Holdings under the Deferred Compensation Plans, subordinated Guarantees by Intermediate Holdings of the Subordinated Debt and of obligations of the Borrowers and the other Subsidiaries under leases of real property, liabilities imposed by law, including tax liabilities, and other liabilities incidental to its existence and permitted business activities). (f) Each of Holdings and the Borrowers will not permit any Permitted Spinoff Subsidiary or Investment Business to own any material assets used in the rigid disc drive operations of Holdings and its subsidiaries. SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions. The Borrowers will not, and each of Holdings and the Borrowers will not permit any of its subsidiaries that are Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any Equity Interests in or evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise 127 acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (a) the Acquisition; (b) Permitted Investments; (c) investments existing on the date hereof and set forth on Schedule 6.04; (d) investments by Holdings, the Borrowers and the Subsidiaries in Equity Interests in their respective Subsidiaries, provided that (i) any such Equity Interests held by Holdings, either Borrower or a Subsidiary Loan Party shall, to the extent required by the Collateral and Guarantee Requirement, be pledged pursuant to the applicable Pledge Agreement or Foreign Security Agreement and (ii) the aggregate amount of investments made after the Effective Date by Core Loan Parties in, and loans and advances outstanding at any time by Core Loan Parties to, and Guarantees outstanding at any time by Core Loan Parties of Indebtedness of, Subsidiaries that are not Core Loan Parties (including all such loans, advances and Guarantees existing on the date hereof and all investments made in, outstanding loans and advances to, and outstanding Guarantees of Indebtedness of, any Permitted Spinoff Subsidiary that were made at a time when such Permitted Spinoff Subsidiary was a Core Loan Party) shall not exceed $150,000,000 at any time outstanding, provided that (x) the total investment in a Permitted Spinoff Subsidiary will be deemed to be reduced by the fair market value of any Publicly Traded Equity Securities held by any Core Party and received from the Permitted Spinoff in respect of such Permitted Spinoff Subsidiary (determined in good faith by a Financial Officer of Holdings at the time of such Permitted Spinoff) and (y) the total investment in SAN Holdings, Tape Holdings or HDD Holdings, as applicable, shall not include loans, capital contributions and other payments to SAN Holdings, Tape Holdings or HDD Holdings to permit SAN Holdings, Tape Holdings or HDD Holdings, as applicable, to make (or the subordinated Guarantee by HDD Holdings of Tape Holdings's obligation to make) Permitted Liquidity Event Distributions permitted by Section 6.08(a) (v) to, or for the account of, participants in their respective Deferred Compensation Plans; 128 (e) loans or advances made by Holdings to either Borrower or to any Subsidiary, made by either Borrower to the other Borrower, to any Subsidiary or to Holdings and made by any Subsidiary to Holdings, either Borrower or any other Subsidiary, provided that (i) any such loans and advances made by Holdings, either Borrower or a Subsidiary Loan Party shall be evidenced by a promissory note and, to the extent required by the Collateral and Guarantee Requirement, shall be pledged pursuant to the applicable Pledge Agreement or Foreign Security Agreement and (ii) the amount of such loans and advances made by Core Loan Parties to Subsidiaries that are not Core Loan Parties shall be subject to the limitation set forth in clause (d)(ii) above; (f) Guarantees constituting Indebtedness permitted by Section 6.01, provided that (i) a Subsidiary shall not provide Guarantee of the Subordinated Debt unless (A) such Subsidiary also has provided a Guarantee of the Obligations pursuant to a Guarantee Agreement, (B) such Guarantee of the Subordinated Debt is subordinated to such Guarantee of the Obligations on terms no less favorable to the Lenders than the subordination provisions of the Subordinated Debt and (C) such Guarantee of the Subordinated Debt provides for the release and termination thereof, without action by any party, upon any release or termination of such Guarantee of the Obligations, and (ii) the aggregate principal amount of Indebtedness of Subsidiaries that are not Core Loan Parties that is Guaranteed by any Core Loan Party shall be subject to the limitation set forth in clause (d)(ii) above; (g) investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business; (h) Permitted Acquisitions, provided that the sum of all consideration paid or otherwise delivered in connection with Permitted Acquisitions (including the principal amount of any Indebtedness issued as deferred purchase price and the fair market value of any other non-cash consideration) plus the aggregate principal amount of all Indebtedness otherwise incurred or assumed in connection with, or resulting from, Permitted Acquisitions (including Indebtedness of any acquired Persons outstanding at the time of the applicable Permitted Acquisition) shall not exceed, on a cumulative basis during the term of this Agreement, 129 $200,000,000 plus the aggregate Net Proceeds received by Holdings, either Borrower or any Subsidiary after the date hereof from any capital contribution or issuance of Equity Interests that are applied to effect Permitted Acquisitions; (i) any investments in or loans to any other Person received as noncash consideration for sales, transfers, leases and other dispositions permitted by Section 6.05, including Publicly Traded Equity Securities received by Holdings, Seagate Software (Cayman) Holdings, Seagate SAN or Investment Holdings as consideration for any sale permitted by Section 6.05(c); (j) Guarantees by the Borrowers and the Subsidiaries of leases other than Capital Lease Obligations entered into by any Subsidiary as lessee; (k) extensions of credit in the nature of accounts receivable or notes receivable in the ordinary course of business; (l) investments in payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (m) loans or advances to employees, directors and officers not exceeding $5,000,000 in the aggregate at any one time outstanding, in each case, made in the ordinary course of business consistent with prudent business practice; (n) investments in or acquisitions of stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to either Borrower or any Subsidiary or in satisfaction of judgments; (o) investments in the form of Hedging Agreements and treasury locks permitted under Section 6.07; (p) investments, loans, advances, guarantees and acquisitions resulting from a foreclosure by Holdings, either Borrower or any Subsidiary with respect to any secured investment or other transfer of title with respect to any secured investment in default; 130 (q) investments, loans, advances, guarantees and acquisitions the consideration for which consists solely of shares of common stock of Holdings; (r) Strategic Investments of Holdings in an amount not to exceed the sum of (i) $70,000,000 and (ii) any Net Proceeds received by Holdings, either Borrower or any Subsidiary (other than a Permitted Spinoff Subsidiary) from sales after the date hereof of (A) existing investments in an Investment Business, (B) future Strategic Investments made pursuant to this paragraph (r) or (C) assets received as the consideration for any sale referred to in clause (A) or (B) above, in each case not otherwise used (1) for a purpose that would result in a reduction in Net Proceeds or in the amount of prepayments required pursuant to Section 2.11, (2) to prepay the Loans in accordance with Section 2.11 or (3) to make a Permitted Liquidity Event Distribution; (s) capital contributions to CacheVision in an aggregate amount not to exceed $20,000,000; (t) capital contributions to E2 Open in an aggregate amount not to exceed $12,500,000; (u) prepayments or advances to vendors or suppliers of semiconductors in connection with any guarantee of supply by, or to fund the expansion of supply capacity by, such vendor or supplier, in an aggregate amount not to exceed $50,000,000 at any one time outstanding; (v) loans, capital contributions and other payments to SAN Holdings, Tape Holdings or HDD Holdings to permit SAN Holdings, Tape Holdings or HDD Holdings, as applicable, to make (and the subordinated Guarantee by HDD Holdings of Tape Holdings's obligation to make) Permitted Liquidity Event Distributions permitted by Section 6.08(a) (v)to, or for the account of, participants in their respective Deferred Compensation Plans; (w) capital contributions to Denmark Holdings or Netherlands Holdings in an aggregate amount not to exceed $35,000,000, provided that (i) each such capital contribution is made in cash and (ii) on the same day that any such capital contribution is made, either (A) Denmark Holdings shall contribute in cash the full amount of such capital contribution to a Core Loan Party organized under the laws of Mexico or Japan as 131 common equity or (B) Denmark Holdings shall contribute in cash the full amount of such capital contribution to Netherlands Holdings as common equity and Netherlands Holdings shall contribute in cash the full amount of such capital contribution to a Core Loan Party organized under the laws of Mexico or Japan as common equity; and (x) loans and advances to continuing members of management of Holdings, the Borrowers and the Subsidiaries in an aggregate principal amount not to exceed $10,000,000, provided that (i) the proceeds of such loans and advances are contributed to Holdings by such members of management as part of the Equity Contribution, (ii) such loans and advances are not reduced, forgiven or otherwise terminated in whole or in part except upon repayment thereof in full and in cash to the applicable Loan Party and (iii) such loans and advances are repaid in full and in cash within 90 days after the Effective Date. SECTION 6.05. Asset Sales. Holdings and the Borrowers will not, and each of Holdings and the Borrowers will not permit any of its subsidiaries that is a Subsidiary to, sell, transfer, lease or otherwise dispose of any asset, including any Equity Interest owned by it, nor will Holdings or either Borrower permit any of its subsidiaries that is a Subsidiary to issue any additional Equity Interests in such Subsidiary, except: (a) sales of inventory, used or surplus equipment and Permitted Investments in the ordinary course of business and periodic clearance of aged inventory; (b) sales, transfers and dispositions to either Borrower or a Subsidiary, provided that any such sales, transfers or dispositions involving a Subsidiary that is not a Core Loan Party shall be made in compliance with Section 6.09; (c) Permitted Intermediate Holdings Equity Sales, Permitted HDD Holdings Equity Sales, Permitted Spinoffs and any sale for cash or Publicly Traded Equity Securities of (i) the Equity Interests in any Permitted Spinoff Subsidiary held by Holdings, the Borrowers or the Subsidiaries following the Permitted Spinoff of such Permitted Spinoff Subsidiary, (ii) all or substantially all the assets of a Permitted Spinoff Subsidiary or (iii) Publicly Traded Equity Securities received as the consideration for any sale permitted by this paragraph (c) (including a sale pursuant to this 132 clause (iii)), provided that (A) at the time of and immediately after giving effect to such Permitted Intermediate Holdings Equity Sale, Permitted HDD Holdings Equity Sale, Permitted Spinoff or sale, no Default has occurred and is continuing or would result therefrom and (B) Holdings, the Borrowers and the Subsidiaries are in compliance, on a pro forma basis after giving effect to such Permitted Intermediate Holdings Equity Sale, Permitted HDD Holdings Equity Sale, Permitted Spinoff, or sale with the covenants contained in Sections 6.12, 6.13 and 6.14 recomputed as at the last day of the most recent fiscal quarter of Holdings for which financial statements are available, as if such Permitted Intermediate Holdings Issuances, Permitted HDD Holdings Issuances, Permitted Spinoffs or sale had occurred on the first day of each relevant period for testing such compliance; (d) sales of shares of the common stock of Seagate Software to employees of Seagate Software upon the exercise of options granted under the Seagate Software Information Management Group Holdings, Inc. 1999 Stock Option Plan, as amended November 18, 1999 (the "Software Options"), provided that the aggregate number of shares sold pursuant thereto shall not at any time exceed 25% of the total number of shares of Seagate Software's outstanding common stock outstanding at such time; (e) issuances to officers, directors and employees of the Permitted Option Subsidiaries of options, warrants or other rights to purchase the capital stock of such Subsidiaries (together with the Software Options, the "Permitted Options") and sales of shares of capital stock of any such Subsidiaries to such officers, directors and employees upon the exercise of Permitted Options, provided that at no time shall the shares subject to (and issued upon the exercise of) Permitted Options of (i) Tape Holdings represent greater than 25% of the outstanding capital stock of Tape Holdings at such time, (ii) Intermediate Holdings represent greater than 20% of the outstanding capital stock of Intermediate Holdings at such time and (iii) Seagate SAN represent greater than 20% of the outstanding capital stock of Seagate SAN at such time (in each case calculated on a fully diluted basis after giving effect to all options to acquire common stock of such Permitted Option Subsidiary then outstanding, regardless of whether or not such options are then currently exercisable); 133 (f) sales of assets (other than Equity Interests in a Subsidiary) pursuant to a transaction permitted by Section 6.03(a); (g) sales of assets pursuant to a sale and leaseback transaction permitted by Section 6.06; (h) any sale of (i) either (A) capital stock or (B) all or substantially all the assets of any Investment Business or (ii) assets received as the consideration for any sale permitted by this paragraph (h) (including a sale pursuant to this clause (ii)); (i) sales of assets received by Holdings, either Borrower or any Subsidiary upon the exercise of a power of sale or foreclosure by Holdings, either Borrower or any Subsidiary with respect to any secured investment or other transfer of title with respect to any secured investment in default; (j) licensing and cross-licensing arrangements entered into in the ordinary course of either Borrower's or any Subsidiary's business involving any technology or other intellectual property of such Borrower or such Subsidiary; (k) sales, transfers and other dispositions of assets (other than Equity Interests in a Subsidiary) that are not permitted by any other clause of this Section, provided that the aggregate fair market value of all assets sold, transferred or otherwise disposed of in reliance upon this clause (k) shall not during any fiscal year of Holdings exceed the sum of (i) $50,000,000 and (ii) commencing with the fiscal year ending on June 30, 2002, the positive difference (if any) between $50,000,000 and the fair market value of the assets sold, transferred or otherwise disposed of pursuant to this paragraph during the immediately preceding fiscal year of Holdings; (l) licensing of assets that constitute technology or other intellectual property to joint ventures in connection with investments permitted by Section 6.04; (m) transfers of patents and patent applications for flexure-based microactuator technology and flexure technology to Hutchinson Technology pursuant to the Hutchinson Settlement; and 134 (n) Permitted Liquidity Event Distributions permitted by Section 6.08(a)(v); provided that all sales, transfers, leases and other dispositions permitted hereby (other than those permitted by clauses (b), (d), (e) and (n) above) shall be made for fair value and (except in the case of a transfer made pursuant to clause (b), (e), (f), (h), (i), (j), (l), (m) or (n) above) for consideration of at least 75% cash or cash equivalents, except to the extent expressly provided otherwise elsewhere in this Agreement. SECTION 6.06. Sale and Leaseback Transactions. The Borrowers will not, and each of Holdings and the Borrowers will not permit any of its subsidiaries that is a Subsidiary to, enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred, except for (i) the sale and leaseback of the design centers located at (A) 389 Disc Drive, Longmont, Colorado and (B) 1280 Disc Drive, Shakopee, Minnesota and (ii) any such sale of any fixed or capital assets that is made for cash consideration in an amount not less than the cost of such fixed or capital asset and is consummated within 180 days after such Borrower or such Subsidiary acquires or completes the construction of such fixed or capital asset, provided that the Borrowers and the Subsidiaries may enter into such transactions with respect to assets having a fair market value (determined in good faith by the Borrower with respect to any such asset at the time the transaction with respect to such asset is entered into) not to exceed $100,000,000 in the aggregate during the term of this Agreement. SECTION 6.07. Hedging Agreements. The Borrowers will not, and each of Holdings and the Borrowers will not permit any of its subsidiaries that is a Subsidiary to, enter into any Hedging Agreement, other than (a) Hedging Agreements required by Section 5.14, (b) Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which either Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities and (c) treasury locks entered into (i) in order to hedge or mitigate risks in connection with the redemption and repayment of the Existing Notes or (ii) in the ordinary course of business to hedge or mitigate risks to which either Borrower or any Subsidiary is exposed in the 135 conduct of its business or the management of its liabilities. SECTION 6.08. Restricted Payments; Certain Payments of Indebtedness. (a) Other than as specified in the first sentence of Section 5.11, neither Holdings nor the Borrowers will, nor will any of them permit any of its subsidiaries that is a Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that: (i) Holdings and the Subsidiaries may declare and pay dividends ratably with respect to their capital stock payable solely in additional shares of their capital stock; (ii) Subsidiaries (other than Intermediate Holdings and HDD Holdings) may declare and pay dividends ratably with respect to their capital stock, provided that no Subsidiary or Borrower may pay any dividend to Holdings pursuant to this clause (ii) if as a result of the payment or receipt of such dividend, Holdings would be required to pay any distribution to the Investors (or to increase the amount of any distribution otherwise payable) pursuant to clause (vii) of this Section 6.08 (a); (iii) Holdings, the Borrowers and the Subsidiaries may make Restricted Payments, not exceeding $25,000,000 during any fiscal year, pursuant to and in accordance with stock option plans or other benefit plans for directors, management or employees of Holdings, the Borrowers and the Subsidiaries, including the redemption or purchase of capital stock of Holdings or a Subsidiary held by former directors, management or employees of Holdings, either Borrower or any Subsidiary following termination of their employment; (iv) the Borrowers may pay dividends to HDD Holdings, HDD Holdings may pay dividends to Intermediate Holdings, and Intermediate Holdings may pay dividends to Holdings, in each case at such times and in such amounts, not exceeding $5,000,000 during any fiscal year, as shall be necessary to permit Holdings to discharge its permitted liabilities; (v) HDD Holdings and SAN Holdings may make Permitted Liquidity Event Distributions to Intermediate Holdings; Intermediate Holdings, Tape Holdings, Seagate Software and Investment Holdings may make Permitted Liquidity Event Distributions to Holdings, Holdings may 136 make Permitted Liquidity Event Distributions to the Investors and HDD Holdings, SAN Holdings and Tape Holdings may make Permitted Liquidity Event Distributions to, or for the account of, participants in their respective Deferred Compensation Plans, provided, in each case, that no Default has occurred and is continuing or would occur as a result of such Permitted Liquidity Event Distributions, provided further that, at least ten days before any Permitted Liquidity Event Distribution is made, Holdings shall deliver to the Administrative Agent a certificate of the chief financial officer of Holdings setting forth in reasonable detail Holdings's calculation of the amount of cash and Publicly Traded Equity Securities to be distributed in such Permitted Liquidity Event Distribution (including, in the case of a distribution of Distributable Liquidity Event Proceeds described in paragraph (b) of the definition of the term Distributable Liquidity Event Proceeds, the calculation of the Historical Investment in the applicable Investment Business or Permitted Spinoff Subsidiary); (vi) HDD Holdings may declare and pay special distributions to Intermediate Holdings, and Intermediate Holdings may declare and pay special distributions to Holdings, in each case as shall be necessary to permit Holdings to make Restricted Payments described in clause (vii) of this Section 6.08 in respect of tax obligations of the direct and indirect equityholders of Holdings attributable to Intermediate Holdings and its subsidiaries; and (vii) (A) If and for so long as Holdings is treated as a pass-through entity for United States Federal income tax purposes or a controlled foreign corporation for United States Federal income tax purposes, within 30 days after the end of each calendar year, Holdings may declare and pay a dividend for the purpose of providing its equity holders with cash to pay U.S. income taxes attributable to taxable income of Holdings and its subsidiaries for such calendar year attributed to such equity holders ("Tax Distributions"). The maximum amount of Tax Distributions for any calendar year shall be equal to (x)(1) if Holdings is a pass-through entity for United States Federal income tax purposes, the amount of taxable income of Holdings for such calendar year (for the purposes of the calculation made pursuant to this clause (x)(i), the taxable income of Holdings shall be assumed to be the taxable income Holdings would have had if it were a corporation incorporated in the United 137 States, including any "Subpart F income" (within the meaning of Section 952 of the Code) of its subsidiaries that it would be required to include in taxable income if it were such a corporation), reduced by the amount of taxable loss allocated to the equity holders of Holdings for all prior calendar years (except to the extent such taxable losses have previously been taken into account under this clause), or (2) if Holdings is a controlled foreign corporation, the aggregate amount of Holdings's Subpart F income for such calendar year (and, to the extent such Subpart F income would be attributed to the equity holders, the Subpart F income of Holdings's subsidiaries for such calendar year), times (y) 40%. (B) As a condition to making any Tax Distribution under paragraph (A) above or (D) below, Holdings will deliver to the Administrative Agent at least 30 calendar days prior to the declaration and payment of such Tax Distribution, a notice, certified by the Chief Financial Officer of Holdings, setting forth in detail reasonably satisfactory to the Administrative Agent the basis for the determination of the amount of such Tax Distribution. (C) If Holdings makes any Tax Distribution pursuant to this clause (vii) in respect of any taxable income realized on any sale of assets or Equity Interests permitted under Section 6.05 (c) or 6.05 (h), the consideration for which consists of Publicly Traded Equity Securities, such Tax Distribution shall be made in the form of Publicly Traded Equity Securities to the extent that Holdings is legally permitted to do so. (D) Interim Tax Distributions may be made during each calendar year on or shortly after April 10, June 10, September 10 and December 31 of such year for the purpose of providing the equity holders of Holdings with cash to pay estimated U.S. income taxes attributable to taxable income of Holdings and its subsidiaries for such taxable year, based on good-faith estimates of such estimated tax liability made by Holdings. If any such interim Tax Distributions are made by Holdings during a taxable year, then within 30 calendar days after the end of such calendar year Holdings shall deliver to the Administrative Agent a determination of the maximum amount of Tax Distributions that may be made for such calendar year under paragraph (A) above; if the aggregate interim Tax Distributions made for such calendar year exceed such maximum such excess amount shall be applied to reduce all amounts payable pursuant to Sections 6.08(a) (v) and (vii) for the next calendar year and to the extent not so applied shall be carried forward 138 for application against future amounts payable pursuant to Sections 6.08(a) (v) and (vii). (b) Neither Holdings nor the Borrowers will, nor will any of them permit any of its subsidiaries that is a Subsidiary to, make or agree to pay or make, directly or indirectly, any payment or other distribution (whether in cash, securities or other property) of or in respect of principal of or interest on any Indebtedness, or any payment or other distribution (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Indebtedness, except: (i) payment of Indebtedness created under the Loan Documents; (ii) payment of regularly scheduled interest and principal payments as and when due in respect of any Indebtedness, other than payments in respect of the Subordinated Debt prohibited by the subordination provisions thereof; (iii) refinancings of Indebtedness to the extent permitted by Section 6.01; and (iv) payment of secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness. (c) Neither Holdings nor the Borrowers will, nor will any of them permit any of its subsidiaries that is a Subsidiary to, enter into or be party to, or make any payment under, any Synthetic Purchase Agreement, provided that Holdings, the Borrowers and the Subsidiaries may enter into Synthetic Purchase Agreements providing for payments to current or former directors, officers or employees of Holdings, the Borrowers and the Subsidiaries or their heirs or estates (and may make such payments), in the same circumstances and amounts that Holdings, the Borrowers and the Subsidiaries are then permitted to make Restricted Payments pursuant to Section 6.08(a)(iii), and any payments made pursuant to this Section 6.08(c) during any fiscal year shall be deemed to reduce the amount of Restricted Payments available during such fiscal year under Section 6.08(a)(iii). SECTION 6.09. Transactions with Affiliates. (a) Neither Holdings nor the Borrowers will, nor will any of them permit any of its subsidiaries that is a Subsidiary 139 to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (i) transactions that are at prices and on terms and conditions not less favorable to Holdings, the applicable Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (ii) transactions between or among Holdings, the Borrowers and the Core Loan Parties not involving any other Affiliate, (iii) payments of fees and expenses to the Investors in connection with the Transactions, (iv) payments of management, consulting and advisory fees to the Investors pursuant to any financial advisory, financing, underwriting or placement agreement or in respect of other investment banking activities, including in connection with acquisitions and divestitures, in an aggregate amount not to exceed $2,000,000 in any fiscal year, (v) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the board of directors of Holdings, either Borrower or any Subsidiary (vi) the grant of stock options or similar rights to officers, employees, consultants and directors of Holdings pursuant to plans approved by the board of directors of Holdings, either Borrower or any Subsidiary and the payment of amounts or the issuance of securities pursuant thereto, (vii) loans or advances to employees permitted by Section 6.04(m), (viii) any Restricted Payment permitted by Section 6.08 and (ix) loans and advances to members of management permitted under Section 6.04(x). (b) The provisions of Section 6.09(a) notwithstanding, neither Holdings nor the Borrowers will, nor will any of them permit any of its subsidiaries that is a Subsidiary to, adopt or change any policy regarding transfer pricing or other practices regarding cross-border intercompany payments with Holdings, either Borrower or any other Subsidiary in a manner that is systematically disadvantageous to the Lenders. SECTION 6.10. Restrictive Agreements. Neither Holdings nor the Borrowers will, nor will any of them permit any of its subsidiaries that is a Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of Holdings, either Borrower or any Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital 140 stock or to make or repay loans or advances to either Borrower or any other Subsidiary or to Guarantee Indebtedness of either Borrower or any other Subsidiary, provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by any Loan Document or Subordinated Debt Document, (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 6.10 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iv) the foregoing shall not apply to customary restrictions on or customary conditions to the payment of dividends or other distributions on, or the creation of Liens over, Equity Interests owned by either Borrower or any Subsidiary in any joint venture or like enterprise that is not a Subsidiary contained in the constitutive documents of such joint venture or enterprise, (v) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness and (vi) clause (a) of the foregoing shall not apply to customary provisions in leases or Licenses (as such term is defined in the U.S. Security Agreement) restricting the assignment, subletting or transfer thereof. SECTION 6.11. Amendment of Material Documents. (a) Neither Holdings nor the Borrowers will, nor will any of them permit any of its subsidiaries that is a Subsidiary to, (i) amend, modify or waive any of its rights under (A) any Subordinated Debt Document, (B) any Deferred Compensation Plan or (C) its certificate of incorporation, by-laws or other organizational documents, except to the extent that such amendments, modifications or waivers, individually and in the aggregate, (1) would not reasonably be expected to have a Material Adverse Effect or be materially adverse to the Lenders and (2) in the case of an amendment, modification or waiver of a Deferred Compensation Plan, would not require Holdings or any of its subsidiaries to make any distributions or other payments (whether in cash, securities or other property or any combination thereof) that would be in violation of the covenants set forth in this Agreement, or (ii) adopt any Deferred Compensation Plan if the terms (including subordination terms) of such Deferred Compensation Plan that are material to the Lenders are in any way less favorable to the Lenders 141 than the terms of the Deferred Compensation Plans in effect on the date hereof and previously provided to the Administrative Agent. (b) Neither Holdings nor the Borrowers will, nor will any of them permit any of its subsidiaries that is a Subsidiary to, amend, modify or waive any of its rights under any Acquisition Document, in each case to the extent that such amendment, modification or waiver would be materially adverse to the Lenders. SECTION 6.12. Interest Expense Coverage Ratio. The Borrowers will not permit the ratio of (a) Consolidated EBITDA to (b) Consolidated Net Cash Interest Expense, in each case for any period of four consecutive fiscal quarters ending on the last day of any quarter ending on or after March 30, 2001, to be less than 2.50 to 1.00. SECTION 6.13. Fixed Charge Coverage Ratio. The Borrowers will not permit the ratio of (a) the sum of (i) Consolidated EBITDA for any period of four consecutive fiscal quarters ending on the last day of any fiscal quarter during any period set forth below plus (ii) the sum of (A) the amount of cash held by Holdings, either Borrower or any Subsidiary (other than cash held by the Excluded Subsidiaries), provided that in the case of any Subsidiary that is not a Core Loan Party and in which Holdings does not directly or indirectly hold 100% of the outstanding Equity Interests as of such date, the amount of cash held by such Subsidiary shall be deemed to be equal to the product of (1) the actual amount of cash held by such Subsidiary on such date and (2) the percentage of such Subsidiary's total outstanding Equity Interests held by Holdings, the Borrower and the Subsidiaries on such date and (B) the carrying value of Permitted Investments reflected as cash or short-term investments on Holdings's consolidated balance sheet on such date (other than Permitted Investments held by the Excluded Subsidiaries), provided that in the case of any Subsidiary that is not a Core Loan Party and in which Holdings does not directly or indirectly hold 100% of the outstanding Equity Interests on such date, the carrying value of the Permitted Investments held by such Subsidiary shall be deemed to be equal to the product of (1) the actual carrying value of the Permitted Investments held by such Subsidiary on such date and (2) the percentage of such Subsidiary's total outstanding Equity Interests held by Holdings, the Borrower and the Subsidiaries on such date, minus (iii) the aggregate principal amount of Revolving Loans and Swingline Loans outstanding on such date to (b) Consolidated Fixed Charges for such period of four consecutive fiscal quarters (the "Fixed Charge Coverage 142 Ratio") to be less than the ratio set forth below opposite such period set forth below: Period Ratio March 30, 2001, to June 29, 2002 1.20 to 1.00 June 30, 2002, to June 29, 2003 1.25 to 1.00 June 30, 2003, and thereafter 1.50 to 1.00. SECTION 6.14. Net Leverage Ratio. The Borrowers will not permit the Net Leverage Ratio as of the end of any fiscal quarter during any period set forth below to exceed the ratio set forth opposite such period: Period Ratio March 30, 2001, to June 29, 2001 2.00 to 1.00 June 30, 2001 and June 29, 2002 1.75 to 1.00 June 30, 2002 and thereafter 1.50 to 1.00. ARTICLE VII Events of Default SECTION 7.01. Events of Default. If any of the following events ("Events of Default") shall occur: (a) either Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) either Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement or any other Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five days; (c) any representation or warranty made or deemed made by or on behalf of Holdings, either Borrower or any Subsidiary in or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, or in any report, certificate, financial statement or other document furnished 143 pursuant to or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been incorrect in any material respect when made or deemed made; (d) Holdings or either Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02(a), 5.04 (with respect to the existence of Holdings or either Borrower), 5.11 or 5.15 or in Article VI and, in the case of any failure to observe or perform the covenants contained in Section 5.15, such failure shall continue unremedied for 30 days; (e) any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in any Loan Document (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent to the Cayman Borrower (which notice will be given at the request of any Lender); (f) Holdings, either Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable after giving effect to the applicable grace period with respect thereto; (g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity, provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of Holdings, either Borrower or, subject to Section 7.02, any Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the 144 appointment of a receiver, trustee, custodian, sequestrator, conservator, liquidator or similar official for Holdings, either Borrower or, subject to Section 7.02, any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) Holdings, either Borrower or, subject to Section 7.02, any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking dissolution, winding-up, liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator, liquidator or similar official for Holdings, either Borrower or, subject to Section 7.02, any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) Holdings, either Borrower or, subject to Section 7.02, any Subsidiary shall become unable, admit in writing its inability or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $10,000,000 (net of amounts covered by insurance as to which the insurer has admitted liability in writing) shall be rendered against Holdings, either Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of Holdings, either Borrower or any Subsidiary to enforce any such judgment; (l) an ERISA Event shall have occurred that, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect; 145 (m) any Lien purported to be created under any Security Document shall cease to be, or shall be asserted by any Loan Party not to be, a valid and perfected Lien on Collateral having, in the aggregate, a value in excess of $5,000,000, with the priority required by the applicable Security Document, except (i) as a result of the sale or other disposition of the applicable Collateral in a transaction permitted under the Loan Documents, (ii) any action taken by the Collateral Agent to release any such Lien in compliance with the provisions of this Agreement or any other Loan Document or (iii) as a result of the Collateral Agent's failure to maintain possession of any stock or share certificates, promissory notes or other instruments delivered to it under the Pledge Agreement or to file properly (A) Uniform Commercial Code financing statements or comparable filings delivered to it for filing under the Security Documents or (B) Uniform Commercial Code continuation statements or comparable filings necessary to maintain perfection; (n) a Change in Control shall occur; (o) either Borrower, Holdings or any Subsidiary shall challenge the subordination provisions of the Subordinated Debt or any Deferred Compensation Plan or assert that such provisions are invalid or unenforceable or that the Obligations of either Borrower, or the Obligations of Holdings or any Subsidiary under the applicable Guarantee Agreement, are not senior indebtedness under the subordination provisions of the Subordinated Debt or any Deferred Compensation Plan, or any court, tribunal or government authority of competent jurisdiction shall judge the subordination provisions of the Subordinated Debt or any Deferred Compensation Plan to be invalid or unenforceable or such Obligations to be not senior indebtedness under such subordination provisions; or (p) any Guarantee under any Guarantee Agreement for any reason shall cease to be in full force and effect (other than in accordance with its terms), or any Loan Party shall deny in writing that it has any further liability under its Guarantee Agreement (other than as a result of the discharge of such Loan Party in accordance with the terms of the Loan Documents); then, and in every such event (other than an event with respect to either Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and 146 at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrowers accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower; and in case of any event with respect to either Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrowers accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower. SECTION 7.02. Exclusion of Immaterial Subsidiaries. Solely for the purposes of determining whether a Default has occurred under (a) clause (h), (i) or (j) of Section 7.01, any reference in any such clause to any "Subsidiary" shall be deemed not to include any Subsidiary affected by any event or circumstance referred to in any such clause that did not, as of the last day of the fiscal quarter of the Cayman Borrower most recently ended, have assets with a value in excess of 5.0% of the total consolidated assets of the Borrowers and the Subsidiaries as of such date, provided that if it is necessary to exclude more than one Subsidiary from clause (h), (i) or (j) of Section 7.01 pursuant to this clause (a) in order to avoid a Default thereunder, all excluded Subsidiaries shall be considered to be a single consolidated Subsidiary for purposes of determining whether the condition specified above is satisfied and (b) under clause (i) of Section 7.01, any reference in such clause to any "Subsidiary" shall be deemed not to include any Moribund Subsidiary that is being dissolved, liquidated or wound up in accordance with the definition of the term "Moribund Subsidiary". 147 ARTICLE VIII The Administrative Agent SECTION 8.01. The Administrative Agent. Each of the Lenders and the Issuing Bank hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. For purposes of this Article VIII and for the purposes of Section 9.02 and 9.03 of Article IX, all references to the Administrative Agent are deemed to include the Collateral Agent. The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with Holdings, either Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder. The Administrative Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02), and (c) except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to Holdings, either Borrower or any of the Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in 148 Section 9.02) or in the absence of its own gross negligence or wilful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by Holdings, the Cayman Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrowers), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may perform any of and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of each Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this 149 paragraph, the Administrative Agent may resign at any time by notifying the Lenders, the Issuing Bank and the Cayman Borrower. Upon any such resignation, the Required Lenders shall have the right, subject to the approval of the Cayman Borrower (which approval shall not be unreasonably withheld), to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders and the Issuing Bank, appoint a successor Administrative Agent that shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrowers to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Cayman Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Administrative Agent, its subagents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or related agreement or any document furnished hereunder or thereunder. ARTICLE IX Miscellaneous SECTION 9.01. Notices. Except in the case of notices and other communications expressly permitted to be 150 given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to Holdings or either Borrower, to it at 920 Disc Drive, Scotts Valley, California 95067, Attention of Glen A. Peterson (Telecopy No. 831-438-8931) with copies to (i) Silver Lake Partners, L.P., 320 Park Avenue, 33rd Floor, New York, New York 10022, Attention of Kenneth Y. Hao (Telecopy No. 212-981-3535), and (ii) Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New York, New York 10006, Attention Paul J. Shim (Telecopy No. 212-225-3999); (b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of Janet Belden (Telecopy No. (212) 552-5658), with a copy to The Chase Manhattan Bank, 101 California Street, Suite 2725, San Francisco, California 94111, Attention of William Rindfuss (Telecopy No. (415) 954-9583); (c) if to The Chase Manhattan Bank, as Issuing Bank, to it at The Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of Janet Belden (Telecopy No. (212) 552-5658); (d) if to the Swingline Lender, to it at The Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of Janet Belden (Telecopy No. (212) 552-5658); and (e) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the Administrative Agent, the Issuing Bank or any Lender in exercising any right or power hereunder or under any 151 other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except, in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by Holdings, the Borrowers and the Required Lenders or, in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the Administrative Agent or the Collateral Agent, as applicable, and the Loan Party or Loan Parties that are parties thereto, in each case with the consent of the Required Lenders, provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender directly affected thereby, (iii) postpone the final maturity of any Loan, or the required date of reimbursement of any LC Disbursement, or any required date for the payment of any interest or fees payable hereunder, or reduce the amount of, waive or excuse any such required payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.18(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change any of the provisions of this Section or the percentage set forth in the definition of the term "Required Lenders" or any other provision of any Loan Document specifying the number or percentage of Lenders (or Lenders of any Class) required to waive, amend or modify any rights thereunder or make any determination or grant any 152 consent thereunder, without the written consent of each Lender (or each Lender of such Class, as the case may be), (vi) release Holdings or any Core Loan Party from its Guarantee under the applicable Guarantee Agreement (except as expressly provided in the applicable Guarantee Agreement), or limit its liability in respect of such Guarantee, without the written consent of each Lender, (vii) except in strict accordance with the express provisions of the Security Documents, release all or substantially all of the Collateral from the Liens of the Security Documents, without the written consent of each Lender, (viii) postpone the date of any scheduled payment of the principal amount of any Term Loan of either Class under Section 2.10 without the written consent of each Lender holding outstanding Term Loans of such Class, (ix) change any provisions of any Loan Document in a manner that by its terms adversely affects the rights in respect of payments due to Lenders holding Loans of any Class differently than those holding Loans of any other Class, without the written consent of Lenders holding a majority in interest of the outstanding Loans and unused Commitments of each affected Class, (x) change Section 9.15 in any way or release either Borrower from its obligations thereunder, without the written consent of each Lender, or (xi) change the rights of the Tranche B Lenders to decline mandatory prepayments as provided in Section 2.11, without the written consent of Tranche B Lenders holding a majority of the outstanding Tranche B Term Loans, or (xii) change the definition of the term Interest Period to permit the Borrowers to select interest periods of 9 or 12 months for Eurodollar Borrowings without the written consent of each Lender affected thereby, and provided further that (A) no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, any Issuing Bank or the Swingline Lender without the prior written consent of the Administrative Agent, such Issuing Bank or the Swingline Lender, as the case may be, and (B) any waiver, amendment or modification of this Agreement that by its terms affects the rights or duties under this Agreement of the Revolving Lenders (but not the Tranche A Lenders and Tranche B Lenders), the Tranche A Lenders (but not the Revolving Lenders and Tranche B Lenders) or the Tranche B Lenders (but not the Revolving Lenders and Tranche A Lenders) may be effected by an agreement or agreements in writing entered into by Holdings, the Borrowers and the requisite percentage in interest of the affected Class of Lenders that would be required to consent thereto under this Section if such Class of Lenders were the only Class of Lenders hereunder at the time. Notwithstanding the foregoing, any provision of this Agreement may be amended by an agreement in writing entered into by Holdings, the Borrowers, the Required Lenders and the Administrative Agent (and, if their rights or obligations are affected thereby, the Issuing Bank and the Swingline Lender) if (i) by the terms of 153 such agreement the Commitment of each Lender not consenting to the amendment provided for therein shall terminate upon the effectiveness of such amendment and (ii) at the time such amendment becomes effective, each Lender not consenting thereto receives payment in full of the principal of and interest accrued on each Loan made by it and all other amounts owing to it or accrued for its account under this Agreement. SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrowers shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of one counsel for the Administrative Agent in each applicable jurisdiction, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of the Loan Documents or any amendments, modifications or waivers of the provisions thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable out-of-pocket expenses incurred by the Administrative Agent, the Documentation Agents, the Issuing Bank or any Lender, including the reasonable fees, charges and disbursements of one counsel each, in each applicable jurisdiction, for the Administrative Agent, each Documentation Agent, each Issuing Bank or each Lender, in connection with the enforcement or protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such reasonable out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. (b) The Borrowers shall indemnify the Administrative Agent, the Documentation Agents, the Issuing Bank and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of the commitment letter (and related fee letters) with respect to the credit facilities contemplated hereby, any Loan Document or any other agreement or instrument contemplated hereby, the performance by the parties to the Loan Documents of their respective obligations thereunder or the consummation of the Transactions or any other transactions 154 contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence, Release or threatened Release of Hazardous Materials on or from any Mortgaged Property or any other property currently or formerly owned or operated by Holdings, either Borrower or any of the Subsidiaries, or any Environmental Liability related in any way to Holdings, either Borrower or any of the Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses resulted from the gross negligence or wilful misconduct of such Indemnitee. It is acknowledged and agreed by the parties hereto that, solely in their capacities as Documentation Agents or as Senior Arranger, as applicable, and not in their capacities as Lenders, the Documentation Agents and the Senior Arranger shall have no duties hereunder. (c) To the extent that either Borrower fails to pay any amount required to be paid by it to the Administrative Agent, a Documentation Agent, the Issuing Bank or the Swingline Lender under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent, such Documentation Agent, the Issuing Bank or the Swingline Lender, as the case may be, such Lender's pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent, a Documentation Agent, the Issuing Bank or the Swingline Lender in its capacity as such. For purposes hereof, a Lender's "pro rata share" shall be determined based upon its share of the sum of the total Revolving Exposures, outstanding Term Loans and unused Commitments at the time. (d) To the extent permitted by applicable law, neither Holdings nor either Borrower shall assert, and each hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the 155 proceeds thereof. In addition, no Indemnitee shall be liable for any damages arising from the use by others of information or other materials obtained through electronic, telecommunications or other information transmission systems. (e) All amounts due under this Section shall be payable promptly after written demand therefor. (f) No director, officer, employee, stockholder or member, as such, of any Loan Party shall have any liability for the Obligations or for any claim based on, in respect of or by reason of the Obligations or their creation, provided that the foregoing shall not be construed to relieve any Loan Party of its Obligations under any Loan Document. SECTION 9.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), except that neither Borrower may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by either Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans at the time owing to it), provided that (i) except in the case of an assignment to a Lender or a Lender Affiliate, each of the Cayman Borrower and the Administrative Agent (and, in the case of an assignment of all or a portion of a Revolving Commitment or any Lender's obligations in respect of its Swingline Exposure, the Swingline Lender) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed), (ii) except in the case of an assignment to a Lender or a Lender Affiliate or an assignment of the entire remaining amount of the assigning Lender's Commitments or Loans, the amount of the Commitments or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is 156 delivered to the Administrative Agent) shall be (A) an amount not less than $1,000,000, in the case of an assignment of Tranche B Term Loans or Tranche B Commitments, or (B) an amount not less than $5,000,000, in the case of an assignment of Revolving Loans, Revolving Commitments, Tranche A Term Loans or Tranche A Commitments, in each case unless each of the Cayman Borrower and the Administrative Agent (and, in the case of an assignment of all or a portion of a Revolving Commitment or any Lender's obligations in respect of its Swingline Exposure, the Swingline Lender) otherwise consent, which consent shall not be unreasonably withheld, (iii) each partial assignment of an assigning Lender's rights and obligations in respect of one Class of Commitments or Loans shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under such Class of Commitments or Loans (which, in the case of any assignment of Tranche A Term Loans, will include a proportionate part of the assigning Lender's rights and obligations in respect of the Cayman Tranche A Term Loans and the U.S. Tranche A Term Loans included in the Borrowing of which such Tranche A Term Loans are a part and, in the case of any assignment of Tranche B Term Loans, will include a proportionate part of the assigning Lender's rights and obligations in respect of Cayman Tranche B Term Loans and U.S. Tranche B Term Loans of which such Tranche B Term Loans are a part), (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500, and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire, and provided further that any consent of the Cayman Borrower otherwise required under this paragraph shall not be required if an Event of Default under clause (h) or (i) of Article VII has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement (provided that any liability of each Borrower to such assignee under Section 2.15, 2.16 or 2.17 shall be limited to the amount, if any, that would have been payable thereunder by such Borrower in the absence of such assignment and provided further that an assignee that is a Foreign Lender shall not be entitled to the benefits of Section 2.17 unless such assignee agrees to comply with the requirements of Section 2.17(e)), and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment 157 and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting for this purpose as an agent of the Borrowers, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing by each Borrower to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and Holdings, the Borrowers, the Administrative Agent, the Issuing Bank and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrowers, the Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of either Borrower, the Administrative Agent, the Issuing Bank or the Swingline Lender, sell participations (which, in the case of any participations in Tranche A Term Loans, will include a proportionate part of the assigning Lender's rights and obligations in respect of the Cayman Tranche A Term Loans and the U.S. Tranche A Term Loans included in the Borrowing of which such Tranche A Term Loans are a part and, in the case of any participations in Tranche B Term Loans, will include a proportionate part of the assigning Lender's rights and 158 obligations in respect of the Cayman Tranche B Term Loans and the U.S. Tranche B Term Loans included in the Borrowing of which such Tranche B Term Loans are a part) to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it), provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) Holdings, the Borrowers, the Administrative Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce the Loan Documents and to approve any amendment, modification or waiver of any provision of the Loan Documents, provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to paragraph (f) of this Section, the Borrowers agree that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.18(c) as though it were a Lender. (f) A Participant shall not be entitled to receive any greater payment under Section 2.15 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the applicable Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.17 unless the applicable Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the applicable Borrower, to comply with Section 2.17(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest, provided that no 159 such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. (h) In the event that S&P or Moody's shall, after the date that any Revolving Lender becomes a Lender, downgrade the long-term certificate deposit ratings or long-term senior unsecured debt ratings of such Lender (or the parent company thereof), and the resulting ratings shall be BBB+ or lower by S&P or Baa1 or lower by Moody's, then the Swingline Lender shall have the right, but not the obligation, at its own expense, upon notice to such Lender, the Administrative Agent and the Cayman Borrower, to replace (or to request the Cayman Borrower, at the sole expense of the Swingline Lender, to use its reasonable efforts to replace) such Lender with respect to such Lender's Revolving Commitment with an assignee (in accordance with and subject to the restrictions contained in paragraph (b) above, including the right of the Borrowers and the Administrative Agent to consent to the identity of such assignee (which consent shall not be unreasonably withheld)), and such Lender hereby agrees to transfer and assign without recourse (in accordance with and subject to the restrictions contained in paragraph (b) above) all its interests, rights and obligations in respect of its Revolving Commitment to such assignee; provided, however, that (i) no such assignment shall conflict with any law, rule and regulation or order of any Governmental Authority and (ii) such assignee shall pay to such Lender in immediately available funds on the date of such assignment the principal of and interest and fees accrued to the date of payment on the Loans and LC Disbursements of such Lender hereunder. (i) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPV"), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Cayman Borrower, the option to provide to either Borrower all or any part of any Loan that such Granting Lender would otherwise be obligated to make to such Borrower pursuant to this Agreement, provided that (i) nothing herein shall constitute a commitment by any SPV to make any Loan or, except as provided in the immediately succeeding sentence, affect in any way the Commitment of the Granting Lender and (ii) if an SPV elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPV hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. In the event that an SPV provides all or any 160 part of any Loan, Holdings, the Borrowers and the Administrative Agent shall continue to deal solely and directly with the Granting Lender with respect to such Loan, including with respect to the giving of notices and the delivery of financial statements, certificates and other documents (including pursuant to Section 5) and information. Each party hereto hereby agrees that no SPV shall be (i) liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender), (ii) have any voting rights under Section 9.02 or Article VII or with respect to any other matter under this Agreement to which the Lenders are entitled to give their consent (all of which voting rights shall remain with the Granting Lender) or (iii) entitled to receive any greater amount pursuant to Section 2.15, 2.16, 2.17 or 9.03 than the Granting Lender would have been entitled to receive in respect of the amount of any Loan provided by the SPV if the Granting Lender had in fact made such Loan. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPV, it will not institute against, or join any other person in instituting against, such SPV any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary in this Section 9.04, any SPV may (i) with notice to, but without the prior written consent of, the Cayman Borrower and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Cayman Borrower and the Administrative Agent) providing liquidity and/or credit support to or for the account of such SPV to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPV. As this Section 9.04(i) applies to any particular SPV, this Section may not be amended without the written consent of such SPV. SECTION 9.05. Survival. All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of 161 any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. SECTION 9.06. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 9.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 9.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and 162 from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of either Borrower against any of and all the obligations of the applicable Borrower then existing under this Agreement (to the extent such obligations of either Borrower are then due and payable (by acceleration or otherwise)) held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender may have. SECTION 9.09. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. (b) Each of Holdings, the Borrowers, the Administrative Agent, each Issuing Bank and each Lender hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to any Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against Holdings, the Borrowers or their properties in the courts of any jurisdiction. (c) Each of Holdings and the Borrowers hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by 163 law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law. Holdings, the Cayman Borrower and each of the Subsidiary Loan Parties hereby appoints the U.S. Borrower, as agent for service of process in the United States, and the U.S. Borrower hereby accepts such appointment. SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 9.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 9.12. Confidentiality. Each of the Administrative Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions 164 substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, or (ii) any actual or prospective direct or indirect contractual counterparties in swap or other derivative agreements or such contractual counterparties' professional advisors, (g) with the consent of either Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis from a source other than Holdings or the Borrowers or (i) to any nationally recognized rating agency that requires access to information about a Lender's investment portfolio in connection with ratings issued with respect to such Lender. In the case of any disclosure of Information pursuant to clause (c) or clause (e) of the preceding sentence, the Administrative Agent will inform the Borrowers of such disclosure. For the purposes of this Section, the term "Information" means all information received from Holdings or either Borrower relating to Holdings or the Borrowers or their business, other than any such information that is available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by Holdings or a Borrower. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. SECTION 9.13. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts that are treated as interest on such Loan under applicable law (collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") that may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. 165 SECTION 9.14. Judgment Currency. (a) The Borrowers' obligations hereunder and each Borrower's and the other Loan Parties' obligations under the other Loan Documents to make payments in Dollars (the "Obligation Currency") shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than the Obligation Currency, except to the extent that such tender or recovery results in the effective receipt by the Administrative Agent, the Collateral Agent or a Lender of the full amount of the Obligation Currency expressed to be payable to the Administrative Agent, the Collateral Agent or such Lender under this Agreement or the other Loan Documents. If, for the purpose of obtaining or enforcing judgment against the Borrower or any other Loan Party in any court or in any jurisdiction, it becomes necessary to convert into or from any currency other than the Obligation Currency (such other currency being hereinafter referred to as the "Judgment Currency") an amount due in the Obligation Currency, the conversion shall be made, at the rate of exchange (as quoted by the Administrative Agent or, if the Administrative Agent does not quote a rate of exchange on such currency, by a known dealer in such currency designated by the Administrative Agent) determined, in each case, as of the date immediately preceding the day on which the judgment is given (such Business Day being hereinafter referred to as the "Judgment Currency Conversion Date"). (b) If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amount due, the Borrowers covenant and agree to pay, or cause to be paid, such additional amounts, if any (but in any event not a lesser amount), as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of the Obligation Currency that could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate of exchange prevailing on the Judgment Currency Conversion Date. (c) For purposes of determining the rate of exchange for this Section, such amounts shall include any premium and costs payable in connection with the purchase of the Obligation Currency. SECTION 9.15. Joint and Several Liability. Notwithstanding any provision contained herein or in any other Loan Document to the contrary, each of the Cayman Borrower and the U.S. Borrower agrees and acknowledges that the Cayman Borrower and the U.S. Borrower shall be jointly and severally liable for all of the Obligations arising hereunder and under 166 the other Loan Documents, including principal of, interest on, and any fees, expenses, indemnities and premium payable in respect of, each of the Cayman Tranche A Term Loans, the U.S. Tranche A Term Loans, the Cayman Tranche B Term Loans and the U.S. Tranche B Term Loans. ARTICLE X Collection Allocation Mechanism SECTION 10.01. Implementation of CAM. (a) On the CAM Exchange Date, (i) the Commitments shall automatically and without further act be terminated as provided in Section 7.01, (ii) each Revolving Lender shall immediately be deemed to have acquired (and shall promptly make payment therefor to the Administrative Agent in accordance with Section 2.04(c)) participations in the Swingline Loans in an amount equal to such Revolving Lender's Applicable Percentage of each Swingline Loan outstanding on such date and (iii) the Lenders shall automatically and without further act (and without regard to the provisions of Section 9.04) be deemed to have exchanged interests in the Loans (other than the Swingline Loans) and, in the case of the Revolving Lenders, participations in Swingline Loans and Letters of Credit such that in lieu of the interest of each Lender in each Loan and Letter of Credit in which it shall participate as of such date (including such Lender's interest in the Obligations of each Loan Party in respect of each such Loan and Letter of Credit), such Lender shall hold an interest in every one of the Loans (other than the Swingline Loans) and a participation in every one of the Swingline Loans and Letters of Credit (including the Obligations of each Loan Party in respect of each such Loan and each LC Reserve Account established pursuant to Section 10.02 below), whether or not such Lender shall previously have participated therein, equal to such Lender's CAM Percentage thereof. Each Lender and each Loan Party hereby consents and agrees to the CAM Exchange, and each Lender agrees that the CAM Exchange shall be binding upon its successors and assigns and any person that acquires a participation in its interests in any Loan. Each Loan Party agrees from time to time to execute and deliver to the Administrative Agent all such Notes and other instruments and documents as the Administrative Agent shall reasonably request to evidence and confirm the respective interests of the Lenders after giving effect to the CAM Exchange, and each Lender agrees to surrender any Notes originally received by it in connection with its Loans hereunder to the Administrative Agent against delivery of new Notes evidencing its interests in the Loans; provided, however, that the failure of any Loan Party to execute or deliver or of any Lender to accept any 167 such Note, instrument or document shall not affect the validity or effectiveness of the CAM Exchange. (b) As a result of the CAM Exchange, upon and after the CAM Exchange Date, each payment received by the Administrative Agent or the Collateral Agent pursuant to any Loan Document in respect of the Obligations, and each distribution made by the Collateral Agent pursuant to any Security Document in respect of the Obligations, shall be distributed to the Lenders pro rata in accordance with their respective CAM Percentages. Any direct payment received by a Lender upon or after the CAM Exchange Date, including by way of setoff, in respect of an Obligation shall be paid over to the Administrative Agent for distribution to the Lenders in accordance herewith. SECTION 10.02. Letters of Credit. (a) In the event that on the CAM Exchange Date any Letter of Credit shall be outstanding and undrawn in whole or in part, or any LC Disbursement shall not have been reimbursed either by the Cayman Borrower or, in the case of any LC Disbursement made in dollars, with the proceeds of a Revolving Borrowing, each Revolving Lender shall promptly pay over to the Administrative Agent, in immediately available funds, an amount in dollars equal to such Revolving Lender's Applicable Percentage of such undrawn face amount (or, in the case of any Alternative Currency Letter of Credit, the Dollar Equivalent of such face amount) or (to the extent it has not already done so) such unreimbursed drawing, as the case may be, together with interest thereon from the CAM Exchange Date to the date on which such amount shall be paid to the Administrative Agent at the rate that would be applicable at the time to an ABR Revolving Loan in a principal amount equal to such amount. The Administrative Agent shall establish a separate account or accounts for each Lender (each, an "LC Reserve Account") for the amounts received with respect to each such Letter of Credit pursuant to the preceding sentence. The Administrative Agent shall deposit in each Lender's LC Reserve Account such Lender's CAM Percentage of the amounts received from the Revolving Lenders as provided above, provided that in the case of amounts received in respect of Alternative Currency Letters of Credit, the Administrative Agent may, in its sole discretion, convert any or all of such amounts into the applicable Alternative Currency prior to or at any time after deposit. The Administrative Agent shall have sole dominion and control over each LC Reserve Account, and the amounts deposited in each LC Reserve Account shall be held in such LC Reserve Account until withdrawn as provided in paragraph (b) or (c) below. The Administrative Agent shall maintain records enabling it to determine the amounts paid over to it and deposited in the LC Reserve Accounts in respect of each Letter 168 of Credit and the amounts on deposit in respect of each Letter of Credit attributable to each Lender's CAM Percentage. The amounts held in each Lender's LC Reserve Account shall be held as a reserve against the LC Exposures, shall be the property of such Lender, shall not constitute Loans to or give rise to any claim of or against any Loan Party and shall not give rise to any obligation on the part of either Borrower to pay interest to such Lender, it being agreed that the reimbursement obligations in respect of Letters of Credit shall arise only at such times as drawings are made thereunder, as provided in Section 2.05. (b) In the event that after the CAM Exchange Date any drawing shall be made in respect of a Letter of Credit, the Administrative Agent shall, at the request of the Issuing Bank, withdraw from the LC Reserve Account of each Lender any amounts, up to the amount of such Lender's CAM Percentage of such drawing, deposited in respect of such Letter of Credit and remaining on deposit and deliver such amounts to the Issuing Bank in satisfaction of the reimbursement obligations of the Revolving Lenders under Section 2.05(d) (but not of the Cayman Borrower under Section 2.05(e)). In the event that any Revolving Lender shall default on its obligation to pay over any amount to the Administrative Agent in respect of any Letter of Credit as provided in this Section 10.02, the Issuing Bank shall, in the event of a drawing thereunder, have a claim against such Revolving Lender to the same extent as if such Lender had defaulted on its obligations under Section 2.05(d), but shall have no claim against any other Lender in respect of such defaulted amount, notwithstanding the exchange of interests in the Cayman Borrower's reimbursement obligations pursuant to Section 10.01. Each other Lender shall have a claim against such defaulting Revolving Lender for any damages sustained by it as a result of such default, including, in the event that such Letter of Credit shall expire undrawn, its CAM Percentage of the defaulted amount. (c) In the event that after the CAM Exchange Date any Letter of Credit shall expire undrawn, the Administrative Agent shall withdraw from the LC Reserve Account of each Lender the amount remaining on deposit therein in respect of such Letter of Credit and distribute such amount to such Lender. (d) With the prior written approval of the Administrative Agent (not to be unreasonably withheld), any Lender may withdraw the amount held in its LC Reserve Account in respect of the undrawn amount of any Letter of Credit. Any Lender making such a withdrawal shall be unconditionally obligated, in the event there shall subsequently be a drawing 169 under such Letter of Credit, to pay over to the Administrative Agent, for the account of the applicable Issuing Bank, on demand, its CAM Percentage of such drawing. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. NEW SAC, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY INTERNATIONAL, by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President SEAGATE TECHNOLOGY (US) HOLDINGS, INC., by /s/ Kenneth Hao ------------------------------------- Name: Kenneth Hao Title: Vice President THE CHASE MANHATTAN BANK, individually and as Administrative Agent, by /s/ Marian N. Schulman ------------------------------------- Name: Marian N. Schulman Title: Vice President GOLDMAN SACHS CREDIT PARTNERS L.P., individually and as a Documentation Agent, by /s/ Robert Wagner ------------------------------------- Name: Robert Wagner Title: Authorized Signatory 170 MERRILL LYNCH CAPITAL CORPORATION, individually and as a Documentation Agent, by /s/ Carol J.E. Feeley ------------------------------------- Name: Carol J.E. Feeley Title: Vice President THE BANK OF NOVA SCOTIA, individually and as a Documentation Agent, by /s/ Chris Johnson ------------------------------------- Name: Chris Johnson Title: Managing Director BANK OF AMERICA, N.A., by /s/ Kevin M. McMahon ------------------------------------- Name: Kevin M. McMahon Title: Managing Director BANK HAPOALIM, B.M., by /s/ Laura Anne Raffa ------------------------------------- Name: Laura Anne Raffa Title: First Vice President & Corporate Manager by /s/ James P. Surless ------------------------------------- Name: James P. Surless Title: Vice President BNP PARIBAS, by /s/ Tjalling Terpstra ------------------------------------- Name: Tjalling Terpstra Title: Director 171 by /s/ Janice Ho ------------------------------------- Name: Janice Ho Title: Director BAYERISCHE HYPO - UND VEREINSBANK AG, by /s/ Marianne Weinzinger ------------------------------------- Name: Marianne Weinzinger Title: Director by /s/ Yoram Dankner ------------------------------------- Name: Yoram Dankner Title: Managing Director CREDIT LYONNAIS NEW YORK BRANCH, by /s/ Michael Lord ------------------------------------- Name: Michael Lord Title: Vice President CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC. As: Attorney-in-Fact and on behalf of First Allmerica Financial Life Insurance Company as Portfolio Manager, by /s/ Johnathan D. Sharkey ------------------------------------- Name: Johnathan D. Sharkey Title: Principal 172 CYPRESSTREE INVESTMENT FUND, LLC By: CypressTree Investment Management Company, Inc. its Manager Member, by /s/ Johnathan D. Sharkey ------------------------------------- Name: Johnathan D. Sharkey Title: Principal NORTH AMERICAN SENIOR FLOATING RATE FUND By: CypressTree Investment Management Company, Inc. as its Portfolio Manager, by /s/ Johnathan D. Sharkey ------------------------------------- Name: Johnathan D. Sharkey Title: Principal FRANKLIN FLOATING RATE MASTER SERIES, by /s/ Chauncey Lufkin ------------------------------------- Name: Chauncey Lufkin Title: Vice President FUJI BANK, LTD., by /s/ Nobuoki Koike ------------------------------------- Name: Nobuoki Koike Title: Vice President & Senior Team Leader GMAC COMMERCIAL CREDIT LLC, by /s/ Frank Imperato ------------------------------------- Name: Frank Imperato Title: Senior Vice President 173 IBM CREDIT CORPORATION, by /s/ Ronald J. Bachner ------------------------------------- Name: Ronald J. Bachner Title: Mgr. Commercial & Specialty Financing Sales KEMPER FLOATING RATE FUND, by /s/ Kelly D. Babson ------------------------------------- Name: Kelly D. Babson Title: Managing Director KZH CYPRESSTREE-1 LLC, by /s/ Susan Lee ------------------------------------- Name: Susan Lee Title: Authorized Agent KZH WATERSIDE LLC, by /s/ Susan Lee ------------------------------------- Name: Susan Lee Title: Authorized Agent KZH CNC LLC, by /s/ Susan Lee ------------------------------------- Name: Susan Lee Title: Authorized Agent KZH RIVERSIDE LLC, by /s/ Susan Lee ------------------------------------- Name: Susan Lee Title: Authorized Agent 174 KZH SHOSHONE LLC, by /s/ Susan Lee ------------------------------------- Name: Susan Lee Title: Authorized Agent METROPOLITAN LIFE INSURANCE COMPANY, by /s/ John Rosenthal ------------------------------------- Name: John Rosenthal Title: Managing Director MONY LIFE INSURANCE COMPANY, by /s/ Suzanne E. Walton ------------------------------------- Name: Suzanne E. Walton Title: Managing Director MONY LIFE INSURANCE COMPANY OF AMERICA, by /s/ Suzanne E. Walton ------------------------------------- Name: Suzanne B. Walton Title: Authorized Agent MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST, by /s/ Sheila A. Finnerty ------------------------------------- Name: Sheila A. Finnerty Title: Senior Vice President 175 MUIRFIELD TRADING LLC, by /s/ Kelly C. Walker ------------------------------------- Name: Kelly C. Walker Title: Vice President OLYMPIC FUNDING TRUST, SERIES 1999-1 by /s/ Kelly C. Walker ------------------------------------- Name: Kelly C. Walker Title: Vice President WINGED FOOT FUNDING TRUST, by /s/ Kelly C. Walker ------------------------------------- Name: Kelly C. Walker Title: Vice President NEW YORK LIFE INSURANCE COMPANY, by /s/ Anthony R. Malloy ------------------------------------- Name: Anthony R. Malloy Title: Investment Vice President NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION, By: New York Life Investment Management LLC, its Investment Manager, by /s/ Anthony R. Malloy ------------------------------------- Name: Anthony R. Malloy Title: Director 176 NUVEEN FLOATING RATE FUND, By: Nuveen Senior Loan Asset Management Inc., by /s/ Todd Abramson ------------------------------------- Name: Todd Abramson Title: Vice President NUVEEN SENIOR INCOME FUND, By: Nuveen Senior Loan Asset Management Inc., by /s/ Todd Abramson ------------------------------------- Name: Todd Abramson Title: Vice President OPPENHEIMER SENIOR FLOATING RATE FUND, by /s/ David Foxhoven ------------------------------------- Name: David Foxhoven Title: Assistant Vice President ORIX USA CORPORATION, by /s/ Hirovuki Miyauchi ------------------------------------- Name: Hiroyuki Miyauchi Title: EVP, Corporate Finance Group SRF TRADING, INC., by /s/ Kelly C. Walter ------------------------------------- Name: Kelly C. Walker Title: Vice President 177 SRF 2000 LLC, by /s/ Kelly C. Walker ------------------------------------- Name: Kelly C. Walker Title: Vice President STEIN ROE & FARNHAM INCORPORATED, AS AGENT FOR KEYPORT LIFE INSURANCE COMPANY, by /s/ Brian W. Good ------------------------------------- Name: Brian W. Good Title: Sr. Vice President and Portfolio Manager LIBERTY - STEIN ROE ADVISOR FLOATING RATE ADVANTAGE FUND, By: Stein Roe & Farnham Incorporated, as Advisor by /s/ Brian W. Good ------------------------------------- Name: Brian W. Good Title: Sr. Vice President & Portfolio Manager STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY, by /s/ Brian W. Good ------------------------------------- Name: Brian W. Good Title: Senior Vice President Stein Roe & Farnham Incorporated, as Advisor to the Stein Roe Floating Rate Limited Liability Company 178 THE TRAVELERS INSURANCE COMPANY by /s/ William M. Gardner ------------------------------------- Name: William M. Gardner Title: Asst. Investment Officer TRAVELERS CORPORATE LOAN FUND INC. By: Travelers Asset Management International Company LLC, by /s/ William M. Gardner ------------------------------------- Name: William M. Gardner Title: Asst. Investment Officer SCHEDULE 1.02 Jurisdictions of Core Loan Parties ---------------------------------- The United States The Cayman Islands Singapore Northern Ireland Scotland The Netherlands England Mexico Japan Thailand Canada SCHEDULE 2.05(a) Existing Letters of Credit
Date of Issuance Issuer Applicant Beneficiary Amount and Currency Expiration Date - ---------------- ------ --------- ----------- ------------------- ---------------
EX-10.3(A) 28 0028.txt FORM OF EMPLOYMENT AGREEMENT EXHIBIT 10.3(a) FORM OF EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") dated as of February 2, 2001 by and between Seagate Technology (US) Holdings, Inc., a Delaware corporation (the "Company"), and ____________ (the "Executive"). Seagate Technology, Inc. ("Seagate") and Suez Acquisition Company (Cayman) Limited ("SAC") entered into a Stock Purchase Agreement dated as of March 29, 2000 (as amended, the "Stock Purchase Agreement"), pursuant to which, as of the Closing which occurred on the Closing Date (each as defined in the Stock Purchase Agreement), SAC, subject to certain exclusions, acquired all of the shares of various subsidiaries of Seagate and, indirectly, substantially all of the operating assets of Seagate; Prior to the consummation of the transactions pursuant to the Stock Purchase Agreement, SAC assigned all of its rights and obligations under the Stock Purchase Agreement to New SAC, a limited company incorporated in the Cayman Islands ("New SAC") The Company desires to employ Executive and to enter into an agreement embodying the terms of such employment; Executive desires to accept such employment and enter into such an agreement; In consideration of the premises and mutual covenants herein and for other good and valuable consideration, the parties agree as follows: 1. Term of Employment. Subject to the provisions of Section 7 of this Agreement, Executive shall be employed by the Company for a period commencing on the Closing Date (the "Commencement Date") and ending on the third anniversary of the Commencement Date (the "Employment Term") on the terms and subject to the conditions set forth in this Agreement; provided, however, that commencing with the date following the third anniversary of the Commencement Date, and on each anniversary thereafter (each an "Extension Date"), the Employment Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 30 days prior written notice before the next Extension Date that the Employment Term shall not be so extended. 2. Position. a. During the Employment Term, Executive shall serve in the positions set forth on Exhibit A. In such position, Executive shall have duties and authority at a level consistent with the duties and authority set forth on Exhibit A and such other duties and responsibilities as shall be determined from time to time by the Board of Directors of the Company (the "Board"). If requested, Executive shall also serve as a member of the Board without additional compensation. b. During the Employment Term, Executive will devote Executive's full business time and best efforts to the performance of Executive's duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the rendition of such services either directly or indirectly, without the prior written consent of the Board; provided that Executive may continue to serve as a member of the boards of directors and trustees listed on Exhibit B hereto ; provided in each case, and in the aggregate, that such activities do not conflict or interfere with the performance of Executive's duties hereunder or conflict with Section 8. 3. Base Salary. During the Employment Term, the Company shall pay Executive a base salary at the annual rate of $_____________, payable in regular installments in accordance with the Company's usual payment practices. Beginning with the fiscal year commencing July 1, 2001, Executive's annual base salary shall be reviewed within 30 days of the start of that fiscal year and will be reviewed each year thereafter during the Employment Term, and, if appropriate, it shall be increased from time to time in the sole discretion of the Board. The base salary specified in this Section 3, together with any increases in such base salary that the Board may make thereto from time to time, is herein after referred to as the "Base Salary." 4. Annual Bonus. With respect to the fiscal year ending June 30, 2001 and with respect to each full fiscal year thereafter during the Employment Term, Executive shall be eligible to earn an annual bonus award (an "Annual Bonus") of up to ___% of Executive's Base Salary (the "Target") based upon the achievement of annual performance targets established by the Board within the first three months of each fiscal year during the Employment Term; provided that the annual performance targets for the fiscal year in which the Closing occurs shall be established by the Board within 90 days following the Closing. Executive shall, by prior irrevocable election, have the right to defer the payment of each such bonus for one or more years, and during the deferral period, Executive shall have the right to designate, from among a number of investment alternatives, the investments which shall serve as the measure of the investment return on his or her deferred compensation. If all or any portion of the Annual Bonus otherwise payable to Executive for any fiscal year of the Company would not in fact be deductible for federal income tax purposes by reason of the limitation of section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), then the portion of such Annual Bonus which is not so deductible shall be deferred and paid to Executive in one lump sum upon the first date on which such payment may be made without exceeding any applicable limitation on deductibility under Code section 162(m). During the period in which payment of the Annual Bonus is deferred, whether in whole or in part, the deferred portion of such Annual Bonus shall be held in a grantor trust established by the Company for Executive's benefit, and Executive shall have the right to designate the investments, from a number of diversified investment alternatives designated by the Company, which shall serve as the measure of the investment return on such deferred portion. 5. Employee Benefits/Equity Awards. a. During the Employment Term, Executive shall be provided health, life and disability insurance and retirement and fringe benefits that are comparable, in the aggregate, to those benefits made available to the senior executives of Seagate immediately prior to the Closing. b. Promptly following the date hereof, Executive shall be granted an option to purchase shares of the Company or an affiliate, the number of shares and the terms and conditions of the option to be determined by the Board of Directors of New SAC. Notwithstanding the foregoing, the option agreement representing the right to purchase such shares shall provide that if the Executive's employment is terminated by the Company without Cause (as defined below) or if the Executive resigns for Good Reason (as defined below), the option shall immediately vest and become exercisable for all the shares at the time subject to the option. 6. Business Expenses. During the Employment Term, reasonable business expenses incurred by Executive in the performance of Executive's duties hereunder shall be reimbursed by the Company in accordance with Company policies. 7. Termination. The Employment Term and Executive's employment hereunder may be terminated by either party at any time and for any reason; provided that Executive will be required to give the Company at least 30 days advance written notice of any resignation of Executive's employment without Good Reason. Notwithstanding any other provision of this Agreement, the provisions of this Section 7 shall exclusively govern Executive's rights upon termination of employment with the Company and its affiliates; provided that nothing in this Agreement shall affect or otherwise modify Executive's rights, benefits or entitlements under (i) the Deferred Compensation Plan into which Executive has rolled the value of his unvested Seagate options and/or unvested Seagate share pursuant to his Rollover Agreement with SAC dated November 13, 2000 (the "Rollover Agreement"), (ii) his Restricted Share Agreement with SAC dated November 22, 2000, (iii) the Management Retention Agreement between Executive and Seagate dated as of ________________ (as amended by the Management Participation Agreement dated as of March 29, 2000 between Executive and SAC and the Rollover Agreement) (the "Management Retention Agreement") and (iv) any stock option agreements or restricted share agreements and the awards subject to such agreements which may be awarded to Executive from time to time following the Closing (collectively, the "Collateral Documents"). a. By the Company For Cause or By Executive Resignation Without Good Reason. (i) The Employment Term and Executive's employment hereunder may be terminated by the Company for Cause (as defined below) and shall terminate automatically upon Executive's resignation without Good Reason (as defined in Section 7(C)); provided that Executive will be required to give the Company at least 30 days advance written noticE of a resignation without Good Reason. (ii) For purposes of this Agreement, "Cause" shall mean (A) Executive's continued failure to substantially perform the material duties of his office (other than as a result of total or partial incapacity due to physical or mental illness), (B) embezzlement or theft by Executive of the Company's property, (C) the commission of any act or acts on Executive's part resulting in the conviction of such Executive of a felony under the laws of the United States or any state, (D) Executive's willful malfeasance or willful misconduct in connection with Executive's duties to Company or any other act or omission which is materially injurious to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates, or (E) a material breach by Executive of the material terms of this Agreement, the Management Stockholders Agreement dated as of November 22, 2000, or any non-compete, non-solicitation or confidentiality provisions to which Executive is subject. However, no termination shall be deemed for Cause under clause (A), (D) or (E) unless Executive is first given written notice by the Company of the specific acts or omissions which the Company deems constitute grounds for a termination for Cause and is provided with at least 30 days after such notice to cure the specified deficiency. (iii) If Executive's employment is terminated by the Company for Cause, or if Executive resigns without Good Reason, Executive shall be entitled to receive: (A) the Base Salary through the date of termination; (B) any Annual Bonus earned but unpaid as of the date of termination for any previously completed fiscal year; (C) reimbursement for any unreimbursed business expenses properly incurred by Executive in accordance with Company policy prior to the date of Executive's termination; and (D) such employee benefits, if any, as to which Executive may be entitled under the employee benefit plans of the Company (the amounts described in clauses (A) through (D) hereof being referred to as the "Accrued Rights"). Following such termination of Executive's employment by the Company for Cause or resignation by Executive without Good Reason, except as set forth in this Section 7(a)(iii) or in the Collateral Documents, Executive shall have no further rights to any compensation or any other benefits under this Agreement. b. Disability or Death. (i) The Employment Term and Executive's employment hereunder shall terminate upon Executive's death and may be terminated by the Company upon fifteen (15) days prior written notice to Executive if Executive becomes physically or mentally incapacitated and is therefore unable for a period of six consecutive months or for an aggregate of nine months in any twenty-four consecutive month period to perform Executive's duties (such incapacity is hereinafter referred to as "Disability"). Any question as to the existence of the Disability of Executive as to which Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Company. If Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and Executive shall be final and conclusive for all purposes of the Agreement. (ii) Subject to reduction by the present value of any other cash severance or cash termination benefits payable to Executive under any other plans, programs or arrangements of the Company or its affiliates, including, but not limited to, the Management Retention Agreement, upon termination of Executive's employment hereunder for either death or Disability, Executive or Executive's estate (as the case may be) shall be entitled to receive: (A) the Accrued Rights; and (B) a pro rata portion of any Annual Bonus, if any, that Executive would have been entitled to receive pursuant to Section 4 hereof in such year based upon (i) the percentage of the fiscal year that shall have elapsed through the date of Executive's termination of employment and (ii) to the extent payment of the Annual Bonus is based upon subjective individual performance criteria, based upon the actual performance of Executive during the portion of such fiscal year that Executive was employed by the Company prior to such death or Disability, payable when such Annual Bonus would have otherwise been payable had Executive's employment not terminated. Following Executive's termination of employment due to death or Disability, except as set forth in this Section 7(b)(ii) or in the Collateral Documents, Executive shall have no further rights to any compensation or any other benefits under this Agreement. c. By the Company Without Cause or Resignation by Executive for Good Reason. (i) The Employment Term and Executive's employment hereunder may be terminated by the Company without Cause or by Executive's resignation for Good Reason. (ii) For purposes of this Agreement, "Good Reason" shall mean Executive's resignation of Executive's employment with the Company as a result of the following actions, which actions remain uncured for at least 30 days following written notice from Executive to the Company describing the occurrence of such events and asserting that such events constitute grounds for a Good Reason resignation, provided notice of such resignation is given to the Company within 60 days after the expiration of the cure period: (A) without Executive's express written consent, any material reduction in the level of Executive's authority or duties from those set forth on Exhibit A of this Agreement (including, for these purposes, any authority or duties assigned to Executive with the consent of Executive and the Board within 90 days following the Closing Date); provided, however, that, for the avoidance of doubt, the sale by New SAC of Seagate Removable Storage Solutions Holdings, Seagate Software (Cayman) Holdings, XIOTECH Corporation or any of their subsidiaries shall not be considered a material reduction in the level of Executive's authority or duties; (B) without Executive's express written consent, a reduction of 10% or more in the level of the base salary, target annual bonus or employee benefits to be provided to Executive under this Agreement, other than a reduction implemented with the consent of Executive or a reduction that is equivalent to reduction in base salaries, bonus opportunities and/or employee benefits, as applicable, imposed on all other senior executives of the Company at a similar level within the Company (provided that the use of private aircraft shall not be deemed an employee benefit for these purposes); or (C) the relocation of Executive to a principal place of employment more than 50 miles from Executive's current principal place of employment, without Executive's express written consent. (iii) Subject to reduction by the present value of any other cash severance or cash termination benefits payable to Executive under any other plans, programs or arrangements of the Company or its affiliates, including, but not limited to, the Management Retention Agreement, if Executive's employment is terminated by the Company without Cause (other than by reason of death or Disability) or if Executive resigns for Good Reason, Executive shall be entitled to receive: (A) the Accrued Rights; (B) subject to Executive's continued compliance with the provisions of Sections 8 and 9, continued payment of the Base Salary and monthly payments of the Executive's Target Annual Bonus divided by twelve for (x) __ months if such termination occurs on or prior to the second anniversary of the Commencement Date, or (y) __ months if such termination occurs following the ______ anniversary of the Commencement Date (as applicable, the "Severance Period"); and (C) subject to Executive's continued compliance with the provisions of Sections 8 and 9, continued coverage under the Company's health, dental and life insurance programs for the Severance Period on the same basis as such coverage is generally provided to active senior executives of the Company, such continued coverage shall be without duplication of benefit coverage provided under any other plan, program or arrangement of the Company or its affiliates (including, without limitation, the Management Retention Agreement) and, for the avoidance of doubt, Executive shall be entitled to the continued coverage that is most favorable to Executive. Following Executive's termination of employment by the Company without Cause (other than by reason of Executive's death or Disability) or by Executive's resignation for Good Reason, except as set forth in this Section 7(c)(iii) or in the Collateral Documents, Executive shall have no further rights to any compensation or any other benefits under this Agreement. d. Expiration of Employment Term. (i) Election Not to Extend the Employment Term. In the event either party elects not to extend the Employment Term pursuant to Section 1, unless Executive's employment is earlier terminated pursuant to paragraphs (a), (b) or (c) of this Section 7, Executive's termination of employment hereunder (whether or not Executive continues as an employee of the Company thereafter) shall be deemed to occur on the close of business on the day immediately preceding the next scheduled Extension Date and, unless Executive continues as an employee of the Company, Executive shall be entitled to receive the Accrued Rights. Following such termination of Executive's employment hereunder as a result of either party's election not to extend the Employment Term, except as set forth in this Section 7(d)(i) or in the Collateral Documents, Executive shall have no further rights to any compensation or any other benefits under this Agreement. (ii) Continued Employment Beyond the Expiration of the Employment Term. Unless the parties otherwise agree in writing, continuation of Executive's employment with the Company beyond the expiration of the Employment Term shall be deemed an employment at-will and shall not be deemed to extend any of the provisions of this Agreement and Executive's employment may thereafter be terminated at will by either Executive or the Company; provided that the provisions of Sections 8, 9 and 10 of this Agreement shall survive any termination of this Agreement or Executive's termination of employment hereunder. e. Notice of Termination. Any purported termination of employment by the Company or by Executive (other than due to Executive's death) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 11(h) hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. f. Board/Committee Resignation. Upon termination of Executive's employment for any reason, Executive agrees to resign, as of the date of such termination and to the extent applicable, from the Board (and any committees thereof) and the Board of Directors (and any committees thereof) of any of the Company's affiliates. 8. Non-Competition. a. Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its affiliates and accordingly agrees as follows: (1) Except as otherwise expressly provided in Section 8(c), during the Employment Term and, for a period of __ year(s) following the date Executive ceases to be employed by the Company; provided, however, if Executive is terminated without Cause or resigns for Good Reason on or prior to the second anniversary of the Commencement Date, for a period of __ years following the date Executive ceases to be employed by the Company (the "Restricted Period"), Executive will not, whether on Executive's own behalf or on behalf of or in conjunction with any person, company, business entity or other organization whatsoever, directly or indirectly solicit or assist in soliciting in competition with the Company, the business of any client or prospective client: (i) with whom Executive had personal contact or dealings on behalf of the Company during the one year period preceding Executive's termination of employment; (ii) with whom employees reporting to Executive have had personal contact or dealings on behalf of the Company during the one year immediately preceding the Executive's termination of employment; or (iii) for whom Executive had direct or indirect responsibility during the one year immediately preceding Executive's termination of employment. (2) Except as otherwise expressly provided in Section 8(c), during the Restricted Period, Executive will not directly or indirectly: (i) engage in any business that competes with the business of New SAC or its subsidiaries (including, without limitation, businesses which New SAC or its subsidiaries have specific plans to conduct in the future and as to which Executive is aware of such planning) in any geographical area which is within 100 miles of any geographical area in which New SAC or its subsidiaries conduct such business (a "Competitive Business"); (ii) enter the employ of, or render any services to, any person or entity (or any division of any person or entity) who or which engages in a Competitive Business; (iii) acquire a financial interest in, or otherwise become actively involved with, any Competitive Business, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; or (iv) interfere with, or attempt to interfere with, business relationships (whether formed before, on or after the date of this Agreement) between New SAC or any of its subsidiaries and customers, clients, suppliers, partners, members or investors of New SAC or its subsidiaries. (3) Notwithstanding anything to the contrary in this Agreement, Executive may, directly or indirectly own, solely as an investment, securities of any person engaged in the business of New SAC or its subsidiaries which are publicly traded on a national or regional stock exchange or on the over-the-counter market if Executive (i) is not a controlling person of, or a member of a group which controls, such person and (ii) does not, directly or indirectly, own 5% or more of any class of securities of such person. (4) During the Restricted Period, Executive will not, whether on Executive's own behalf or on behalf of or in conjunction with any person, company, business entity or other organization whatsoever, directly or indirectly: (i) solicit or encourage any employee of New SAC or its subsidiaries to leave the employment of New SAC or its subsidiaries; or (ii) hire any such employee who was employed by New SAC or its subsidiaries as of the date of Executive's termination of employment with the Company or who left the employment of New SAC or its subsidiaries coincident with, or within one year prior to or after, the termination of Executive's employment with the Company. (5) During the Restricted Period, Executive will not, directly or indirectly, solicit or encourage to cease to work with New SAC or its subsidiaries any consultant then under contract with New SAC or its subsidiaries. b. It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 8 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. c. Notwithstanding the foregoing, the restrictions on soliciting clients or prospective clients set forth in Section 8(a)(1) and on engaging in Competitive Businesses set forth in Section 8(a)(2) shall not apply to Executive following the expiration of the Employment Term if the Employment Term is terminated due to the Company's election not to extend the Employment Term pursuant to Section 1, unless the Company elects in writing, in its sole discretion, to pay Executive, following Executive's termination of employment with the Company, the amounts set forth in Section 7(c)(iii) that would have been payable to Executive in the event Executive's termination had been terminated by the Company immediately prior to the expiration of the Employment Term without Cause, in which case the provisions of Sections 8(a)(1) and 8(a)(2) shall continue to apply. 9. Confidentiality; Inventions. Executive agrees to sign, and abide by the terms of, the Company's standard At-Will Employment, Confidential Information and Invention Assignment Agreement (the "Standard Agreement"), a copy of which is attached hereto as Exhibit C and the terms of which are hereby incorporated herein by reference and made a part of this Agreement; provided that (i) the Company acknowledges that the provisions of the Standard Agreement regarding "at will" employment shall not affect Executive's rights under this Agreement and (ii) Executive acknowledges and agrees that to the extent any original works of authorship which are made by Executive (solely or jointly with others) within the scope of and during the period of Executive's employment with the Company are deemed not to be "works made for hire," Executive hereby assigns the copyright and all other intellectual property rights in such works to the Company; provided further that the foregoing assignment shall not apply to inventions, the assignment of which is prohibited by California Labor Code Section 2870. 10. Specific Performance. Executive acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of Section 8 or Section 9 would be inadequate and the Company would suffer irreparable damages ads a result of any such breach or threatened breach. In recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available entitled and, in the case of any material breach of such provisions, to cease making any payments or providing any benefit otherwise required by this Agreement. 11. Miscellaneous. a. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. b. Entire Agreement/Amendments. (i) Except as otherwise provided in Section 11(b)(ii) below, this Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Company, and this Agreement supercedes all prior agreements and understandings (including verbal agreements) between Executive and the Company and/or its affiliates regarding the terms and conditions of Executive's employment with the Company and/or its affiliates. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto. (ii) Nothing in this Agreement shall affect or in any manner otherwise modify Executive's rights, benefits and entitlements under the Collateral Documents; provided that this Agreement does supercede the provisions of the Management Agreement dated as of March 29, 2000 among SAC and Executive which described the material terms of an employment agreement to be entered into between SAC and Executive (the "Management Agreement") and the provisions of the Management Agreement referred to, or otherwise incorporated into, any of the Collateral Documents. c. No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. d. Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby. e. Assignment. This Agreement shall not be assignable by Executive. This Agreement may be assigned by the Company to a person or entity which is an affiliate or a successor in interest to substantially all of the business operations of the Company. Upon such assignment, the rights and obligations of the Company hereunder shall become the rights and obligations of such affiliate or successor person or entity. The failure of any such affiliate or successor person or entity to accept the assignment of the Company's obligations under this Agreement (other than an assignment which occurs by operation of law) shall constitute additional grounds for a resignation for Good Reason by Executive under Section 7(c) of this Agreement. f. Set Off The Company's obligation to pay Executive the amounts provided and to make the arrangements provided hereunder shall be subject to set-off, counterclaim or recoupment of amounts owed by Executive to the Company or its affiliates g. Successors; Binding Agreement. This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributes, devises and legatees. h. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or overnight courier or three days after it has been mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. If to the Company: Seagate Technology (US) Holdings, Inc. 920 Disc Drive Scotts Valley, CA 95066 Attention: General Counsel If to Executive: To the most recent address of Executive set forth in the personnel records of the Company. i. Executive Representation. Executive hereby represents to the Company that the execution and delivery of this Agreement by Executive and the Company and the performance by Executive of Executive's duties hereunder shall not constitute a breach of, or otherwise contravene, the terms of any employment agreement or other agreement or policy to which Executive is a party or otherwise bound. j. Cooperation. Executive shall provide his reasonable cooperation in connection with any action or proceeding (or any appeal from any action or proceeding) which relates to events occurring during Executive's employment hereunder. This provision shall survive any termination of this Agreement. k. Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such Federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation. l. Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. SEAGATE TECHNOLOGY (US) HOLDINGS, INC. ------------------------------------- By: Title: EXECUTIVE -------------------------------------- EXHIBIT A (DUTIES AND AUTHORITY) EXHIBIT B (CURRENT BOARD/TRUSTEE MEMBERSHIPS) EXHIBIT C (STANDARD AT-WILL EMPLOYMENT, CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT) EX-10.3(B) 29 0029.txt EMPLOYMENT AGREEMENT WITH STEPHEN J. LUCZO EXHIBIT 10.3(B) EMPLOYMENT AGREEMENT STEPHEN J. LUCZO EMPLOYMENT AGREEMENT (the "Agreement") dated as of February 2, 2001 by and between Seagate Technology (US) Holdings, Inc., a Delaware corporation (the "Company"), and Stephen J. Luczo (the "Executive"). Seagate Technology, Inc. ("Seagate") and Suez Acquisition Company (Cayman) Limited ("SAC") entered into a Stock Purchase Agreement dated as of March 29, 2000 (as amended, the "Stock Purchase Agreement"), pursuant to which, as of the Closing which occurred on the Closing Date (each as defined in the Stock Purchase Agreement), SAC, subject to certain exclusions, acquired all of the shares of various subsidiaries of Seagate and, indirectly, substantially all of the operating assets of Seagate; Prior to the consummation of the transactions pursuant to the Stock Purchase Agreement, SAC assigned all of its rights and obligations under the Stock Purchase Agreement to New SAC, a limited company incorporated in the Cayman Islands ("New SAC") The Company desires to employ Executive and to enter into an agreement embodying the terms of such employment; Executive desires to accept such employment and enter into such an agreement; In consideration of the premises and mutual covenants herein and for other good and valuable consideration, the parties agree as follows: 1. Term of Employment. Subject to the provisions of Section 7 of this Agreement, Executive shall be employed by the Company for a period commencing on the Closing Date (the "Commencement Date") and ending on the third anniversary of the Commencement Date (the "Employment Term") on the terms and subject to the conditions set forth in this Agreement; provided, however, that commencing with the date following the third anniversary of the Commencement Date, and on each anniversary thereafter (each an "Extension Date"), the Employment Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto 30 days prior written notice before the next Extension Date that the Employment Term shall not be so extended. 2. Position. a. During the Employment Term, Executive shall serve in the positions set forth on Exhibit A. In such position, Executive shall have duties and authority at a level consistent with the duties and authority set forth on Exhibit A and such other duties and responsibilities as shall be determined from time to time by the Board of Directors of the Company (the "Board"). If requested, Executive shall also serve as a member of the Board without additional compensation. b. During the Employment Term, Executive will devote Executive's full business time and best efforts to the performance of Executive's duties hereunder and will 2 not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the rendition of such services either directly or indirectly, without the prior written consent of the Board; provided that Executive may continue to serve as a member of the boards of directors and trustees listed on Exhibit B hereto ; provided in each case, and in the aggregate, that such activities do not conflict or interfere with the performance of Executive's duties hereunder or conflict with Section 8. 3. Base Salary. During the Employment Term, the Company shall pay Executive a base salary at the annual rate of $1,000,000, payable in regular installments in accordance with the Company's usual payment practices. Beginning with the fiscal year commencing July 1, 2001, Executive's annual base salary shall be reviewed within 30 days of the start of that fiscal year and will be reviewed each year thereafter during the Employment Term, and, if appropriate, it shall be increased from time to time in the sole discretion of the Board. The base salary specified in this Section 3, together with any increases in such base salary that the Board may make thereto from time to time, is herein after referred to as the "Base Salary." 4. Annual Bonus. With respect to the fiscal year ending June 30, 2001 and with respect to each full fiscal year thereafter during the Employment Term, Executive shall be eligible to earn an annual bonus award (an "Annual Bonus") of up to 125% of Executive's Base Salary (the "Target") based upon the achievement of annual performance targets established by the Board within the first three months of each fiscal year during the Employment Term; provided that the annual performance targets for the fiscal year in which the Closing occurs shall be established by the Board within 90 days following the Closing. Executive shall, by prior irrevocable election, have the right to defer the payment of each such bonus for one or more years, and during the deferral period, Executive shall have the right to designate, from among a number of investment alternatives, the investments which shall serve as the measure of the investment return on his or her deferred compensation. If all or any portion of the Annual Bonus otherwise payable to Executive for any fiscal year of the Company would not in fact be deductible for federal income tax purposes by reason of the limitation of section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), then the portion of such Annual Bonus which is not so deductible shall be deferred and paid to Executive in one lump sum upon the first date on which such payment may be made without exceeding any applicable limitation on deductibility under Code section 162(m). During the period in which payment of the Annual Bonus is deferred, whether in whole or in part, the deferred portion of such Annual Bonus shall be held in a grantor trust established by the Company for Executive's benefit, and Executive shall have the right to designate the investments, from a number of diversified investment alternatives designated by the Company, which shall serve as the measure of the investment return on such deferred portion. 3 5. Employee Benefits/Equity Awards. a. During the Employment Term, Executive shall be provided health, life and disability insurance and retirement and fringe benefits that are comparable, in the aggregate, to those benefits made available to the senior executives of Seagate immediately prior to the Closing. b. Promptly following the date hereof, Executive shall be granted an option to purchase shares of the Company or an affiliate, the number of shares and the terms and conditions of the option to be determined by the Board of Directors of New SAC. Notwithstanding the foregoing, the option agreement representing the right to purchase such shares shall provide that if the Executive's employment is terminated by the Company without Cause (as defined below) or if the Executive resigns for Good Reason (as defined below), the option shall immediately vest and become exercisable for all the shares at the time subject to the option. 6. Business Expenses. During the Employment Term, reasonable business expenses incurred by Executive in the performance of Executive's duties hereunder shall be reimbursed by the Company in accordance with Company policies. 7. Termination. The Employment Term and Executive's employment hereunder may be terminated by either party at any time and for any reason; provided that Executive will be required to give the Company at least 30 days advance written notice of any resignation of Executive's employment without Good Reason. Notwithstanding any other provision of this Agreement, the provisions of this Section 7 shall exclusively govern Executive's rights upon termination of employment with the Company and its affiliates; provided that nothing in this Agreement shall affect or otherwise modify Executive's rights, benefits or entitlements under (i) the Deferred Compensation Plan into which Executive has rolled the value of his unvested Seagate options and/or unvested Seagate share pursuant to his Rollover Agreement with SAC dated November 13, 2000 (the "Rollover Agreement"), (ii) his Restricted Share Agreement with SAC dated November 22, 2000, (iii) the Management Retention Agreement between Executive and Seagate dated as of November 12, 1998 (as amended by the Management Participation Agreement dated as of March 29, 2000 between Executive and SAC and the Rollover Agreement) (the "Management Retention Agreement") and (iv) any stock option agreements or restricted share agreements and the awards subject to such agreements which may be awarded to Executive from time to time following the Closing (collectively, the "Collateral Documents"). a. By the Company For Cause or By Executive Resignation Without Good Reason. (i) The Employment Term and Executive's employment hereunder may be terminated by the Company for Cause (as defined below) and shall terminate automatically upon Executive's resignation without Good Reason (as defined in Section 7(C)); provided that Executive will be required to give the Company at least 30 days advance written notice of a resignation without Good Reason. (ii) For purposes of this Agreement, "Cause" shall mean (A) Executive's continued failure to substantially perform the material duties of his office (other than as a result of total or partial incapacity due to physical or mental illness), (B) embezzlement or theft by 4 Executive of the Company's property, (C) the commission of any act or acts on Executive's part resulting in the conviction of such Executive of a felony under the laws of the United States or any state, (D) Executive's willful malfeasance or willful misconduct in connection with Executive's duties to Company or any other act or omission which is materially injurious to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates, or (E) a material breach by Executive of the material terms of this Agreement, the Management Stockholders Agreement dated as of November 22, 2000, or any non-compete, non-solicitation or confidentiality provisions to which Executive is subject. However, no termination shall be deemed for Cause under clause (A), (D) or (E) unless Executive is first given written notice by the Company of the specific acts or omissions which the Company deems constitute grounds for a termination for Cause and is provided with at least 30 days after such notice to cure the specified deficiency. (iii) If Executive's employment is terminated by the Company for Cause, or if Executive resigns without Good Reason, Executive shall be entitled to receive: (A) the Base Salary through the date of termination; (B) any Annual Bonus earned but unpaid as of the date of termination for any previously completed fiscal year; (C) reimbursement for any unreimbursed business expenses properly incurred by Executive in accordance with Company policy prior to the date of Executive's termination; and (D) such employee benefits, if any, as to which Executive may be entitled under the employee benefit plans of the Company (the amounts described in clauses (A) through (D) hereof being referred to as the "Accrued Rights"). Following such termination of Executive's employment by the Company for Cause or resignation by Executive without Good Reason, except as set forth in this Section 7(a)(iii) or in the Collateral Documents, Executive shall have no further rights to any compensation or any other benefits under this Agreement. b. Disability or Death. (i) The Employment Term and Executive's employment hereunder shall terminate upon Executive's death and may be terminated by the Company upon fifteen (15) days prior written notice to Executive if Executive becomes physically or mentally incapacitated and is therefore unable for a period of six consecutive months or for an aggregate of nine months in any twenty-four consecutive month period to perform Executive's duties (such incapacity is hereinafter referred to as "Disability"). Any question as to the existence of the Disability of Executive as to which Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Company. If Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and Executive shall be final and conclusive for all purposes of the Agreement. 5 (ii) Subject to reduction by the present value of any other cash severance or cash termination benefits payable to Executive under any other plans, programs or arrangements of the Company or its affiliates, including, but not limited to, the Management Retention Agreement, upon termination of Executive's employment hereunder for either death or Disability, Executive or Executive's estate (as the case may be) shall be entitled to receive: (A) the Accrued Rights; and (B) a pro rata portion of any Annual Bonus, if any, that Executive would have been entitled to receive pursuant to Section 4 hereof in such year based upon (i) the percentage of the fiscal year that shall have elapsed through the date of Executive's termination of employment and (ii) to the extent payment of the Annual Bonus is based upon subjective individual performance criteria, based upon the actual performance of Executive during the portion of such fiscal year that Executive was employed by the Company prior to such death or Disability, payable when such Annual Bonus would have otherwise been payable had Executive's employment not terminated. Following Executive's termination of employment due to death or Disability, except as set forth in this Section 7(b)(ii) or in the Collateral Documents, Executive shall have no further rights to any compensation or any other benefits under this Agreement. c. By the Company Without Cause or Resignation by Executive for Good Reason. (i) The Employment Term and Executive's employment hereunder may be terminated by the Company without Cause or by Executive's resignation for Good Reason. (ii) For purposes of this Agreement, "Good Reason" shall mean Executive's resignation of Executive's employment with the Company as a result of the following actions, which actions remain uncured for at least 30 days following written notice from Executive to the Company describing the occurrence of such events and asserting that such events constitute grounds for a Good Reason resignation, provided notice of such resignation is given to the Company within 60 days after the expiration of the cure period: (A) without Executive's express written consent, any material reduction in the level of Executive's authority or duties from those set forth on Exhibit A of this Agreement (including, for these purposes, any authority or duties assigned to Executive with the consent of Executive and the Board within 90 days following the Closing Date); provided, however, that, for the avoidance of doubt, the sale by New SAC of Seagate Removable Storage Solutions Holdings, Seagate Software (Cayman) Holdings, XIOTECH Corporation or any of their subsidiaries shall not be considered a material reduction in the level of Executive's authority or duties; (B) without Executive's express written consent, a reduction of 10% or more in the level of the base salary, target annual bonus or employee benefits to be provided to Executive under this Agreement, other than a reduction implemented with the consent of Executive or a reduction that is equivalent to reduction in base salaries, bonus opportunities and/or employee benefits, as applicable, imposed on all other senior executives of the Company at a similar level within the Company (provided that the use of private aircraft shall not be deemed an employee benefit for these purposes); or (C) the relocation of Executive to a principal place of employment more than 50 miles from Executive's current principal place of employment, without Executive's express written consent. 6 (iii) Subject to reduction by the present value of any other cash severance or cash termination benefits payable to Executive under any other plans, programs or arrangements of the Company or its affiliates, including, but not limited to, the Management Retention Agreement, if Executive's employment is terminated by the Company without Cause (other than by reason of death or Disability) or if Executive resigns for Good Reason, Executive shall be entitled to receive: (A) the Accrued Rights; (B) subject to Executive's continued compliance with the provisions of Sections 8 and 9, continued payment of the Base Salary and monthly payments of the Executive's Target Annual Bonus divided by twelve for (x) 36 months if such termination occurs on or prior to the second anniversary of the Commencement Date, or (y) 24 months if such termination occurs following the second anniversary of the Commencement Date (as applicable, the "Severance Period"); and (C) subject to Executive's continued compliance with the provisions of Sections 8 and 9, continued coverage under the Company's health, dental and life insurance programs for the Severance Period on the same basis as such coverage is generally provided to active senior executives of the Company, such continued coverage shall be without duplication of benefit coverage provided under any other plan, program or arrangement of the Company or its affiliates (including, without limitation, the Management Retention Agreement) and, for the avoidance of doubt, Executive shall be entitled to the continued coverage that is most favorable to Executive. Following Executive's termination of employment by the Company without Cause (other than by reason of Executive's death or Disability) or by Executive's resignation for Good Reason, except as set forth in this Section 7(c)(iii) or in the Collateral Documents, Executive shall have no further rights to any compensation or any other benefits under this Agreement. d. Expiration of Employment Term. (i) Election Not to Extend the Employment Term. In the event either party elects not to extend the Employment Term pursuant to Section 1, unless Executive's employment is earlier terminated pursuant to paragraphs (a), (b) or (c) of this Section 7, Executive's termination of employment hereunder (whether or not Executive continues as an employee of the Company thereafter) shall be deemed to occur on the close of business on the day immediately preceding the next scheduled Extension Date and, unless Executive continues as an employee of the Company, Executive shall be entitled to receive the Accrued Rights. Following such termination of Executive's employment hereunder as a result of either party's election not to extend the Employment Term, except as set forth in this Section 7(d)(i) or in the Collateral Documents, Executive shall have no further rights to any compensation or any other benefits under this Agreement. (ii) Continued Employment Beyond the Expiration of the Employment Term. Unless the parties otherwise agree in writing, continuation of Executive's employment with the Company beyond the expiration of the Employment Term shall be deemed an employment at- 7 will and shall not be deemed to extend any of the provisions of this Agreement and Executive's employment may thereafter be terminated at will by either Executive or the Company; provided that the provisions of Sections 8, 9 and 10 of this Agreement shall survive any termination of this Agreement or Executive's termination of employment hereunder. e. Notice of Termination. Any purported termination of employment by the Company or by Executive (other than due to Executive's death) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 11(h) hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. f. Board/Committee Resignation. Upon termination of Executive's employment for any reason, Executive agrees to resign, as of the date of such termination and to the extent applicable, from the Board (and any committees thereof) and the Board of Directors (and any committees thereof) of any of the Company's affiliates. 8. Non-Competition. a. Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its affiliates and accordingly agrees as follows: (1) Except as otherwise expressly provided in Section 8(c), during the Employment Term and, for a period of 2 years following the date Executive ceases to be employed by the Company; provided, however, if Executive is terminated without Cause or resigns for Good Reason on or prior to the second anniversary of the Commencement Date, for a period of 3 years following the date Executive ceases to be employed by the Company (the "Restricted Period"), Executive will not, whether on Executive's own behalf or on behalf of or in conjunction with any person, company, business entity or other organization whatsoever, directly or indirectly solicit or assist in soliciting in competition with the Company, the business of any client or prospective client: (i) with whom Executive had personal contact or dealings on behalf of the Company during the one year period preceding Executive's termination of employment; (ii) with whom employees reporting to Executive have had personal contact or dealings on behalf of the Company during the one year immediately preceding the Executive's termination of employment; or (iii) for whom Executive had direct or indirect responsibility during the one year immediately preceding Executive's termination of employment. (2) Except as otherwise expressly provided in Section 8(c), during the Restricted Period, Executive will not directly or indirectly: (i) engage in any business that competes with the business of New SAC or its subsidiaries (including, without limitation, businesses 8 which New SAC or its subsidiaries have specific plans to conduct in the future and as to which Executive is aware of such planning) in any geographical area which is within 100 miles of any geographical area in which New SAC or its subsidiaries conduct such business (a "Competitive Business"); (ii) enter the employ of, or render any services to, any person or entity (or any division of any person or entity) who or which engages in a Competitive Business; (iii) acquire a financial interest in, or otherwise become actively involved with, any Competitive Business, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; or (iv) interfere with, or attempt to interfere with, business relationships (whether formed before, on or after the date of this Agreement) between New SAC or any of its subsidiaries and customers, clients, suppliers, partners, members or investors of New SAC or its subsidiaries. (3) Notwithstanding anything to the contrary in this Agreement, Executive may, directly or indirectly own, solely as an investment, securities of any person engaged in the business of New SAC or its subsidiaries which are publicly traded on a national or regional stock exchange or on the over-the-counter market if Executive (i) is not a controlling person of, or a member of a group which controls, such person and (ii) does not, directly or indirectly, own 5% or more of any class of securities of such person. (4) During the Restricted Period, Executive will not, whether on Executive's own behalf or on behalf of or in conjunction with any person, company, business entity or other organization whatsoever, directly or indirectly: (i) solicit or encourage any employee of New SAC or its subsidiaries to leave the employment of New SAC or its subsidiaries; or (ii) hire any such employee who was employed by New SAC or its subsidiaries as of the date of Executive's termination of employment with the Company or who left the employment of New SAC or its subsidiaries coincident with, or within one year prior to or after, the termination of Executive's employment with the Company. (5) During the Restricted Period, Executive will not, directly or indirectly, solicit or encourage to cease to work with New SAC or its subsidiaries any consultant then under contract with New SAC or its subsidiaries. b. It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 8 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against 9 Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. c. Notwithstanding the foregoing, the restrictions on soliciting clients or prospective clients set forth in Section 8(a)(1) and on engaging in Competitive Businesses set forth in Section 8(a)(2) shall not apply to Executive following the expiration of the Employment Term if the Employment Term is terminated due to the Company's election not to extend the Employment Term pursuant to Section 1, unless the Company elects in writing, in its sole discretion, to pay Executive, following Executive's termination of employment with the Company, the amounts set forth in Section 7(c)(iii) that would have been payable to Executive in the event Executive's termination had been terminated by the Company immediately prior to the expiration of the Employment Term without Cause, in which case the provisions of Sections 8(a)(1) and 8(a)(2) shall continue to apply. 9. Confidentiality; Inventions. Executive agrees to sign, and abide by the terms of, the Company's standard At-Will Employment, Confidential Information and Invention Assignment Agreement (the "Standard Agreement"), a copy of which is attached hereto as Exhibit C and the terms of which are hereby incorporated herein by reference and made a part of this Agreement; provided that (i) the Company acknowledges that the provisions of the Standard Agreement regarding "at will" employment shall not affect Executive's rights under this Agreement and (ii) Executive acknowledges and agrees that to the extent any original works of authorship which are made by Executive (solely or jointly with others) within the scope of and during the period of Executive's employment with the Company are deemed not to be "works made for hire," Executive hereby assigns the copyright and all other intellectual property rights in such works to the Company; provided further that the foregoing assignment shall not apply to inventions, the assignment of which is prohibited by California Labor Code Section 2870. 10. Specific Performance. Executive acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of Section 8 or Section 9 would be inadequate and the Company would suffer irreparable damages ads a result of any such breach or threatened breach. In recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available entitled and, in the case of any material breach of such provisions, to cease making any payments or providing any benefit otherwise required by this Agreement. 11. Miscellaneous. a. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. b. Entire Agreement/Amendments. 10 (i) Except as otherwise provided in Section 11(b)(ii) below, this Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Company, and this Agreement supercedes all prior agreements and understandings (including verbal agreements) between Executive and the Company and/or its affiliates regarding the terms and conditions of Executive's employment with the Company and/or its affiliates. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto. (ii) Nothing in this Agreement shall affect or in any manner otherwise modify Executive's rights, benefits and entitlements under the Collateral Documents; provided that this Agreement does supercede the provisions of the Management Agreement dated as of March 29, 2000 among SAC and Executive which described the material terms of an employment agreement to be entered into between SAC and Executive (the "Management Agreement") and the provisions of the Management Agreement referred to, or otherwise incorporated into, any of the Collateral Documents. c. No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. d. Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby. e. Assignment. This Agreement shall not be assignable by Executive. This Agreement may be assigned by the Company to a person or entity which is an affiliate or a successor in interest to substantially all of the business operations of the Company. Upon such assignment, the rights and obligations of the Company hereunder shall become the rights and obligations of such affiliate or successor person or entity. The failure of any such affiliate or successor person or entity to accept the assignment of the Company's obligations under this Agreement (other than an assignment which occurs by operation of law) shall constitute additional grounds for a resignation for Good Reason by Executive under Section 7(c) of this Agreement. f. Set Off The Company's obligation to pay Executive the amounts provided and to make the arrangements provided hereunder shall be subject to set-off, counterclaim or recoupment of amounts owed by Executive to the Company or its affiliates g. Successors; Binding Agreement. This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributes, devises and legatees. h. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or overnight courier or three days after it has been mailed by United States registered mail, return receipt requested, postage prepaid, addressed to 11 the respective addresses set forth below Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. If to the Company: Seagate Technology (US) Holdings, Inc. 920 Disc Drive Scotts Valley, CA 95066 Attention: General Counsel If to Executive: To the most recent address of Executive set forth in the personnel records of the Company. i. Executive Representation. Executive hereby represents to the Company that the execution and delivery of this Agreement by Executive and the Company and the performance by Executive of Executive's duties hereunder shall not constitute a breach of, or otherwise contravene, the terms of any employment agreement or other agreement or policy to which Executive is a party or otherwise bound. j. Cooperation. Executive shall provide his reasonable cooperation in connection with any action or proceeding (or any appeal from any action or proceeding) which relates to events occurring during Executive's employment hereunder. This provision shall survive any termination of this Agreement. k. Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such Federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation. l. Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 12 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. SEAGATE TECHNOLOGY (US) HOLDINGS, INC. /s/ William L. Hudson ---------------------------------------- By: William L. Hudson Title: Secretary, General Counsel and Senior Vice President EXECUTIVE /s/ Stephen J. Luczo ---------------------------------------- EXHIBIT A (DUTIES AND AUTHORITY) Chief Executive Officer of New SAC, Seagate Technology Holdings and Seagate Removable Storage Solutions Holdings and Chief Executive Officer, President and Chief Operating Officer of Seagate Software (Cayman) Holdings with primary responsibility for the management and oversight of the aforementioned entities as well as the oversight of the investment activity of Seagate Technology Investment Holdings LLC. EXHIBIT B (CURRENT BOARD/TRUSTEE MEMBERSHIPS) Seagate Technology Seagate Software Veritas Software e2open Stanford Graduate School of Business Advisory Board Shark Foundation Board Board of Trustees for the Boys and Girls Club of America EXHIBIT C (STANDARD AT-WILL EMPLOYMENT, CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT) EX-10.4 30 0030.txt SEPARATION AGREEMENT EXHIBIT 10.4 SEPARATION AGREEMENT AND RELEASE This Separation Agreement and Release ("Agreement") is made by and between Seagate Technology, Inc. (the "Company") and Al Shugart ("Employee"). RECITALS -------- 1. Employee was employed by the Company as its Chief Executive Officer and Chairman of its Board of Directors, and was a member of the Board of Directors of the Company and an officer and/or director of certain of the Company's subsidiaries. 2. The Company and Employee (collectively referred to as "the Parties") wish to document the severance and other benefits the Company has agreed to pay Employee in connection with (i) Employee's termination as Chief Executive Officer and Chairman of the Board of Directors of the Company and for his resignation as a member of the Company's Board of Directors and of each of its subsidiaries and other related companies upon which he serves as a director and/or officer and (ii) the consulting arrangement and restrictive covenants that will be in effect for Employee following such termination. NOW THEREFORE, in connection with the promises made herein, the Company and Employee hereby agree as follows: 1. Termination Date. Employee's termination as Chief Executive Officer ---------------- and Chairman of the Board of Directors of the Company, and as an employee of the Company and of each of its subsidiaries upon which he serves as a director and/or officer is effective as of July 19, 1998 (the "Termination Date"). 2. Payment of Salary; Benefits. Employee will receive his normal salary --------------------------- through the Termination Date and all regular and mandatory payroll deductions will be taken from Employee's final paycheck. Employee's participation in the Company's employee benefit programs shall cease as of the Termination Date, except to the limited extent provided in Sections 5 and 6 below. 3. Severance Payments. Employee will receive $750,000 per annum over the ------------------ three-year period beginning July 20, 1998 and ending July 19, 2001. These payments will be made in equal installments at monthly intervals over the three- year period, with the first payment to be made as of August 31, 1998. All payments will be subject to the Company's collection of applicable withholding taxes. However, all such payments will immediately terminate in the event of a material breach of any of Employee's covenants under Section 9 of this Agreement. 4. Restricted Stock. In November 1995, Employee received a restricted ---------------- stock award for a total of 300,000 shares of the Company's common stock. As of the Termination Date, 145,000 of those shares were unvested. All of Employee's unvested shares shall vest (the Company's repurchase right shall lapse) on the Effective Date of this Agreement (as defined in Section 28 below). At the time of such vesting, Employee will recognize immediate taxable income equal to the fair market value of those previously unvested shares, less the issue price Employee paid for such shares, and Employee agrees to satisfy the applicable withholding taxes on that income before the certificates for the shares will be released. Employee may satisfy the withholding tax obligation by directing the Company to withhold from the vested shares that number of shares having a fair market value equal to the amount required to be withheld, subject to such other limitations and conditions as the Company may impose in connection with applicable legal and accounting considerations. 5. Stock Options. ------------- (a) Employee currently holds outstanding stock options for 1,060,000 shares of the Company's common stock ("Company Options") and for 100,000 shares of the common stock of Seagate Software ("Seagate Software Options"). As of the Termination Date, the Company Options were exercisable for a total of 440,000 shares, and the Seagate Software Options were exercisable for a total of 12,000 shares. The specific breakdown of Employee's vested and unvested stock options as of the Termination Date is also included in attached Schedule A. Subject to Section 5(b) below, Employee's Company Options, to the extent vested and exercisable as of the Termination Date, shall remain exercisable and may be exercised at any time during the Consultancy Period (as defined in Section 8 below) and for the ninety (90)-day period thereafter, subject to the original term of such Company Options. To the extent Employee's Company Options are unvested as of the Termination Date, the Company Options shall continue to vest and may be exercised (to the extent vested) during the Consultancy Period (as defined in Section 8 below) and for the ninety (90)-day period thereafter, subject to the original term of such Company Option. To the extent Employee's Seagate Software Options were vested immediately prior to the Termination Date, Employee agrees to exercise such vested Seagate Software Options on or before August 18, 1998; to the extent such vested Seagate Software Options are not exercised on or before August 18, 1998, they shall be cancelled without consideration to Employee. To the extent Employee's Seagate Software Options were unvested immediately prior to the Termination Date, such unvested Seagate Software Options shall become fully vested and exercisable as of the Effective Date and may be exercised at any time during the Consultancy Period and for the thirty (30)-day period thereafter, subject to the original term of such Seagate Software Options. Employee's Company Options and Seagate Software Options may be exercised by Employee consistent with the procedures available to him prior to the Termination Date. To the extent Employee's options are non-qualified options under the federal income tax laws, Employee will recognize compensation income in connection with his exercise of those options, and agrees to satisfy all applicable withholding taxes associated with each such exercise. (b) The Company previously established a deferred bonus amount with respect to certain of Employee's Company Options. Such bonus amounts are reflected in the attached Schedule A. In consideration of Employee's agreement to exercise certain vested Company Options as provided herein, deferred bonus amounts attributable to Employee's Company Options that were unvested immediately prior to the Termination Date shall be available to reduce the exercise price of such unvested Company Options to the extent such Options vest and are exercised in accordance with Section 5(a) above. In consideration of Employee's eligibility to receive deferred bonus amounts pursuant to the preceding sentence, Employee agrees to exercise on or before October 17, 1998, all of his Company Options that (i) were vested immediately prior to the Termination Date, and (ii) have a per -2- share exercise price at or below $17.00; to the extent such Options are not exercised on or before October 17, 1998, they shall be cancelled without consideration to Employee. 6. Benefits. -------- (a) The Company shall continue to provide Employee, for thirty-six (36) months after the Termination Date, medical and group insurance benefits or such comparable alternative medical and insurance benefits as the Company may, in its discretion, determine to be sufficient to satisfy its obligations to Employee under this Agreement, which are at least as favorable as the most favorable medical and group insurance benefits available to the Company's senior executives as of the Termination Date. Notwithstanding the foregoing, if Employee is covered under any medical or group insurance plan(s) provided by a subsequent employer, then the amount of coverage required to be provided by the Company hereunder shall be reduced by the amount of coverage provided by the subsequent employer's medical or group insurance plan(s). (b) Following Employee's request on or after the Effective Date, the Company shall furnish Employee during the Consultancy Period (as defined in Section 8) with an automobile of Employee's choosing, provided that the retail value of such automobile shall not exceed $50,000. The Company shall remain the legal owner of the automobile and will be responsible for license, insurance and registration thereof. All other costs and expenses relating to the use and maintenance of such automobile shall be the sole responsibility of Employee. Employee agrees to return the automobile to the Company's corporate headquarters in Scotts Valley, California, or such other place as the Parties may mutually agree, on or before the end of the Consultancy Period. 7. Indemnification. Employee shall be entitled to indemnification, in --------------- accordance with the applicable provisions of the Company's articles of incorporation and bylaws, against all expense, liability and loss (including attorneys' fees and settlement payments) that Employee may incur by reason of any action, suit or proceeding arising from or relating to the performance of Employee's duties as an officer or director of the Company or any of its subsidiaries. The Company agrees to maintain directors and officers coverage for Employee's benefit during the Consultancy Period (as defined in Section 8 below). 8. Consulting. As a condition to, and in consideration for, the ---------- severance benefits Employee is to receive herein, Employee agrees to make himself available to perform consulting services reasonably requested of him during the three (3)-year period beginning July 20, 1998 and ending July 19, 2001 (the "Consultancy Period"). Employee agrees to make himself reasonably available to render up to 30 hours of consulting services per each of the Company's fiscal quarters during the Consultancy Period, provided that such consulting services do not materially conflict with Employee's then-existing activities or commitments. All assignments will come from the Chief Executive Officer of the Company, and Employee will report directly to such person with respect to each assignment. Should Employee be requested to render more than the required 30 hours of consulting services per fiscal quarter, then Employee will be compensated for those additional hours at an hourly rate to be agreed upon by Employee and the Chief Executive Officer of the Company at the time such consulting services are to be rendered. Employee will be reimbursed for all reasonable out-of-pocket expenses incurred in rendering such consulting services upon Employee's submission of appropriate documentation for those expenses. During the Consultancy Period, Employee will not make any representations to any third party -3- that he is an officer or employee of the Company and, following his resignation as a member of the Company's Board of Directors, a director of the Company. Any proprietary information or other confidential information of the Company to which he may have access in the performance of his consulting services will be held in confidence and will not be disclosed to any third party otherwise directly or indirectly used by Employee, except to the extent necessary to perform his consulting services. 9. Employee Covenants. As a condition to, and a consideration for, the ------------------ severance and other benefits Employee is to receive herein, Employee agrees that: (a) he will not, at any time during the three (3)-year period beginning July 20, 1998 and ending July 19, 2001, directly or indirectly, whether for his own account or as an employee, director, consultant or advisor, provide services to any business enterprise that is at the time in competition with any of the Company's or any of its subsidiaries' existing product lines or business activities as of the Effective Date and that is located geographically in an area where the Company or any of its subsidiaries maintains substantial business activities, unless Employee obtains the prior written consent of the Company's Chief Executive Officer, or (b) he will not, at any time during the three (3)-year period beginning July 20, 1998 and ending July 19, 2001, directly or indirectly solicit any individuals to leave the Company's (or any of its subsidiaries') employ for any reason or interfere in any other manner with the employment relationships at the time existing between the Company (or any of its subsidiaries) and its current or prospective employees; provided, however, that Employee shall not be considered to have interfered with existing employment relationships in the event he responds to good faith inquiries initiated other than by Employee, or (c) he will not, at any time during the three (3)-year period beginning July 20, 1998 and ending July 19, 2001, induce or attempt to induce any customer, supplier, distributor, licensor, licensee or other business relation of the Company (or any of its subsidiaries) to cease doing business with the Company (or any of its subsidiaries) or in any way interfere with the existing business relationship between any such customer, supplier, distributor, licensor, licensee or other business relation and the Company (or any of its subsidiaries), or (d) he will not, at any time during the four and one-half (4 1/2)-year period beginning July 20, 1998 and ending January 19, 2002, disparage, defame or slander the Company (or any of its subsidiaries) or any of their (i) officers (within the meaning of Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended, hereinafter "Officers") or directors as of the Termination Date, (ii) then-existing directors, or (iii) any of its products or services, to any one, including but not limited to any past, present or prospective customers. The foregoing sentence is not applicable to comments Employee makes to his immediate family. For such four and one- half (4 1/2) year-period the Company's Board of Directors and its current Officers shall refrain from disparagement, defamation or slander of Employee. (e) he will resign as a member of the boards of the Company's subsidiaries (as applicable) on or before delivery of a fully executed copy of this Agreement and will transfer to -4- the Company (or its designee) any and all shares he currently owns or holds in the Company's foreign subsidiaries (such transfer to occur within fifteen (15) days of the Effective Date). Employee shall resign as a member of the Company's Board of Directors as of the Effective Date. Employee acknowledges that monetary damages may not be sufficient to compensate the Company for any economic loss that may be incurred by reason of Employee's breach of the foregoing restrictive covenants. Accordingly, in the event of any such breach, the Company will, in addition to the cessation of the severance benefits provided Employee under this Agreement and any remedies available to the Company at law, be entitled to obtain equitable relief in the form of an injunction precluding Employee from continuing to engage in such breach. In the event of any material breach by the Company of its obligation to Employee under Section 9(d) above, the Company shall pay Employee liquidated damages in the amount of $100,000 for each such breach. 10. Confidential Information. Employee shall continue to maintain the ------------------------ confidentiality of all confidential and proprietary information of the Company. 11. Payment of Salary. The Company represents and Employee acknowledges ----------------- and represents that the Company has paid (or will pay pursuant to the terms of the applicable plan or program) all salary, wages, bonuses, commissions and any and all other benefits due to Employee through the Employee's Termination Date. 12. Release of Claims. Employee agrees that the foregoing consideration ----------------- represents settlement in full of all outstanding obligations owed to Employee by the Company or any subsidiary of the Company. Employee and the Company, on behalf of themselves and their respective heirs, agents, representatives, immediate family members, executors, successors, and assigns, hereby fully and forever release each other and their respective heirs, agents, directors, employees, attorneys, investors, shareholders, administrators, affiliates, divisions, subsidiaries, parents, predecessor and successor corporations, and assigns, and agree not to sue or otherwise institute or cause to be instituted any legal or administrative proceedings concerning, any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that either of them may possess against the other arising from any omissions, acts or facts that have occurred up until and including the Effective Date of this Agreement including, without limitation, (a) any and all claims relating to or arising from Employee's relationship with the Company or any subsidiary of the Company and the termination of that relationship; (b) any and all claims relating to, or arising from, Employee's right to purchase, or actual purchase of shares of stock of the Company or any subsidiary of the Company, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law; -5- (c) any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; invasion of privacy; false imprisonment; and conversion; (d) any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, The Worker Adjustment and Retraining Notification Act, Older Workers Benefit Protection Act; the California Fair Employment and Housing Act, and the California Labor Code; (e) any and all claims for violation of the federal, or any state, constitution; (f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and (g) any and all claims for attorneys' fees and costs. Each of the Parties agrees that the release set forth in this Section shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not extend to any obligations incurred under this Agreement. Each of the Parties acknowledges and agrees that any breach of this Section shall construe a material breach of the Agreement and in the case of a breach by Employee, shall entitle the Company immediately to recover the monetary consideration discussed in Section 3 above. If any legal action or other legal proceeding relating to the enforcement of any provision of this Agreement is brought by either Party hereto, the prevailing Party shall be entitled to recover reasonable attorneys' fees, costs and disbursements (in addition to any other relief to which the prevailing Party may be entitled). 13. Acknowledgment of Waiver of Claims under ADEA. Employee acknowledges --------------------------------------------- that he is waiving and releasing any rights he may have under the Age Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and release is knowing and voluntary. Employee and the Company agree that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the Effective Date of this Agreement. Employee acknowledges that the consideration given for this waiver and release Agreement is in addition to anything of value to which Employee was already entitled. Employee further acknowledges that he has been advised by this writing that (a) he should consult with an attorney prior to executing this Agreement; (b) he has at least twenty- ----- one (21) days within which to consider this Agreement; (c) he has seven (7) days following the execution of this Agreement by the Parties to revoke the Agreement; and (d) this Agreement shall not be effective until the revocation period has expired. Any revocation should be in writing and delivered to Tom Mulvaney, Senior Vice President and General Counsel, Seagate Technology, Inc., 920 Disc Drive, Scotts Valley, CA 95066, by close of business on the seventh day from the date that Employee signs this Agreement. -6- 14. Civil Code Section 1542. Employee and the Company each represent that ----------------------- neither is aware of any claim other than the claims that are released by this Agreement. Employee and the Company each acknowledge that they have been advised by legal counsel and are familiar with the provisions of California Civil Code Section 1542, which provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Employee and the Company, being aware of said code section, agree to expressly waive any rights they may have thereunder, as well as under any other federal or state statute or common law principles of similar effect. 15. No Pending or Future Lawsuits. Each Party represents to the other ----------------------------- that he or it has no lawsuits, claims, or actions pending in his or its name, or on behalf of any other person or entity, against the other or any other person or entity referred to herein. Each Party also represents to the other that as of the Effective Date, he or it does not have any basis for, and does not intend to bring any claims on his or its own behalf or on behalf of any other person or entity against the other or any other person or entity referred to herein. 16. Application for Employment. Employee understands and agrees that, as -------------------------- a condition of this Agreement, he shall not be entitled to any employment with the Company, its parents, its subsidiaries, or any successor, and he hereby waives any right, or alleged right, of employment or re-employment with the Company, its parents, its subsidiaries and any successor. Subject to the terms of this Agreement, Employee also waives any right to work as an independent contractor for the Company, its subsidiaries, its parents and any successor. Employee further agrees that he will not apply for employment with the Company, its subsidiaries, its parents, or related companies, or any successor and will not apply to work as an independent contractor for the Company, its parents, its subsidiaries or any successor. 17. Confidentiality. The Parties agree to maintain in complete confidence --------------- the contents and terms of this Agreement, and the consideration for this Agreement. The Parties may disclose Employee's status as a consultant to the Company and agree to disclose the contents and terms of this Agreement only to Employee's immediate family and to those attorneys, accountants, tribunals and governmental entities who have a reasonable need to know (or as required by applicable law or governmental agency or tribunal) the contents and terms of this Agreement to prevent disclosure of the contents and terms of this Agreement to other third parties. 18. No Cooperation. Employee and the Company agree that he or it will not -------------- counsel or assist any attorneys or their clients in the presentation or prosecution of any lawsuits, disputes, claims, charges, or complaints by any third party against the other (including in the case of the Company any subsidiary of the Company, and/or any officer, director, employee, agent, representative, shareholder or attorney of the Company or any subsidiary in his, her or its capacity as such on behalf of the Company or any -7- subsidiary) unless under a subpoena, court order or otherwise required by law to do so. Nothing in this Section 18 shall preclude Employee from exercising his rights as a stockholder of the Company. 19. Tax Consequences. The Company makes no representations or warranties ---------------- with respect to the tax consequences of the payment of any sums to Employee under the terms of this Agreement. Employee agrees and understands that he is responsible for payment, if any, of local, state and/or federal taxes on the sums paid hereunder by the Company and any penalties or assessments thereon. 20. Costs. The Parties shall each bear their own costs, expert fees, ----- attorneys' fees and other fees incurred in connection with this Agreement. 21. Non-Binding Mediation. The Parties shall make a good faith attempt to --------------------- resolve any dispute or claim arising out of or related to this Agreement through negotiation. In the event that any dispute or claim arising out of or related to this Agreement is not settled by the Parties, the Parties will attempt in good faith to resolve such dispute or claim by non-binding mediation in Santa Cruz, California to be conducted by JAMS-Endispute or such other mediator as the parties shall mutually agree. The mediation shall be held within thirty (30) days of the request therefor. The costs of mediation shall be shared equally by the Parties to the mediation. 22. Authority. The Company represents and warrants that the undersigned --------- has the authority to act on behalf of the Company and to bind the Company and all who may claim through it to the terms and conditions of this Agreement. Employee represents and warrants that he has the capacity to act on his own behalf and on behalf of all who might claim through him to bind them to the terms and conditions of this Agreement. Each Party warrants and represents that there are no liens or claims of lien or assignments in law or equity or otherwise of or against any of the claims or causes of action released herein. 23. No Representations. Each Party represents that it has had the ------------------ opportunity to consult with an attorney, and has carefully read and understands the scope and effect of the provisions of this Agreement. Neither party has relied upon any representations or statements made by the other party hereto which are not specifically set forth in this Agreement. 24. Severability. In the event that any provision hereof becomes or is ------------ declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 25. Entire Agreement. This Agreement represent the entire agreement and ---------------- understanding between the Company and Employee concerning the subject matter herein, and supersede and replace any and all prior agreements and understandings. 26. No Oral Modification. This Agreement may only be amended in writing -------------------- signed by Employee and the Chief Executive Officer of the Company. 27. Governing Law. This Agreement shall be governed by the internal ------------- substantive laws, but not the choice of law rules, of the State of California. -8- 28. Effective Date. This Agreement is effective eight days after it has -------------- been signed by both Parties (the "Effective Date"). 29. Office Space. Employee agrees that he will vacate his current office ------------ at the Company's corporate headquarters in Scotts Valley, California by August 15, 1998. 30. Paintings. Employee hereby conveys, without consideration to --------- Employee, all right, title and interest in all paintings previously provided to the Company and its subsidiaries by Rita Shugart. 31. Counterparts. This Agreement may be executed in counterparts, and ------------ each counterpart shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned. 32. Voluntary Execution of Agreement. This Agreement is executed -------------------------------- voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims. The Parties acknowledge that: (a) They have read this Agreement; (b) They have been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of their own choice or that they have voluntarily declined to seek such counsel; (c) They understand the terms and consequences of this Agreement and of the releases it contains; (d) They are fully aware of the legal and binding effect of this Agreement. IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below. SEAGATE TECHNOLOGY, INC. Dated: 7/29/98 By /s/ Stephen J. Luezo ________________ __________________________________ AL SHUGART, an individual Dated: 7/29/98 /s/ Al Shugart ________________ _____________________________________ Al Shugart -9- 34 Accepted: CHASE SECURITIES INC., by /s/ Sean Holland --------------------------------------------------- Authorized Signatory GOLDMAN, SACHS & CO., by /s/ Goldman, Sachs & Co. --------------------------------------------------- Authorized Signatory MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, by /s/ Michael Senft ---------------------------------------------------- Authorized Signatory EX-10.5(A) 31 0031.txt FORM OF MANAGEMENT RETENTION AGREEMENT EXHIBIT 10.5(a) SEAGATE TECHNOLOGY, INC. MANAGEMENT RETENTION AGREEMENT This Management Retention Agreement (the "AGREEMENT") is made and entered into by and between _________________________ (the "EMPLOYEE") and Seagate Technology, Inc. (the "COMPANY"), effective as of __________________ (the "EFFECTIVE DATE"). RECITALS A. It is expected that the Company from time to time will consider the possibility of an acquisition by another company or other change of control. The Board of Directors of the Company (the "BOARD") recognizes that such consideration can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities. The Board has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. B. The Board believes that it is in the best interests of the Company and its stock-holders to provide the Employee with an incentive to continue his employment and to motivate the Employee to maximize the value of the Company upon a Change of Control for the benefit of its stockholders. C. The Board believes that it is imperative to provide the Employee with certain severance benefits upon Employee's termination of employment following a Change of Control which provides the Employee with enhanced financial security and provides incentive and encouragement to the Employee to remain with the Company notwithstanding the possibility of a Change of Control. D. Certain capitalized terms used in the Agreement are defined in Section 6 below. The parties hereto agree as follows: 1 . Term of Agreement. This Agreement shall terminate upon the date that all obligations of the parties hereto with respect to this Agreement have been satisfied. 2. At-Will Employment. The Company and the Employee acknowledge that the Employee's employment is and shall continue to be at-will, as defined under applicable law. If the Employee's employment terminates for any reason, including (without limitation) any termination prior to a Change of Control, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company's established employee plans and practices or pursuant to other agreements with the Company. 3. Severance Benefits. (a) Involuntary Termination Other than for Cause; Voluntary Termination for Good Reason; Disability; Death. If the Employee's employment is (i) involuntarily terminated by the Company other than for Cause (as defined herein), (ii) voluntarily terminated by Employee for Good Reason (as defined herein), (iii) terminated due to Employee's Disability (as defined herein) or death, in any case within twenty-four (24) months following a Change of Control (as defined herein), then, subject to the Employee's obligations pursuant to Section 9 below, the Employee shall receive the following severance benefits from the Company: (1) Lump-Sum Severance Payment. A cash payment in an amount equal to ______ hundred percent (____ %) of the Employee's Annual Compensation (as defined herein); (2) Option Accelerated Vesting. One hundred percent (100 %) of the unvested portion of any stock option covering Company shares or shares of any subsidiary of the Company held by the Employee shall automatically become vested in full upon the employment termination date. (3) Restricted Stock Accelerated Vesting. Employee's unvested shares granted under the Company's Executive Stock Plan (or any similar successor plan) shall vest (i.e., be released from the Company's repurchase option) as to that percentage of the unvested shares determined by dividing (i) the number of months that have elapsed from the restricted stock grant date to the date of employment termination, by (ii) the number of months between the grant date and the date when all shares would otherwise have vested based on Employee's continued employment with the Company. (4) Continued Employee Benefits. One hundred percent (100%) Company-paid health, dental and life insurance coverage at the same level of coverage as was provided to such employee immediately prior to the Change of Control (the "COMPANY-PAID COVERAGE"). If such coverage included the Employee's dependents immediately prior to the Change of Control, such dependents shall also be covered at Company expense. Company-Paid Coverage shall continue until the earlier of (i) ______ years from the date of termination or (ii) the date that the Employee and his dependents become covered under another employer's group health, dental or life insurance plans that provide Employee and his dependents comparable benefits and levels of coverage. For purposes of Title X of the Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the date of the "qualifying event" for Employee and his dependents shall be the date upon which the Company-Paid Coverage terminates. (5) Bonus Proration. A lump sum dollar amount equal to a pro rata portion (based on the number of days elapsed during the fiscal year in which the termination occurs) of Employee's targeted bonus under the Company's executive bonus plan for the fiscal year in which the termination occurs. (6) Company Automobile. The purchase by Employee of the Company-owned automobile in Employee's possession at the wholesale Kelly Blue Book value. (b) Timing of Severance Payments. Any severance payment to which Employee is entitled under Sections 3(a)(1 and 5) shall be paid by the Company to the Employee (or to the Employee's successors in interest, pursuant to Section 7(b)) in cash and in full, not later than thirty (30) calendar days following the employment termination date. (c) Voluntary Resignation other than for Good Reason; Termination for Cause. If the Employee's employment terminates by reason of the Employee's voluntary resignation other than for Good Reason, or if the Employee is terminated involuntarily by the Company for Cause, then the Employee shall not be entitled to receive severance or other benefits except for those (if any) as may then be established under the Company's then existing severance and benefits plans and practices or pursuant to other agreements with the Company. (d) Termination Apart from Change of Control. In the event the Employee's employment is terminated for any reason, either prior to the occurrence of a Change of Control or after the twenty-four (24) month period following a Change of Control, then the Employee shall be entitled to receive severance and any other benefits as may then be established under the Company's existing severance and benefits plans and practices or pursuant to other written agreements with the Company. (e) Non-assumption by Successor Entity. Notwithstanding Sections 3(a)(2) and (3) above, if on the effective date of a Change of Control a successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets fails to assume any stock option (granted pursuant to the Company's option plans) or restricted stock (granted pursuant to the Company's Executive Stock Plan), then (i) one hundred percent (100%) of the unvested portion of any stock option covering Company shares or the shares of any subsidiary of the Company held by the Employee shall automatically become vested in full as of the Change of Control, and (ii) Employee's unvested shares granted under the Company's Executive Stock Plan shall pro rata vest as outlined in Section 3(a)(3) above as of the Change of Control. 4. Attorney Fees, Costs and Expenses. The Company shall promptly reimburse Employee, on a monthly basis, for the reasonable attorney fees, costs and expenses incurred by the Employee in connection with any action brought by Employee to enforce his rights hereunder. 5. Golden Parachute Excise Tax Gross-Up. In the event that the benefits provided for in this Agreement or otherwise payable to the Employee constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "CODE") and will be subject to the excise tax imposed by Section 4999 (as it may be amended or replaced) of the Code (the "EXCISE TAX"), then the Employee shall receive (i) a payment from the Company sufficient to pay such Excise Tax, and (ii) an additional payment from the Company sufficient to pay the Excise Tax and federal and state income taxes arising from the payments made by the Company to Employee pursuant to this sentence. Unless the Company and the Employee otherwise agree in writing, the determination of Employee's Excise Tax liability and the amount required to be paid under this Section 5 shall be made in writing by the accounting firm serving as the Company's independent public accountants immediately prior to the Change of Control (the "ACCOUNTANTS"). For purposes of making the calculations required by this Section 5, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 5. 6. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings: (a) Annual Compensation. "Annual Compensation" means an amount equal to the sum of Employee's (i) annual Company salary at the highest rate in effect in the twelve months immediately preceding the Change of Control, and (ii) Employee's highest annual bonus (includes cumulation of quarterly bonus amounts and deferral amounts) awarded within the three fiscal years immediately prior to the Change of Control. (b) Cause. "Cause" means (i) any act of personal dishonesty taken by the Employee in connection with his responsibilities as an employee and intended to result in substantial personal enrichment of the Employee, (ii) Employee's conviction of a felony, or (iii) a willful act by the Employee which constitutes gross misconduct and which is injurious to the Company. (c) Change of Control. "Change of Control" means the occurrence of any of the following events: (i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act) ("BENEFICIAL OWNER"), directly or indirectly, of securities of the Company representing forty percent (40%) or more of the total voting power represented by the Company's then outstanding voting securities; or (ii) A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative vote of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or (iii) There occurs a reorganization, merger, consolidation or other corporate transaction involving the Company (a "TRANSACTION"), in each case with respect to which the stockholders of the Company immediately prior to such Transaction do not, immediately after the Transaction, own more than 50% of the combined voting power of the Company or other corporation resulting from such Transaction; or (iv) All or substantially all of the assets of the Company are sold, liquidated or distributed. (d) Disability. "Disability" means that Employee has been determined disabled for purposes of the Seagate Long Term Disability Plan, and has been so disabled for a period of at least six months. (e) Good Reason. "Good Reason" means an Employee's resignation of his or her employment with the Company within thirty (30) days of and as a result of any of the following: (i) without the Employee's express written consent, any material reduction of the Employee's duties, authority or responsibilities, relative to the Employee's duties, authority or responsibilities as in effect immediately prior to such reduction, or an assignment to Employee of such reduced duties, authority or responsibilities; (ii) without the Employee's express written consent, any material reduction of the facilities and perquisites available to the Employee immediately prior to such reduction provided, however, use of private aircraft shall not be deemed a perquisite for purposes of the clause; (iii) a reduction by the Company in the base salary of the Employee as in effect immediately prior to such reduction, other than a reduction implemented with the consent of the Employee or a reduction that is equivalent to salary reductions imposed on all executives of the Company; (iv) any material reduction by the Company in the kind or level of employee benefits, including bonuses, to which the Employee was entitled immediately prior to such reduction; (v) the relocation of the Employee to a facility or a location more than fifty (50) miles from the Employee's then present location, without the Employee's express written consent; or (vi) failure by the Company's Successors as outlined in Section 7 below to assume any and all of the rights, duties and obligations under this Agreement. 7. Successors. (a) Company's Successors. Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Company" shall include any successor to the Company's business and/or assets which executes and delivers the assumption agreement described in this Section 7(a) or which becomes bound by the terms of this Agreement by operation of law. (b) Employee's Successors. The terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 8. Notice. (a) General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Employee, mailed notices shall be addressed to him at the home address which he most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary. (b) Notice of Termination. Any termination by the Company for Cause or by the Employee as a result of a voluntary resignation (whether or not for Good Reason) shall be communicated by a notice of termination to the other party hereto given in accordance with Section 8(a) of this Agreement. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the employment termination date (which shall be not more than 30 days after the giving of such notice). The failure by the Employee to include in the notice any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Employee hereunder or preclude the Employee from asserting such fact or circumstance in enforcing his rights hereunder. 9. Employee Covenants. As consideration for the severance and other benefits the Employee is to receive herein, the Employee agrees that he will not as an employee, agent, consultant, advisor, officer or director of any corporation, partnership, person or other entity, directly or indirectly at any time during his employment with the Company and continuing until twenty-four (24) months after his termination of employment with the Company: (a) Participate or engage in the development, production, sale, marketing or servicing of any business enterprise that is in competition with any of the Company's (or any of its subsidiaries') product lines or business activities, or (b) Solicit, employ or interfere in any other manner with the employment relationships existing between the Company (or any of its subsidiaries) and its current or prospective employees. 10. Miscellaneous Provisions. (a) No Duty to Mitigate. The Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any other source. (b) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. (c) Whole Agreement. No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. This Agreement represents the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior arrangements and understandings regarding same. (d) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware. (e) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. (f) Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes to the extent required by law. (g) Loans. Employee shall repay any outstanding Company loans (principal and accrued interest) on Employee's termination date unless the respective loan terms and conditions preclude repayment. (h) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year set forth below. COMPANY: SEAGATE TECHNOLOGY, INC. ---------------------------- EMPLOYEE: ---------------------------- EX-10.5(B) 32 0032.txt MANAGEMENT RETENTION AGREEMENT SEAGATE TECHNOLOGY, INC. MANAGEMENT RETENTION AGREEMENT This Management Retention Agreement (the "AGREEMENT") is made and entered into by and between Stephen J. Luczo (the "EMPLOYEE") and Seagate Technology, Inc. (the "COMPANY"), effective as of November 12, 1998, (the "EFFECTIVE DATE"). RECITALS A. It is expected that the Company from time to time will consider the possibility of an acquisition by another company or other change of control. The Board of Directors of the Company (the "Board") recognizes that such consideration can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities. The Board has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. B. The Board believes that it is in the best interests of the Company and its stock-holders to provide the Employee with an incentive to continue his employment and to motivate the Employee to maximize the value of the Company upon a Change of Control for the benefit of its stockholders. C. The Board believes that it is imperative to provide the Employee with certain severance benefits upon Employee's termination of employment following a Change of Control which provides the Employee with enhanced financial security and provides incentive and encouragement to the Employee to remain with the Company notwithstanding the possibility of a Change of Control. D. Certain capitalized terms used in the Agreement are defined in Section 6 below. The parties hereto agree as follows: 1 . Term of Agreement. This Agreement shall terminate upon the date that all obligations of the parties hereto with respect to this Agreement have been satisfied. 2. At-Will Employment. The Company and the Employee acknowledge that the Employee's employment is and shall continue to be at-will, as defined under applicable law. If the Employee's employment terminates for any reason, including (without limitation) any termination prior to a Change of Control, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company's established employee plans and practices or pursuant to other agreements with the Company. 1 3. Severance Benefits. (a) Involuntary Termination Other than for Cause; Voluntary Termination for Good Reason; Disability; Death. If the Employee's employment is (i) involuntarily terminated by the Company other than for Cause (as defined herein), (ii) voluntarily terminated by Employee for Good Reason (as defined herein), (iii) terminated due to Employee's Disability (as defined herein) or death, in any case within twenty-four (24) months following a Change of Control (as defined herein), then, subject to the Employee's obligations pursuant to Section 9 below, the Employee shall receive the following severance benefits from the Company: (1) Lump-Sum Severance Payment. A cash payment in an amount equal to three hundred percent (300%) of the Employee's Annual Compensation (as defined herein); (2) Option Accelerated Vesting. One hundred percent (100 %) of the unvested portion of any stock option covering Company shares or shares of any subsidiary of the Company held by the Employee shall automatically become vested in full upon the employment termination date. (3) Restricted Stock Accelerated Vesting. Employee's unvested shares granted under the Company's Executive Stock Plan (or any similar successor plan) shall vest (i.e., be released from the Company's repurchase option) as to that percentage of the unvested shares determined by dividing (i) the number of months that have elapsed from the restricted stock grant date to the date of employment termination, by (ii) the number of months between the grant date and the date when all shares would otherwise have vested based on Employee's continued employment with the Company. (4) Continued Employee Benefits. One hundred percent (100%) Company-paid health, dental and life insurance coverage at the same level of coverage as was provided to such employee immediately prior to the Change of Control (the "COMPANY-PAID COVERAGE"). If such coverage included the Employee's dependents immediately prior to the Change of Control, such dependents shall also be covered at Company expense. Company-Paid Coverage shall continue until the earlier of (i) three (3) years from the date of termination or (ii) the date that the Employee and his dependents become covered under another employer's group health, dental or life insurance plans that provide Employee and his dependents comparable benefits and levels of coverage. For purposes of Title X of the Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the date of the "qualifying event" for Employee and his dependents shall be the date upon which the Company-Paid Coverage terminates. (5) Bonus Proration. A lump sum dollar amount equal to a pro rata portion (based on the number of days elapsed during the fiscal year in which the termination occurs) of Employee's targeted bonus under the Company's executive bonus plan for the fiscal year in which the termination occurs. (6) Company Automobile. The purchase by Employee of the Company-owned automobile in Employee's possession at the wholesale Kelly Blue Book value. (b) Timing of Severance Payments. Any severance payment to which Employee is entitled under Sections 3(a)(1 and 5) shall be paid by the Company to the Employee (or 2 to the Employee's successors in interest, pursuant to Section 7(b)) in cash and in full, not later than thirty (30) calendar days following the employment termination date. (c) Voluntary Resignation other than for Good Reason; Termination for Cause. If the Employee's employment terminates by reason of the Employee's voluntary resignation other than for Good Reason, or if the Employee is terminated involuntarily by the Company for Cause, then the Employee shall not be entitled to receive severance or other benefits except for those (if any) as may then be established under the Company's then existing severance and benefits plans and practices or pursuant to other agreements with the Company. (d) Termination Apart from Change of Control. In the event the Employee's employment is terminated for any reason, either prior to the occurrence of a Change of Control or after the twenty-four (24) month period following a Change of Control, then the Employee shall be entitled to receive severance and any other benefits as may then be established under the Company's existing severance and benefits plans and practices or pursuant to other written agreements with the Company. (e) Non-assumption by Successor Entity. Notwithstanding Sections 3(a)(2) and (3) above, if on the effective date of a Change of Control a successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets fails to assume any stock option (granted pursuant to the Company's option plans) or restricted stock (granted pursuant to the Company's Executive Stock Plan), then (i) one hundred percent (100%) of the unvested portion of any stock option covering Company shares or the shares of any subsidiary of the Company held by the Employee shall automatically become vested in full as of the Change of Control, and (ii) Employee's unvested shares granted under the Company's Executive Stock Plan shall pro rata vest as outlined in Section 3(a)(3) above as of the Change of Control. 4. Attorney Fees, Costs and Expenses. The Company shall promptly reimburse Employee, on a monthly basis, for the reasonable attorney fees, costs and expenses incurred by the Employee in connection with any action brought by Employee to enforce his rights hereunder. 5. Golden Parachute Excise Tax Gross-Up. In the event that the benefits provided for in this Agreement or otherwise payable to the Employee constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "CODE") and will be subject to the excise tax imposed by Section 4999 (as it may be amended or replaced) of the Code (the "EXCISE TAX"), then the Employee shall receive (i) a payment from the Company sufficient to pay such Excise Tax, and (ii) an additional payment from the Company sufficient to pay the Excise Tax and federal and state income taxes arising from the payments made by the Company to Employee pursuant to this sentence. Unless the Company and the Employee otherwise agree in writing, the determination of Employee's Excise Tax liability and the amount required to be paid under this Section 5 shall be made in writing by the accounting firm serving as the Company's independent public accountants immediately prior to the Change of Control (the "ACCOUNTANTS"). For purposes of making the calculations required by this Section 5, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably 3 request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 5. 6. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings: (a) Annual Compensation. "Annual Compensation" means an amount equal to the sum of Employee's (i) annual Company salary at the highest rate in effect in the twelve months immediately preceding the Change of Control, and (ii) Employee's highest annual bonus (includes cumulation of quarterly bonus amounts and deferral amounts) awarded within the three fiscal years immediately prior to the Change of Control. (b) Cause. "Cause" means (i) any act of personal dishonesty taken by the Employee in connection with his responsibilities as an employee and intended to result in substantial personal enrichment of the Employee, (ii) Employee's conviction of a felony, or (iii) a willful act by the Employee which constitutes gross misconduct and which is injurious to the Company. (c) Change of Control. "Change of Control" means the occurrence of any of the following events: (i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act) ("BENEFICIAL OWNER"), directly or indirectly, of securities of the Company representing forty percent (40%) or more of the total voting power represented by the Company's then outstanding voting securities; or (ii) A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative vote of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or (iii) There occurs a reorganization, merger, consolidation or other corporate transaction involving the Company (a "TRANSACTION"), in each case with respect to which the stockholders of the Company immediately prior to such Transaction do not, immediately after the Transaction, own more than 50% of the combined voting power of the Company or other corporation resulting from such Transaction; or (iv) All or substantially all of the assets of the Company are sold, liquidated or distributed. (d) Disability. "Disability" means that Employee has been determined disabled for purposes of the Seagate Long Term Disability Plan, and has been so disabled for a period of at least six months. 4 (e) Good Reason. "Good Reason" means an Employee's resignation of his or her employment with the Company within thirty (30) days of and as a result of any of the following: (i) without the Employee's express written consent, any material reduction of the Employee's duties, authority or responsibilities, relative to the Employee's duties, authority or responsibilities as in effect immediately prior to such reduction, or an assignment to Employee of such reduced duties, authority or responsibilities; (ii) without the Employee's express written consent, any material reduction of the facilities and perquisites available to the Employee immediately prior to such reduction provided, however, use of private aircraft shall not be deemed a perquisite for purposes of the clause; (iii) a reduction by the Company in the base salary of the Employee as in effect immediately prior to such reduction, other than a reduction implemented with the consent of the Employee or a reduction that is equivalent to salary reductions imposed on all executives of the Company; (iv) any material reduction by the Company in the kind or level of employee benefits, including bonuses, to which the Employee was entitled immediately prior to such reduction; (v) the relocation of the Employee to a facility or a location more than fifty (50) miles from the Employee's then present location, without the Employee's express written consent; or (vi) failure by the Company's Successors as outlined in Section 7 below to assume any and all of the rights, duties and obligations under this Agreement. 7. Successors. (a) Company's Successors. Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Company" shall include any successor to the Company's business and/or assets which executes and delivers the assumption agreement described in this Section 7(a) or which becomes bound by the terms of this Agreement by operation of law. (b) Employee's Successors. The terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 8. Notice. (a) General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Employee, mailed notices shall be addressed to him at the home address which he most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary. (b) Notice of Termination. Any termination by the Company for Cause or by the Employee as a result of a voluntary resignation (whether or not for Good Reason) shall be 5 communicated by a notice of termination to the other party hereto given in accordance with Section 8(a) of this Agreement. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the employment termination date (which shall be not more than 30 days after the giving of such notice). The failure by the Employee to include in the notice any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Employee hereunder or preclude the Employee from asserting such fact or circumstance in enforcing his rights hereunder. 9. Employee Covenants. As consideration for the severance and other benefits the Employee is to receive herein, the Employee agrees that he will not as an employee, agent, consultant, advisor, officer or director of any corporation, partnership, person or other entity, directly or indirectly at any time during his employment with the Company and continuing until twenty-four (24) months after his termination of employment with the Company: (a) Participate or engage in the development, production, sale, marketing or servicing of any business enterprise that is in competition with any of the Company's (or any of its subsidiaries') product lines or business activities, or (b) Solicit, employ or interfere in any other manner with the employment relationships existing between the Company (or any of its subsidiaries) and its current or prospective employees. 10. Miscellaneous Provisions. (a) No Duty to Mitigate. The Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any other source. (b) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. (c) Whole Agreement. No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. This Agreement represents the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior arrangements and understandings regarding same. (d) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware. 6 (e) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. (f) Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes to the extent required by law. (g) Loans. Employee shall repay any outstanding Company loans (principal and accrued interest) on Employee's termination date unless the respective loan terms and conditions preclude repayment. (h) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year set forth below. COMPANY: SEAGATE TECHNOLOGY, INC. ---------------------------- EMPLOYEE: ---------------------------- 7 EX-10.6 33 0033.txt SEAGATE TECHNOLOGY HDD HOLDINGS ROLLOVER AGREEMENT EXHIBIT 10.6 ROLLOVER AGREEMENT ROLLOVER AGREEMENT dated as of November 13, 2000 (the "Agreement") between New SAC, a limited company incorporated in the Cayman Islands (the "Company"), Seagate Technology HDD Holdings, and the individual listed on Schedule I hereto (the "Senior Manager"). WHEREAS, Seagate Technology, Inc. ("Seagate"), Seagate Software Holdings, Inc. and Suez Acquisition Company (Cayman) Limited ("SAC") have entered into the Stock Purchase Agreement dated as of March 29, 2000 (as amended, the "Stock Purchase Agreement"); WHEREAS, prior to the consummation of the transactions pursuant to the Stock Purchase Agreement, SAC has assigned or will assign all of its rights and obligations under the Stock Purchase Agreement to the Company; and WHEREAS, pursuant to the Stock Purchase Agreement, as of the Closing which occurs on the Closing Date (each as defined in the Stock Purchase Agreement), the Company will, subject to certain exclusions, acquire all of the shares of various subsidiaries of Seagate and, indirectly, substantially all of the operating assets of Seagate; and WHEREAS, the Senior Manager and other members of Seagate management (together with the Senior Manager, the "Seagate Management") currently hold unvested options to acquire shares of Seagate common stock ("Seagate Options") and/or unvested restricted shares of Seagate common stock ("Seagate Restricted Shares") and have agreed that, as of the Closing Date, Seagate Options and Seagate Restricted Shares with a Rollover Value (as defined below) of between $150,000,000 and $250,000,000 (the "Commitment Amount") shall be converted into (i) deferred compensation and (ii) restricted preferred shares, par value $.0001 per share, of the Company (the "Restricted Preferred Shares"), in an aggregate amount equal to the Commitment Amount; and WHEREAS, in respect of the Restricted Preferred Shares received by the Senior Manager, the Senior Manager shall receive restricted ordinary shares, par value $.0001, of the Company (the "Restricted Ordinary Shares"); and WHEREAS, the Senior Manager also agrees to subscribe for vested restricted preferred shares, par value $.0001 per share, of the Company (the "Restricted Vested Preferred Shares") and vested restricted ordinary shares , par value $.0001 per share, of the Company (the "Restricted Vested Ordinary Shares") as set forth herein; NOW THEREFORE, in consideration of the foregoing, and the covenants and promises and representations set forth herein, and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged and accepted, the parties hereto agree as follows: 1. The Senior Manager agrees to the conversion, at the time of Closing, of unvested Seagate Options held by such Senior Manager and/or unvested Seagate Restricted Shares held by such Senior Manager with an aggregate Rollover Value (as defined below) equal to at least the Applicable Percentage (as defined below) of the total Rollover Value represented 2 by all unvested Seagate Options and Seagate Restricted Shares held by such Senior Manager as of the Closing, into (i) pursuant to the terms of the New SAC Restricted Share Plan (substantially in the form attached hereto as Exhibit A) (the "Restricted Share Plan"), the Restricted Share Agreement (substantially in the form attached hereto as Exhibit B) (the "Restricted Share Agreement") and the Management Shareholders Agreement (substantially in the form attached hereto as Exhibit C (the "Management Shareholders Agreement," which reference shall include the applicable provisions of the Shareholders Agreement (substantially in the form attached hereto as Exhibit D (the "Investor Shareholders Agreement")), Restricted Preferred Shares having an aggregate liquidation preference equal to fifty percent of the Subscribed Value (as defined below) and (ii) a deferred compensation account pursuant to a deferred compensation plan (substantially in the form attached hereto as Exhibit E), which shall be subject to all the terms (including the subordination terms) of such plan, equal to the excess of the Converted Value over the aggregate liquidation preference of the Restricted Preferred Shares (the "Deferred Value"). The Senior Manager further agrees that any such conversion of his or her unvested Seagate Options and Seagate Restricted Shares hereunder shall (if necessary) be adjusted upward so that the resulting Converted Value shall be a whole multiple of Ten Thousand Dollars ($10,000). For purposes of this Agreement, "Converted Value" shall equal the Rollover Value of the unvested Seagate Options and/or unvested Seagate Restricted Shares actually converted. For purposes of this Agreement, "Applicable Percentage" shall mean, with respect to a Senior Manager who is a Senior Vice President or higher, 50%, and with respect to any other Senior Manager, 25%. 2. In addition, with respect to the Restricted Preferred Shares received pursuant to the preceding paragraph, the Senior Manager shall receive, pursuant to the terms of the Restricted Share Plan, the Restricted Share Agreement and the Management Shareholders Agreement, a number of Restricted Ordinary Shares sufficient to provide the Senior Manager, as of the Closing, with a percentage ownership of the total outstanding Ordinary Shares of the Company as of the Closing equal to the Converted Value divided by the sum of (i) the aggregate Converted Value of Seagate Management and (ii) the balance of the total equity investment in the Company as of the Closing Date (including all amounts contributed by the Seagate Management for Restricted Vested Preferred Shares (as defined below)). For purposes of this Agreement, "Rollover Value" shall mean (i) with respect to Seagate Options, the excess of (x) the fair market value per share of Seagate common stock (using the average of Seagate's closing selling prices for the five consecutive trading days ending two trading days immediately preceding the Closing (the "FMV") times the number of Seagate shares subject to the Seagate Option, over (y) the aggregate exercise price of the Seagate Option and (ii) with respect to Seagate Restricted Shares, the FMV times the number of Seagate Restricted Shares. 3. The Senior Manager agrees to convert additional Seagate Options and/or Seagate Restricted Shares such that the total Converted Value shall equal the maximum percentage, as set forth on Schedule I hereto, of the total Rollover Value represented by all unvested Seagate Options and Seagate Restricted Shares held by such Senior Manager as of the Closing (such total value, the "Committed Value"). In the event that the total Committed Value of the Seagate Management exceeds $213,750,000 (or such lesser amount, but not below $180,500,000, as determined by Silver Lake Partners, L.P.) such total Committed Value shall be allocated pro rata among the Seagate Management, based, first, on the Applicable Percentage of 3 each member of Seagate management (including the Senior Manager) and then on the respective Committed Values of the Seagate Management in excess of the Applicable Percentage. 4. In consideration for the establishment of the deferred compensation account and the Restricted Preferred Shares, the Senior Manager agrees to the cancellation and/or the forfeiture of a number of Seagate Options and/or Seagate Restricted Shares equal to the Converted Value and the Senior Manager unconditionally releases Seagate Technology, Inc., VERITAS Software Corporation, Victory Merger Sub, Inc., and their respective successors, assigns, affiliates, officers, directors, employees and agents from any and all claims, liabilities and obligations with respect to such Seagate Options and/or Seagate Restricted Shares. The Seagate Options and/or Seagate Restricted Shares shall be cancelled and/or forfeited in a manner determined in the sole discretion of the Executive Vice President and Chief Administrator Officer of Seagate so as to minimize any potential excise tax liability of the Senior Manager under Section 280G of the Internal Revenue Code of 1986, as amended. 5. The Senior Manager agrees to subscribe for a number of Restricted Vested Preferred Shares having an aggregate liquidation preference equal to 5.264% of the Converted Value (the "Subscribed Value"), for which the Senior Manager will make a cash payment at Closing in the per share amount equal to the same as is paid by the Investors (as defined in the Management Shareholders Agreement) for the Preferred Shares of the Company purchased by the Investors. The Senior Manager will receive at Closing, in respect of each Restricted Vested Preferred Share paid for by the Senior Manager, one Restricted Vested Ordinary Share subject to the terms of the Management Shareholders Agreement. In addition to the cash payment required to pay for the Restricted Vested Preferred Shares set forth above, the Senior Manager agrees to pay cash at Closing for the Restricted Vested Ordinary Shares equal to $.0001 times the total number of such Restricted Vested Ordinary Shares. 6. With respect to Senior Managers who are party to the Management Participation Agreement dated as of March 29, 2000 (the "Management Participation Agreement") among Seagate Technology, Inc. ("Seller"), SAC and certain management employees of Seller listed on the signature page thereof. The parties hereto hereby agree and acknowledge that: (a) All references to "Purchaser" and the "Company" in the operative provisions of the Management Participation Agreement shall be deemed to constitute references to Seagate Technology HDD Holdings; (b) The references in Section 2(c) of the Management Participation Agreement to Rollover Options and Purchaser Restricted Shares shall be deemed to constitute references to Restricted Preferred Shares and Restricted Ordinary Shares; and (c) The transactions contemplated by this Agreement shall be in satisfaction of the parties' obligation under Section 3 of the Management Participation Agreement regarding Rollover Equity. 7. In the case of Senior Managers who are Vice Presidents, the Company reserves the right to advance the cash subscription price payable pursuant to this Agreement on 4 behalf of such Vice Presidents in the event the wire transfer of such funds by such Vice Presidents is not completed on a timely basis. Any funds so advances by the Company will be required to be repaid within 30 days of the advance, with interest at the prime rate on the Closing Date. 8. The Senior Manager warrants and represents that he or she is an "accredited investor," as such term is defined under Regulation D of the Securities Act of 1933, as amended. 9. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 10. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement, it being understood that all parties need not sign the same counterpart. 5 SCHEDULE I Name of Senior Manager: --------------------------------- Address of Senior Manager: ------------------------------ ------------------------------ Maximum percentage of total Rollover Value with respect to the Senior Manager which the Senior Manager agrees to convert: ____________% By executing this Schedule, the undersigned Senior Manager accepts and agrees to be bound by and subject to the terms and conditions of, and makes the representations, warranties and agreements set forth in (i) this Agreement, (ii) the Management Shareholders Agreement, (iii) the Restricted Share Agreement between the Company and the undersigned Senior Manager. By signing and returning this Schedule, the undersigned Senior Manager also accepts and agrees to be bound by and subject to the terms and conditions set out in the relevant sections of the Investor Shareholders Agreement. The parties to each such agreement shall treat the execution and delivery hereof by the undersigned Senior Manager as the execution and delivery of such agreement by the undersigned Senior Manager, and, upon receipt and acceptance of this Schedule by such parties, the signature of the undersigned Senior Manager set forth below shall constitute a counterpart to the signature page of each such agreement. NEW SAC - ------------------------------ Senior Manager By: ------------------------------- Name: Title: SEAGATE TECHNOLOGY HDD HOLDINGS By: ------------------------------- Name: Title: Dated: November 13, 2000 EX-10.7 34 0034.txt SEAGATE TECHNOLOGIES SAN HOLDINGS ROLLOVER AGREEMENT EXHIBIT 10.7 ROLLOVER AGREEMENT ROLLOVER AGREEMENT dated as of November 13, 2000 (the "Agreement") between New SAC, a limited company incorporated in the Cayman Islands (the "Company"), Seagate Technologies SAN Holdings, and the individual listed on Schedule I hereto (the "Senior Manager"). WHEREAS, Seagate Technology, Inc. ("Seagate"), Seagate Software Holdings, Inc. and Suez Acquisition Company (Cayman) Limited ("SAC") have entered into the Stock Purchase Agreement dated as of March 29, 2000 (as amended, the "Stock Purchase Agreement"); WHEREAS, prior to the consummation of the transactions pursuant to the Stock Purchase Agreement, SAC has assigned or will assign all of its rights and obligations under the Stock Purchase Agreement to the Company; and WHEREAS, pursuant to the Stock Purchase Agreement, as of the Closing which occurs on the Closing Date (each as defined in the Stock Purchase Agreement), the Company will, subject to certain exclusions, acquire all of the shares of various subsidiaries of Seagate and, indirectly, substantially all of the operating assets of Seagate; and WHEREAS, the Senior Manager and other members of Seagate management (together with the Senior Manager, the "Seagate Management") currently hold unvested options to acquire shares of Seagate common stock ("Seagate Options") and/or unvested restricted shares of Seagate common stock ("Seagate Restricted Shares") and have agreed that, as of the Closing Date, Seagate Options and Seagate Restricted Shares with a Rollover Value (as defined below) of between $150,000,000 and $250,000,000 (the "Commitment Amount") shall be converted into (i) deferred compensation and (ii) restricted preferred shares, par value $.0001 per share, of the Company (the "Restricted Preferred Shares"), in an aggregate amount equal to the Commitment Amount; and WHEREAS, in respect of the Restricted Preferred Shares received by the Senior Manager, the Senior Manager shall receive restricted ordinary shares, par value $.0001, of the Company (the "Restricted Ordinary Shares"); and WHEREAS, the Senior Manager also agrees to subscribe for vested restricted preferred shares, par value $.0001 per share, of the Company (the "Restricted Vested Preferred Shares") and vested restricted ordinary shares , par value $.0001 per share, of the Company (the "Restricted Vested Ordinary Shares") as set forth herein; NOW THEREFORE, in consideration of the foregoing, and the covenants and promises and representations set forth herein, and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged and accepted, the parties hereto agree as follows: 1. The Senior Manager agrees to the conversion, at the time of Closing, of unvested Seagate Options and/or unvested Seagate Restricted Shares held by such Senior Manager with an aggregate Rollover Value (as defined below) equal to at least the Applicable Percentage (as defined below) of the total Rollover Value represented by all unvested Seagate 2 Options and Seagate Restricted Shares held by such Senior Manager as of the Closing, into (i) pursuant to the terms of the Suez Acquisition Company Restricted Share Plan (substantially in the form attached hereto as Exhibit A) (the "Restricted Share Plan"), the Restricted Share Agreement (substantially in the form attached hereto as Exhibit B) (the "Restricted Share Agreement"), the Management Shareholders Agreement (substantially in the form attached hereto as Exhibit C (the "Management Shareholders Agreement," which reference shall include the applicable provisions of the Shareholders Agreement (substantially in the form attached hereto as Exhibit D (the "Investor Shareholders Agreement")), Restricted Preferred Shares having an aggregate liquidation preference equal to fifty percent of the Subscribed Value (as defined below) and (ii) a deferred compensation account pursuant to a deferred compensation plan (substantially in the form attached hereto as Exhibit E), which shall be subject to all the terms (including the subordination terms) of such plan, equal to the excess of the Converted Value over the aggregate liquidation perference of the Restricted Preferred Shares (the "Deferred Value"). 2. In addition, with respect to the Restricted Preferred Shares received pursuant to the preceding sentence, the Senior Manager shall receive, pursuant to the terms of the Restricted Share Plan, the Restricted Share Agreement and the Management Shareholders Agreement, a number of Restricted Ordinary Shares sufficient to provide the Senior Manager, as of the Closing, with a percentage ownership of the total outstanding Ordinary Shares of the Company as of the Closing equal to the Converted Value divided by the sum of (i) the Commitment Amount and (ii) the balance of the total equity investment in the Company as of the Closing Date (including all amounts contributed by the Seagate Management for Restricted Vested Preferred Shares (as defined below)). For purposes of this Agreement, "Rollover Value" shall mean (i) with respect to Seagate Options, the excess of (x) the fair market value per share of Seagate common stock (using the average of Seagate's closing selling prices for the five consecutive trading days ending two trading days immediately preceding the Closing (the "FMV") times the number of Seagate shares subject to the Seagate Option, over (y) the aggregate exercise price of the Seagate Option and (ii) with respect to Seagate Restricted Shares, the FMV times the number of Seagate Restricted Shares. For purposes of this Agreement, "Converted Value" shall equal the Rollover Value of the unvested Seagate Options and/or unvested Seagate Restricted Shares actually converted. For purposes of this Agreement, "Applicable Percentage" shall mean, with respect to a Senior Manager who is a Senior Vice President or higher, 50%, and with respect to any other Senior Manager, 25%. 3. The Senior Manager agrees to convert additional Seagate Options and/or Seagate Restricted Shares such that the total Converted Value shall equal the maximum percentage, as set forth on Schedule I hereto, of the total Rollover Value represented by all unvested Seagate Options and Seagate Restricted Shares held by such Senior Manager as of the Closing (such total value, the "Committed Value"). In the event that the total Committed Value of the Seagate Management exceeds $213,750,000 (or such lesser amount, but not below $180,500,000, as determined by Silver Lake Partners, L.P.) such total Committed Value shall be allocated pro rata among the Seagate Management, based, first, on the respective Committed Values of the Seagate Management in excess of the minimum percentage specified in paragraph 1 hereof and then based on the minimum percentage of each member of Seagate management (including the Senior Manager). 3 4. In consideration for the establishment of the deferred compensation account and the Restricted Preferred Shares, the Senior Manager agrees to the cancellation and/or the forfeiture of a number of Seagate Options and/or Seagate Restricted Shares equal to the Converted Value. The Seagate Options and/or Seagate Restricted Shares shall be cancelled and/or forfeited in accordance with their respective parachute payment values as determined under Section 280G of the Internal Revenue Code of 1986, as amended, and the proposed Treasury Regulations thereunder, with the Seagate Options and/or Seagate Restricted Shares with the highest such parachute payment value to be the first cancelled and/or forfeited. 5. The Senior Manager agrees to subscribe for a number of Restricted Vested Preferred Shares having an aggregate liquidation preference equal to 5.264% of the Converted Value (the "Subscribed Value"), for which the Senior Manager will make a cash payment at Closing in the per share amount equal to the same as is paid by the Investors (as defined in the Management Shareholders Agreement) for the Preferred Shares of the Company purchased by the Investors. The Senior Manager will receive at Closing, in respect of each Restricted Vested Preferred Share paid for by the Senior Manager, one Restricted Vested Ordinary Share subject to the terms of the Management Shareholders Agreement. In addition to the cash payment required to pay for the Restricted Vested Preferred Shares set forth above, the Senior Manager agrees to pay cash at Closing for the Restricted Vested Ordinary Shares equal to $.0001 times the total number of such Restricted Vested Ordinary Shares. 6. With respect to Senior Managers who are party to the Management Participation Agreement dated as of March 29, 2000 (the "Management Participation Agreement") among Seagate Technology, Inc. ("Seller"), SAC and certain management employees of Seller listed on the signature page thereof. The parties hereto hereby agree and acknowledge that: (a) All references to "Purchaser" and the "Company" in the operative provisions of the Management Participation Agreement shall be deemed to constitute references to Seagate Technologies SAN Holdings; (b) The references in Section 2(c) of the Management Participation Agreement to Rollover Options and Purchaser Restricted Shares shall be deemed to constitute references to Restricted Preferred Shares and Restricted Ordinary Shares; and (c) The transactions contemplated by this Agreement shall be in satisfaction of the parties' obligation under Section 3 of the Management Participation Agreement regarding Rollover Equity. 7. In the case of Senior Managers who are Vice Presidents, the Company reserves the right to advance the cash subscription price payable pursuant to this Agreement on behalf of such Vice Presidents in the event the wire transfer of such funds by such Vice Presidents is not completed on a timely basis. Any funds so advances by the Company will be required to be repaid within 10 days of the advance, with interest at 7% per annum. 4 8. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 9. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement, it being understood that all parties need not sign the same counterpart. 5 SCHEDULE I Name of Senior Manager: ------------------------------------ Address of Senior Manager: --------------------------------- --------------------------------- Maximum percentage of total Rollover Value with respect to the Senior Manager which the Senior Manager agrees to convert: ____________% By executing this Schedule, the undersigned Senior Manager accepts and agrees to be bound by and subject to the terms and conditions of, and makes the representations, warranties and agreements set forth in (i) this Agreement, (ii) the Management Shareholders Agreement, (iii) the Restricted Share Agreement between the Company and the undersigned Senior Manager. By signing and returning this Schedule, the undersigned Senior Manager also accepts and agrees to be bound by and subject to the terms and conditions set out in the relevant sections of the Investor Shareholders Agreement. The parties to each such agreement shall treat the execution and delivery hereof by the undersigned Senior Manager as the execution and delivery of such agreement by the undersigned Senior Manager, and, upon receipt and acceptance of this Schedule by such parties, the signature of the undersigned Senior Manager set forth below shall constitute a counterpart to the signature page of each such agreement. NEW SAC - ------------------------------ Senior Manager By: ------------------------------ Name: Title: SEAGATE TECHNOLOGIES SAN HOLDINGS By: ------------------------------ Name: Title: Dated: November 13, 2000 EX-10.8 35 0035.txt SEAGATE HDD HOLDINGS DEFERRED COMPENSATION PLAN EXHIBIT 10.8 SEAGATE TECHNOLOGY HDD HOLDINGS DEFERRED COMPENSATION PLAN PURPOSE The purpose of this Seagate Technology HDD Holdings Deferred Compensation Plan (the "Plan") is to create a deferred compensation account for those employees or consultants who, in connection with the transaction contemplated by the Stock Purchase Agreement by and among Suez Acquisition Company (Cayman) Limited, Seagate Technology, Inc. ("Seagate") and Seagate Software Holdings, Inc. (the "Transaction"), have elected, pursuant to the Rollover Agreements, to rollover equity-based awards in Seagate into deferred compensation accounts and restricted shares of SAC (as defined below). SECTION I DEFINITIONS Whenever used in the Plan, the following terms shall have the following meanings: 1.1 "Account" - means the account created by the Company pursuant to Section II of this Plan. 1.2 "Act" - means The Securities Exchange Act of 1934, as amended, or any successor thereto. 1.3 "Affiliate" - means, with respect to the Company, any entity directly or indirectly controlling, controlled by, or under common control with, the Company or any other entity designated by the Board in which the Company or an Affiliate has an interest. 1.4 "Administrator" - means the Committee or such entity or person to whom the Committee may delegate responsibility for administration of the Plan. 1.5 "Beneficial Owner" - means a "beneficial owner", as such term is defined in Rule 13d-3 under the Act (or any successor rule thereto). 1.6 "Beneficiary" - means one or more persons or entities (including a trust or estate) designated by a Participant, at any time or from time to time, to receive any payment under the Plan at or after such Participant's death. 1.7 "Board" - means the Board of Directors of the Company. 1.8 "Cause" - means (i) the Participant's continued failure substantially to perform the material duties of his office (other than as a result of total or partial incapacity due to physical or mental illness), (ii) the embezzlement or theft by the Participant of the Company's property, (iii) the commission of any act or acts on the Participant's part resulting in the conviction of such Participant of a felony under the laws of the United States or any state, (iv) the Participant's willful malfeasance or willful misconduct in connection with the Participant's duties to the Company or any other act or omission which is materially injurious to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates, or (v) a material breach by the Participant of the material terms of his employment agreement, any stockholders' agreement or any non-compete, non-solicitation or confidentiality provisions to which the Participant is subject. However, no termination shall be deemed for Cause under clause (i), (iv) or (v) unless the Participant is first given written notice by the Company of the specific acts or omissions which the Company deems constitute grounds for a termination for Cause and is provided with at least 30 days after such notice to cure the specified deficiency. 1.9 "Change of Control" - means (i) (A) the sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of SAC to any Person or "group" (as such term is defined in Sections 13(d)(3) and 14(d)(2) of the Act) other than the Investors or their Affiliates or (B) any person or group, other than the Investors or their Affiliates, is or becomes the Beneficial Owner, directly or indirectly, of more than 50% of the total voting power of the voting stock of SAC, including by way of merger, consolidation or otherwise, and (ii) the representatives of the Investors or their Affiliates (individually or in the aggregate) cease to comprise a majority of the Board of Directors of SAC. 1.10 "Closing Date" - means the "Closing Date" as defined in the Stock Purchase Agreement, dated March 29, 2000, by and among Suez Acquisition Company (Cayman) Limited, Seagate and Seagate Software Holdings, Inc., as amended. 1.11 "Code" - means the Internal Revenue Code of 1986, as amended from time to time. 1.12 "Committee" - means the Compensation Committee of the Board, or such other committee designated by the Board. 1.13 "Company" - means Seagate Technology HDD Holdings. 1.14 "Company Change of Control" - means (i) (A) the sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to any Person or "group" (as such term is defined in Sections 13(d)(3) and 14(d)(2) of the Act) other than the Investors or their Affiliates or (B) any person or group, other than the Investors or their Affiliates, is or becomes the Beneficial Owner, directly or indirectly, of more than 50% of the total voting power of the voting stock of Company including by way of merger, consolidation or otherwise, and (ii) the representatives of the Investors or their Affiliates (individually or in the aggregate) cease to comprise a majority of the Board. 1.15 "Deferral Amount" - means the Participant's Deferred Value (as defined in the Rollover Agreement). 2 1.16 "Deferral Percentage" - means the percentage represented by a fraction, where the numerator equals the Deferral Amount and the denominator equals the sum of (i) the total equity investment in the Company by the Investors as of the Closing Date and (ii) the aggregate Deferral Amount of all Participants as of the Closing Date. 1.17 "Effective Date" - means the Closing Date. 1.18 "Fair Market Value" - means (i) if there is a public market for the shares on such date, the average of the high and low closing bid prices of the shares on such stock exchange on which the shares are principally trading on the date in question, or, if there were no sales on such date, on the closest preceding date on which there were sales of shares or (ii) if there is no public market for the shares on such date, the fair market value of the shares as determined in good faith by the Board. 1.19 "Good Reason" - shall mean a Participant's resignation of his or her employment with the Company as a result of the following actions, which actions remain uncured for at least 30 days following written notice from the Participant to the Company describing the occurrence of such events and asserting that such events constitute grounds for a Good Reason resignation, provided notice of such resignation is given to the Company within sixty (60) days after the expiration of such cure period: (i) without the Participant's express written consent, any material reduction in the Participant's authority or responsibilities from those set forth in an employment agreement between the Company and the Participant (an "Employment Agreement") (or if such Participant is not a party to an Employment Agreement, from the authority and responsibilities initially assigned to such Participant by the Company after the Closing Date), (ii) without the Participant's express written consent, a reduction of 10% or more in the level of the base salary, target annual bonus or employee benefits to be provided to the Participant under an Employment Agreement (or if such Participant is not a party to an Employment Agreement, a reduction of 10% or more in the level of base salary, target annual bonus or employee benefits provided to such Participant immediately prior to the Closing Date), other than a reduction implemented with the consent of the Participant or a reduction that is equivalent to reduction in base salaries, bonus opportunities and/or employee benefits, as applicable, imposed on all other senior executives of the Company at a similar level within the Company (provided that the use of private aircraft shall not be deemed an employee benefit for theses purposes); or (iii) the relocation of the Participant to a principal place of employment more than 50 miles from the Participant's current principal place of employment, without the Participant's express written consent. 1.20 "Investors" - means Silver Lake Partners, L.P., SAC Investments, L.P. and the other investors that invested in SAC as of the Closing Date (or an affiliate or affiliates thereof) (other than pursuant to the conversion of equity-based awards in Seagate). 1.21 "Participant" - means each employee or consultant who has entered into a Rollover Agreement. 3 1.22 "Person" - means a "person", as such term is used for purposes of Section 13(d) or 14(d) of the Act. 1.23 "Plan" - means this Seagate Technology HDD Holdings Deferred Compensation Plan, as set forth herein and as it may be amended and/or restated from time to time. 1.24 "Preferred Shares" - means preferred shares, par value $.0001 per share of SAC. 1.25 "Rollover Agreement" - means an agreement, in the form attached hereto as Exhibit A, between an employee of the Company or one of its Affiliates and SAC whereby the employee has elected to rollover equity-based compensation in Seagate into (i) deferred compensation and (ii) restricted Preferred Shares. 1.26 "SAC" - means New SAC, a limited company incorporated in the Cayman Islands. SECTION II DEFERRED COMPENSATION ACCOUNTS 2.1 The Company shall maintain a separate book entry account (an "Account") initially equal to the Deferral Amount of each Participant. The balance of each Participant's Account shall be reduced by any distributions made to such Participant or his or her Beneficiary pursuant to this Plan. 2.2 Nothing contained herein shall be deemed to create a trust of any kind or any fiduciary relationship; provided, however, that the Company or any of its subsidiaries reserves the right to establish one or more trusts to provide alternate sources of benefit payments under this Plan. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be (a) subordinated as set forth in Section 4.6 and (b) in any event, no greater than the right of any unsecured general creditor of the Company or its subsidiaries. SECTION III VESTING 3.1 Subject to the Participant's employment with, or continued service to, the Company or any affiliate, the Account of each Participant shall vest with respect to one-third of the initial balance of such Participant's Account on the first anniversary of the Closing Date, with respect to one-third of the initial balance of such Participant's Account ratably each month over the 18 months following the first anniversary of the Closing Date and with respect to the remaining one-third of the initial balance of such Participant's Account on the date which is 30 months following the Closing Date; provided, however, that the 4 Company, in its sole discretion, may accelerate the vesting of all or a portion of a Participant's Account at any time. 3.2 A Participant's Account shall become 100% vested upon such Participant's termination of employment or service for any reason (including, without limitation, the Participant's death or disability); provided, however, that if the Participant's employment or service is terminated by the Company for Cause or the Participant resigns without Good Reason the unvested portion of the Account immediately prior to such termination shall be forfeited without consideration. SECTION IV PAYMENT OF DEFERRED COMPENSATION 4.1 Amounts contained in a Participant's Account shall, subject to Section 4.5 and 4.6, be paid to the Participant as and when distributions are made to the Investors in respect of their Preferred Shares (excluding, any tax distributions) (a "Distribution Event"). The amount of the payment shall equal the product of the initial balance of such Account times the Distribution Percentage (as defined below). For purposes of this Section 4.1, the "Distribution Percentage" with respect to a Distribution Event shall equal (i) the fair market value of the distribution made by SAC to the Investors with respect to their Preferred Shares in connection with such Distribution Event, divided by (ii) the initial investment by the Investors in the Preferred Shares as of the Closing Date. 4.2 Subject to Section 4.5 and 4.6, any amount payable to a Participant pursuant to Section 4.1 shall be paid within 5 days following the date on which such amount becomes payable. Such amounts shall be paid, in the Company's discretion, in cash or the same securities or other property (such securities or other property shall be referred to as "Distributed Property") distributed to the Investors in connection with a Distribution Event, such Distributed Property having a fair market value as of the Distribution Event (as determined by the Administrator) equal to the cash otherwise payable, provided that the amount of Distributed Property which may be paid to the Participants in satisfaction of the Company's obligation under Section 4.1 shall be limited to the extent necessary to assure that the aggregate fair market value of such Distributed Property (measured as of the Distribution Event) does not exceed the fair market value of the Distributed Property distributed with respect to the Preferred Shares in such Distribution Event. 4.3 Notwithstanding Section 4.1 and 4.2, the payment of amounts contained in a Participant's Account that are otherwise payable upon a Distribution Event but are not vested at the time of such Distribution Event (an "Unvested Payable Amount") shall continue to be deferred until such Unvested Payable Amount vests. Upon the vesting thereof, the vested portion of an Unvested Payable Amount shall, subject to Section 4.6, be paid, in the Company's discretion but consistent with Section 4.2, in cash or Distributed Property which relates to the Unvested Payable Amount, with any such securities or other property distributed in payment of the vested portion of the Unvested Payable Amount to be valued based on the fair market value (as determined by the Administrator) of such 5 securities or other property as of the vesting date. In the case of Unvested Payable Amount, the election described in Section 5.6 may be delivered by the Company to SAC no later than 20 days prior to the date on which such Unvested Payable Amount is expected to vest (and the Participants shall be notified at such time) and SAC shall be, subject to Sections 4.5 and 4.6, obligated to loan or to contribute to the capital of the Company, no later than the date on which such Unvested Payable Amount vests, the portion of the Unvested Payable Amount described in the election. In such a case, the Net Worth Limitation described in Section 5.6 shall be applied on the date the Unvested Payable Amount vests. 4.4 Each Participant shall have the right to designate a Beneficiary. Any designated Beneficiary shall receive payments in the same manner as the Participant as if he or she had lived. In case of a failure of designation or the death of a designated Beneficiary without a designated successor, the balance of the amounts contained in the Participant's Account shall be paid, in accordance with Section 4.1, 4.2 and 4.3, to the Participant's estate. No designation of Beneficiary or change in Beneficiary shall be valid unless it is in writing signed by the Participant and filed with the Secretary of the Company (or his or her designated agent). 4.5 Notwithstanding anything contained herein to the contrary, no provision of this Plan will entitle any Participant or Beneficiary to any distribution or other payment from the Company or SAC (or entitle the Company to any loan or capital contribution from SAC), or to any claim against the Company or SAC for any such distribution or other payment (or loan or capital contribution), except for distributions payable and claims arising upon the occurrence of a Distribution Event, as and to the extent expressly provided in Sections 4.1, 4.2 and 4.3 (and, in the case of a claim by the Company for a loan or capital contribution from SAC, Section 5.6), subject to the subordination provisions set forth in Section 4.6. 4.6 (a) Each Participant, by entering into a Rollover Agreement, the Company and SAC agrees that the obligations of the Company and SAC under this Plan to make any distribution or other payment to the Participants and the Beneficiaries (and the obligations of SAC to make any loan or capital contribution to the Company) are expressly subordinated in right of payment, to the extent and in the manner provided herein, to the prior payment in full in cash of all (i) Obligations (as defined in the Credit Agreement to be dated as of November 22, 2000 (as renewed, refinanced, extended, modified, amended, restated, supplemented or waived from time to time, the "Credit Agreement"), among SAC, Seagate Technology International, Seagate Technology (US) Holdings, Inc., the Lenders party thereto and The Chase Manhattan Bank, as Administrative Agent), whether as primary obligor or as a guarantor, and (ii) Guaranteed Obligations (as defined in the Indenture to be dated as of November 22, 2000 (as renewed, refinanced, extended, modified, amended, restated, supplemented or waived from time to time, the "Indenture") among SAC, Seagate Technology International, the various subsidiaries of SAC from time to time party thereto and The Bank of New York, as Trustee), including interest and other monetary obligations incurred during the pendency of any insolvency, bankruptcy, receivership or similar proceeding (the 6 "Subordinated Note Obligations"), whether as primary obligor or as a guarantor, in each case as increased, renewed, refinanced, extended, modified, amended, restated, compromised, supplemented, terminated, waived or released from time to time (all such obligations in clauses (i) and (ii), as so increased, renewed, refinanced, extended, modified, amended, restated, compromised, supplemented, terminated, waived or released, collectively, the "Prior Obligations"). (b) Until the payment in full in cash of all Prior Obligations, the termination of the Commitments (as defined in the Credit Agreement) and the reduction of the LC Exposure (as defined in the Credit Agreement) to zero (the "Time of Termination"), no Participant or Beneficiary shall be entitled to receive, and neither the Company nor SAC shall be required or permitted to make, any distribution or other payment under this Plan, and any such distribution or other payment to which a Participant or Beneficiary would be entitled but for the provisions of this sentence shall be made to holders of Prior Obligations (in each case, whether or not the Company is at the time a guarantor of Prior Obligations), subject to the subordination provisions of the Prior Obligations (or, if made to a Participant or Beneficiary, held by such Participant or Beneficiary in trust for the holders of the Prior Obligations and paid over to the holders of the Prior Obligations, subject to the subordination provisions of the Prior Obligations) as their interests may appear; provided, however, that the Company or SAC may make any distribution required by Section 4.1, 4.2 or 4.3 of the Plan and no Participant or Beneficiary receiving any such distribution would be under any obligation to hold that distribution in trust for the holders of the Prior Obligations, if at the time when such distribution will be made no Default or Event of Default under the Credit Agreement or under the Indenture or other documentation governing the Subordinated Note Obligations has occurred and is continuing or would result from such distribution. (c) If, at any time, all or part of any payment previously made by SAC or any other Person with respect to Prior Obligations is rescinded for any reason whatsoever (including the insolvency, bankruptcy or reorganization of SAC or such other Person), the subordination provisions set forth in this Section 4.6 shall continue to be effective or be reinstated, as the case may be, all as though such payment had not been made. (d) The subordination provisions of this Section 4.6 are for the benefit of and enforceable by holders of the Prior Obligations (or any agent or trustee for such holders), and may not be modified, rescinded or cancelled in whole or in part prior to the Time of Termination. SECTION V ADMINISTRATION; MISCELLANEOUS 5.1 The Company shall administer the Plan at its expense. All decisions made by the Company with respect to issues hereunder shall be final and binding on all parties. 7 5.2 Except to the extent required by law, the right of any Participant or any Beneficiary to any benefit or to any payment hereunder shall not be subject in any manner to attachment or other legal process for the debts of such Participant or Beneficiary. 5.3 This Plan does not constitute an employment contract between the Company and a Participant. Nothing in this Plan shall be construed to give a Participant the right to be retained in the service of the Company, nor interfere with the right of the Company to terminate a Participant at any time and nothing in this Plan shall require uniformity of treatment with respect to Participants and/or their Beneficiaries. 5.4 Notwithstanding any other provision of the Plan, in the event of a Company Change of Control, (i) the successor entity (which, in the case of a sale or disposition of assets, shall mean the acquiror of such assets) shall assume the Company's obligations under the Plan, (ii) the Account of each Participant shall be recalculated to equal the lesser of (A) the Deferral Amount less distributions made to such Participant or his or her Beneficiary pursuant to the Plan and (B) the fair market value of SAC immediately prior to the Company Change of Control (excluding the aggregate Deferral Amount of all Participants), as determined by the Administrator in its sole discretion, multiplied by the Deferral Percentage, (iii) the Account of each Participant shall, subject to Section 4.6, be paid if and when such Account vests in accordance with the provisions of Section 3 and (iv) the payment of each Account shall be made in cash. 5.5 Notwithstanding any other provision of this Plan, in the event of a sale of substantially all the assets of SAC or a liquidation of SAC, (i) the Account of each Participant shall become 100% vested and (ii) following the distributions to the Investors and a payment to the Participants pursuant to such distributions as provided in the Plan, subject to Section 4.5 and 4.6, the Plan shall terminate and all remaining balances in each Participant's Account shall be forfeited without consideration. 5.6 Subject to Sections 4.3, 4.5 and 4.6, at such time as an amount first becomes payable to the Participants pursuant to Section 4.1 or 4.3, in the event the Company determines that it has insufficient available assets with which to pay to Participants all or any portion of such amount, and the Company elects, in its discretion, not to borrow such assets or to cause such assets to be distributed to the Company by its Affiliates, the Company shall demand that SAC loan to the Company or make a contribution to the capital of the Company (at the election of SAC) all or any portion of such amount. In such event, the Company shall deliver a written demand to SAC on or before the date an amount first becomes payable to Participants pursuant to Section 4.1 or 4.3, and the Company shall notify such Participants at such time. SAC shall, subject to Sections 4.5 and 4.6, be obligated to loan or to contribute to the capital of the Company (i) within 5 days following the date on which any such amount becomes payable under 4.1 or (ii) on the date any such amount becomes payable under Section 4.3, the amount that is described in such demand, provided, however, that SAC may satisfy its obligation in cash and/or with Distributed Property (except that the amount of Distributed Property transferred may not exceed the amount of such Distributed Property that may be paid to the Participants in accordance with Section 4.2), provided further, however, that the amount of SAC's 8 obligation shall not exceed the Net Worth of the Company determined as of the date such amount becomes payable to the Participants pursuant to Section 4.1 (the "Net Worth Limitation"). Notwithstanding any other provision of this Plan, this Section 5.6 shall not be applicable to (and neither SAC nor any of its Affiliates (including, in the case of a Company Change of Control that is a sale or disposition of assets, the Company) shall have any liability in respect of) any payments or obligations of the Company or otherwise under the Plan following a Company Change of Control in which neither SAC nor any of the Borrowers or Subsidiaries are the successor or acquiring entity. For this purpose, the term "Net Worth" shall be equal to the difference between the Fair Market Value of the Company's assets (determined without regard to the obligation of SAC described in this Section 5.6), and the amount of the Company's liabilities (determined by taking into account the obligation to the Participants determined under Section 4.1). In the event amounts first become payable pursuant to Section 4.1 on more than one occasion, the Net Worth Limitation shall be applied with respect to each such occasion. 5.7 This Plan shall be governed by, and construed in accordance with the laws of the State of New York, without regard to the conflicts of laws provisions thereof. 5.8 The Company may withhold from distributions made from the Plan any taxes required to be withheld under federal, state, or local law. 5.9 Benefits payable under this Plan may not be anticipated, assigned (either at law or equity), alienated, pledged, encumbered, or subjected to attachment, garnishment, levy, execution, or other legal process, and any attempt to effect such distribution shall be void. 5.10 The Plan may be amended, suspended or terminated in whole or in part from time to time by the Board, subject to Section 4.6(d) and except that no amendment, suspension, or termination shall diminish the rights, or adversely affect the benefits, provided to the Participants hereunder. 5.11 Until such time as the Company is subject to the periodic reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company shall deliver a balance sheet and an income statement at least annually to each individual with an Account under the Plan, unless such individual is a key employee of the Company or its Affiliates whose duties in connection with the Company (or any Affiliate) assure such individual access to equivalent information. 5.12 The Plan is an unfunded plan intended to provide deferred compensation to a select group of management and highly compensated employees of the Company and its subsidiaries. 9 EX-10.9 36 0036.txt SEAGATE SAN HOLDINGS DEFERRED COMPENSATION PLAN EXHIBIT 10.9 SEAGATE TECHNOLOGY SAN HOLDINGS DEFERRED COMPENSATION PLAN PURPOSE The purpose of this Seagate Technology SAN Holdings Deferred Compensation Plan (the "Plan") is to create a deferred compensation account for those employees or consultants who, in connection with the transaction contemplated by the Stock Purchase Agreement by and among Suez Acquisition Company (Cayman) Limited, Seagate Technology, Inc. ("Seagate") and Seagate Software Holdings, Inc. (the "Transaction"), have elected, pursuant to the Rollover Agreements, to rollover equity-based awards in Seagate into deferred compensation accounts and restricted shares of SAC (as defined below). SECTION I DEFINITIONS Whenever used in the Plan, the following terms shall have the following meanings: 1.1 "Account" - means the account created by the Company pursuant to Section II of this Plan. 1.2 "Act" - means The Securities Exchange Act of 1934, as amended, or any successor thereto. 1.3 "Affiliate" - means, with respect to the Company, any entity directly or indirectly controlling, controlled by, or under common control with, the Company or any other entity designated by the Board in which the Company or an Affiliate has an interest. 1.4 "Administrator" - means the Committee or such entity or person to whom the Committee may delegate responsibility for administration of the Plan. 1.5 "Beneficial Owner" - means a "beneficial owner", as such term is defined in Rule 13d-3 under the Act (or any successor rule thereto). 1.6 "Beneficiary" - means one or more persons or entities (including a trust or estate) designated by a Participant, at any time or from time to time, to receive any payment under the Plan at or after such Participant's death. 1.7 "Board" - means the Board of Directors of the Company. 1.8 "Cause" - means (i) the Participant's continued failure substantially to perform the material duties of his office (other than as a result of total or partial incapacity due to physical or mental illness), (ii) the embezzlement or theft by the Participant of the Company's property, (iii) the commission of any act or acts on the Participant's part resulting in the conviction of such Participant of a felony under the laws of the United States or any state, (iv) the Participant's willful malfeasance or willful misconduct in connection with the Participant's duties to the Company or any other act or omission which is materially injurious to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates, or (v) a material breach by the Participant of the material terms of his employment agreement, any stockholders' agreement or any non-compete, non-solicitation or confidentiality provisions to which the Participant is subject. However, no termination shall be deemed for Cause under clause (i), (iv) or (v) unless the Participant is first given written notice by the Company of the specific acts or omissions which the Company deems constitute grounds for a termination for Cause and is provided with at least 30 days after such notice to cure the specified deficiency. 1.9 "Change of Control" - means (i) (A) the sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of SAC to any Person or "group" (as such term is defined in Sections 13(d)(3) and 14(d)(2) of the Act) other than the Investors or their Affiliates or (B) any person or group, other than the Investors or their Affiliates, is or becomes the Beneficial Owner, directly or indirectly, of more than 50% of the total voting power of the voting stock of SAC, including by way of merger, consolidation or otherwise, and (ii) the representatives of the Investors or their Affiliates (individually or in the aggregate) cease to comprise a majority of the Board of Directors of SAC. 1.10 "Closing Date" - means the "Closing Date" as defined in the Stock Purchase Agreement, dated March 29, 2000, by and among Suez Acquisition Company (Cayman) Limited, Seagate and Seagate Software Holdings, Inc., as amended. 1.11 "Code" - means the Internal Revenue Code of 1986, as amended from time to time. 1.12 "Committee" - means the Compensation Committee of the Board, or such other committee designated by the Board. 1.13 "Company" - means Seagate Technology SAN Holdings. 1.14 "Company Change of Control" - means (i) (A) the sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to any Person or "group" (as such term is defined in Sections 13(d)(3) and 14(d)(2) of the Act) other than the Investors or their Affiliates or (B) any person or group, other than the Investors or their Affiliates, is or becomes the Beneficial Owner, directly or indirectly, of more than 50% of the total voting power of the voting stock of Company including by way of merger, consolidation or otherwise, and (ii) the representatives of the Investors or their Affiliates (individually or in the aggregate) cease to comprise a majority of the Board. 1.15 "Deferral Amount" - means the Participant's Deferred Value (as defined in the Rollover Agreement). 2 1.16 "Deferral Percentage" - means the percentage represented by a fraction, where the numerator equals the Deferral Amount and the denominator equals the sum of (i) the total equity investment in the Company by the Investors as of the Closing Date and (ii) the aggregate Deferral Amount of all Participants as of the Closing Date. 1.17 "Effective Date" - means the Closing Date. 1.18 "Fair Market Value" - means (i) if there is a public market for the shares on such date, the average of the high and low closing bid prices of the shares on such stock exchange on which the shares are principally trading on the date in question, or, if there were no sales on such date, on the closest preceding date on which there were sales of shares or (ii) if there is no public market for the shares on such date, the fair market value of the shares as determined in good faith by the Board. 1.19 "Good Reason" - shall mean a Participant's resignation of his or her employment with the Company as a result of the following actions, which actions remain uncured for at least 30 days following written notice from the Participant to the Company describing the occurrence of such events and asserting that such events constitute grounds for a Good Reason resignation, provided notice of such resignation is given to the Company within sixty (60) days after the expiration of such cure period: (i) without the Participant's express written consent, any material reduction in the Participant's authority or responsibilities from those set forth in an employment agreement between the Company and the Participant (an "Employment Agreement") (or if such Participant is not a party to an Employment Agreement, from the authority and responsibilities initially assigned to such Participant by the Company after the Closing Date), (ii) without the Participant's express written consent, a reduction of 10% or more in the level of the base salary, target annual bonus or employee benefits to be provided to the Participant under an Employment Agreement (or if such Participant is not a party to an Employment Agreement, a reduction of 10% or more in the level of base salary, target annual bonus or employee benefits provided to such Participant immediately prior to the Closing Date), other than a reduction implemented with the consent of the Participant or a reduction that is equivalent to reduction in base salaries, bonus opportunities and/or employee benefits, as applicable, imposed on all other senior executives of the Company at a similar level within the Company (provided that the use of private aircraft shall not be deemed an employee benefit for theses purposes); or (iii) the relocation of the Participant to a principal place of employment more than 50 miles from the Participant's current principal place of employment, without the Participant's express written consent. 1.20 "Investors" - means Silver Lake Partners, L.P., SAC Investments, L.P. and the other investors that invested in SAC as of the Closing Date (or an affiliate or affiliates thereof) (other than pursuant to the conversion of equity-based awards in Seagate). 1.21 "Participant" - means each employee or consultant who has entered into a Rollover Agreement. 3 1.22 "Person" - means a "person", as such term is used for purposes of Section 13(d) or 14(d) of the Act. 1.23 "Plan" - means this Seagate Technology SAN Holdings Deferred Compensation Plan, as set forth herein and as it may be amended and/or restated from time to time. 1.24 "Preferred Shares" - means preferred shares, par value $.0001 per share of SAC. 1.25 "Rollover Agreement" - means an agreement, in the form attached hereto as Exhibit A, between an employee of the Company or one of its Affiliates and SAC whereby the employee has elected to rollover equity-based compensation in Seagate into (i) deferred compensation and (ii) restricted Preferred Shares. 1.26 "SAC" - means New SAC, a limited company incorporated in the Cayman Islands. SECTION II DEFERRED COMPENSATION ACCOUNTS 2.1 The Company shall maintain a separate book entry account (an "Account") initially equal to the Deferral Amount of each Participant. The balance of each Participant's Account shall be reduced by any distributions made to such Participant or his or her Beneficiary pursuant to this Plan. 2.2 Nothing contained herein shall be deemed to create a trust of any kind or any fiduciary relationship; provided, however, that the Company or any of its subsidiaries reserves the right to establish one or more trusts to provide alternate sources of benefit payments under this Plan. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be (a) subordinated as set forth in Section 4.6 and (b) in any event, no greater than the right of any unsecured general creditor of the Company or its subsidiaries. SECTION III VESTING 3.1 Subject to the Participant's employment with, or continued service to, the Company or any affiliate, the Account of each Participant shall vest with respect to one-third of the initial balance of such Participant's Account on the first anniversary of the Closing Date, with respect to one-third of the initial balance of such Participant's Account ratably each month over the 18 months following the first anniversary of the Closing Date and with respect to the remaining one-third of the initial balance of such Participant's Account on the date which is 30 months following the Closing Date; provided, however, that the 4 Company, in its sole discretion, may accelerate the vesting of all or a portion of a Participant's Account at any time. 3.2 A Participant's Account shall become 100% vested upon such Participant's termination of employment or service for any reason (including, without limitation, the Participant's death or disability); provided, however, that if the Participant's employment or service is terminated by the Company for Cause or the Participant resigns without Good Reason the unvested portion of the Account immediately prior to such termination shall be forfeited without consideration. SECTION IV PAYMENT OF DEFERRED COMPENSATION 4.1 Amounts contained in a Participant's Account shall, subject to Section 4.5 and 4.6, be paid to the Participant as and when distributions are made to the Investors in respect of their Preferred Shares (excluding, any tax distributions) (a "Distribution Event"). The amount of the payment shall equal the product of the initial balance of such Account times the Distribution Percentage (as defined below). For purposes of this Section 4.1, the "Distribution Percentage" with respect to a Distribution Event shall equal (i) the fair market value of the distribution made by SAC to the Investors with respect to their Preferred Shares in connection with such Distribution Event, divided by (ii) the initial investment by the Investors in the Preferred Shares as of the Closing Date. 4.2 Subject to Section 4.5 and 4.6, any amount payable to a Participant pursuant to Section 4.1 shall be paid within 5 days following the date on which such amount becomes payable. Such amounts shall be paid, in the Company's discretion, in cash or the same securities or other property (such securities or other property shall be referred to as "Distributed Property") distributed to the Investors in connection with a Distribution Event, such Distributed Property having a fair market value as of the Distribution Event (as determined by the Administrator) equal to the cash otherwise payable, provided that the amount of Distributed Property which may be paid to the Participants in satisfaction of the Company's obligation under Section 4.1 shall be limited to the extent necessary to assure that the aggregate fair market value of such Distributed Property (measured as of the Distribution Event) does not exceed the fair market value of the Distributed Property distributed with respect to the Preferred Shares in such Distribution Event. 4.3 Notwithstanding Section 4.1 and 4.2, the payment of amounts contained in a Participant's Account that are otherwise payable upon a Distribution Event but are not vested at the time of such Distribution Event (an "Unvested Payable Amount") shall continue to be deferred until such Unvested Payable Amount vests. Upon the vesting thereof, the vested portion of an Unvested Payable Amount shall, subject to Section 4.6, be paid, in the Company's discretion but consistent with Section 4.2, in cash or Distributed Property which relates to the Unvested Payable Amount, with any such securities or other property distributed in payment of the vested portion of the Unvested Payable Amount to be valued based on the fair market value (as determined by the Administrator) of such 5 securities or other property as of the vesting date. In the case of Unvested Payable Amount, the election described in Section 5.6 may be delivered by the Company to SAC no later than 20 days prior to the date on which such Unvested Payable Amount is expected to vest (and the Participants shall be notified at such time) and SAC shall be, subject to Sections 4.5 and 4.6, obligated to loan or to contribute to the capital of the Company, no later than the date on which such Unvested Payable Amount vests, the portion of the Unvested Payable Amount described in the election. In such a case, the Net Worth Limitation described in Section 5.6 shall be applied on the date the Unvested Payable Amount vests. 4.4 Each Participant shall have the right to designate a Beneficiary. Any designated Beneficiary shall receive payments in the same manner as the Participant as if he or she had lived. In case of a failure of designation or the death of a designated Beneficiary without a designated successor, the balance of the amounts contained in the Participant's Account shall be paid, in accordance with Section 4.1, 4.2 and 4.3, to the Participant's estate. No designation of Beneficiary or change in Beneficiary shall be valid unless it is in writing signed by the Participant and filed with the Secretary of the Company (or his or her designated agent). 4.5 Notwithstanding anything contained herein to the contrary, no provision of this Plan will entitle any Participant or Beneficiary to any distribution or other payment from the Company or SAC (or entitle the Company to any loan or capital contribution from SAC), or to any claim against the Company or SAC for any such distribution or other payment (or loan or capital contribution), except for distributions payable and claims arising upon the occurrence of a Distribution Event, as and to the extent expressly provided in Sections 4.1, 4.2 and 4.3 (and, in the case of a claim by the Company for a loan or capital contribution from SAC, Section 5.6), subject to the subordination provisions set forth in Section 4.6. 4.6 (a) Each Participant, by entering into a Rollover Agreement, the Company and SAC agrees that the obligations of the Company and SAC under this Plan to make any distribution or other payment to the Participants and the Beneficiaries (and the obligations of SAC to make any loan or capital contribution to the Company) are expressly subordinated in right of payment, to the extent and in the manner provided herein, to the prior payment in full in cash of all (i) Obligations (as defined in the Credit Agreement to be dated as of November 22, 2000 (as renewed, refinanced, extended, modified, amended, restated, supplemented or waived from time to time, the "Credit Agreement"), among SAC, Seagate Technology International, Seagate Technology (US) Holdings, Inc., the Lenders party thereto and The Chase Manhattan Bank, as Administrative Agent), whether as primary obligor or as a guarantor, and (ii) Guaranteed Obligations (as defined in the Indenture to be dated as of November 22, 2000 (as renewed, refinanced, extended, modified, amended, restated, supplemented or waived from time to time, the "Indenture") among SAC, Seagate Technology International, the various subsidiaries of SAC from time to time party thereto and The Bank of New York, as Trustee), including interest and other monetary obligations incurred during the pendency of any insolvency, bankruptcy, receivership or similar proceeding (the 6 "Subordinated Note Obligations"), whether as primary obligor or as a guarantor, in each case as increased, renewed, refinanced, extended, modified, amended, restated, compromised, supplemented, terminated, waived or released from time to time (all such obligations in clauses (i) and (ii), as so increased, renewed, refinanced, extended, modified, amended, restated, compromised, supplemented, terminated, waived or released, collectively, the "Prior Obligations"). (b) Until the payment in full in cash of all Prior Obligations, the termination of the Commitments (as defined in the Credit Agreement) and the reduction of the LC Exposure (as defined in the Credit Agreement) to zero (the "Time of Termination"), no Participant or Beneficiary shall be entitled to receive, and neither the Company nor SAC shall be required or permitted to make, any distribution or other payment under this Plan, and any such distribution or other payment to which a Participant or Beneficiary would be entitled but for the provisions of this sentence shall be made to holders of Prior Obligations (in each case, whether or not the Company is at the time a guarantor of Prior Obligations), subject to the subordination provisions of the Prior Obligations (or, if made to a Participant or Beneficiary, held by such Participant or Beneficiary in trust for the holders of the Prior Obligations and paid over to the holders of the Prior Obligations, subject to the subordination provisions of the Prior Obligations) as their interests may appear; provided, however, that the Company or SAC may make any distribution required by Section 4.1, 4.2 or 4.3 of the Plan and no Participant or Beneficiary receiving any such distribution would be under any obligation to hold that distribution in trust for the holders of the Prior Obligations, if at the time when such distribution will be made no Default or Event of Default under the Credit Agreement or under the Indenture or other documentation governing the Subordinated Note Obligations has occurred and is continuing or would result from such distribution. (c) If, at any time, all or part of any payment previously made by SAC or any other Person with respect to Prior Obligations is rescinded for any reason whatsoever (including the insolvency, bankruptcy or reorganization of SAC or such other Person), the subordination provisions set forth in this Section 4.6 shall continue to be effective or be reinstated, as the case may be, all as though such payment had not been made. (d) The subordination provisions of this Section 4.6 are for the benefit of and enforceable by holders of the Prior Obligations (or any agent or trustee for such holders), and may not be modified, rescinded or cancelled in whole or in part prior to the Time of Termination. SECTION V ADMINISTRATION; MISCELLANEOUS 5.1 The Company shall administer the Plan at its expense. All decisions made by the Company with respect to issues hereunder shall be final and binding on all parties. 7 5.2 Except to the extent required by law, the right of any Participant or any Beneficiary to any benefit or to any payment hereunder shall not be subject in any manner to attachment or other legal process for the debts of such Participant or Beneficiary. 5.3 This Plan does not constitute an employment contract between the Company and a Participant. Nothing in this Plan shall be construed to give a Participant the right to be retained in the service of the Company, nor interfere with the right of the Company to terminate a Participant at any time and nothing in this Plan shall require uniformity of treatment with respect to Participants and/or their Beneficiaries. 5.4 Notwithstanding any other provision of the Plan, in the event of a Company Change of Control, (i) the successor entity (which, in the case of a sale or disposition of assets, shall mean the acquiror of such assets) shall assume the Company's obligations under the Plan, (ii) the Account of each Participant shall be recalculated to equal the lesser of (A) the Deferral Amount less distributions made to such Participant or his or her Beneficiary pursuant to the Plan and (B) the fair market value of SAC immediately prior to the Company Change of Control (excluding the aggregate Deferral Amount of all Participants), as determined by the Administrator in its sole discretion, multiplied by the Deferral Percentage, (iii) the Account of each Participant shall, subject to Section 4.6, be paid if and when such Account vests in accordance with the provisions of Section 3, (iv) the payment of each Account shall be made in cash and (v) in the event that the Company Change of Control results in (A) a sale or distribution of all of the assets of the Company to any person or entity (other than SAC or any of the Borrowers or Subsidiaries (each as defined in the Credit Agreement) or any plan or trust established by any of the foregoing)or (B) a person or group (other than SAC or any of the Borrowers or Subsidiaries or any plan or trust established by any of the foregoing) becoming the beneficial owner of 100% of the capital stock of Company, the payments under the Plan shall only be subject to the limitations of Sections 4.5 and 4.6 of the Plan to the extent such Company or its successor is subject to the Prior Obligations following the Company Change of Control. 5.5 Notwithstanding any other provision of this Plan, in the event of a sale of substantially all the assets of SAC or a liquidation of SAC, (i) the Account of each Participant shall become 100% vested and (ii) following the distributions to the Investors and a payment to the Participants pursuant to such distributions as provided in the Plan, subject to Section 4.5 and 4.6, the Plan shall terminate and all remaining balances in each Participant's Account shall be forfeited without consideration. 5.6 Subject to Sections 4.3, 4.5 and 4.6, at such time as an amount first becomes payable to the Participants pursuant to Section 4.1 or 4.3, in the event the Company determines that it has insufficient available assets with which to pay to Participants all or any portion of such amount, and the Company elects, in its discretion, not to borrow such assets or to cause such assets to be distributed to the Company by its Affiliates, the Company shall demand that SAC loan to the Company or make a contribution to the capital of the Company (at the election of SAC) all or any portion of such amount. In such event, the Company shall deliver a written demand to SAC on or before the date an amount first 8 becomes payable to Participants pursuant to Section 4.1 or 4.3, and the Company shall notify such Participants at such time. SAC shall, subject to Sections 4.5 and 4.6, be obligated to loan or to contribute to the capital of the Company (i) within 5 days following the date on which any such amount becomes payable under Section 4.1 or (ii) on the date any such amount becomes payable under Section 4.3, the amount that is described in such demand, provided, however, that SAC may satisfy its obligation in cash and/or with Distributed Property (except that the amount of Distributed Property transferred may not exceed the amount of such Distributed Property that may be paid to the Participants in accordance with Section 4.2), provided further, however, that the amount of SAC's obligation shall not exceed the Net Worth of the Company determined as of the date such amount becomes payable to the Participants pursuant to Section 4.1 (the "Net Worth Limitation"). Notwithstanding any other provision of this Plan, this Section 5.6 shall not be applicable to (and neither SAC nor any of its Affiliates (including, in the case of a Company Change of Control that is a sale or disposition of assets, the Company) shall have any liability in respect of) any payments or obligations of the Company or otherwise under the Plan following a Company Change of Control in which neither SAC nor any of the Borrowers or Subsidiaries are the successor or acquiring entity. For this purpose, the term "Net Worth" shall be equal to the difference between the Fair Market Value of the Company's assets (determined without regard to the obligation of SAC described in this Section 5.6), and the amount of the Company's liabilities (determined by taking into account the obligation to the Participants determined under Section 4.1). In the event amounts first become payable pursuant to Section 4.1 on more than one occasion, the Net Worth Limitation shall be applied with respect to each such occasion. 5.7 This Plan shall be governed by, and construed in accordance with the laws of the State of New York, without regard to the conflicts of laws provisions thereof. 5.8 The Company may withhold from distributions made from the Plan any taxes required to be withheld under federal, state, or local law. 5.9 Benefits payable under this Plan may not be anticipated, assigned (either at law or equity), alienated, pledged, encumbered, or subjected to attachment, garnishment, levy, execution, or other legal process, and any attempt to effect such distribution shall be void. 5.10 The Plan may be amended, suspended or terminated in whole or in part from time to time by the Board, subject to Section 4.6(d) and except that no amendment, suspension, or termination shall diminish the rights, or adversely affect the benefits, provided to the Participants hereunder. 5.11 Until such time as the Company is subject to the periodic reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company shall deliver a balance sheet and an income statement at least annually to each individual with an Account under the Plan, unless such individual is a key employee of the Company or its Affiliates whose duties in connection with the Company (or any Affiliate) assure such individual access to equivalent information. 9 5.12 The Plan is an unfunded plan intended to provide deferred compensation to a select group of management and highly compensated employees of the Company and its subsidiaries. 10 EX-10.10(A) 37 0037.txt NEW SAC 2000 RESTRICTED SHARE PLAN EXHIBIT 10.10(a) NEW SAC 2000 RESTRICTED SHARE PLAN 1. PURPOSE OF THE PLAN The purpose of the Plan is to aid New SAC (the "Company") and its affiliates in securing and retaining key employees, directors and consultants of outstanding ability and to motivate such employees, directors and consultants to exert their best efforts on behalf of the Company and its affiliates by providing incentive through the grant of restricted share awards ("Awards"). The Company expects that it will benefit from the added interest which such key employees and directors will have in the welfare of the Company as a result of their proprietary interest in the Company's success. 2. SHARES SUBJECT TO THE PLAN The total number of ordinary shares, par value $.0001, of the Company (the "Ordinary Shares") that may be issued under the Plan is [ ] and the total number of preferred shares, par value $.0001, of the Company (the "Preferred Shares") that may be issued under the Plan is [ ] (the Ordinary Shares and the Preferred Shares, together, the "Shares"). If any Shares awarded under the Plan are forfeited by a Participant pursuant to the Plan, such Shares may thereafter be reissued under the Plan. 3. ADMINISTRATION The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee"); provided, however, that any action permitted to be taken by the Committee may be taken by the Board of Directors of the Company (the "Board"), in its discretion. The Committee is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations that it deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems necessary or desirable. Awards may, in the discretion of the Committee, be made under the Plan in assumption of, or in substitution for, outstanding awards previously granted by the Company or its affiliates or a company acquired by the Company or with which the Company combines. The number of Shares underlying such substitute awards shall be counted against the aggregate number of Shares available for Awards under the Plan. Any decision of the Committee in the interpretation and administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, participants and their beneficiaries or successors). The Committee shall have the full power and authority to establish the terms and conditions of any Award consistent with the provisions of the Plan and to waive any such terms and conditions at any time. 4. ELIGIBILITY Key management and other employees, directors and consultants of the Company and its affiliates, who are from time to time responsible for the management, growth or protection of the business of the Company and its affiliates, are eligible to be granted Awards under the Plan. The participants under the Plan shall be selected from time to time by the Committee, in its discretion, from among those eligible, and the Committee shall determine, in its discretion, consistent with the terms of the Plan, the terms and conditions of the Awards granted to each participant. 5. LIMITATION No Award may be granted under the Plan after the tenth anniversary of the Effective Date, but Awards theretofore granted may extend beyond that date. 6. RESTRICTED SHARE AWARDS Awards granted under this Plan shall be subject to the following terms and conditions: (a) The prospective recipient of an Award shall not, with respect to such Award, be deemed to have become a participant or to have any rights with respect to such Award until and unless such recipient (i) shall have executed an Agreement or other instrument evidencing the Award and its terms and conditions and delivered a fully executed copy thereof to the Company, (ii) shall become a signatory to the Management Shareholders Agreement dated as of November 22, 2000 among the Company and certain individuals identified therein and (iii) otherwise complied with the then applicable terms and conditions under the Plan. (b) The name of each participant will be entered into the Register of Members and each participant shall be issued a certificate in respect of restricted shares awarded under the Plan. Such certificate shall be registered in the name of the participant, and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Award substantially in the following form: "THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING FORFEITURE) OF THE NEW SAC 2000 RESTRICTED SHARE PLAN AND AN AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER AND NEW SAC. COPIES OF SUCH PLAN AND AGREEMENT ARE ON FILE IN THE OFFICES OF THE SECRETARY OF NEW SAC." (c) All certificates for restricted shares delivered under this Plan shall be subject to such share transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Company's Shares are then listed and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (d) The Committee may adopt rules which provide that the share certificates evidencing such shares may be held in custody by a bank or other institution, or that the Company may itself hold such shares in custody until the restrictions thereon shall have lapsed, and may require as a 2 condition of any Award that the participant shall have delivered a stock power endorsed in blank relating to the share covered by such Award. (e) Until such time as the Company is subject to the periodic reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company shall deliver a balance sheet and an income statement at least annually to each individual holding Shares issued under the Plan, unless such individual is a key employee of the Company or its Affiliates whose duties in connection with the Company (or any Affiliate) assure such individual access to equivalent information. 7. RESTRICTIONS AND FORFEITURES The Shares awarded pursuant to the Plan shall be subject to the following restrictions and conditions: (a) During a period set by the Committee of no more than ten years commencing with the date of an Award (the "Restriction Period"), the participant will not be permitted to sell, transfer, pledge, assign or otherwise dispose of restricted shares awarded pursuant to such Award. If a participant's employment by the Company should terminate for any reason during the Restriction Period, unless otherwise provided by the Committee, the participant shall forfeit the restricted shares and it shall be returned to the Company in full and cancelled. However, such forfeiture provisions shall in all events lapse as to the Shares issued to each participant at the rate not less than twenty percent (20%) of those Shares per year of service over the five (5)-year period measured from the issue date of the Shares and shall immediately lapse as all the Shares issued to the participant upon the termination of his or her service by reason of death or permanent disability. Within these limits the Committee may provide for the lapse of such restrictions in installments where deemed appropriate. (b) Except as provided in Section 7(a), the participant shall have with respect to the restricted shares all of the rights of a shareholder of the Company, including the right to vote the shares and receive dividends and other distributions; provided, however, that distributions (other than tax distributions) with respect Shares subject to the Restriction Period, shall be held by the Company and distributed upon vesting. (c) The Committee may impose any conditions on an Award it deems advisable to ensure the participant's payment to the Company of any federal, state or local taxes required to be withheld with respect to such Award. (d) If the Company provides for the repurchase of the Shares, the purchase price for such Shares shall be deemed reasonable if (1) it is not less than the fair market value of the securities to be repurchased on the date of 3 termination of employment and the right to repurchase is exercised for cash or cancellation of purchase money indebtedness for the Shares within 90 days of termination of employment, and the right terminates when the Company's securities become publicly traded or (2) it is at the original purchase price, provided that the right to repurchase at the original purchase price lapses at the rate of at least 20% of the Shares per year over 5 years from the date the Award is granted and the right to repurchase must be exercised for cash or cancellation of purchase money indebtedness for the Shares within 90 days of termination of employment; provided, that the securities held by an officer, director , or consultant of the Company may be subject to additional or greater restrictions than those provided in (1) and (2) above. 8. ADJUSTMENTS UPON CERTAIN EVENTS Notwithstanding any other provisions in the Plan to the contrary, the following provisions shall apply to all Awards granted under the Plan: 4 (a) Generally. In the event of any change in the outstanding Shares after the Effective Date by reason of any Share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination, combination or transaction or exchange of Shares or other corporate exchange or similar or other transaction effecting the value of the Shares including, without limitation, the repayment of Company indebtedness by an affiliate or shareholder, or any distribution to shareholders of Shares or the receipt of proceeds from the sale or other disposition of a subsidiary of the Company other than regular cash dividends or any transaction similar to the foregoing, the Committee in its sole discretion and without liability to any person may make such substitution or adjustment, if any, as it deems to be equitable, as to the number or kind of Shares or other securities issued or reserved for issuance pursuant to the Plan. (b) Change in Control. Except as otherwise provided in an Award Agreement, in the event of a Change in Control, the Committee in its sole discretion and without liability to any person may take such actions, if any, as it deems necessary or desirable with respect to any Award (including, without limitation, the lapse of the restrictions on an Award); provided, however, that if the Award is not assumed, substituted or otherwise continued following the Change in Control, the restrictions on the Award shall lapse immediately prior to the Change in Control. Change in Control shall mean: (i) (A) the sale or disposition, in one or a series of related transactions, of all, or substantially all, of the assets of the Company to any "person" or "group" (as such terms are defined in Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) other than Silver Lake Partners, L.P., Texas Pacific Group, August Capital Partners, Chase Capital Partners and GS Capital Partners III, L.P. or their affiliates (the "Investors") or (B) any person or group, other than the Investors, is or becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of more than 50% of the total voting power of the voting shares of the Company, including by way of merger, consolidation or otherwise and (ii) the representative of the Investors (individually or in the aggregate) cease to comprise a majority of the Board. 9. AMENDMENT OR TERMINATION The Board or the Committee may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which, without the consent of a participant, would diminish any of the rights under any Award theretofore granted to such participant under the Plan; provided, however, that the Board or the Committee may amend the Plan in such manner as it deems necessary to permit the granting of Awards meeting the requirements of the Code or other applicable laws. 10. NO RIGHT TO EMPLOYMENT The granting of an Award under the Plan shall impose no obligation on the Company or any subsidiary to continue the employment of a participant and shall not lessen or affect the Company's or such subsidiary's right to terminate the employment of such participant. 11. SUCCESSORS AND ASSIGNS The Plan shall be binding on all successors and assigns of the Company and a participant, including without limitation, the estate of such participant and the executor, 5 administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the participant's creditors. 12. CHOICE OF LAW The Plan shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the conflict of laws provisions thereof. 13. EFFECTIVENESS OF THE PLAN The Plan shall be effective as of the date the Plan is adopted by the Board of Directors and approved by the shareholders of the Company (the "Effective Date"). 6 EX-10.10(B) 38 0038.txt FORM OF NEW SAC RESTRICTED SHARE AGREEMENT EXHIBIT 10.10(b) NEW SAC RESTRICTED SHARE AGREEMENT (ROLLOVER GROUP) THIS AGREEMENT (the "Agreement"), is made effective as of the __the day of ________, 2000, (hereinafter called the "Date of Grant"), between New SAC, a limited company incorporated in the Cayman Islands (the "Company") and the individual listed on Schedule I hereto (the "Participant"): The Company, pursuant to the New SAC 2000 Restricted Share Plan (the "Plan") hereby grants to the Participant, the number of ordinary shares, par value $.0001, of the Company (the "Ordinary Shares") and the number of preferred shares, par value $.0001, of the Company (the "Preferred Shares", together with the Ordinary Shares, the "Shares") listed on Schedule I hereto. The Shares are granted pursuant to the Plan, and are governed by the terms and conditions of the Plan. All defined terms used herein, unless specifically defined in this Agreement, have the meanings assigned to them in the Plan. The Participant agrees to be bound by all terms and conditions of this Agreement and the Plan, as amended from time to time. To be effective, this Restricted Share Agreement must be signed by the Participant and returned to the General Counsel, within 10 weeks of the date hereof and the Participant must become a signatory to the Management Shareholders Agreement dated as of November 22, 2000 among the Company and certain individuals identified therein. 1. Restrictions on Transfer of Shares. (a) Except as otherwise determined by the Committee, the Shares cannot be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of (collectively, a "Transfer") during the Restriction Period. For purposes of this Agreement, the Restriction Period shall mean, from the Date of Grant until the thirtieth month following the Date of Grant; provided, however, that the Restriction Period shall lapse with respect to one-third of the Ordinary Shares and one-third of the Preferred Shares on the first anniversary of the Date of Grant, with respect to one-third of the Ordinary Shares and one-third of the Preferred Shares ratably each month over the 18 months following the first anniversary of the Date of Grant and with respect to remaining one-third of the Ordinary Shares and one-third of the Preferred Shares on the date which is thirty months following the Date of Grant. (b) Regardless of whether the restrictions imposed by this Paragraph 1 hereof have lapsed and subject to any transfer restrictions in the Management Stockholders Agreement, the Participant shall only Transfer the Preferred Shares with a proportionate number of the Ordinary Shares and the Participant shall only Transfer the Ordinary Shares with a proportionate number of the Preferred Shares, provided, however, that the foregoing restriction shall not be applicable to any Transfer by the Participant of the Preferred Shares or the Ordinary Shares as separate securities pursuant to the Tag-Along Rights or Take-Along Rights of the Management Stockholders Agreement. 2. Forfeiture of Shares. (a) If the Participant's employment with the Company shall terminate, prior to the expiration of the Restriction Period, for any reason, any Shares with respect to which the Restriction Period has not yet lapsed (the "Restricted Shares") shall, upon such termination of employment, be forfeited by Participant to the Company, without the payment of any consideration or further consideration by the Company, and neither Participant nor any successors, heirs, assigns, or personal representatives of Participant shall thereafter have any further rights or interest in the Restricted Shares or under this Agreement, and Participant's name shall thereupon be deleted from the list of the Company's shareholders with respect to the Restricted Shares; provided, however, that if the employment of Participant with the Company shall be terminated for any reason (including death or disability) other than (A) by the Participant without Good Reason or (B) by the Company for Cause or if the Participant's employment with the Company (or its Affiliates) terminates by reason of the Company's sale or other disposition of the entity employing Participant so that such entity is no longer an Affiliate of the Company, then the Restriction Period shall lapse with respect to the Restricted Shares and the Restricted Shares shall thereby be free of such restrictions. (b) For purposes of this Agreement "Cause" shall mean (i) the Participant's continued failure substantially to perform the material duties of his office (other than as a result of total or partial incapacity due to physical or mental illness), (ii) the embezzlement or theft by the Participant of the Company's property, (iii) the commission of any act or acts on the Participant' s part resulting in the conviction of such Participant of a felony under the laws of the United States or any state, (iv) the Participant's willful malfeasance or willful misconduct in connection with the Participant's duties to the Company or any other act or omission which is materially injurious to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates, or (v) a material breach by the Participant of the material terms of his employment agreement, the Management Shareholders Agreement or any non-compete, non-solicitation or confidentiality provisions to which the Participant is subject. However, no termination shall be deemed for Cause under clause (i), (iv) or (v) unless the Participant is first given written notice by the Company of the specific acts or omissions which the Company deems constitute grounds for a termination for Cause and is provided with at least 30 days after such notice to cure the specified deficiency. (c) For purposes of this Agreement, "Good Reason" shall mean a Participant's resignation of his or her employment with the Company as a result of the following actions, which actions remain uncured for at least 30 days following written notice from the Participant to the Company describing the occurrence of such events and asserting that such events constitute grounds for a Good Reason resignation, provided notice of such resignation is given to the Company within sixty (60) days after the expiration of such cure period: (i) without the Participant's express written consent, any material reduction in the Participant's authority or responsibilities from those set forth in an employment agreement between the Company and the Participant (the "Employment Agreement") (or if such Participant is not a party to an Employment Agreement, from the authority and responsibilities initially assigned to such Participant by the Company after the Closing), (ii) without the Participant's express written consent, a reduction of 10% or more in the level of the base salary, target annual bonus or employee benefits to be provided to the Participant under the Employment Agreement (or if such Participant is not a party to an Employment Agreement, a reduction of 10% or more in the level of base salary, target annual bonus or employee benefits provided to such Participant immediately prior to the Closing), other than a reduction implemented with the consent of the Participant or a reduction that is equivalent to reduction in base salaries, bonus opportunities and/or employee benefits, as applicable, imposed on all other senior executives of the Company 2 at a similar level within the Company (provided that the use of private aircraft shall not be deemed an employee benefit for these purposes); or (iii) the relocation of the Participant to a principal place of employment more than 50 miles from the Participant's current principal place of employment, without the Participant's express written consent. 3. Voting; Distributions. Regardless of whether the restrictions imposed by Paragraph 1 hereof have lapsed, the Participant shall have the right to vote the Shares granted hereunder to the extent the Participant is a shareholder of record on any applicable record date with respect to such Shares. To the extent that the restrictions imposed by Paragraph 1 have not lapsed with respect to Shares, distributions (other than tax distributions), whether in cash, securities or other property, with respect to such Shares shall be held by the Company and distributed when the restrictions lapse. 4. No Right to Employment. The execution and delivery of this Agreement and the granting of Shares hereunder shall not constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company or its affiliates to employ the Participant for any specific period or in any particular capacity and shall not prevent the Company or its affiliates from terminating the Participant's employment at any time with or without cause. 5. Change in Control. [In the event of a Change in Control, the Restriction Period shall lapse with respect to the greater of (i) the number of Ordinary Shares and Preferred Shares for which the Restriction Period would have lapsed within the twelve months following the Change in Control or (ii) fifty percent of the Ordinary Shares and the Preferred Shares subject to the Restriction Period.]1 If the successor entity in the Change in Control does not assume the Restricted Shares, substitute shares of its capital stock with restrictions substantially equivalent to those in effect for the Restricted Shares immediately prior to the Change in Control or otherwise continue the Restricted Shares in effect following the Change in Control, then the Restriction Period shall lapse with respect to such Restricted Shares immediately prior to the Change in Control. 6. Application of Laws. The granting of Shares hereunder shall be subject to all applicable laws, rules and regulations and to such approvals of any governmental agencies as may be required, in particular the laws of the Cayman Islands. 7. Taxes. Any taxes required by federal, state or local laws to be withheld by the Company shall be paid to the Company by the Participant by the time such taxes are required to be paid or deposited by the Company. 8. Notices. Any notices required to be given hereunder to the Company shall be addressed to New SAC, Attention: General Counsel, and any notice required to be given hereunder to the Participant shall be sent to the Participant's address as shown on the records of the Company. - -------- 1. Tier I Senior Managers Only. 3 9. Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the conflict of laws provisions thereof. 4 SCHEDULE I Name of Senior Manager: _____________________________ Number of Ordinary Shares: ____________ Number of Preferred Shares: ________ IN WITNESS WHEREOF, the parties hereto have executed this Agreement. NEW SAC By _____________________ Name: Title: Agreed and acknowledged as of the date first above written: - ------------------------- EX-10.11(A) 39 0039.txt NEW SAC 2001 RESTRICTED SHARE PLAN EXHIBIT 10.11(a) NEW SAC 2001 RESTRICTED SHARE PLAN 1. PURPOSE OF THE PLAN The purpose of the Plan is to aid New SAC (the "Company") and its affiliates in securing and retaining key employees, directors and consultants of outstanding ability and to motivate such employees, directors and consultants to exert their best efforts on behalf of the Company and its affiliates by providing incentive through the grant of restricted share awards ("Awards"). The Company expects that it will benefit from the added interest which such key employees and directors will have in the welfare of the Company as a result of their proprietary interest in the Company's success. 2. SHARES SUBJECT TO THE PLAN The total number of ordinary shares, par value $.0001, of the Company (the "Shares") that may be issued under the Plan is 500,000. If any Shares awarded under the Plan are forfeited by a Participant pursuant to the Plan, such Shares may thereafter be reissued under the Plan. 3. ADMINISTRATION The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee"); provided, however, that any action permitted to be taken by the Committee may be taken by the Board of Directors of the Company (the "Board"), in its discretion. The Committee is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations that it deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems necessary or desirable. Awards may, in the discretion of the Committee, be made under the Plan in assumption of, or in substitution for, outstanding awards previously granted by the Company or its affiliates or a company acquired by the Company or with which the Company combines. The number of Shares underlying such substitute awards shall be counted against the aggregate number of Shares available for Awards under the Plan. Any decision of the Committee in the interpretation and administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, participants and their beneficiaries or successors). The Committee shall have the full power and authority to establish the terms and conditions of any Award consistent with the provisions of the Plan and to waive any such terms and conditions at any time. 4. ELIGIBILITY Key management and other employees, directors and consultants of the Company and its affiliates, who are from time to time responsible for the management, growth or protection of the business of the Company and its affiliates, are eligible to be granted Awards under the Plan. The participants under the Plan shall be selected from time to time by the Committee, in its discretion, from among those eligible, and the Committee shall determine, in its discretion, consistent with the terms of the Plan, the terms and conditions of the Awards granted to each participant. 2 5. LIMITATION No Award may be granted under the Plan after the tenth anniversary of the Effective Date, but Awards theretofore granted may extend beyond that date. 6. RESTRICTED SHARE AWARDS Awards granted under this Plan shall be subject to the following terms and conditions: (a) The prospective recipient of an Award shall not, with respect to such Award, be deemed to have become a participant or to have any rights with respect to such Award until and unless such recipient (i) shall have executed an Agreement or other instrument evidencing the Award and its terms and conditions and delivered a fully executed copy thereof to the Company, (ii) shall become a signatory to the Management Shareholders Agreement dated as of November 22, 2000 among the Company and certain individuals identified therein and (iii) otherwise complied with the then applicable terms and conditions under the Plan. (b) The name of each participant will be entered into the Register of Members and each participant shall be issued a certificate in respect of restricted shares awarded under the Plan. Such certificate shall be registered in the name of the participant, and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Award substantially in the following form: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO (I) A MANAGEMENT SHAREHOLDERS AGREEMENT AMONG NEW SAC (THE "COMPANY") AND THE MANAGEMENT SHAREHOLDERS LISTED THEREIN, DATED AS OF NOVEMBER 22, 2000, AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME IN ACCORDANCE WITH THE TERMS THEREOF, AND (II) A RESTRICTED SHARE AGREEMENT WITH THE COMPANY RELATING TO SUCH SHARES, A COPY OF EACH OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. THE MANAGEMENT SHAREHOLDERS AGREEMENT CONTAINS, AMONG OTHER THINGS, CERTAIN PROVISIONS RELATING TO THE VOTING AND TRANSFER OF THE SHARES SUBJECT TO THE AGREEMENT, AND THE RESTRICTED SHARE AGREEMENT CONTAINS, AMONG OTHER THINGS, CERTAIN PROVISIONS RELATING TO THE VESTING OF SUCH SHARES. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, 3 HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE, DIRECTLY OR INDIRECTLY, MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH MANAGEMENT SHAREHOLDERS AGREEMENT AND RESTRICTED SHARE AGREEMENT. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH MANAGEMENT SHAREHOLDERS AGREEMENT AND RESTRICTED SHARE AGREEMENT." "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAss. Y NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE." (c) All certificates for restricted shares delivered under this Plan shall be subject to such share transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Company's Shares are then listed and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (d) The Committee may adopt rules which provide that the share certificates evidencing such shares may be held in custody by a bank or other institution, or that the Company may itself hold such shares in custody until the restrictions thereon shall have lapsed, and may require as a condition of any Award that the participant shall have delivered a stock power endorsed in blank relating to the share covered by such Award. (e) Until such time as the Company is subject to the periodic reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company shall deliver a balance sheet and an income statement at least annually to each individual holding Shares issued under the Plan, unless such individual is a key employee of the Company or its Affiliates whose duties in connection with the Company (or any Affiliate) assure such individual access to equivalent information. 7. RESTRICTIONS AND FORFEITURES The Shares awarded pursuant to the Plan shall be subject to the following restrictions and conditions: 4 (a) During a period set by the Committee of no more than ten years commencing with the date of an Award (the "Restriction Period"), the participant will not be permitted to sell, transfer, pledge, assign or otherwise dispose of restricted shares awarded pursuant to such Award. If a participant's employment by the Company should terminate for any reason during the Restriction Period, unless otherwise provided by the Committee, the participant shall forfeit the restricted shares and it shall be returned to the Company in full and cancelled. However, such forfeiture provisions shall in all events lapse as to the Shares issued to each participant at the rate not less than twenty percent (20%) of those Shares per year of service over the five (5)-year period measured from the issue date of the Shares and shall immediately lapse as all the Shares issued to the participant upon the termination of his or her service by reason of death or permanent disability. Within these limits the Committee may provide for the lapse of such restrictions in installments where deemed appropriate. (b) Except as provided in Section 7(a), the participant shall have with respect to the restricted shares all of the rights of a shareholder of the Company, including the right to vote the shares and receive dividends and other distributions; provided, however, that distributions (other than tax distributions) with respect Shares subject to the Restriction Period, shall be held by the Company and distributed upon vesting. (c) The Committee may impose any conditions on an Award it deems advisable to ensure the participant's payment to the Company of any federal, state or local taxes required to be withheld with respect to such Award. (d) If the Company provides for the repurchase of the Shares, the purchase price for such Shares shall be deemed reasonable if (1) it is not less than the fair market value of the securities to be repurchased on the date of termination of employment and the right to repurchase is exercised for cash or cancellation of purchase money indebtedness for the Shares within 90 days of termination of employment, and the right terminates when the Company's securities become publicly traded or (2) it is at the original purchase price, provided that the right to repurchase at the original purchase price lapses at the rate of at least 20% of the Shares per year over 5 years from the date the Award is granted and the right to repurchase must be exercised for cash or cancellation of purchase money indebtedness for the Shares within 90 days of termination of employment; provided, that the securities held by an officer, director , or consultant of the Company may be subject to additional or greater restrictions than those provided in (1) and (2) above. 5 8. ADJUSTMENTS UPON CERTAIN EVENTS Notwithstanding any other provisions in the Plan to the contrary, the following provisions shall apply to all Awards granted under the Plan: (a) Generally. In the event of any change in the outstanding Shares after the Effective Date by reason of any Share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination, combination or transaction or exchange of Shares or other corporate exchange or similar or other transaction effecting the value of the Shares including, without limitation, the repayment of Company indebtedness by an affiliate or shareholder, or any distribution to shareholders of Shares or the receipt of proceeds from the sale or other disposition of a subsidiary of the Company other than regular cash dividends or any transaction similar to the foregoing, the Committee in its sole discretion and without liability to any person may make such substitution or adjustment, if any, as it deems to be equitable, as to the number or kind of Shares or other securities issued or reserved for issuance pursuant to the Plan. (b) Change in Control. Except as otherwise provided in an Award Agreement, in the event of a Change in Control, the Committee in its sole discretion and without liability to any person may take such actions, if any, as it deems necessary or desirable with respect to any Award (including, without limitation, the lapse of the restrictions on an Award); provided, however, that if the Award is not assumed, substituted or otherwise continued following the Change in Control, the restrictions on the Award shall lapse immediately prior to the Change in Control. Change in Control shall mean: (i) (A) the sale or disposition, in one or a series of related transactions, of all, or substantially all, of the assets of the Company to any "person" or "group" (as such terms are defined in Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) other than Silver Lake Partners, L.P., Texas Pacific Group, August Capital Partners, Chase Capital Partners and GS Capital Partners III, L.P. or their affiliates (the "Investors") or (B) any person or group, other than the Investors, is or becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of more than 50% of the total voting power of the voting shares of the Company, including by way of merger, consolidation or otherwise and (ii) the representative of the Investors (individually or in the aggregate) cease to comprise a majority of the Board. 9. AMENDMENT OR TERMINATION The Board or the Committee may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which, without the consent of a participant, would diminish any of the rights under any Award theretofore granted to such participant under the Plan; provided, however, that the Board or the Committee may amend the Plan in such manner as it deems necessary to permit the granting of Awards meeting the requirements of the Code or other applicable laws. 10. NO RIGHT TO EMPLOYMENT The granting of an Award under the Plan shall impose no obligation on the Company or any subsidiary to continue the employment of a participant and shall not lessen or affect the Company's or such subsidiary's right to terminate the employment of such participant. 6 11. SUCCESSORS AND ASSIGNS The Plan shall be binding on all successors and assigns of the Company and a participant, including without limitation, the estate of such participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the participant's creditors. 12. CHOICE OF LAW The Plan shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the conflict of laws provisions thereof. 13. EFFECTIVENESS OF THE PLAN The Plan shall be effective as of the date the Plan is adopted by the Board of Directors and approved by the shareholders of the Company (the "Effective Date"). EX-10.11(B) 40 0040.txt RESTRICTED SHARE AGREEMENT EXHIBIT 10.11(b) NEW SAC 2001 RESTRICTED SHARE PLAN RESTRICTED SHARE AGREEMENT (TIER I SENIOR MANAGERS) THIS AGREEMENT (the "Agreement"), is made effective as of the __the day of ________, 2001, (hereinafter called the "Date of Grant"), between New SAC, a limited company incorporated in the Cayman Islands (the "Company") and ___________________ (the "Participant"): The Company, pursuant to the New SAC 2001 Restricted Share Plan (the "Plan") hereby grants to the Participant, _________ ordinary shares, par value $.0001, of the Company (the "Shares"). The Shares are granted pursuant to the Plan, and are governed by the terms and conditions of the Plan. All defined terms used herein, unless specifically defined in this Agreement, have the meanings assigned to them in the Plan. The Participant agrees to be bound by all terms and conditions of this Agreement and the Plan, as amended from time to time. To be effective, this Restricted Share Agreement must be signed by the Participant and returned to the General Counsel, within 10 weeks of the date hereof and the Participant must become a signatory to the Management Shareholders Agreement dated as of November 22, 2000 among the Company and certain individuals identified therein. 1. Restrictions on Transfer of Shares. Except as otherwise determined by the Committee, the Shares cannot be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of (collectively, a "Transfer") during the Restriction Period. For purposes of this Agreement, the Restriction Period shall mean, from the Date of Grant until four years following the Date of Grant; provided, however, that, subject to the Participant's continued employment, the Restriction Period shall lapse with respect to twenty - five percent (25%) of the Shares on the first anniversary of the Date of Grant and with respect to 1/48th of the Shares at the end of each month thereafter. 2. Forfeiture of Shares. (a) If the Participant's employment with the Company shall terminate, prior to the expiration of the Restriction Period, for any reason, any Shares with respect to which the Restriction Period has not yet lapsed (the "Restricted Shares") shall, upon such termination of employment, be forfeited by Participant to the Company, without the payment of any consideration or further consideration by the Company, and neither Participant nor any successors, heirs, assigns, or personal representatives of Participant shall thereafter have any further rights or interest in the Restricted Shares or under this Agreement, and Participant's name shall thereupon be deleted from the list of the Company's shareholders with respect to the Restricted Shares; provided, however, that if the employment of Participant with the Company (or its Affiliates) shall be terminated (A) by the Participant with Good Reason, (B) by the Company without Cause or (C) by reason of the Company's sale or other disposition of the entity employing Participant so that such entity is no longer an Affiliate of the Company, then the Restriction Period shall lapse with respect to the Restricted Shares and the Restricted Shares shall thereby be free of such restrictions. (b) For purposes of this Agreement "Cause" shall mean (i) the Participant's continued failure substantially to perform the material duties of his office (other than as a result of total or partial incapacity due to physical or mental illness), (ii) the embezzlement or theft by the Participant of the Company's property, (iii) the commission of any act or acts on the Participant' s part resulting in the conviction of such Participant of a felony under the laws of the United States or any state, (iv) the Participant's willful malfeasance or willful misconduct in connection with the Participant's duties to the Company or any other act or omission which is materially injurious to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates, or (v) a material breach by the Participant of the material terms of his employment agreement, the Management Shareholders Agreement or any non-compete, non-solicitation or confidentiality provisions to which the Participant is subject. However, no termination shall be deemed for Cause under clause (i), (iv) or (v) unless the Participant is first given written notice by the Company of the specific acts or omissions which the Company deems constitute grounds for a termination for Cause and is provided with at least 30 days after such notice to cure the specified deficiency. (c) For purposes of this Agreement, "Good Reason" shall mean a Participant's resignation of his or her employment with the Company as a result of the following actions, which actions remain uncured for at least 30 days following written notice from the Participant to the Company describing the occurrence of such events and asserting that such events constitute grounds for a Good Reason resignation, provided notice of such resignation is given to the Company within sixty (60) days after the expiration of such cure period: (i) without the Participant's express written consent, any material reduction in the Participant's authority or responsibilities from those set forth in an employment agreement between the Company and the Participant (the "Employment Agreement") (or if such Participant is not a party to an Employment Agreement, from the authority and responsibilities initially assigned to such Participant by the Company after the Closing), (ii) without the Participant's express written consent, a reduction of 10% or more in the level of the base salary, target annual bonus or employee benefits to be provided to the Participant under the Employment Agreement (or if such Participant is not a party to an Employment Agreement, a reduction of 10% or more in the level of base salary, target annual bonus or employee benefits provided to such Participant immediately prior to the Closing), other than a reduction implemented with the consent of the Participant or a reduction that is equivalent to reduction in base salaries, bonus opportunities and/or employee benefits, as applicable, imposed on all other senior executives of the Company at a similar level within the Company (provided that the use of private aircraft shall not be deemed an employee benefit for these purposes); or (iii) the relocation of the Participant to a principal place of employment more than 50 miles from the Participant's current principal place of employment, without the Participant's express written consent. 3. Voting; Distributions. Regardless of whether the restrictions imposed by Paragraph 1 hereof have lapsed, the Participant shall have the right to vote the Shares granted hereunder to the extent the Participant is a shareholder of record on any applicable record date with respect to such Shares. To the extent that the restrictions imposed by Paragraph 1 have not lapsed with respect to Shares, distributions (other than tax distributions), whether in cash, securities or other property, with respect to such Shares shall be held by the Company and distributed when the restrictions lapse. 4. No Right to Employment. The execution and delivery of this Agreement and the granting of Shares hereunder shall not constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company or its affiliates to employ the Participant for any specific period or in any particular capacity and shall not prevent the Company or its affiliates from terminating the Participant's employment at any time with or without cause. 5. Change in Control. In the event of a Change in Control, the Restriction Period shall lapse with respect to the greater of (i) the number of Shares for which the Restriction Period would have lapsed within the twelve months following the Change in Control or (ii) fifty percent of the Shares subject to the Restriction Period. If the successor entity in the Change in Control does not assume the Restricted Shares, substitute shares of its capital stock with restrictions substantially equivalent to those in effect for the Restricted Shares immediately prior to the Change in Control or otherwise continue the Restricted Shares in effect following the Change in Control, then the Restriction Period shall lapse with respect to such Restricted Shares immediately prior to the Change in Control. 6. Application of Laws. The granting of Shares hereunder shall be subject to all applicable laws, rules and regulations and to such approvals of any governmental agencies as may be required, in particular the laws of the Cayman Islands. 7. Taxes. Any taxes required by federal, state or local laws to be withheld by the Company shall be paid to the Company by the Participant by the time such taxes are required to be paid or deposited by the Company. 8. Notices. Any notices required to be given hereunder to the Company shall be addressed to New SAC, Attention: General Counsel, and any notice required to be given hereunder to the Participant shall be sent to the Participant's address as shown on the records of the Company. 9. Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the conflict of laws provisions thereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. NEW SAC By _____________________ Name: Title: Agreed and acknowledged as of the date first above written: _________________________________ EX-10.11(C) 41 0041.txt NEW SAC 2001 RESTRICTED SHARE AGREEMENT EXHIBIT 10.11(c) NEW SAC 2001 RESTRICTED SHARE PLAN RESTRICTED SHARE AGREEMENT (OTHER EMPLOYEES) THIS AGREEMENT (the "Agreement"), is made effective as of the __the day of ________, 2001, (hereinafter called the "Date of Grant"), between New SAC, a limited company incorporated in the Cayman Islands (the "Company") and ___________________ (the "Participant"): The Company, pursuant to the New SAC 2001 Restricted Share Plan (the "Plan") hereby grants to the Participant, _________ ordinary shares, par value $.0001, of the Company (the "Shares"). The Shares are granted pursuant to the Plan, and are governed by the terms and conditions of the Plan. All defined terms used herein, unless specifically defined in this Agreement, have the meanings assigned to them in the Plan. The Participant agrees to be bound by all terms and conditions of this Agreement and the Plan, as amended from time to time. To be effective, this Restricted Share Agreement must be signed by the Participant and returned to the General Counsel, within 10 weeks of the date hereof and the Participant must become a signatory to the Management Shareholders Agreement dated as of November 22, 2000 among the Company and certain individuals identified therein. 1. Restrictions on Transfer of Shares. Except as otherwise determined by the Committee, the Shares cannot be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of (collectively, a "Transfer") during the Restriction Period. For purposes of this Agreement, the Restriction Period shall mean, from the Date of Grant until four years following the Date of Grant; provided, however, that, subject to the Participant's continued employment, the Restriction Period shall lapse with respect to twenty - five percent (25%) of the Shares on the first anniversary of the Date of Grant and with respect to 1/48th of the Shares at the end of each month thereafter. 2. Forfeiture of Shares. Except as provided in Section 5 of this Agreement, if the Participant's employment with the Company shall terminate, prior to the expiration of the Restriction Period, for any reason, any Shares with respect to which the Restriction Period has not yet lapsed (the "Restricted Shares") shall, upon such termination of employment, be forfeited by Participant to the Company, without the payment of any consideration or further consideration by the Company, and neither Participant nor any successors, heirs, assigns, or personal representatives of Participant shall thereafter have any further rights or interest in the Restricted Shares or under this Agreement, and Participant's name shall thereupon be deleted from the list of the Company's shareholders with respect to the Restricted Shares. 3. Voting; Distributions. Regardless of whether the restrictions imposed by Paragraph 1 hereof have lapsed, the Participant shall have the right to vote the Shares granted hereunder to the extent the Participant is a shareholder of record on any applicable record date with respect to such Shares. To the extent that the restrictions imposed by Paragraph 1 have not lapsed with respect to Shares, distributions (other than tax distributions), whether in cash, securities or other property, with respect to such Shares shall be held by the Company and distributed when the restrictions lapse. 4. No Right to Employment. The execution and delivery of this Agreement and the granting of Shares hereunder shall not constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company or its affiliates to employ the Participant for any specific period or in any particular capacity and shall not prevent the Company or its affiliates from terminating the Participant's employment at any time with or without cause. 5. Change in Control. (a) In the event that a Participant is terminated without Cause within two (2) years following a Change in Control, the Restriction Period shall lapse with respect to the Restricted Shares and the Restricted Shares shall thereby be free of such restrictions. If the successor entity in the Change in Control does not assume the Restricted Shares, substitute shares of its capital stock with restrictions substantially equivalent to those in effect for the Restricted Shares immediately prior to the Change in Control or otherwise continue the Restricted Shares in effect following the Change in Control, then the Restriction Period shall lapse with respect to such Restricted Shares immediately prior to the Change in Control. (b) For purposes of this Agreement "Cause" shall mean (i) the Participant's continued failure substantially to perform the material duties of his office (other than as a result of total or partial incapacity due to physical or mental illness), (ii) the embezzlement or theft by the Participant of the Company's property, (iii) the commission of any act or acts on the Participant' s part resulting in the conviction of such Participant of a felony under the laws of the United States or any state, (iv) the Participant's willful malfeasance or willful misconduct in connection with the Participant's duties to the Company or any other act or omission which is materially injurious to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates, or (v) a material breach by the Participant of the material terms of his employment agreement, the Management Shareholders Agreement or any non-compete, non-solicitation or confidentiality provisions to which the Participant is subject. However, no termination shall be deemed for Cause under clause (i), (iv) or (v) unless the Participant is first given written notice by the Company of the specific acts or omissions which the Company deems constitute grounds for a termination for Cause and is provided with at least 30 days after such notice to cure the specified deficiency. 6. Application of Laws. The granting of Shares hereunder shall be subject to all applicable laws, rules and regulations and to such approvals of any governmental agencies as may be required, in particular the laws of the Cayman Islands. 7. Taxes. Any taxes required by federal, state or local laws to be withheld by the Company shall be paid to the Company by the Participant by the time such taxes are required to be paid or deposited by the Company. 8. Notices. Any notices required to be given hereunder to the Company shall be addressed to New SAC, Attention: General Counsel, and any notice required to be given hereunder to the Participant shall be sent to the Participant's address as shown on the records of the Company. 9. Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the conflict of laws provisions thereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. NEW SAC By _____________________ Name: Title: Agreed and acknowledged as of the date first above written: _______________________________ EX-10.12 42 0042.txt 1999 STOCK OPTION PLAN & FORM OF STOCK OPTION AGREEMENT EXHIBIT 10.12 SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC. 1999 STOCK OPTION PLAN AMENDED AND RESTATED August 17, 2000 1. Purposes of the Plan. The purposes of this Stock Option Plan are to -------------------- attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or nonstatutory stock options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or any of its Committees appointed ------------- pursuant to Section 4 of the Plan. (b) "Affiliate" means (i) any corporation in which the Company owns, --------- directly or indirectly, ten percent or more of the voting stock, or any partnership, limited liability company or other entity in which the Company ownership interest represents, directly or indirectly, ten percent or more of the total ownership interests in such partnership, limited liability company, or entity; (ii) any corporation which owns, directly or indirectly, ten percent or more of the voting stock of the Company, or any partnership, limited liability company or other entity which owns, directly or indirectly, ten percent or more of the voting stock of the Company; or (iii) any corporation or any other entity (including, but not limited to, partnerships, joint ventures and limited liability companies) that the Administrator, in its sole discretion, determines to be controlling, controlled by, or under common control with the Corporation. (c) "Board" means the Board of Directors of the Company. ----- (d) "Code" means the Internal Revenue Code of 1986, as amended. ---- (e) "Committee" means a Committee appointed by the Board of Directors --------- in accordance with Section 4 of the Plan. (f) "Common Stock" means the Common Stock of the Company. ------------ (g) "Company" means Seagate Software Information Management Group ------- Holdings, Inc., a Delaware corporation. (h) "Consultant" means (i) any person who is engaged by the Company or ---------- any Parent, Subsidiary or Affiliate to render consulting or advisory services to such entity and is compensated for such services, (ii) any director of the Company whether compensated for such services or not, or (iii) any employee or director of an Affiliate. (i) "Continuous Status as an Employee or Consultant" means that the ---------------------------------------------- employment or consulting relationship with the Company, any Parent, Subsidiary, or Affiliate is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, Affiliate or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract, including Company policies. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. (j) "Employee" means any person, including Officers and directors, -------- employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (k) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (l) "Fair Market Value" means, as of any date, the value of Common ----------------- Stock determined as follows: (1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (2) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, or; (3) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (m) "Incentive Stock Option" means an Option intended to qualify as an ---------------------- incentive stock option within the meaning of Section 422 of the Code. (n) "Nonstatutory Stock Option" means an Option not intended to ------------------------- qualify as an Incentive Stock Option. (o) "Officer" means a person who is an officer of the Company within ------- the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (p) "Option" means a stock option granted pursuant to the Plan. ------ (q) "Optioned Stock" means the Common Stock subject to an Option. -------------- (r) "Optionee" means an Employee or Consultant who receives an Option. -------- (s) "Parent" means a "parent corporation", whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (t) "Plan" means this 1999 Stock Option Plan. ---- (u) "Section 16(b)" means Section 16(b) of the Exchange Act. ------------- (v) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 11 below. (w) "Subsidiary" means a "subsidiary corporation", whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code. Page 2 of 22 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of ------------------------- the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 22,500,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an option exchange program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, -------- however, that Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares are repurchased by the Company at their original purchase price, and the original purchaser of such Shares did not receive any benefits of ownership of such Shares, such Shares shall become available for future grant under the Plan. For purposes of the preceding sentence, voting rights shall not be considered a benefit of Share ownership. 4. Administration of the Plan. -------------------------- (a) Initial Plan Procedure. Prior to the date, if any, upon which the ---------------------- Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or a Committee appointed by the Board. (b) Plan Procedure after the Date, if any, upon which the Company ------------------------------------------------------------- becomes Subject to the Exchange Act. - - ----------------------------------- (1) Administration with Respect to Directors and Officers. With ----------------------------------------------------- respect to grants of Options to Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board if the Board may administer the Plan in compliance with the rules under Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule 16b-3") under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made, or (B) a Committee designated by the Board to administer the Plan, which Committee shall be constituted to comply with the rules under Rule 16b-3 under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the rules under Rule 16b-3 under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. (2) Multiple Administrative Bodies. If permitted by Rule 16b-3, ------------------------------ the Plan may be administered by different bodies with respect to directors, non- director Officers and Employees who are neither directors nor Officers. (3) Administration With Respect to Consultants and Other ---------------------------------------------------- Employees. With respect to grants of Options to Employees or Consultants who are - - --------- neither directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a committee designated by the Board, which committee shall be constituted in such a manner as to satisfy the legal requirements relating to the administration of incentive stock option plans, if any, of state corporate and securities laws, of the Code, and of any applicable stock exchange (the "Applicable Laws"). Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws. (c) Powers of the Administrator. Subject to the provisions of the --------------------------- Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any stock exchange upon which the Common Stock is listed, the Administrator shall have the authority, in its discretion: (1) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(k) of the Plan; Page 3 of 22 (2) to select the Consultants and Employees to whom Options may from time to time be granted hereunder; (3) to determine whether and to what extent Options are granted hereunder; (4) to determine the number of shares of Common Stock to be covered by each such award granted hereunder; (5) to approve forms of agreement for use under the Plan; (6) to determine the terms and conditions of any award granted hereunder; (7) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (8) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; and (9) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (d) Effect of Administrator's Decision. All decisions, determinations ---------------------------------- and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options. 5. Eligibility. ----------- (a) Nonstatutory Stock Options may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option may, if otherwise eligible, be granted additional Options. (b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. (d) Upon the Company or a successor corporation issuing any class of common equity securities required to be registered under Section 12 of the Exchange Act or upon the Plan being assumed by a corporation having a class of common equity securities required to be registered under Section 12 of the Exchange Act, the following limitations shall apply to grants of Options to Employees: (1) No Employee shall be granted, in any fiscal year of the Company, Options to purchase more than 5,000,000 Shares. Page 4 of 22 (2) In connection with his or her initial employment, an Employee may be granted Options to purchase up to an additional 3,000,000 Shares which shall not count against the limit set forth in subsection (i) above. (3) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 11. (4) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 11), the cancelled Option will be counted against the limit set forth in subsection (i) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 6. Term of Plan. The Plan shall become effective upon the earlier to ------------ occur of its adoption by the Board of Directors or its approval by the stockholders of the Company, as described in Section 17 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan. 7. Term of Option. The term of each Option shall be the term stated in -------------- the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. Option Exercise Price and Consideration. --------------------------------------- (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (1) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. (2) In the case of a Nonstatutory Stock Option (A) granted to a person who, at the time of the grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of the grant. (B) granted to any person, the per Share exercise price shall be no less than eighty-five (85%) of the Fair Market Value per Share on the date of grant. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option have been owned by the Optionee for more than six months on the date of surrender and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, Page 5 of 22 shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, (6) the cancellation of a portion of the Shares subject to the Option with a Fair Market Value equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, or (7) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Stockholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. Except in the case of Options granted to Officers, Directors and Consultants, Options shall become exercisable at a rate of no less than 20% per year over five (5) years from the date the Options are granted. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Employment or Consulting Relationship. In the ---------------------------------------------------- event of termination of an Optionee's Continuous Status as an Employee or Consultant with the Company (but not in the event of an Optionee's change of status from Employee to Consultant (in which case an Employee's Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the date three (3) months and one (1) day from the date of such change of status) or from Consultant to Employee), such Optionee may, but only within such period of time as is determined by the Administrator, of at least thirty (30) days, with such determination in the case of an Incentive Stock Option not exceeding three (3) months after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that Optionee was entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (c) Disability of Optionee. In the event of termination of an ---------------------- Optionee's consulting relationship or Continuous Status as an Employee as a result of his or her disability, Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the day three (3) months and one (1) day following such termination. To the extent that Optionee is not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. Page 6 of 22 (d) Death of Optionee. In the event of the death of an Optionee, the ----------------- Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Rule 16b-3. Options granted to persons subject to Section ---------- 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. 10. Non-Transferability of Options. Options may not be sold, pledged, ------------------------------ assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. Adjustments Upon Changes in Capitalization or Merger. ---------------------------------------------------- (a) Changes in Capitalization. Subject to any required action ------------------------- by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Administrator shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the -------------------- Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option, the Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the Page 7 of 22 successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 12. Time of Granting Options. The date of grant of an Option shall, for ------------------------ all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Board. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 13. Amendment and Termination of the Plan. The Board may at any time ------------------------------------- amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her written consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Sections 162(m) or 422 of the Code (or any other applicable law or regulation, including the requirements of the NASD or an established stock exchange), the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. 14. Conditions Upon Issuance of Shares. Shares shall not be issued ---------------------------------- pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 15. Reservation of Shares. The Company, during the term of this Plan, --------------------- will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 16. Agreements. Options shall be evidenced by written agreements in such ---------- form as the Administrator shall approve from time to time. 17. Stockholder Approval. Continuance of the Plan shall be subject to -------------------- approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any stock exchange upon which the Common Stock is listed. 18. Information to Optionees and Purchasers. The Company shall provide to --------------------------------------- each Optionee, not less frequently than annually, copies of annual financial statements. The Company shall also provide such statements to each individual who acquires Shares pursuant to the Plan while such individual owns such Shares. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. Page 8 of 22 SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC. 1999 STOCK PLAN STOCK OPTION AGREEMENT ---------------------- Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. I. NOTICE OF STOCK OPTION GRANT - - -- ---------------------------- [Optionee's Name] You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Grant Number _________________________ Date of Grant _________________________ Vesting Commencement _________________________ Exercise Price per Share $________________________ Total Number of Shares Granted _________________________ Total Exercise Price $________________________ Type of Option: ___ Incentive Stock Option ___ Nonstatutory Stock Option Term/Expiration Date _________________________ Vesting Schedule: ---------------- You may exercise this Option, in whole or in part, according to the following vesting schedule: 25% of the Shares subject to the Option shall vest in the first year on the anniversary of the Vesting Commencement Date. Thereafter 1/48/th/ of the Shares subject to the Option shall vest each month on the same day Page 9 of 22 of the month as the Vesting Commencement Date so that all Options will be vested at the end of the 48/th/ month after the Vesting Commencement Date. Termination Period: ------------------ You may exercise this Option for thirty (30) days after your employment or consulting relationship with the Company terminates, or for such longer period upon your death or disability as provided in this Option Agreement. If your status changes from Employee to Consultant or Consultant to Employee, this Option Agreement shall remain in effect. In no case may you exercise this Option after the Term/Expiration Date as provided above. II. AGREEMENT --------- (a) Grant of Option. Seagate Software Information Management Group --------------- Holdings, Inc. a Delaware corporation (the "Company"), hereby grants to the Optionee named in the Notice of Grant (the "Optionee"), an option (the "Option") to purchase the total number of shares of Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price") subject to the terms, definitions and provisions of the 1999 Stock Option Plan (the "Plan") adopted by the Company, which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option ("NSO"). (b) Exercise of Option. ------------------ (1) Right to Exercise. This Option shall be exercisable during its term ----------------- in accordance with the Vesting Schedule set out in the Notice of Grant and with the applicable provisions of the Plan and this Option Agreement. In the event of Optionee's death, disability or other termination of the employment or consulting relationship, this Option shall be exercisable in accordance with the applicable provisions of the Plan and this Option Agreement. (2) Method of Exercise. This Option shall be exercisable by written ------------------ notice (in the form attached as Exhibit A) which shall state the --------- election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. Page 10 of 22 (c) Optionee's Representations. In the event the Shares purchasable -------------------------- pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B, and shall read the applicable rules of --------- the Commissioner of Corporations attached to such Investment Representation Statement. (d) Lock-Up Period. Optionee hereby agrees that if so requested by the -------------- Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such longer period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop- transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. (e) Method of Payment. Payment of the Exercise Price shall be by any of ----------------- the following, or a combination thereof, at the election of the Optionee: (1) cash; (2) check; (3) surrender of other shares of Common Stock of the Company which (A) in the case of Shares acquired pursuant to the exercise of a Company option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the Exercise Price of the Shares as to which the Option is being exercised; or (4) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the Exercise Price. (f) Restrictions on Exercise. This Option may not be exercised until such ------------------------ time as the Plan has been approved by the stockholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as promulgated by the Federal Reserve Board. (g) Termination of Relationship. In the event an Optionee's Continuous --------------------------- Status as an Employee or Consultant terminates, Optionee may, to the extent otherwise so entitled at the date of such termination (the "Termination Date"), exercise this Option during the Termination Period set out in the Notice of Grant. To the extent that Optionee was not entitled to exercise this Option at the date of such termination, or if Optionee does not exercise this Option within the time specified herein, the Option shall terminate. (h) Disability of Optionee. Notwithstanding the provisions of Section 7 ---------------------- above, in the event of termination of an Optionee's consulting relationship or Continuous Status as an Employee as a result of his or her disability, Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option on the day three months and one day following such termination. To the extent that Optionee was not entitled to Page 11 of 22 exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (i) Death of Optionee. In the event of termination of Optionee's Continuous ----------------- Status as an Employee or Consultant as a result of the death of Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 11 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the Optionee could exercise the Option at the date of death. (j) Non-Transferability of Option. This Option may not be transferred in any ----------------------------- manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. (k) Term of Option. This Option may be exercised only within the term set out -------------- in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option. The limitations set out in Section 7 of the Plan regarding Options designated as Incentive Stock Options and Options granted to more than ten percent (10%) stockholders shall apply to this Option. (l) Tax Consequences. Set forth below is a brief summary as of the date of ---------------- this Option of some of the federal and state tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (1) Exercise of ISO. If this Option qualifies as an ISO, there will --------------- be no regular federal income tax liability or state income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise. (2) Exercise of ISO Following Disability. If the Optionee's ------------------------------------ Continuous Status as an Employee or Consultant terminates as a result of disability that is not total and permanent disability as defined in Section 22(e)(3) of the Code, to the extent permitted on the date of termination, the Optionee must exercise an ISO within three months of such termination for the ISO to be qualified as an ISO. (3) Exercise of Nonstatutory Stock Option. There may be a regular ------------------------------------- federal income tax liability and state income tax liability upon the exercise of a Nonstatutory Stock Option. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an Employee or a former Employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (4) Disposition of Shares. In the case of an NSO, if Shares are held --------------------- for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal and state income tax purposes. In the case of an ISO, if Shares transferred pursuant to the Option are held for at least one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal and state income tax purposes. If Shares purchased under an ISO are disposed of within such one-year period or within two years after the Date of Grant, any gain realized on such Page 12 of 22 disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (1) the Fair Market Value of the Shares on the date of exercise, or (2) the sale price of the Shares. (5) Notice of Disqualifying Disposition of ISO Shares. If the Option ------------------------------------------------- granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee. (m) Entire Agreement; Governing Law. The Plan is incorporated herein by ------------------------------- reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by California law except for that body of law pertaining to conflict of laws. SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC., a Delaware corporation By: /s/ Greg Kerbot President and Chief Operating Officer, Seagate Software Information Management Group Holdings, Inc. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and represents that Optionee is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee Page 13 of 22 has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below. Dated: _______________________ ________________________________ Optionee (Print Name) _______________________________ ________________________________ Social Security # (U.S. Only) Optionee Signature Employee ID#:__________________ Work Phone # __________________ ________________________________ Home Phone # __________________ ________________________________ ________________________________ Mailing Address (Residence) Please print clearly Page 14 of 22 DESIGNATION OF BENEFICIARY -------------------------- In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all of my options that are unexercised at that time. NAME : (Please Print) ______________________________________________ (First)(Middle)(Last) Relationship: _______________________________________________________ Address: ____________________________________________________________ _____________________________________________________________________ Dated: _________________ Signature of Optionee:____________________________________________________ Page 15 of 22 EXHIBIT A --------- SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC. 1999 STOCK OPTION PLAN EXERCISE NOTICE Seagate Software Information Management Group Holdings, Inc. Attn: Stock Plan Administration P.O. Box 66360 Scotts Valley, CA 95067-0360 1. Exercise of Option. Effective as of today, _______________, 20 _____, ------------------ the undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase _____________ shares of the Common Stock (the "Shares") of Seagate Software Information Management Group Holdings, Inc. (the "Company") under and pursuant to the 1999 Stock Option Plan, including all amendments thereto (the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated ______________, 20 ___ (the "Option Agreement"). 2. Representations of Optionee. Optionee acknowledges that Optionee has --------------------------- received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 3. Rights as Stockholder. Until the stock certificate evidencing such --------------------- Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. Optionee shall enjoy rights as a stockholder until such time as Optionee disposes of the Shares or the Company and/or its assignee(s) exercises the Right of First Refusal hereunder. Upon such exercise, Optionee shall have no further rights as a holder of the Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the Shares so purchased to be surrendered to the Company for transfer or cancellation. 4. Company's Right of First Refusal. Before any Shares held by Optionee -------------------------------- or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). (a) Notice of Proposed Transfer. The Holder of the Shares shall --------------------------- deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed Optionee or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). Page 16 of 22 (b) Exercise of Right of First Refusal. At any time within thirty ---------------------------------- (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. (c) Purchase Price. The purchase price ("Purchase Price") for the -------------- Shares purchased by the Company or its assignee(s) under this Section shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (d) Payment. Payment of the Purchase Price shall be made, at the ------- option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice. (e) Holder's Right to Transfer. If all of the Shares proposed in the -------------------------- Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 120 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (f) Exception for Certain Family Transfers. Anything to the contrary -------------------------------------- contained in this Section notwithstanding, the transfer of any or all of the Shares during the Optionee's lifetime or on the Optionee's death by will or intestacy to the Optionee's immediate family or a trust for the benefit of the Optionee's immediate family shall be exempt from the provisions of this Section. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section. (g) Termination of Right of First Refusal. The Right of First ------------------------------------- Refusal shall terminate as to any Shares 90 days after the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended. 5. Transferability of the Shares. (a) Transfer or sale of the Shares is subject to restrictions on transfer imposed by any applicable state and federal securities laws. Any transferee shall hold such Shares subject to all the provisions hereof with respect to any Shares purchased by Optionee and shall acknowledge the same by signing a copy of this Exercise Notice. 6. Ownership, Voting Rights, Duties. This Exercise Notice shall not -------------------------------- affect in any way the ownership, voting rights or other rights or duties of Optionee, except as specifically provided herein. 7. Legends. The share certificate evidencing the Shares issued hereunder ------- shall be endorsed with the following legend (in addition to any legend required under applicable federal and state securities laws): 8. Tax Consultation. Optionee understands that Optionee may suffer ---------------- adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any Page 17 of 22 tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. 9. Restrictive Legends and Stop-Transfer Orders. --------------------------------------------- (a) Legends. Optionee understands and agrees that the Company shall ------- cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES. IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. Optionee understands that transfer of the Shares may be restricted by Section 260.141.11 of the Rules of the California Corporations Commissioner, a copy of which is attached to Exhibit B, the Investment Representation Statement. (b) Stop-Transfer Notices. Optionee agrees that, in order to ensure --------------------- compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) Refusal to Transfer. The Company shall not be required (i) to ------------------- transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Exercise Notice or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any Optionee or other transferee to whom such Shares shall have been so transferred. 10. Successors and Assigns. The Company may assign any of its rights ---------------------- under this Exercise Notice to single or multiple assignees, and this Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Notice shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns. 11. Interpretation. Any dispute regarding the interpretation of this -------------- Exercise Notice shall be submitted by Optionee or by the Company forthwith to the Company's Board of Directors or the committee thereof that administers the Plan, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Board or committee shall be final and binding on the Company and on Optionee. 12. Governing Law; Severability. This Exercise Notice shall be governed --------------------------- by and construed in accordance with the laws of California excluding that body of law pertaining to conflicts of law. Should any provision of this Exercise Notice be determined by a court of law to be illegal or unenforceable, the other provisions Page 18 of 22 shall nevertheless remain effective and shall remain enforceable. 13. Notices. Any notice required or permitted hereunder shall be given in ------- writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the other party at its address as shown below beneath its signature, or to such other address as such party may designate in writing from time to time to the other party. 14. Further Instruments. The parties agree to execute such further ------------------- instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Exercise Notice. 15. Delivery of Payment. Optionee herewith delivers to the Company the ------------------- full Exercise Price for the Shares. 16. Entire Agreement. The Plan and Notice of Grant/Option Agreement are ---------------- incorporated herein by reference. This Exercise Notice, the Plan, the Option Agreement and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. Submitted By: OPTIONEE _____________________________________ (Print Name) _____________________________________ (Signature) _____________________________________ (Address) Work Phone:__________________ Home Phone:________________________ Email Address:_______________ Accepted by: Seagate Software Information Management Group Holdings,Inc. By:__________________________________ Its :________________________________ Seagate Software Information Management Group Holdings, Inc. Attn: Stock Plan Administration P.O. Box 66360 Scotts Valley, CA 95067-0360 Page 19 of 22 EXHIBIT B --------- INVESTMENT REPRESENTATION STATEMENT OPTIONEE :______________________________________________ COMPANY : SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC. SECURITY : COMMON STOCK AMOUNT :____________________________________________ (number of shares) ------------------ DATE:_____________________________________________ In connection with the purchase of the above-listed Securities, the undersigned Optionee represents to the Company the following: (a) (a) Optionee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (b) (b) Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company, a legend prohibiting their transfer without the consent of the Commissioner of Corporations of this state and any other legend required under applicable state securities laws. (c) (c) Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities without the consent of the Commissioner of Corporations of California. Optionee has read the applicable Commissioner's Rules with respect to such restriction, a copy of which is attached. Signature of Optionee: _____________________________________ Date:__________________________, 20__ Page 20 of 22 ATTACHMENT 1 STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE ---------------------------------------------------- Title 10. Investment - Chapter 3. Commissioner of Corporations 260.141.11: Restriction on Transfer. ---------- ----------------------- (a) The issuer of any security upon which a restriction on transfer has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to be delivered to each issuee or transferee of such security at the time the certificate evidencing the security is delivered to the issuee or transferee. (b) It is unlawful for the holder of any such security to consummate a sale or transfer of such security, or any interest therein, without the prior written consent of the Commissioner (until this condition is removed pursuant to Section 260.141.12 of these rules), except: (1) to the issuer; (2) pursuant to the order or process of any court; (3) to any person described in Subdivision (i) of Section 25102 of the Code or Section 260.105.14 of these rules; (4) to the transferor's ancestors, descendants or spouse, or any custodian or trustee for the account of the transferor or the transferor's ancestors, descendants, or spouse; or to a transferee by a trustee or custodian for the account of the transferee or the transferee's ancestors, descendants or spouse; (5) to holders of securities of the same class of the same issuer; (6) by way of gift or donation inter vivos or on death; (7) by or through a broker-dealer licensed under the Code (either acting as such or as a finder) to a resident of a foreign state, territory or country who is neither domiciled in this state to the knowledge of the broker-dealer, nor actually present in this state if the sale of such securities is not in violation of any securities law of the foreign state, territory or country concerned; (8) to a broker-dealer licensed under the Code in a principal transaction, or as an underwriter or member of an underwriting syndicate or selling group; (9) if the interest sold or transferred is a pledge or other lien given by the Optionee to the seller upon a sale of the security for which the Commissioner's written consent is obtained or under this rule not required; (10) by way of a sale qualified under Sections 25111, 25112, 25113 or 25121 of the Code, of the securities to be transferred, provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification; (11) by a corporation to a wholly owned subsidiary of such corporation, or by a wholly owned subsidiary of a corporation to such corporation; (12) by way of an exchange qualified under Section 25111, 25112 or 25113 of the Code, provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification; Page 21 of 22 (13) between residents of foreign states, territories or countries who are neither domiciled nor actually present in this state; (14) to the State Controller pursuant to the Unclaimed Property Law or to the administrator of the unclaimed property law of another state; or (15) by the State Controller pursuant to the Unclaimed Property Law or by the administrator of the unclaimed property law of another state if, in either such case, such person (i) discloses to potential Optionees at the sale that transfer of the securities is restricted under this rule, (ii) delivers to each Optionee a copy of this rule, and (iii) advises the Commissioner of the name of each Optionee; (16) by a trustee to a successor trustee when such transfer does not involve a change in the beneficial ownership of the securities; (17) by way of an offer and sale of outstanding securities in an issuer transaction that is subject to the qualification requirement of Section 25110 of the Code but exempt from that qualification requirement by subdivision (f) of Section 25102; provided that any such transfer is on the condition that any certificate evidencing the security issued to such transferee shall contain the legend required by this section. (c) The certificates representing all such securities subject to such a restriction on transfer, whether upon initial issuance or upon any transfer thereof, shall bear on their face a legend, prominently stamped or printed thereon in capital letters of not less than 10-point size, reading as follows: "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES." Page 22 of 22 EX-10.13 43 0043.txt 2000 STOCK OPTION PLAN & FORM OF STOCK OPTION AGREEMENT EXHIBIT 10.13 SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC. 2000 STOCK OPTION PLAN Amended And Restated August 17, 2000 1. Purposes of the Plan. The purposes of this Stock Option Plan are to -------------------- attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or nonstatutory stock options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or any of its Committees ------------- appointed pursuant to Section 4 of the Plan. (b) "Affiliate" means (i) any corporation in which the Company owns, --------- directly or indirectly, ten percent or more of the voting stock, or any partnership, limited liability company or other entity in which the Company ownership interest represents, directly or indirectly, ten percent or more of the total ownership interests in such partnership, limited liability company, or entity; (ii) any corporation which owns, directly or indirectly, ten percent or more of the voting stock of the Company, or any partnership, limited liability company or other entity which owns, directly or indirectly, ten percent or more of the voting stock of the Company; or (iii) any corporation or any other entity (including, but not limited to, partnerships, joint ventures and limited liability companies) that the Administrator, in its sole discretion, determines to be controlling, controlled by, or under common control with the Corporation. (c) "Board" means the Board of Directors of the Company. ----- (d) "Code" means the Internal Revenue Code of 1986, as amended. ---- (e) "Committee" means a Committee appointed by the Board of Directors --------- in accordance with Section 4 of the Plan. (f) "Common Stock" means the Common Stock of the Company. ------------ (g) "Company" means Seagate Software Information Management Group ------- Holdings, Inc., a Delaware corporation. (h) "Consultant" means (i) any person who is engaged by the Company ---------- or any Parent, Subsidiary or Affiliate to render consulting or advisory services to such entity and is compensated for such services, (ii) any director of the Company whether compensated for such services or not, or (iii) any employee or director of an Affiliate. (i) "Continuous Status as an Employee or Consultant" means that the ---------------------------------------------- employment or consulting relationship with the Company, any Parent, Subsidiary, or Affiliate is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, Affiliate or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract, including Company policies. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. (j) "Employee" means any person, including Officers and directors, -------- employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (k) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (l) "Fair Market Value" means, as of any date, the value of Common ----------------- Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, or; (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (m) "Incentive Stock Option" means an Option intended to qualify as ---------------------- an incentive stock option within the meaning of Section 422 of the Code. -2- (n) "Nonstatutory Stock Option" means an Option not intended to ------------------------- qualify as an Incentive Stock Option. (o) "Officer" means a person who is an officer of the Company within ------- the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (p) "Option" means a stock option granted pursuant to the Plan. ------ (q) "Optioned Stock" means the Common Stock subject to an Option. -------------- (r) "Optionee" means an Employee or Consultant who receives an -------- Option. (s) "Parent" means a "parent corporation", whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (t) "Plan" means this 2000 Stock Option Plan. ---- (u) "Section 16(b)" means Section 16(b) of the Exchange Act. ------------- (v) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 11 below. (w) "Subsidiary" means a "subsidiary corporation", whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of ------------------------- the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 200,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an option exchange program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, -------- however, that Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares are repurchased by the Company at their original purchase price, and the original purchaser of such Shares did not receive any benefits of ownership of such Shares, such Shares shall become available for future grant under the Plan. For purposes of the preceding sentence, voting rights shall not be considered a benefit of Share ownership. 4. Administration of the Plan. -------------------------- (a) Initial Plan Procedure. Prior to the date, if any, upon which the ---------------------- Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or a Committee appointed by the Board. -3- (b) Plan Procedure after the Date, if any, upon which the Company ------------------------------------------------------------- becomes Subject to the Exchange Act. - - ----------------------------------- (i) Administration with Respect to Directors and Officers. With ----------------------------------------------------- respect to grants of Options to Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board if the Board may administer the Plan in compliance with the rules under Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule 16b-3") under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made, or (B) a Committee designated by the Board to administer the Plan, which Committee shall be constituted to comply with the rules under Rule 16b-3 under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the rules under Rule 16b-3 under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. (ii) Multiple Administrative Bodies. If permitted by Rule 16b-3, ------------------------------ the Plan may be administered by different bodies with respect to directors, non- director Officers and Employees who are neither directors nor Officers. (iii) Administration With Respect to Consultants and Other ---------------------------------------------------- Employees. With respect to grants of Options to Employees or Consultants who - - --------- are neither directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a committee designated by the Board, which committee shall be constituted in such a manner as to satisfy the legal requirements relating to the administration of incentive stock option plans, if any, of state corporate and securities laws, of the Code, and of any applicable stock exchange (the "Applicable Laws"). Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws. (c) Powers of the Administrator. Subject to the provisions of the --------------------------- Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any stock exchange upon which the Common Stock is listed, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(k) of the Plan; (ii) to select the Consultants and Employees to whom Options may from time to time be granted hereunder; -4- (iii) to determine whether and to what extent Options are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each such award granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions of any award granted hereunder; (vii) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; and (ix) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (d) Effect of Administrator's Decision. All decisions, determinations ---------------------------------- and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options. 5. Eligibility. ----------- (a) Nonstatutory Stock Options may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option may, if otherwise eligible, be granted additional Options. (b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. -5- (c) The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. (d) Upon the Company or a successor corporation issuing any class of common equity securities required to be registered under Section 12 of the Exchange Act or upon the Plan being assumed by a corporation having a class of common equity securities required to be registered under Section 12 of the Exchange Act, the following limitations shall apply to grants of Options to Employees: (i) No Employee shall be granted, in any fiscal year of the Company, Options to purchase more than 5,000,000 Shares. (ii) In connection with his or her initial employment, an Employee may be granted Options to purchase up to an additional 3,000,000 Shares which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 11. (iv) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 11), the cancelled Option will be counted against the limit set forth in subsection (i) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 6. Term of Plan. The Plan shall become effective upon the earlier to ------------ occur of its adoption by the Board of Directors or its approval by the stockholders of the Company, as described in Section 17 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan. 7. Term of Option. The term of each Option shall be the term stated in -------------- the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. Option Exercise Price and Consideration. --------------------------------------- (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: -6- (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option (A) granted to a person who, at the time of the grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of the grant. (B) granted to any person, the per Share exercise price shall be no less than eighty-five (85%) of the Fair Market Value per Share on the date of grant. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option have been owned by the Optionee for more than six months on the date of surrender and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, (6) the cancellation of a portion of the Shares subject to the Option with a Fair Market Value equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, or (7) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Stockholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. An Option may not be exercised for a fraction of a Share. -7- An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Employment or Consulting Relationship. In the ---------------------------------------------------- event of termination of an Optionee's Continuous Status as an Employee or Consultant with the Company (but not in the event of an Optionee's change of status from Employee to Consultant (in which case an Employee's Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the date three (3) months and one (1) day from the date of such change of status) or from Consultant to Employee), such Optionee may, but only within such period of time as is determined by the Administrator, of at least thirty (30) days, with such determination in the case of an Incentive Stock Option not exceeding three (3) months after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that Optionee was entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (c) Disability of Optionee. In the event of termination of an ---------------------- Optionee's consulting relationship or Continuous Status as an Employee as a result of his or her disability, Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the day three (3) months and one (1) day following such termination. To the extent that Optionee is not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. -8- (d) Death of Optionee. In the event of the death of an Optionee, the ----------------- Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Rule 16b-3. Options granted to persons subject to Section 16(b) ---------- of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. 10. Non-Transferability of Options. Options may not be sold, pledged, ------------------------------ assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. Adjustments Upon Changes in Capitalization or Merger. ---------------------------------------------------- (a) Changes in Capitalization. Subject to any required action by the ------------------------- stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Administrator shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed action. -9- (c) Merger or Asset Sale. In the event of a merger of the Company -------------------- with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. This Section 11 is intended to apply to mergers of the Company only and not of its Affiliate, and for the avoidance of doubt, the anticipated privatization of Seagate Technology (the Silver Lake Transaction) is not deemed a merger or sale of assets within the meaning of this Section 11(c). In the event that the successor corporation refuses to assume or substitute for the Option, the Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 12. Time of Granting Options. The date of grant of an Option shall, for ------------------------ all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Board. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 13. Amendment and Termination of the Plan. The Board may at any time ------------------------------------- amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her written consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Sections 162(m) or 422 of the Code (or any other applicable law or regulation, including the requirements of the NASD or an established stock exchange), the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. 14. Conditions Upon Issuance of Shares. Shares shall not be issued ---------------------------------- pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations -10- promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 15. Reservation of Shares. The Company, during the term of this Plan, will --------------------- at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 16. Agreements. Options shall be evidenced by written agreements in such ---------- form as the Administrator shall approve from time to time. 17. Stockholder Approval. Continuance of the Plan shall be subject to -------------------- approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any stock exchange upon which the Common Stock is listed. 18. Information to Optionees and Purchasers. The Company shall provide to --------------------------------------- each Optionee, not less frequently than annually, copies of annual financial statements. The Company shall also provide such statements to each individual who acquires Shares pursuant to the Plan while such individual owns such Shares. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. -11- SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC. 2000 STOCK PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the 2000 Stock Plan shall have the same defined meanings in this Stock Option Agreement. NOTICE OF STOCK OPTION GRANT - - ---------------------------- [Optionee's Name and Address] The undersigned Optionee has been granted an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Grant Number ______________________________ Date of Grant ______________________________ Exercise Price per Share $_____________________________ Total Number of Shares Granted ______________________________ Total Exercise Price $_____________________________ Type of Option: ___ Incentive Stock Option ___ Nonstatutory Stock Option Term/Expiration Date: ______________________________ Vesting Schedule: ---------------- This Option shall be exercisable, in whole or in part, according to the following vesting schedule: This Option shall become fully vested and exercisable immediately prior to a merger or asset sale described in Section 11(c) of the Plan., or on the date upon which the Company's initial public offering, pursuant to a registration statement, is declared effective by the United States Securities Exchange Commission. -12- Termination Period: ------------------ This Option shall be exercisable for three months after Optionee ceases Continuous Status as Employee or Consultant. Upon Optionee's death or Disability, this Option may be exercised for one year after Optionee ceases Continuous Status as Employee or Consultant. In no event may Optionee exercise this Option after the Term/Expiration Date as provided above. AGREEMENT - - --------- (a) Grant of Option. The Plan Administrator of the Company hereby --------------- grants to the Optionee named in the Notice of Grant (the "Optionee"), an option (the "Option") to purchase the number of Shares set forth in the Notice of Grant, at the exercise price per Share set forth in the Notice of Grant (the "Exercise Price"), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 14(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option ("NSO"). (b) Exercise of Option. ------------------ (i) Right to Exercise. This Option shall be exercisable ----------------- during its term in accordance with the Vesting Schedule set out in the Notice of Grant and with the applicable provisions of the Plan and this Option Agreement. (ii) Method of Exercise. This Option shall be exercisable ------------------ by delivery of an exercise notice in the form attached as Exhibit A (the --------- "Exercise Notice") which shall state the election to exercise the Option, the number of Shares with respect to which the Option is being exercised, and such other representations and agreements as may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of an Option unless such issuance and such exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. (c) Optionee's Representations. In the event the Shares have not -------------------------- been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, the Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, -13- deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B. --------- (d) Lock-Up Period. Optionee hereby agrees that, if so requested by -------------- the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180- day period (or such other period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act. Such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. (e) Method of Payment. Payment of the aggregate Exercise Price shall ----------------- be by any of the following, or a combination thereof, at the election of the Optionee: (i) cash or check; (ii) consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or (iii) surrender of other Shares which, (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares. (f) Restrictions on Exercise. This Option may not be exercised until ------------------------ such time as the Plan has been approved by the shareholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any Applicable Law. (g) Non-Transferability of Option. This Option may not be transferred ----------------------------- in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. (h) Term of Option. This Option may be exercised only within the -------------- term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option. (i) Tax Consequences. Set forth below is a brief summary as of the ---------------- date of this Option of some of the federal tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND -14- REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (i) Exercise of NSO. There may be a regular federal income --------------- tax liability upon the exercise of an NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an Employee or a former Employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (ii) Exercise of ISO. If this Option qualifies as an ISO, there --------------- will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise. (iii) Disposition of Shares. In the case of an NSO, if Shares --------------------- are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. In the case of an ISO, if Shares transferred pursuant to the Option are held for at least one year after exercise and of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal income tax purposes. If Shares purchased under an ISO are disposed of within one year after exercise or two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (1) the Fair Market Value of the Shares on the date of exercise, or (2) the sale price of the Shares. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held. (iv) Notice of Disqualifying Disposition of ISO Shares. If the ------------------------------------------------- Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee. (j) Entire Agreement; Governing Law. The Plan is incorporated herein ------------------------------- by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws but not the choice of law rules of California. -15- (k) No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND --------------------------------- AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below. OPTIONEE SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC. ___________________________________ ________________________________________ Signature By ___________________________________ ________________________________________ Print Name Title ___________________________________ ___________________________________ Residence Address -16- EXHIBIT A --------- 2000 STOCK PLAN EXERCISE NOTICE Seagate Software Information Management Group Holdings, Inc. 915 Disc Drive Scotts Valley, California 95066 Attention: [Title] 1. Exercise of Option. Effective as of today, _____________, _____, the ------------------ undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase _________ shares of the Common Stock (the "Shares") of Seagate Software, Inc. (the "Company") under and pursuant to the 2000 Stock Plan (the "Plan") and the Stock Option Agreement dated ____________, _____ (the "Option Agreement"). 2. Delivery of Payment. Purchaser herewith delivers to the Company the ------------------- full purchase price of the Shares, as set forth in the Option Agreement. 3. Representations of Optionee. Optionee acknowledges that Optionee has --------------------------- received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 4. Rights as Shareholder. Until the issuance of the Shares (as evidenced --------------------- by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares shall be issued to the Optionee as soon as practicable after the Option is exercised. No adjustment shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section 12 of the Plan. 5. Company's Right of First Refusal. Before any Shares held by Optionee -------------------------------- or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). (a) Notice of Proposed Transfer. The Holder of the Shares shall --------------------------- deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). (b) Exercise of Right of First Refusal. At any time within thirty ---------------------------------- (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. (c) Purchase Price. The purchase price ("Purchase Price") for the -------------- Shares purchased by the Company or its assignee(s) under this Section shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (d) Payment. Payment of the Purchase Price shall be made, at the ------- option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the times set forth in the Notice. (e) Holder's Right to Transfer. If all of the Shares proposed in the -------------------------- Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 120 days after the date of the Notice, that any such sale or other transfer is effected in accordance with any applicable securities laws and that the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (f) Exception for Certain Family Transfers. Anything to the contrary -------------------------------------- contained in this Section notwithstanding, the transfer of any or all of the Shares during the Optionee's lifetime or on the Optionee's death by will or intestacy to the Optionee's immediate family or a trust for the benefit of the Optionee's immediate family shall be exempt from the provisions of this Section. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section. (g) Termination of Right of First Refusal. The Right of First Refusal ------------------------------------- shall terminate as to any Shares upon the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended. -2- 6. Tax Consultation. Optionee understands that Optionee may suffer ---------------- adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. 7. Restrictive Legends and Stop-Transfer Orders. -------------------------------------------- (a) Legends. Optionee understands and agrees that the Company shall ------- cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES. (b) Stop-Transfer Notices. Optionee agrees that, in order to ensure --------------------- compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) Refusal to Transfer. The Company shall not be required (i) to ------------------- transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Exercise Notice or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 8. Successors and Assigns. The Company may assign any of its rights under ---------------------- this Exercise Notice to single or multiple assignees, and this Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this -3- Exercise Notice shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns. 9. Interpretation. Any dispute regarding the interpretation of this -------------- Exercise Notice shall be submitted by Optionee or by the Company forthwith to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on all parties. 10. Governing Law; Severability. This Exercise Notice is governed by the --------------------------- internal substantive laws but not the choice of law rules, of California. 11. Entire Agreement. The Plan and Option Agreement are incorporated ---------------- herein by reference. This Exercise Notice, the Plan, the Option Agreement and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. Submitted by: Accepted by: OPTIONEE SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC. _________________________________ ___________________________________ Signature By _________________________________ ___________________________________ Print Name Title Address: Address: - - ------- ------- _________________________________ 915 Disc Drive _________________________________ Scotts Valley, California 95066 ___________________________________ Date Received -4- EXHIBIT B --------- INVESTMENT REPRESENTATION STATEMENT OPTIONEE: COMPANY: SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC. SECURITY: COMMON STOCK AMOUNT: DATE: In connection with the purchase of the above-listed Securities, the undersigned Optionee represents to the Company the following: (a) Optionee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (b) Optionee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee's investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the Securities. Optionee understands that the certificate evidencing the Securities will be imprinted with any legend required under applicable state securities laws. (c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non- public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to the Optionee, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. (d) Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event. Signature of Optionee: ___________________________________ Date:_______________________, _____ -2- EX-10.16 44 0044.txt SHAREHOLDERS AGREEMENT EXHIBIT 10.16 EXECUTION COPY SHAREHOLDERS AGREEMENT THIS SHAREHOLDERS AGREEMENT, dated as of November 22, 2000 (this "Agreement"), is entered into among New SAC (the "Company"), Silver Lake Technology Investors Cayman, L.P., Silver Lake Investors Cayman, L.P., Silver Lake Partners Cayman, L.P., (collectively, "Silver Lake"), SAC Investments, L.P. ("TPG"), August Capital III, L.P. ("August"), Chase Equity Associates, L.P. ("Chase"), GS Capital Partners III, L.P., GS Capital Partners III Offshore, L.P., Goldman, Sachs & Co. Verwaltungs GmbH, Stone Street Fund 2000 L.P., Bridge Street Special Opportunities Fund 2000, L.P. (collectively, "GS"), Staenberg Venture Partners II, L.P., Staenberg Seagate Partners, LLC (collectively, "Staenberg"), Integral Capital Partners V, L.P., Integral Capital Partners V Side Fund, L.P. (collectively, "Integral") and the individuals listed on the signature pages hereto. Each of the entities listed above and the individuals listed on the signature pages hereto are sometimes referred to individually as a "Shareholder" and together as the "Shareholders." RECITALS: A. Suez Acquisition Company (Cayman) Limited ("SAC"), Seagate Technology, Inc. ("Seagate") and Seagate Software Holdings, Inc. ("SSHI"), entered into a Stock Purchase Agreement dated as of March 29, 2000 as amended by the Consolidated Amendment to Stock Purchase Agreement, Agreement and Plan of Merger and Reorganization, and Indemnification Agreement, and Consent, dated as of August 29, 2000, among SAC, Seagate, SSHI, VERITAS Software Corporation ("VERITAS") and Victory Merger Sub, Inc. ("Merger Sub") and Consolidated Amendment No. 2 to Stock Purchase Agreement, Agreement and Plan of Merger and Reorganization, and Indemnification Agreement, and Consent, dated as of October 18, 2000, among SAC, Seagate, SSHI, VERITAS and Merger Sub (as so amended and as it may be further amended, supplemented or otherwise modified from time to time, the "Stock Purchase Agreement"); B. Pursuant to an Assignment and Assumption Agreement dated as of November 22, 2000, between SAC and the Company, SAC assigned all of its rights and obligations under the Stock Purchase Agreement to the Company; C. Pursuant to the Stock Purchase Agreement, the Company will purchase all of Seagate's operating assets and assume substantially all of its liabilities by acquiring the shares of one or more companies; D. Immediately following the transactions contemplated by the Stock Purchase Agreement, Silver Lake (including for these purposes Integral), TPG, August, Chase, GS and Staenberg will hold approximately 34.727%, 22.909%, 11.818%, 6.818%, 2.273% and 0.909% of the aggregate outstanding Ordinary Shares (as defined below) and Non-Voting Ordinary Shares (as defined below) of the Company, respectively, and 41.497%, 27.375%, 2 14.122%, 8.147%, 2.716% and 1.086% of the outstanding Preferred Shares (as defined below) of the Company, respectively; E. The remainder of the outstanding Shares (as defined below) immediately following the transactions contemplated by the Stock Purchase Agreement will be held by certain management employees of the Company (collectively, the "Management Shareholders"); and F. The Shareholders wish to provide for certain matters relating to their respective holdings of Shares and the governance of the Company. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: ARTICLE I. INTRODUCTORY MATTERS 1.1. Defined Terms. In addition to the terms defined elsewhere herein, the following terms have the following meanings when used herein with initial capital letters: "AAA" has the meaning given that term in Section 7.10 of this Agreement. "Additional Director" means, subject to Section 5.1(a)(ii), a Director who is (i) designated by, but is not a partner, controlling person or employee of, Silver Lake, (ii) approved by TPG and (iii) reasonably acceptable to a majority of the Board (other than the Additional Director). "Affiliate" has the meaning given that term in Rule 405 promulgated under the Securities Act; provided that officers, directors or employees of the Company will not be deemed to be Affiliates of a shareholder of the Company for purposes hereof solely by reason of being officers, directors or employees of the Company. "Aggregate Pro Rata Portion" means, with respect to either the Ordinary Shares (including for all purposes of this defined term Non-Voting Ordinary Shares) or Preferred Shares (as the case may be): (i) with respect to any Non-Selling Holder who has delivered a Section 2.3 Notice, the number equal to the product of (A) the number of Offered Shares of the class of Shares as to which a determination is being made, multiplied by (B) a fraction, the numerator of which shall be the total number of Shares of such class owned by such Non-Selling Holder and the denominator of which shall be the total number of Shares of such class held by all Non-Selling Holders who have delivered such a notice; and (ii) with respect to any Non-Selling Holder who has delivered a Subsequent Section 2.3 Notice, the number equal to the product of (A) the number of Remaining Offered Shares of the class of Shares to which the determination is being made, multiplied by (B) a fraction, the numerator of which shall be the total number of Shares of such class owned by such Non-Selling Holder and the denominator of which shall be the total number of Shares of such class held by all Non-Selling Holders who have delivered such a notice; provided that in calculating the Aggregate Pro 3 Rata Portion with respect to any Non-Selling Holder who is a Management Shareholder, Shares held by such Management Shareholder shall not include any Shares other than those received by such Management Shareholder on the Closing Date (the "Initial Shares") and any additional Shares received by such Management Shareholder with respect to such Initial Shares. "Agreement" means this Agreement, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof. "Assumption Agreement" means a writing substantially in the form of Exhibit A hereto whereby a Permitted Transferee or other Transferee pursuant to Section 2.5 becomes a party to, and agrees to be bound to the same extent as its Transferor by, the terms of this Agreement. "Board" means the Board of Directors of the Company. "Business Day" means a day other than a Saturday, Sunday, federal or New York or California state holiday or other day on which commercial banks in New York City or San Francisco are authorized or required by law to close. "Capital Account" has the meaning given that term in Section 6.3(a) of this Agreement. "Carrying Value" means, with respect to any asset of the Company, such asset's adjusted basis for U.S. federal income tax purposes, except that the Carrying Values of all assets of the Company shall be adjusted to equal their respective fair market values, in accordance with the rules set forth in Regulations section 1.704-1(b)(2)(iv)(f), except as otherwise provided herein, as of: (i) the date of the acquisition of any additional Shares by any new or existing Shareholder or Management Shareholder in exchange for more than a de minimis capital contribution; (ii) the date of distribution of more than a de minimis amount of money or other property of the Company to a Shareholder or Management Shareholder as consideration for an interest in the Company, and (iii) the date any Shares are relinquished to the Company. The Carrying Value of any asset of the Company distributed to any Shareholder or Management Shareholder shall be adjusted immediately prior to such distribution to equal its fair market value and depreciation shall be calculated by reference to Carrying Value, instead of tax basis, once Carrying Value differs from tax basis. The Carrying Value of any asset contributed (or deemed contributed under Regulations section 1.701-1(b)(1)(iv)) by a Shareholder or Management Shareholder to the Company will be the fair market value of such asset at the date of its contribution thereto. Upon an adjustment to Carrying Value of any asset pursuant to this definition of Carrying Value, the amount of the adjustment shall be included as gain or loss in computing book income or loss for purposes of maintaining Capital Accounts hereunder. "Chase Regulatory Side Letter" means the side letter relating to banking regulatory matters dated the date hereof between Chase and the Company. 4 "Chief Executive Officer" has the meaning given that term in Section 5.1(a) of this Agreement. "Closing" has the meaning given to that term in the Stock Purchase Agreement. "Closing Date" means November 22, 2000. "Code" means the Internal Revenue Code of 1986, as amended. "Commitment Notice" has the meaning given that term in Section 2.3(a) of this Agreement. "Default Notice" has the meaning given that term in Section 2.3(a) of this Agreement. "Defaulting Non-Selling Holder" has the meaning given that term in Section 2.3(a) of this Agreement. "Deferred Compensation" means, with respect to any particular Designated Subsidiary, the aggregate amount of all deferred compensation accounts established on the Closing Date and administered by the Company and/or any of its Subsidiaries with respect to employees of such Designated Subsidiary. "Designated Subsidiaries" shall mean Seagate Technology Holdings, Seagate Technology HDD Holdings, Seagate Technology SAN Holdings, Seagate Removable Storage Solutions Holdings, Seagate Software (Cayman) Holdings, and the shares of Iolon, Inc. (the "Iolon Designated Subsidiary") currently held by Seagate Technology Investment Holdings LLC. "Determination Date" has the meaning given that term in Section 5.2(b) of this Agreement. "Director" means any member of the Board. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "Fees" has the meaning given that term in Section 5.4 of this Agreement. "First Offer Notice" has the meaning given that term in Section 2.3(a) of this Agreement. "Funding Date" has the meaning given that term in Section 2.3(a) of this Agreement. 5 "Holder" has the meaning given that term in Section 3.6(a) of this Agreement. "Indemnified Parties" has the meaning given that term in Section 3.6(a) of this Agreement. "Indenture" means the indenture, dated as of November 22, 2000, among Seagate Technology International, the Note Guarantors (as defined in the Indenture) and the Bank of New York, as Trustee. "Initial Share Holding Period" has the meaning given to that term in Section 2.1(a) of this Agreement. "Iolon Designated Subsidiary" has the meaning given that term in the definition of "Designated Subsidiary." "Initiating Holder" has the meaning given that term in Section 3.1(a) of this Agreement. "Legend" has the meaning given that term in Section 2.1(c) of this Agreement. "Majority Shareholders" has the meaning given that term in Section 2.6 of this Agreement. "Management Director" means a Director who is (i) an executive officer of the Company and (ii) reasonably acceptable to a majority of the Board (other than the Management Directors). "Management Shareholders" has the meaning given that term in the recitals to this Agreement. "Management Shareholders Agreement" means the Management Shareholders Agreement, dated as of the date hereof, among the Company and the Management Shareholders party thereto. "Non-Defaulting Non-Selling Holder" has the meaning given that term in Section 2.3(a) of this Agreement. "Non-Selling Holder" has the meaning given that term in Section 2.3(a) of this Agreement. "Non-Voting Ordinary Shares" means the non-voting ordinary shares, par value $0.0001, of the Company. "Offered Shares" means, as applicable, Ordinary Offered Shares or Preferred Offered Shares. 6 "Ordinary Offered Shares" has the meaning given that term in Section 2.3(a) of this Agreement. "Ordinary Shares" means the ordinary shares, par value $0.0001 per share, of the Company. "Partnership Income" means, with respect to each calendar year of the Company, and for so long as the Company is a pass-through entity for U.S. federal income tax purposes, the taxable income the Company would have had if it were a corporation incorporated in the United States, excluding any Subpart F Income, reduced by the amount of taxable loss allocated to the Shareholders and the Management Shareholders for all prior calendar years (except to the extent that such taxable losses have been previously taken into account with respect to a prior calendar year). "Permitted Transferee" means, in the case of any Shareholder, (A) any controlled Affiliate (other than an individual) of such Shareholder, any Affiliate (other than an individual) which is under common control with such Shareholder or any Affiliate (other than an individual) which controls such Shareholder (which, in the case of Chase, shall include any investment fund managed by a controlled Affiliate of The Chase Manhattan Corporation), (B) any general or limited partner, director, officer or employee of such Shareholder or controlled Affiliate of such Shareholder, (C) the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any of the individuals referred to in clause (B), (D) for estate planning purposes, any trust, the beneficiaries of which include only (1) such Shareholder, (2) Permitted Transferees referred to in clauses (A), (B) and (C) and (3) spouses and lineal descendants of Permitted Transferees referred to in clause (B), (E) in the case of Chase, Dan Case and Todd Bakar, (F) any Transferee permitted by the Chase Regulatory Side Letter, and (G) a corporation, partnership, limited liability company or similar entity, a majority of the equity of which is owned and controlled by such Shareholder and/or Permitted Transferees referred to in clauses (A), (B), (C) and (D). "Person" means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever. "Postponed Funding Date" has the meaning given that term in Section 2.3(a) of this Agreement. "Preemptive Notice" has the meaning given that term in Section 4.2 of this Agreement. "Preemptive Right Pro Rata Share" has the meaning given that term in Section 4.1 of this Agreement. 7 "Preferred Offered Shares" has the meaning given that term in Section 2.3 (a) of this Agreement. "Preferred Shares" means the preferred shares, par value $0.0001 per share, of the Company. "Private Placement Memorandum" means the confidential private placement memorandum prepared by the Company to provide information in connection with the offering by the Company of Shares to the Management Shareholders. "Proposed Sale" has the meaning given that term in Section 2.4(a) of this Agreement. "Proposed Transferee" has the meaning given that term in Section 2.4(a) of this Agreement. "Public Offering" means the sale of common equity or equivalent securities to the public pursuant to an effective registration statement (other than a registration statement on Form S-4 or S-8 or any similar or successor form) filed under the Securities Act. "Registrable Securities" means (i) any Ordinary Shares held by a Shareholder or any Permitted Transferees (including, without limitation, any such shares issued or issuable upon conversion of Non-Voting Ordinary Shares), (ii) any shares issued as (or issuable upon the conversion or exercise of any warrant, right, option or other convertible security which is issued as) a dividend, share split or other distribution, recapitalization or reclassification with respect to, or in exchange for, or in replacement of, such Ordinary Shares, and (iii) any shares or any security convertible into, or exchangeable or exercisable for, shares which may be issued or distributed in respect thereof by way of a share dividend, share split or other distribution, recapitalization or reclassification. For purposes of this Agreement, with respect to any Shareholder, any Registrable Securities held by such Shareholder will cease to be Registrable Securities when (A) a registration statement covering such Registrable Securities has been declared effective and such Registrable Securities have been disposed of pursuant to such effective registration statement, (B) such Registrable Securities shall have been offered and sold pursuant to Rule 144 (or any similar provision then in effect) under the Securities Act, (C) all Registrable Securities held by such Shareholder are eligible for transfer to the public pursuant to Rule 144 (or any similar provision then in effect) under the Securities Act, without restriction as to manner of sale or amount sold, (D) such Registrable Securities are sold by a Person in a transaction in which rights under the provisions of this Agreement are not assigned in accordance with this Agreement or (E) such Registrable Securities cease to be outstanding. "Registration Expenses" means any and all expenses incident to the performance by the Company of its obligations under Sections 3.1 and 3.2, including without limitation (i) all SEC, stock exchange, or National Association of Securities Dealers, Inc. (the "NASD") registration and filing fees (including, if applicable, the fees and expenses 8 of any "qualified independent underwriter," as such term is defined in Rule 2720 of the NASD, and of its counsel), (ii) all fees and expenses of complying with securities or blue sky laws (including fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities), (iii) all printing, messenger and delivery expenses, (iv) all fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange and all rating agency fees, (v) the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits and/or "cold comfort" letters required by or incident to such performance and compliance, (vi) any fees and disbursements of underwriters customarily paid by the issuers or sellers of securities, including liability insurance if the Company so desires or if the underwriters so require, and the reasonable fees and expenses of any special experts retained in connection with the requested registration, but excluding underwriting discounts and commissions and transfer taxes, if any, (vii) the reasonable out-of-pocket expenses of not more than one law firm incurred by all the Shareholders and their Permitted Transferees in connection with any registration of Registrable Securities, and (viii) the costs and expenses of the Company relating to analyst and investor presentations or any "road show" undertaken in connection with any registration and/or marketing of the Registrable Securities; provided that nothing in this clause (viii) shall obligate the Company to engage or participate in any such presentations or road show. "Registration Rights Holders" means, collectively the Shareholders and their Permitted Transferees. "Regulations" means the regulations promulgated under the Code. "Remaining Offered Shares" has the meaning given that term in Section 2.3(a) of this Agreement. "Required Funds" has the meaning given that term in Section 2.3(a) of this Agreement. "SEC" means the Securities and Exchange Commission. "Section 2.3 Ordinary Shares" has the meaning given that term in Section 2.3(a) of this Agreement. "Section 2.3 Notice" has the meaning given that term in Section 2.3(a) of this Agreement. "Section 2.3 Preferred Shares" has the meaning given that term in Section 2.3(a) of this Agreement. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. 9 "Selling Holder" has the meaning given that term in Section 2.3(a) of this Agreement. "Share Equivalents" has the meaning given that term in Section 4.1 of this Agreement. "Shares" means, with respect to any shareholder of the Company, the Ordinary Shares, the Non-Voting Ordinary Shares and the Preferred Shares, whether now owned or hereafter acquired (including upon exercise of options, warrants, rights, including preemptive rights, or otherwise), held by such shareholder other than shares acquired in a Public Offering or in the public market after the initial Public Offering of the Company. "Shortfall" has the meaning given that term in Section 2.3(a) of this Agreement. "Silver Lake Designee" has the meaning given that term in Section 5.1(a) of this Agreement. "Stock Purchase Agreement" has the meaning given that term in the recitals to this Agreement. "Subsequent Section 2.3 Notice" has the meaning given that term in Section 2.3(a) of this Agreement. "Subpart F Income" means, with respect to each calendar year of the Company, (i) if the Company is a controlled foreign corporation for U.S. federal income tax purposes, the aggregate amount of the Company's "subpart F income" (within the meaning of section 952 of the Code which for purposes of this definition shall include income includable under section 951(a)(1)(B) of the Code) for such calendar year (and, to the extent such subpart F income would be attributed to the Shareholders and the Management Shareholders, the subpart F income of the Company's subsidiaries for such calendar year), and (ii) if the Company is a pass-through entity for U.S. federal income tax purposes, the amount of any "subpart F income" (within the meaning of section 952 of the code which for purposes of this definition shall include income includable under section 951(a)(1)(B) of the Code) of its subsidiaries that the Company would be required to include in its taxable income for such calendar year if it were a corporation incorporated in the United States. "Tag-Along Notice" has the meaning given that term in Section 2.4(a) of this Agreement. "Tagging Shareholder" has the meaning given that term in Section 2.4(a) of this Agreement. "Take-Along Buyer" has the meaning given that term in Section 2.6 of this Agreement. 10 "Take-Along Notice" has the meaning given that term in Section 2.6 of this Agreement. "Take-Along Shareholders" has the meaning given that term in Section 2.6 of this Agreement. "Target" has the meaning given that term in Section 5.2(b)(ii) of this Agreement. "10% Demand Party" has the meaning given that term in Section 3.2(a) of this Agreement. "TPG Designee" has the meaning given that term in Section 5.1(a) of this Agreement. "Transfer" means, with respect to any Share (or direct or indirect economic or other interest therein), a transfer, sale, assignment, pledge, hypothecation or other disposition, whether directly or indirectly (pursuant to the creation of a derivative security or otherwise), the grant of an option or other right or the imposition of a restriction on disposition or voting or by operation of law. When used as a verb, "Transfer" shall have the correlative meaning. In addition, "Transferred" and "Transferee" shall have the correlative meanings. "20% Demand Party" has the meaning given that term in Section 3.2(a) of this Agreement. "Vested Deferred Compensation" means, with respect to any particular Designated Subsidiary on a particular date, the vested amount of Deferred Compensation on such date. 1.2. Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party. Unless the context otherwise requires: (a) "or" is disjunctive but not exclusive, (b) words in the singular include the plural, and in the plural include the singular, and (c) the words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and Exhibit references are to this Agreement unless otherwise specified. ARTICLE II. TRANSFERS; CERTAIN DISTRIBUTIONS 2.1. Limitations on Transfer. (a) Unless Silver Lake and TPG both consent, no Shareholder may Transfer any Shares prior to the earlier of (i) the third anniversary of the Closing Date and (ii) the date 180 days following the consummation of the initial Public Offering by the Company (the "Initial Share Holding Period") (other than to the Company or in accordance with Section 2.2 hereof). After the Initial Share Holding Period, Shareholders may Transfer Shares only in accordance with, and subject to the applicable provisions of, both Article 11 II and Article III hereof. Notwithstanding anything in this Agreement to the contrary, without the prior written consent of Silver Lake and TPG, no Shareholder may Transfer all or a portion of its Shares or take any other action if such action would create a material risk of the Company becoming a "publicly traded partnership," within the meaning of Section 7704 of the Code and the regulations promulgated thereunder. (a) In the event of any purported Transfer by a Shareholder of any Shares in violation of the provisions of this Agreement, such purported Transfer will be void and of no effect, and the Company will not give effect to such Transfer. (b) Each certificate representing Shares held by a Shareholder will bear a legend on the face thereof substantially to the following effect (with such additions thereto or changes therein as the Company may be advised by counsel are required by law or necessary to give full effect to this Agreement, the "Legend"): "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE SHAREHOLDERS AGREEMENT AMONG NEW SAC AND THE OTHER SHAREHOLDERS PARTY THERETO, DATED AS OF NOVEMBER 22, 2000, AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME IN ACCORDANCE WITH THE TERMS THEREOF, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF NEW SAC. THE SHAREHOLDERS AGREEMENT CONTAINS, AMONG OTHER THINGS, CERTAIN PROVISIONS RELATING TO THE VOTING AND TRANSFER OF THE SHARES SUBJECT TO THE AGREEMENT. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE, DIRECTLY OR INDIRECTLY, MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH SHAREHOLDERS AGREEMENT. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH SHAREHOLDERS AGREEMENT." "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE." The Legend will be removed by the Company, with respect to any certificate representing Shares, by the delivery of substitute certificates without such Legend in the event of a Transfer permitted by this Agreement and in which the Transferee is not required to enter into an Assumption Agreement pursuant to Section 2.5; provided, however, that the second paragraph of the Legend will only be removed if at such time it is no longer required for purposes of applicable securities laws. 2.2. Transfer to Permitted Transferees. (a) Any Shareholder may Transfer any or all of the Shares held by it to any Permitted Transferee of such Shareholder who duly executes 12 and delivers an Assumption Agreement, provided that such Transfer shall not be effective unless and until the Company shall have been furnished with information reasonably satisfactory to it demonstrating that such Transfer is exempt from or not subject to the provisions of Section 5 of the Securities Act and any other applicable securities laws. (b) Each Permitted Transferee of any Shareholder to which Shares are transferred shall, and such Shareholder shall cause such Permitted Transferee to, transfer back to such Shareholder (or to another Permitted Transferee of such Shareholder) any Shares it owns prior to such Permitted Transferee ceasing to be a Permitted Transferee of such Shareholder; provided, however, that this Section 2.2(b) shall not apply to any Transfer described in clause (E) or (F) of the definition of Permitted Transferee. (c) This Section 2.2 shall not apply to the grant by Chase of a participation interest to one or more other investment funds managed by a controlled Affiliate of The Chase Manhattan Corporation without change in record ownership. 2.3. Right of First Offer. (a) If at any time following the Initial Share Holding Period any Shareholder desires to Transfer all or any portion of the Shares held by such Shareholder (other than to the Company or a Permitted Transferee, pursuant to the exercise of rights set forth in Section 2.4 and Section 2.6 or Article III or in compliance with Rule 144 (or similar successor provision) under the Securities Act), such Shareholder (a "Selling Holder") shall deliver to each other Shareholder (each, a "Non-Selling Holder") a written notice (the "First Offer Notice"), which shall set forth the number of Ordinary Shares (including for these purposes Non-Voting Ordinary Shares) (the "Ordinary Offered Shares") and/or Preferred Shares (the "Preferred Offered Shares") proposed to be Transferred and the terms (including the cash purchase price per share) on which the Selling Holder irrevocably offers to Transfer such Shares to the Non-Selling Holders. Each Non-Selling Holder shall have 30 days from the date the First Offer Notice is received to determine whether to purchase any of the Ordinary Offered Shares and/or Preferred Offered Shares for the purchase price and upon substantially the terms specified in the First Offer Notice by giving written notice to the Selling Holder (a "Section 2.3 Notice") and stating therein the number of Ordinary Offered Shares that such Non-Selling Holder wishes to purchase ("Section 2.3 Ordinary Shares") and/or the number of Preferred Offered Shares that such Non-Selling Holder wishes to purchase ("Section 2.3 Preferred Shares"). If a Non-Selling Holder shall not have delivered a Section 2.3 Notice in accordance with this Section 2.3(a), then such Non-Selling Holder will be deemed to have elected not to exercise the right of first offer specified in the First Offer Notice. In the case of a proposed sale of Ordinary Shares (including for these purposes Non-Voting Ordinary Shares) or Preferred Shares, if the aggregate number of Section 2.3 Ordinary Shares or Section 2.3 Preferred Shares exceeds the number of Offered Shares of such class, then the number of Offered Shares of such class that each Non-Selling Holder who delivers a Section 2.3 Notice shall have the right to purchase shall be equal to the lesser of (x) the number of Section 2.3 Shares of such class, if any, specified in such Non-Selling Holder's Section 2.3 Notice and (y) the number of Offered Shares of such class equal to such Non-Selling Holder's Aggregate Pro Rata Portion of the Offered Shares of such class. If one or more of the Non-Selling Holders who have delivered a Section 2.3 Notice does not purchase all of its or their Aggregate Pro Rata Portion of the Offered Shares of such class, then the remaining Non-Selling 13 Holders who have delivered a Section 2.3 Notice with respect to such Offered Shares, and who, based on a subsequent notice (a "Subsequent Section 2.3 Notice") to the Selling Holder, still desire to purchase the remaining Offered Shares (the "Remaining Offered Shares"), shall have the right to purchase their respective Aggregate Pro Rata Portions of such Remaining Offered Shares of such class until all the Offered Shares of such class are allocated for purchase among the Non-Selling Holders who have delivered a Section 2.3 Notice. If the aggregate number of Section 2.3 Shares of all Non-Selling Holders of that class of Shares is less than the total number of Offered Shares of such class, then the Selling Holder shall not be obligated, but shall be permitted, to sell to Non-Selling Holders and shall instead have the right (subject to complying with Section 2.4) to proceed with the Transfer of all the Offered Shares of such class in accordance with Section 2.3(b). If the Non-Selling Holders, collectively, shall have agreed to purchase all the Offered Shares of such class (or the Selling Holder shall have elected to proceed with the Transfer to the Non-Selling Holders of the number of Offered Shares of such class as to which it has received offers to purchase from the Non-Selling Holders), each Non-Selling Holder shall consummate its purchase by delivering, against receipt of certificates or other instruments representing the Shares being purchased, appropriately endorsed by the Selling Holder, the aggregate purchase price to be paid by it (the "Required Funds") via wire transfer of immediately available funds to an account specified by the Selling Holder not less than two Business Days before the closing date (the "Funding Date"). The Funding Date will be the later of (i) 30 days after the date of receipt of the Section 2.3 Notice by the Selling Holder and (ii) five Business Days after receipt of all governmental consents and approvals, and the expiration of all waiting periods applicable to the Transfer. The Selling Holder shall give participating Non-Selling Holders at least five Business Days written notice of the Funding Date and shall give participating Non-Selling Holders at least ten Business Days notice of the amount of Required Funds for such Non-Selling Holder, which notice may be delivered at any time after receipt of the applicable Section 2.3 Notice. If any Non-Selling Holder who has offered to purchase Offered Shares (the "Defaulting Non-Selling Holder") fails to transfer, as required by this Section 2.3, the Required Funds by the Funding Date, then the Funding Date shall be postponed and the Selling Holder shall give written notice to the effect set forth in the next sentence to all Non-Selling Holders (if any) who transferred the Required Funds (the "Non-Defaulting Non-Selling Holders"). Such notice (the "Default Notice") shall state the aggregate amount of Required Funds which Defaulting Non-Selling Holders have failed to provide (such aggregate amount, the "Shortfall"), the aggregate number of Offered Shares related to such Shortfall and the date (pursuant to the next sentence) by which the Non-Defaulting Non-Selling Holders may, at the sole option of each of them, offer to purchase the Offered Shares related to the Shortfall. Each Non-Defaulting Non-Selling Holder shall have the right to commit to purchase up to the entire number of Offered Shares within five Business Days of the receipt of the Default Notice. Such commitment shall be effected by the delivery to the Selling Holder of a written notice (a "Commitment Notice") to that effect. If, after giving effect to all such Commitment Notices and the aggregate amount of Required Funds already received, more than 100% of the Offered Shares would be subject to purchase, then the number of shares offered to be purchased in such Commitment Notices by each Non-Defaulting Non-Selling Holder shall be reduced pro rata by the same method applied in the second paragraph of this Section 2.3(a) so that 100% of the Offered Shares (or such lower 14 percentage thereof as the Selling Holder has agreed to sell) are subject to purchase, and the Selling Holder shall sell such shares as provided below. The Selling Holder shall then give written notice to each Non-Defaulting Non-Selling Holder of the number of Offered Shares, if any, related to the Shortfall that it shall purchase from such Non-Defaulting Non-Selling Holder after giving effect to the foregoing, and such Non-Defaulting Non-Selling Holders shall have ten Business Days (the tenth such Business Day, the "Postponed Funding Date") following receipt of such notice to provide the additional Required Funds in the same manner as set forth above. On the Postponed Funding Date, the Selling Holder shall sell the Offered Shares as to which Commitment Notices have been delivered to the Non-Defaulting Non-Selling Holders in the same manner as set forth above. The right of first offer granted to the Non-Selling Holders hereunder shall terminate if unexercised within 30 days after receipt of the First Offer Notice. The election of a Non-Selling Holder to purchase Offered Shares by delivering a Section 2.3 Notice or a Subsequent Section 2.3 Notice shall constitute a binding obligation to purchase the portion of Offered Shares allocated to such Non-Selling Holder. Nothing herein shall limit the rights of any party hereto to seek damages against any Defaulting Non-Selling Holder incurred in connection with any failure to purchase such Offered Shares as provided herein. Furthermore, any Defaulting Non-Selling Holder shall not be entitled to elect to participate in the next bona fide Transfer proposed by any Selling Holder following any such default. (b) If the Selling Holder shall be permitted to proceed with the proposed Transfer of the Offered Shares (other than to Non-Selling Holders), the Selling Holder shall have 90 days to consummate such proposed Transfer, subject to the following sentence and at a price not less than 105% of the purchase price per share set forth in the First Offer Notice and on other terms not materially less favorable to the Selling Holder than those terms set forth in the First Offer Notice, before the provisions of this Section 2.3 shall again be in effect with respect to such shares. Any such proposed Transfer shall be made only to a Person with the written consent of a majority of the members of the Board, excluding those Directors who are Affiliates of the Shareholder engaging in such proposed Transfer, which consent shall not be unreasonably withheld. 2.4. Tag-Along Rights. (a) In the case of a proposed sale of Shares (including any sale prior to the expiration of the Initial Share Holding Period), so long as this Agreement remains in effect, with respect to any proposed Transfer (other than (i) pursuant to Section 2.2, (ii) to one or more Non-Selling Holders pursuant to Section 2.3, (iii) pursuant to the exercise of rights set forth in Section 2.6 and (iv) following the initial Public Offering by the Company pursuant to the exercise of rights set forth in Article III or in a bona fide sale to the public pursuant to Rule 144 under the Securities Act) (a "Proposed Sale"), by any Selling Holder, each Shareholder (including, to the extent permitted under Section 2.3 of the Management Shareholders Agreement, Management Shareholders) who exercises its rights under this Section 2.4(a) (a "Tagging Shareholder") shall have the right to require the proposed Transferee (a "Proposed Transferee") to purchase from such Tagging Shareholder up to the number of Shares of the same class proposed to be Transferred equal to the product (rounded up to the nearest whole Share) of (i) the quotient determined by dividing (A) the aggregate number of Shares of such class owned by such Tagging Shareholder by (B) the aggregate number of Shares of such class owned by the Selling Holder and all Tagging Shareholders and others with tag-along rights 15 and (ii) the total number of Shares of such class proposed to be directly or indirectly Transferred to the Proposed Transferee in the Proposed Sale, at the same price per Share and upon the same terms and conditions (including, without limitation, time of payment and form of consideration) as to be paid and given to the Selling Holder; provided that in order to be entitled to exercise its right to sell Shares to the Proposed Transferee pursuant to this Section 2.4, each Tagging Shareholder must agree to make to the Proposed Transferee the same representations, warranties, covenants, indemnities and agreements as the Selling Holder agrees to make in connection with the Proposed Sale and agree to the same conditions to the Proposed Sale as the Selling Holder agrees (except that, in the case of representations, warranties, conditions, covenants, indemnities and agreements pertaining specifically to the Selling Holder, each Tagging Shareholder shall make comparable representations, warranties, covenants, indemnities and agreements and shall agree to comparable conditions, in each case to the extent applicable and pertaining specifically to itself and only to itself); provided that all representations, warranties, covenants, indemnities and agreements (other than those referred to in the immediately preceding exception) shall be made by the Selling Holder and each Tagging Shareholder severally and not jointly and that any liability to the Selling Holder and the Tagging Shareholders thereunder shall be borne by each of them on a pro rata basis determined according to the number of Shares sold by each of them. Each Tagging Shareholder will be responsible for its proportionate share of the costs of the Proposed Sale to the extent not paid or reimbursed by the Proposed Transferee or the Company. (a) The Selling Holder will give notice to each Tagging Shareholder of each Proposed Sale not later than ten days after the execution of the definitive agreement relating to the Proposed Sale, setting forth the number of Shares proposed to be so Transferred, the name and address of the Proposed Transferee, the proposed amount and form of consideration (and if such consideration consists in part or in whole of property other than cash, the Selling Holder will provide such information, to the extent reasonably available to the Selling Holder, relating to such non-cash consideration as the Tagging Shareholders together may reasonably request in order to evaluate such non-cash consideration) and other terms and conditions of payment offered by the Proposed Transferee. The Selling Holder will deliver or cause to be delivered to each Tagging Shareholder copies of all transaction documents relating to the Proposed Sale as the same become available. The tag-along rights provided by this Section 2.4 must be exercised by the Tagging Shareholders within ten Business Days following receipt of the notice required by the preceding sentence by delivery of a written notice to the Selling Holder indicating its desire to exercise its rights and specifying the number of Shares it desires to sell. (b) If any Tagging Shareholder exercises its rights under Section 2.4(a), the closing of the purchase of the Shares with respect to which such rights have been exercised will take place concurrently with the closing of the sale of the Selling Holder's Shares to the Proposed Transferee. (c) Each Shareholder agrees that the Management Shareholders shall, in accordance with the Management Shareholders Agreement, have the right to participate as Tagging Shareholders in connection with any Transfer by such Shareholder subject to this Section 2.4; provided that Shares owned by any Management Shareholder who so participates shall not be deemed to be owned by such Management Shareholder for purposes hereof unless such Shares are not subject to a Restricted Share Agreement (as defined in the Management Shareholders Agreement) or such Management Shareholder's interest with respect to such 16 Shares has fully vested as of the date of the closing of the applicable Proposed Sale, in accordance with the applicable Restricted Share Agreement. 2.5. Rights and Obligations of Transferees. Any Transferee of Shares (other than Transferees who acquire Shares pursuant to the exercise of rights set forth in Section 2.6 or Article III or, following the initial Public Offering by the Company, in a bona fide sale to the public pursuant to Rule 144 under the Securities Act) will be required, at the time of and as a condition to such Transfer, to become a party to this Agreement by executing and delivering an Assumption Agreement and, upon executing and delivering an Assumption Agreement, will be treated as a Shareholder for all purposes hereof; provided, however, that no such Transferee will acquire any rights (but will be subject to the obligations) under Article V unless (i) it acquires all of the Shares held by either Silver Lake and its Permitted Transferees, TPG and its Permitted Transferees or August and its Permitted Transferees, as the case may be, and (ii) Silver Lake shall have consented, in its sole discretion, to the giving of such rights to such Proposed Transferee. 2.6. Take-Along Rights. In the case of a proposed sale of Shares (other than pursuant to Section 2.2), if, at any time after the Initial Share Holding Period, any Shareholder or Shareholders holding, in the aggregate, at least a majority of the aggregate outstanding Ordinary Shares and Non-Voting Ordinary Shares (such Shareholder or Shareholders, the "Majority Shareholders") receive an offer from a third party (a "Take-Along Buyer") to purchase or otherwise acquire at least a majority of the aggregate outstanding Ordinary Shares and Non-Voting Ordinary Shares, the Company shall, at the request of such Majority Shareholders and subject to approval by the Board (in accordance with Article V), deliver written notice (a "Take-Along Notice") to each other Shareholder (the "Take-Along Shareholders"), stating that such Majority Shareholders wish to exercise their rights under this Section 2.6 with respect to such Transfer, setting forth the name and address of the Take-Along Buyer, the proposed amount and form of consideration and transaction (and if such consideration consists in part or in whole of property other than cash, the Majority Shareholders will provide such information, to the extent reasonably available to the Majority Shareholders, relating to such non-cash consideration as the Take-Along Shareholders together may reasonably request in order to evaluate such non-cash consideration) and other terms and conditions offered by the Take-Along Buyer, including the number of Ordinary Shares and any Preferred Shares proposed to be Transferred. Upon delivery of a Take-Along Notice, each Take-Along Shareholder shall be required to Transfer that percentage of its Preferred Shares and that percentage of its Ordinary Shares (including for these purposes Non-Voting Ordinary Shares) equal to the percentage of the Preferred Shares and/or Ordinary Shares (including for these purposes Non-Voting Ordinary Shares) (as the case may be) held by the Majority Shareholders being transferred at the same price per Preferred Share and/or Ordinary Share (including for these purposes Non-Voting Ordinary Shares) (as the case may be) and upon the terms, conditions, and provisions, if any, of the offer so accepted by the Majority Shareholders, including making the same representations, warranties, covenants, indemnities and agreements that the Majority Shareholders agree to make (except that, in the case of representations, warranties, conditions, covenants, indemnities and agreements pertaining specifically to the Majority Shareholders, each Shareholder shall make the comparable representations, warranties, covenants, indemnities and 17 agreements and shall agree to comparable conditions, in each case to the extent applicable and pertaining specifically to itself and only to itself); provided that all representations, warranties, covenants, indemnities and agreements (other than those referred to in the immediately preceding exception) shall be made by each Majority Shareholder and each Take-Along Shareholder severally and not jointly and that any liability of the Majority Shareholders and the Take-Along Shareholders thereunder shall be borne by each of them on a pro rata basis determined according to the number of Ordinary Shares (including for these purposes Non-Voting Ordinary Shares) sold by each of them. In the event that any such Transfer is structured as a merger, consolidation or similar business combination, each Take-Along Shareholder agrees to vote in favor of the transaction and take all action to waive any dissenters, appraisal or other similar rights. 2.7. Distributions Upon Initial Public Offering of Designated Subsidiaries. If, prior to the termination of this Agreement, an initial Public Offering of a Designated Subsidiary is consummated, then, subject to applicable law or legal order and any contractual restriction or prohibition, at any time after 190 days following the date of the consummation of such initial Public Offering of a Designated Subsidiary other than the Iolon Designated Subsidiary and, in the case of the Iolon Designated Subsidiary, at any time following the date of the consummation of such initial Public Offering, and in each case upon the unanimous written request of either the Silver Lake Designees, the TPG Designees, or both, the Company shall distribute to the Shareholders, in respect of the outstanding shares of the Company in accordance with the articles of association of the Company, shares of such Designated Subsidiary held by the Company (excluding shares which the Board may determine to withhold from distribution for possible allocation to employees of such Designated Subsidiary in connection with employee benefit plans); provided that the aggregate number of such shares required to be so distributed by the Company to the Shareholders pursuant to this Section 2.7 shall not exceed (unless otherwise determined by Silver Lake and TPG) (i) the total number of shares of such Designated Subsidiary held by the Company multiplied by (ii) the quotient obtained by dividing (a) the aggregate amount of Vested Deferred Compensation of the Company and each of its subsidiaries by (b) the aggregate amount of Deferred Compensation of the Company and each of its Subsidiaries. In connection with such distribution (other than a distribution of the Iolon Designated Subsidiary), each Shareholder shall enter into a shareholders agreement with the Company and each other Shareholder having substantially identical terms and conditions as this Agreement (subject to necessary conforming changes and appropriate modifications to Section 6.1 hereof), provided that all references in this Agreement to the Company shall be changed in such additional shareholders agreement to references to such Designated Subsidiary and references therein to Designated Subsidiaries, Preferred Shares and Non-Voting Ordinary Shares shall be omitted, and provided, further, that if on the date of such distribution at least 50% of the number of issued and outstanding shares of such Designated Subsidiary have been publicly distributed or sold, or are being actively traded on a national securities exchange or interdealer quotation system, then only the provisions contained in Article III of this Agreement shall be included in such additional shareholders agreement, and such provisions shall survive until such time as all Registrable Securities under such additional shareholders agreement held by the Shareholders cease to be Registrable Securities. For purposes of clarification, no shareholders agreement shall be entered into in connection with the distribution of the Iolon Designated Subsidiary. From and after such time (if any) as Registration Rights Holders referred to in clause (x) of Section 3.2(a) have the right to demand the registration of Registrable Securities pursuant to Section 3.2(a) pursuant to Section 3.2(a)(ii), such Registration Rights Holders shall also have the right to require the Company to effect the registration of the ordinary shares of 18 Seagate Technology Holdings, and upon exercise of such right, the provisions of this Section 2.7 shall apply to such shares. 2.8. Call Rights. The Shareholders shall have the rights given to them in Article III of the Management Shareholders Agreement. ARTICLE III. REGISTRATION RIGHTS 3.1. Piggyback Rights. (a) If the Company at any time following the initial Public Offering by the Company proposes to register Ordinary Shares under the Securities Act (other than a registration on Form S-4 or S-8, or any successor or other forms promulgated for similar purposes), whether or not for sale for its own account (including pursuant to Section 3.3), it will, at each such time, give prompt written notice to the Registration Rights Holders of its intention to do so and of the Registration Rights Holders' rights under this Section 3.1. Upon the written request of any Registration Rights Holder made within 14 days after the receipt of any such notice (which request shall specify the number of Registrable Securities intended to be disposed of by such Registration Rights Holder), the Company will use its reasonable efforts to effect the registration under the Securities Act of all Registrable Securities which the Registration Rights Holders have so requested to be registered; provided that (i) if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company or any other holder of securities that initiated such registration (an "Initiating Holder") shall determine for any reason not to proceed with the proposed registration of the securities to be sold by it, the Company or such Initiating Holder may, at its election, give written notice of such determination to the Registration Rights Holders and, thereupon, the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses incurred in connection therewith), and (ii) if such registration involves an underwritten offering, the Registration Rights Holders of Registrable Securities requesting to be included in the registration must sell their Registrable Securities to the underwriters selected by the Company or the Initiating Holders, as the case may be, on the same terms and conditions as apply to the Company or the Initiating Holders, as the case may be, with, in the case of a combined primary and secondary offering, such differences, including any with respect to indemnification and liability insurance, as may be customary or appropriate in combined primary and secondary offerings. If a registration requested pursuant to this Section 3.1(a) involves an underwritten public offering, any Registration Rights Holder requesting to be included in such registration may elect, in writing prior to the effective date of the registration statement filed in connection with such registration, not to register all or any portion of such securities in connection with such registration. Nothing in this Section 3.1(a) shall operate to limit the right of a Registration Rights Holder to (i) request the registration of Registrable Securities that consist of Ordinary Shares issuable upon conversion, exercise or exchange of convertible, exercisable or exchangeable securities, as applicable, held by such Registration Rights Holder (including Non-Voting Ordinary Shares) notwithstanding the fact that at the time of request such Registration Rights Holder holds only such securities and not the underlying Ordinary Shares or (ii) request the registration at one time of Registrable Securities that consist of both Ordinary Shares and securities convertible into or exercisable or exchangeable for Ordinary Shares. 19 (a) The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 3.1. (b) If a registration pursuant to this Section 3.1 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of Registrable Securities and other securities requested to be included in such registration exceeds the number which can be sold in such offering, so as to be reasonably likely to have an adverse effect on the price, timing or distribution of the securities offered in such offering, then the Company will include in such registration (i) first, 100% of the securities, if any, the Company proposes to sell for its own account, provided that the registration of Ordinary Shares contemplated by this Section 3.1 was initiated by the Company with respect to shares intended to be registered for sale for its own account and (ii) second, such number of Registrable Securities requested to be included in such registration which, in the opinion of such managing underwriter, can be sold without having the adverse effect referred to above, which number of Registrable Securities shall be allocated pro rata among all such requesting holders of Registrable Securities, based on the relative number of Registrable Securities then held by each such requesting holder of Registrable Securities. In the event that (i) the Company did not initiate the registration of securities intended to be registered for sale for its own account and (ii) the number of Registrable Securities and Ordinary Shares of other holders entitled to registration rights with respect to such Ordinary Shares, in each case requested to be included in such registration, is less than the number which, in the opinion of the managing underwriter, can be sold, the Company may include in such registration the securities it proposes to sell up to the number of securities that, in the opinion of the underwriter, can be sold. 3.2. Demand Registration. (a) At any time after the earlier of (i) the 180th day following the initial Public Offering by the Company and (ii) the fourth anniversary of the Closing Date (so long as such fourth anniversary is not within 180 days of the initial Public Offering by the Company), upon the written request of (x) any Registration Rights Holder or Registration Rights Holders holding, in the aggregate, the equivalent of at least 20% of the aggregate outstanding Ordinary Shares and Non-Voting Ordinary Shares held by Shareholders (the Registration Rights Holder or Registration Rights Holders making such request, a "20% Demand Party") or (y) any single Registration Rights Holder holding the equivalent of at least 10% of the aggregate outstanding Ordinary Shares and Non-Voting Ordinary Shares held by Shareholders (such Registration Rights Holder making such request, a "10% Demand Party") requesting that the Company effect the registration under the Securities Act of all or part of such Demand Party's Registrable Securities and specifying the amount and intended method of disposition thereof, the Company will promptly give written notice of such requested registration to the other holders of Registrable Securities and other holders of securities entitled to notice of such registration and thereupon will, as expeditiously as possible, file a registration statement to effect the registration under the Securities Act of: (i) such Registrable Securities which the Company has been so requested to register by the Registration Rights Holders; and (ii) the Registrable Securities of other holders which the Company has been requested to register by written request given to the Company within 15 days after 20 the giving of such written notice by the Company (which request shall specify the amount and intended method of disposition of such securities); all to the extent necessary to permit the disposition (in accordance with the intended method thereof as aforesaid) of the Registrable Securities and such other securities so to be registered; provided that the Company shall not be required to effect the registration of Registrable Securities (i) at the request of a 20% Demand Party under this Section 3.2(a) on more than three occasions, and (ii) at the request of a 10% Demand Party under this Section 3.2(a) on more than one occasion with respect to each such 10% Demand Party; provided, that the Company shall not be obligated to file a registration statement relating to any registration request under this Section 3.2(a): (x) within a period of 180 days (or such lesser period as the managing underwriters in an underwritten offering may permit) after the effective date of any other registration statement relating to any registration request under this Section 3.2(a) or relating to any registration effected under Section 3.1; (y) if with respect thereto the managing underwriter, the SEC, the Securities Act, or the form on which the registration statement is to be filed, would require the conduct of an audit other than the regular audit conducted by the Company at the end of its fiscal year, in which case the filing may be delayed until the completion of such audit (and the Company shall, upon request of the 20% Demand Party or 10% Demand Party, as the case may be, use its reasonable best efforts to cause such audit to be completed expeditiously and without unreasonable delay); or (z) if the Company is in possession of material non-public information and the Board determines in good faith that disclosure of such information would not be in the best interests of the Company and its shareholders, in which case the filing of the registration statement may be delayed until the earlier of the second Business Day after such conditions shall have ceased to exist and the 90th day after receipt by the Company of the written request from the 20% Demand Party or 10% Demand Party, as the case may be, to register Registrable Securities under this Section 3.2(a). Nothing in this Section 3.2(a) shall operate to limit the right of a Registration Rights Holder to (i) request the registration of Registrable Securities that consist of Ordinary Shares issuable upon conversion, exercise or exchange of convertible, exercisable or exchangeable securities, as applicable, held by such Registration Rights Holder (including Non-Voting Ordinary Shares) notwithstanding the fact that at the time of request such Registration Rights Holder holds only such securities and not the underlying Ordinary Shares or (ii) request the registration at one time of Registrable Securities that consist of both Ordinary Shares and securities convertible into or exercisable or exchangeable for Ordinary Shares (including Non-Voting Ordinary Shares). (b) The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 3.2. (c) A registration requested pursuant to this Article III will not be deemed to have been effected unless it has become effective; provided that, if, within 180 days after it has 21 become effective, the offering of Registrable Securities pursuant to such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court, then such registration will be deemed not to have been effected. (d) If a requested registration pursuant to this Section 3.2 involves an underwritten offering and regardless of whether the Company is registering any securities therein, the Board shall have the right to select the investment banker or bankers and managers to administer the offering, including the lead managing underwriter. (e) If a requested registration pursuant to this Section 3.2 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of Registrable Securities requested to be included in such registration exceeds the number which can be sold in such offering, so as to be reasonably likely to have an adverse effect on the price, timing or distribution of the securities offered in such offering, then the Company will include in such registration such number of Registrable Securities requested to be included in such registration which, in the opinion of such managing underwriter, can be sold without having the adverse effect referred to above, which number shall be allocated pro rata among all such requesting holders of Registrable Securities based on the relative number of Registrable Securities then held by each such requesting holder of Registrable Securities. In the event that the number of Registrable Securities and Ordinary Shares of other holders, in each case entitled to registration rights with respect to such Ordinary Shares requested to be included in such registration is less than the number which, in the opinion of the managing underwriter, can be sold, the Company may include in such registration securities it proposes to sell for its own account up to the number of securities that, in the opinion of the underwriter, can be sold. 3.3. Form S-3 Registration. If the Company receives from one or more Registration Rights Holders a written request or requests that the Company effect a registration on Form S-3 (or any successor to Form S-3) and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Registration Rights Holder or Registration Rights Holders, the Company will: (a) promptly give notice of the proposed registration, and any related qualification or compliance, to the other Registration Rights Holders who hold Registrable Securities; and (b) as expeditiously as possible, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registration Rights Holder's or Registration Rights Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Registration Rights Holder or Registration Rights Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 3.3: (i) if Form S-3 (or any successor form) is not available for such offering by the Registration Rights Holders; or 22 (ii) if the Registration Rights Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than $500,000; or (iii) if the Company shall furnish to the Registration Rights Holders a certificate signed by the chairman of the Board stating that in the good faith judgment of the Board, it would not be in the best interests of the Company for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Registration Rights Holder or Registration Rights Holders under this Section 3.3; provided, that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period; or (iv) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two (2) registrations on Form S-3 for the Registration Rights Holders pursuant to this Section 3.3; or (v) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act. (c) Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered as expeditiously as possible after receipt of the request or requests of the Registration Rights Holders. Registrations effected pursuant to this Section 3.3 shall not be counted as demands for registration or registrations effected pursuant to Section 3.2. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 3.3. 3.4. Registration Procedures. If and whenever the Company is required to file a registration statement with respect to, or to use its reasonable best efforts to effect or cause the registration of, any Registrable Securities under the Securities Act as provided in this Agreement the Company will as expeditiously as possible: (a) prepare and, in any event within 120 days after the end of the period within which a request for registration may be given to the Company pursuant to Section 3.2, file with the SEC a registration statement on an appropriate form with respect to such Registrable Securities and use its reasonable efforts to cause such registration statement to become effective; provided, however, that the Company may discontinue any registration of securities as to which it is the Initiating Party at any time prior to the effective date of the registration statement relating thereto (and, in such event, the Company shall pay the Registration Expenses incurred in connection therewith); provided, further, that not less than five (5) Business Days before filing a 23 registration statement or prospectus, or any amendments or supplements thereto, the Company will furnish to counsel for the sellers of Registrable Securities covered by such registration statement copies of all documents proposed to be filed, which documents will be subject to the review and input of such counsel; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period not in excess of 270 days and to comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement; provided that not less than five (5) Business Days before filing a registration statement or prospectus, or any amendments or supplements thereto, the Company will furnish to counsel for the sellers of Registrable Securities covered by such registration statement copies of all documents proposed to be filed, which documents will be subject to the review and input of such counsel; (c) furnish to each seller of such Registrable Securities such number of copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits filed therewith, including any documents incorporated by reference), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and summary prospectus), in conformity with the requirements of the Securities Act, and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities by such seller; (d) use its reasonable efforts to register or qualify such Registrable Securities covered by such registration in such jurisdictions as each seller shall reasonably request, and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction where, but for the requirements of this subsection (d), it would not be obligated to be so qualified, to subject itself to taxation in any such jurisdiction or to consent to general service of process in any such jurisdiction; (e) use its reasonable best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; (f) notify each seller of any such Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act within the appropriate period mentioned in Section 3.3(b), of the Company's becoming aware that the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such seller, prepare and furnish to such 24 seller a reasonable number of copies of an amended or supplemental prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (g) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable (but not more than 18 months) after the effective date of the registration statement, an earnings statement which shall satisfy the provisions of Section 11(a) of the Securities Act; (h) (i) if such Registrable Securities are Ordinary Shares (including Ordinary Shares issuable upon conversion, exchange or exercise of another security), use its reasonable best efforts to list such Registrable Securities on any securities exchange on which the Ordinary Shares are then listed if such Registrable Securities are not already so listed and if such listing is then permitted under the rules of such exchange; (ii) if such Registrable Securities are convertible, exchangeable or exercisable into Ordinary Shares, upon the reasonable request of sellers of a majority of such Registrable Securities, use its reasonable best efforts to list such securities and, if requested, the Ordinary Shares underlying such securities, notwithstanding that at the time of request such sellers hold only such securities, on any securities exchange so requested, if such Registrable Securities are not already so listed and if such listing is then permitted under the rules of such exchange; and (iii) use its reasonable efforts to provide a transfer agent and registrar for such Registrable Securities covered by such registration statement not later than the effective date of such registration statement; (i) enter into such customary agreements (including an underwriting agreement in customary form), which may include indemnification provisions in favor of underwriters and other Persons in addition to, or in substitution for the indemnification provisions hereof, and take such other actions as sellers of a majority of shares of such Registrable Securities or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities; (j) obtain a "cold comfort" letter or letters from the Company's independent public accounts in customary form and covering matters of the type customarily covered by "cold comfort" letters as the seller or sellers of a majority of shares of such Registrable Securities shall reasonably request; (k) make available for inspection by any seller of such Registrable Securities covered by such registration statement, by any underwriter participating in any disposition to be effected pursuant to such registration statement and by any attorney, accountant or other agent retained by any such seller or any such underwriter, all pertinent financial and other records, pertinent corporate documents and properties of the Company, and cause all of the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; 25 (l) notify counsel for the holders of Registrable Securities included in such registration statement and the managing underwriter or agent, immediately, and confirm the notice in writing (i) when the registration statement, or any post-effective amendment to the registration statement, shall have become effective, or any supplement to the prospectus or any amendment to the prospectus shall have been filed, (ii) of the receipt of any comments from the SEC, (iii) of any request of the SEC to amend the registration statement or amend or supplement the prospectus or for additional information, and (iv) of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the registration statement for offering or sale in any jurisdiction, or of the institution or threatening of any proceedings for any of such purposes; (m) use its reasonable best efforts to prevent the issuance of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any preliminary prospectus and, if any such order is issued, to obtain the withdrawal of any such order at the earliest possible moment; (n) if requested by the managing underwriter or agent or any holder of Registrable Securities covered by the registration statement, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or agent or such holder reasonably requests to be included therein, including, with respect to the number of Registrable Securities being sold by such holder to such underwriter or agent, the purchase price being paid therefor by such underwriter or agent and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering; and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters incorporated in such prospectus supplement or post-effective amendment; (o) cooperate with the holders of Registrable Securities covered by the registration statement and the managing underwriter or agent, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing securities to be sold under the registration statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or agent, if any, or the Registration Rights Holders that sellers may request; (p) obtain for delivery to the holders of Registrable Securities being registered and to the underwriter or agent an opinion or opinions from counsel for the Company in customary form and in form, substance and scope reasonably satisfactory to such holders, underwriters or agents and their counsel; and (q) cooperate with each seller of Registrable Securities and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD. 3.5. Other Registration-Related Matters. (a) The Company may require any Person that is selling Ordinary Shares in a Public Offering pursuant to Sections 3.1, 3.2 or 3.3 to furnish to the Company in writing such information regarding such Person and pertinent to the 26 disclosure requirements relating to the registration and the distribution of the Registrable Securities which are included in such Public Offering as the Company may from time to time reasonably request in writing. (a) Each Registration Rights Holder agrees, severally and not jointly, that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3.4(f), it will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until its receipt of the copies of the amended or supplemented prospectus contemplated by Section 3.4(f) and, if so directed by the Company, each Registration Rights Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in their possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Company gives any such notice, the period for which the Company will be required to keep the registration statement effective will be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 3.4(f) to and including the date when each seller of Registrable Securities covered by such registration statement has received the copies of the supplemented or amended prospectus contemplated by Section 3.4(f). (b) Each holder of Registrable Securities will, in connection with an underwritten Public Offering of the Company's securities, upon the request of the Company or of the underwriters managing any underwritten offering of the Company's securities, agree in writing not to effect any sale, disposition or distribution of Registrable Securities (other than those included in the Public Offering) without the prior written consent of the managing underwriter for such period of time commencing 7 days before and ending 180 days (or such earlier date as the managing underwriter shall agree) after the effective date of such registration. No Shareholder shall be released from such lock-up period unless all of the Shareholders are so released. 3.6. Indemnification. (a) In the event of any registration of any securities of the Company under the Securities Act pursuant to Section 3.1, 3.2 or 3.3, the Company hereby indemnifies and agrees to hold harmless, to the extent permitted by law, the sellers of any Registrable Securities covered by such registration statement (each a "Holder"), each Affiliate of such Holder and their respective directors and officers, members or general and limited partners (and the directors, officers, employees, affiliates and controlling Persons of any of the foregoing), each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such Holder or any such underwriter within the meaning of the Securities Act (collectively, the "Indemnified Parties"), against any and all losses, claims, damages or liabilities, joint or several, and expenses to which such Indemnified Party may become subject under the Securities Act, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof, whether or not such Indemnified Party is a party thereto) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in light of the circumstances when they 27 were made, and the Company will reimburse such Indemnified Party for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that the Company will not be liable to any Indemnified Party in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, in any such preliminary, final or summary prospectus, or any amendment or supplement thereto in reliance upon and in conformity with written information with respect to such Indemnified Party furnished to the Company by such Indemnified Party expressly for use in the preparation thereof. Such indemnity will remain in full force and effect regardless of any investigation made by or on behalf of such Holder or any Indemnified Party and will survive the Transfer of such securities by such Holder. (a) The Company may require, as a condition to including any Registrable Securities in any registration statement filed in accordance with Section 3.1, 3.2 or 3.3 that the Company shall have received an undertaking reasonably satisfactory to it from the Holder of such Registrable Securities or any prospective underwriter to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 3.6(a)) the Company, all other Holders or any prospective underwriter, as the case may be, and any of their respective Affiliates, directors, officers and controlling Persons, with respect to any untrue statement in or omission from such registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement, if such untrue statement or omission was made in reliance upon and in conformity with written information with respect to such Holder or underwriter furnished to the Company by such Holder or underwriter expressly for use in the preparation of such registration statement, preliminary, final or summary prospectus or amendment or supplement, or a document incorporated by reference into any of the foregoing. Such indemnity will remain in full force and effect regardless of any investigation made by or on behalf of the Company or any of the Holders, or any of their respective affiliates, directors, officers or controlling Persons and will survive the Transfer of such securities by such Holder. In no event shall the liability of any selling Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the net proceeds actually received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (b) Promptly after receipt by an Indemnified Party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Section 3.6, such Indemnified Party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided that the failure of the Indemnified Party to give notice as provided herein will not relieve the indemnifying party of its obligations under Section 3.6(a) or 3.6(b), except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an Indemnified Party, unless in such Indemnified Party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such Indemnified Party, and after notice from the indemnifying party to such Indemnified Party of its election so to assume the defense thereof, the indemnifying party will not be liable to such 28 Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. If, in such Indemnified Party's reasonable judgment, having common counsel would result in a conflict of interest between the interests of such indemnified and indemnifying parties, then such Indemnified Party may employ separate counsel reasonably acceptable to the indemnifying party to represent or defend such Indemnified Party in such action, it being understood, however, that the indemnifying party will not be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such Indemnified Parties (and not more than one separate firm of local counsel at any time for all such Indemnified Parties) in such action. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation. (c) If the indemnification provided for hereunder from the indemnifying party is unavailable to an Indemnified Party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to herein, then the indemnifying party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and Indemnified Parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and Indemnified Parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or Indemnified Parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party under this Section 3.6(d) as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. In no event shall the liability of any selling Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the net proceeds actually received by such Holder upon the sale of the Registrable Securities giving rise to such contribution obligation. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 3.6(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (d) Indemnification similar to that specified in this Section 3.6 (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities with respect to any required registration or other qualification of securities under any law or with any governmental entity other than as required by the Securities Act. 29 (e) The obligations of the parties under this Section 3.6 will be in addition to any liability which any party may otherwise have to any other party. ARTICLE IV. PREEMPTIVE RIGHTS 4.1. Preemptive Right. Each Shareholder shall have the right to purchase for cash its Preemptive Right Pro Rata Share of newly issued shares of the Company or any warrants, options and rights or securities convertible into, exchangeable or exercisable for shares of the Company ("Share Equivalents") which the Company may from time to time propose to sell to any Person for cash (excluding, issuances of shares or Share Equivalents upon exercise of outstanding options granted to any employee benefit plan or arrangement). The "Preemptive Right Pro Rata Share" shall be, at any given time, that proportion which the number of Ordinary Shares (including for these purposes Non-Voting Ordinary Shares) held by the Shareholder at such time bears to the total number of Ordinary Shares (including for these purposes Non-Voting Ordinary Shares) issued and outstanding at such time, in each case, as calculated on a fully diluted basis. 4.2. Preemptive Notices. In the event the Company proposes to undertake an issuance of shares and/or Share Equivalents referred to in Section 4.1, it shall give each Shareholder written notice (the "Preemptive Notice") of its intention to do so, specifying the price, the identity of the purchaser and the principal terms upon which the Company proposes to issue the same. Each Shareholder shall have ten (10) Business Days from the delivery date of any Preemptive Notice to agree to purchase a number of shares and/or Share Equivalents up to its Preemptive Right Pro Rata Share (in each case calculated prior to the issuance) for the price and upon the terms specified in the Preemptive Notice by giving written notice to the Company and stating therein the number of shares and/or Share Equivalents to be purchased. 4.3. Failure to Exercise Preemptive Right. In the event any Shareholder fails to purchase all of its Preemptive Right Pro Rata Share pursuant to this Article IV, the Company shall have 90 days after the date of the Preemptive Notice to consummate the sale of the shares and/or Share Equivalents with respect to which any Shareholder's preemptive right was not exercised, at or above the price and upon terms not more favorable to the purchasers of such shares and/or Share Equivalents than the terms specified in the initial Preemptive Notice given in connection with such sale. ARTICLE V. CORPORATE GOVERNANCE MATTERS 5.1. Board of Directors. (a) Directors of the Company shall be elected annually. Effective as of the Closing, the Board shall be comprised of nine members, consisting of three designees of Silver Lake (each a "Silver Lake Designee"), two designees of TPG (each a "TPG Designee"), one Management Director, one Additional Director, the chief executive officer of the Company from time to time serving (the "Chief Executive Officer") and one director elected pursuant to the provisions of the memorandum and articles of association of the Company. Members of the Board who are not required to be designated by a Shareholder pursuant to the rights provided in 30 this Agreement shall be nominated and elected in accordance with the articles of association of the Company. (b) A member of the Board designated by a Shareholder pursuant to the rights provided in this Agreement may only be removed by such Shareholder. Except as provided in Section 5.1(e) below, any other member of the Board may be removed only for cause by vote of a majority of the Board. If, prior to his or her election to the Board, any Silver Lake Designee shall be unable or unwilling to serve as a director of the Company, Silver Lake shall be entitled to nominate a replacement who shall then be a Silver Lake Designee for purposes of this Section 5.1. If, following an election to the Board pursuant to this Section 5.1, any Silver Lake Designee shall resign or be removed or be unable to serve for any reason prior to the expiration of his or her term as a Director, Silver Lake shall notify the Board in writing of a replacement Silver Lake Designee and each of the Company and all of the Shareholders hereby agree to take such actions provided for under the terms of the Shares held by them as will result in the appointment of such Silver Lake Designee to the Board. If Silver Lake requests that any Silver Lake Designee be removed as a Director (with or without cause) by written notice thereof to the Company, then each of the Company and all of the Shareholders shall take all actions provided for under the terms of the Shares held by them necessary to effect such removal upon such request. If, prior to his or her election to the Board, any TPG Designee shall be unable or unwilling to serve as a director of the Company, TPG shall be entitled to nominate a replacement who shall then be a TPG Designee for purposes of this Section 5.1. If, following an election to the Board pursuant to this Section 5.1, any TPG Designee shall resign or be removed or be unable to serve for any reason prior to the expiration of his or her term as a Director, TPG shall notify the Board in writing of a replacement TPG Designee and each of the Company and all of the Shareholders hereby agree to take such actions provided for under the terms of the Shares held by them as will result in the appointment of such TPG Designee to the Board. If TPG requests that any TPG Designee be removed as a Director (with or without cause) by written notice thereof to the Company, then each of the Company and all of the Shareholders shall take all actions provided for under the terms of the Shares held by them necessary to effect such removal upon such request. If, prior to his or her election to the Board, the Additional Director shall be unable or unwilling to serve as a director of the Company, Silver Lake shall be entitled to nominate a replacement who shall then be the Additional Director for purposes of this Section 5.1; provided, that such replacement Additional Director satisfies all of the criteria set forth in the definition of "Additional Director" herein. If, following an election to the Board pursuant to this Section 5.1, the Additional Director shall resign or be removed or be unable to serve for any reason prior to the expiration of his or her term as a Director, Silver Lake shall notify the Board in writing of a replacement and, provided that such replacement Additional Director satisfies all the criteria set forth in the definition of "Additional Director" herein, each of the Company and all of the Shareholders hereby agree to take such actions provided for under the terms of the Shares held by them as will result in the appointment of such replacement Additional Director to the Board. So long as TPG consents, if Silver Lake requests that the Additional Director be removed as a Director (with or without cause) by written notice thereof to the Company, then each of the Company and all of the Shareholders shall take all actions provided for under the terms of the Shares held by them necessary to effect such removal upon such request. 31 Any director (including the Additional Director) who is no longer designated by Silver Lake or TPG shall be designated instead by the other members of the Board and shall be considered a "Board Designee" for all purposes hereunder. If any Board Designee shall resign or be removed or be unable to serve for any reason prior to the expiration of his or her term as a Director, then each of the Company and each Shareholder hereby agrees to take such actions provided for under the terms of the Shares held by them as will result in the appointment to the Board of an individual designated by the Board. If the Board requests that any Board Designee be removed as a Director (with or without cause) by written notice thereof to the Company, then each of the Company and each Shareholder shall take all actions provided for under the terms of the Shares held by them necessary to effect such removal upon such request. (c) The Company will pay all reasonable out-of-pocket expenses incurred by the Directors in connection with their participation in meetings of the Board (and committees thereof) and the Boards of Directors (and committees thereof) of the subsidiaries of the Company. Directors will receive no other compensation or fees; provided that the Board may provide for a reasonable fee to be paid to the Additional Director or any future independent director. (d) The board of directors of each subsidiary of the Company shall at any given time either be (i) comprised in the same manner as the Board is then comprised or (ii) comprised in a manner reasonably acceptable to both TPG and Silver Lake. (e) Notwithstanding anything in this Agreement to the contrary, no director (other than any Silver Lake Designee, any TPG Designee, the Management Director, the Chief Executive Officer of the Company (in his capacity as a director), the Additional Director, or any director who becomes a director after December 1, 2000) may be removed other than for cause and then only with the approval of seven of nine directors. 5.2. Actions by the Board of Directors. (a) The Shareholders and the Company shall take all actions provided for under the terms of the Shares held by them necessary to amend the memorandum and articles of association of the Company to provide that, for so long as this Agreement is in effect, a quorum for any meeting of the Board shall require the presence of (x) directors constituting at least a majority of the entire Board, and (y) at least one of the Silver Lake Designees and (z) at least one of the TPG Designees. Unless agreed to by unanimous consent of the Board in writing, no action by the Board will be valid unless approved by a majority of the directors at a meeting properly convened at which a quorum is present. The Company and the Shareholders shall take such further action to provide that the articles of incorporation and/or bylaws of the Company will provide that they may not be amended by action of the Board unless such amendment is approved in the manner set forth in the immediately preceding sentence. The Company and the Shareholders shall take (or shall cause the Directors appointed by them to take) such action provided for under the terms of the Shares held by them as is necessary to cause (i) the Board to establish executive, audit, compensation and governance committees of the Board, the duties of which shall be determined by the Board, (ii) at least one Silver Lake Designee and one TPG Designee to serve on each such committee of the Board of Directors and (iii) the Chief Executive Officer of the Company to serve as the Chairman of the Executive Committee. The Shareholders 32 and the Company shall take such action provided for under the terms of the Shares held by them to cause the memorandum and articles of association of the Company to provide that no action by a committee of the Board of a type referred to in Section 5.2(b) below shall be valid unless approved in the same manner as required by action of the entire Board, as provided in this paragraph (a). (b) Subject to applicable law, the Company shall not take any of the actions set forth in items (i) through (iv) and (vi) through (ix) below without the prior consent of at least seven of the nine Directors and the Company shall not take the action set forth in item (v) below without the prior consent of at least eight of the nine directors. (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code as now constituted or hereafter amended, or any other federal, state or foreign bankruptcy, insolvency or similar law; (ii) merge or consolidate with any other Person other than a subsidiary of the Company (the "Target") if (x) the book value of the assets of the Target (in the case of an acquisition of a Target) as of the end of its most recently ended fiscal quarter preceding the earlier of the date the Company enters into definitive agreements in respect of such transaction or publicly announces such transaction (the "Determination Date") would exceed $100 million or (y) the fair market value of the consideration paid or payable for the Target would exceed $100 million; (iii) sell, transfer or otherwise dispose of (including by merger, dividend or other distribution or other transaction involving one or more shareholders of the Company, formation of a joint venture or otherwise) any assets in one or a series of related transactions if (x) the book value of such assets exceeds $100 million as of the end of the Company's most recent fiscal quarter preceding the Determination Date or (y) the fair market value of the consideration received or receivable for such assets (including, with respect to any asset sale, the value of any debt assumed or to be assumed in such transaction) exceeds $100 million; (iv) enter into any contract with or otherwise engage in or become obligated to engage in any transaction or series of related transactions with any of Silver Lake, TPG, August or any of their respective Affiliates involving more than $1 million per calendar year; provided, however, that all such contracts and transactions (whether or not exceeding the $1 million limitation) shall be on an arms' length basis; (v) increase or decrease the number of Directors that comprise the entire Board; (vi) authorize, issue or sell (including by merger or otherwise) any shares, options, warrants or rights to acquire shares of the Company (other than issuances of shares pursuant to management options issued with the approval of the Board); (vii) pay, declare or set aside any sums or other property for the payment of any dividends on, or make any other distributions in respect of (including by merger or otherwise), any shares of the Company, or any warrants, options, rights or 33 securities convertible into, exchangeable or exercisable for, shares of the Company (excluding purchases from employees pursuant to employee benefit plans or arrangements); (viii) redeem, purchase or otherwise acquire (including by merger or otherwise), any shares of the Company or any warrants, options and rights or securities convertible into, exchangeable or exercisable for, shares of the Company, or redeem or purchase otherwise acquire or make any payments with respect to any share appreciation rights or phantom share plans (excluding purchases from employees pursuant to employee benefit plans or arrangements); or (ix) amend, modify or repeal any of the provisions of the memorandum and articles of association of the Company. In addition, no Shareholder may exercise its rights pursuant to Section 2.6 without the prior consent of at least seven of the nine Directors. Finally, the prior consent of at least five of the nine Directors (other than the Chief Executive Officer and the Management Director, who shall be required to abstain) shall be required to hire or terminate the employment contract of the Chief Executive Officer. Notwithstanding the foregoing, nothing in this Section 5.2 shall limit the rights of any Shareholder under Article III. (c) Unless otherwise agreed by the parties hereto, the Board shall follow the following procedures: (i) Special meetings of the Board may be held at any time upon the call of at least two Directors by oral, telephonic, telegraphic, facsimile or e-mail notice duly given or sent at least one day, or by written notice sent by express mail at least three days, before the meeting to each director. Reasonable efforts shall be made to ensure that each director actually receives timely notice of any meeting. The annual meeting of the Board shall be held without notice immediately following the annual meeting of shareholders of the Company. (ii) A reasonably detailed agenda shall be supplied to each director reasonably in advance of each meeting of the Board, together with other appropriate documentation with respect to agenda items calling for board action, to inform adequately directors regarding matters to come before the board. Any director wishing to place a matter on the agenda for any meeting of the applicable board of directors may do so by communicating with the chairman of the Board sufficiently in advance of the meeting of the Board so as to permit timely dissemination to all directors of information with respect to the agenda items. (d) The Shareholders shall upon request take all action provided for under the terms of the Shares held by them to cause the memorandum and articles of association or comparable governing documents of each subsidiary of the Company to be amended to require the prior approval of the Board of any actions of the subsidiary that, if made by the Company, 34 would require the approval of the Company's Board under the articles of association of the Company or under this Agreement. 5.3. Voting of Shares; Action by the Company. At any annual or special meeting of shareholders of the Company or in any written consent executed in lieu of such a meeting of shareholders, the Shareholders shall take all other action provided for under the terms of the Shares held by them, including by way of voting their Shares, to give effect to the agreements contained in this Agreement. In order to effectuate the provisions of this Article V, each Shareholder hereby agrees that when any action or vote is required to be taken by such Shareholder pursuant to this Agreement, such Shareholder shall use his or its best efforts to call, or cause the appropriate officers and directors of the Company to call, a special or annual meeting of shareholders of the Company, as the case may be, or execute or cause to be executed a consent in writing in lieu of any such meetings pursuant to applicable provisions of The Companies Law (2000 Revision) of the Cayman Islands. In addition, the Company shall take all actions to give effect to the agreements contained in this Agreement. 5.4. Fee Sharing. (a) Any transaction, closing or similar fee received by any Shareholder (or any Affiliate of any Shareholder) from the Company in connection with the transactions contemplated hereby shall be allocated as follows: first, 25% of such fees to Silver Lake or an Affiliate designated by Silver Lake; second, the remainder of such fees pro rata to Silver Lake, TPG, August Capital Management III, L.L.C. ("August Management"), Chase and GS (or an Affiliate designated by each such Shareholder or August Management, as the case may be) in proportion to the total aggregate number of Ordinary Shares and Non-Voting Ordinary Shares owned by each such Shareholder (including, in the case of Silver Lake, all Shares owned by Integral) or, in the case of fees payable to August Management, owned by August, in each case relative to such other Shareholders. (b) Any monitoring or similar fee received by any Shareholder from the Company shall be allocated as follows: first, 25% of such fees to Silver Lake or an Affiliate designated by Silver Lake; second, the remainder of such fees pro rata to Silver Lake, TPG and August Management (or an Affiliate designated by each such Shareholder or August Management, as the case may be) in proportion to the total aggregate number of Ordinary Shares and Non-Voting Ordinary Shares owned by each such Shareholder (including, in the case of Silver Lake, all Shares owned by Integral) or, in the case of fees payable to August Management, owned by August, in each case relative to such other Shareholders.; provided, however, that August Management shall be entitled to receive fees pursuant to this provision only for so long as David Marquardt serves as a director of the Company; provided, however, that nothing in this Agreement shall give David Marquardt the right to be elected as a director or, if so elected, prohibit him from declining to serve as a director. 5.5. Conversion of Ordinary Shares. So long as August is the record owner of any Ordinary Shares, the Company agrees not to take any action to amend the memorandum and articles of association of the Company to provide for the conversion of Ordinary Shares into Non-Voting Ordinary Shares without the consent of August; provided, however, that this Section 5.5 shall not prevent Chase or any Permitted Transferee of Chase from converting Ordinary Shares received solely upon the conversion of Non-Voting Ordinary Shares acquired directly from the Company back into Non-Voting Ordinary Shares if it is determined by Chase or such 35 Permitted Transferee of Chase to be necessary to avoid a Regulatory Problem (as defined in the Chase Regulatory Side Letter). ARTICLE VI. TAX MATTERS 6.1. Tax Matters. (a) For such time as the Company constitutes a partnership for U.S. federal income tax purposes and Silver Lake and its Affiliates in the aggregate own at least 25% of the number of Ordinary Shares owned by them immediately following the transactions contemplated by the Stock Purchase Agreement (as adjusted for share splits, reverse share splits, combinations, recapitalizations and similar transactions), the "tax matters partner" for purposes of section 6231(a)(7) of the Code (the "Tax Matters Shareholder") shall be Silver Lake or its designated Affiliate (provided, however, that such Affiliate must be a Shareholder). For such time as the Company constitutes a partnership for U.S. federal income tax purposes, and Silver Lake and its affiliates in the aggregate own less than 25% of the number of Ordinary Shares owned by them immediately following the transactions contemplated by the Stock Purchase Agreement (as adjusted for share splits, reverse share splits, combinations, recapitalizations and similar transactions), the Tax Matters Shareholder shall be appointed by the Board. The Tax Matters Shareholder shall have all of the rights, duties, powers and obligations provided for in sections 6221 through 6231 of the Code with respect to the Company. (b) For such time as the Company constitutes a partnership for U.S. federal income tax purposes, the Tax Matters Shareholder shall timely cause to be prepared all tax returns of the Company for each year or period, and in such jurisdictions, that such returns are required to be filed; provided, however, that the Tax Matters Shareholder shall only file a material tax return if such return has been approved by Silver Lake, TPG and August. Any Shareholder may request in writing to review any and all such tax returns, and the Tax Matters Shareholder's consent to such request shall not be unreasonably withheld. (c) The Tax Matters Shareholder shall be reimbursed by the Company or its subsidiaries, as appropriate, for all reasonable costs and expenses associated with the performance of its obligations as Tax Matters Shareholder. 6.2. Partnership Elections. For such time as the Company constitutes a partnership for U.S. federal income tax purposes, the Tax Matters Shareholder shall have the right to make, or cause the Company to make, all Company tax elections which the Tax Matters Shareholder deems appropriate in its reasonable discretion; provided, however, that the Tax Matters Shareholder shall not make any material tax election without the consent of Silver Lake, TPG and August, and provided, further, that the Tax Matters Shareholder shall make the election to adjust the basis of the Company's property pursuant to section 754 of the Code for the year in which the Closing Date occurs. 6.3. Capital Accounts; Book Allocations. (a) Solely for purposes of complying with section 704 of the Code and the Regulations promulgated thereunder, there shall be established for each Shareholder and Management Shareholder on the books of the Company as of the date hereof, or such later date on which such Shareholder or Management Shareholder is admitted to the Company, a capital account (each being a "Capital Account"). The Capital 36 Account of each Shareholder and Management Shareholder shall (in accordance with the requirements of Regulations section 1.704-1(b)(2)(iv)) be credited with (i) the amount paid by such Shareholder or Management Shareholder with respect to the Shares purchased by such Shareholder or Management Shareholder, as the case may be, and (ii) the amount of the Liquidation Preference (as defined in Article 17 of the articles of association of the Company) of any Unvested Restricted Shares (as defined in the Private Placement Memorandum) for which an election under section 83(b) of the Code has been made, increased by any allocation of income or gain and by any additional capital contributions by such Shareholder or Management Shareholder, and shall be reduced by any allocation of loss or deduction and by any distribution to such Shareholder or Management Shareholder. Capital Accounts shall be appropriately adjusted to reflect transfers of part (but not all) of the Shares held by any Shareholder or Management Shareholder. Interest shall not be payable on Capital Account balances. (b) Except as otherwise provided herein, as long as the Company is a partnership for U.S. federal income tax purposes, all items of Company income, gain, loss or deduction shall be allocated among the Shareholders and the Management Shareholders in a manner such that the Capital Account of each Shareholder and Management Shareholder (including with respect to Unvested Restricted Shares (as defined in the Private Placement Memorandum) for which an election under section 83(b) of the Code has been made), immediately after making such allocation is, as nearly as possible, equal (proportionately) to the distributions that would be made to such Shareholder or such Management Shareholder, as the case may be, if the Company was dissolved, its affairs wound up and its assets sold for cash equal to their Carrying Value, all Company liabilities were satisfied, and the net assets of the Company were distributed pursuant to Articles 9 and 17 of the articles of association of the Company to the Shareholders and the Management Shareholders immediately after making such allocation. (c) The provisions of this Section 6.3 relating to the maintenance of Capital Accounts and allocations of Company income, gain, loss or deduction are intended to comply with Regulations section 1.704-1(b) (including, without limitation, the "qualified income offset" provisions contained therein) and shall be interpreted and applied in a manner consistent with such Regulations. Additionally, the foregoing allocation provisions shall be interpreted and applied in a manner consistent with the "minimum gain chargeback" requirements of Regulations section 1.704-2(f) and 1.704-2(i)(4) and in a manner consistent with the partner nonrecourse deduction provisions of Regulations section 1.704-2(i). (d) Notwithstanding anything to the contrary herein, in no event shall the provisions of this Section 6.3 affect the amount or timing of distributions to which the Shareholders or Management Shareholders would otherwise be entitled pursuant to Articles 8, 9, 10, 14, 15 and 17 of the articles of association of the Company, provided, however, that Tax Distributions may vary or be made pursuant to Section 6.5 hereof. 6.4. Tax Allocations. For income tax purposes only, all items of income, gain, loss, and deduction of the Company shall be allocated among the Shareholders and the Management Shareholders in the same proportions as they share the corresponding items pursuant to Section 6.3 hereof; provided, however, that in the case of any asset of the Company, the Carrying Value of which differs from its adjusted tax basis for U.S. federal income tax 37 purposes, income, gain, loss and deduction with respect to such asset shall be allocated solely for income tax purposes in accordance with sections 704(b) and (c) of the Code (in any manner determined by the Board) so as to take account of the difference between Carrying Value and adjusted basis of such asset. 6.5. Distributions Permitted Under the Indenture. Unless such distribution is not otherwise permitted by law or unless otherwise agreed to by Silver Lake, TPG and August, the Shareholders agree to use reasonable best efforts to cause the Company to make any and all distributions permitted by the Indenture including, without limitation "Tax Distributions" as such term is defined in the Indenture ("Distribution Provisions"). The Shareholders agree to use reasonable best efforts to prevent the Company from modifying the Distribution Provisions without the consent of Silver Lake, TPG and August. Any distributions made pursuant to this Section 6.5 other than Tax Distributions, will be paid out in accordance with Articles 8, 9, 10, 14 15 and 17 of the articles of association of the Company. Prior to making any other distributions described in this Section 6.5, any Tax Distributions will be made to the holders of Ordinary Shares and Non-Voting Ordinary Shares (including holders of Unvested Restricted Shares (as defined in the Private Placement Memorandum) for which an election under section 83(b) of the Code has been made) on a pro-rata basis (based on the relative number of aggregate outstanding Ordinary Shares and Non-Voting Ordinary Shares owned by them). 6.6. Partnership Income and Subpart F Income. (a) Except as otherwise agreed by Silver Lake, TPG and August, the Shareholders shall use reasonable best efforts, and shall cause the Company to use reasonable best efforts, to minimize Partnership Income, except to the extent that the Company makes current distributions pursuant to the Distribution Provisions (to the extent permitted by the Indenture) with respect to such Partnership Income. (b) Except as otherwise agreed by Silver Lake and TPG, the Shareholders shall use reasonable best efforts, and shall cause the Company to use reasonable best efforts, to avoid creating Subpart F Income in excess of $50 million per calendar year. The Shareholders agree to use reasonable best efforts to cause the Company to provide to Silver Lake and TPG the information necessary to allow the direct and indirect beneficial owners of each of Silver Lake and TPG to make the filings that would be required if the Company were to be treated as a "controlled foreign corporation" within the meaning of section 957 of the Code for U.S. federal income tax purposes. 6.7. Corporate Structure, etc. The Shareholders agree to use their reasonable efforts to avoid changing the corporate structure of the Company or the entity classification for U.S. federal income tax purposes of the Company or its subsidiaries, to the extent that any such change would cause material adverse federal income tax consequences to any Shareholder unless such change is approved by Silver Lake, TPG and August. 6.8. Unrelated Business Taxable Income and U.S. Trade or Business Income. The Shareholders agree to use their best efforts, and to cause the Company, or any entity which the Company owns directly which is treated as a pass-through entity for U.S. federal income tax purposes or indirectly through an entity which is treated as a pass-through entity for U.S. federal income tax purposes, to use its best efforts, (i) to not incur any items of gross income that would be taken into account for purposes of calculating unrelated business taxable income as defined in 38 section 512 and 514 of the Code ("UBTI") and (ii) to not engage in activities, directly or indirectly, that would cause a direct or indirect non-U.S. investor in the Company to be treated as engaged in a U.S. trade or business as defined in sections 864 or 897 of the Code due to its direct or indirect investment in the Company. In addition, the Tax Matters Shareholder agrees to use best efforts to (i) unless otherwise advised by its tax advisors, file tax returns and information returns on behalf of the Company with the Internal Revenue Service (the "IRS") on the basis that the Company is not engaged in a trade or business for purposes of sections 875, 882, 884 and 1446 of the Code, and (ii) promptly notify all other Shareholders if, based on the advice of its tax advisors, the Tax Matters Shareholder determines that the Company is engaged in a trade or business for purposes of sections 875, 882, 884 and 1446 of the Code. 6.9. Passive Foreign Investment Company. The Tax Matters Shareholder agrees to use reasonable efforts (a) to determine whether any corporation, as determined under the entity classification Regulations promulgated under section 7701 of the Code, of which the Company would be deemed to be an owner pursuant to section 1298 of the Code, is a passive foreign investment company (a "PFIC") within the meaning of section 1297 of the Code, and (b) with respect to any such company which is determined to be a PFIC, to provide the Shareholders with information sufficient to enable the Shareholders to make and maintain an election to treat such company as a qualifying electing fund within the meaning of section 1295 of the Code. ARTICLE VII. MISCELLANEOUS 7.1. Competition. Any Shareholder and any Affiliate of such Shareholder may engage in or possess an interest in other investments, business ventures or entities of any nature or description, independently or with others, similar or dissimilar to, or that compete with, the investments or business of the Company, and may provide advice and other assistance to any such investment, business venture or entity, and the Company and the Shareholders shall have no rights by virtue of this Agreement in and to such investments, business ventures or entities or the income or profits derived therefrom, and the pursuit of any such investment or venture, even if competitive with the business of the Company, shall not be deemed wrongful or improper. Upon the written request of the Company (which request shall not be made more than once in any 90-day period), each Shareholder shall, subject to applicable law and the terms of any applicable confidentiality agreement or similar agreement or arrangement, use its reasonable efforts to disclose, as soon as reasonably practicable and on a confidential basis, to the Board any such interest, investment or business venture that involves the disc drive or similar information storage business that is owned by such Shareholder. No Shareholder nor any Affiliate thereof shall be obligated to present any particular investment or business opportunity to the Company even if such opportunity is of a character that, if presented to the Company, could be taken by the Company, and any Shareholder or any Affiliate thereof shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment opportunity. 7.2. Additional Securities Subject to Agreement. Each Shareholder agrees that any other equity securities of the Company which it hereafter acquires by means of a share split, share dividend, distribution, exercise of options or warrants or otherwise (other than shares acquired in a Public Offering or in the public market after the initial Public Offering of the 39 Company) will be subject to the provisions of this Agreement to the same extent as if held on the date hereof. 7.3. Information Rights. The Company shall deliver to each of the Shareholders (i) audited financial statements of the Company within 90 days after the end of each fiscal year and (ii) unaudited quarterly financial statements within 45 days after the end of each fiscal quarter. Each of the Shareholders shall have access to such other information concerning the Company's business or financial condition as may be reasonably requested by such Shareholder. 7.4. Termination. Other than as specified below, the provisions of this Agreement will terminate and be of no further force and effect upon the date on which at least 50% of the number of issued and outstanding shares of the Company have been publicly distributed or sold, or are being actively traded on a national securities exchange or interdealer quotation system. Notwithstanding the foregoing, Article III of this Agreement shall survive the termination of this Agreement until such time as all Registrable Securities held by the Shareholders cease to be Registrable Securities. 7.5. Notices. All notices, consents, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by cable, by telecopy, by telegram, by telex or registered or certified mail (postage prepaid, return receipt requested) as follows (or at such other address for a party as shall be specified in a notice given in accordance with this Section 7.5): (i) if to Silver Lake: Silver Lake Partners, L.P. 2725 Sand Hill Road Building C, Suite 150 Menlo Park, CA 94025 Attention: David Roux Telecopy: (650) 233-8125 With a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 Attention: William E. Curbow, Esq. Telecopy: (212) 455-2502 40 (ii) if to TPG: SAC Investments, L.P. c/o Texas Pacific Group. 301 Commerce Street Suite 3300 Fort Worth, TX 76102 Attention: Richard A. Ekleberry Telecopy: (817) 871-4080 with a copy to: Cleary, Gottlieb, Steen & Hamilton One Liberty Plaza New York, NY 10006 Attention: Paul J. Shim, Esq. Telecopy: (212) 225-3999 (iii) if to August: August Capital 2480 Sand Hill Road Suite 101 Menlo Park, CA 94025 Attention: Mark Wilson Telecopy: (650) 234-9910 with a copy to: Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP 155 Constitution Drive Menlo Park, CA 94025 Attention: Steven R. Franklin, Esq. Telecopy: (650) 321-2800 (iv) if to Chase: Chase Equity Associates, L.P. 50 California Street 29th Floor San Francisco, CA 94111 Attention: Shahan Soghikian Telecopy: (415) 591-1205 41 with a copy to: Chase Capital Partners Official Notices Clerk 1221 Avenue of the Americas New York, NY 10020 Telecopy: (212) 899-3401 and to: Latham & Watkins 135 Commonwealth Drive Menlo Park, CA 94025 Attention: Anthony J. Richmond, Esq. Telecopy: (650) 463-2600 (v) if to GS: GS Capital Partners III, L.P. 85 Broad Street, 10th Floor New York, NY 10004 Attention: Anne Musella Telecopy: (212) 357-5505 with a copy to: Sullivan & Cromwell 1870 Embarcadero Road Palo Alto, CA 94303 Attention: Matthew G. Hurd, Esq. Telecopy: (650) 461-5700 (vi) if to Staenberg: Staenberg Venture Partners 2000 First Avenue, Suite 1001 Seattle, WA 98121 Attention: Telecopy: with a copy to: Dorsey & Whitney LLP U.S. Bank Centre 1420 Fifth Avenue, Suite 3400 Seattle, WA 98101 42 (vii) if to Integral: Integral Capital Partners 2750 Sand Hill Rd. Menlo Park, CA 94025 Attention: Pamela Hagenah Telecopy: 650-233-0366 (viii) if to the Company: New SAC c/o Silver Lake Partners, L.P. 2725 Sand Hill Road Building C, Suite 150 Menlo Park, CA 94025 Attention: David Roux Telecopy: (650) 233-8125 with copies to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 Attention: William E. Curbow, Esq. Telecopy: (212) 455-2502 -and- Cleary, Gottlieb, Steen & Hamilton One Liberty Plaza New York, NY 10006 Attention: Paul J. Shim, Esq. Telecopy: (212) 225-3999 7.6. Further Assurances. The parties hereto will sign such further documents, cause such meetings to be held, resolutions passed, exercise their votes and do and perform and cause to be done such further acts and things as may be necessary in order to give full effect to this Agreement and every provision hereof. 7.7. Assignment. This Agreement will inure to the benefit of and be binding on the parties hereto and their respective successors and permitted assigns. Except as specifically provided herein, this Agreement may not be assigned by any party hereto without the express prior written consent of the other parties, and any attempted assignment, without such consents, will be null and void. 7.8. Amendment; Waiver. This Agreement may be amended, supplemented or otherwise modified only by a written instrument executed by the parties hereto; provided, 43 however, that this Agreement may be amended, supplemented or otherwise modified by a written instrument executed only by the Shareholders so long as any such amendment, supplement or modification does not impose any material additional burdens on the Company. No waiver by any party of any of the provisions hereof will be effective unless explicitly set forth in writing and executed by the party so waiving. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of any party, will be deemed to constitute a waiver by the party taking such action of compliance with any covenants or agreements contained herein. The waiver by any party hereto of a breach of any provision of this Agreement will not operate or be construed as a waiver of any subsequent breach. 7.9. Third Parties. Except as otherwise set forth herein, this Agreement does not create any rights, claims or benefits inuring to any person that is not a party hereto nor create or establish any third party beneficiary hereto. 7.10. Governing Law. This Agreement will be governed by, and construed in accordance with, the laws of the State of New York. 7.11. Binding Arbitration. Any controversy, dispute or claim arising out of, in connection with, or in relation to, the construction, performance, or breach of this Agreement shall be adjudicated by arbitration conducted in accordance with the existing rules for commercial arbitration of the American Arbitration Association, or any successor organization in New York or California (the "AAA"), as determined by the party initiating the arbitration. The demand for arbitration shall be delivered in accordance with the notice provisions of this Agreement. Arbitration hereunder shall be conducted by a single arbitrator selected jointly by the parties hereto. If within thirty (30) days after a demand for arbitration is made, the parties hereto are unable to agree on a single arbitrator, three arbitrators shall be appointed. Each party shall select one arbitrator and those two arbitrators shall then select within thirty (30) days a third neutral arbitrator. If the arbitrators selected by the parties cannot agree on the third arbitrator, they shall discuss the qualifications of such third arbitrator with the AAA prior to selection of such arbitrator, which selection shall be in accordance with the existing rules of the AAA. If an arbitrator cannot continue to serve, a successor to an arbitrator selected by the parties shall be also selected by the same party, and a successor to a neutral arbitrator shall be selected as specified above. A full rehearing will be held only if the neutral arbitrator is unable to continue to serve or if the remaining arbitrators unanimously agree that such a rehearing is appropriate. Any discovery in connection with arbitration hereunder shall be limited to information directly relevant to the controversy or claim in arbitration. Judgment upon any arbitration award rendered may be entered in any court of competent jurisdiction. EACH PARTY HERETO UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING RELATING TO THIS AGREEMENT. 7.12. Specific Performance. Without limiting or waiving in any respect any rights or remedies of the parties hereto under this Agreement now or hereinafter existing at law or in equity or by statute, each of the parties hereto will be entitled to seek specific performance of the obligations to be performed by the other in accordance with the provisions of this Agreement, including during such time prior to the final and binding decision in any arbitration contemplated by Section 7.10. 44 7.13. Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof. 7.14. Titles and Headings. The section headings contained in this Agreement are for reference purposes only and will not affect the meaning or interpretation of this Agreement. 7.15. Severability. If any provision of this Agreement is declared by any court of competent jurisdiction to be illegal, void or unenforceable, all other provisions of this Agreement will not be affected and will remain in full force and effect. 7.16. Regulatory Matters. (a) Each Shareholder agrees to cooperate with the Company in all reasonable respects in complying with the terms of the Chase Regulatory Side Letter, including, without limitation, voting to approve amending the Company's memorandum and articles of association or this Agreement in a manner reasonably acceptable to the Shareholders and Chase or any Affiliate of Chase entitled to make such request pursuant to the Chase Regulatory Side Letter in order to remedy a Regulatory Problem (as defined in the Chase Regulatory Side Letter). Anything contained in this Section 7.16(a) to the contrary notwithstanding, no Shareholder shall be required under this Section to take any action that would adversely affect such Shareholder's rights under this Agreement or as a shareholder of the Company. (b) The Company and each Shareholder agree not to amend or waive the voting or other provisions of the Company's memorandum and articles of association or this Agreement if such amendment or waiver would cause Chase of any of its Affiliates to have a Regulatory Problem (as defined in the Chase Regulatory Side Letter). Chase agrees to notify the Company as to whether or not it would have a Regulatory Problem promptly (and in any event within 5 Business Days of receipt of notice of such amendment or waiver in accordance with this Agreement) after Chase has notice of such amendment or waiver. Failure to respond within such 5 Business-Day period shall be deemed to be a response that such amendment or waiver will not result in a Regulatory Problem. (c) The Company understands that Chase is affiliated with parties entering into commercial lending transactions with the Company including, without limitation, The Chase Manhattan Bank and Chase Securities Inc. The parties acknowledge that such lending arrangements are entirely independent of the equity investment made herein and nothing herein shall limit or otherwise constrain the exercise by such parties under their lending arrangement of any remedy or right granted to them in the transaction documents governing such lending arrangements. 7.17. Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed to be an original and all of which together will be deemed to be one and the same instrument. 45 IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or caused this Agreement to be executed on its behalf as of the date first written above. NEW SAC By: /s/ William L. Hudson ------------------------------------------------- Name: William L. Hudson Title: SILVER LAKE TECHNOLOGY INVESTORS CAYMAN, L.P. By: Silver Lake (Offshore) AIV GP Ltd., its General Partner By: /s/ Kenneth Hao ------------------------------------------------- Name: Kenneth Hao Title: SILVER LAKE INVESTORS CAYMAN, L.P. By: Silver Lake (Offshore) AIV GP Ltd., its General Partner By: /s/ Kenneth Hao ------------------------------------------------- Name: Kenneth Hao Title: SILVER LAKE PARTNERS CAYMAN, L.P. By: Silver Lake (Offshore) AIV GP Ltd., its General Partner By: /s/ Kenneth Hao ------------------------------------------------- Name: Kenneth Hao Title: 46 SAC INVESTMENTS, L.P. By: TPG SAC GenPar III, L.P., its General Partner By: TPG SAC Advisors III Corp., its General Partner By: /s/ Justin T. Chang ------------------------------------------------- Name: Justin T. Chang Title: AUGUST CAPITAL III, L.P. for itself and as nominee For August Capital Strategic Partners III, L.P. and For August Capital III Founders Fund, L.P. By: August Capital Management III, L.L.C., its general partner By: /s/ Mark G. Wilson ------------------------------------------------- Member: Mark G. Wilson CHASE EQUITY ASSOCIATES, L.P. By: Chase Capital Partners, its General Partner By: /s/ Shakan Seghikian ------------------------------------------------- Name: Shakan Seghikian Title: A General Partner GS CAPITAL PARTNERS III, L.P. By: GS Advisors III, L.L.C., its General Partner By: /s/ John E. Bowman ------------------------------------------------- Name: John E. Bowman Title: Vice President GS CAPITAL PARTNERS III OFFSHORE, L.P. By: GS Advisors III, L.L.C., its General Partner By: /s/ John E. Bowman ------------------------------------------------- Name: John E. Bowman Title: Vice President 47 GOLDMAN, SACHS & CO. VERWALTUNGS GmbH By: /s/ Joseph H. Gleseparin ------------------------------------------------- Name: Joseph H. Gleseparin Title: Managing Director and By: /s/ John Bowman ------------------------------------------------- Name: John Bowman Title: Registered Agent STONE STREET FUND 2000 L.P. By: Stone Street 2000, L.L.C., its General Partner By: /s/ John E. Bowman ------------------------------------------------- Name: John E. Bowman Title: Vice President BRIDGE STREET SPECIAL OPPORTUNITIES FUND 2000, L.P. By: Bridge Street Special Opportunities Fund 2000, L.L.C., its General Partner By: /s/ John E. Bowman ------------------------------------------------- Name: John E. Bowman Title: Vice President STAENBERG VENTURE PARTNERS II, L.P. By: /s/ Jon R. Staenberg ------------------------------------------------- Name: Jon R. Staenberg Title: Managing Director 48 STAENBERG SEAGATE PARTNERS, LLC By: /s/ Jon R. Staenberg ------------------------------------------------- Name: Jon R. Staenberg Title: Managing Member, Staenberg Seagate Manager LLC INTEGRAL CAPITAL PARTNERS V, L.P. By: Integral Capital Management V, LLC, its General Partner By: /s/ Pamela K. Hagenah ------------------------------------------------- Name: Pamela K. Hagenah Title: Manager INTEGRAL CAPITAL PARTNERS V SIDE FUND, L.P. By: ICP Management V, LLC, its General Partner By: /s/ Pamela K. Hagenah ------------------------------------------------- Name: Pamela K. Hagenah Title: Manager /s/ Georgia A. Brint ---------------------------------------------------- Georgia Ann Brint /s/ William L. Hudson ---------------------------------------------------- William L. Hudson /s/ Gregory B. Kerfoot ---------------------------------------------------- Gregory Brian Kerfoot 49 /s/ Stephen J. Luczo ---------------------------------------------------- Stephen James Luczo /s/ William T. Rowley ---------------------------------------------------- William Thomas Rowley /s/ Philip E. Soran ---------------------------------------------------- Philip E. Soran /s/ John Thompson ---------------------------------------------------- John Thompson /s/ Lam H. Truong ---------------------------------------------------- Lam Huy Truong /s/ Donald L. Waite ---------------------------------------------------- Donald Leo Waite EX-10.17 45 0045.txt MANAGMENT SHAREHOLDERS AGREEMENT EXHIBIT 10.17 EXECUTION COPY MANAGEMENT SHAREHOLDERS AGREEMENT THIS MANAGEMENT SHAREHOLDERS AGREEMENT, dated as of November 22, 2000 (this "Agreement"), is entered into by and among New SAC, a limited company incorporated in the Cayman Islands (the "Company"), the parties identified on the signature pages hereto as "Management Shareholders" and each other individual who from time to time executes a Joinder Agreement as contemplated by Section 7.2 hereof (collectively, the "Management Shareholders"). RECITALS: A. Suez Acquisition Company (Cayman) Limited ("SAC"), Seagate Technology, Inc. ("Seagate") and Seagate Software Holdings, Inc. ("SSHI"), entered into a Stock Purchase Agreement, dated as of March 29, 2000, as amended by the Consolidated Amendment to Stock Purchase Agreement, Agreement and Plan of Merger and Reorganization, and Indemnification Agreement, and Consent, dated as of August 29, 2000, among SAC, Seagate, SSHI, VERITAS Software Corporation ("VERITAS") and Victory Merger Sub, Inc. ("Merger Sub") and Consolidated Amendment No. 2 to Stock Purchase Agreement, Agreement and Plan of Merger and Reorganization, and Indemnification Agreement, and Consent, dated as of October 18, 2000, among SAC, Seagate, SSHI, VERITAS and Merger Sub (as so amended, and as it may be further amended, supplemented or otherwise modified from time to time, the "Stock Purchase Agreement"); B. Pursuant to an Assignment and Assumption Agreement, dated as of November 22, 2000, between SAC and the Company, SAC assigned all of its rights and obligations under the Stock Purchase Agreement to the Company; C. Pursuant to the Stock Purchase Agreement, the Company will purchase all of Seagate's operating assets and assume substantially all of its liabilities by acquiring the stock of a company into which Seagate has transferred such assets and liabilities; D. In connection with the Stock Purchase Agreement, certain management employees of Seagate ("Rollover Management Shareholders") will acquire on the date hereof (i) ordinary shares, par value $0.0001 per share (the "Ordinary Shares"), of the Company, and (ii) Preferred Shares, par value $0.0001 per share (the "Preferred Shares"), of the Company; and E. The Management Shareholders and the Company wish to provide for certain matters relating to the equity interests of the Management Shareholders in their respective holdings in and the governance of the Company. NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: 2 ARTICLE I. INTRODUCTORY MATTERS 1.1 Defined Terms. In addition to the terms defined elsewhere herein, the following terms have the following meanings when used with initial capital letters: "Affiliate" has the meaning given to that term in Rule 405 --------- promulgated under the Securities Act; provided that officers, directors or employees of the Company will not be deemed to be Affiliates of a shareholder of the Company for purposes hereof solely by reason of being officers, directors or employees of the Company. "Agreement" means this Agreement, as the same may be amended, --------- supplemented or otherwise modified from time to time in accordance with the terms hereof. "Assumption Agreement" means a writing substantially in the -------------------- form of Exhibit A hereto whereby a Permitted Transferee or other transferee pursuant to Section 2.4 becomes a party to, and agrees to be bound to the same extent as its transferor by the terms of, this Agreement. "Board" means the Board of Directors of the Company. ----- "Business Day" means a day other than a Saturday, Sunday, ------------ federal, New York or California State holiday or other day on which commercial banks in New York City or San Francisco are authorized or required by law to close. "Call Rights" has the meaning given that term in Section ----------- 3.1(a). "Cause" with respect to the termination of employment by the ----- Company of any Management Shareholder, means (i) such Management Shareholder's continued failure substantially to perform the material duties of his or her office (other than as a result of total or partial incapacity due to physical or mental illness), (ii) the embezzlement or theft by such Management Shareholder of the Company's property, (iii) the commission of an act or acts on such Management Shareholder's part resulting in the conviction of such Management Shareholder of a felony under the laws of the United States or any state thereof, (iv) such Management Shareholder's willful malfeasance or willful misconduct in connection with his or her duties to the Company or any other act or omission which is materially injurious to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates, or (v) a material breach by such Management Stockholder of the material terms of his or her employment agreement, this Agreement, any other shareholders agreement or any non-compete, non-solicitation or confidentiality provisions to which such Management Shareholder is subject. However, no termination shall be deemed for Cause under clause (i), (iv) or (v) unless such Management Shareholder is first given written notice by the Company of the specific acts or omissions which the Company deems constitute grounds for a termination for Cause and is provided with at least 30 days after such notice to cure the specified deficiency. 3 "Change of Control" means (i) the sale or disposition, in one ----------------- or a series of related transactions, of all or substantially all of the assets of the Company to any "person" or "group" (as such terms are defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than the Investors (or their Permitted Transferees (as defined in the Investor Shareholders Agreement)) or (ii) any person or group, other than the Investors (or their Permitted Transferees (as defined in the Investor Shareholders Agreement)) or their respective Affiliates, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of the voting stock of the Company, including by way of merger, consolidation or otherwise, and the representatives of the Investors (or their Permitted Transferees (as defined in the Investor Shareholders Agreement)) or their respective Affiliates cease to comprise, in the aggregate, a majority of the Board. "Closing" has the meaning given that term in the Stock ------- Purchase Agreement. "Closing Date" means November 22, 2000. ------------ "Code" means the Internal Revenue Code of 1986, as amended. ---- "Cost" means the price per share paid by the Management ---- Shareholders, in each case, as proportionately adjusted for all subsequent stock splits, stock dividends and other recapitalizations and reclassifications. "Custody Period" has the meaning given that term in Section -------------- 3.2. "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended, and the rules and regulations of the SEC promulgated thereunder, as the same may be amended from time to time. "Fair Market Value" with respect to a particular date, means ----------------- (i) if there is a public market for the Shares of a particular class as of such date, the average of the high and low closing bid prices of such Shares on such stock exchange on which such Shares are principally trading on such date, or, if there were no sales on such date, on the closest preceding date on which there were sales of such Shares or (ii) if there is no public market for such Shares on such date, the fair market value of such Shares as determined in good faith by the Board (provided that, in all cases, the Fair Market Value of Preferred Shares shall not be greater than the Liquidation Preference (as defined in the Amended and Restated Memorandum and Articles of Association of the Company) in respect thereof). "Good Reason," with respect to the resignation from employment ----------- with the Company by any Management Shareholder means such a resignation as a result of, any of the following actions, which actions remain uncured for at least 30 days following written notice from the resigning Management Shareholder to the Company describing the occurrence of such events and asserting that such events constitute grounds for a 4 "Good Reason" resignation, provided notice of such resignation is given to the Company within sixty (60) days after the expiration of such cure period: (i) without the Management Shareholder's express written consent, any material reduction in the Management Shareholder's authority or responsibilities from those set forth in an employment agreement between the Company and the Management Shareholder (an "Employment Agreement") (or if such Management Shareholder is not a party to an Employment Agreement, from the authority and responsibilities initially assigned to such Management Shareholder by the Company after the Closing Date), (ii) without the Management Shareholder's express written consent, a reduction of 10% or more in the level of the base salary, target annual bonus or employee benefits to be provided to the Management Shareholder under an Employment Agreement (or if such Management Shareholder is not a party to an Employment Agreement, a reduction of 10% or more in the level of base salary, target annual bonus or employee benefits provided to such Management Shareholder immediately prior to the Closing Date), other than a reduction implemented with the consent of the Management Shareholder or a reduction that is equivalent to reduction in base salaries, bonus opportunities and/or employee benefits, as applicable, imposed on all other senior executives of the Company at a similar level within the Company (provided that the use of private aircraft shall not be deemed an employee benefit for these purposes); or (iii) the relocation of the Management Shareholder to a principal place of employment more than 50 miles from the Management Shareholder's current principal place of employment, without the Management Shareholder's express written consent. "Governmental Authority" means any Federal, state or local ---------------------- court or governmental or regulatory authority or agency, domestic or foreign. "Investor Shareholders Agreement" means the shareholders ------------------------------- agreement, dated as of the date hereof, by and among the Company and the Investors, as the same may be amended, supplemented or otherwise modified from time to time. "Investors" shall mean, collectively, the Persons who are --------- parties to the Investor Shareholders Agreement, other than the Company. "Joinder Agreement" has the meaning given that term in Section ----------------- 7.2. "Lapse Date" means (a) with respect to each Tier I Senior ---------- Manager, the fifth anniversary of the Closing Date and (b) with respect to each Senior Manager other than a Tier I Senior Manager, the second anniversary of the Closing Date. "Majority Investors" has the meaning given that term in ------------------ Section 2.5. "Offer" has the meaning assigned to it in Section 2.6(a). ----- "Offeree" has the meaning given that term in Section 2.6(a). ------- 5 "Offeror" has the meaning given that term in Section 2.6(a). ------- "Ordinary Shares" has the meaning given that term in the --------------- Recitals to this Agreement. "Permitted Transferee" means with respect to any Management -------------------- Shareholder, (i) upon the death of such Management Shareholder, his or her executors, administrators, testamentary trustees, legatees or beneficiaries, (ii) his or her Family Members, (iii) a trust or custodianship the beneficiaries of which include only such Management Shareholder and/or his or her Family Members, (iv) a trust in which the Management Shareholder and/or his or her Family Members have 100% of the beneficial ownership, (v) a foundation in which the Management Shareholder and/or his or her Family Members control the management of the assets and (vi) any other entity in which the Management Shareholder and/or his or her Family Members own more than fifty percent of the voting interest, provided that any such Permitted Transferee complies with Section 2.2(a) hereof. For purposes of this definition, "Family Member" means the Management Shareholder's spouse, lineal descendants, siblings, nephews and nieces, parents and grandparents, and stepchildren and stepparents, including any such persons by adoptive relationships. "Person" means any individual, corporation, limited liability ------ company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever. "Preferred Shares" has the meaning given that term in the ---------------- Recitals to this Agreement. "Public Offering" means the sale of common equity securities --------------- to the public pursuant to an effective registration statement (other than a registration statement on Form S-4 or Form S-8 or any similar or successor form) filed under the Securities Act. "Qualified Public Offering" means the sale of (i) at least 15% ------------------------- of the outstanding Ordinary Shares pursuant to an initial Public Offering by the Company or (ii) Ordinary Shares pursuant to a Public Offering by the Company which results in gross proceeds to the Company of at least $250 million. "Register" means the register of the Company on which the -------- Company records the legal title to the shares of the Company. "Restricted Share Agreement" with respect to any Management -------------------------- Shareholder, means the Restricted Share Agreement with the Company relating to certain Shares owned by such Management Shareholder. "Rollover Management Shareholders" has the meaning given that -------------------------------- term in the Recitals to this Agreement. 6 "Sale Notice" has the meaning given that term in Section ----------- 2.6(a). "SEC" means the Securities and Exchange Commission. --- "Section 2.2 Transfer" means a Transfer provided for in -------------------- Section 2.2. "Securities Act" means the Securities Act of 1933, as amended, -------------- and the rules and regulations of the SEC promulgated thereunder, as they may be amended from time to time. "Senior Managers" means those Management Shareholders who are --------------- listed on Schedule I hereto. "Shares" means the Ordinary Shares and the Preferred Shares. ------ "Silver Lake" has the meaning given that term in the Investor ----------- Shareholders Agreement. "Subsidiary" means, with respect to any Person, any ---------- corporation, partnership, association or other business entity of which fifty percent (50%) or more of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof, or fifty percent (50%) or more of the equity interest therein, which is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of such Person or a combination thereof. "Third Party" means any Person other than the Company, the ----------- Investors, the Management Shareholders and each of their Permitted Transferees (with respect to the Investors only, as such term in defined in the Investor Shareholders Agreement) and Affiliates. "Tier I Senior Manager" means those Management Shareholders --------------------- who are listed on Schedule II hereto. "TPG" means SAC Investments, L.P., a Cayman limited partnership. --- "Transfer" means, with respect to any Shares (or direct or -------- indirect economic or other interest therein), a transfer, sale, assignment, pledge, hypothecation or other disposition, whether directly or indirectly (pursuant to the creation of a derivative security or otherwise), the grant of an option or other right or the imposition of a restriction on disposition or voting or by operation of law. When used as a verb, "Transfer" shall have the correlative meaning. In addition, "Transferred" and "Transferee" shall have the correlative meanings. 7 "Transfer Restriction Termination Date" has the meaning given ------------------------------------- that term in Section 2.1(a). "Unvested Share Legend" has the meaning given that term in --------------------- Section 2.1(c). "Vested Share Legend" has the meaning given that term in ------------------- Section 2.1(c)." 1.2 Construction. The language used in this Agreement will be deemed ------------ to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party. Unless the context otherwise requires: (a) "or" is disjunctive but not exclusive, (b) words in the singular include the plural, and in the plural include the singular, and (c) the words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and Exhibit references are to this Agreement unless otherwise specified. ARTICLE II. TRANSFERS 2.1 Limitations on Transfer. ----------------------- (a) Each Management Shareholder agrees that he or she will not Transfer any Shares prior to the earliest of (i) a Qualified Public Offering of Ordinary Shares, (ii) a Change of Control and (iii) the Lapse Date with respect to such Management Shareholder (such earliest date, the "Transfer Restriction Termination Date"), except for Transfers which are permitted pursuant to Sections 2.2, 2.3 or 2.5 hereof or Article III hereof. After the Transfer Restriction Termination Date with respect to such Management Shareholder, such Management Shareholder may Transfer Shares only in accordance with, and subject to the provisions of, this Agreement. (b) In the event of any purported Transfer by a Management Shareholder of any Shares in violation of the provisions of this Agreement, such purported Transfer will be void and of no effect, and the Company will not give effect to such Transfer. (c) (i) Each certificate representing Shares held by a Management Shareholder which are subject to a Restricted Share Agreement will bear a legend on the face thereof substantially to the following effect (with such additions thereto or changes therein as the Company may be advised by counsel are required by law or necessary to give full effect to this Agreement, the "Unvested Share Legend"): "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO (I) A MANAGEMENT SHAREHOLDERS AGREEMENT AMONG NEW SAC (THE "COMPANY") AND THE MANAGEMENT SHAREHOLDERS LISTED THEREIN, DATED AS OF NOVEMBER 22, 2000, AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME IN ACCORDANCE WITH THE TERMS THEREOF, AND (II) A RESTRICTED SHARE AGREEMENT WITH THE COMPANY RELATING TO SUCH SHARES, A COPY OF EACH OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. THE 8 MANAGEMENT SHAREHOLDERS AGREEMENT CONTAINS, AMONG OTHER THINGS, CERTAIN PROVISIONS RELATING TO THE VOTING AND TRANSFER OF THE SHARES SUBJECT TO THE AGREEMENT, AND THE RESTRICTED SHARE AGREEMENT CONTAINS, AMONG OTHER THINGS, CERTAIN PROVISIONS RELATING TO THE VESTING OF SUCH SHARES. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE, DIRECTLY OR INDIRECTLY, MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH MANAGEMENT SHAREHOLDERS AGREEMENT AND RESTRICTED SHARE AGREEMENT. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH MANAGEMENT SHAREHOLDERS AGREEMENT AND RESTRICTED SHARE AGREEMENT." "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE." (ii) Each certificate representing Shares held by a Management Shareholder which are not subject to a Restricted Share Agreement will bear a legend on the face thereof substantially to the following effect (with such additions thereto or changes therein as the Company may be advised by counsel are required by law or necessary to give full effect to this Agreement, the "Vested Share Legend"): "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A MANAGEMENT SHAREHOLDERS AGREEMENT AMONG NEW SAC (THE "COMPANY") AND THE MANAGEMENT SHAREHOLDERS LISTED THEREIN, DATED AS OF NOVEMBER 22, 2000, AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME IN ACCORDANCE WITH THE TERMS THEREOF, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. THE MANAGEMENT SHAREHOLDERS AGREEMENT CONTAINS, AMONG OTHER THINGS, CERTAIN PROVISIONS RELATING TO THE VOTING AND TRANSFER OF THE SHARES SUBJECT TO THE AGREEMENT. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE, DIRECTLY OR INDIRECTLY, MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH MANAGEMENT SHAREHOLDERS AGREEMENT. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS 9 CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH MANAGEMENT SHAREHOLDERS AGREEMENT." "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE." (iii) The Unvested Share Legend or the Vested Share Legend, as applicable, will be removed by the Company by the delivery of substitute certificates without such Unvested Share Legend or Vested Share Legend, as the case may be, in the event of a Transfer permitted by this Agreement and in which the Transferee is not required to enter into an Assumption Agreement pursuant to Section 2.4; provided, however, that the second paragraph of each of the Unvested Share Legend and the Vested Share Legend will only be removed at such time as it is no longer required for purposes of applicable securities laws. (d) Notwithstanding any other provision of this Agreement to the contrary (other than Section 2.2), a Management Shareholder shall be permitted to Transfer any Shares which are subject to a Restricted Share Agreement only to the extent that such Management Shareholder's interest in such Shares has fully vested, as of the date of such transfer, in accordance with the terms of the applicable Restricted Share Agreement. However, Ordinary Shares which are not otherwise vested at the time of Transfer may be transferred to any Permitted Transferee, provided that such Permitted Transferee agrees to be bound by all of the restrictions and forfeiture provisions to which the transferred Ordinary Shares are subject at the time of such Transfer. (e) Without the prior written consent of Silver Lake and TPG, no Management Shareholder may Transfer all or a portion of his or her interests in the Company or take any other action, if such transfer or action would create a material risk of the Company becoming a "publicly traded partnership," within the meaning of Section 7704 of the Code and the regulations promulgated thereunder. 2.2 Certain Permitted Transfers. (a) Any Management Shareholder may --------------------------- Transfer any or all of the Shares held by him or her to any Permitted Transferee of such Management Shareholder who duly executes and delivers an Assumption Agreement, provided that such Transfer shall not be effective unless and until the Company shall have been furnished with information reasonably satisfactory to it demonstrating that such Transfer is exempt from or not subject to the provisions of Section 5 of the Securities Act and any other applicable securities laws. (b) Each Permitted Transferee of any Management Shareholder to which Shares are transferred shall, and such Management Shareholder shall cause such Permitted Transferee 10 to, transfer back to such Management Shareholder (or to another Permitted Transferee of such Management Shareholder) any Shares it owns prior to such Permitted Transferee ceasing to be a Permitted Transferee of such Management Shareholder. (c) Subject to the other provisions of this Agreement, each Management Shareholder may Transfer any or all of the Shares held by him or her: (i) with the consent of the Board, to another Management Shareholder; (ii) to the Company; or (iii) to Silver Lake, TPG or any of their respective Affiliates. 2.3 Tag-Along Rights. (a) So long as (i) this Agreement shall remain ---------------- in effect and (ii) no Qualified Public Offering of Ordinary Shares shall have occurred, each Management Shareholder shall, with respect to such Management Shareholder's Shares, have the right to exercise the rights of a Tagging Shareholder pursuant to Section 2.4 of the Investor Shareholders Agreement in connection with any Proposed Sale (as defined in the Investor Shareholders Agreement) of Shares by any Selling Holder (as defined in the Investor Shareholders Agreement) thereunder, provided that, in the case of a Proposed Sale, such Management Shareholder shall be permitted to participate in any such Proposed Sale only with respect to those Shares which are not subject to a Restricted Share Agreement or with respect to which such Management Shareholder's interest has fully vested as of the date of the closing of such Proposed Sale (including Shares that are vested as a result of such Proposed Sale), in accordance with the terms of the applicable Restricted Share Agreement. 2.4 Rights and Obligations of Transferees. Any Transferee of Shares ------------------------------------- (other than Transferees who acquire Shares pursuant to the exercise of rights set forth in Section 2.5 or Section 4.1 or, following the initial Public Offering by the Company, in a bona fide sale to the public pursuant to Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act) will be required, at the time of and as a condition to such Transfer, to become a party to this Agreement by executing and delivering an Assumption Agreement and, upon executing and delivering an Assumption Agreement, will be treated as a Management Shareholder for all purposes hereof; provided, however, that no such Transferee will acquire any rights (but will be subject to the obligations) under Section 2.3 and 4.1 or be subject to the Call Right under Article III, unless such Transferee is a Permitted Transferee. 2.5 Take-Along Rights. Each Management Shareholder agrees that if any ----------------- Investor or Investors holding, in the aggregate, at least a majority of the outstanding Ordinary Shares (such Investor or Investors, the "Majority Investors") receive an offer from a third party to purchase or otherwise acquire at least a majority of the outstanding Ordinary Shares, such Management Shareholder shall, at the request of such Majority Investors, be required to Transfer that percentage of his or her vested Preferred Shares and that percentage of his or her vested Ordinary Shares equal to the percentage of the Preferred Shares and/or Ordinary Shares (as the case may be) held by the Majority Investors being transferred at the same price per Preferred Share and/or Ordinary Share (as the case may be) and upon the terms, conditions, and provisions, if any, of the offer so accepted by the Majority Investors, including making the same representations, warranties, covenants, indemnities and agreements that the Majority Investors 11 agree to make (except that, in the case of representations, warranties, conditions, covenants, indemnities and agreements pertaining specifically to the Majority Investors, each such Management Shareholder shall make the comparable representations, warranties, covenants, indemnities and agreements and shall agree to comparable conditions, in each case to the extent applicable and pertaining specifically to itself and only to itself); provided that all representations, warranties, covenants, indemnities and agreements (other than those referred to in the immediately preceding exception) shall be made by each Majority Investor and each such Management Shareholder severally and not jointly and that any liability of the Majority Investor and such Management Shareholders thereunder shall be borne by each of them on a pro rata basis determined according to the number of Shares sold by each of them. In the event that any such Transfer is structured as a merger, consolidation or similar business combination, each such Management Shareholder agrees to vote in favor of the transaction and take all action to waive any dissenters, appraisal or other similar rights. 2.6 Rights of First Refusal. (a) If, following the Transfer ----------------------- Restriction Termination Date and prior to an initial Public Offering, a Management Shareholder (for this purpose, an "Offeree") receives a bona fide offer to purchase any or all of his or her Shares that are not subject to a Restricted Share Agreement or which have vested pursuant to the applicable Restricted Share Agreement (in each case, the "Offer") from a Third Party (the "Offeror"), which Offer such Management Shareholder wishes to accept and that could be consummated without violating the terms of this Agreement, then (i) the Offeree shall cause the Offer to be reduced to writing and shall notify the Company in writing of his or her wish to accept the Offer (the "Sale Notice"), (ii) the Company or its designee(s) shall have the right to purchase all (but not less than all) of such Shares pursuant to this Section 2.6 and (iii) the Offeree agrees not to sell such Shares prior to the earlier of (a) the 30-day period set forth in the second succeeding paragraph of this Section 2.6(a) and (b) the communication to the Offeree of the decision by the Company to not purchase any or all of such Shares. The Sale Notice shall contain an irrevocable offer to sell such Shares to the Company or its designee(s) in the manner set forth in this Section 2.6(a) at a purchase price equal to the price contained in and otherwise on substantially the same terms, conditions and other provisions of the Offer and shall be accompanied by a true and complete written copy of the Offer (which shall identify the Offeror). At any time within 30 days from the date of the receipt by the Company of the Sale Notice, the Company shall have the option to purchase, or to arrange for one or more Persons designated by the Company to purchase, all (but not less than all) of the Shares covered by the Offer either (i) for the same consideration and on substantially the same terms, conditions and other provisions as the Offer or (ii) if the Offer includes any consideration other than cash, then, at the sole option of the Company, at the equivalent all cash price, determined in good faith by the Board, and otherwise on the same terms, conditions and other provisions as the Offer. The Company agrees to notify the Offeree as promptly as practicable of its decision regarding the right of first refusal set forth in this Section 2.6(a) but, in no event, shall it notify the Offeree later than the end of such 30-day period. 12 (b) If the option set forth in Section 2.6(a) is exercised by the Company, the Company (or its designee(s)) shall arrange with the Offeree a mutually convenient time (not later than ninety (90) days after the date of the Sale Notice) to consummate such purchase and sale and, at that time, shall pay to the Offeree cash consideration for the Shares subject to such purchase and sale, by delivering a certified bank check or checks or by wiring same day funds upon the instructions of the Offeree in the amount of the purchase price for such Shares and shall deliver the relevant non-cash consideration, if any, to the Offeree against delivery to the Company by the Offeree of (i) if the Shares have been issued in certificated form, certificates representing the Shares being purchased, appropriately endorsed by the Offeree or (ii) if the Shares have been issued in book-entry form, instructions regarding the transfer of registration of the Shares being sold to the Company on the Register. (c) If, at the end of the 30-day period referred to in Section 2.6(a), the Company (or its designee(s)) has not exercised the right of first refusal in the manner set forth above, the Offeree may, during the next succeeding 60 Business Days, sell not less than all of the Shares covered by the Offer to the Offeror at a price and on terms, conditions and other provisions no less favorable to the Offeree than those contained in the Offer. Promptly after such sale, (i) the Offeree shall notify the Company of the consummation thereof and shall furnish such evidence of the completion and time of completion of such sale and of the terms thereof as may reasonably be requested by the Company and, thereafter, (ii) the Company shall deliver (A) if the Shares have been issued in certificated form, new certificates representing the Shares sold to the Offeror who has purchased such Shares upon delivery of old certificates issued to the Offeree and representing such Shares or (B) if the Shares have been issued in book-entry form, notices to the Offeree and the Offeror who has purchased such Shares of the registration of Transfer of such Shares. If, at the end of the 60-Business Day period referred to in this Section 2.6(c), the Offeree has not completed the sale of such Shares as aforesaid, all the restrictions on transfer contained herein shall again be in effect with respect to such Shares. 2.7 Distributions Upon Initial Public Offering of Designated -------------------------------------------------------- Subsidiaries. Upon any distribution contemplated by Section 2.7 of the Investor - ------------ Shareholders Agreement where an additional shareholders agreement is entered into pursuant to Section 2.7, each Management Shareholder shall enter into a shareholders agreement with the Company having substantially identical terms and conditions as this Agreement, provided that (i) all references in this Agreement to the Company shall be changed in such additional shareholders agreement to references to the relevant Designated Subsidiary (as such term is defined in the Investor Shareholders Agreement) and (ii) all references in this Agreement to the Investor Shareholders Agreement shall be changed in such additional shareholders agreement to the applicable additional shareholders agreement entered into pursuant to the terms of the Investor Shareholders Agreement. ARTICLE III. CALL RIGHTS 3.1 Call Rights. (a) If the employment with the Company or any of its ----------- Subsidiaries of any Management Shareholder terminates for any reason (including, without 13 limitation, due to death or disability of such Management Shareholder) prior to the Lapse Date with respect to such Management Shareholder, the Company (or its designee(s)) shall have the option to purchase (the "Call Rights"), and such Management Shareholder shall be required to sell to the Company (or to any such designee(s)), if the Company exercises the Call Rights, any or all Shares held by such Management Shareholder, at a price per share equal to the applicable purchase price determined pursuant to Section 3.2 hereof; provided, however, that in the case of a termination of employment without Cause, a resignation from employment with Good Reason or the death or disability of the employee, the Company may exercise its Call Rights only with the approval of one Management Director (as such term is defined in the Investor Shareholders Agreement). (b) If the Company does not exercise its Call Rights with respect to such Management Shareholder within 60 days of such Management Shareholder's termination of employment (other than becasuse of a failure to obtain the approval of one Management Director as contemplated by the proviso of Section 3.1(a)), then the Investors and the Tier I Senior Managers shall have the same Call Rights for a period of 30 days effective immediately upon the expiration of the 60-day period described in this Section 3.1(b). If more than one Investor or Tier I Senior Manager exercises its Call Rights with respect to such Management Shareholder, each such Investor or Tier I Senior Manager shall have the right to purchase the number of such Shares equal to the product of (i) the number of Shares subject to such Call Rights and (ii) the quotient of (A) such Investor's or Tier I Senior Manager's percentage ownership in the Ordinary Shares and (B) the aggregate percentage ownership in the Ordinary Shares of such Investor or Tier I Senior Manager and all other Investors and Tier I Senior Managers exercising such Call Rights; provided, that for purposes of determining such quotient only Ordinary Shares held by Tier I Senior Managers which are not subject to a Restricted Share Agreement or with respect to which such Tier I Senior Managers' interests have fully vested as of the date of the exercise of such Call Rights, in accordance with the terms of the applicable Restricted Share Agreements, shall be taken into account. (c) Upon the termination of such Management Shareholder's employment, the Company shall deliver written notice to such Management Shareholder within 60 days (if at all) of such termination indicating its intention to exercise its Call Rights. The Company's decision whether to exercise its Call Rights in the case of a termination of employment of a Rollover Management Shareholder without Cause or for Good Reason shall, subject to the proviso of Section 3.1(a), be determined by the Compensation Committee of the Board. Any Investor or Tier I Senior Manager exercising its Call Rights pursuant to Section 3.1(b) hereof shall deliver written notice to such Management Shareholder of such exercise within 30 days of the expiration of the 60-day period referred to in Section 3.1(b) hereof. (d) Regardless of whether the Company or any of the Investors or Tier I Senior Managers exercise their respective Call Rights within the period prescribed by this Section 3.1, if a Management Shareholder continues to own Shares, then he or she shall continue to be bound by the terms of this Agreement. 14 3.2 Procedures for Exercise of Call Rights. In the event of a -------------------------------------- purchase by the Company, any Investor or any Tier I Senior Manager and the sale by such Management Shareholder pursuant to Section 3.1 hereof, then the purchase price shall be: (i) in the case of a termination of or resignation from employment for any reason other than as provided in clauses (ii) and (iii) below, the Fair Market Value of the Shares to be purchased on the date on which notice of exercise of Call Rights is delivered pursuant to Section 3.1; (ii) in the case of a termination of employment for Cause, the lower of (a) the Fair Market Value of the Shares to be purchased on the date of termination of employment and (b) the original cost at which such Management Shareholder acquired such Shares (provided that the original cost of (i) any Ordinary Shares acquired on the date hereof shall be deemed to be zero and (ii) any Preferred Shares shall be equal to the Liquidation Preference (as defined in the articles of association of the Company) in respect thereof); or (iii) in the case of a termination of employment of a Rollover Management Shareholder (but not Management Shareholders who are not Rollover Management Shareholders) without Cause or a resignation from employment thereby with Good Reason, the higher of (a) the Fair Market Value of the Shares to be purchased on the date on which notice of the exercise of the Call Rights is delivered pursuant to Section 3.1 and (b) the original cost at which such Management Shareholder acquired such Shares (provided that the original cost of (i) any Ordinary Shares acquired on the date hereof shall be deemed to be zero and (ii) any Preferred Shares shall be equal to the Liquidation Preference (as defined in the articles of association of the Company) in respect thereof). If the Company, any Investor or any Tier I Senior Manager purchases Shares from a terminated Management Shareholder pursuant to Section 3.1(a) hereof, the purchasing party shall arrange a mutually convenient time (not later than ninety (90) days after the effective date of the Management Shareholder's termination of employment) to consummate such purchase and sale and, at that time, shall pay such Management Shareholder the purchase price against delivery by such Management Shareholder of (i) if the Shares have been issued in certificated form, certificates representing such Shares appropriately endorsed by such Management Shareholder or (ii) if the Shares have been issued in book-entry form, instructions from the terminated Management Shareholder to register the Transfer of Shares effected by the exercise of such Call Right on the Register. The purchase price for such Shares shall be paid by delivering a certified bank check or checks or by wiring same day funds upon the instruction of such Management Shareholder. The Company shall deliver to the terminated Management Shareholder (i) if the Shares to be purchased have been issued in certificated form, certificates representing the balance of the Shares held by such Management Shareholder which remain unsold (if any) after the purchase pursuant to this Section 3.1 and which otherwise have not been forfeited (if any) or (ii) if such Shares have been issued in book-entry form, notice to the terminated Management Shareholder of the registration of Transfer of the Shares sold to the 15 Company or the Investors upon the exercise of the Call Rights of such party. In the event that the Company or any Investor or Tier I Senior Manager exercises its Call Rights with repect to any Shares held by any Management Shareholder that have been vested pursuant to a Restricted Share Agreement for less than six months (the period from the date of such vesting until six months after such date, the "Custody Period"), the Company shall hold such Shares in custody for the benefit of such Management Shareholder until the expiration of the Custody Period with respect to such Shares; provided, however, that such Management Shareholder shall not have any rights with respect to such Shares (including, without limitation, any rights to Transfer or vote such Shares). The purchase and sale of such Shares shall be consummated after the expiration of the Custody Period. Notwithstanding anything to the contrary contained herein, the Fair Market Value of any Shares to be purchased after the expiration of any Custody Period shall be determined as of the date of the consummation of the purchase and sale of Shares. Notwithstanding anything to the contrary contained herein, in the event of a termination of employment of a Rollover Management Shareholder without Cause or for Good Reason, the Call Rights herein provided for will not apply to any Ordinary Shares other than those issued in respect of the cancellation of equity interests of Seagate pursuant to the Management Shareholder's Rollover Agreement with the Company dated November 13, 2000. ARTICLE IV. PIGGYBACK REGISTRATION RIGHTS 4.1 Piggyback Rights. Each Management Shareholder hereby agrees to be ---------------- bound by all of the terms, conditions and obligations of Article III (Registration Rights) of the Investor Shareholders Agreement and all other provisions of the Investor Shareholders Agreement (and any subsequent shareholder agreements entered into pursuant to Section 2.7 of the Investor Shareholders Agreement) necessary to give effect to Article III thereof. Subject to the limitations set forth in this Section 4.1, after both (i) the initial Public Offering by the Company and (ii) the Investors have sold for value to one or more Third Parties 15% or more of the number of Ordinary Shares owned in the aggregate by the Investors on the date hereof (as adjusted for any stock dividends, combinations, splits and the like with respect to such Ordinary Shares), each Management Shareholder shall have all of the rights and privileges of Article III of the Investor Shareholders Agreement (other than Section 3.2), in each case as if the Management Shareholder were an original party (other than the Company) thereto. 4.2 Additional Registration Rights. As soon as practicable following ------------------------------ a Qualified Public Offering, the Company shall use its reasonable best efforts to register all outstanding options to purchase Shares held by the Management Shareholders or their Permitted Transferees under one or more employee option plans of the Company or its Affiliates on a Form S-8 registration statement (or any successor form of registration statement) with the SEC and shall also, at the time of such registration, use its reasonable best efforts to register for resale on a Form S-3 reoffer prospectus (or any successor form of reoffer prospectus) any Shares previously issued to the Management Shareholders in connection with their rollover equity in the Company or their employment with the Company and held by such Management Shareholders or their Permitted Transferees at the time, if and to the extent such reoffer prospectus is permitted to be filed with the SEC in conjunction with the filing of the S-8 registration statement. The Company 16 shall use its reasonable best efforts to keep such reoffer prospectus current and in effect for at least one year following the expiration of any lock-up or market standoff period imposed on the Management Shareholders in connection with the Qualified Public Offering. The foregoing obligations of the Company shall also be binding upon any successor entity, whether through merger, consolidation or other change in control or ownership transaction. ARTICLE V. REPRESENTATIONS AND WARRANTIES 5.1 Representations and Warranties of the Management Shareholders. ------------------------------------------------------------- Each Management Shareholder, severally and not jointly, represents and warrants to the Company as follows: (a) Authority; Enforceability. Such Management Shareholder has the ------------------------- legal capacity and all requisite power and authority to enter into this Agreement, to perform his or her obligations hereunder and to consummate the transactions contemplated hereby. This Agreement constitutes a valid and binding obligation of such Management Shareholder, enforceable against him or her in accordance with its terms. With respect to any Person who joins and enters into this Agreement after the date hereof pursuant to the terms of this Agreement, such Person will be deemed to represent and warrant to the Company, in addition to the other representations and warranties contained herein, that his or her joining and entering into this Agreement has been duly authorized and approved and that this Agreement constitutes a valid and binding obligation of such Person, enforceable against him or her in accordance with its terms. (b) No Conflicts. (i) No filing with, and no permit, authorization, ------------ consent or approval of, any Governmental Authority or any other Person is necessary for the execution of this Agreement by such Management Shareholder and the consummation by him or her of the transactions contemplated hereby and (ii) the execution and delivery of this Agreement by such Management Shareholder, the consummation of the transactions contemplated hereby and the compliance with the terms hereof by such Management Shareholder will not conflict with, or result in any violation or default (with or without notice or lapse of time or both) under any other agreement to which such Management Shareholder is a party, including any voting agreement, shareholders agreement, voting trust, trust agreement, pledge agreement, loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license, or violate any judgment, order, notice, decree, statute, law, ordinance, rule or regulation applicable to such Management Shareholder or to his or her property or assets. With respect to any Person who joins and enters into this Agreement after the date hereof pursuant to the terms hereof, such Person will be deemed to represent and warrant to the Company, in addition to the other representations and warranties contained herein, that the execution and delivery of this Agreement by such Person, the consummation of the transactions contemplated hereby and the compliance with the terms hereof by such Person will not cause any violation of its certificate of incorporation or by-laws or analogous organizational documents. 17 (c) Ownership, Etc. of Securities. Such Management Shareholder is the ----------------------------- beneficial or record owner of the equity interests in Seagate set forth opposite such Management Shareholder's name on Schedule III hereto. Such Management Shareholder has good and marketable title to such interests, free and clear of any encumbrances, agreements, adverse claims, liens or other arrangements with respect to the ownership thereof. (d) Accredited Investors. Each Tier I Senior Manager represents and -------------------- warrants to the Company that he or she is an "accredited investor" as defined under Regulation D of the Securities Act. (e) Access to Information, Etc. Such Management Shareholder --------------------------- represents and acknowledges that: (i) he or she has been supplied with, or otherwise has had access to, adequate information and the opportunity to ask questions of representatives of the Company in order to make his or her own independent decision to retain or acquire the Shares in connection with this Agreement; (ii) the Shares may be required to be held indefinitely and the Management Shareholder must continue to bear the economic risk of the retention of the Ordinary Shares unless the offer and sale of such Shares is subsequently registered under the Securities Act and all applicable state securities laws or an exemption or exception from such registration is available and the Management Shareholder otherwise complies with the terms of this Agreement; (iii) there is no market for the Shares and it is not anticipated that there will be any public market for the Shares; (iv) Rule 144 promulgated under the Securities Act is not presently available with respect to the sale of any securities of the Company (including the Shares), and the Company has made no agreement or covenant to make such rule available; (v) when and if Shares may be Transferred without registration under the Securities Act in reliance on Rule 144, such Transfer can be made only in limited amounts in accordance with the terms and conditions of such Rule; (vi) if the exemption provided under Rule 144 is not available, the public offer or sale of Shares without registration will require compliance with some other exemption or exception under the Securities Act and applicable state securities laws; (vii) if any of the Shares are at any time Transferred in accordance with Rule 144, the Management Shareholder will deliver to the Company at or prior to the time of such Transfer an executed Form 144 (if required by Rule 144) and 18 such other documentation as the Company may reasonably require in connection with such sale; (viii) a restrictive legend in the form heretofore set forth in Section 2.1(c) hereof shall be placed on the certificates representing Shares, if such Shares have been issued in certificated form; (ix) a notation shall be made in the appropriate records of the Company indicating that the Shares are subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a securities transfer agent, appropriate stop-transfer instructions will be issued to such transfer agent with respect to the Shares; (x) the Management Shareholder's financial situation is such that he or she can afford to bear the economic risk of holding the Shares for an indefinite period of time, has adequate means for providing for his or her current needs and personal contingencies, and can afford to suffer a complete loss of his or her retention of the Shares; (xi) the Management Shareholder's knowledge and experience in financial and business matters are such that he or she is capable of evaluating the merits and risks of owning the Shares; (xii) the Management Shareholder understands that the Shares are securities which involve a high degree of risk (including the risk of total loss), there are substantial restrictions on the transferability of the Shares, and on the Closing Date and for an indefinite period following the Closing Date, there will be no public market for the Shares and accordingly it may not be possible for the Management Shareholder to liquidate his or her Shares, including in case of emergency, if at all; (xiii) the Management Shareholder understands and has taken cognizance of all the risk factors related to the purchase of the Shares, and no representations or warranties have been made to the Management Shareholder or his or her representatives concerning the Shares, these risks, the Company or any of its Subsidiaries or their prospects or other related matters; (xiv) in making his or her election to retain or acquire Shares, the Management Shareholder has relied upon independent investigations made by him or her and, to the extent believed by the Management Shareholder to be appropriate, his or her representatives, including his or her own professional, legal, financial, tax and other advisors; and (xv) he or she has elected to retain or acquire Shares solely for investment purposes for his or her own account and not as a nominee or agent for 19 any other person and not with a view to, or for resale in connection with, the distribution or other disposition thereof; provided that this last representation does not prejudice the right of any Management Shareholder to Transfer Shares in compliance with the terms of this Agreement, the Securities Act and applicable state securities laws. 5.2 Representations and Warranties of the Company. The Company --------------------------------------------- represents and warrants to each Management Shareholder as follows: (a) Authority. It is duly incorporated, validly existing and in good --------- standing as an exempted company under the laws of the Cayman Islands. It has all requisite limited liability company power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by it and constitutes its valid and binding obligations, enforceable against it in accordance with its terms. (b) No Conflicts; Enforceability. (i) No filing with, and no permit, ---------------------------- authorization, consent or approval of, any Governmental Authority or any other person is necessary for the execution of this Agreement by the Company and the consummation by it of the transactions contemplated hereby, and (ii) the execution and delivery of this Agreement by the Company, the consummation by it of the transactions contemplated hereby and its compliance with the terms hereof will not conflict with, or result in any violation of, or default (with or without notice or lapse of time or both) under any provision of, its memorandum and articles of association or any other agreement to which it is a party, including any voting agreement, shareholders agreement, voting trust, trust agreement, pledge agreement, loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license, or violate any judgment, order, notice, decree, statute, law, ordinance, rule or regulation applicable to the Company or to its property and assets. ARTICLE VI. TAX MATTERS 6.1 Tax Matters. Each Management Shareholder hereby agrees to be ----------- bound by all of the terms, conditions, and obligations of Article VI (Tax Matters) of the Investor Shareholders Agreement and all other provisions of the Investor Shareholders Agreement necessary to give effect to Article VI thereof. 6.2 Section 83(b) Election. Promptly after the date of this ---------------------- Agreement, each Management Shareholder shall, with respect to the Shares held by such Management Shareholder, make a timely election under Section 83(b) of the Code, in accordance with the applicable regulations promulgated thereunder. 6.3 Income Tax Information. The Company agrees to prepare and send, ---------------------- or cause to be prepared and sent, to the Management Shareholders such information as may reasonably be required for applicable income tax reporting purposes. 20 ARTICLE VII. MISCELLANEOUS 7.1 Additional Shares Subject to Agreement. Each Management -------------------------------------- Shareholder agrees that any shares of the Company that he or she shall hereafter acquire by any means of a stock split, stock dividend, distribution, exercise of options or otherwise (other than pursuant to a Public Offering) shall be subject to the provisions of this Agreement to the same extent as if held as of the Closing Date and such Management Shareholder shall as promptly as practicable notify the Company of the terms of such acquisition or receipt, including the number of shares acquired, their price and the other terms and provisions of the acquisition, including the Person from whom they were acquired. 7.2 Joinder. After the Closing Date, employees of the Company may ------- from time to time acquire Shares and may be required in connection with such acquisition, to enter into this agreement with the Company as a Management Shareholder. Any such employee shall become a party to this Agreement by executing and delivering to the company a Joinder Agreement in substantially the form attached hereto as Exhibit B. Each such executed definitive Joinder Agreement shall become effective as between such employee and the Company upon its execution and delivery by such employee to the Company and its agreement and acknowledgment by the Company, and it shall not require the execution or consent of any other party hereto. 7.3 Termination. Other than as specified below, the provisions of ----------- this Agreement will terminate and be of no further force and effect upon the date on which at least 50% of the number of issued and outstanding Ordinary Shares are listed on, or being actively traded on a national securities exchange or interdealer quotation system. Notwithstanding the foregoing, Section 4.1 of this Agreement shall survive the termination of this Agreement until such time as all Registrable Securities (as defined in the Investor Shareholders Agreement) held by the Management Shareholders cease to be Registrable Securities. 7.4 Notices. (a) if to the Company: ------- New SAC c/o Silver Lake Partners, L.P. 2725 Sand Hill Road Building C, Suite 150 Menlo Park, CA 94025 Attention: David Roux Telecopy: (650) 233-8125 with copies to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 Attention: William E. Curbow, Esq. 21 Telecopy: (212) 455-2502 -and- Cleary, Gottlieb, Steen & Hamilton One Liberty Plaza New York, NY 10006 Attention: Paul J. Shim, Esq. Telecopy: (212) 225-3999 (b) if to a Management Shareholder, to him or her at his or her address or facsimile number set forth in the books and records of the Company. 7.5 Further Assurances. The parties hereto will sign such further ------------------ documents, cause such meetings to be held, resolutions passed, exercise their votes and do and perform and cause to be done such further acts and things as may be necessary in order to give full effect to this Agreement and every provision hereof. 7.6 Effective Time of Agreement. This Agreement shall become --------------------------- effective, with respect to each Management Shareholder, and enforceable against such Management Shareholder, upon execution of this Agreement by the Company and such Management Shareholder, without regard to execution by any other Management Shareholder. 7.7 Assignment. The provisions of this Agreement shall be binding ---------- upon and shall inure to the benefit of the parties hereto and their Permitted Transferees and their respective successors and permitted assigns. Except as specifically provided herein, this Agreement may not be assigned by any party hereto without the express prior written consent of the Investors, and any attempted assignment, without such consents, will be null and void. 7.8 Amendments; Waivers. This Agreement may be amended only by a ------------------- written instrument signed by (a) the Company and (b) the Management Shareholders or their Permitted Transferees who own on a fully diluted basis Ordinary Shares representing at least a majority of the voting power represented by all Ordinary Shares owned by Management Shareholders which are outstanding on a fully diluted basis; provided, however, that this Agreement may be amended, solely with respect to any Management Shareholder, by a written instrument executed by the Company and such Management Shareholder. No waiver by any party of any of the provisions hereof will be effective unless explicitly set forth in writing and executed by the party so waiving. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of any party, will be deemed to constitute a waiver by the party taking such action of compliance with any covenants or agreements contained herein. The waiver by any party hereto of a breach of any provision of this Agreement will not operate or be construed as a waiver of any subsequent breach. 7.9 Third Parties. This Agreement does not create any rights, claims ------------- or benefits inuring to any person that is not a party hereto nor create or establish any third party 22 beneficiary hereto, provided that the Investors may rely on and enforce the representations, warranties, covenants and agreements of the Management Shareholders contained herein. 7.10 Governing Law. This Agreement will be governed by, and ------------- construed in accordance with, the laws of the State of New York. 7.11 Jurisdiction. Any action to enforce, which arises out of or in ------------ any way relates to, any of the provisions of this Agreement may be brought and prosecuted in such court or courts located within the State of New York as provided by law; and the parties consent to the jurisdiction of such court or courts located within the State of New York and to service of process by registered mail, return receipt requested, or by any other manner provided by the law of such applicable jurisdiction. 7.12 Injunctive Relief. The Management Shareholders acknowledge and ----------------- agree that a violation of any of the terms of this Agreement will cause the Company and the Investors irreparable injury for which adequate remedy at law is not available. Accordingly, it is agreed that each of the Company and the Investors shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which they may be entitled at law or equity. 7.13 Entire Agreement. This Agreement contains the entire ---------------- understanding of the parties with respect to the subject matter hereof. 7.14 Titles and Headings. The section headings contained in this ------------------- Agreement are for reference purposes only and will not affect the meaning or interpretation of this Agreement. 7.15 Severability. If any provision of this Agreement is declared by ------------ any court of competent jurisdiction to be illegal, void or unenforceable, all other provisions of this Agreement will not be affected and will remain in full force and effect. 7.16 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall bedeemed an original, but all of which shall constitute one and the same instrument. 7.17 Costs. Each of the parties hereto agree that each of them will ----- bear his or her own costs which arise from this Agreement. 7.18 Other Shareholders' Agreements. None of the Management ------------------------------ Shareholders shall enter into any shareholder agreement or other arrangement of any kind with any Person with respect to any Shares which is inconsistent with the provisions of this Agreement or which may impair its ability to comply with this Agreement. IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or caused this Agreement to be executed on its behalf as of the date first written above. NEW SAC By: ___________________________ Name: Title: MANAGEMENT SHAREHOLDER: ------------------------- Name: SCHEDULE I LIST OF SENIOR MANAGERS SCHEDULE II LIST OF TIER I SENIOR MANAGERS SCHEDULE III HOLDINGS OF MANAGEMENT SHAREHOLDERS - -------------------------------------------------------------------- NAME OF MANAGEMENT NUMBER OF SHARES OF SHAREHOLDER COMMON STOCK - -------------------------------------------------------------------- - -------------------------------------------------------------------- - -------------------------------------------------------------------- - -------------------------------------------------------------------- - -------------------------------------------------------------------- - -------------------------------------------------------------------- - -------------------------------------------------------------------- EXHIBIT A FORM OF ASSUMPTION AGREEMENT [DATE] To the parties to the Management Shareholders Agreement referred to below Ladies and Gentlemen: Reference is made to the Management Shareholders Agreement dated as of November 22, 2000 (as the same be amended, supplemented or otherwise modified from time to time, the "Management Shareholders Agreement") among New SAC and the Management Shareholders party thereto. This is an Assumption Agreement referred to in the Management Shareholders Agreement. Capitalized terms used but not defined herein have the meanings given such terms in the Management Shareholders Agreement. The undersigned (the "Transferee") is a proposed transferee of Shares currently held by [TRANSFEROR NAME] (the "Transferor"), and has received a copy of the Management Shareholders Agreement as currently in effect. In connection with the proposed transfer of Shares to the Transferee, the Transferee hereby assumes, and agrees to be bound to the same extent as the Transferor by, the Management Shareholders Agreement with respect to such Shares. From and after the execution and delivery hereof and the consummation of the transfer of such Shares to the Transferee, the Transferee understands that it shall be deemed to be a party to the Management Shareholders Agreement as a Transferee of the Transferor, subject to the limitation on certain rights as provided in Section 2.4 of the Management Shareholders Agreement. Very truly yours, [TRANSFEREE NAME] By __________________ Name: Title: EXHIBIT B FORM OF JOINDER AGREEMENT Pursuant to the Management Shareholders' Agreement dated as of November 22, 2000 (the "Shareholders' Agreement") among New SAC and the Management Shareholders party thereto, the undersigned hereby agrees that, having acquired Shares, the undersigned has, by the terms of the Management Shareholders' Agreement, become bound by the terms and other provisions of the Management Shareholders' Agreement with all attendant rights, duties and obligations thereof and, pursuant to Section 2.4 and/or Section 7.2 of the Management Shareholders' Agreement and by this Joinder Agreement, hereby joins and enters into the Management Shareholders' Agreement. This is a Joinder Agreement referred to in the Management Shareholders' Agreement. Capitalized terms used but not defined in this Joinder shall have the meaning assigned to them in the Management Shareholders' Agreement. Listed below is information regarding the Shares of the undersigned: Number of Ordinary Shares: ________ - ------------------------- Number of Preferred Shares: ________ - -------------------------- IN WITNESS WHEREOF, the undersigned has executed this Joinder as of the date written below. [NAME] Name: Title: Date: , 2000 Acknowledged by: NEW SAC By: ___________________________ Name: Title: Date: EX-12.1 46 0046.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12.1 Seagate Technology Hard Drive Business, a Division of Seagate Technology, Inc. Computation of Ratio of Earnings to Fixed Charges (in Millions)
Predecessor -------------------------------- -------------- Six Period from Period from Months July 1, November 23, Ended to to June 30 July 2 July 3, June 27 June December 31, November 22, December 29, 2000 1999 1998 1997 1996 1999 - 2000 2000 ------------------------------------------------------------------------------------------- ------------- Earnings: Income (loss) before income taxes $ 641 $ 266 $ (708) $ 905 $ 377 $ 268 $ (949) $ (119) Add back fixed charges: Interest Expense 52 49 51 35 56 26 23 10 ------------------------------------------------------ --------------------------- ------------- Adjusted Earnings $ 693 $ 315 $ (657) $ 940 $ 433 $ 294 $ (926) $ (109) Total Fixed Charges 52 49 51 35 $ 56 $ 26 $ 23 $ 10 Ratio of Earnings to Fixed Charges 13.3x 6.4x 26.9x 7.7x 11.3x Deficiency of Earnings to Fixed Charges 708 $ -- $ 949 $ 119
Seagate Technology Inc. Computation of Ratio of Earnings to Fixed Charges (in Millions)
Seagate Technology New SAC ------------------------------------------------------------------ ------------- Six Period from Period from Months July 1, November 23, Fiscal Year (a) Ended to to December 31, November 22, December 29, 1996 1997 1998 1999 2000 1999 2000 2000 ---- ---- ---- ---- ---- ------------------------------- ------------- Earnings: Income (loss) before income taxes $ 331 $ 891 $ (704) $ 1,873 $ 609 $ 13 $ (1,640) $ (132) Add back fixed charges: Interest Expense 56 35 51 48 52 26 24 10 ---------------------------------------------------------- ------- -------- -------- Adjusted Earnings $ 387 $ 926 $ (653) $ 1,921 $ 661 $ 39 $ (1,616) $ (122) Total Fixed Charges $ 56 $ 35 $ 51 $ 48 $ 52 $ 26 $ 24 $ 10 Ratio of Earnings to Fixed Charges 6.9x 26.5x 40.0x 12.7x 1.5x Deficiency of Earnings to Fixed Charges $ 704 $ -- $ 1,640 $ 132
EX-21.1 47 0047.txt LIST OF SUBSIDIARIES EXHIBIT 21.1 Explanatory Note: Listed below are the direct and indirect subsidiaries of New SAC, which is an indirect parent of the issuer and which is expected to be the reporting company of the consolidated companies under the Securites Exchange Act of 1934, as amended.
JURISDICTION OF INCORPORATION NEW SAC SUBSIDIARIES OR FORMATION I. SEAGATE TECHNOLOGY HOLDINGS Cayman Islands A. Seagate Technology SAN Holdings Cayman Islands 1. XIOtech Corporation Minnesota a. XIOtech (Canada) Ltd. Canada B. Seagate Technology HDD Holdings Cayman Islands 1. Quinta Corporation California 2. Seagate Technology (US) Holdings, Inc. Delaware a. Seagate Technology LLC* Delaware i. Seagate US LLC Delaware b. Seagate Technology, Inc. - Portugal (inactive) Delaware c. Seagate Foreign Sales Corporation Virgin Islands d. Caltex Software, Inc. (inactive) Texas e. Redwood Acquisition Corporation Delaware f. Seagate Technology Australia Pty. Limited Australia g. Seagate Technology S.A. France h. Seagate Technology GmbH Germany i. Seagate Technology AB Sweden j. Seagate Technology Taiwan Ltd. Taiwan k. Seagate Technology (Hong Kong) Limited Hong Kong l. AVP SpA (inactive) Italy m. Seagate Technology Srl (inactive) Italy n. Seagate Technology Canada Ltd. (inactive) Canada 3. Seagate Technology International Cayman Islands a. Seagate Technology (Thailand) Limited Thailand b. Seagate Technology China Holding Company Cayman Islands i. Seagate Technology International (Shenzen) Co., Ltd. China c. Seagate Technology Asia Holdings Cayman Islands i. Senai Seagate Industries (M) Sdn. Bhd. Malaysia ii. P.T. Seagate Technology Indonesia d. Seagate Seagate Technology Media (Ireland) Cayman Islands e. Seagate Technology (Denmark) ApS Denmark i. Seagate Technology Media Mexico S.A. de C.V. Mexico ii. Seagate Technology-Reynosa, S. de R.L. de C.V. Mexico iii. Seagate Technology (Netherlands) BV Netherlands aa. Nippon Seagate Inc. Japan f. Seagate Singapore Distribution Pte Ltd Singapore g. Seagate Distribution (UK) Limited Scotland h. Seagate Technology (Marlow) Limited England & Wales i. Seagate Technology (Philippines) Cayman Islands j. Seagate Technology (Ireland) Cayman Islands k. Perai Seagate Storage Products Sdn. Bhd. Malaysia l. Penang Seagate Industries (M) Sdn. Bhd. Malaysia m. Seagate Technology International (Wuxi) Co. Ltd. China n. Seagate Technology Barbados Limited (inactive) Barbados o. Seagate Technology International Holdings Limited (inactive) Barbados p. Seagate Technology Far East Holdings Cayman Islands q. Seagate Microelectronics Limited (inactive) Scotland r. Seagate Investments Srl (inactive) Barbados
JURISDICTION OF INCORPORATION NEW SAC SUBSIDIARIES OR FORMATION s. Seagate Peripherals Singapore Pte. Ltd. (inactive) Singapore t. Seagate Technology Limited (inactive) Scotland u. Seagate Technology (Ireland Holdings) (inactive) Cayman Islands v. Seagate Technology (Clonmel) (inactive) Cayman Islands w. Seagate Holdings Barbados Limited (inactive) Barbados x. Seagate Technology (Malaysia) Holding Company Cayman Islands II. SEAGATE REMOVABLE STORAGE SOLUTIONS HOLDINGS Cayman Islands A. Seagate Removable Storage Solutions International Cayman Islands 1. Seagate RSS (M) Sdn. Bhd. Malaysia B. Seagate Removable Storage Solutions (US) Holdings, Inc. Delaware 1. Seagate Removable Storage Solutions LLC Delaware a. Seagate RSS LLC Delaware III. SEAGATE SOFTWARE (CAYMAN) HOLDINGS Cayman Islands A. Seagate Software Information Management Group Holdings, Inc. Delaware 1. Seagate Software Canada, Inc. Canada 2. Nippon Seagate Software KK Japan 3. Seagate Software Pte Ltd Singapore 4. Seagate Software Information Management Group Limited England & Wales 5. Seagate Software Pty Ltd Australia 6. Crystal Decisions (France) SA France 7. Seagate Software Information Management Group GmbH Germany 8. Seagate Software (Hong Kong) Limited Hong Kong 9. Seagate Software Srl Italy 10. Seagate Software Information Management Group AB Sweden 11. Seagate Software GmbH Switzerland 12. Seagate Software Information Management Group BV Netherlands IV. SEAGATE TECHNOLOGY INVESTMENT HOLDINGS LLC Holds investments in several companies, including A. Iolon, Inc. B. CacheVision, Inc.
EX-23.1 48 0048.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated April 18, 2001 with respect to the consolidated financial statements of New SAC and Its Predecessor Seagate Technology, Inc., included in the Registration Statement (Form S-4 No. 333-00000) and related Prospectus of Seagate Technology International for the registration of $210,000,000 of its Senior Subordinated Notes due 2007. /s/ Ernst & Young LLP San Jose, California April 18, 2001 EX-23.2 49 0049.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated April 18, 2001, with respect to the consolidated combined financial statements of the Seagate Technology Hard Disc Drive Business, an operating business of Seagate Technology, Inc., the Predecessor to Seagate Technology Holdings, included in the Registration Statement (Form S-4 No. 333-00000) and related Prospectus of Seagate Technology International for the registration of $210,000,000 of its Senior Subordinated Notes due 2007. /s/ Ernst & Young LLP San Jose, California April 18, 2001 EX-23.3 50 0050.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.3 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 16, 2001 with respect to the consolidated financial statements of Xiotech Corporation, the Predecessor to Seagate Technology SAN Holdings, included in the Registration Statement (Form S-4 No. 333-00000) and related Prospectus of Seagate Technology International for the registration of $210,000,000 of its Senior Subordinated Notes due 2007. /s/ Ernst & Young LLP San Jose, California April 18, 2001 EX-23.4 51 0051.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23. 4 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated April 18, 2001 with respect to the consolidated combined financial statements of Seagate Removable Storage Solutions Business, an operating business of Seagate Technology, Inc., the Predecessor to Seagate Technology Removable Storage Holdings, included in the Registration Statement (Form S-4 No. 333-00000) and related Prospectus of Seagate Technology International for the registration of $210,000,000 of its Senior Subordinated Notes due 2007. /s/ Ernst & Young LLP San Jose, California April 18, 2001 EX-23.5 52 0052.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.5 CONSENT OF ERNST & YOUNG LLP, INDEPEDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated July 7, 2000, except for notes 1,11,19, and 20, as to which the date is March 26, 2001, with respect to the consolidated and combined financial statements of Crystal Decisions, Inc. included in the Registration Statement (Form S-4 No. 333-00000) and related Prospectus of Seagate Technology International for the registration of its Senior Subordinated Notes due 2007. /s/ Ernst & Young LLP Vancouver, British Columbia April 18, 2001 EX-23.6 53 0053.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.6 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-4 of Seagate Technology International of our report dated March 26, 1999 relating to the financial statements of XIOtech Corporation, which appear in such Registration Statement. We also consent to the references to us under the heading "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Minneapolis, Minnesota April 18, 2001 EX-25.1 54 0054.txt FORM T-1 EXHIBIT 25.1 ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) [ ] ---------- THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) ---------- SEAGATE TECHNOLOGY INTERNATIONAL (Exact name of obligor as specified in its charter) Cayman Islands 98-0182115 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 7000 Ang Mo Kio Avenue #5 Singapore 569877 (Address of principal executive offices) (Zip code) New SAC (Exact name of obligor as specified in its charter) Cayman Islands 98-0230396 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 1 Seagate Technology Holdings (Exact name of obligor as specified in its charter) Cayman Islands 98-0232277 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Seagate Technology China Holding Company (Exact name of obligor as specified in its charter) Cayman Islands 98-0182119 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Seagate Technology Asia Holdings (Exact name of obligor as specified in its charter) Cayman Islands 98-0336209 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Seagate Technology (Ireland) (Exact name of obligor as specified in its charter) Cayman Islands N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Seagate Technology (Malaysia) Holding Company (Exact name of obligor as specified in its charter) Cayman Islands N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Seagate Technology Media (Ireland) (Exact name of obligor as specified in its charter) Cayman Islands N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 2 EXHIBIT 25.1 Seagate Technology Far East Holdings (Exact name of obligor as specified in its charter) Cayman Islands N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Seagate Technology (Philippines) (Exact name of obligor as specified in its charter) Cayman Islands N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Seagate Technology (SAN) Holdings (Exact name of obligor as specified in its charter) Cayman Islands N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Seagate Removable Storage Solutions International (Exact name of obligor as specified in its charter) Cayman Islands 98-0229623 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Seagate Removable Storage Solutions Holdings (Exact name of obligor as specified in its charter) Cayman Islands N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 3 Seagate Software (Cayman) Holdings (Exact name of obligor as specified in its charter) Cayman Islands 77-0397623 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) c/o Maples & Calder P.O. Box 309GT Ugland House South Church Street George Town, Grand Cayman Cayman Islands (Address of principal executive offices) (Zip code) Quinta Corporation (Exact name of obligor as specified in its charter) California 77-0426766 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Seagate Technology (US) Holding, Inc. (Exact name of obligor as specified in its charter) Delaware 77-0551570 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Seagate Technology LLC (Exact name of obligor as specified in its charter) Delaware 77-0545899 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Seagate Removable Storage Solutions (US) Holdings, Inc. (Exact name of obligor as specified in its charter) Delaware 77-0551572 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 4 EXHIBIT 25.1 Seagate US LLC (Exact name of obligor as specified in its charter) Delaware 77-0545987 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Redwood Acquisition Corporation (Exact name of obligor as specified in its charter) Delaware 52-2134904 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Seagate Technology HDD Holdings (Exact name of obligor as specified in its charter) Cayman Islands N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 920 Disc Drive Scott Valley, California 95066-4544 (Address of principal executive offices) (Zip code) Seagate Removable Storage Solutions LLC (Exact name of obligor as specified in its charter) Delaware 77-0545900 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Seagate RSS LLC (Exact name of obligor as specified in its charter) Delaware 77-0545902 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 1650 Sunflower Avenue Costa Mesa, CA 92626 (Address of principal executive offices) (Zip code) 5 Crystal Decisions, Inc. (Exact name of obligor as specified in its charter) Delaware 77-0537234 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 895 Emerson St. Palo Alto, CA 94301 (Address of principal executive offices) (Zip code) XIOtech Corporation (Exact name of obligor as specified in its charter) Minnesota 41-1821093 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 6455 Flying Cloud Drive Eden Prairie, MN 55344-3305 (Address of principal executive offices) (Zip code) XIOtech (Canada) Ltd (Exact name of obligor as specified in its charter) New Brunswick, Canada N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) c/o Stewart McKelvey Stirling Scales 44 Chipman Hill, 10th Floor P.O. Box 7289 Stn. "A" Saint John, N.B. Canada E2L456 (Address of principal executive offices) (Zip code) 6 EXHIBIT 25.1 Crystal Decisions, Corp. (Exact name of obligor as specified in its charter) New Brunswick, Canada N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 840 Cambie Street Vancouver, Canada BC V6B 2M6 (Address of principal executive offices) (Zip code) Nippon Seagate, Inc. (Exact name of obligor as specified in its charter) Japan N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Tennoz Parkside Building 3F, 2-5-8 Higashi-Shinagawa, Shinagawa-ku Tokyo, Japan 140-022 (Address of principal executive offices) (Zip code) Nippon Seagate Software, Inc. (Exact name of obligor as specified in its charter) Japan N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Bidgestone Bldg., 3rd Fl., 2-13-12 Hirakawa-cho, Chiyoda-Ku, Tokyo Japan 102-0093 (Address of principal executive offices) (Zip code) 7 Seagate Technology-Reynosa, S. de R.L. de C.V. (Exact name of obligor as specified in its charter) Mexico N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Blvd. Montebello #737 Esq. Blvd. Chapultepec, Parque Industrial Colonial, Cd. Reynosa Tamps, Mexico 88780 (Address of principal executive offices) (Zip code) Seagate Distribution (UK) Limited (Exact name of obligor as specified in its charter) Scotland N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 1 Brewster Place, Riverside Business Park, Oldhall West Irvine, Scotland KA11 5DE (Address of principal executive offices) (Zip code) Seagate Singapore Distribution Pte. Ltd. (Exact name of obligor as specified in its charter) Singapore N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Seagate AMK Bldg., 7000 Ang Mo Kio Avenue 5, Singapore 569877 (Address of principal executive offices) (Zip code) 8 EXHIBIT 25.1 Crystal Decisions (Singapore) Pte. Ltd. (Exact name of obligor as specified in its charter) Singapore N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 14 Science Park Drive #03-02 The Maxwell, Singapore (Address of principal executive offices) (Zip code) Seagate Technology (Thailand) Limited (Exact name of obligor as specified in its charter) Thailand 98-0182120 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) No. 1627 Moo 7 Teparuk Road, Tambol Teparuk, Amphur Muang Samutprakarn, Thailand 10270 (Address of principal executive offices) (Zip code) Seagate Technology (Marlow) Limited (Exact name of obligor as specified in its charter) England and Wales N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Seagate House, Globe Park Fieldhouse Lane, Marlow Bucks, United Kingdom SL7 1LW (Address of principal executive offices) (Zip code) 9 Seagate Software Information Management Group Limited (Exact name of obligor as specified in its charter) England and Wales 77-0465436 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) The Broadwalk #54 The Broadway Ealing England W5 5JN (Address of principal executive offices) (Zip code) ------------- 12 1/2 % Senior Subordinated Notes Due 2007 (Title of the indenture securities) ================================================================================ 10 EXHIBIT 25.1 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. - -------------------------------------------------------------------------------- Name Address - -------------------------------------------------------------------------------- Superintendent of Banks of the 2 Rector Street, New York, State of New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Washington, D.C. 20429 Corporation New York Clearing House New York, New York 10005 Association (b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. Yes. 2. AFFILIATIONS WITH OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. None. 16. LIST OF EXHIBITS. EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R. 229.10(D). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. 11 SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 16th day of April, 2001. THE BANK OF NEW YORK By: /s/ THOMAS E.TABOR ------------------------------------ Name: THOMAS E. TABOR Title: ASSISTANT VICE PRESIDENT 12 EX-99.1 55 0055.txt FORM OF LETTER OF TRANSMITTAL LETTER OF TRANSMITTAL SEAGATE TECHNOLOGY INTERNATIONAL OFFER TO EXCHANGE ALL OUTSTANDING 12 1/2% SENIOR SUBORDINATED NOTES DUE 2007 FOR 12 1/2% SENIOR SUBORDINATED NOTES DUE 2007 THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 PURSUANT TO THE PROSPECTUS DATED [_____________], 2001 - ------------------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [________________], 2001 OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO THE EXPIRATION DATE. - ------------------------------------------------------------------------------- The Exchange Agent for the Exchange Offer is: THE BANK OF NEW YORK
By Registered or Certified Mail: Facsimile Transmission Number: By Hand or Over Night Delivery (Eligible Institutions Only) The Bank of New York Attention: The Bank of New York 101 Barclay Street, Floor 7E Reorganization Unit 7E 101 Barclay Street New York, New York 10286 (212) 815-6339 Corporate Trust Services Window Attention: Carolle Montreuil Confirmation by telephone: Ground Level Reorganization Unit, 7E (212) 815-5920 New York, New York 10286 Attention:Carolle Montreuil
Delivery of this letter of transmittal to an address other than as set forth above, or transmission of instructions via facsimile other than as set forth above, does not constitute a valid delivery. The undersigned acknowledges that the undersigned has received a copy of the prospectus dated [____________], 2001 (as amended or supplemented from time to time, the "PROSPECTUS"), of Seagate Technology International, a Cayman Islands limited liability company (the "COMPANY"), and this letter of transmittal (as amended or supplemented from time to time, the "LETTER OF TRANSMITTAL"), which together constitute the Company's offer (the "EXCHANGE OFFER") to exchange up to $210,000,000 aggregate principal amount of 12 1/2% Senior Subordinated Notes due 2007 (the "EXCHANGE NOTES") of the Company, for an equal principal amount of the Company's issued and outstanding 12 1/2% Senior Subordinated Notes due 2007 (the "PRIVATE NOTES"). The terms of the Exchange Notes are identical in all material respects (including principal amount, interest rate and maturity) to those of the Private Notes, except that: (i) the Exchange Notes will be registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and will not bear legends restricting their transfer; (ii) the Exchange Notes will not be entitled to registration rights that are applicable to the Private Notes under the Exchange and Registration Rights Agreement, dated as of November 22, 2000, among the Company, the note guarantors listed therein, Chase Securities Inc., Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "REGISTRATION RIGHTS AGREEMENT"); and (iii) the Exchange Notes will not provide for liquidated damages upon the failure of the Company to fulfill its obligations to file and cause to be effective a registration statement. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. Capitalized terms used but not defined herein have the meanings given to such terms in the Prospectus. This Letter of Transmittal is to be completed by holders of Private Notes (a) if Private Notes are to be forwarded herewith or (b) if tenders of Private Notes are to be made by book-entry transfer to an account maintained by The Bank of New York (the "EXCHANGE AGENT") at The Depository Trust Company ("DTC") pursuant to the procedures set forth in the Prospectus under the caption "The Exchange Offer -- Procedures for Tendering". Delivery of this Letter of Transmittal and any other required documents should be made to the Exchange Agent. If a holder desires to tender Private Notes pursuant to the Exchange Offer but time will not permit this Letter of Transmittal, the certificates representing Private Notes or other required documents to reach the Exchange Agent on or before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, such holder may effect a tender of such Private Notes in accordance with the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures". DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY The undersigned has completed the appropriate boxes below and signed this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. List below the Private Notes to which the Letter of Transmittal relates. If the space provided below is inadequate, the certificate numbers and principal amount of Private Notes should be listed on a separate schedule affixed hereto.
- ------------------------------------------------------------------------------------------------------- DESCRIPTION OF PRIVATE NOTES - ------------------------------------------------------------------------------------------------------- - ------------------------------------- --------------------- ----------------------- ------------------- Principal Amount of Private Notes Name(s) and Address(es) of Tendered Registered Holders(s) Aggregate Principal ------------------ - ------------------------------------ Certificate Amount Represented by (if less than (Please print) Number(s)* Private Notes* all)** - ------------------------------------- --------------------- ----------------------- ------------------- - ------------------------------------- --------------------- ----------------------- ------------------- - ------------------------------------- --------------------- ----------------------- ------------------- - ------------------------------------- --------------------- ----------------------- ------------------- - ------------------------------------- --------------------- ----------------------- ------------------- - ------------------------------------- --------------------- ----------------------- ------------------- - ------------------------------------- --------------------- ----------------------- ------------------- - ------------------------------------- --------------------- ----------------------- ------------------- - ------------------------------------- --------------------- ----------------------- ------------------- - ------------------------------------- --------------------- ----------------------- ------------------- - ------------------------------------- --------------------- ----------------------- ------------------- - ------------------------------------- --------------------- ----------------------- ------------------- TOTAL - ------------------------------------- --------------------- ----------------------- -------------------
* Need not be completed if Private Notes are being tendered by book-entry holders. ** Private Notes may be tendered in whole or in part in integral multiples of $1,000. Unless this column is completed, a holder will be deemed to have tendered the full aggregate principal amount of the Private Notes. (BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY) [ ] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution:____________________________________________ Account Number:___________________________________________________________ Transaction Code Number:__________________________________________________ [ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED PRIVATE NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s):__________________________________________ Window Ticket Number (if any):____________________________________________ Name of Eligible Institution that Guaranteed Delivery:____________________ Date of Execution of Notice of Guaranteed Delivery:_______________________ If Guaranteed Delivery is to be made by Book-Entry Transfer: Name of Tendering Institution:____________________________________________ Account Number:___________________________________________________________ Transaction Code Number:__________________________________________________ [ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED PRIVATE NOTES ARE TO BE RETURNED BY CREDITING DTC ACCOUNT NUMBER SET FORTH ABOVE. [ ] CHECK HERE IF YOU ARE A BROKER-DEALER THAT ACQUIRED THE PRIVATE NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name:_____________________________________________________________________ Address:__________________________________________________________________ Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the aggregate principal amount of Private Notes indicated above in exchange for a like aggregate principal amount of Exchange Notes of the same maturity. Subject to, and effective upon, the acceptance for exchange of the Private Notes tendered hereby, the undersigned hereby exchanges, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Private Notes. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent its agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company) with respect to the tendered Private Notes with the full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver certificates for such Private Notes to the Company and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, the Company, (ii) present such Private Notes for transfer on the books of the Company, and (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Private Notes, all in accordance with the terms of the Exchange Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, exchange, assign and transfer the Private Notes tendered hereby and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims or proxies. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of the Private Notes tendered hereby, and the undersigned will comply with its obligations under the Registration Rights Agreement. The undersigned has read and agreed to all of the terms of the Exchange Offer. The undersigned agrees that acceptance of any tendered Private Notes by the Company and the issuance of Exchange Notes in exchange therefor will constitute performance in full by the Company of its obligations under the Registration Rights Agreement and that the Company will have no further obligations or liabilities thereunder. The name(s) and address(es) of the registered holders of the Private Notes tendered hereby should be printed above, if they are not already set forth above, as they appear on the Private Notes. The certificate number(s) and the principal amount(s) of the Private Notes that the undersigned wishes to tender should be indicated in the appropriate boxes above. The undersigned also acknowledges that this Exchange Offer is being made in reliance on certain interpretive letters by the staff of the Securities and Exchange Commission (the "SEC") to third parties in unrelated transactions. On the basis thereof, the Exchange Notes issued in exchange for the Private Notes pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders are not participating in, and have no arrangement or understanding with any person to participate in, the distribution of such Exchange Notes. THE UNDERSIGNED ACKNOWLEDGES THAT ANY HOLDER OF PRIVATE NOTES USING THE EXCHANGE OFFER TO PARTICIPATE IN A DISTRIBUTION OF THE EXCHANGE NOTES (I) CANNOT RELY ON THE POSITION OF THE STAFF OF THE SEC ENUNCIATED IN ITS INTERPRETIVE LETTERS AND (II) MUST COMPLY WITH THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH A SECONDARY RESALE TRANSACTION. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Private Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned represents that: (i) it is not an affiliate (as defined in Rule 405 under the Securities Act) of the Company; (ii) it is not a broker-dealer tendering Private Notes acquired for its own account directly from the Company; (iii) any Exchange Notes to be received by it will be acquired in the ordinary course of its business; and (iv) it is not engaged in, and does not intend to engage in, a distribution of such Exchange Notes and has no arrangement or understanding to participate in a distribution of Exchange Notes. If a holder of Private Notes is engaged in or intends to engage in a distribution of Exchange Notes or has any arrangement or understanding with respect to the distribution of Exchange Notes to be acquired pursuant to the Exchange Offer, such holder may not rely on the applicable interpretations of the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction. The Company agrees that, subject to the provisions of the Registration Rights Agreement, the Prospectus may be used by a Participating Broker-Dealer (as defined below) in connection with resales of Exchange Notes received in exchange for Private Notes, where such Private Notes were acquired by such Participating Broker-Dealer for its own account as a result of market-making activities or other trading activities, for a period of time of up to 180 days after the date on which the registration statement of which the Prospectus is a part is declared effective (subject to extension under certain circumstances described in the Prospectus) or, if earlier, when all such Exchange Notes have been disposed of by such Participating Broker-Dealer. In that regard, each broker-dealer who acquired Private Notes for its own account as a result of market-making or other trading activities (a "PARTICIPATING BROKER-DEALER"), by tendering such Private Notes and executing this Letter of Transmittal, agrees that, upon receipt of notice from the Company of the occurrence of any event or the discovery of any fact which makes any statement contained or incorporated by reference in the Prospectus untrue in any material respect or which causes the Prospectus to omit to state a material fact necessary in order to make the statements contained or incorporated by reference therein, in light of the circumstances under which they were made, not misleading or of the occurrence of certain other events specified in the Registration Rights Agreement, such Participating Broker-Dealer will suspend the sale of Exchange Notes pursuant to the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented Prospectus to the Participating Broker-Dealer or the Company has given notice that the sale of the Exchange Notes may be resumed, as the case may be. If the Company gives such notice to suspend the sale of the Exchange Notes, the 180-day period referred to above during which Participating Broker-Dealers are entitled to use the Prospectus in connection with the resale of Exchange Notes shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when Participating Broker-Dealers shall have received copies of the supplemented or amended Prospectus necessary to permit resales of the Exchange Notes or to and including the date on which the Company has given notice that the sale of Exchange Notes may be resumed, as the case may be. The undersigned understands that tenders of the Private Notes pursuant to any one of the procedures described under the caption "The Exchange Offer -- Procedures for Tendering" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company in accordance with the terms and subject to the conditions set forth herein and in the Prospectus. The undersigned recognizes that under certain circumstances set forth in the Prospectus under the caption "The Exchange Offer -- Certain Conditions to the Exchange Offer" the Company will not be required to accept for exchange any of the Private Notes tendered. Private Notes not accepted for exchange or withdrawn will be returned to the undersigned at the address set forth below unless otherwise indicated under "Special Delivery Instructions" below (or, in the case of Private Notes tendered by book-entry transfer, credited to an account maintained by the tendering holder at DTC). Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, the undersigned hereby directs that the Exchange Notes (and, if applicable, any substitute certificates representing Private Notes not exchanged or not accepted for exchange) be issued in the name(s) of the undersigned and be delivered to the undersigned at the address, or, in the case of book-entry transfer of Private Notes, be credited to the account at DTC shown above in the box entitled "Description of Private Notes." Holders of the Private Notes whose Private Notes are accepted for exchange will not receive accrued interest on such Private Notes for any period from and after the last interest payment date to which interest has been paid or duly provided for on such Private Notes prior to the original issue date of the Exchange Notes or, if no such interest has been paid or duly provided for, will not receive any accrued interest on such Private Notes, and the undersigned waives the right to receive any interest on such Private Notes accrued from and after such interest payment date or, if no such interest has been paid or duly provided for, from and after the original issue date of the Exchange Notes. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the sale, assignment and transfer of the Private Notes tendered hereby. All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, legal representatives, successors and assigns of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in the Prospectus and in the instructions contained in this Letter of Transmittal. THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF PRIVATE NOTES" ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL AND DELIVERING SUCH PRIVATE NOTES AND THIS LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT, WILL BE DEEMED TO HAVE TENDERED THE PRIVATE NOTES AS SET FORTH IN SUCH BOX ABOVE. ANY FINANCIAL INSTITUTION THAT IS A PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY'S SYSTEMS MAY MAKE BOOK-ENTRY DELIVERY OF PRIVATE NOTES BY CAUSING THE BOOK-ENTRY TRANSFER FACILITY TO TRANSFER SUCH PRIVATE NOTES INTO THE EXCHANGE AGENT'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES. ALTHOUGH DELIVERY OF PRIVATE NOTES MAY BE EFFECTED THROUGH BOOK-ENTRY TRANSFER AT THE BOOK-ENTRY TRANSFER FACILITY, THIS LETTER OF TRANSMITTAL WITH ALL REQUIRED SIGNATURE GUARANTEES AND ALL OTHER REQUIRED DOCUMENTS MUST BE TRANSMITTED TO AND RECEIVED BY THE EXCHANGE AGENT. - ------------------------------------------------------------------------------- TENDERING HOLDER(S) SIGN HERE - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Signature(s) of Holder(s)) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Date: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- The above lines must be signed by the registered holder(s) exactly as their name(s) appear(s) on the Private Notes, or by person(s) authorized to become registered holder(s) by a properly completed bond power from the registered holder(s), a copy of which must be transmitted with this Letter of Transmittal. If Private Notes to which this Letter of Transmittal relate are held of record by two or more joint holders, then all such holders must sign this. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, then please set forth full title. See Instruction 4. Name(s): ----------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Please Type or Print) Capacity: ---------------------------------------------------------------------- Address: ----------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Including Zip Code) Area Code and Telephone Number: ------------------------------------------------ Tax Identification or Social Security Number(s): ------------------------------- - ------------------------------------------------------------------------------- GUARANTEE OF SIGNATURE(S) - ------------------------------------------------------------------------------- (IF REQUIRED BY INSTRUCTION 4) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Authorized Signature: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Dated: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Name: - ------------------------------------------------------------------------------- Title: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Name of Firm: - ------------------------------------------------------------------------------- Address: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Area Code and Telephone Number: ------------------------------------------------ - ------------------------------------------------------------------------------- SPECIAL ISSUANCE INSTRUCTIONS - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (SEE INSTRUCTIONS 4 AND 5) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- To be completed ONLY if Exchange Notes or Private Notes not tendered are to be issued in the name of someone other than the registered holder of the Private Notes whose name(s) appear(s) above. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Issue - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- [ ] Outstanding Notes not tendered to: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- [ ] Exchange Notes to: - ------------------------------------------------------------------------------- Name(s): - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Address: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Area Code and Telephone Number: ------------------------------------------------ Tax Identification Number: ----------------------------------------------------- - ------------------------------------------------------------------------------- SPECIAL DELIVERY INSTRUCTIONS - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (SEE INSTRUCTIONS 4 AND 5) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- To be completed ONLY if Exchange Notes or Private Notes not tendered are to be sent to someone other than the registered holder of the Private Notes whose name(s) appear(s) above, or such registered holder(s) at an address other than that shown above. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Mail - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- [ ] Outstanding Notes not tendered to: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- [ ] Exchange Notes to: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Name(s): - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Address: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Area Code and Telephone Number: ------------------------------------------------ Tax Identification Number: ----------------------------------------------------- INSTRUCTIONS Forming Part of the Terms and Conditions of the Exchange Offer 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND PRIVATE NOTES This Letter of Transmittal must accompany, (i) all certificates representing Private Notes tendered pursuant to the Exchange Offer and (ii) all tenders of Private Notes made pursuant to the procedures for book-entry transfer set forth in the Prospectus under the caption "The Exchange Offer -- Procedures for Tendering." Certificates representing the Private Notes in proper form for transfer, or a timely confirmation of a book-entry transfer of such Private Notes into the Exchange Agent's account at DTC, as well as a properly completed and duly executed copy of this Letter of Transmittal (or facsimile thereof), with any required signature guarantees, a Substitute Form W-9 (or facsimile thereof) and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at its address set forth herein on or before the Expiration Date. The method of delivery of this Letter of Transmittal, the Private Notes and all other required documents is at the election and risk of the tendering holders, but delivery will be deemed made only when actually received or confirmed by the Exchange Agent. If such delivery is by mail, it is recommended that registered mail properly insured, with return receipt requested, be used. In all cases, sufficient time should be allowed to permit timely delivery. The Company will not accept any alternative, conditional or contingent tenders. Each tendering holder, by execution of a Letter of Transmittal (or facsimile thereof), waives any right to receive any notice of the acceptance of such tender. 2. GUARANTEED DELIVERY PROCEDURES If a holder desires to tender Private Notes, but time will not permit a Letter of Transmittal, certificates representing the Private Notes to be tendered or other required documents to reach the Exchange Agent on or before the Expiration Date, or if the procedure for book-entry transfer cannot be completed on or prior to the Expiration Date, such holder's tender may be effected if: (a) such tender is made by or through an Eligible Institution (as defined below); (b) on or before the Expiration Date, the Exchange Agent has received a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Company (or a facsimile thereof with receipt confirmed by telephone and an original delivered by guaranteed overnight courier) from such Eligible Institution setting forth the name and address of the holder of such Private Notes, the name(s) in which the Private Notes are registered and the principal amount of Private Notes tendered and stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, certificates representing Private Notes to be tendered, in proper form for transfer, or a Book-Entry confirmation, as the case may be, together with a duly executed Letter of Transmittal and any other documents required by this Letter of Transmittal and the instructions hereto, will be deposited by such Eligible Institution with the Exchange Agent; and (c) a Letter of Transmittal (or a facsimile thereof) and certificates representing the Private Notes to be tendered, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other required documents are received by the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date. 3. PARTIAL TENDERS AND WITHDRAWAL RIGHTS Tenders of Private Notes will be accepted only in integral multiples of $1,000. If less than all the Private Notes evidenced by any Certificate submitted are to be tendered, fill in the principal amount of Private Notes that are to be tendered in the box entitled "Principal Amount of Private Notes Tendered (if less than all)." In such case, new certificate(s) for the remainder of the Private Notes that were evidenced by your old certificate(s) will only be sent to the holder of the Private Notes (or, in the case of Private Notes tendered pursuant to book-entry transfer, will only be credited to the account at DTC maintained by the holder of the Private Notes) promptly after the Expiration Date. All Private Notes represented by certificates or subject to a Book-Entry Confirmation delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. Any holder who has tendered Private Notes may withdraw the tender by delivering written notice of withdrawal (which may be sent by facsimile) to the Exchange Agent at its address set forth herein prior to the Expiration Date. Any such notice of withdrawal must specify the name of the person having tendered the Private Notes to be withdrawn, identify the Private Notes to be withdrawn (including the principal amount of such Private Notes) and (where certificates for Private Notes have been transmitted) specify the name in which such Private Notes are registered, if different from that of the withdrawing holder. If certificates for Private Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the withdrawal of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. If Private Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Private Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Private Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Private Notes that have been tendered for exchange but that are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Private Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Private Notes will be credited to an account maintained with such Book-Entry Transfer Facility for the Private Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Private Notes may be retendered following one of the procedures described in the Prospectus under the caption "The Exchange Offer -- Procedures for Tendering." 4. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES If this Letter of Transmittal is signed by the registered holder of the Private Notes tendered herewith, the signature must correspond exactly with the name as written on the face of the certificates without any alteration, enlargement or change whatsoever. If any tendered Private Notes is owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Private Notes is registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are names in which tendered Private Notes are registered. If this Letter of Transmittal is signed by the registered holder, and Exchange Notes are to be issued and any untendered or unaccepted principal amount of Private Notes are to be reissued or returned to the registered holder, then the registered holder need not and should not endorse any tendered Private Notes nor provide a separate bond power. In any other case, the registered holder must either properly endorse the Private Notes tendered or transmit a properly completed separate bond power with this Letter of Transmittal (in either case, executed exactly as the name of the registered holder appears on such Private Notes), with the signature on the endorsement or bond power guaranteed by an Eligible Institution, unless such certificates or bond powers are signed by an Eligible Institution. If this Letter of Transmittal or any Private Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and submit with this Letter of Transmittal evidence satisfactory to the Company of their authority to so act. The signatures on this Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Private Notes surrendered for exchange pursuant thereto are tendered (i) by a registered holder (which term, for purposes of this document, shall include any participant in DTC whose name appears on the register of holders maintained by the Company as owner of the Private Notes) who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" in this Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that the signatures in this Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a commercial bank or trust company located or having an office or correspondent in the United States, or by a member firm of a national securities exchange or of the National Association of Securities Dealers, Inc., or by a member of a signature medallion program such as "STAMP" (any of the foregoing being referred to herein as an "ELIGIBLE INSTITUTION"). If Private Notes are registered in the name of a person other than the signer of this Letter of Transmittal, the Private Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion, duly executed by the registered holder with the signature thereon guaranteed by an Eligible Institution. 5. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS Tendering holders of Private Notes should indicate in the applicable box the name and address or account at DTC to which Exchange Notes issued pursuant to the Exchange Offer and/or substitute Private Notes for principal amounts not tendered or not accepted for exchange are to be issued, sent or deposited if different from the name and address or account of the person signing this Letter of Transmittal. In the case of issuance in a different name, the employer identification or Social Security number of the person named must also be indicated. If no such instructions are given, any Exchange Notes will be issued in the name of, and delivered to, the name and address (or account at DTC, in the case of any tender by book-entry transfer) of the person signing this Letter of Transmittal, and any Private Notes not accepted for exchange will be returned to the name and address (or account at DTC, in the case of any tender by book-entry transfer) of the person signing this Letter of Transmittal. 6. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9 Under the federal income tax laws, payments that may be made by the Company on account of Exchange Notes issued pursuant to the Exchange Offer may be subject to backup withholding at the rate of 31%. In order to avoid such backup withholding, each tendering holder should complete and sign the Substitute Form W-9 included in this Letter of Transmittal and either (a) provide the correct taxpayer identification number ("TIN") and certify, under penalties of perjury, that the TIN provided is correct and that (i) the holder has not been notified by the Internal Revenue Service (the "IRS") that the holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the IRS has notified the holder that the holder is no longer subject to backup withholding; or (b) provide an adequate basis for exemption. If the tendering holder has not been issued a TIN and has applied for one, or intends to apply for one in the near future, such holder should write "Applied For" in the space provided for the TIN in Part I of the Substitute Form W-9, sign and date the Substitute Form W-9 and sign the Certificate of Payee Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I, the Company (or the Paying Agent under the Indenture governing the Exchange Notes) will retain 31% of payments made to the tendering holder during the 60-day period following the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent or the Company with its TIN within 60 days after the date of the Substitute Form W-9, the Company (or Paying Agent) will remit such amounts retained during the 60-day period to the holder and no further amounts shall be retained or withheld from payments made to the holder thereafter. If, however, the holder has not provided the Exchange Agent or the Company with its TIN within such 60-day period, the Company (or the Paying Agent) will remit such previously retained amounts to the IRS as backup withholding. In general, if a holder is an individual, the taxpayer identification number is the Social Security Number of such individual. If the Exchange Agent or the Company is not provided with the correct taxpayer identification number, the holder may be subject to a U.S. $50 penalty imposed by the IRS. Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such holder must submit a statement (generally, IRS Form W-8), signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Exchange Agent. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if Private Notes are registered in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (the "GUIDELINES"). Failure to complete the Substitute Form W-9 will not, by itself, cause Private Notes to be deemed invalidly tendered, but may require the Company (or the Paying Agent) to withhold 31% of the amount of any payments made on account of the Exchange Notes. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. 7. TRANSFER TAXES The Company will pay all transfer taxes, if any, applicable to the transfer of Private Notes to it or its order pursuant to the Exchange Offer. If, however, Exchange Notes and/or substitute Private Notes not exchanged are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Private Notes tendered herewith, or if tendered Private Notes are registered in the name of any person other than the person signing this Letter of Transmittal, or if a transfer tax is imposed for any reason other than the transfer of Private Notes to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 7, it will not be necessary for transfer tax stamps to be affixed to the Private Notes specified in this Letter of Transmittal. 8. WAIVER OF CONDITIONS The Company reserves the absolute right to waive, in whole or in part, any of the conditions to the Exchange Offer set forth in the Prospectus. 9. NO CONDITIONAL TENDERS No alternative, conditional, irregular or contingent tenders of Private Notes or transmittals of this Letter of Transmittal will be accepted. All tendering holders of Private Notes, by execution of this Letter of Transmittal, shall waive any right to receive notice of the acceptance of their Private Notes for exchange. Neither the Company, the Exchange Agent nor any other person is obligated to give notice of defects or irregularities in any tender, nor shall any of them incur any liability for failure to give any such notice. 10. INADEQUATE SPACE If the space provided herein is inadequate, the aggregate principal amount of Private Notes being tendered and the certificate number or numbers (if applicable) should be listed on a separate schedule attached hereto and separately signed by all parties required to sign this Letter of Transmittal. 11. MUTILATED, LOST, STOLEN OR DESTROYED PRIVATE NOTES If any certificate has been lost, mutilated, destroyed or stolen, the holder should promptly notify [_______________] at The Bank of New York, telephone number [____________]. The holder will then be instructed as to the steps that must be taken to replace the certificate. This Letter of Transmittal and related documents cannot be processed until the Private Notes have been replaced. 12. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent at the address and telephone number indicated above. 13. VALIDITY OF TENDERS All questions as to the validity, form, eligibility (including time of receipt) and acceptance of tendered Private Notes will be determined by the Company, in its sole discretion, which determination will be final and binding. The Company reserves the right to reject any and all Private Notes not validly tendered or any Private Notes, the Company's acceptance of which may, in the opinion of the Company or counsel to the Company, be unlawful. The Company also reserves the right to waive any conditions of the Exchange Offer or defects or irregularities in tenders of Private Notes as to any ineligibility of any holder who seeks to tender Private Notes in the Exchange Offer, whether or not similar conditions or irregularities are waived in the case of other holders. Any such waiver shall not constitute a general waiver of the conditions of the Exchange Offer by the Company. The interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Private Notes must be cured within such time as the Company shall determine. The Company will use reasonable efforts to give notification of defects or irregularities with respect to tenders of Private Notes, but neither the Company nor the Exchange Agent shall incur any liability for failure to give such notification. 14. ACCEPTANCE OF TENDERED PRIVATE NOTES AND ISSUANCE OF EXCHANGE NOTES; RETURN OF PRIVATE NOTES Subject to the terms and conditions of the Exchange Offer, the Company will accept for exchange all validly tendered Private Notes as soon as practicable after the Expiration Date and will issue Exchange Notes therefor as soon as practicable thereafter. For purposes of the Exchange Offer, the Company shall be deemed to have accepted tendered Private Notes when, as and if the Company has given written and oral notice thereof to the Exchange Agent. If any tendered Private Notes are not exchanged pursuant to the Exchange Offer for any reason, such unexchanged Private Notes will be returned, without expense, to the name and address shown above or, if Private Notes have been tendered by book-entry transfer, to the account at DTC shown above, or at a different address or account at DTC as may be indicated under "Special Delivery Instructions."
- ---------------------------- -------------------------------------------------------- -------------------------------- PAYER'S NAME: - ---------------------------- -------------------------------------------------------- -------------------------------- SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. ______________________________ FORM W-9 Social Security Number Department of the Treasury OR Internal Revenue Service ------------------------------ Employer Identification Number -------------------------------------------------------- -------------------------------- -------------------------------------------------------- -------------------------------- Payer's Request for Taxpayer PART 2 PART 3-- Identification Certification--Under penalty of perjury, I certify Number (TIN) that: Awaiting TIN (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. -------------------------------------------------------- -------------------------------- ----------------------------------------------------------------------------------------- CERTIFICATE INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such item (2). ----------------------------------------------------------------------------------------- The Internal Revenue Service does not require your consent to any provision of this SIGN HERE document other than the certifications required to avoid backup withholding. SIGNATURE_____________________________________________________________________________ DATE___________________________________________________________________________________ - ---------------------------- -----------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld. Signature ____________________________________________ Date __________, 2001 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number for the Payee (You) to Give the Payer.--Social security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employee identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. All "Section" references are to the Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue Service. - --------------------------------------- --------------------------------- Give the social security number For this type of account: of-- - --------------------------------------- --------------------------------- - --------------------------------------- --------------------------------- 1. Individual The Individual 2. Two or more individuals (joint The actual owner of the account account) or, if combined funds, the first individual on the account(1) 3. Custodian account of a minor The minor(2) 4. a. The usual revocable savings The grantor-trustee(1) b. So-called trust account that The actual owner(1) 5. Sole proprietorship The owner(3) - --------------------------------------- --------------------------------- - --------------------------------------- --------------------------------- For this type of account: Give the employer identification number of-- - --------------------------------------- --------------------------------- - --------------------------------------- --------------------------------- 6. Sole proprietorship The owner(3) 7. A valid trust, estate, or The legal entity(4) pension trust 8. Corporate The corporation 9. Association, club, religious, The organization 10. Partnership The partnership 11. A broker or registered nominee The broker or nominee 12. Account with the Department of The public entity - ------------------------------------------------------------------------- 1. List first and circle the name of the person whose number you furnish. If only one person on a joint account has a social security number, that person's number must be furnished. 2. Circle the minor's name and furnish the minor's social security number. 3. You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your social security number of your employer identification number (if you have one). 4. List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the taxpayer identification number of the personal representative or trustee unless the legal entity itself is not designated in the account title.) NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. - ------------------------------------------------------------------------- OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Card, at the local Social Administration office, or Form SS-4, Application for Employer Identification Number, by calling 1 (800) TAX-FORM, and apply for a number PAYESS EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from withholding include: o An organization exempt from tax under Section 501(a), an individual retirement account (IRA), or a custodial account under Section 403(b)(7), if the account satisfies the requirements of Section 401(f)(2). o The United States or a state thereof, the District of Columbia a possession of the United States, or a political subdivision or wholly-owned agency or instrumentality of any one or more of the foregoing. o An international organization or any agency or instrumentality thereof. o A foreign government and any political subdivision, agency or instrumentality thereof. Payees that may be exempt from backup withholding include: o A corporation. o A financial institution. o A dealer in securities or commodities required to register in the United States, the District of Columbia, or a possession of the United States. o A real estate investment trust. o A common trust fund operated by a bank under Section 584(a). o An entity registered at all times during the tax year under the Investment Company Act of 1940. o A middleman known in the investment community as a nominee or who is listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. o A futures commission merchant registered with the Commodity Futures Trading Commission. o A foreign central bank of issue. Payments of dividends and patronage dividends generally exempt from backup withholding include: o Payments to nonresident aliens subject to withholding under Section 1441. o Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident alien partner. o Payments of patronage dividends not paid in money. o Payments made by certain foreign organizations. o Section 404(k) payments made by an ESOP. Payments of interest generally exempt from backup withholding include: o Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and you have not provided your correct taxpayer identification number to the payer. o Payments of tax-exempt interest (including exempt-interest dividends under Section 852). o Payments described in Section 6049(b)(5) to nonresident aliens. o Payments on tax-free covenant bonds under Section 1451. o Payments made by certain foreign organizations. o Mortgage interest paid to you. Certain payments, other than payments of interest, dividends, and patronage dividends, that are exempt from information reporting are also exempt from backup withholding. For details, see the regulations under sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A and 6050N. EXEMPT PAYEES DESCRIBED ABOVE MUST FILE FORM W-9 OR A SUBSTITUTE FORM W-9 TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART II OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE OF INTEREST, DIVIDENDS,OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. PRIVACY ACT NOTICE--Section 6109 requires you to provide your correct taxpayer identification number to payers, who must report the payments to the IRS. The IRS uses the number for identification purposes and may also provide this information to various government agencies for tax enforcement or litigation purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a taxpayer identification number to payer. Certain penalties may also apply. PENALTIES (1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. --If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. --Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE EX-99.2 56 0056.txt FORM OF NOTICE OF GUARANTEED DELIVERY NOTICE OF GUARANTEED DELIVERY SEAGATE TECHNOLOGY INTERNATIONAL NOTICE OF GUARANTEED DELIVERY FOR TENDER OF ANY AND ALL OUTSTANDING 12 1/2% SENIOR SUBORDINATED NOTES DUE 2007 IN EXCHANGE FOR NEW 12 1/2% SENIOR SUBORDINATED NOTES DUE 2007 This Notice of Guaranteed Delivery, or one substantially equivalent to this form, must be used by registered holders of outstanding 12 1/2% Senior Subordinated Notes due 2007 (the "PRIVATE NOTES") of Seagate Technology International, a Cayman Islands limited liability company (the "COMPANY"), who wish to tender their Private Notes for an equal principal amount of new 12 1/2% Senior Subordinated Notes due 2007 (the "EXCHANGE NOTES") of the same maturity that have been registered under the Securities Act of 1933, as amended (the "SECURITIES Act") if (i) the Private Notes, a duly completed and executed letter of transmittal (the "LETTER OF TRANSMITTAL") and all other required documents cannot be delivered to The Bank of New York (the "EXCHANGE AGENT") prior to 5:00 P.M., New York City time, on [____________], 2001, or such later date and time to which the exchange offer may be extended (the "EXPIRATION DATE") or (ii) the procedures for delivery of the Private Notes being tendered by book-entry transfer, together with a duly completed and executed Letter of Transmittal, cannot be completed on or prior to 5:00 P.M., New York City time, on the Expiration Date. This Notice of Guaranteed Delivery may be delivered by hand, overnight courier or mail, or transmitted by facsimile transmission (receipt confirmed by telephone and an original delivered by guaranteed overnight delivery), to the Exchange Agent. See "The Exchange Offer -- Procedures for Tendering" in the Company's prospectus, dated [____________], 2001 (as amended or supplemented from time to time, the "PROSPECTUS"). The Company has the right to reject a tender of Private Notes made pursuant to the guaranteed delivery procedures unless the registered holder using the guaranteed delivery procedure submits either (a) the Private Notes tendered thereby, in proper form for transfer, or (b) confirmation of book-entry transfer in the manner set forth in the Prospectus, in either case together with one or more properly completed and duly executed Letter(s) of Transmittal (or facsimile thereof) and any other required documents by 5:00 P.M., New York City time, on the third New York Stock Exchange trading day following the Expiration Date. Capitalized terms not defined herein have the meanings assigned to them in the Prospectus. The Exchange Agent for the Exchange Offer is: THE BANK OF NEW YORK
By Registered or Certified Mail: Facsimile Transmission Number: By Hand or Over Night Delivery (Eligible Institutions Only) The Bank of New York Attention: The Bank of New York 101 Barclay Street, Floor 7E Reorganization Unit 7E 101 Barclay Street New York, New York 10286 (212) 815-6339 Corporate Trust Services Window Attention: Carolle Montreuil Confirmation by telephone: Ground Level Reorganization Unit, 7E (212) 815-5920 New York, New York 10286 Attention: Carolle Montreuil
Delivery of this Notice of Guaranteed Delivery to an address other than as set forth above or transmission of this Notice of Guaranteed Delivery via facsimile to a number other than as set forth above will not constitute a valid delivery. THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. Ladies and Gentlemen: The undersigned hereby tenders to the Company, upon the terms and subject to the conditions set forth in Prospectus and the related Letter of Transmittal (which together constitute the "EXCHANGE OFFER"), receipt of which is hereby acknowledged, the aggregate principal amount of the Private Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures" and in instruction 2 to the Letter of Transmittal. - ------------------------------------------------------------------------------- DESCRIPTION OF PRIVATE NOTES TENDERED Name of Tendering Holder: - ------------------------------------------------------------------------------- Name and Address of Registered Holders as it Appears on the Private Notes: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Certificate Number(s) of Private Notes Tendered: - ------------------------------------------------------------------------------- Account Number at DTC: - ------------------------------------------------------------------------------- Principal Amount of Private Notes Tendered: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SIGN HERE Name of Registered Holder: - ------------------------------------------------------------------------------- Signature(s): - ------------------------------------------------------------------------------- Name(s): - ------------------------------------------------------------------------------- Address: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Telephone Number: - ------------------------------------------------------------------------------- Date: - ------------------------------------------------------------------------------- IF SHARES OF PRIVATE NOTES WILL BE TENDERED BY BOOK-ENTRY TRANSFER, PROVIDE THE FOLLOWING INFORMATION: DTC Account Number: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- THE FOLLOWING GUARANTEE MUST BE COMPLETED GUARANTEE OF DELIVERY (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm or other entity identified in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor institution", including (as such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities broker, municipal securities dealer, government securities broker or government securities dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association that is a participant in a Securities Transfer Association recognized program (each of the foregoing being referred to as an "ELIGIBLE INSTITUTION"), hereby guarantees to deliver to the Exchange Agent, at one of its addresses set forth above, either (a) the Private Notes tendered hereby, in proper from for transfer, or (b) confirmation of the book-entry transfer of such Private Notes to the Exchange Agent's account at the Depository Trust Company ("DTC") maintained for such purpose, pursuant to the procedures for book-entry transfer set forth in the Prospectus, in either case together with one or more properly completed and duly executed Letter(s) of Transmittal (or facsimile thereof) and any other required documents by 5:00 P.M., New York City time, on the third New York Stock Exchange trading day following the Expiration Date. The undersigned acknowledges that it must deliver the Letter(s) of Transmittal and the Private Notes tendered hereby to the Exchange Agent within the time period set forth above and that failure to do so could result in a financial loss to the undersigned. - ------------------------------- ----------------------- Name of Firm Authorized Signature - ------------------------------- ----------------------- Address Name - ------------------------------- ----------------------- Area Code and Telephone Number Date NOTE: DO NOT SEND CERTIFICATES FOR PRIVATE NOTES WITH THIS FORM. CERTIFICATES FOR PRIVATE NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL. -----END PRIVACY-ENHANCED MESSAGE-----