-----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, SuInTPeskjTaLUtwPRQi8Kn+h13shHM7NLk0AyBm8bMsrlTtssC7WrHcAHVeG8/L OtZ1ciNNBi7HVCAOdQIHsA== 0001012870-99-001220.txt : 19990422 0001012870-99-001220.hdr.sgml : 19990422 ACCESSION NUMBER: 0001012870-99-001220 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19990421 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY INC CENTRAL INDEX KEY: 0000354952 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 942612933 STATE OF INCORPORATION: DE FISCAL YEAR END: 0628 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-67585 FILM NUMBER: 99598360 BUSINESS ADDRESS: STREET 1: 920 DISC DR CITY: SCOTTS VALLEY STATE: CA ZIP: 95066 BUSINESS PHONE: 8314386550 MAIL ADDRESS: STREET 1: 920 DISC DRIVE CITY: SCOTTS VALLEY STATE: CA ZIP: 95066 S-4/A 1 AMENDMENT NO. 4 TO FORM S-4 As filed with the Securities and Exchange Commission on April 21, 1999 Registration No. 333-67585 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ---------------- AMENDMENT NO. 4 TO FORM S-4 REGISTRATION STATEMENT Under The Securities Act of 1933 ---------------- SEAGATE TECHNOLOGY, INC. (Exact name of Registrant as specified in its charter) ---------------- Delaware 3573 94-2612933 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Identification Number) incorporation or Classification Code organization) Number) 920 Disc Drive Scotts Valley, California 95066 (831) 438-6550 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ---------------- Donald L. Waite Executive Vice President Seagate Technology, Inc. 920 Disc Drive Scotts Valley, California 95066 (831) 438-6550 (Name, address and telephone number of Agent for Service) ---------------- Copies to: Larry W. Sonsini, Esq. John T. Sheridan, Esq. Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, California 94304 ---------------- Approximate date of commencement of proposed sale to the public: As soon as practicable on or after the effective date of this Registration Statement. If the securities being registered on this Form are to be 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 of 1933, as amended (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 Proposed Amount maximum aggregate Amount of Title of each class to be offering price offering registration of securities to be registered(1) registered(2) per share(1) price(1) fee(1)(3) - ---------------------------------------------------------------------------------------- Common Stock $0.01 par value................... 9,000,000 1.3494318 $12,144,886 $3,378
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) The registration fee has been computed pursuant to Rule 457(f)(2) under the Securities Act, based on the book value of the shares of common stock of Seagate Software, Inc. at November 3, 1998 that may be exchanged for the securities being registered. (2) Represents the estimated maximum number of shares of common stock, par value $0.01 per share, of Seagate Technology, Inc. that may be issued pursuant to the exchange offer described therein. (3) The Registrant previously paid a fee of $1,375 with its initial submission of this registration statement on November 19, 1999. The Registrant has submitted an additional fee of $2,003 in connection with this Amendment No. 4 for the additional shares to be registered. ---------------- 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 the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [LOGO OF SEAGATE APPEARS HERE] --------------- Offering circular/prospectus Offer to exchange shares of Seagate Technology, Inc. for your shares of Seagate Software, Inc. --------------- Our offer will expire at 12:00 midnight, New York City time, on June 7, 1999 unless extended Seagate Technology is offering to exchange shares you hold of Seagate Software common stock for shares of Seagate Technology common stock. If you accept our exchange offer, you will receive that number of shares of Seagate Technology common stock calculated by multiplying the number of shares of Seagate Software common stock that you elect to exchange by the exchange rate, as described elsewhere in this document. For an example of our exchange offer using the exchange rate, see the frequently asked questions section of this document beginning on page 1. Seagate Technology common stock is traded on the New York Stock Exchange under the symbol "SEG." On April 19, 1999, the closing price of Seagate Technology common stock was $26 13/16. The Seagate Software common stock has no public market. If you wish to participate in our exchange offer, you must complete the transmittal letter included with this document and return it, along with your stock certificates representing your shares of Seagate Software common stock that you wish to exchange, to Harris Trust Company of New York no later than the expiration date indicated above. If you wish to exercise your stock options for Seagate Software stock and participate in our exchange offer, you must also complete and return the special exercise instruction letter enclosed with this document. Your election to participate in the exchange offer will be irrevocable. You will only be able to withdraw your election prior to the expiration date of our offer if we have not yet accepted your Seagate Software shares tendered. In connection with your evaluation of this exchange offer, you should consider the information under the section entitled "Seagate Technology Risk Factors" beginning on page 20. --------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this document is truthful or complete. Any representation to the contrary is a criminal offense. --------------- The date of this document is April 23, 1999. Table of Contents Frequently Asked Questions................................................ 1 Summary Description of the Companies...................................... 10 Summary Selected Condensed Financial Data................................. 11 Selected historical financial data of Seagate Technology.................. 11 Seagate Technology summary unaudited pro forma condensed financial data... 13 How the pro forma financial statements were prepared...................... 13 Seagate Technology selected unaudited pro forma condensed financial infor- mation................................................................... 14 Seagate Technology comparative per share data............................. 14 Accounting for the NSMG combination....................................... 15 Selected historical financial data of Seagate Software.................... 16 Seagate Software selected unaudited pro forma financial data.............. 17 How the pro forma financial statements were prepared...................... 17 Seagate Software selected unaudited pro forma condensed financial informa- tion..................................................................... 18 Seagate Software comparative per share data............................... 18 Accounting for the NSMG combination....................................... 19 Seagate Technology Risk Factors........................................... 20 Seagate Technology faces risks from the spin-off of Seagate Software's Network & Storage Management Group....................................... 20 Seagate Technology's financial results may be volatile because our short- term cost structure is fixed............................................. 21 We may not be profitable if we cannot sell a high volume of products...... 21 Acquisition related accounting charges will delay and reduce our profits.. 21 Our business will suffer if we do not ship new products early in the prod- uct life cycle before margins decline.................................... 21 Slowdown in demand for computer systems may cause a decline in demand for our products............................................................. 22 We will not be successful if we do not bring our new products to market quickly.................................................................. 22 If our customers delay or cancel orders, our revenues will be adversely affected................................................................. 23 We face intense competition and may not be able to compete effectively.... 23 We face risks from our international operations........................... 24 We may experience Year 2000 computer problems that harm our business...... 24 The I.R.S. could assert that receipt of Seagate Technology Stock by U.S. holders is taxable....................................................... 25 Our stock price will fluctuate............................................ 25 Notice Regarding Forward-Looking Statements in this Document.............. 26 Where You Can Find More Information....................................... 27 The Exchange Offer........................................................ 29 The exchange offer and the exchange rate.................................. 29 Background and reasons for the exchange offer............................. 29 The expiration date....................................................... 29 Conditions to the exchange offer.......................................... 30 Termination of the exchange offer......................................... 30 Exchange of shares and certificates....................................... 30 Exchange agent for shares and certificates................................ 32 Fractional shares......................................................... 32 Fees and expenses......................................................... 32 Transfer taxes............................................................ 32 Appraisal rights.......................................................... 33 Proxies................................................................... 33 Withdrawal rights......................................................... 33 Regulatory approvals required............................................. 33 Material income tax considerations of exchange of shares.................. 34
iii Accounting treatment...................................................... 39 Description of Seagate Technology Capital Stock........................... 40 Comparison of Stockholder Rights.......................................... 41 Stockholder meetings...................................................... 41 Director nominations...................................................... 41 Indemnification........................................................... 41 Information About Seagate Technology...................................... 43 General................................................................... 43 Stock and dividend information............................................ 44 Information about Seagate Software and the Information Management Group... 45 General................................................................... 45 Products.................................................................. 45 Sales and marketing....................................................... 46 Technical support and maintenance......................................... 47 Competition............................................................... 47 Patents and intellectual property rights.................................. 48 Employees................................................................. 49 Facilities................................................................ 49 Legal proceedings......................................................... 49 Market for and dividends paid on Seagate Software common stock............ 50 Security ownership of certain beneficial owners and management of Seagate Software................................................................. 50 Seagate Technology Unaudited Pro Forma Condensed Financial Statements..... 53 Notes to Seagate Technology Unaudited Pro Forma Condensed Financial Statements............................................................... 59 Seagate Software Unaudited Pro Forma Condensed Financial Statements....... 66 Notes to Seagate Software Unaudited Pro Forma Condensed Financial Statements............................................................... 71 Legal Matters............................................................. 81 Experts................................................................... 81
This document contains trademarks of Seagate Technology and Seagate Software and may contain trademarks of others. iv Frequently Asked Questions Questions about our exchange offer Q: What is being offered? A: You are being offered the opportunity to exchange all or a portion of your outstanding shares of Seagate Software common stock for shares of Seagate Technology common stock. Q: How will I potentially benefit? A: You will be able to sell the shares of Seagate Technology common stock that you receive in our exchange offer on the New York Stock Exchange. No public market currently exists for Seagate Software's shares. Q: Why is Seagate Technology making the exchange offer? A: Seagate Software and Seagate Technology wish to provide all Seagate Software stockholders and holders of vested options an opportunity to receive the benefits of owning a security that is tradeable in a public market. Q: Does Seagate Technology pay dividends? A: Like Seagate Software, Seagate Technology has not historically paid dividends on common stock. We do not expect that Seagate Technology will pay any dividends in the future. Q: If I do not accept this exchange offer and continue to hold Seagate Software shares or options, will there be another opportunity to sell/exchange them and realize a gain? A: Following the exchange offer, Seagate Software may, from time to time, evaluate various alternative means for you to obtain cash for your shares. However, there is no guarantee that such a situation will occur. In the event of any such transaction, the value of your shares of Seagate Software may be greater or less than the value of such shares in our exchange offer. - -------------------------------------------------------------------------------- Questions for Seagate Software stockholders Q: What choices do I have for my shares of Seagate Software stock? A: You have two choices: . you may exchange your Seagate Software shares for Seagate Technology shares by participating in our exchange offer, or . you may retain your Seagate Software stock. 1 Q: What taxes will I owe if I participate in the exchange offer? A: Whether or not you will owe taxes as a result of your participation in our exchange offer depends on your country of residence. . If you are a resident of the U.K., your receipt of Seagate Technology stock in our exchange offer will be tax-free. . Our tax advisor, Ernst & Young, is of the opinion that the receipt of Seagate Technology stock in our exchange offer by residents of the U.S. is likely to be tax-free. However, there is some risk that the Internal Revenue Service could disagree. If the Internal Revenue Service successfully asserted the exchange offer was taxable to you, you would be treated in the same manner as if you had sold your Seagate Software stock for cash in an amount equal to the fair market value, on the date the exchange offer closes, of the Seagate Technology stock you receive. . If you are a Canadian resident and you participate in our exchange offer, you will recognize a capital gain in an amount equal to the difference between the fair market value of the Seagate Technology shares that you receive in our exchange offer and the tax basis of the Seagate Software shares that you surrender in our exchange offer. As a Canadian resident, however, only three quarters of the capital gain would be subject to income tax provided certain conditions are met. However, on April 15, 1999, the Canadian Department of Finance issued a press release containing a proposal that, if enacted into law, may allow Canadian residents participating in the exchange offer to receive the Seagate Technology stock on a tax-free basis. Please see pages 34 through 39 for a more complete explanation of the tax consequences of participating in our exchange offer. - -------------------------------------------------------------------------------- Questions for Seagate Software optionholders who will remain employees of either Seagate Software or Seagate Technology Q: What choices do I have for the vested portion of my Seagate Software options? A: You have three choices: . you may exercise your vested options and then exchange the Seagate Software shares for Seagate Technology shares, . you may exercise your vested options and then hold the Seagate Software shares, or . you may retain your Seagate Software options. Q: What choices do I have for the unvested portion of my Seagate Software options? A: None. You will continue to hold your options, and they will continue to vest so long as you remain an employee. 2 Q: What taxes will I owe if I exercise my options? A: Whether or not you will owe taxes depends on the type of options you hold and your country of residence. . If you are a resident of the U.K. or Canada or a U.S. holder of stock options that are not incentive stock options, you will recognize income equal to the difference between the exercise price and the fair market value of the Seagate Software stock received on exercise of your option. If you are a Canadian resident, however, you may be able to take a 25% offsetting deduction provided certain conditions are met. . If you are a U.S. holder of incentive stock options, the rules that apply to you are complex. Although the exercise of your options will be tax- free for regular tax purposes, for alternative minimum tax purposes, the difference between the fair market value of the Seagate Software stock and the option exercise price will be included in alternative minimum taxable income. If you sell the Seagate Technology stock you receive in the exchange offer two years after the date you were granted your incentive stock option and one year after the date you exercised the option, then any gain will be capital gain. However, if you sell your stock prior to these dates, the gain up to the fair market value of the Seagate Software stock at the day of exercise will be ordinary income and only appreciation subsequent to the exercise date will remain as capital gain. Please see pages 34 through 39 for a more complete explanation of the tax consequences of participating in our exchange offer. Q: Will I be perceived as uncommitted to the future of Seagate Software if I plan to take advantage of the exchange offer? A: Your decision about whether to participate in the exchange offer will not be viewed negatively in any way by Seagate Technology or Seagate Software. We are voluntarily providing you with our exchange offer because we believe the employees of Seagate Software will appreciate the opportunity to receive stock tradeable on a public market. - -------------------------------------------------------------------------------- Questions for Seagate Software optionholders who will become employees of New VERITAS Q: What is the NSMG combination? A: Seagate Software and Seagate Technology have agreed to contribute the Seagate Software Network & Storage Management Group business to a newly formed entity, New VERITAS, in exchange for approximately 40% ownership of New VERITAS shares. New VERITAS will own the Network & Storage Management Group business and what is now VERITAS Software Corporation. We call this the NSMG combination. New VERITAS common stock will be publicly traded on the Nasdaq National Market. 3 Q: What choices do I have for the vested portion of my Seagate Software options? A: You have three choices: . you may exercise your vested options and then exchange your Seagate Software shares for Seagate Technology shares, . you may exercise them and hold your Seagate Software shares, or . you may exchange them for options to purchase shares of New VERITAS common stock. Additional information about the New VERITAS exchange offer will be mailed to you separately. Q: Can I continue to hold my vested Seagate Software options? A: No. You must elect one of the three choices in the answer above, because your options will terminate 30 days after the NSMG combination closes. Q: Can I continue to hold the unvested portion of my Seagate Software options? A: No. You should participate in the New VERITAS exchange offer or you will lose your unvested options. Q: What taxes will I owe if I exercise my options? A: Whether or not you will owe taxes depends on the type of options you hold and your country of residence. . If you are a resident of U.K. or Canada or a U.S. holder of stock options that are not incentive stock options, you will recognize income equal to the difference between the exercise price and the fair market value of the Seagate Software stock received on exercise of your option. If you are a Canadian resident, however, you may be able to take a 25% offsetting deduction provided certain conditions are met. . If you are a U.S. holder of incentive stock options, the rules that apply to you are complex. Although the exercise of your options will be tax- free for regular tax purposes, for alternative minimum tax purposes, the difference between the fair market value of the Seagate Software stock and the option exercise price will be included in alternative minimum taxable income. If you sell the Seagate Technology stock you receive in the exchange offer two years after the date you were granted your incentive stock option and one year after the date you exercised the option, then any gain will be capital gain. However, if you sell your stock prior to these dates, the gain up to the fair market value of the Seagate Software stock at the day of exercise will be ordinary income and only appreciation subsequent to the exercise date will remain as capital gain. Please see pages 34 through 39 for a more complete explanation of the tax consequences of participating in our exchange offer. - -------------------------------------------------------------------------------- 4 Questions for Seagate Software optionholders who will not be employed by Seagate Software, Seagate Technology or New VERITAS. Q: What choices do I have for the vested portion of my Seagate Software options? A: You have two choices: . you may exercise your vested options and then exchange your Seagate Software shares for Seagate Technology shares, or . you may exercise your vested options and hold your Seagate Software shares. Q: Can I continue to hold my vested Seagate Software options? A: No. You will have 30 days after your employment with Seagate Software or Seagate Technology ends to exercise your options and receive Seagate Software stock or your options will terminate. Q: Can I continue to hold the unvested portion of my Seagate Software options? A: No. Your unvested options expire when your employment ends. Q: What taxes will I owe if I exercise my options? A: Whether or not you will owe taxes depends on the type of options you hold and your country of residence. . If you are a resident of U.K. or Canada or a U.S. holder of stock options that are not incentive stock options, you will recognize income equal to the difference between the exercise price and the fair market value of the Seagate Software stock received on exercise of your option. If you are a Canadian resident, however, you may be able to take a 25% offsetting deduction provided certain conditions are met. . If you are a U.S. holder of incentive stock options, the rules that apply to you are complex. Although the exercise of your options will be tax- free for regular tax purposes, for alternative minimum tax purposes, the difference between the fair market value of the Seagate Software stock and the option exercise price will be included in alternative minimum taxable income. If you sell the Seagate Technology stock you receive in the exchange offer two years after the date you were granted your incentive stock option and one year after the date you exercised the option, then any gain will be capital gain. However, if you sell your stock prior to these dates, the gain up to the fair market value of the Seagate Software stock at the day of exercise will be ordinary income and only appreciation subsequent to the exercise date will remain as capital gain. Please see pages 34 through 39 for a more detailed explanation of the tax consequences of participating in our exchange offer. 5 - -------------------------------------------------------------------------------- Questions about the exchange rate Q: What is meant by the term exchange rate? A: The exchange rate refers to the number of shares of Seagate Technology common stock that will be issued for each share of Seagate Software common stock in the exchange offer. Q: How is the exchange rate determined? A: The exchange rate will be determined by dividing the value per share of Seagate Software by the value per share of Seagate Technology as described below. Q: How will the value of a Seagate Technology share be determined for the purpose of our exchange offer? A: Since Seagate Technology shares are publicly traded on the New York Stock Exchange, determining the value of Seagate Technology for the purpose of the exchange offer is straight-forward. The value will be equal to the average closing price of Seagate Technology shares for five trading days ending on the sixth business day before the close of the NSMG combination. Q: How is the value of a Seagate Software share determined for the purpose of our exchange offer? A: Because Seagate Software is not a publicly traded company, the determination of its value is more involved than the process for determining the value of Seagate Technology. The formula for determining the value per share is based on two main components: the value of Seagate Software's Information Management Group business and the value of the shares of New VERITAS received in exchange for the Network & Storage Management Group business. The formula looks like this: Value of Value of Information Management Group business + Value Seagate of New VERITAS shares + Option proceeds Software = ------------------------------------------------------ Per Share/Option Total Seagate Software Shares and Options Outstanding
The various components of this formula are described below. Q: How is the value of the Information Management Group business determined for the purposes of the exchange offer? A: Seagate Software's board of directors will make the ultimate decision on the value of the Information Management Group business. Their determination will be based on a number of factors, including the Information Management Group business' historical and projected revenue, earnings and cash flow as well as on other factors including limited financial analyses performed by their financial advisor, Morgan Stanley & Co., Incorporated. While the final valuation of Information Management Group business will be determined by the Seagate 6 Software board of directors as of six days prior to the closing of the NSMG combination, it is currently estimated to be approximately $325 million. Q: How is the value of the New VERITAS shares received determined? A: The value of New VERITAS shares will be equal to the average closing price of VERITAS stock for the five trading days ending the sixth day before the close of the NSMG combination multiplied by the total number of New VERITAS shares received. Q: What is meant by "Options proceeds"? A: This is the amount of money that Seagate Software would receive if all Seagate Software option holders were to exercise their options. When you exercise your options, you pay the exercise price in return for shares. The money you pay is an asset of Seagate Software. Q: Why do you divide by "Total Shares and Options outstanding"? A: Dividing by this number is necessary to calculate the total value per share or option of Seagate Software. Q: Will fluctuations in the price of Seagate Technology's or VERITAS' stock affect the number of shares of Seagate Technology you will receive in the exchange? A: Yes, any fluctuation in the market price of Seagate Technology's or VERITAS' common stock during the period in which the exchange rate is calculated will affect the number of shares of Seagate Technology common stock that you will receive in the exchange. Historically, the market prices of Seagate Technology's and VERITAS' common stock have varied greatly. For example, during Seagate Technology's quarter ended April 2, 1999, the highest and lowest sale prices were $44 1/4 and $25 5/8. During VERITAS' quarter ended March 31, 1999, the highest and lowest sale prices were $89 1/2 and $58. Q: Can you give me an example of how the exchange rate works? A: While the values for the purpose of the exchange rate will be determined at the end of the sixth business day before the close of the NSMG combination, for the purposes of this example we are using best estimates of the values at the time this document was filed, as set forth below: Value of Seagate Technology per share $ 30.00 Value of Seagate Software Information Management Group $325.00 million Value of New VERITAS shares and options received at an assumed price of $80.75 per share Option Proceeds $ 3.07 billion $103.00 million Total Seagate Software shares and options outstanding 67.00 million Substituting the applicable numbers into the formula outlined earlier for determining the value per share of Seagate Software results in a value per share of Seagate Software of $52. 7 Given these values, the exchange rate would be equal to 1.73 ($52/$30). If this were the actual exchange rate and you were to tender 100 shares of Seagate Software common stock for the purpose of the exchange offer, you would receive 173 shares of Seagate Technology common stock. Q: How will I know what the exchange rate is? A: You can call 877-707-5656 for a current exchange rate. Outside North America, you must first dial the AT & T Direct Access Code for the country from which you are calling. - -------------------------------------------------------------------------------- Questions about the vesting of your Seagate Software options Q: How will the vesting schedule of my options change? A: The Seagate Software board of directors has amended the vesting schedule of your stock options. The changes to your vesting schedule are effective only if the NSMG combination closes. Your stock options currently vest at a rate of 20%, 20%, 30%, 30% on each respective annual anniversary of your vesting commencement date. Under the new schedule, 1/48th of your stock options will vest on each monthly anniversary of your vesting commencement date(s). This new schedule will take effect as soon as the NSMG combination closes, and is retroactive to the vesting commencement date of each of your grants. You will always have more options vested under the new schedule than under the old. The benefits of this new vesting schedule will be available to you for the exchange offer. The following is an example of how your vesting is affected, assuming the following: Date of Grant May 1, 1997 Vesting Commencement Date May 1, 1997 Number of Shares Granted 100
New vesting schedule: Under the new vesting schedule, options vest on the monthly anniversary of the vesting commencement date, not daily.
Date Elapsed time since Percentage Cumulative Total number vesting vesting number of of unvested commencement vested shares date shares May 1, 1997 0 0 0 100 - ---------------------------------------------------------------------- June 15, 1997 1 month 15 days 1/48 1 99 - ---------------------------------------------------------------------- May 1, 1998 1 year 12/48 25 75 - ---------------------------------------------------------------------- Apr. 1, 1999 1 year 11 months 23/48 47 53 - ---------------------------------------------------------------------- May 1, 1999 2 years 24/48 50 50 - ---------------------------------------------------------------------- May 1, 2000 3 years 36/48 75 25 - ---------------------------------------------------------------------- May 1, 2001 4 years 48/48 100 0 - ----------------------------------------------------------------------
8 Current vesting schedule: Under your current vesting schedule, options only vest on the annual anniversary of the vesting commencement date, not monthly throughout the year.
Date Elapsed time since Percentage Cumulative Total number vesting vesting number of of unvested commencement vested shares date shares May 1, 1997 0 0 0 100 - ---------------------------------------------------------------------- June 15, 1997 1 month 15 days NA 0 100 - ---------------------------------------------------------------------- May 1, 1998 1 year 20% 20 80 - ---------------------------------------------------------------------- April 1, 1999 1 year 11 months NA 20 80 - ---------------------------------------------------------------------- May 1, 1999 2 years 20% 40 60 - ---------------------------------------------------------------------- May 1, 2000 3 years 30% 70 30 - ---------------------------------------------------------------------- May 1, 2001 4 years 30% 100 0 - ----------------------------------------------------------------------
Q: Why is Seagate Software's board of directors changing the vesting schedule? A: The New VERITAS stock option plan will have a 1/48th vesting schedule. The Network & Storage Management Group business employees who become New VERITAS employees will receive the benefits of this 1/48th vesting schedule. The Seagate Software board of directors wanted to offer the same vesting schedule to employees who remained with Seagate Software. Q: What is my vesting schedule if I leave Seagate Software before the NSMG combination closes? A: If you leave Seagate Software before the NSMG combination closes, your original vesting schedule will apply. - -------------------------------------------------------------------------------- If I have additional questions, whom should I contact? Additional questions can be directed to Bill Rowley in our Investor Relations Department at telephone number (831) 439-2371 or by email at bill rowley@notes.seagate.com. 9 Summary Description of the Companies Seagate Technology, Inc. Seagate Technology, Inc. 920 Disc Drive Scotts Valley, California 95066 (831) 438-6550 Seagate Technology designs, manufactures and markets products for storage, retrieval and management of data on computer systems and other systems which receive, store and transmit data. These products include disc drives and disc drive components, tape drives and software. Seagate Technology designs, manufactures and markets a broad line of rigid disc drives. These products are used in computer systems ranging from desktop personal computers to large, sophisticated enterprise computers. Seagate Technology also designs and markets tape drives ranging in capacity from 8 gigabytes to 200 gigabytes for low cost storage and protection of large volumes of data electronically. Seagate Technology currently produces backup solutions for desktop personal computers and midrange servers to complement its line of disc drive products. Seagate Software, Inc. Seagate Software, Inc. 915 Disc Drive Scotts Valley, California 95066 (831) 438-6550 Seagate Software develops and markets software products and provides related services enabling business users and information technology professionals to store, access and manage enterprise information. Seagate Software is currently comprised of two operating groups, the Information Management Group and the Network & Storage Management Group. The Network & Storage Management Group offers network and storage management software solutions, which enable information technology professionals to manage distributed network resources and to secure and protect enterprise data. The Information Management Group products permit analysis and interpretation of data in order to make business decisions. After the closing of the NSMG combination, Seagate Software will continue to operate its Information Management Group business. In fiscal 1998, the Information Management Group's revenue represented approximately 40% of Seagate Software's total revenue. Headquartered in Scotts Valley, California, Seagate Software currently has over 40 offices and operations in 18 countries worldwide. After the contribution of its Network & Storage Management Group business to New VERITAS in connection with the NSMG combination, Seagate Software will have 32 offices and operations in 17 countries worldwide. Seagate Software is a majority-owned and consolidated subsidiary of Seagate Technology. As of March 31, 1999, Seagate Technology held approximately 98.2% of all outstanding shares of Seagate Software. The remaining shares of Seagate Software are held by current and former employees, directors and consultants of Seagate Software, Seagate Technology and their subsidiaries. In addition, options to purchase 11,136,215 shares of Seagate Software common stock were outstanding as of March 31, 1999. 10 Summary Selected Condensed Financial Data We are providing the following financial information of Seagate Technology and Seagate Software. Seagate Software is approximately 98.2% owned by Seagate Technology on an outstanding shares basis. The consolidated historical results of Seagate Technology include the results of Seagate Software. This financial information should help you analyze the financial aspects of our exchange offer. The financial information of Seagate Technology for fiscal 1994 through fiscal 1998 is derived from Seagate Technology's audited financial statements for the same periods, and the financial information for the six months ended January 2, 1998 and January 1, 1999 is derived from unaudited financial statements. The financial information of Seagate Software is derived from Seagate Software's audited financial statements for fiscal 1995 through fiscal 1998 and unaudited financial statements for fiscal 1994 and the six months ended January 2, 1998 and January 1, 1999. The financial information for the six months ended January 1, 1999 for Seagate Technology and Seagate Software is not necessarily indicative of results that may be achieved for the remainder of fiscal 1999. This financial information is only a summary and you should read it in conjunction with the Seagate Technology financial statements and related notes and the Seagate Software financial statements and related notes contained in the annual reports and other information on file with the Securities and Exchange Commission. See "Where You Can Find More Information" on page 27. Selected historical financial data of Seagate Technology (in millions, except per share amounts)
Fiscal Years Ended Six Months Ended ------------------------------------------- --------------------- July 3, June 27, June 28, June 30, July 1, January 1, January 2, 1998 1997 1996 1995 1994 1999 1998 ------- -------- -------- -------- ------- ---------- ---------- Revenue................. $6,819 $8,940 $8,588 $7,256 $5,865 $3,354 $3,569 Gross margin............ 989 2,022 1,581 1,373 1,171 749 487 Income (loss) from operations............. (686) 858 287 459 473 88 (477) Income (loss) before extraordinary gain..... (530) 658 213 313 330 74 (423) Net income (loss)....... (530) 658 213 319 330 74 (423) Basic income (loss) per share before extraordinary gain..... (2.17) 2.82 1.07 1.64 1.76 .30 (1.74) Basic net income (loss) per share.............. (2.17) 2.82 1.07 1.67 1.76 .30 (1.74) Diluted income (loss) per share before extraordinary gain..... (2.17) 2.62 0.97 1.44 1.56 .30 (1.74) Diluted net income (loss) per share....... (2.17) 2.62 0.97 1.47 1.56 .30 (1.74) Total assets............ 5,645 6,723 5,240 4,900 4,308 5,830 5,933 Long-term debt, less current portion........ 704 702 798 1,066 1,177 703 703 Stockholders' equity.... $2,937 $3,476 $2,466 $1,936 $1,635 $2,966 $2,986 Number of shares used in per share computations: Basic.................. 243.6 233.6 199.7 190.6 186.9 245.0 243.8 Diluted................ 243.6 257.9 236.1 244.7 235.8 249.1 243.8
11 Seagate Technology's fiscal 1998 results of operations include a $347 million restructuring charge, a $223 million write-off of in-process research and development incurred primarily in connection with the acquisition of Quinta Corporation, a $76 million charge for mark-to-market adjustments on certain of Seagate Technology's foreign currency forward exchange contracts and a $22 million reduction in the charge recorded in fiscal 1997 as a result of the adverse judgment in the Amstrad PLC litigation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Seagate Technology's Form 10-K/A for the year ended July 3, 1998 incorporated by reference in this document. The fiscal 1997 results of operations include a $153 million charge as a result of the adverse judgment in the Amstrad PLC litigation. The fiscal 1996 results of operations include a $242 million restructuring charge as a result of the merger with Conner Peripherals, Inc. and a $99 million write-off of in-process research and development primarily incurred in connection with the acquisition of software companies. The fiscal 1995 results of operations include a $73 million write-off of in-process research and development incurred in connection with business acquisitions. The results for the six months ended January 1, 1999 include a $78 million charge in connection with an amendment to the purchase agreement for the August 1997 acquisition of Quinta Corporation and a $7 million charge related to the separation agreement with Seagate Technology's former Chief Executive Officer. The results for the six months ended January 2, 1998 include a $216 million write-off of in process research and development incurred primarily in connection with the acquisition of Quinta Corporation, a $205 million restructuring charge, a $22 million reduction in the $153 million charge recorded in 1997 as a result of the adverse judgment in the Amstrad PLC litigation and a $76 million charge for mark-to-market adjustments on certain of Seagate Technology's foreign currency forward exchange contracts. Prior periods have been restated to reflect the merger with Conner Peripherals, Inc. in February 1996 on a pooling of interests basis, a two-for-one stock split, effected in the form of a stock dividend, in November 1996, and Statement of Financial Accounting Standards No. 128, "Earnings Per Share" adopted in the second quarter of fiscal 1998. 12 Seagate Technology summary unaudited pro forma condensed financial data The following information is provided to give you pro forma financial information that provides a better picture of what the results of operations and financial position of Seagate Technology might have looked like had the exchange of Seagate Software shares for Seagate Technology shares contemplated by the exchange offer and the NSMG combination occurred at an earlier date. The pro forma financial information includes the effects of the purchase by New VERITAS of Telebackup Systems Inc., a Canadian Corporation immediately subsequent to the NSMG combination. This information is provided as an example only. It does not show what the results of operations or financial position of Seagate Technology would have been had the NSMG combination, the TeleBackup combination, and the purchase of Seagate Software shares by Seagate Technology actually occurred on the dates assumed. This information also does not purport to indicate what Seagate Technology's future operating results or consolidated financial position will be. See "Seagate Technology Unaudited Pro Forma Condensed Financial Statements" beginning on page 53 for a more detailed explanation of this analysis. How the pro forma financial statements were prepared We prepared these statements in accordance with U.S. generally accepted accounting principles. Seagate Software, and Seagate Technology through consolidation of Seagate Software, will recognize a gain and record certain intangible assets on the contribution of the Network & Storage Management Group to New VERITAS in exchange for New VERITAS common stock. As a result of the exchange of Seagate Software shares for Seagate Technology shares pursuant to the exchange offer, Seagate Software and Seagate Technology will record certain intangible assets and compensation expense. The pro forma statement of operations data for the year ended July 3, 1998 and the six months ended January 1, 1999, includes recurring adjustments which assume that the NSMG combination, the TeleBackup combination, and the purchase of Seagate Software stock by Seagate Technology all took place on June 28, 1997, the first day of Seagate Technology's fiscal year 1998. The pro forma statement of operations data for Seagate Technology eliminates the historical results of the Network & Storage Management Group and includes Seagate Software's equity interest in the results of New VERITAS for the same periods, including recurring amortization of related intangibles and goodwill plus recurring amortization of intangibles and goodwill associated with the purchase of shares of Seagate Software stock by Seagate Technology, as described in the Notes to the Seagate Software and Seagate Technology unaudited pro forma condensed financial statements. We prepared the pro forma balance sheet data assuming the NSMG combination, the TeleBackup combination, and the purchase of Seagate Software stock by Seagate Technology all took place on January 1, 1999. 13 Seagate Technology selected unaudited pro forma condensed financial information (in millions, except per share data)
Six Months Year Ended Ended July 3, 1998 January 1, 1999 ------------ --------------- Pro forma statement of operations data: Revenue....................................... $6,644 $3,247 Income (loss) from operations................. (702) 61 Net loss...................................... (747) (41) Net loss per share--basic..................... $(3.01) $(0.16) Net loss per share--diluted................... $(3.01) $(0.16) Number of shares used in computing per share amounts--basic............................... 247.8 249.2 Number of shares used in computing per share amounts--diluted............................. 247.8 249.2
As of January 1, 1999 --------------- Pro forma balance sheet data: Working capital.............................................. $2,315 Total assets................................................. 7,326 Retained earnings............................................ 2,099 Stockholders' equity......................................... 3,891
Seagate Technology comparative per share data The following tables present certain unaudited historical and pro forma per share data that reflect the exchange of Seagate Software shares for Seagate Technology shares pursuant to the exchange offer, the completion of the NSMG combination and the TeleBackup combination based upon the historical financial statements of Seagate Technology. The data presented below should be read in conjunction with the Seagate Technology unaudited pro forma condensed financial statements on page 53 and the historical financial statements of Seagate Technology and Seagate Software incorporated by reference in this document. The unaudited pro forma combined financial data does not necessarily indicate the operating results that would have been achieved had the combinations been in effect as of the beginning of the periods presented or future results of operations or financial position. The following tables present certain unaudited historical and pro forma per share data that reflect the completion of the NSMG combination based upon the historical financial statements of Seagate Technology. The data presented below should be read in conjunction with the Seagate Technology unaudited pro forma condensed financial statements on page 53 and the historical financial statements of Seagate Technology in Seagate Technology's annual report on Form 10-K/A and Seagate Technology's quarterly reports on Form 10-Q and Form 10-Q/A which are incorporated by reference in this document. The unaudited pro forma condensed financial data does not necessarily indicate the operating results that would have been achieved had the NSMG combination occurred at the beginning of the periods presented and does not indicate future results of operations or financial position. The Network & Storage Management Group business is an operating division of Seagate Software, and it has no formal capital structure; accordingly, share and per share information is not presented. 14 Calculation of Seagate Technology historical book value per share The historical book value per Seagate Technology common share is computed by dividing stockholders' equity as of the end of each period for which such computation is made by the number of shares of common stock outstanding at the end of each period. Calculation of Seagate Technology pro forma per share data The pro forma comparative per share data has been calculated assuming option holders exercise 1,746,828 options to purchase shares of Seagate Software common stock and that these shares from the exercise of stock options plus 608,665 shares held by existing minority interest shareholders, 2,355,493 shares out of 5,248,516 vested shares and options issued and outstanding, are exchanged for Seagate Technology stock and assuming 34,606,432 shares of New VERITAS are issued to Seagate Software in connection with the NSMG combination. The pro forma book value per share computations include the effect of the in- process research and development charges and the compensation expense amounting to $184 million as described below. The pro forma net loss per share does not reflect these charges since the are non-recurring. These charges will be reflected in Seagate Technology's consolidated financial statements in the period the NSMG combination and the purchase of shares by Seagate Technology are completed. Accounting for the NSMG combination Seagate Software will contribute its Network & Storage Management Group business to New VERITAS in exchange for a 41.85% ownership interest in New VERITAS. As a result, Seagate Technology, through consolidation of Seagate Software, will recognize a pro rata gain on the contribution for the difference between 58.15% of the book value of its investment in the Network & Storage Management Group business and 58.15% of the fair value of the New VERITAS stock received. Seagate Technology will record its initial investment in New VERITAS based on the fair value of the New VERITAS stock received plus the book value of the remaining 41.85% of the original investment in the Network & Storage Management Group business. In-process research and development. Seagate Technology will allocate the purchase price of the New VERITAS stock received based on the estimated fair value of the New VERITAS assets acquired. It is estimated that Seagate Technology will record in-process research and development charges of approximately $92.1 million in connection with the NSMG combination. Compensation expense and minority interest. In a separate transaction, Seagate Technology has offered to exchange shares of Seagate Technology common stock for all of the outstanding vested shares of Seagate Software common stock not already owned by Seagate Technology. Any shares acquired that were not vested for more than six months will be accounted for as the settlement of an earlier award of stock and will result in compensation expense of approximately $86.7 million. The acquisition of shares vested and held for more than six months will be accounted for as the acquisition of a minority interest and the purchase price will be allocated to the underlying assets and liabilities including in-process research and development of approximately $1.4 million. The amount allocated to in-process research and development will be charged to expense in the period in which the shares 15 are acquired. The accounting for the acquisition of Seagate Software common stock by Seagate Technology will be recorded by Seagate Software as a capital contribution from Seagate Technology and as compensation expense, purchased research and development, and intangible assets. Seagate Technology--historical
Year Ended Six Months Ended or as of or as of July 3, 1998 January 1, 1999 ------------ ---------------- Net income (loss) per share--basic............. $(2.17) $ 0.30 Net income (loss) per share--diluted........... $(2.17) $ 0.30 Book value per common share.................... $12.00 $12.16
Seagate Technology--pro forma
Year Ended Six Months Ended or as of or as of July 3, 1998 January 1, 1999 ------------ ---------------- Net loss per share--basic...................... $(3.01) $(0.16) Net loss per share--diluted.................... $(3.01) $(0.16) Book value per common share.................... $15.52 $15.73
Selected historical financial data of Seagate Software (in thousands, except share and per share amounts)
Fiscal Year Ended Six Months Ended ------------------------------------------------- --------------------- July 3, June 27, June 28, June 30, July 1, January 1, January 2, 1998 1997 1996 1995 1994 1999 1998 -------- -------- --------- -------- -------- ---------- ---------- Revenue................. $293,226 $216,950 $ 141,586 $ 92,796 $ 30,696 $ 166,930 $135,366 Gross profit............ 242,766 169,161 112,567 70,417 23,556 142,466 110,068 In-process research and development............ 6,800 2,613 96,958 73,177 -- -- -- Write-down of goodwill, developed technology and intangibles........ 1,900 13,091 2,157 -- -- -- 1,900 Restructuring costs .... -- 2,524 9,502 -- -- -- -- Unusual items .......... -- 13,446 -- -- -- -- -- Income (loss) from operations............. 6,125 (60,296) (137,806) (80,166) (11,068) 16,228 (2,446) Net income (loss)....... (9,270) (53,963) (129,668) (82,864) (6,884) 8,487 (952) Net income (loss) per common share Basic.................. (56.33) (796.93) -- -- -- 36.11 (7.42) Diluted................ (56.33) (796.93) -- -- -- 0.14 (7.42) Total assets............ 138,997 147,331 201,598 101,928 20,854 147,248 138,997 Stockholders' equity.... $ 57,106 $ 65,355 $ 115,602 $ 47,215 $ 6,978 $ 68,597 $ 57,106 Number of shares used in per share computations Basic.................. 164,571 67,714 -- -- -- 235,012 128,326 Diluted................ 164,571 67,714 -- -- -- 61,572,394 128,326
The above information includes the impact of dilutive convertible preferred stock held by Seagate Technology. 16 Seagate Software selected unaudited pro forma financial data We are providing the following information to give you a better picture of what the results of operations and financial position of Seagate Software might have looked like had the NSMG combination occurred at an earlier date. In addition, the pro forma financial information includes the estimated impact of the purchase of certain shares of Seagate Software by Seagate Technology. This information is provided as an example only. It does not show what the results of operations or financial position of Seagate Software would have been had the NSMG combination, the Seagate Software employee stock option exchange offer and the Seagate Technology exchange offer actually occurred on the dates assumed. This information also does not purport to indicate what Seagate Software's future operating results or consolidated financial position will be. See the Seagate Software unaudited pro forma condensed financial statements on page 67 for a more detailed explanation of this analysis. How the pro forma financial statements were prepared We prepared these statements in accordance with U.S. generally accepted accounting principles. Seagate Software will recognize a gain and record certain intangible assets on the contribution of the Network & Storage Management Group business to New VERITAS in exchange for New VERITAS common stock. In addition, Seagate Technology will purchase certain outstanding shares of Seagate Software and, as a result, will record certain intangible assets and compensation expense. The pro forma statement of operations data for the year ended July 3, 1998 and the six months ended January 1, 1999, includes recurring adjustments which assume that the employee stock option exchange offer and the Seagate Technology exchange offer took place on June 28, 1997, the first day of Seagate Software's fiscal 1998. The pro forma statement of operations data for Seagate Software eliminates the historical results of the Network & Storage Management Group business and includes Seagate Software's equity interest in the results of New VERITAS for the same periods, plus recurring amortization of intangibles and goodwill associated with the Seagate Technology exchange offer, as described in the notes to the Seagate Software unaudited pro forma condensed financial statements. We prepared the pro forma balance sheet data assuming that the NSMG combination, the Seagate Software employee stock option exchange offer and the Seagate Technology exchange offer all took place on January 1, 1999. The pro forma statements of operations include the historical results of Seagate Software less the historical results of the Network & Storage Management Group business plus Seagate Software's equity interest in the pro forma results of New VERITAS for the same periods as described in the notes to the Seagate Software unaudited pro forma condensed financial statements beginning on page 67, including recurring amortization of related intangibles and goodwill plus recurring amortization of intangibles and goodwill associated with the purchase of shares of Seagate Software stock by Seagate Technology. 17 Seagate Software selected unaudited pro forma condensed financial information (in thousands, except per share data)
Year Ended Six Months Ended July 3, 1998 January 1, 1999 ------------ ---------------- Pro forma statement of operations data: Total revenues............................... $ 118,180 $ 59,530 Loss from operations......................... (9,524) (11,196) Net loss..................................... (226,014) (106,819) Net loss per share--basic.................... $ (88.40) $ (41.78) Net loss per share--diluted.................. $ (88.40) $ (41.78) Number of shares used in computing per share amounts--basic.............................. 2,557 2,557 Number of shares used in computing per share amounts--diluted............................ 2,557 2,557
As of January 1, 1999 --------------------- Pro forma balance sheet data: Working capital........................................ $ 17,010 Total assets........................................... 1,651,162 Retained earnings...................................... 520,465 Stockholders' equity................................... 996,134
Seagate Software comparative per share data The following tables present certain unaudited historical and pro forma per share data that reflect the completion of the NSMG combination based upon the historical financial statements of Seagate Technology. The data presented below should be read in conjunction with the Seagate Technology unaudited pro forma condensed financial statements on page 53 and the historical financial statements of Seagate Technology in Seagate Technology's annual report on Form 10-K/A and Seagate Technology's most recent quarterly reports on Form 10-Q and Form 10-Q/A which are incorporated by reference in this document. The unaudited pro forma condensed financial data does not necessarily indicate the operating results that would have been achieved had the NSMG combination occurred at the beginning of the periods presented, and does not indicate future results of operations or financial position. The Network & Storage Management Group business is an operating division of Seagate Software, and it has no formal capital structure; accordingly, share and per share information is not presented. Calculation of Seagate Technology historical book value per share The historical book value per Seagate Technology common share is computed by dividing stockholders' equity as of the end of each period for which such computation is made, by the number of shares of common stock outstanding at the end of each period. Calculation of Seagate Technology pro forma per share data The pro forma comparative per share data has been calculated assuming option holders exercise 1,746,828 options to purchase shares of Seagate Software common stock and that these shares from the exercise of stock options plus 608,665 shares held by existing minority interest shareholders, 18 2,355,493 shares out of 5,248,516 vested shares and options issued and outstanding, are exchanged for Seagate Technology stock and assuming 34,606,432 shares of New VERITAS are issued to Seagate Software in connection with the NSMG combination. The pro forma book value per share computations include the effect of the in- process research and development charges and the compensation expense amounting to $184 million as described below. The pro forma net loss per share does not reflect these charges since the are non-recurring. These charges will be reflected in Seagate Technology's consolidated financial statements in the period the NSMG combination and the purchase of shares by Seagate Technology are completed. Accounting for the NSMG combination Seagate Software will contribute its Network & Storage Management Group business to New VERITAS in exchange for a 41.85% ownership interest in New VERITAS. As a result, Seagate Technology, through consolidation of Seagate Software, will recognize a pro rata gain on the contribution for the difference between 58.15% of the book value of its investment in the Network & Storage Management Group business and 58.15% of the fair value of the New VERITAS stock received. Seagate Technology will record its initial investment in New VERITAS based on the fair value of the New VERITAS stock received plus the book value of the remaining 41.85% of the original investment in the Network & Storage Management Group business. In-process research and development. Seagate Technology will allocate the purchase price of the New VERITAS stock received based on the estimated fair value of the New VERITAS assets acquired. It is estimated that Seagate Technology will record in-process research and development charges of approximately $92.1 million in connection with the NSMG combination. Compensation expense and minority interest. In a separate transaction, Seagate Technology has offered to exchange shares of Seagate Technology common stock for all of the outstanding vested shares of Seagate Software common stock not already owned by Seagate Technology. Any shares acquired that were not vested for more than six months will be accounted for as the settlement of an earlier award of stock and will result in compensation expense of approximately $86.7 million. The acquisition of shares vested and held for more than six months will be accounted for as the acquisition of a minority interest and the purchase price will be allocated to the underlying assets and liabilities including in-process research and development of approximately $1.4 million. The amount allocated to in-process research and development will be charged to expense in the period in which the shares are acquired. The accounting for the acquisition of Seagate Software common stock by Seagate Technology will be recorded by Seagate Software as a capital contribution from Seagate Technology and as compensation expense, purchased research and development, and intangible assets. 19 Seagate Technology Risk Factors By participating in the exchange offer, you will be choosing to invest in Seagate Technology's common stock. An investment in Seagate Technology's common stock involves a high degree of risk. In addition to the other information contained in or incorporated by reference into this document, you should carefully consider the following factors in deciding whether to participate in the exchange offer. You should also consider the risks regarding Seagate Software set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations--Factors Affecting Future Operating Results" in its most recent Form 10-Q/A that is also incorporated by reference in this document. Seagate Technology faces risks from the spin-off of Seagate Software's Network & Storage Management Group. We consolidated our software businesses into a single entity called Seagate Software in 1996. Seagate Software's business currently consists of two primary divisions, Network & Storage Management Group and Information Management Group. We announced the NSMG combination on October 5, 1998. Seagate Technology's Seagate Software subsidiary and Seagate Software employees who will become New VERITAS employees and who hold stock options in Seagate Software will receive approximately 40% of the fully-diluted equity in New VERITAS. See page 29. We face a number of risks prior to and after the closing of the NSMG combination including: . our management personnel may be distracted from the day to day operations by the NSMG combination and may not be able to identify and address business issues because of the time demands of closing the NSMG combination, . Information Management Group employees may be distracted by concerns about whether we will continue to operate that business or spin it off and may not meet critical deadlines or succeed in their assigned tasks, . Network & Storage Management Group customers may delay or cancel orders due to uncertainty about the spin-off, . the ongoing original equipment manufacturer relationship with the Network & Storage Management Group and our tape drive operations may be disrupted and we may not be able to meet our customers' order deadlines or needs as a result, . we have agreed not to compete in certain storage management software businesses for a specified period of time after the closing of the NSMG combination and may not be able to benefit from future opportunities in that market, . we will not have significant influence over the management of New VERITAS, although initially we will have two representatives on its board of directors but our financial statements and results of operations will reflect 40% of New VERITAS' operations, so our stock price may be impacted, and . we will only be permitted to sell our interest in New VERITAS in limited increments in compliance with certain Securities and Exchange Commission rules or to bear the expense of filing a registration statement. 20 Seagate Technology's financial results may be volatile because our short-term cost structure is fixed We often experience a high volume of sales at the end of the quarter, so we may not be able to determine that our fixed costs are too high relative to sales until late in any given quarter. Since this happens late in the quarter, we do not have enough time to reduce these costs. As a result, we would not be as profitable or may even incur a loss. For example, our revenue decreased to $3.354 billion in the first six months of fiscal 1999 from $3.569 billion in the first six months of fiscal 1998 as a result of increased competition that resulted in significant price decreases. Our revenue in any given quarter has been impacted and will continue to be impacted by the timing of orders from and shipment of our products to major customers such as Compaq. Because our cost structure is relatively fixed in the short-term, our revenues in any given quarter are improved if we sell more of our more recently introduced products that have higher margins. We may not be profitable if we cannot sell a high volume of products Seagate Technology's vertical integration strategy entails a high level of fixed costs and requires a high volume of production and sales to be successful. We face the risk that during periods of decreased production, these high fixed costs could have a material adverse effect on our operating results and financial condition. Acquisition related accounting charges will reduce our profits We intend to continue our expansion into complementary data technology businesses through internal growth as well as acquisitions. Acquisitions involve numerous risks, including difficulties in the assimilation of the operations and products of the acquired businesses and the potential loss of key employees or customers of the acquired businesses. We expect that we will continue to incur substantial expenses as we acquire other businesses, including charges for the write-off of in-process research and development. Our operating results have fluctuated in the past and may fluctuate in the future because of the timing of such write-offs. For example, we incurred a charge to operations in the first quarter of fiscal 1998 of approximately $214 million for the write-off of in-process research and development related to our acquisition of Quinta Corporation. We anticipate a substantial charge to operations later in fiscal 1999 for the write-off of in-process research and development related to the contribution of the Network & Storage Management Group business to New VERITAS and will experience ongoing charges related to the amortization of purchased intangibles. Our business will suffer if we do not ship new products early in the product life cycle before margins decline Our customers have demanded new generations of drive products as advances in other hardware components and software have created the need for improved storage products with features such as increased storage capacity or improved performance and reliability. 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 drive products within time to market windows that have become progressively shorter. 21 In addition, profit margins on disc drive products rapidly decrease once we have introduced the products, which further increases the pressure on us to rapidly develop and introduce additional new products. We face the risk that we may not be able to bring our new products to market in time to recoup the expenses we incur developing them and/or make a profit on them. If we fail to develop new products on time, our customers may select other vendors for their disc drive requirements. In order to address this risk, we had research and development expenses of $420 million, $459 million and $585 million in fiscal 1996, 1997 and 1998, respectively, to enable us to develop new products. In addition,we are developing low cost disc drives to meet the demand for disc drives that are components of low cost personal computers. We face the risk that we may not be able to produce disc drives that meet our quality and performance standards at a cost low enough to yield gross margins at acceptable levels to sustain the development efforts for this potentially large market. Slowdown in demand for computer systems may cause a decline in demand for our products. Our products are components in computer systems. The demand for computer systems has been volatile in the past and often has had an exaggerated effect on the demand for our disc drive and tape drive products in any given period. In the past, unexpected slowdowns in demand for computer systems have generally caused sharp declines in demand for our disc drive and tape drive products. We expect that this situation will occur again in the future and that demand for our disc drive and tape drive products may be reduced. Causes of the declines in demand in the past for our products have included the announcement or introduction of major operating system or semiconductor improvements, such as Windows 95 or the Pentium II. We believe these announcements and introductions caused consumers to defer their purchases and made existing inventory obsolete. We will not be successful if we do not bring our new products to market quickly. Our strategy of vertical integration has in the past and could continue to delay our ability to introduce products containing market-leading technology, because we may not have developed the technology in house and do not have access to external sources of supply without incurring substantial costs. We face the risk that if we do not bring our new products to market at the same time or before our competitors, customers will not choose our products or we will be forced to reduce the prices for the late products so much that we do not make a profit on those products. For example, over the past two years we have experienced delays in product launches due to delays in production of certain components as a result of slower than anticipated internal development and manufacturing scale-up of new designs. When we use outside suppliers, we may not be able to obtain components that meet our specifications and quality standards at prices that enable us to earn a profit on the finished products. For example, in the past Seagate Technology has experienced delays obtaining certain integrated circuits for printed circuit board assemblies due to lead time requirements or changes in specifications. As a result, we were not able to bring our products to market on time and had to sell those products at lower prices due to the availability of competing products that had already been in the market for some time. 22 If our customers delay or cancel orders, our revenues will be adversely affected. We face the risk that when a customer cancels an order, we will not receive other orders or be able to reduce our costs rapidly enough to avoid incurring substantial costs without generating revenue. We have experienced this problem in the past when customers cancelled large orders, because their sales were negatively affected by the widespread adoption of a new operating system requiring more disc storage space than anticipated. Typically, our purchase agreements permit our customers to cancel orders and reschedule delivery dates without significant penalties. Our distributors and original equipment manufacturer customers typically furnish us with non-binding indications of their near-term requirements, with product deliveries based on weekly confirmations. To the extent actual orders from distributors and original equipment manufacturers decrease from their non-binding forecasts, such variances could have a material adverse effect on our business because we rely on these forecasts, among other factors, to set our cost structure which is relatively fixed in the short-term. We face intense competition and may not be able to compete effectively. Even during periods when demand is stable, the data storage industry is intensely competitive. Historically our competitors have offered new or existing products at lower prices as a part of a strategy to gain or retain market share and customers. We expect these practices to occur again in the future. Because we may need to reduce our prices to retain market share, the competition could adversely affect our results of operations in any given quarter. We have experienced and expect to continue to experience intense competition from a number of domestic and foreign companies including the other leading independent disc drive manufacturers, as well as large integrated multinational manufacturers such as . Fujitsu Limited, . IBM, . NEC Corporation, . Samsung Electronics Co. Ltd., and . Toshiba Corporation. Integrated multinational manufacturers present formidable competitors because they have more substantial resources and access to customers without having to consider the profitability of the disc drive business in pricing its components. We also face indirect competition from present and potential customers, including several of the computer manufacturers listed above, that continuously evaluate whether to manufacture their own drives or purchase them from outside sources. If our customers decide to manufacture their own drives, it could have a material adverse effect on our business and results of operations. For example, IBM and Dell Computer recently announced that they had entered an agreement under which IBM will likely supply a substantial portion of Dell's disc drive needs. Although Dell is not a material customer of Seagate Technology, we face risks that IBM and other integrated multinational 23 manufacturers will enter into similar agreements with a substantial number of our customers to supply those customers' disc drive requirements as part of a more expansive agreement. We may not be able to compete successfully against current or future competitors. If we fail to compete successfully, our business and operating results may be materially adversely affected. We face risks from our international operations. We have significant offshore operations including manufacturing facilities, sales personnel and customer support operations. We have manufacturing facilities in Singapore, Thailand, the People's Republic of China, Scotland, Northern Ireland, Malaysia, Indonesia and Mexico, in addition to those in the United States. Our offshore operations are subject to certain inherent risks including: . fluctuations in currency exchange rates, such as the $76 million pre-tax charge to income Seagate Technology incurred in fiscal 1998 from marking our hedge positions to market, . longer payment cycles for sales in foreign countries that have in the past increased the uncertainty that we will receive the amounts owed to us by customers, . difficulties in staffing and managing international manufacturing operations, . seasonal reductions in business activity in the summer months in Europe and certain other countries that could affect our ability to meet demand elsewhere for products we produce in whole or in part in Europe, . increases in tariffs and duties, price controls, restrictions on foreign currencies and trade barriers imposed by foreign countries that could impair our ability to ship components or finished goods to or from countries where we have manufacturing facilities or to repatriate our earnings, and . political unrest, particularly in areas in which we have manufacturing facilities such as Indonesia, that may result in disruptions of critical services such as utilities or make it unsafe for our employees to travel to and from work. These factors could have a material adverse effect on our business and operating results in the future. We may experience Year 2000 computer problems that harm our business. The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. We currently expect that the Year 2000 issues will not pose significant problems for the products we offer or our operations. However, we face risks that our products will not be Year 2000 compliant even though we believe them to be, or we could experience material adverse effects on our business if the implementation of new systems we deploy to upgrade our internal systems in the normal course is delayed. We could also experience material adverse effects on our business if we fail to fully identify all Year 2000 dependencies in our systems and in the systems of our suppliers, customers and financial institutions. Those material adverse effects could include delays in the delivery or sale of Seagate Technology's products. Therefore, we are developing contingency plans for continuing operations in the event such problems arise. 24 The I.R.S. could assert that receipt of Seagate Technology Stock by U.S. holders is taxable Although our tax advisor, Ernst & Young LLP, has advised us that the exchange offer is likely to be tax-free to U.S. stockholders, the Internal Revenue Service could disagree. There are no court decisions or other authorities bearing directly on a transaction with facts sufficiently similar to the exchange offer. It is possible that the Internal Revenue Service could successfully assert that the receipt of Seagate Technology stock could be taxable to U.S. stockholders. Our stock price will fluctuate Our stock price has varied greatly as has the volume of shares of our common stock that are traded. We expect these fluctuations to continue due to factors such as: . announcements of new products, services or technological innovations by us or our competitors, . announcements of major restructurings by us or our competitors, such as the recent announcements by IBM, Dell and Hewlett Packard, . quarterly variations in our results of operations as a result of our fixed short-term cost structure and volatility in the demand for our products, . changes in revenue or earnings estimates by the investment community and speculation in the press or investment community stemming from our past performance, concerns about demand for our products or announcements by our competitors, . general conditions in the data storage industry or the personal computer industry such as the substantial decline in demand for disc drive products that occurred during fiscal 1998, . sales of large blocks of our stock that may lead to investors' concerns that our performance will falter and leading those investors to flood the market to liquidate their holdings of our shares, and . adverse impacts on our operating results if we receive an adverse judgment or settlement in any of the legal proceedings to which we are a party, such as the impact on our earnings in fiscal 1997 from the costs resulting from the settlement of a lawsuit by Amstrad PLC. In addition, our stock price may be affected by general market conditions and domestic and international macroeconomic factors unrelated to our performance. The market price of our common stock may experience significant fluctuations in the future. For example, our stock price fluctuated from a high of $45 3/4 to a low of $17 3/4 during fiscal year 1998 as a result of a variety of factors, some of which were beyond our control, such as economic conditions in Asia. 25 Notice Regarding Forward-looking Statements in this Document We have each made forward-looking statements in this document and in documents that are attached or incorporated by reference that are subject to risks and uncertainties. Forward-looking statements include the information concerning possible or assumed future results of operations of Seagate Technology, Seagate Software, the Network & Storage Management Group business or New VERITAS. When we use words such as "believes," "expects," "anticipates" or similar expressions, we are making forward-looking statements. You should note that many factors, some of which are discussed elsewhere in this document, could affect our future financial results and cause those results to differ materially from those we anticipate in the forward-looking statements. For a discussion of the detailed factors we anticipate will influence our future results, please refer to the "Risk Factors" section beginning on page 20 and to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" of each of Seagate Technology and Seagate Software, which are contained in their Forms 10-K/A, 10-Q and 10-Q/A on file with the SEC and available at http://www.sec.gov. 26 Where You Can Find More Information Seagate Technology and Seagate Software file annual, quarterly and special reports, proxy statements and other information with the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from the SEC's web site at http://www.sec.gov. Seagate Technology filed a Registration Statement on Form S-4 to register with the SEC the Seagate Technology common stock to be issued to the Seagate Software stockholders in the exchange. This document is a part of that registration statement. As allowed by SEC rules, this document does not contain all the information you can find in the registration statement or the exhibits to the registration statement. The SEC allows us to "incorporate by reference" the documents and information therein we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this document, and later information that we file with the SEC will automatically update and supersede this information. We incorporate by reference the Seagate Technology and Seagate Software documents listed below and any future filings with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended: Seagate Technology . Annual Report on Form 10-K for the year ended July 3, 1998, as amended . Proxy Statement dated September 24, 1998, as amended . Quarterly Report on Form 10-Q for the quarter ended October 2, 1998, as amended . Quarterly Report on Form 10-Q for the quarter ended January 1, 1999 . Current Report on Form 8-K dated October 20, 1998 . the description of Seagate Technology common stock contained in the Registration Statement on Form 8-A/A dated December 2, 1994 Seagate Software . Annual Report on Form 10-K for the year ended July 3, 1998, as amended . Quarterly Report on Form 10-Q for the quarter ended October 2, 1998, as amended . Quarterly Report on Form 10-Q for the quarter ended January 1, 1999, as amended . Current Report on Form 8-K dated October 20, 1998 . the description of the Seagate Software common stock contained in Amendment No. 1 to the Registration Statement on Form 10 dated December 2, 1997 27 How to Obtain These Documents You may request a copy of these filings for either Seagate Technology or Seagate Software, at no cost, by writing or telephoning: Bill Rowley Investor Relations Seagate Technology, Inc. 920 Disc Drive Scotts Valley, California 95066 (831) 439-2371 bill-rowley@notes.seagate.com You should rely only on the information incorporated by reference or provided in this document or any supplement. We have not authorized anyone else to provide you with different information. We are not making our offer in any state where our offer is not permitted. 28 The Exchange Offer The exchange offer and the exchange rate We are offering to acquire from Seagate Software stockholders all outstanding shares of Seagate Software common stock in exchange for shares of Seagate Technology common stock. If you hold options to purchase shares of Seagate Software common stock, you may exercise all or any portion of such options which are vested and participate in the exchange offer as a stockholder of Seagate Software. For information relating to the specifics of our exchange offer, including the calculation of the exchange rate, please read carefully the information on pages 1 through 9. Neither the Seagate Technology board of directors nor the Seagate Software board of directors makes any recommendation to any Seagate Software stockholder as to whether to tender any or all of his or her Seagate Software shares. Each Seagate Software stockholder must make his or her own decision as to whether to tender any or all of his or her Seagate Software shares. Background and reasons for the exchange offer The boards of directors of VERITAS, Seagate Technology and Seagate Software have agreed to combine the Network & Storage Management Group business of Seagate Software with the business of VERITAS. Pursuant to the VERITAS agreement, Seagate Software will contribute the Network & Storage Management Group business to a newly-formed corporation, New VERITAS. Seagate Software together with the optionees of Seagate Software, who become employees of New VERITAS, will own approximately 40% of the fully-diluted equity securities of New VERITAS. VERITAS stockholders, option holders and holders of convertible debt will convert their VERITAS securities on a one-for-one basis for New VERITAS securities and will receive approximately 60% of New VERITAS. These transactions are referred to as the NSMG combination. New VERITAS common stock will be publicly traded on the Nasdaq National Market. On the day the NSMG combination closes, employees of the Network & Storage Management Group business will become employees of New VERITAS and cease to be employees of Seagate Software or Seagate Technology, as the case may be. As a result, employees of Seagate Software who become New VERITAS employees and who exchange their Seagate Software options for New VERITAS options will have the ability to sell their shares in a public market. We wish to provide a similar opportunity for all Seagate Software stockholders and holders of vested options, including the significant number of such persons who will not transfer to New VERITAS and therefore will not be eligible for the New VERITAS option exchange offer. The expiration date The exchange offer will expire on the expiration date, which is 12:00 midnight, New York City time, on June 7, 1999, unless we extend this time. If we extend this time, we will publicly announce the extension as soon as practicable after we make the extension. We will make the public announcement no later than 9:00 a.m. Eastern time on the next business day after the previously scheduled expiration date. Without limiting the manner in which we may choose to make a public announcement, we will not have any obligation to publish or communicate any such public announcement other than by making a release to the Dow Jones News Service. 29 Conditions to the exchange offer The exchange will not occur unless certain conditions are satisfied prior to the expiration date. These conditions are as follows: . the registration statement relating to the shares to be issued in the exchange shall have become effective under the Securities Act of 1933, as amended, and shall not be the subject of any stop-order or proceedings seeking a stop-order; . any applicable waiting periods for the exchange offer shall have expired or been terminated and no decree, ruling, temporary restraining order, preliminary injunction or permanent injunction or other order preventing the consummation of the exchange shall have been issued by any federal or state court or governmental agency which remains in effect; and . the NSMG combination shall have closed. The conditions to the closing of the NSMG combination are described in the VERITAS agreement and the VERITAS proxy materials which are on file with the SEC. These conditions include, but are not limited to, the following: . the principal terms of the VERITAS agreement and the NSMG combination shall have been approved and adopted by a majority of the VERITAS stockholders and a majority of the Seagate Software stockholders; . the registration statement relating to the shares to be issued by New VERITAS in the NSMG combination shall have become effective under the Securities Act of 1933, as amended, and shall not be the subject of any stop-order or proceedings seeking a stop-order and the VERITAS proxy materials shall at the effective time of the NSMG combination not be subject to any proceedings commenced or overtly threatened by the SEC; and . any applicable waiting periods for the NSMG combination shall have expired or been terminated and no decree, ruling, temporary restraining order, preliminary injunction or permanent injunction or other order preventing the consummation of the NSMG combination shall have been issued by any federal or state court or governmental agency which remains in effect. Termination of the exchange offer Seagate Technology reserves the right, in our sole discretion to terminate our exchange offer and not accept for exchange any tendered Seagate Software shares not already accepted for exchange or exchanged. If the exchange offer is terminated without our acceptance of any tendered shares of Seagate Software common stock, we will return promptly all such shares tendered to the appropriate Seagate Software stockholders. Exchange of shares and certificates If you deliver a properly completed and executed letter of transmittal, which you received along with this document, and stock certificates representing your shares of Seagate Software common stock prior to the expiration date to the exchange agent at its address or have followed the exercise procedure set forth for your vested options on the special exercise instruction letter, then you will have accepted the exchange offer as to the number of shares reflected on the stock certificates 30 delivered by you. If you hold vested options to purchase shares of Seagate Software common stock and you elect to exercise such options and participate in the exchange offer, you should review the special exercise instruction letter and the letter of transmittal for instructions on tendering the shares that you receive upon exercise of your options. You must choose how to deliver the letter of transmittal, stock certificates and other necessary documents to the exchange agent, and you bear the risk of how you make this delivery. You must choose how to deliver the special exercise instruction letter to Seagate Technology, and you also bear the risk of how you make this delivery. We recommend that you use an overnight or hand delivery service rather than a mail service. In all cases, you should allow sufficient time to assure timely delivery. You should send your letter of transmittal, stock certificates, and other necessary documents to the exchange agent and your special exercise instruction letter to Seagate Technology at the addresses provided in this document and the letter of transmittal. If you want us to issue the stock certificates representing your Seagate Technology common stock in a name other than the name in which your stock certificates are registered, you must properly endorse or otherwise place in proper form for transfer the stock certificates you are surrendering. If the letter of transmittal is signed by a person other than the registered holder of any Seagate Software common stock, the stock certificates reflecting ownership of such Seagate Software common stock must be endorsed or accompanied by appropriate stock powers that authorize the person to tender the Seagate Software common stock on behalf of the registered holder, in either case signed as the name of the registered holder or holders appears on these stock certificates. If the letter of transmittal, any stock certificates representing Seagate Software common stock tendered, or any stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of a corporation or others acting in a fiduciary or representative capacity, these persons should so indicate when signing and, unless waived by us, submit with the letter of transmittal evidence satisfactory to us of their authority to so act. After the expiration date, the exchange agent will send us written notice of the amount of outstanding Seagate Software common stock validly tendered in the exchange. Promptly after we receive this notice, if all the conditions under the VERITAS agreement or described in this document are satisfied or waived, then we will exchange each validly tendered share of Seagate Software common stock for the number of shares of Seagate Technology common stock based on the exchange rate. We then will deliver by registered mail stock certificates representing the appropriate number of shares of Seagate Technology common stock to the stockholders participating in the exchange. See page 30. All questions as to the validity, form, eligibility, acceptance and withdrawal of the tendered shares of Seagate Software common stock will be determined by us in our sole discretion, and our determination will be final and binding. We reserve the absolute right to reject any and all shares of Seagate Software common stock not properly tendered or any shares of Seagate Software common stock our acceptance of which would, in the opinion of our counsel, be unlawful. We reserve the absolute right to waive any irregularities or conditions of tenders as to particular shares of Seagate Software common stock. Unless waived by us, any defects or irregularities in connection with tenders of shares of Seagate Software common stock must be cured within the time we determine. 31 Neither we, the exchange agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of shares of Seagate Software common stock nor shall any of them incur any liability for failure to give any notification. Tenders of shares of Seagate Software common stock will not be deemed to have been made until such defects or irregularities have been cured or waived. As soon as practicable following the expiration date, the exchange agent will return without cost any stock certificates representing Seagate Software common stock that were not properly tendered and as to which defects or irregularities have not been cured or waived to you, unless you otherwise provide in the letter of transmittal. If any of the stock certificates representing your Seagate Software common stock have been mutilated, lost, stolen or destroyed, you should contact the exchange agent at the address below for further instruction. Exchange agent for shares and certificates Harris Trust Company of New York is our exchange agent. If you have any questions or requests for additional copies of this document, please direct them to the exchange agent as follows: By mail: Harris Trust Company of New York Wall Street Station P.O. Box 1010 New York, NY 10268-1010 Overnight, courier or hand delivery: Harris Trust Company of New York 88 Pine Street, 19th Floor New York, NY 10005 By facsimile transmission: (212) 701-7636 For confirmation by telephone: (212) 701-7694 Fractional shares We will not issue any fractional shares to you in the exchange. Instead, the number of shares you receive in this exchange offer will be rounded down to the nearest whole number of shares. Fees and expenses We will not make any payment to brokers, dealers or others soliciting acceptances of the exchange offer. Transfer taxes You will not be obligated to pay any transfer tax in connection with the tender of your Seagate Software shares for exchange. 32 Appraisal rights You will not have dissenters' rights or appraisal rights in connection with the exchange offer. Proxies There is no stockholder vote required with respect to this exchange offer. We are not asking you for a proxy and you are requested not to send us a proxy. Withdrawal rights Once you have tendered your Seagate Software common stock, your tender is irrevocable and you cannot withdraw your shares, except that your Seagate Software shares tendered in our exchange may be withdrawn at any time prior to the expiration date of our exchange offer if we have not accepted such shares. If the exchange is terminated without our acceptance of any tendered shares of Seagate Software common stock, we will return promptly all shares tendered to the appropriate Seagate Software stockholders. See page 29. Regulatory approvals required We are not aware of any license or regulatory permit material to our business that might be adversely affected by our acquisition of Seagate Software common stock as contemplated in the exchange offer or of any approval or other action by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, that would be required for our acquisition or ownership of Seagate Software common stock as contemplated by the exchange offer. Should any such approval or other action be required, we currently contemplate that we will seek such approval or take such other action. Without limitation to any other approval that may be required, to the extent that the acquisition of Seagate Technology common stock by any holder(s) of Seagate Software common stock pursuant to the exchange offer results in the requirement of Seagate Technology and such holder(s) to file Notification and Report Forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with the Federal Trade Commission and the Antitrust Division of the Department of Justice, Seagate Technology and such holder(s) will file the required Notification and Report Forms. We do not currently anticipate that any Hart- Scott Rodino filings will be required with respect to the exchange offer. With respect to any such holder(s) of Seagate Software common stock, the exchange could not occur until the waiting period(s) under the Hart-Scott Rodino Antitrust Improvement Act of 1976 had expired or been granted early termination. Until the applicable waiting periods expire, Seagate Technology would have no obligation under the exchange offer, with respect to such holder(s), to accept for payment and pay for Seagate Software common stock. We cannot predict whether it may determine that we are required to delay the acceptance for payment of, or payment for, Seagate Software common stock tendered pursuant to the exchange offer pending the outcome of any such matter. There can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that the failure to obtain any such approval or other action might not result in adverse consequences to Seagate Technology's business. Seagate Technology's obligations under the exchange offer to accept for payment and pay for Seagate Software common stock are subject to certain conditions. See page 29. 33 Material income tax considerations of exchange of shares The following discussion addresses the material income tax considerations of the exchange offer that are generally applicable to holders of vested shares of Seagate Software common stock exchanging their Seagate Software common stock for Seagate Technology common stock. Stockholders of Seagate Software should be aware that the following discussion does not address all income tax considerations that may be relevant to particular Seagate Software stockholders in light of their particular circumstances, such as stockholders who are dealers in securities, or except as described below, who acquired their Seagate Software common stock in compensatory transactions. In addition, the following discussion does not address the tax consequences of any transactions completed prior to or after the exchange offer except, to the extent discussed below, the exercise of vested options or vested rights to purchase Seagate Software common stock in anticipation of the exchange. Furthermore, the following discussion does not address the tax consequences of the exchange offer under the tax laws of countries other than the national income and capital gains tax regimes of the U.S., Canada and the U.K., as set forth below. Accordingly, Seagate Software stockholders are urged to consult their own tax advisors as to the specific tax consequences to them of the exchange, including the applicable U.S. federal, state and local, Canadian federal and provincial, U.K. and other foreign tax consequences to them of the exchange offer. Material United States income tax consequences of exchange of shares The following discussion is based upon the opinion of Ernst & Young LLP. The opinion is based on the U.S. Internal Revenue Code, applicable Treasury Regulations, judicial authority and administrative rulings and practice, all as of the date hereof. The Internal Revenue Service is not precluded from adopting a contrary position. In addition, there can be no assurance that future legislative, judicial or administrative changes or interpretations will not adversely affect the accuracy of the statements and conclusions set forth herein. Any such changes or interpretations could be applied retroactively and could affect the tax consequences of the transactions taken in connection with the exchange offer. In the opinion of Ernst & Young LLP, the exchange should qualify as a reorganization under Section 368(a) of the U.S. Internal Revenue Code in which case: (1) You will not recognize any gain or loss will be recognized upon the receipt of Seagate Technology common stock solely in exchange for such Seagate Software common stock in the exchange offer; (2) Your aggregate tax basis of the Seagate Technology common stock you received in the exchange will be the same as the aggregate tax basis of the Seagate Software common stock you surrendered; (3) The holding period of the Seagate Technology common stock you receive in the exchange will include the period for which the Seagate Software common stock surrendered in exchange therefor was considered to be held, provided that the Seagate Software common stock surrendered is held as a capital asset on the date of the exchange; and (4) Neither Seagate Technology nor Seagate Software will recognize gain or loss solely as a result of the exchange. 34 Neither Seagate Technology nor Seagate Software has requested a ruling from the IRS in connection with the exchange. Seagate Technology and Seagate Software have received an opinion from Ernst & Young LLP to the effect that, for U.S. federal income tax purposes, the exchange should constitute a reorganization within the meaning of Section 368(a) of the U.S. Internal Revenue Code. The opinion neither binds the Internal Revenue Service nor precludes the Internal Revenue Service from adopting a contrary position. The opinion is subject to certain assumptions and qualifications and is based in part on the truth and accuracy of certain representations of Seagate Technology and Seagate Software. Of particular importance is the representation and assumption to the effect that no consideration other than Seagate Technology stock is being issued as consideration for the Seagate Software shares in the exchange. Neither Seagate Technology nor Seagate Software has requested a ruling from the Internal Revenue Service in connection with the exchange. Seagate Technology and Seagate Software have received an opinion from Ernst & Young LLP to the effect that, for U.S. federal income tax purposes, the exchange offer is likely to constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. However, there are no court decisions or other authorities bearing directly on a transaction with facts sufficiently similar to the exchange offer. The opinion reflects Ernst & Young's best judgement, and neither binds the Internal Revenue Service nor precludes the Internal Revenue Service from adopting a contrary position. The opinion is subject to certain assumptions and qualifications and is based in part on the truth and accuracy of certain representations of Seagate Technology and Seagate Software. Of particular importance is the representation and assumption to the effect that no consideration other than Seagate Technology stock is being issued as consideration for the Seagate Software shares in the exchange. Even if the exchange qualifies as a reorganization, a recipient of shares of Seagate Technology common stock would recognize gain to the extent that such shares were considered to be received in exchange for services or property other than solely Seagate Software common stock. All or a portion of such gain may be taxable as ordinary income. Gain would also have to be recognized to the extent that a Seagate Software stockholder was treated as receiving, directly or indirectly, consideration other than Seagate Technology common stock in exchange for the Seagate Software common stock. You are urged to consult your own tax advisors in light of your personal circumstances. Material Canadian income tax consequences of exchange of shares The following discussion is based upon an opinion of Ernst & Young LLP as to the material Canadian income tax considerations that are generally applicable to Canadian resident holders of Seagate Software common stock exchanging their Seagate Software common stock for Seagate Technology common stock. Stockholders of Seagate Software should be aware that the following discussion does not deal with all Canadian income tax considerations that may be relevant to particular Seagate Software stockholders in light of their particular circumstances. The following discussion is based on the Canadian income tax laws as of this date. Revenue Canada or an applicable Canadian provincial taxing authority is not precluded from successfully adopting a contrary position. In addition, there is no assurance that future legislative, judicial or administrative changes or interpretations will not affect the accuracy of the statements and conclusions described 35 below. Any such changes or interpretations could be applied retroactively and could affect the tax consequences to stockholders of Seagate Software participating in the exchange offer. For example, on April 15, 1999, the Canadian Department of Finance issued a press release containing a proposal that, if enacted into law, may allow Canadian residents participating in the Exchange Offer to receive the Seagate Technology stock on a tax-free basis. In the opinion of Ernst & Young LLP, based on the Canadian income tax laws as of the date of Ernst & Young's opinion, the exchange of stock pursuant to the exchange offer will be a taxable transaction for a Seagate Software stockholder resident in Canada. Any Canadian resident holder of shares of Seagate Software common stock would be considered to have disposed of the holder's shares of Seagate Software common stock for proceeds, expressed in Canadian dollars, determined at the time of the exchange equal to the fair market value of the shares of Seagate Technology common stock received. A gain or loss, being the difference expressed in Canadian dollars between the proceeds and the tax basis of the shares of Seagate Software common stock exchanged, may be realized on this disposition. Generally, where the shares of Seagate Software common stock exchanged are held as investment property and were obtained by virtue of employment and the holder does not deal with shares and other securities in a manner similar to a trader or dealer of securities, the Seagate Software common stock exchanged would be considered capital property. In such a case, only three-quarters of the capital gain on the disposition of such shares would be taxable capital gain subject to income tax. The tax basis of the shares of Seagate Technology common stock you receive on the exchange will be equal to the fair market value, expressed in Canadian dollars, of those shares determined at the time of exchange. The tax basis of each share of Seagate Technology common stock you own after the exchange is equal to the total tax basis of all shares of Seagate Technology common stock, including those that are not obtained from the exchange, you owned divided by the total number of such shares owned. You are urged to consult your own tax advisors in light of your personal circumstances. Material United Kingdom income tax consequences of exchange of shares The following discussion is based upon an opinion of Ernst & Young as to the material U.K. tax considerations of U.K. resident holders of Seagate Software common stock exchanging their Seagate Software common stock for Seagate Technology common stock. The discussion relates only to U.K. resident holders of stock in Seagate Software and is confined to their U.K. tax position. You should be aware that the following discussion does not deal with all U.K. tax considerations that may be relevant to you as a U.K. resident in light of your particular circumstances. The following discussion is based on Ernst & Young's best judgement regarding the application of U.K. taxation legislation. The views expressed are not binding on the courts and there is no assurance that the Inland Revenue will not seek to assert a contrary position. Furthermore, no assurance can be given that future legislation, judicial or administrative changes or interpretations will not adversely affect the accuracy of the statements and conclusions set forth herein. These could be on either a prospective or retroactive basis. We undertake no responsibility to advise you of any new developments in the application or interpretation of the U.K. taxation laws. 36 Neither Seagate Technology nor Seagate Software has requested advance confirmation from the Inland Revenue that the Inland Revenue is satisfied that the provisions of Section 135 will apply to the proposed exchange. Seagate Technology and Seagate Software have received an opinion from the United Kingdom firm of Ernst & Young, a member of Ernst & Young International, to the effect that, for U.K. tax purposes, the proposed transaction will fall within the rules applicable to reorganizations. The opinion does not bind the Inland Revenue nor preclude the Inland Revenue from adopting a contrary position. The opinion, subject to certain assumptions and qualifications, is based in part on the truth and accuracy of certain representations of Seagate Technology and Seagate Software. Capital Gains Tax. In the opinion of Ernst & Young, the exchange offer will fall within the U.K. tax laws for reorganizations with the result that: (1) You will not recognize any gain or loss upon receipt of Seagate Technology common stock solely in exchange for your Seagate Software common stock in the exchange. (2) Your aggregate tax basis of the Seagate Technology common stock you receive in the exchange will be the same as the aggregate tax basis of the Seagate Software common stock you surrendered in exchange. (3) The holding period of the Seagate Technology common stock you received in the exchange will include the period for which the Seagate Software common stock surrendered in exchange therefor was considered to be held by you as a capital asset on the date of the exchange. Income Tax. The opinion concludes that the exchange offer constitutes a company reorganization, in which case, no income tax charge should arise on the exchange offer. You are urged to consult your own tax advisors in light of your personal circumstances. Material tax consequences to optionees The following discussion is based upon the opinions of Seagate Software's tax advisors and addresses the material tax consequences to holders of vested Seagate Software options who exercise their options in connection with the exchange offer. The discussion is based on interpretations of the existing authorities. The applicable taxing authorities are not precluded from successfully adopting a contrary position to that are described here. In addition, there is no assurance that future legislative, judicial, or administrative changes or interpretations will not affect the accuracy of the statements and conclusions described below. Any such changes or interpretations could be applied retroactively and could affect the tax consequences to holders of Seagate Software options who exercise their vested options. You are urged to consult your own tax advisors prior to the exercise of any options in light of your personal circumstances. U.S. Consequences. In the opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, you will not recognize regular taxable income upon the exercise of an incentive stock option. 37 However, the difference between the option exercise price paid for the shares and the fair market value of the shares on the date of exercise will be alternative minimum taxable income and may subject you to the alternative minimum tax under Section 55 of the Internal Revenue Code. If you sell or otherwise dispose of the Seagate Technology common stock you receive in connection with the exchange offer, you will recognize taxable income for any amount in excess of the incentive stock options' aggregate exercise price. If you dispose of the shares more than two years from the grant date of your incentive stock option and more than one year after the exercise of your incentive stock option, then upon the sale or other disposition, any gain you recognize will be long term capital gain and any loss will be long term capital loss. If you dispose of your shares before the end of either of the holding periods described in the preceding sentence, then you will recognize ordinary income in the year of the disposition equal to the excess, if any, of the fair market value of the shares at exercise or, if less, the amount realized on the disposition of the shares, over the option exercise price paid for the such shares. Any further gain or loss realized by you will be taxed as capital gain or loss. With respect to the exercise of a nonstatutory stock option, Wilson Sonsini Goodrich & Rosati, Professional Corporation is of the opinion that upon exercise you will recognize ordinary income in an amount equal to the difference between the option exercise price you pay for the shares and the fair market value on the date of exercise. Your basis will be the fair market value of such shares on the date of exercise. Upon a taxable disposition of the Seagate Technology shares you receive in the exchange offer, any gain or loss is generally treated as capital gain or loss. If at the time of exercise you were an employee of Seagate Technology, Seagate Software or any of their respective subsidiaries any income recognized upon exercise of your nonstatutory stock option will constitute wages for which Seagate Software will be required to withhold taxes. Canadian Consequences. This section applies to a Canadian resident employee of Seagate Software or its Canadian subsidiaries who by virtue of such employment obtained a stock option to acquire Seagate Software common stock. In the opinion of Ernst & Young LLP, a Canadian resident employee who exercises a vested option is generally required to include in his or her employment income the fair market value of the Seagate Software common stock so acquired, as determined at the time of exercise, less the actual amount paid or to be paid by the employee to acquire those shares. As a result of the exercise, the tax basis of the shares so acquired is adjusted to equal the fair market value of the shares at the time of the exercise. Where you also own other Seagate Software common stock, the tax basis per share of the Seagate Software common stock is calculated as the total tax basis of all shares of Seagate Software common stock you owned divided by the total number of such shares owned. Where you include in your employment income a benefit from exercising a stock option as discussed above, an offsetting deduction equal to 25% to the benefit may be available in computing your taxable income for the year of the exercise provided certain conditions are met. A Canadian resident employee who exercises a stock option to acquire Seagate Software common stock should be entitled to this deduction. You will be required to pay income tax, Canada Pension Plan premiums or Quebec Pension Plan premiums on this employment benefit arising from the exercise of the stock option. 38 U.K. Consequences. Options Obtained By Reason Of Employment. In the opinion of Ernst & Young, where you acquired the options as a director or employee, you will be liable for U.K. income tax, payable at the time of exercise, on an amount equal to the excess of the market value on the date of exercise of the options of the Seagate Software shares acquired as a result of the exercise of the option, over the amount paid to exercise the option. The amount that is subject to income tax is added to the cost of the shares acquired upon exercise for purposes of computing the U.K. capital gains tax, if any, on the subsequent sale of the shares. Any further gain arising on the subsequent sale of the shares will make you liable for U.K. capital gains tax. Options Not Obtained By Reason Of Employment. In the opinion of Ernst & Young, where you did not acquire the options as a director or employee, the exercise of your options will not result in either a U.K. income tax or U.K. capital gains tax liability. Any gain, which equals the excess of sale proceeds over the exercise price, arising on the subsequent sale of the shares will make you liable for U.K. capital gains tax. Accounting treatment The exchange of Seagate Technology shares for Seagate Software shares you have held for more than six months and not subject to a right of repurchase in favor of Seagate Software will be accounted for as a purchase of minority interest of Seagate Software and, accordingly, the acquired assets and liabilities, including goodwill and other intangibles, pertaining to the acquired minority interest in Seagate Software will be recorded at their estimated fair values. Any amount related to in-process research and development will be written off in the period of acquisition. Seagate Technology shares exchanged for Seagate Software shares acquired through the exercise of employee stock options and you have held for less than six months or Seagate Software shares subject to a right of repurchase in favor of Seagate Software will result in compensation expense equal to the difference between the price you paid and the value of the Seagate Technology shares at the date of the exchange. The compensation expense will be recognized immediately or, if there is vesting, over the vesting period of the Seagate Technology shares issued. The pro forma financial statements of Seagate Technology and Seagate Software also include the impact of the NSMG combination and the TeleBackup combination by New VERITAS. See "Seagate Technology Unaudited Pro Forma Condensed Financial Statements" and "Seagate Software Unaudited Pro Forma Condensed Financial Statements." 39 Description of Seagate Technology Capital Stock The authorized capital stock of Seagate Technology consists of 600,000,000 shares of Seagate Technology common stock, $.01 par value, and 1,000,000 shares of Seagate Technology preferred stock, $.01 par value. As of March 31, 1999, there were 251,890,067 shares of Seagate Technology common stock outstanding held of record by 6,825 registered stockholders. Subject to preferences that may be applicable to any outstanding Seagate Technology preferred stock, holders of Seagate Technology common stock are entitled to receive ratably such dividends as may be declared by the Seagate Technology board of directors out of funds legally available therefor. Seagate Technology has not paid any cash dividends on the Seagate Technology common stock. Each holder of Seagate Technology common stock is entitled to one vote for each share held of record on all matters submitted to a vote of stockholders, except that upon giving notice required by law and the bylaws of Seagate Technology, stockholders may cumulate their votes in the election of directors. In the event of a liquidation, dissolution or winding up of Seagate Technology, holders of Seagate Technology common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any outstanding Seagate Technology preferred stock. Holders of Seagate Technology common stock have no preemptive rights and have no rights to convert their Seagate Technology common stock into any other securities and there are no redemption provisions with respect to such shares. The transfer agent and registrar for the Seagate Technology common stock is Harris Trust Company of California. As of March 31, 1999, there were no shares of Seagate Technology preferred stock outstanding. The Seagate Technology preferred stock may be issued from time to time in one or more series. The Seagate Technology board has authority to fix the designation, powers, preferences and rights of each such series and the qualifications, limitations and restrictions thereon and to generally increase or decrease the number of shares of such series without any further vote or action by the stockholders. Seagate Technology has no present plans to issue any shares of Seagate Technology preferred stock. 40 Comparison of Stockholder Rights In the event that the exchange offer is completed, Seagate Software's stockholders whose shares of Seagate Software common stock are tendered pursuant to the exchange offer will become Seagate Technology stockholders. Their rights will be governed by the Seagate Technology certificate of incorporation, the Seagate Technology bylaws and the laws of the State of Delaware. Certain differences between the rights of Seagate Software stockholders and Seagate Technology stockholders are set forth below. As both Seagate Software and Seagate Technology are organized under the laws of Delaware, these differences primarily arise from various provisions of the Seagate Technology certificate of incorporation, the Seagate Technology bylaws, the Seagate Software certificate of incorporation and the Seagate Software bylaws. This summary contains a description of the material differences in stockholder rights, but is not meant to be relied upon as an exhaustive list or detailed description of the provisions discussed herein and is qualified in its entirety by reference to the laws of the State of Delaware, the Seagate Technology certificate of incorporation, the Seagate Technology bylaws, the Seagate Software certificate of incorporation, and the Seagate Software bylaws. Stockholder meetings The Seagate Technology bylaws provide that Seagate Technology stockholders holding shares representing not less than 10% of the outstanding votes entitled to vote at a stockholders' meeting may call a special meeting of stockholders. Any stockholder request for a special meeting of stockholders must be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and must be delivered to the chairman of the board, president, any vice president or secretary of Seagate Technology. Under the Seagate Software bylaws, Seagate Software's stockholders may call a special meeting of stockholders, provided that one or more of the stockholders calling for the special meeting, in the aggregate, hold not less than a majority of the shares entitled to vote at such meeting. Director nominations The Seagate Technology bylaws currently provide for a seven member board of directors. Directors are elected at each annual meeting of stockholders to hold office until the next annual meeting and until his or her successor is elected and qualified or until his or her earlier resignation or removal. The Seagate Software bylaws provide that the number of directors shall be five, which number may be changed by a bylaw or certificate of incorporation amendment duly adopted by the Seagate Software board or by the stockholders of Seagate Software. The Seagate Software board currently consists of four directors and one vacancy. Indemnification The Seagate Technology certificate of incorporation and the Seagate Software certificate of incorporation provide that directors will not be personally liable to their respective companies or stockholders for monetary damages for breach of their fiduciary duty as directors and shall be indemnified to the fullest extent authorized by Delaware law. The Seagate Technology bylaws 41 provide that directors, officers and certain other persons will be indemnified with respect to third-party actions or suits, provided such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of Seagate Technology. The Seagate Technology bylaws further provide that directors, officers and certain other persons will be indemnified with respect to actions or suits by or in the right of Seagate Technology, provided that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of Seagate Technology; except that no indemnification shall be made in the event that such person shall be adjudged to be liable to Seagate Technology, unless a court determines that indemnification is fair and reasonable in view of all the circumstances. The Seagate Technology bylaws and the Seagate Software certificate of incorporation require Seagate Technology and Seagate Software, respectively, to pay all expenses incurred by a director or officer in defending any proceeding within the scope of the indemnification provisions as such expenses are incurred in advance of its final disposition, subject to repayment if it is ultimately determined that such party was not entitled to indemnity by Seagate Technology and Seagate Software, respectively. The Seagate Software bylaws provide that Seagate Software shall indemnify its officers and directors to the fullest extent authorized by Delaware law and may elect to indemnify its employees and agents to the fullest extent authorized by Delaware law. 42 Information About Seagate Technology General Seagate Technology designs, manufactures and markets products for storage, retrieval and management of data on computer systems and other systems which receive, store and transmit data. These products include disc drives and disc drive components, tape drives and software. Seagate Technology designs, manufactures and markets a broad line of disc drives, devices which store data in computers in electronic form. These products are used in computer systems ranging from desktop personal computers to large, sophisticated enterprise computers. In January 1998, we discontinued production of 2.5 inch disc drives for the mobile computer market due to intense competition resulting in a substantial loss of market share. However, we are continuing research and development in this area and intend to reenter this market at a future date. Seagate Technology also designs and markets tape drives ranging in capacity from 8 gigabytes to 200 gigabytes for low cost storage and protection of large volumes of data. We sell our products to original equipment manufacturers for inclusion in their computer systems or subsystems, and to distributors, resellers, dealers, system integrators and retailers. We have pursued a strategy of vertical integration and accordingly we design and manufacture rigid disc drive components. We also assemble certain of the key components for use in our products. Seagate Technology products are currently manufactured primarily in the Far East with limited production in the United States. In addition to our core product line of rigid disc drives and related components, we have broadened our strategy to more fully address the markets for storage, retrieval and management of data. In line with this broadened strategy, we have made the investments in or acquired other companies. In January 1993, we began investing in SanDisk Corporation, a flash memory company. In July 1994, we began investing in Dragon Systems, Inc., a developer of speech and language technology, including speech recognition software. In December 1994, we acquired Applied Magnetics Corporation's tape head subsidiary, a manufacturer of magnetic recording heads for tape drives. In February 1996, we added tape drives to our product line as a result of our merger with Conner Peripherals, Inc. In June 1997, we began investing in Gadzoox Networks, Inc., a manufacturer of Fibre Channel-based storage network connectivity products. In August 1997, we acquired Quinta Corporation, a developer of optically assisted Winchester disc drives. We anticipate that our broadened strategy may include additional acquisitions of, investments in and strategic alliances with complementary businesses, products and technologies to enable lower cost per megabyte, faster time to market, increased capacity and better performance characteristics for our products. Our strategy includes acquiring companies that possess technology and development personnel which provide long-term growth potential to our business. In addition, following the closing of the NSMG combination, those optionees of Seagate Software who will become employees of New VERITAS and our Seagate Software subsidiary will own an approximately 40% interest on a fully-diluted basis of New VERITAS. Seagate Technology's executive offices are located at 920 Disc Drive, Scotts Valley, California, 95066, and its telephone number is (831) 438-6550. 43 Stock and dividend information Seagate Technology's common stock trades on the New York Stock Exchange under the symbol "SEG." The price range per share, reflected in the table below, is the highest and lowest sale prices for Seagate Technology's common stock as reported by the New York Stock Exchange during each quarter since Seagate Technology's fiscal year 1997. Seagate Technology's present policy is to retain its earnings to finance future growth. Seagate Technology has never paid cash dividends and has no present intention to pay cash dividends. At March 31, 1999, there were 6,825 stockholders of record of Seagate Technology's common stock.
High Low -------- --------- Fiscal 1997: First Quarter................................................ $29 5/16 $18 1/16 Second Quarter............................................... 42 3/4 25 7/8 Third Quarter................................................ 56 1/4 37 3/8 Fourth Quarter............................................... 54 1/4 32 1/2 Fiscal 1998: First Quarter................................................ $45 3/4 $34 1/8 Second Quarter............................................... 40 5/8 18 7/16 Third Quarter................................................ 27 3/16 17 3/4 Fourth Quarter............................................... 29 5/8 19 7/16 Fiscal 1999: First Quarter................................................ $27 3/8 $16 1/8 Second Quarter............................................... 34 1/2 19 13/16 Third Quarter................................................ 44 1/4 25 5/8 Fourth Quarter (to April 19, 1999)........................... 31 3/4 26 1/8
On April 19, 1999, the last sales price of Seagate Technology common stock, as reported by the New York Stock Exchange, was $26 13/16 per share. You should obtain current market quotations for Seagate Technology common stock. In recent months, the market price of Seagate Technology common stock has fluctuated substantially due to volatility in the market place. The market price of Seagate Technology common stock will fluctuate between the date of this document and the closing date of the exchange offer. We can give you no assurances concerning the market price of Seagate Technology common stock before or after the date on which the exchange offer is closed. 44 Information About Seagate Software and the Information Management Group General Seagate Software develops and markets software products and provides related services enabling business users and information technology professionals to store, access and manage enterprise information. Seagate Software is currently comprised of two operating groups, the Information Management Group and the Network & Storage Management Group. Each operating group provides products in distinct segments of the business software market. The Network & Storage Management Group offers network and storage management software solutions, which focus on the availability component of enterprise information management by enabling information technology professionals to manage distributed network resources and to secure and protect enterprise data. Network & Storage Management Group's products include features to copy, store, retrieve, move, protect and schedule retrieval and release of electronically stored data. Seagate Software will contribute the Network & Storage Management Group to New VERITAS in the NSMG combination. The Information Management Group's products permit analysis and interpretation of data in order to make business decisions. An important component of these products is technology that enables the user to create reports to present that analysis and interpretation to others. After the closing of the NSMG combination, Seagate Software will continue to operate its Information Management Group business. In fiscal 1998, the Information Management Group's revenue represented approximately 40% of Seagate Software's total revenue. Headquartered in Scotts Valley, California, Seagate Software currently has over 40 offices and operations in 18 countries worldwide. After the NSMG combination, Seagate Software will have 32 offices and operations in 17 countries. Seagate Software is a majority-owned and consolidated subsidiary of Seagate Technology. As of March 31, 1999, Seagate Technology held approximately 98.2% of all outstanding shares of Seagate Software. The remaining shares of Seagate Software are held by current and former employees, directors and consultants of Seagate Software, Seagate Technology and their subsidiaries. In addition, options to purchase 11,136,215 shares of Seagate Software common stock were outstanding as of March 31, 1999. Products Following the NSMG combination, the Information Management Group will continue to offer a breadth of business software products: . Seagate Crystal Reports for Microsoft BackOffice(TM)--Generates a set of top-requested reports to ease systems administration functions for the Microsoft BackOffice family of software products. . Seagate Crystal Info(TM)--Provides decision-makers with shared access to reporting and analysis capabilities, so users get fast access to data without having to interact with the database. Whether using a Web browser or Windows, users can schedule, view and analyze reports or create multiple views of data to expose trends and provide comparative information. This product contains an enterprise-friendly multi-tier architecture to lower network traffic and increase user productivity. 45 . Seagate Crystal Reports(TM)--Provides query and report writing functions for Windows. A developer and end-user tool, Seagate Crystal Reports allows users to access most types of personal computer and structured query language data and design a variety of reports and integrate them into database applications. . Seagate Holos(R)--Provides multiple news of data to expose trends and provide comparative information to focus on key business issues and accurately reflect business processes. These applications allow enterprises to analyze the increasing volumes of data and guide users to the information to improve decision making. The Information Management Group will also continue to offer network and storage management products by virtue of ongoing agreements with New VERITAS. The Information Management Group provides its software products to customers under non-exclusive, non-transferable license agreements including shrink-wrap licenses for certain products. As is customary in the software industry, in order to protect its intellectual property rights, The Information Management Group does not sell or transfer title to its software products to customers. The Information Management Group enters into both object-code only and source- code licenses of its products. Under the Information Management Group's current standard end-user license agreement, licensed software may be used solely for the customers' internal operations and only at specified sites, which may be comprised of a stand-alone computer, a single network server with multiple terminals or multiple network servers with multiple terminals. Sales and marketing The Information Management Group utilizes a direct sales force and certain indirect sales channels, such as distributors and original equipment manufacturer relationships, for sales of its selected products to end users. These distributors and original equipment manufacturer may also sell other products that are complementary to or compete with those of the Information Management Group. The Information Management Group provides sales and marketing programs to encourage the sale of its products, but there can be no assurance that its distributors and original equipment manufacturer will not place a higher priority on competing products. Agreements with its distributors and original equipment manufacturer are generally non-exclusive and may be terminated by either party without cause. The Information Management Group generally markets its products domestically and overseas through a network of Seagate Software subsidiaries. These subsidiaries utilize authorized distributors and direct sales forces. The Information Management Group adapts certain products for foreign markets, including translation and documentation, and the Information Management Group prepares marketing and sales support programs accordingly. The Information Management Group has organized its sales management into geographical regions to increase the effectiveness of its sales efforts. Each region has offices established in cities and countries near its largest existing or prospective partners and customers. The Information Management Group's marketing efforts are designed to increase awareness and consideration of, and to generate leads for, its products. Marketing activities include print advertising 46 in trade and technical publications, on-line advertising on the World Wide Web, cooperative marketing with distributors and resellers, participation in seminars and tradeshows, mailings to end users and other public relations efforts. The Information Management Group's marketing groups produce or oversee the production of substantially all of the on-line and print product literature, brochures, advertising and similar marketing and promotional material. Revenue from one customer, Ingram Micro, accounted for 12.2%, 8.7%, 13.9% and 9.2% of the Information Management Group total revenues in fiscal 1996, 1997 and 1998 and the six months ended January 1, 1999, respectively. Indirect revenues, which include sales to distributors and original equipment manufacturers, were 60.2%, 32.2%, 40.1% and 35.0% of total revenues during fiscal 1996, 1997 and 1998 and the six months ended January 1, 1999, respectively. Revenues outside of the Americas were 18.3%, 27.8%, and 34.1% of total revenues during fiscal 1996, 1997 and 1998, respectively. During fiscal 1996, 1997 and 1998 and the six months ended January 1, 1999, the Information Management Group generated export revenues from the United States of approximately $1.1 million, $3.4 million, $8.3 million and $5.5 million, respectively. The Information Management Group's revenues outside of the Americas were primarily denominated in the U.S. dollar, and accordingly the Information Management Group believes that its exposure to foreign currency fluctuations is not material and does not engage in foreign currency hedging programs. Technical support and maintenance The Information Management Group operates its own technical support groups. The technical support groups are located at various sites around the world, including the U.S., Canada and Europe, and provide pre-sale, installation and post-sale support to current users and potential customers evaluating the Information Management Group's products. Certain technical support groups also offer seven-day, 24-hour toll-free telephone services. The Information Management Group believes that effective technical support during product evaluation substantially contributes to product acceptance, and that post-sale support has been and will continue to be a substantial factor in maintaining customer satisfaction. The Information Management Group offers maintenance programs for certain of its software products, which may consist of product enhancements, updated products and technical support. Generally, customers renew maintenance and support on an annual basis by paying a maintenance fee. Maintenance revenue implicit in new product sales and recurring maintenance charges are recognized ratably over the period the maintenance and support services are to be provided. Competition The segment of the software market in which the Information Management Group competes is comprised of numerous competitors and the Information Management Group expects competition to increase. The Information Management Group has recently experienced increased competition from additional entrants into its market, including companies that specialize in the development, marketing and support of software products that assist user to analyze and interpret data to make business decisions. Many of Information Management Group's current and prospective competitors have 47 significantly greater financial, technical and marketing resources than the Information Management Group. In addition, many prospective customers may have the internal capability to implement software solutions that assist users to analyze and interpret data to make business decisions. The competitive factors affecting the market for the Information Management Group's software products include the following: . product functionality, . performance and reliability, . demonstrable cost effective benefits for users relative to cost, . price, . quality of customer support and user documentation, . ease of installation, . vendor reputation, . experience and . financial stability. The Information Management Group believes that it currently competes effectively with respect to these factors. The Information Management Group's ability to remain competitive will depend to a great extent upon its ongoing performance in the areas of product development and customer support. To be successful in the future, the Information Management Group must respond promptly and effectively to the challenges of technological change and its competitors' innovations by continually enhancing its own product offerings. Performance in these areas will in turn depend upon the Information Management Group's ability to attract and retain highly qualified technical personnel in a competitive market for experienced and talented software developers. Patents and intellectual property rights Due to the rapidly changing nature of applicable technologies, the Information Management Group believes that the improvement of existing products, reliance upon trade secrets and unpatented proprietary know-how and development of new products are generally more important than patent protection. The Information Management Group has no U.S. or foreign patents, has one patent application pending in the U.S., and has no foreign patent applications pending. The Information Management Group's license agreements have restrictions in place to protect and defend its intellectual property. The Information Management Group realizes that although it has incorporated these restrictions, there is a possibility for unauthorized use of its software. In addition to relying on these contractual rights, the Information Management Group has an ongoing trademark registration program in which it registers certain of its product names, slogans, and logos in the U.S. and in some foreign countries. 48 Employees As of January 1, 1999, the Information Management Group employed 887 persons and, following the closing of the NSMG combination, expects to employ approximately 1,000 persons. The Information Management Group's success is highly dependent on its ability to attract and retain qualified employees. Competition for qualified employees is intense in the software industry. None of the Information Management Group's employees are represented by a labor union or are the subject of a collective bargaining agreement. The Information Management Group has never experienced a work stoppage and believes that its employee relations are good. Facilities Seagate Software's executive offices are located in Scotts Valley, California. Principal facilities are located in Florida, California, Canada and the U.K. A major portion of Seagate Software's facilities are occupied under leases that expire at various times through 2006. The following is a summary of square footage representing occupied space that will continue to be leased by Seagate Software and its Information Management Group business following the NSMG combination:
Square Location Feet -------- ------- North America California Southern California.............................................. 2,556 Northern California.............................................. 3,364 Colorado.......................................................... 6,306 Mid-Continent..................................................... 7,886 Northeast U.S..................................................... 9,140 Southeast U.S..................................................... 8,632 Other Domestic.................................................... 320 Canada............................................................ 99,840 ------- Total North America.............................................. 138,044 Europe England........................................................... 30,776 Germany........................................................... 3,594 France............................................................ 5,250 Other Europe...................................................... 7,963 ------- Total Europe..................................................... 47,583 Asia Australia......................................................... 12,180 Singapore......................................................... 2,125 Other Pacific Rim................................................. 5,675 ------- Total Asia....................................................... 19,980 ------- Total.............................................................. 205,607 =======
Legal proceedings On November 10, 1997, Vedatech Corporation commenced an action in the High Court of Justice Chancery Division in the United Kingdom against Seagate Software Information Management Group 49 Ltd., a wholly-owned subsidiary of Seagate Software, claiming breach of an oral agreement and infringement of a Vedatech U.K. copyright in the Japanese translation of one of Seagate Software's products and seeking monetary and injunctive relief. No specific damage amount has yet been claimed. Seagate Software has hired local counsel in the U.K., reviewed documents and conducted interviews. Seagate Software filed an initial response in the U.K. court on January 13, 1998 and is now in the discovery process. Furthermore, on December 22, 1998, a former employee commenced an action in the Superior Court of Santa Cruz County against Seagate Software claiming promissory fraud and fraudulent inducement to enter a contract, breach of contract, constructive wrongful discharge and related claims and seeking monetary and injunctive relief. Specifically, the former employee alleges that a Seagate Software officer agreed to sell him a division of Network Storage & Management Group's business. No specific damage amount has yet been claimed. Seagate Software filed an answer on January 19, 1999 and is now in the discovery process. Seagate Software believes these complaints have no merit and intends to vigorously defend these actions. However if unfavorable outcomes were to arise, there can be no assurance that such outcomes would not have a material adverse effect on Seagate Software's liquidity, financial position or results of operations. In addition to the foregoing, Seagate Software is engaged in legal actions arising in the ordinary course of its business and believes that the ultimate outcome of these actions will not have a material adverse effect on Seagate Software's financial position, liquidity, or results of operations. Market for and dividends paid on Seagate Software common stock There is no established public trading market for Seagate Software common stock. Seagate Software common stock is not listed on a national securities exchange and is not authorized for quotation on an interdealer quotation system. As of March 31, 1999, there were 316 holders of record of Seagate Software common stock. Seagate Software has never paid cash dividends and has no present intention to pay cash dividends. Security ownership of certain beneficial owners and management of Seagate Software The following table sets forth information with respect to the beneficial ownership of Seagate Software's outstanding common stock and preferred stock on an as-converted basis, sum of which is the common equivalent shares, as of March 31, 1999 for: . each person who we know holds more than 5% of Seagate Software's common equivalent shares, . Seagate Software's most highly compensated executive officers individually, . Seagate Software's directors individually and . Seagate Software's directors and executive officers as a group. 50 We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. To our knowledge, the persons named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them unless we indicate otherwise below and subject to community property laws where applicable, We have calculated percentage ownership based on 55,706,764 common equivalent shares as of March 31, 1999. We have included in each person's beneficial ownership that person's options to purchase Seagate Software common stock that he or she can exercise within 60 days after March 31, 1999. However, we have not included any other person's options for the purpose of computing percentage ownership. To compute the number of common equivalent shares outstanding we have assumed that Seagate Software's Series A preferred stock is converted on a 1:1 basis to Seagate Software common stock. We have also assumed that the total number of shares of Series A preferred stock includes 7,200,000 shares issuable upon the cancellation of the outstanding share of Seagate Software's special voting preferred stock, because those shares could be issued at any time upon the demand Seagate Technology International, a wholly owned subsidiary of Seagate Technology, that holds the special voting preferred stock.
Number of Percent of Common Common Equivalent Equivalent Stockholder Shares Shares ----------- ---------- ---------- Seagate Technology, Inc.................... 54,695,833 98.2% 920 Disc Drive Scotts Valley, CA 95066 Stephen J. Luczo........ 54,761,833 98.3 Donald L. Waite......... 54,715,833 98.2 Gary B. Filler.......... 54,712,833 98.2 Lawrence Perlman........ 54,712,833 98.2 Ellen E. Chamberlain.... 46,600 * Terence R. Cunningham... 420,000 * Gregory B. Kerfoot...... 170,000 * All Seagate Software directors and executive officers as a group (7 persons)............... 55,452,433 99.5
- -------- * Less than one percent. Seagate Technology's beneficial ownership excludes 120,000 shares of Seagate Software's common stock held by or issuable pursuant to options granted to Mr. Luczo, Mr. Waite, Mr. Filler and Mr. Perlman over which Seagate Technology does not possess sole or shared voting or investment control. Therefore Seagate Technology disclaims beneficial ownership of those shares. Beneficial ownership for Mr. Luczo, Mr. Waite, Mr. Filler and Mr. Perlman includes 54,695,833 common equivalent shares beneficially owned by Seagate Technology to which each of them may be deemed to have shared power to vote or dispose in his capacity as an officer and/or director of Seagate Technology. However, each of Mr. Luczo, Mr. Waite, Mr. Filler and Mr. Perlman disclaim beneficial ownership of those shares. 51 With respect to the beneficial ownership of the following persons, the security ownership table above includes exercisable options in the following amounts:
Name Options ---- ------- Stephen J. Luczo................................................... 66,000 Gary B. Filler..................................................... 17,000 Lawrence Perlman................................................... 17,000 Terence R. Cunningham.............................................. 20,000 Ellen E. Chamberlain............................................... 34,600 Gregory B. Kerfoot................................................. 170,000 All directors and officers as a group.............................. 324,600
Mr. Waite and Mr. Cunningham hold 6,000 and 250,000 shares of Seagate Software common stock that are subject to repurchase by Seagate Software. Seagate Software's right to repurchase those shares expires on various dates through 2001. Based on the number of outstanding shares of Seagate Technology common stock as of March 31, 1999 and after giving effect to the issuance of Seagate Technology common stock and options in the exchange offer, assuming that all outstanding shares of Seagate Software common stock are exchanged for Seagate Technology common stock pursuant to the exchange offer, no director or executive officers of Seagate Software or holder of 5% or more of Seagate Software's common equivalent shares will beneficially own more than 1% of the outstanding Seagate Technology common stock immediately after the exchange offer. 52 Seagate Technology Unaudited Pro Forma Condensed Financial Statements The following unaudited pro forma condensed financial statements consist of the Seagate Technology Unaudited Pro Forma Condensed Statements of Operations for the year ended July 3, 1998, and for the six months ended January 1, 1999, and the Unaudited Pro Forma Condensed Balance Sheet as of January 1, 1999. We refer to these statements collectively as the Seagate Technology unaudited pro forma condensed financial statements. The Seagate Technology unaudited pro forma condensed financial statements give effect to the exchange of Seagate Software shares for Seagate Technology shares pursuant to the exchange offer and the contribution by Seagate Software of the Network & Storage Management Group business to New VERITAS in exchange for shares of New VERITAS. The Seagate Technology unaudited pro forma condensed statements of operations for the year ended July 3, 1998, and for the six months ended January 1, 1999, give effect to the transactions as if they had taken place on June 28, 1997, the first day of the fiscal year ended July 3, 1998. The Seagate Technology unaudited pro forma condensed balance sheet gives effect to the transactions as if they had taken place on January 1, 1999. The Seagate Technology unaudited pro forma condensed financial statements are not necessarily indicative of what the actual financial results would have been had the transaction taken place on June 28, 1997 or January 1, 1999 and do not purport to indicate the future results of operations or financial position of Seagate Technology. Upon the contribution of the Network & Storage Management Group business to New VERITAS in exchange for New VERITAS stock Seagate Software, and Seagate Technology through consolidation of Seagate Software, will record a gain on the exchange equivalent to the difference between the fair value of the New VERITAS stock received reduced by approximately 42% and Seagate Software's basis in the assets exchanged also reduced by approximately 42%. Because Seagate Software will own approximately 42% of New VERITAS, on an outstanding share basis prior to consideration of shares to be issued in the TeleBackup combination, it will not recognize a gain on 100% of the contribution of the Network & Storage Management Group business to New VERITAS. Seagate Software's and Seagate Technology's ownership percentage in New VERITAS on an outstanding share basis do not take into account outstanding stock options, warrants, or convertible securities. Subsequent to the merger, Seagate Software and Seagate Technology will account for Seagate Software's investment in New VERITAS using the equity method. Under the equity method of accounting, Seagate Software and Seagate Technology will include in their respective financial results Seagate Software's share of the net income or loss of New VERITAS based upon the percentage of outstanding shares of New VERITAS owned by Seagate Software adjusted for the difference in Seagate Software's carrying value of its investment and its equity interest in New VERITAS' net assets. The results of New VERITAS will include the results of TeleBackup if the TeleBackup combination described below is consummated. The Seagate Technology unaudited pro forma statements have been prepared assuming the TeleBackup combination is accounted for using the purchase method of accounting. In addition to the above, New VERITAS plans to complete the TeleBackup combination immediately after the completion of the contribution of the Network & Storage Management Group business to New VERITAS. TeleBackup develops and markets software technology that enables the automated backup and recovery of electronic information created and stored on networked, remote and mobile 53 personal computer-based computer systems. The Seagate Technology unaudited pro forma condensed financial statements include the impact of the TeleBackup combination by New VERITAS through the issuance of 1,555,000 shares of New VERITAS common stock determined as of March 31, 1999 using the closing price of VERITAS common stock of $80.75 per share on March 31, 1999. Under the terms of the TeleBackup combination, the number of shares to be issued will increase if the average price per share of VERITAS common stock for the ten day period ending two days before the closing date falls below $45.44 per share. In addition, TeleBackup's outstanding options at the closing date will be exchanged for options to purchase New VERITAS shares. As of March 31, 1999, options to purchase 51,318 shares of New VERITAS common stock would be exchanged for the outstanding options to purchase TeleBackup common stock. The value of options was determined by estimating their fair value as of March 31, 1999 using the Black-Scholes option pricing model. This value has been included as a part of the estimated price. In addition to the inclusion of the transactions described for New VERITAS, Seagate Technology will offer to purchase all outstanding shares of Seagate Software common stock not held by Seagate Technology or one of its subsidiaries in exchange for Seagate Technology common stock. The exchange ratio will be determined based on the estimated fair value of Seagate Software shares divided by the fair market value of Seagate Technology common stock. The estimated fair value of the Seagate Software shares will be determined based upon the sum of the fair value of the Network & Storage Management Group business, as measured by the fair value of the shares to be received from New VERITAS, plus the estimated fair value for Seagate Software's Information Management Group as determined by the Seagate Software board of directors plus the assumed proceeds from the exercise of all stock options, divided by the number of fully converted shares of Seagate Software. The fair value of shares purchased less the original price paid by the employees will be recorded as compensation expense for those shares outstanding or vested less than six months. The purchase of shares that have been outstanding and vested more than six months will be accounted by Seagate Software as a purchase of minority interest and, accordingly, in these pro forma financial statements the fair value of the shares exchanged has been allocated to all of the identifiable tangible and intangible assets, including in-process research and development and goodwill, and liabilities of Seagate Software. The amounts allocated to in-process research and development will be expensed in the period in which the shares are exchanged. Seagate Software's board of directors will make the ultimate decision on the value of the Information Management Group business. The board of directors' determination will be based on a number of factors, including the Information Management Group business' historical and project revenue, earnings and cash flow, as well as other factors including limited financial analyses performed by their financial advisor, Morgan Stanley & Co., Incorporated. Seagate Technology will not repurchase unvested options to purchase common stock of Seagate Software. Unvested Seagate Software stock options owned by the Network & Storage Management Groups' employees will be exchanged for unvested New VERITAS stock options and unvested Seagate Software stock options owned by the Information Management Group and Seagate Technology employees will remain as unvested Seagate Software stock options. In addition, immediately prior to the NSMG combination, the vesting provision of all Seagate Software options 54 will be accelerated to 1/48th per month retroactive to the date of grant. The option terms will be unchanged other than for the acceleration. Seagate Software estimates that options to purchase 1,790,893 shares of Seagate Software common stock, including options to purchase 885,922 shares held by Network & Storage Management Group business employees, will be accelerated. Because the accelerated options are held only by current employees of Seagate Software, and because options held by Network & Storage Management Group business employees will be exchanged into options in New VERITAS, no compensation expense will be recorded by Seagate Software. As a result of the exchange of Seagate Software shares for Seagate Technology shares pursuant to the exchange offer, the NSMG combination, and the TeleBackup combination, Seagate Technology preliminarily estimates that it will record a pre-tax gain of approximately $1,595 million and expenses related to write-offs of in-process research and development of approximately $93.5 million in the period these transactions are consummated. In addition, Seagate Technology and Seagate Software will record the value of certain intangible assets and goodwill that will be amortized over periods of up to four years associated with these transactions. The actual amount of the one-time gain and expenses, and the amount of intangible assets and goodwill recorded is dependent on a number of factors including, the price of VERITAS stock prior to the NSMG combination, the number of shares and average exercise prices per share for VERITAS and Seagate Software stock outstanding prior to the NSMG combination and the number of shares of Seagate Software stock ultimately exchanged into shares of Seagate Technology stock. The Seagate Technology unaudited pro forma condensed balance sheet as of January 1, 1999, reflects the recognition of the one-time gain and expenses for in-process research and development and compensation. The Seagate Technology unaudited pro forma statements of operations include the recurring effect of the amortization of intangibles and goodwill and do not include the effect of the one-time recognition of gain on the NSMG combination and one-time expenses related to in-process research and development and compensation. The gain and the charges related to in-process research and development as well as compensation will be reflected in Seagate Technology's financial statements when the NSMG combination and the TeleBackup combination are consummated. The Seagate Technology unaudited pro forma condensed financial statements should be read in conjunction with the related notes included in this document and the audited financial statements of Seagate Technology including the notes that are included in Seagate Technology's Annual Report on Form 10-K/A for the year ended July 3, 1998 incorporated by reference into this document. 55 Seagate Technology Unaudited Pro Forma Condensed Statement of Operations Year Ended July 3, 1998 (in millions, except per share data)
Pro Forma Adjustments -------------------------------------- Less: Network & Storage Equity Interest Purchase of Seagate Management in Operations Minority Technology Group of New VERITAS Interest Pro forma ---------- ---------- --------------- ----------- --------- Revenue................. $6,819 $175 $ $ $6,644 Cost of sales........... 5,830 23 1 (6) 5,808 Marketing and administrative......... 502 90 412 Product development..... 585 32 553 In-process research and development............ 223 7 216 Amortization of goodwill and other intangibles.. 40 13 5 (6) 32 Restructuring........... 347 347 Unusual items........... (22) (22) ------ ---- ----- --- ------ Total operating expenses........... 7,505 165 6 7,346 ------ ---- ----- --- ------ Income (loss) from operations............. (686) 10 (6) (702) Equity in income (loss) of New VERITAS, net of amortization of related intangibles............ -- -- 27 (1) (347) (366) (2) (8) (3) Interest and other, net.................... (18) (1) (17) ------ ---- ----- --- ------ Income (loss) before income taxes........... (704) 9 (347) (6) (1,066) Benefit from (provision for) income taxes...... 174 (6) 136 (4) 319 3 (5) ------ ---- ----- --- ------ Net income (loss)....... $ (530) $ 3 $(208) $(6) $ (747) ====== ==== ===== === ====== Net income (loss) per share:* Basic................. $(2.17) $(3.01) Diluted............... $(2.17) $(3.01) Number of shares used in per share computations:* Basic................. 243.6 247.8 Diluted............... 243.6 247.8
- -------- (*) The Network & Storage Management Group is an operating division of Seagate Software and it has no formal capital structure; accordingly, share and per share information is not presented. See accompanying Notes to Seagate Technology Unaudited Pro Forma Condensed Financial Statements. 56 Seagate Technology Unaudited Pro Forma Condensed Statement of Operations Six Months Ended January 1, 1999 (in millions, except per share data)
Pro Forma Adjustments -------------------------------------- Less: Network & Storage Equity Interest Purchase of Seagate Management in Operations Minority Technology Group of New VERITAS Interest Pro Forma ---------- ---------- --------------- ----------- --------- Revenue................. $3,354 $107 $ $ $ 3,247 Cost of sales........... 2,605 9 2,596 Marketing and administrative......... 266 51 215 Product development..... 297 18 279 Amortization of goodwill and other intangibles.. 20 5 3 (6) 18 Unusual items........... 78 78 ------ ---- ---- --- ------- Total operating expenses........... 3,266 83 3 3,186 ------ ---- ---- --- ------- Income (loss) from operations............. 88 24 (3) 61 Equity in income (loss) of New VERITAS, net of amortization of related intangibles............ -- -- 22 (1) (165) (183)(2) (4)(3) Interest and other, net.................... 36 36 ------ ---- ---- --- ------- Income (loss) before income taxes........... 124 24 (165) (3) (68) Benefit from (provision for) income taxes...... (50) (11) 64 (4) 27 2 (5) ------ ---- ---- --- ------- Net income (loss)....... $ 74 $ 13 $(99) $(3) $ (41) ====== ==== ==== === ======= Net income (loss) per share:* Basic................. $ 0.30 $ (0.16) Diluted............... $ 0.30 $ (0.16) Number of shares used in per share computations:* Basic................. 245.0 249.2 Diluted............... 249.1 249.2
- -------- * The Network & Storage Management Group is an operating division of Seagate Software and it has no formal capital structure; accordingly, share and per share information is not presented. See accompanying Notes to Seagate Technology Unaudited Pro Forma Condensed Financial Statements. 57 Seagate Technology Unaudited Pro Forma Condensed Balance Sheet As of January 1, 1999 (in millions)
Pro Forma Adjustments --------------------------------------- Less: Network & Storage Purchase of Seagate Management Equity Interest Minority Technology Group in New VERITAS Interest Pro Forma ---------- ---------- --------------- ----------- --------- ASSETS Current assets: Cash and cash equivalents........... $ 926 $ $ $12 (12) $ 938 Short-term investments........... 1,291 1,291 Accounts receivable, net................... 832 24 808 Inventories............ 410 1 409 Deferred income taxes.. 221 221 Other current assets... 133 25 108 ------ ---- ------ --- ------ Total current assets... 3,813 50 12 3,775 Property, equipment and leasehold improvements, net.................... 1,678 11 1,667 Goodwill and other intangibles, net....... 144 35 25 (11) 134 Equity investment in New VERITAS................ -- -- 1,555 (7) 1,555 Other assets............ 195 195 ------ ---- ------ --- ------ Total assets........... $5,830 $ 96 $1,555 $37 $7,326 ====== ==== ====== === ====== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable....... $ 610 $ 4 $ $ $ 606 Accrued employee compensation.......... 211 11 200 Accrued expenses....... 657 9 648 Accrued income taxes... 18 13 5 Current portion of long-term debt........ 1 1 Deferred revenue....... 6 6 -- ------ ---- ------ --- ------ Total current liabilities........... 1,503 43 -- 1,460 Deferred income taxes... 481 1 613 (7) 2 (11) 1,095 Long-term debt.......... 703 703 Other liabilities....... 177 177 ------ ---- ------ --- ------ Total liabilities...... 2,864 44 613 2 3,435 ------ ---- ------ --- ------ Stockholders'/Group Equity: Common stock........... 3 3 Additional paid-in capital............... 1,937 111 (11) 2,064 12 (12) 4 (7) Retained Earnings...... 1,301 1,595 (7) (88) (11) 2,099 (613) (7) (92) (9) (4) (8) Group Equity........... 52 52 (10) -- Accumulated other comprehensive income.. 1 1 Deferred compensation.. (46) (46) Treasury Common Stock.. (230) (230) ------ ---- ------ --- ------ Total stockholders' equity/Group Equity... 2,966 52 942 35 3,891 ------ ---- ------ --- ------ Total liabilities and stockholders' equity/Group Equity... $5,830 $ 96 $1,555 $37 $7,326 ====== ==== ====== === ======
See accompanying Notes to Seagate Technology Unaudited Pro Forma Condensed Financial Statements. 58 Notes to Seagate Technology Unaudited Pro Forma Condensed Financial Statements 1. Pro Forma Basis of Presentation These pro forma statements reflect the exchange of Seagate Software shares by Seagate Technology pursuant to the exchange offer and the contribution of the Network & Storage Management Group division of Seagate Software to New VERITAS in exchange for the issuance of approximately 34.6 million shares of New VERITAS common stock representing an approximate 42% interest in New VERITAS on an outstanding share basis, approximately 36% on a fully diluted basis. The number of shares to be received in the exchange is based on the capitalization of Seagate Software and VERITAS as of March 31, 1999 and the closing price of VERITAS common stock of $80.75 per share on March 31, 1999. The actual value will be dependent on the average closing price per share of VERITAS common stock on the five days ending on the sixth business day prior to the closing date. The exchange ratio for the exchange of Seagate Software shares for Seagate Technology shares pursuant to the exchange offer will be determined based on the estimated fair value of Seagate Software shares divided by the fair market value of Seagate Technology common stock. The estimated fair value of the Seagate Software shares will be determined based upon the sum of the fair value of the Network & Storage Management Group, as measured by the fair value of the shares to be received from New VERITAS, plus the estimated fair value for the Information Management Group as determined by the Seagate Software board of directors plus the assumed proceeds from the exercise of all stock options, divided by the number of fully converted shares of Seagate Software. The fair value of shares purchased less the original price paid by the employees will be recorded as compensation expense for those shares outstanding or vested less than six months. The purchase of Seagate Software shares that have been outstanding and vested more than six months will be accounted by Seagate Software and Seagate Technology as a purchase of minority interest and, accordingly, in these pro forma financial statements the fair value of the shares exchanged has been allocated to all of the identifiable tangible and intangible assets, including in-process research and development and goodwill, and liabilities of Seagate Software. The amounts allocated to in-process research and development will be expensed in the period in which the shares are exchanged. Because Seagate Software will own approximately 42% of New VERITAS, including the Network & Storage Management Group after the exchange, it will not recognize a gain on 100% of the contribution of the Network & Storage Management Group. Seagate Software and Seagate Technology will record a gain on the exchange equivalent to the difference between approximately 58% of the fair value of the New VERITAS stock received and approximately 58% of Seagate Technology's basis in the assets exchanged. Seagate Software and Seagate Technology will account for its investment in New VERITAS using the equity method. Seagate Software and Seagate Technology will allocate the difference between the recorded amount of its investment in New VERITAS and the amount of its underlying equity in the net assets of New VERITAS based upon the fair value of the underlying assets and liabilities of New VERITAS. Subsequent to the combination, Seagate Software's and Seagate Technology's operating results will include approximately 41% of the operating results of New VERITAS, adjusted to amortize the difference 59 Notes to Seagate Technology Unaudited Pro Forma Condensed Financial Statements--(Continued) between the recorded amount of Seagate Software's investment and the amount of its underlying equity in the net assets of New VERITAS. New VERITAS plans to complete a transaction to purchase TeleBackup immediately subsequent to the combination with the Network & Storage Management Group. The Seagate Technology unaudited pro forma statements include the impact of the TeleBackup purchase by New VERITAS and the issuance of 1,555,000 shares of New VERITAS determined as of March 31, 1999 using the closing price of VERITAS common stock of $80.75 on March 31, 1999. The actual value of the TeleBackup combination will be determined based on the average closing price per share of VERITAS common stock for a few days before and after the closing date. Under the terms of the TeleBackup combination, the number of shares to be issued will increase if the average price per share of VERITAS common stock for a ten day period ending two days before the closing date falls below $45.44 per share. The Seagate Technology unaudited pro forma condensed financial statements have been prepared based on assumptions relating to the fair value of the assets and liabilities of New VERITAS, TeleBackup and Seagate Software. The allocations are based on preliminary information and the actual amounts may differ from those reflected in the Seagate Technology unaudited pro forma condensed financial statements after completion of valuations and other procedures. Below is a table of the computation of gain, asset and liability allocation and annual amortization of the intangible assets received: Contribution of the Network & Storage Management Group Business to New VERITAS (in thousands) Computation of pro rata gain Fair value of shares received................................... $2,794,469 Times: Pro rata percentage to be accounted for at fair value ... 58.15% ---------- Adjusted fair value of securities received...................... $1,625,087 ---------- Book value of NSMG.............................................. $ 51,654 Times: Pro rata percentage to be accounted for at fair value.... 58.15% ---------- Book value exchanged............................................ $ 30,039 ---------- Pro rata gain................................................... $1,595,048 ========== Computation of investment in New VERITAS Book value of NSMG.............................................. $ 51,654 Times: Pro rata percentage to be accounted for at book value.... 41.85% ---------- Portion of investment in New VERITAS with no step up in basis... $ 21,615 Plus: Adjusted fair value of securities received................ 1,625,087 ---------- Investment in New VERITAS....................................... $1,646,702 ==========
60 Notes to Seagate Technology Unaudited Pro Forma Condensed Financial Statements--(Continued)
Annual Amortization Amortization Amount Life of Intangibles ---------- ------------ -------------- Allocation of Investment in VERITAS: Tangible assets................... $ 75,507 Intangible assets: Distribution channel............ 8,997 4 years $ 2,249 Developed technology............ 47,286 4 years 11,822 Trademark and workforce......... 16,697 4 years 4,174 In-process research and development.................... 42,641 Allocation of Investment in the Network and Storage Management Group: Tangible assets................... 16,763 Intangible assets: Distribution channel............ 66,285 4 years 16,571 Developed technology............ 94,531 4 years 23,633 Trademark and workforce......... 13,977 4 years 3,494 In-process research and development.................... 49,462 Goodwill.......................... 1,214,556 4 years 303,639 ---------- -------- $1,646,702 $365,582 ========== ======== Allocation of Investment in Telebackup: Tangible assets................... $ 755 Intangible assets: Distribution channel............ 1,314 4 years $ 329 Developed technology............ 2,711 4 years 678 Trademark and workforce......... 670 4 years 168 In-process research and development.................... 780 Goodwill........................ 49,158 4 years 12,290 Deferred tax liability.......... (1,294) ---------- -------- $ 54,094 $ 13,465 ========== ========
The equity interest of Seagate Software in the amortization of Telebackup intangibles will be recorded by Seagate Software net of the related New VERITAS statutory tax rate of approximately 40 percent. 61 Notes to Seagate Technology Unaudited Pro Forma Condensed Financial Statements--(Continued) Compensation Expense Accounting (in thousands, except share and per share data)
Amount ---------- Value of Seagate Software common stock per share.................... $ 52.28 Less: Average exercise price of Seagate Software stock options...... 6.70 ---------- Compensation expense per stock option............................... 45.55 Times: Seagate Software stock options to be exchanged for Seagate Technology common stock............................................ 1,714,492 ---------- Compensation expense for Seagate Software stock options exercised and exchanged for Seagate Technology common stock.................. $ 78,095 ---------- Seagate software stock held for less than 6 months and exchanged for Seagate Technology stock........................................... 163,033 ---------- Times: Value of Seagate Software common stock per share............. $ 52.28 ---------- Compensation expense for Seagate software stock held for less than 6 months and exchanged for Seagate Technology stock.................. $ 8,524 ---------- Total Compensation expense.......................................... $ 86,679 ==========
Amount -------------- Value for Seagate Software common stock Market value of VERITAS common stock......................... $ 80.75 Total New VERITAS shares and options to be received in the transaction............................................... 37,978,849 -------------- Network & Storage Management Group valuation................. $3,066,792,077 Information Management Group valuation as determined by the board of directors ......................................... 325,000,000 Total proceeds from assumed exercise of Seagate Software stock options............................................... 102,963,694 -------------- Seagate Software valuation..................................... $3,494,755,771 ============== Divided by: Total Seagate Software shares and options outstanding at January 1, 1999................................ 66,840,979 ============== Value of Seagate Software common stock......................... $ 52.28 ==============
Seagate Software intends to accelerate vesting on 87,395 shares of Seagate Software common stock held by certain employees. In connection with the acceleration, Seagate Software expects to record additional compensation expense of $3,867,000 in the period such acceleration is granted. 62 Notes to Seagate Software Unaudited Pro Forma Condensed Financial Statements--(Continued) Acquisition of Minority Interest of Seagate Technology (in thousands, except share and per share data)
Annual Amortization Amortization Amount Life of Intangibles -------- ------------ -------------- Allocation of minority interest purchase price to intangible assets of Seagate Software: Distribution channel.................. $ 1,133 4 years $ 283 Developed technology.................. 2,134 4 years 534 Trademarks and workforce.............. 461 4 years 115 In-process research and development... 1,386 Goodwill.............................. 21,151 4 years 5,287 Deferred tax liability................ (1,491) -------- ------ Total............................... $ 24,774 $6,219 ======== ====== Value of minority interests: Options held by Seagate Software consultants........................... 32,337 Average exercise price of Seagate Software options...................... $ 6.70 -------- Proceeds from assumed exercise of Seagate Software options............. $ 217 ======== Shares of Seagate Software vested by employees held for more than 6 months.............................. 445,632 Options held by Seagate Software consultants........................... 32,337 -------- Shares and options of Seagate Software............................. 477,969 Value of Seagate Software common stock per share............................. $ 52.28 -------- Value of Seagate Software common stock................................ $ 24,990 Less: Proceeds from assumed exercise of Seagate Software options.............. 217 -------- Minority interest purchase price....... $ 24,774 ======== Divided by: Market value of Seagate Technology common stock............... $ 29.56 -------- Number of Seagate Technology shares issued for the minority interest...... 838,084 ========
Method for allocating purchase price Tangible net assets of New 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. The tangible net assets of TeleBackup acquired principally include cash and fixed assets. Liabilities assumed principally include convertible debentures and other non-current 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 63 Notes to Seagate Technology Unaudited Pro Forma Condensed Financial Statements--(Continued) applications of the technology, existing and future markets, and assessments of the life cycle stage of the technology. The developed technology is expected to be 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 New VERITAS, TeleBackup and Seagate Software, for the minority interest acquired, will be charged to expense in the period the transactions close. These write- offs are necessary because the acquired technologies have not yet reached technological feasibility and have no future alternative uses. Seagate Technology 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 New VERITAS and TeleBackup 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. 64 Notes to Seagate Technology Unaudited Pro Forma Condensed Financial Statements--(Continued) 2. Pro forma net loss per share The Seagate Technology Unaudited Pro Forma Condensed Statements of Operations have been prepared as if the exchange of Seagate Software shares for Seagate Technology shares pursuant to the exchange offer, the NSMG combination, and the TeleBackup combination had all occurred at the beginning of fiscal 1998. The pro forma weighted average shares outstanding assumes the following (in millions):
Year Six Months Ended Ended July 3, 1998 January 1, 1999 ------------ --------------- Weighted average historical shares outstanding... 243.6 245.0 Shares assumed issued pursuant to the exchange offer........................................... 4.2 4.2 ----- ----- Total weighted average shares outstanding........ 247.8 249.2 ===== =====
3. Pro forma adjustments The Seagate Technology unaudited pro forma statements give effect to the following pro forma adjustments: (1) To include Seagate Software's equity in the income of New VERITAS prior to the effect of the amortization of intangible assets, including goodwill, associated with the NSMG combination and the TeleBackup combination. (2) To reflect Seagate Software's interest in the amortization of intangibles and goodwill resulting from to the NSMG combination. (3) To reflect Seagate Software's interest in the amortization of intangibles and goodwill resulting from the TeleBackup combination. (4) To reflect the change in book/tax basis differences related to the investment in New VERITAS. (5) To reflect the provision for income taxes for Seagate Software's equity in the amortization of intangibles and goodwill related to the TeleBackup combination. (6) To reflect the amortization of developed technology and intangibles and goodwill resulting from the exchange of Seagate Software shares for Seagate Technology shares pursuant to the exchange offer. The purchase of the minority interest by Seagate Technology is recorded using fair values and is reflected as a capital contribution to Seagate Software by Seagate Technology and offsetting compensation expense or purchased in-process research and development and intangibles recorded by Seagate Technology through consolidation. (7) To reflect investment in New VERITAS including step-up in basis of assets and related deferred tax liability. 65 Notes to Seagate Technology Unaudited Pro Forma Condensed Financial Statements--(Continued) (8) Contributed capital and compensation expense related to the acceleration of vesting of shares that would otherwise have expired. (9) Write-off of in-process research and development resulting from the NSMG combination. (10) To eliminate the Network & Storage Management Group's group equity. (11) To record purchased in-process research and development, compensation expense, intangibles and goodwill, deferred taxes and a capital contribution resulting from exchange of Seagate Software shares for Seagate Technology shares pursuant to the exchange offer. (12) To record proceeds from vested options assumed exercised prior to purchase of minority interest of Seagate Software common stock by Seagate Technology. 4. Effect of TeleBackup on pro forma condensed financial statements If the proposed business combination between VERITAS and TeleBackup is not consummated, the future operating results and financial position of Seagate Technology will include only the equity in the combined operating results of New VERITAS and the Network & Storage Management Group business. By excluding TeleBackup from the pro forma results, Seagate Technology's pro forma net loss and net loss per share for fiscal 1998 would be reduced by approximately $5 million and $0.02 per share, respectively. Seagate Technology's pro forma net loss and net loss per share for the six months ended January 1, 1999 would be reduced by approximately $2 million and $0.01 per share, respectively. Seagate Technology's pro forma net revenues for the six months ended January 1, 1999, total assets, and stockholders' equity would remain unchanged. 66 Seagate Software Unaudited Pro Forma Condensed Financial Statements The following unaudited pro forma condensed financial statements consist of the Seagate Software unaudited pro forma condensed statements of operations for the year ended July 3, 1998, and for the six months ended January 1, 1999, and the Seagate Software unaudited pro forma condensed balance sheet as of January 1, 1999. The Seagate Software unaudited pro forma condensed financial statements give effect to the contribution by Seagate Software of the Network & Storage Management Group to New VERITAS in exchange for shares of New VERITAS and the issuance by New VERITAS of stock options to the Network & Storage Management Group employees who become employees of New VERITAS. The Seagate Software unaudited pro forma condensed statements of operations for the year ended July 3, 1998, and for the six months ended January 1, 1999, give effect to the transactions as if it had taken place on June 28, 1997, the first day of the fiscal year ended July 3, 1998. The Seagate Software unaudited pro forma condensed balance sheet gives effect to the transactions as if it had taken place on January 1, 1999. The Seagate Software unaudited pro forma condensed statements of operations include the historical results for Seagate Software less the historical financial results of the Network & Storage Management group plus Seagate Software's approximate 42% equity interest, on an outstanding share basis prior to consideration for the proposed TeleBackup combination, in the combined pro forma results of New VERITAS for the same periods as adjusted for the difference in the carrying amount of Seagate Software's investment and its equity interest in the underlying net assets of New VERITAS. The Seagate Software unaudited pro forma condensed financial statements are not necessarily indicative of what the actual financial results would have been had the transaction taken place on June 28, 1997 or January 1, 1999 and do not purport to indicate the future results of operations or financial position of Seagate Software. Upon the contribution of the Network & Storage Management Group business to New VERITAS in exchange for New VERITAS stock Seagate Software will record a gain on the exchange equivalent to the difference between the fair value of the New VERITAS stock received reduced by approximately 42% and Seagate Software's basis in the assets exchanged also reduced by 42%. Because Seagate Software will own 42% of New VERITAS, including the Network & Storage Management Group, after the exchange, it will not recognize a gain on 100% of the contribution of the Network & Storage Management Group. Subsequent to the merger, Seagate Software will account for its investment in New VERITAS using the equity method. Under the equity method of accounting, Seagate Software will include in its financial results its share of the net income or loss of New VERITAS based upon the percentage of outstanding shares of New VERITAS owned by Seagate Software adjusted for the difference in Seagate Software's carrying value of its investment and its equity interest in New VERITAS' net assets. The results of New VERITAS will include the results of TeleBackup if the TeleBackup combination described elsewhere in this document is consummated. The Seagate Software unaudited pro forma statements have been prepared assuming the TeleBackup combination is consummated using the purchase method of accounting. In addition to the above, in a separate offering, Seagate Technology will offer to purchase certain outstanding shares of Seagate Software common stock in exchange for Seagate Technology common 67 Seagate Software Unaudited Pro Forma Condensed Financial Statements stock. The accompanying Seagate Software unaudited pro forma condensed statements of operations for the year ended July 3, 1998 and the six months ended January 1, 1999, reflect the purchase of these shares as if it had taken place on June 28, 1997, the first day of the fiscal year ended July 3, 1998. The Seagate Software unaudited pro forma condensed balance sheet reflects the purchase of these shares as if it had taken place on January 1, 1999. As a result of the contribution of the Network & Storage Management Group to New VERITAS and the issuance of Seagate Technology common stock pursuant to the exchange offer, Seagate Software preliminarily estimates that it will record a pre-tax gain of approximately $1,595 million and expenses related to write-offs of in-process research and development of approximately $93.5 million in the period these transactions are consummated. In addition, Seagate Software will record the value of certain intangible assets and goodwill that will be amortized over periods up to four years associated with the purchase of Seagate Software shares by Seagate Technology. The actual amount of the one-time gain and expenses, and the amount of intangible assets and goodwill recorded is dependent on a number of factors including, the price of VERITAS stock prior to the merger, the number and average exercise prices for VERITAS and Seagate Software stock outstanding prior to the merger, the number of shares of Seagate Software stock ultimately exchanged into shares of Seagate Technology stock, and the completion of a formal valuation by an independent third party. The Seagate Software unaudited pro forma condensed balance sheet as of January 1, 1999, reflects the recognition of the one-time gain and expenses for in- process research and development and compensation. The Seagate Software unaudited pro forma statements of operations include the recurring effect of the amortization of intangibles and goodwill and do not include the effect of the one-time recognition of gain on the contribution of the Network & Storage Management Group business to New VERITAS and one-time expenses related to in- process research and development and compensation. The gain and the charges related to in-process research and development as well as compensation will be reflected in Seagate Software's financial statements when the NSMG combination and the TeleBackup combination are consummated. The Seagate Software unaudited pro forma condensed financial statements have not given effect to a liquidation event resulting from the disposition of the Network & Storage Management Group business. Seagate Software's board of directors and officers and Seagate Technology have agreed that Seagate Software will continue to operate its Information Management Group business in addition to holding its interest in New VERITAS. As a result, a liquidation of Seagate Software would be inconsistent with the operating plan of Seagate Software. In anticipation of a favorable vote by Seagate Software shareholders to amend the liquidation provisions so that they will not apply to the NSMG combination, payments to the Series A preferred shareholders and special voting preferred stockholders have not been given pro forma effect. The Seagate Software unaudited pro forma condensed financial statements should be read in conjunction with the related notes included in this document and the audited financial statements including the notes thereto of Seagate Software incorporated by reference in this document from Seagate Software's Annual Report on Form 10-K/A for the year ended July 3, 1998 and the financial statements and the notes thereto of the Network & Storage Management Group business included in the VERITAS proxy materials. 68 Seagate Software Unaudited Pro Forma Condensed Statement of Operations Year Ended July 3, 1998 (in thousands, except share and per share data)
Pro Forma Adjustments ------------------------------------------- Less: the Network Equity & Storage Interest Purchase of Seagate Management in Operations Minority Software Group of New VERITAS Interest Pro Forma -------- ----------- -------------- ----------- --------- Revenues: Licensing............. $243,285 $160,192 $ $ $ 83,093 Licensing from Seagate Technology........... 5,469 5,048 421 Maintenance, support and other............ 44,472 9,806 34,666 -------- -------- --------- ------- --------- Total revenues...... 293,226 175,046 118,180 Cost of revenues: Licensing............. 16,963 13,714 3,249 Licensing from Seagate Technology........... 539 411 128 Maintenance, support and other............ 19,687 2,067 17,620 Amortization of developed technologies......... 13,271 7,143 534 (3.f) 6,662 -------- -------- --------- ------- --------- Total cost of revenues........... 50,460 23,335 534 27,659 -------- -------- --------- ------- --------- Gross profit............ 242,766 151,711 (534) 90,521 Operating expenses: Sales and marketing... 129,343 68,314 61,029 Research and development.......... 47,173 31,677 15,496 General and administrative....... 37,124 22,254 14,870 In-process research and development...... 6,800 6,800 -- Amortization of goodwill and other intangibles.......... 16,201 13,236 5,685 (3.f) 8,650 -------- -------- --------- ------- --------- Total operating expenses........... 236,641 142,281 5,685 100,045 -------- -------- --------- ------- --------- Income (loss) from operations............. 6,125 9,430 (6,219) (9,524) Equity in income (loss) of New VERITAS, net of amortization of purchased intangibles.. -- -- 26,924 (3.a) (346,737) (365,582) (3.b) (8,079) (3.c) Interest and other, net.................... (10) (713) 703 -------- -------- --------- ------- --------- Income (loss) before income taxes........... 6,115 8,717 (346,737) (6,219) (355,558) Benefit from (provision for) income taxes...... (15,385) (5,861) 135,463 (3.d) 373 (3.g) 129,544 3,232 (3.e) -------- -------- --------- ------- --------- Net income (loss)....... $ (9,270) $ 2,856 $(208,042) $(5,846) $(226,014) ======== ======== ========= ======= ========= Net income (loss) per common share:* Basic................. $ (56.33) $ (88.40) Diluted............... $ (56.33) $ (88.40) Number of shares used in per share computations:* Basic................. 164,571 2,556,745 Diluted............... 164,571 2,556,745
- ------- * The Network & Storage Management Group is an operating division of Seagate Software and it has no formal capital structure; accordingly, share and per share information is not presented. See accompanying Notes to Seagate Software Unaudited Pro Forma Condensed Financial Statements. 69 Seagate Software Unaudited Pro Forma Condensed Statement of Operations Six Months Ended January 1, 1999 (in thousands, except share and per share data)
Pro Forma Adjustments ------------------------------------------- Less: the Network & Storage Equity Interest Purchase of Seagate Management in Operations Minority Software Group of New VERITAS Interest Pro Forma ---------- ----------- --------------- ----------- --------- Revenues: Licensing............. $ 133,462 $97,671 $ $ $ 35,791 Licensing from Seagate Technology........... 4,006 3,802 204 Maintenance, support and other............ 29,462 5,927 23,535 ---------- ------- -------- ------- --------- Total revenues...... 166,930 107,400 59,530 Cost of revenues: Licensing............. 6,160 5,025 1,135 Licensing from Seagate Technology........... 274 272 2 Maintenance, support and other............ 12,317 1,733 10,584 Amortization of developed technologies......... 5,713 1,580 267 (3.f) 4,400 ---------- ------- -------- ------- --------- Total cost of revenues........... 24,464 8,610 267 16,121 ---------- ------- -------- ------- --------- Gross profit............ 142,466 98,790 (267) 43,409 Operating expenses: Sales and marketing... 75,896 40,975 34,921 Research and development.......... 26,341 17,903 8,438 General and administrative....... 17,265 10,446 6,819 Amortization of goodwill and other intangibles.......... 6,736 5,152 2,843 (3.f) 4,427 ---------- ------- -------- ------- --------- Total operating expenses........... 126,238 74,476 2,843 54,605 ---------- ------- -------- ------- --------- Income (loss) from operations............. 16,228 24,314 (3,110) (11,196) Equity in income (loss) of New VERITAS, net of amortization of purchased intangibles.. -- -- 21,734 (3.a) (165,097) (182,791) (3.b) (4,040) (3.c) Interest and other, net.................... 1,137 229 908 ---------- ------- -------- ------- --------- Income before income taxes.................. 17,365 24,543 (165,097) (3,110) (175,385) Benefit from (provision for) income taxes...... (8,878) (11,220) 64,422 (3.d) 186 (3.g) 68,566 1,616 (3.e) ---------- ------- -------- ------- --------- Net income (loss)....... $ 8,487 $13,323 $(99,059) $(2,924) $(106,819) ========== ======= ======== ======= ========= Net income (loss) per common share:* Basic................. $ 36.11 $ (41.78) Diluted............... $ 0.14 $ (41.78) Number of shares used in per share computations:* Basic................. 235,012 2,556,745 Diluted............... 61,572,394 2,556,745
- ------- * The Network & Storage Management Group business is an operating division of Seagate Software and it has no formal capital structure; accordingly, share and per share information is not presented. See accompanying Notes to Seagate Software Unaudited Pro Forma Condensed Financial Statements. 70 Seagate Software Unaudited Pro Forma Condensed Balance Sheets As of January 1, 1999 (in thousands)
Pro Forma Adjustments -------------------------------------------- Less: the Network & Storage Purchase of Seagate Management Equity Interest Minority Software Group in New VERITAS Interest Pro Forma --------- ----------- --------------- ----------- ---------- ASSETS Current assets: Cash.................. $ 848 $ $ $11,704 (3.q) $ 12,552 Accounts receivable, net.................. 59,292 23,706 35,586 Inventories........... 1,261 679 582 Loan receivable from Seagate Technology and affiliates....... 18,276 21,011 2,735 (3.h) -- Other current assets.. 5,863 4,205 5,945 (3.i) 7,603 --------- ------- ---------- ------- ---------- Total current assets.. 85,540 49,601 8,680 11,704 56,323 Equipment and leasehold improvements, net.... 17,031 11,455 5,576 Goodwill and other intangibles, net..... 44,677 34,891 24,879 (3.o) 34,665 Equity investment in New Veritas.......... -- -- 1,554,598 (3.j) 1,554,598 --------- ------- ---------- ------- ---------- Total assets........ $ 147,248 $95,947 $1,563,278 $36,583 $1,651,162 ========= ======= ========== ======= ========== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Loan payable to Seagate Technology... $ -- $ -- $ 2,735 (3.h) $ $ 2,735 Accounts payable...... 12,250 4,530 7,720 Accrued employee compensation......... 17,266 10,886 6,380 Accrued expenses...... 19,438 9,122 10,316 Accrued income taxes.. 6,759 12,704 5,945 (3.i) -- Deferred revenue...... 17,952 5,790 12,162 --------- ------- ---------- ------- ---------- Total current liabilities........ 73,665 43,032 8,680 39,313 Deferred income taxes................ 1,021 1,021 612,816 (3.k) 1,491 (3.o) 614,307 Other liabilities..... 280 240 40 --------- ------- ---------- ------- ---------- Total liabilities... 74,966 44,293 621,496 1,491 653,660 --------- ------- ---------- ------- ---------- Common stock subject to repurchase........ 3,685 -- (2,317) (3.p) 1,368 Stockholders' Equity: Convertible preferred stock................ 55 55 Common stock.......... -- -- Additional paid-in 346,650 475,991 capital.............. 111,453 (3.o) 2,317 (3.p) 3,867 (3.l) 11,704 (3.q) Retained Earnings/(Accumulated deficit)............. (277,731) 1,595,048 (3.j) (88,065) (3.o) 520,465 (612,816) (3.k) (3,867) (3.l) (92,104) (3.m) Group Equity.......... -- 51,654 51,654 (3.n) -- Accumulated other comprehensive income............... (377) (377) --------- ------- ---------- ------- ---------- Total stockholders' equity/Group Equity............. 68,597 51,654 941,782 37,409 996,134 --------- ------- ---------- ------- ---------- Total liabilities and stockholders' equity/Group Equity........... $ 147,248 $95,947 $1,563,278 $36,583 $1,651,162 ========= ======= ========== ======= ==========
See accompanying Notes to Seagate Software Unaudited Pro Forma Condensed Financial Statements. 71 Notes to Seagate Software Unaudited Pro Forma Condensed Financial Statements 1. Pro forma basis of presentation These pro forma statements reflect the contribution of the Network & Storage Management Group Business of Seagate Software to New VERITAS in exchange for the issuance of 34,606,432 shares of New VERITAS common stock representing an approximate 42% interest in New VERITAS on an outstanding share basis (approximately 36% on a fully converted basis) prior to consideration for shares to be issued in the TeleBackup transaction described below. The number of shares to be received in the exchange is based on the capitalization of Seagate Software and VERITAS as of March 31, 1999 and the closing price of VERITAS common stock of $80.75 per share on March 31, 1999. The actual value will be dependent on the average closing price per share of VERITAS common stock on the five days ending on the sixth business day prior to the closing date. In addition, New VERITAS will offer Network & Storage Management Group business employees who become employees of New VERITAS the opportunity to exchange their options to purchase Seagate Software common stock into options to purchase New VERITAS common stock. These pro rata financial statements assume that all eligible option holders will elect to exchange their options. Accordingly, based on the exchange ratio and 5,208,466 outstanding options held by employees of the Network & Storage Management Group as of March 31, 1999, New VERITAS would issue options to purchase 3,372,417 shares of New VERITAS stock to employees of the Network & Storage Management Group. The value of the options was determined based on the difference between the exercise price of the options and the fair value of the underlying stock. This value has been included as part of the estimated purchase price. Because Seagate Software will own 42% of New VERITAS, including the Network & Storage Management Group after the exchange, it will not recognize a gain on 100% of the contribution of the Network & Storage Management Group. Seagate Software will record a gain on the exchange equivalent to the difference between 58% of the fair value of the New VERITAS stock received and 58% of Seagate Software's basis in the assets exchanged. Seagate Software will account for its investment in New VERITAS using the equity method. Seagate Software will allocate the difference between the recorded amount of its investment in New VERITAS and the amount of its underlying equity in the net assets of New VERITAS based upon the fair value of the underlying assets and liabilities of New VERITAS. Subsequent to the combination, Seagate Software's operating results will include 41% of the operating results of New VERITAS, adjusted to amortize the difference between the recorded amount of Seagate Software's investment and the amount of its underlying equity in the net assets of New VERITAS. New VERITAS plans to complete a transaction to purchase TeleBackup immediately subsequent to the combination with the Network & Storage Management Group. The Seagate Software unaudited pro forma statements include the impact of the TeleBackup purchase by New VERITAS and the issuance of 1,555,000 shares of New VERITAS determined as of January 1, 1999 using the closing price of VERITAS common stock of $80.75 on March 31, 1999. The actual value of the TeleBackup combination will be determined based on the average closing price per share of VERITAS common stock for a few days before and after the closing date. Under the terms of the TeleBackup 72 Notes to Seagate Software Unaudited Pro Forma Condensed Financial Statements--(Continued) combination, the number of shares to be issued will increase if the average price per share of VERITAS common stock for a ten day period ending two days before the closing date falls below $45.44 per share. In addition, TeleBackup's outstanding options at the closing date will be exchanged for options to purchase New VERITAS shares. As of March 31, 1999, options to purchase 51,318 shares of New VERITAS common stock would be exchanged for the outstanding options to purchase TeleBackup common stock. The value of options was determined by estimating their fair value as of March 31, 1999 using the Black- Scholes option pricing model. This value has been included as a part of the estimated price. In addition to the inclusion of the transactions described for New VERITAS, Seagate Technology will offer to purchase all outstanding shares of Seagate Software common stock in exchange for Seagate Technology common stock. The exchange ratio will be determined based on the estimated value of Seagate Software shares divided by the fair market value of Seagate Technology common stock. The estimated value of the Seagate Software shares will be determined based upon the sum of the fair value of the Network & Storage Management Group, as measured by the fair value of the shares to be received from New VERITAS, plus the estimated fair value for the Information Management Group of Seagate Software as determined by the Seagate Software Board of Directors plus the assumed proceeds from the exercise of all stock options, divided by the number of fully converted shares of Seagate Software. The fair value of shares purchased less the original price paid by the employees will be recorded as compensation expense for those shares outstanding or vested less than six months. The purchase of shares that have been outstanding and vested more than six months will be accounted by Seagate Software as a purchase of minority interest and, accordingly, in these pro forma financial statements the fair value of the shares exchanged has been allocated to all of the identifiable tangible and intangible assets, including in-process research and development and goodwill, and liabilities of Seagate Software. The amounts allocated to in- process research and development will be expensed in the period in which the shares are exchanged. Seagate Software's board of directors will make the ultimate decision on the value of the Information Management Group business. The board of directors' determination will be based on a number of factors, including the Information Management Group business' historical and project revenue, earnings and cash flow, as well as other factors including limited financial analyses performed by their financial advisor, Morgan Stanley & Co., Incorporated. Seagate Technology will not repurchase unvested options to purchase common stock of Seagate Software. Unvested Seagate Software stock options owned by the Network & Storage Management Groups' employees will be exchanged for unvested New VERITAS stock options and unvested Seagate Software stock options owned by the Information Management Group and Seagate Technology employees will remain as unvested Seagate Software stock options. In addition, immediately prior to the VERITAS acquisition the vesting provision of all Seagate Software options will be accelerated to 1/48th per month retroactive to the date of grant. The option terms will be unchanged other than for the acceleration. Seagate Software estimates that options to purchase 73 Notes to Seagate Software Unaudited Pro Forma Condensed Financial Statements--(Continued) 1,790,893 shares of Seagate Software common stock (including options to purchase 885,922 shares held by NSMG employees) will be accelerated. Because the accelerated options are held only by current employees of Seagate Software, and because options held by NSMG employees will be exchanged into options in New VERITAS, no compensation expense will be recorded by Seagate Software. The Seagate Software unaudited pro forma statements have been prepared based on assumptions relating to the fair value of the assets and liabilities of New VERITAS, TeleBackup and Seagate Software. The allocations are based on preliminary information and the actual amounts may differ from those reflected in the Seagate Software unaudited pro forma condensed statements after completion of valuations and other procedures. Below is a table of the computation of gain, asset and liability allocation and annual amortization of the intangible assets received: New VERITAS (in thousands) Computation of pro rata gain Fair value of shares received................................... $2,794,469 Times: Pro rata percentage to be accounted for at fair value.... 58.15% ---------- Adjusted fair value of securities received...................... $1,625,087 ---------- Book Value of NSMG.............................................. $ 51,654 Times: Pro rata percentage to be accounted for at fair value.... 58.15% ---------- Book value exchanged............................................ $ 30,039 ---------- Pro rata gain................................................... $1,595,048 ========== Computation of investment in New VERITAS Book value of NSMG.............................................. $ 51,654 Times: Pro rata percentage to be accounted for at fair value.... 41.85% ---------- Portion of investment in New VERITAS with no step up in basis... $ 21,615 Plus: Adjusted fair value of securities received................ 1,625,087 ---------- Investment in New VERITAS....................................... $1,646,702 ==========
74 Notes to Seagate Software Unaudited Pro Forma Condensed Financial Statements--(Continued)
Annual Amortization Amortization Amount Life of Intangibles ---------- ------------ -------------- Allocation of Investment in New VERITAS: Tangible assets................... $ 75,507 Intangible assets: Distribution channel............ 8,997 4 years $ 2,249 Developed technology............ 47,286 4 years 11,822 Trademark and workforce......... 16,697 4 years 4,174 In-process research and development.................... 42,641 Allocation of Investment in the Network and Storage Management Group: Tangible assets................... 16,763 Intangible assets: Distribution channel............ 66,285 4 years 16,571 Developed technology............ 94,531 4 years 23,633 Trademark and workforce......... 13,977 4 years 3,494 In-process research and development.................... 49,462 Goodwill.......................... 1,214,556 4 years 303,639 ---------- -------- $1,646,702 $365,582 ========== ======== Allocation of Investment in Telebackup: Tangible assets................... $ 755 Intangible assets: Distribution channel............ 1,314 4 years $ 329 Developed technology............ 2,711 4 years 678 Trademark and workforce......... 670 4 years 168 In-process research and development.................... 780 Goodwill........................ 49,158 4 years 12,290 Deferred tax liability.......... (1,294) ---------- -------- $ 54,094 $ 13,465 ========== ========
The equity interest of Seagate Software in the amortization of Telebackup intangibles will be recorded by Seagate Software net of the related New VERITAS statutory tax rate of approximately 40%. 75 Notes to Seagate Software Unaudited Pro Forma Condensed Financial Statements--(Continued) Acquisition of Minority Interest of Seagate Software (in thousands, except share and per share data)
Annual Amortization Amortization Amount Life of Intangibles -------- ------------ -------------- Allocation of minority interest purchase price to intangible assets of Seagate Software: Distribution channel.................. $ 1,133 4 years $ 283 Developed technology.................. 2,134 4 years 534 Trademarks and workforce.............. 461 4 years 115 In-process research and development... 1,386 Goodwill.............................. 21,151 4 years 5,287 Deferred tax liability................ (1,491) -------- ------ Total............................... $ 24,774 $6,219 ======== ====== Value of minority interests: Options held by Seagate Software consultants........................... 32,337 Average exercise price of Seagate Software options...................... $ 6.70 -------- Proceeds from assumed exercise of Seagate Software options............. $ 217 ======== Shares of Seagate Software vested by employees held for more than 6 months.............................. 445,632 Options held by Seagate Software consultants........................... 32,337 -------- Shares and options of Seagate Software............................. 477,969 Value of Seagate Software common stock per share............................. $ 52.28 -------- Value of Seagate Software common stock................................ $ 24,990 Less: Proceeds from assumed exercise of Seagate Software options.............. 217 -------- Minority interest purchase price....... $ 24,774 ======== Divided by: Market value of Seagate Technology common stock............... $ 29.56 -------- Number of Seagate Technology shares issued for the minority interest...... 838,084 ========
76 Notes to Seagate Software Unaudited Pro Forma Condensed Financial Statements--(Continued) Compensation Expense Accounting (in thousands, except share and per share data)
Amount --------- Value of Seagate Software common stock per share................ $ 52.28 Less: Average exercise price of Seagate Software stock options.. 6.70 --------- Compensation expense per stock option........................... $ 45.55 Times: Seagate Software stock options to be exchanged for Seagate Technology common stock................................ 1,714,492 --------- Compensation expense for Seagate Software stock options exercised and exchanged for Seagate Technology common stock.... $ 78,095 --------- Seagate Software stock held for less than 6 months and exchanged for Seagate Technology stock................................... 163,033 --------- Times: Value of Seagate Software common stock per share......... $ 52.28 --------- Compensation expense for Seagate Software stock held for less than 6 months and exchanged for Seagate Technology stock....... $ 8,524 --------- Total Compensation expense...................................... $ 86,679 =========
Amount -------------- Value for Seagate Software common stock Market value of VERITAS common stock...................... $ 80.75 Total New VERITAS shares and options to be received in the transaction........................................ 37,978,849 -------------- Network & Storage Management Group valuation.............. $3,066,792,077 Information Management Group valuation as determined by the board of directors................................... $ 325,000,000 Total proceeds from assumed exercise of Seagate Software stock options............................................ $ 102,963,694 -------------- Seagate Software valuation.................................. $3,494,755,771 ============== Divided by: Total Seagate Software shares and options outstanding at January 1, 1999............................. 66,840,979 ============== Value of Seagate Software common stock...................... $ 52.28 ==============
Seagate Software intends to accelerate vesting on 87,395 shares of Seagate Software common stock held by certain employees. In connection with the acceleration, Seagate Software expects to record additional compensation expense of $3,867,000 in the period such acceleration is granted. 77 Notes to Seagate Software Unaudited Pro Forma Condensed Financial Statements--(Continued) Method for allocating purchase price Tangible net assets of New 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. The tangible net assets of TeleBackup acquired principally include cash and fixed assets. Liabilities assumed principally include convertible debentures and other non-current liabilities. To determine 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 analysis resulted in a valuation for developed technology which had reached technological feasibility and therefore was capitalizable. The developed technology is being amortized on the straight-line basis over its estimated useful life of 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 channels and original equipment manufacturer agreements was determined 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 determined 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 derived by estimating 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 New VERITAS, TeleBackup and Seagate Software, for the minority interest acquired, will be charged to expense in the period the transactions close. These write- offs are necessary because the acquired technologies have not yet reached technological feasibility and have no future alternative uses. Seagate Software 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 New VERITAS and TeleBackup was determined by estimating the projected net cash flows related to such products, including costs to 78 Notes to Seagate Software Unaudited Pro Forma Condensed Financial Statements--(Continued) complete the development of the technology and the future revenues to be earned upon 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 such projects. Goodwill is determined based on the residual difference between the amount paid and the values assigned to identified tangible and intangible assets. 2. Pro forma net loss per share The Seagate Software unaudited pro forma condensed statements of operations have been prepared as if the NSMG combination, the TeleBackup combination, and the purchase of shares of Seagate Software common stock by Seagate Technology had occurred at the beginning of the periods presented. The pro forma weighted average shares outstanding assumes the following: Estimated exercises of Seagate Software stock options prior to the closing date that will be purchased by Seagate Technology........................................... 1,746,828 Outstanding common stock held by current employees estimated to be purchased by Seagate Technology........................... 608,665 Outstanding common stock held by former employees all purchased by Seagate Technology........................................ 138,753 Outstanding common stock currently held by Seagate Technology................................................... 62,500 --------- Total common shares outstanding............................. 2,556,746 =========
3. Pro forma adjustments The Seagate Software unaudited pro forma statements give effect to the following pro forma adjustments: (a) Equity in income of New VERITAS computed at approximately 41% based on estimated outstanding shares of New VERITAS owned by Seagate Software prior to the effect of the amortization of intangible assets, including goodwill, associated with the NSMG combination and TeleBackup combination. (b) To reflect the amortization of intangibles and goodwill related to the NSMG combination. (c) To reflect the impact on Seagate Software's equity in the amortization of intangibles and goodwill related to the TeleBackup acquisition by New VERITAS. (d) To reflect the change in book/tax basis differences related to the investment in New VERITAS. (e) To reflect the provision of income taxes for Seagate Software's equity in the amortization of intangibles and goodwill related to the TeleBackup combination. 79 Notes to Seagate Software Unaudited Pro Forma Condensed Financial Statements--(Continued) (f) To reflect the amortization of developed technology and intangibles and goodwill associated with the purchase of Seagate Software common stock by Seagate Technology. The purchase of the minority interest by Seagate Technology is recorded using fair values and is reflected as a capital contribution to Seagate Software by Seagate Technology and offsetting compensation expense or purchased in-process research and development and intangibles recorded by Seagate Software. (g) To reflect the reduction of deferred taxes associated with intangible assets related to the acquisition of Seagate Software shares by Seagate Technology. (h) To reclassify a loan receivable from Seagate Technology and affiliates to a loan payable to Seagate Technology and affiliates. (i) To reclassify the debit balance in accrued income taxes payable to other current assets. (j) To record the step-up in basis for the investment in New VERITAS. (k) Deferred income tax liability provided on recognition of pro rata gain. (l) Contributed capital and compensation expense related to the acceleration of vesting of shares that would otherwise have expired. (m) Write-off of in-process research and development related to the NSMG combination. (n) To eliminate group equity from the Network & Storage Management Group. (o) To record purchased in-process research and development, compensation expense, intangibles and goodwill, deferred taxes and a capital contribution associated with the purchase of Seagate Software common stock by Seagate Technology. (p) To record the purchase of Seagate Software common stock by Seagate Technology. (q) To record proceeds from vested options assumed exercised prior to purchase of minority interest of Seagate Software common stock by Seagate Technology. 4. Effect of TeleBackup on pro forma condensed financial statements If the proposed business combination between VERITAS and TeleBackup is not consummated, the future operating results and financial position of Seagate Software will include only the equity in the combined operating results of VERITAS and the Network & Storage Management Group business. By excluding TeleBackup from the pro forma results, pro forma net loss and net loss per share for fiscal 1998 would be reduced by approximately $4.8 million and $1.90 per share, respectively. Pro forma net loss and net loss per share for the six months ended January 1, 1999 would be reduced by approximately $2.4 million and $0.95 per share, respectively. Pro forma net revenues, total assets, and stockholders' equity would remain unchanged. 80 Legal Matters The validity of the Seagate Technology common stock to be issued in connection with the exchange offer will be passed upon by Wilson Sonsini Goodrich & Rosati, Professional Corporation. Experts The consolidated financial statements of Seagate Technology incorporated by reference in Seagate Technology's Annual Report (Form 10-K/A) for the year ended July 3, 1998, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon incorporated by reference therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of Seagate Software appearing in Seagate Software's Annual Report (Form 10-K/A) for the year ended July 3, 1998 have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 81 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification of officers and directors Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act. The registrant's certificate of incorporation and bylaws provide for indemnification of the registrant's directors, officers, employees and other agents to the maximum extent permitted by the delaware law. In addition, the registrant has entered into indemnification agreements with its officers and directors. Item 21. Exhibits and financial statement schedules (a) Exhibits. The following exhibits are filed as part of this registration statement.
Notes: ------ 2.1 Agreement and Plan of Reorganization dated as of October 5, 1998 by and among Veritas Holding Corporation, Veritas Software Corporation, the Registrant, Seagate Software, Inc. and Seagate Software Network & Storage Management Group, Inc........................................................... (A) 2.1.1 Amended and Restated Agreement and Plan of Reorganization dated as of April 16, 1999 by and among VERITAS Holding Corporation, VERITAS Software Corporation, the Registrant, Seagate Software, Inc. and Seagate Software Network & Storage Management Group, Inc......................................... ** 3.1 Certificate of Incorporation of Registrant, as amended......... (B) 3.2 By-Laws of Registrant, as amended.............................. (C) 4.1 Indenture, dated as of March 1, 1997 between Seagate Technology, Inc. and First Trust of California, National Association, as Trustee....................................... (D) 4.2 Officers' Certificate pursuant to Section 301 of the Indenture, without exhibits, establishing the terms of Seagate Software's senior notes and senior debentures............................ (D) 4.3 Form of Senior Note............................................ (D) 4.4 Form of Senior Debenture....................................... (D) 4.5 Form of Stockholder Agreement by and among VERITAS Software Corporation, VERITAS Holding Corporation, Seagate Technology, Inc. and Seagate Software, Inc................................ ** 4.6 Form of Registration Rights Agreement by and among VERITAS Holding Corporation and Seagate Software, Inc................. * 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation................................................... * 8.1 Form of opinion regarding U.S. federal tax matters............. * 8.2 Form of opinion regarding Canadian tax matters................. * 8.3 Form of opinion regarding U.K. tax matters..................... * 8.4 Form of opinion regarding tax consequences to optionees........ * 10.1 1983 Incentive Stock Option Plan and form of Stock Option Agreement..................................................... (E) 10.2 Seagate Technology Employee Stock Purchase Plan, as amended.... (J) 10.3 Registrant's Executive Stock Plan.............................. (H) 10.4 Conner Peripherals, Inc. 1986 Incentive Stock Plan............. (H) 10.5 Building Agreement for Land at Private Lot A14547 in Yio Chu Kang dated May 30, 1996 between Seagate Technology International and Jurong Town Corporation..................... (J) 10.6 Lease Agreement dated July 18, 1994 between Universal Appliances Limited and Seagate Technology (Thailand) Limited.. (J) 10.7 1991 Incentive Stock Option Plan and Form of Option Agreement, as amended.................................................... (J)
II-1
Notes: ------ 10.8 Acquisition Agreement dated as of September 29, 1989 by and among the Registrant, Control Data Corporation, Imprimus Technology Incorporated and Magnetic Peripherals, Inc......... (F) 10.9 Amended and Restated Directors' Option Plan and Form of Option Agreement..................................................... (G) 10.10 Amended and Restated Archive Corporation Stock Option and Restricted Stock Purchase Plan--1981.......................... (H) 10.11 Amended and Restated Archive Corporation Incentive Stock Option Plan--1981.................................................... (H) 10.12 Conner Peripherals, Inc.--Arcada Holdings, Inc. Stock Option Plan.......................................................... (I) 10.13 Arcada Holdings, Inc. 1994 Stock Option Plan................... (I) 10.14 Separation Agreement and Release between the Registrant and Alan F. Shugart dated as of July 29, 1998..................... (J) 10.15+ Development and License Agreement dated as of October 5, 1998 by and among Seagate Technology, Inc., Veritas Holding Corporation and Veritas Software Corporation.................. * 10.16+ Cross License and OEM Agreement dated as of October 5, 1998 by and among Seagate Software Information Management Group, Inc., Veritas Holding Corporation and Veritas Software Corporation................................................... * 10.16.1 Amendment No. 1 dated as of April 16, 1999 to Cross-License and OEM Agreement by and among Seagate Software Information Management Group, Inc., VERITAS Holding Corporation and VERITAS Software Corporation.................................. ** 21.1 Subsidiaries of the Registrant................................. (J) 23.1 Consent of Ernst & Young LLP, Independent Auditors............. ** 23.2 Consent of Ernst & Young LLP, Independent Auditors............. ** 23.3 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1)......................... * 23.4 Consent of Ernst & Young LLP (included in Exhibit 8.1)......... * 23.5 Consent of Ernst & Young LLP (included in Exhibit 8.2)......... * 23.6 Consent of Ernst & Young International (included in Exhibit 8.3).......................................................... * 23.7 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 8.4)......................... * 24.1 Power of Attorney.............................................. * 27.1 Financial Data Schedule........................................ (J)
- -------- (A) Incorporated by reference to exhibits filed in response to Item 7(c), "Exhibits," of Seagate Software's Current Report on Form 8-K dated October 5, 1998. (B) Incorporated by reference to exhibits filed in response to Item 16, "Exhibits," of Seagate Software's Registration Statement on Form S-3 (File No. 33-13430) filed with the Securities and Exchange Commission on April 14, 1987. (C) Incorporated by reference to exhibits filed in response to Item 14(a), "Exhibits," of Seagate Software's Form 10-K, as amended, for the fiscal year ended June 30, 1990. (D) Incorporated by reference to exhibits filed in response to Item 7(b), "Financial Statements and Exhibits" of Seagate Software's Current Report on Form 8-K dated March 4, 1997. (E) Incorporated by reference to exhibits filed in response to Item 14(a), "Exhibits," of Seagate Software's Form 10-K for the fiscal year ended June 30, 1983. (F) Incorporated by reference to exhibits filed in response to Item 7(c), "Exhibits," of Seagate Software's Current Report on Form 8-K dated October 2, 1989. (G) Incorporated by reference to exhibits filed in response to Item 14(a), "Exhibits," of Seagate Software's Form 10-K for the fiscal year ended June 30, 1991. (H) Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form S-8 (registration number 333-00697) as filed with the Commission on February 5, 1996. (I) Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form S-8 (registration number 333-01059) as filed with the Commission on February 21, 1996. (J) Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form 10-K for the fiscal year ended July 3, 1998 as filed with the Commission on August 20, 1998. II-2 * Previously filed. ** Filed herewith. + Certain information in these exhibits will be omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.46. (b) Financial Statement Schedules. Schedule II--Valuation and Qualifying Accounts Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or notes thereto. Item 22. Undertakings (a) the undersigned registrant hereby undertakes: (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, as amended (the "Securities Act"); (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) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement or any material change to such information in the Registration Statement set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in 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 end 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. (2) That, for the purpose of determining any liability under the Securities Act, 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 form registration by means of post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to II-3 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) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which 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 forms. (d) The registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities 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, 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 bonafide offering thereof. (e) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, and 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 Securities 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 Securities Act and will be governed by the final of such issue. (f) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day after 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. (g) The undersigned registrant hereby undertakes to supply by means of a post- effective amendment all information concerning a transaction, and Seagate Software being acquired involved therein, that was not the subject of and included in the Registration Statement when it becomes effective. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment No. 4 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Scotts Valley, State of California, on the 21st day of April 1999. Seagate Technology, Inc. /s/ Stephen J. Luczo By: _________________________________ Stephen J. Luczo Chief Executive Officer, President,and a Director Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities indicated below on the 21st day of April 1999. Signature Title /s/ Stephen J. Luczo Chief Executive - ------------------------------------- Officer, President, Stephen J. Luczo and a Director (Principal Executive Officer) /s/ Charles C. Pope Senior Vice - ------------------------------------- President and Chief Charles C. Pope Financial Officer (Principal Financial and Accounting Officer) * Co-Chairman of the - ------------------------------------- Board Gary B. Filler * Co-Chairman of the - ------------------------------------- Board Lawrence Perlman * Director - ------------------------------------- Kenneth Haughton * Director - ------------------------------------- Robert A. Kleist * Director - ------------------------------------- Thomas P. Stafford * Director - ------------------------------------- Laurel L. Wilkening /s/ Charles C. Pope *By: ________________________________ Charles C. Pope Attorney-in-fact II-5 INDEX TO EXHIBITS
Exhibit No. Document Description Notes: ------- -------------------- ------ 2.1 Agreement and Plan of Reorganization dated as of October 5, (A) 1998 by and among Veritas Holding Corporation, Veritas Software Corporation, the Registrant, Seagate Software, Inc. and Seagate Software Network & Storage Management Group, Inc. 2.1.1 Amended and Restated Agreement and Plan of Reorganization ** dated as of April 16, 1999 by and among VERITAS Holding Corporation, VERITAS Software Corporation, the Registrant, Seagate Software, Inc. and Seagate Software Network & Storage Management Group, Inc. 3.1 Certificate of Incorporation of Registrant, as amended. (B) 3.2 By-Laws of Registrant, as amended. (C) 4.1 Indenture, dated as of March 1, 1997 between Seagate (D) Technology, Inc. and First Trust of California, National Association, as Trustee. 4.2 Officers' Certificate pursuant to Section 301 of the (D) Indenture, without exhibits, establishing the terms of Seagate Software's senior notes and senior debentures. 4.3 Form of Senior Note. (D) 4.4 Form of Senior Debenture. (D) 4.5 Form of Stockholder Agreement by and among VERITAS Software ** Corporation, VERITAS Holding Corporation, the Registrant and Seagate Software, Inc. 4.6 Form of Registration Rights Agreement by and among VERITAS * Holding Corporation and Seagate Software, Inc. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, PC. * 8.1 Form of opinion regarding U.S. federal tax matters. * 8.2 Form of opinion regarding Canadian tax matters * 8.3 Form of opinion regarding U.K. tax matters * 8.4 Form of opinion regarding tax consequences to optionees * 10.1 1983 Incentive Stock Option Plan and form of Stock Option (E) Agreement. 10.2 Seagate Technology Employee Stock Purchase Plan, as amended. (J) 10.3 Registrant's Executive Stock Plan. (H) 10.4 Conner Peripherals, Inc. 1986 Incentive Stock Plan. (H) 10.5 Building Agreement for Land at Private Lot A14547 in Yio Chu (J) Kang dated May 30, 1996 between Seagate Technology International and Jurong Town Corporation. 10.6 Lease Agreement dated July 18, 1994 between Universal (J) Appliances Limited and Seagate Technology (Thailand) Limited. 10.7 1991 Incentive Stock Option Plan and Form of Option (J) Agreement, as amended. 10.8 Acquisition Agreement dated as of September 29, 1989 by and (F) among the Registrant, Control Data Corporation, Imprimus Technology Incorporated and Magnetic Peripherals, Inc. 10.9 Amended and Restated Directors' Option Plan and Form of (G) Option Agreement.
Exhibit No. Document Description Notes: ------- -------------------- ------ 10.10 Amended and Restated Archive Corporation Stock Option and (H) Restricted Stock Purchase Plan--1981. 10.11 Amended and Restated Archive Corporation Incentive Stock (H) Option Plan--1981. 10.12 Conner Peripherals, Inc.--Arcada Holdings, Inc. Stock Option (I) Plan. 10.13 Arcada Holdings, Inc. 1994 Stock Option Plan. (I) 10.14 Separation Agreement and Release between the Registrant and (J) Alan F. Shugart dated as of July 29, 1998. 10.15 Development and License Agreement dated as of October 5, 1998 *+ by and among Seagate Technology, Inc., Veritas Holding Corporation and Veritas Software Corporation. 10.16 Cross-License and OEM Agreement dated as of October 5, 1998 *+ by and among Seagate Software Information Management Group, Inc., Veritas Holding Corporation and Veritas Software Corporation. 10.16.1 Amendment No. 1 dated as of April 16, 1999 to Cross-License ** and OEM Agreement by and among VERITAS Software Corporation, VERITAS Holding Corporation and Seagate Software Information Management Group, Inc. 21.1 Subsidiaries of the Registrant. (J) 23.1 Consent of Ernst & Young LLP, Independent Auditors ** 23.2 Consent of Ernst & Young LLP, Independent Auditors ** 23.3 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1) * 23.4 Consent of Ernst & Young LLP (included in Exhibit 8.1) * 23.5 Consent of Ernst & Young LLP (included in Exhibit 8.2) * 23.6 Consent of Ernst & Young International (included in Exhibit * 8.3) 23.7 Consent of Wilson Sonsini Goodrich & Rosati; Professional * Corporation (included in Exhibit 8.4) 24.1 Power of Attorney. * 27.1 Financial Data Schedule. (J)
- -------- (A) Incorporated by reference to exhibits filed in response to Item 7(c), "Exhibits," of Seagate Software's Current Report on Form 8-K dated October 5, 1998. (B) Incorporated by reference to exhibits filed in response to Item 16, "Exhibits," of Seagate Software's Registration Statement on Form S-3 (File No. 33-13430) filed with the Securities and Exchange Commission on April 14, 1987. (C) Incorporated by reference to exhibits filed in response to Item 14(a), "Exhibits," of Seagate Software's Form 10-K, as amended, for the fiscal year ended June 30, 1990. (D) Incorporated by reference to exhibits filed in response to Item 7(b), "Financial Statements and Exhibits" of Seagate Software's Current Report on Form 8-K dated March 4, 1997. (E) Incorporated by reference to exhibits filed in response to Item 14(a), "Exhibits," of Seagate Software's Form 10-K for the fiscal year ended June 30, 1983. (F) Incorporated by reference to exhibits filed in response to Item 7(c), "Exhibits," of Seagate Software's Current Report on Form 8-K dated October 2, 1989. 2 (G) Incorporated by reference to exhibits filed in response to Item 14(a), "Exhibits," of Seagate Software's Form 10-K for the fiscal year ended June 30, 1991. (H) Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form S-8 (registration number 333-00697) as filed with the Commission on February 5, 1996. (I) Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form S-8 (registration number 333-01059) as filed with the Commission on February 21, 1996. (J) Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form 10-K for the fiscal year ended July 3, 1998 as filed with the Commission on August 20, 1998. * Previously filed. ** Filed herewith. + Certain information in these exhibits will be omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.46. 3 EX-2.1(1) 2 AMENDED AGMT & PLAN OF REORGANIZATION DATED 04/16/1999 EXHIBIT 2.1.1 AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AMONG VERITAS HOLDING CORPORATION, a Delaware corporation VERITAS SOFTWARE CORPORATION, a Delaware corporation SEAGATE TECHNOLOGY, INC., a Delaware corporation SEAGATE SOFTWARE, INC. a Delaware corporation AND SEAGATE SOFTWARE NETWORK & STORAGE MANAGEMENT GROUP, INC. a Delaware corporation April 15, 1999 TABLE OF CONTENTS
PAGE ---- 1. PLAN OF REORGANIZATION................................................................................ 2 1.1 The Organization of Newco and Merger Sub....................................................... 2 1.2 The Merger..................................................................................... 2 1.3 Seagate Transaction............................................................................ 4 1.4 Contribution and Transfer of Contributed Stock and Assets...................................... 5 1.5 Dissenter's Rights............................................................................. 8 1.6 Newco Plans.................................................................................... 8 1.7 Registration................................................................................... 8 1.8 Effects of the VERITAS Merger.................................................................. 9 1.9 Tax Free Reorganization........................................................................ 9 1.10 Tax-Free Section 351 Transaction............................................................... 9 1.11 Hart-Scott-Rodino Filings...................................................................... 10 1.12 Adoption of Newco Rights Agreement............................................................. 10 1.13 Board of Directors and Officers of Newco; Newco Certificate of Incorporation and Bylaws........ 11 1.14 Registration on Form S-4....................................................................... 11 2. REPRESENTATIONS AND WARRANTIES OF SSI AND STI......................................................... 11 2.1 Organization; Good Standing; Qualification and Power........................................... 12 2.2 Capital Structure.............................................................................. 12 2.3 Authority...................................................................................... 13 2.4 SEC Documents.................................................................................. 14 2.5 Disclosure; Information Supplied............................................................... 16 2.6 Compliance with Applicable Laws................................................................ 17 2.7 Litigation..................................................................................... 17 2.8 ERISA and Other Compliance..................................................................... 18 2.9 Absence of Certain Changes or Events........................................................... 20 2.10 Full Force and Effect.......................................................................... 22 2.11 Agreements..................................................................................... 22 2.12 No Defaults.................................................................................... 24 2.13 Certain Agreements............................................................................. 24 2.14 Taxes.......................................................................................... 24 2.15 Intellectual Property.......................................................................... 25 2.16 Fees and Expenses.............................................................................. 27 2.17 Insurance...................................................................................... 27 2.18 Ownership of Property.......................................................................... 27 2.19 Environmental Matters.......................................................................... 27 2.20 Interested Party Transactions.................................................................. 28 2.21 Fairness Opinion............................................................................... 29
-i- 2.22 Title to and Condition and Sufficiency of Group Assets..................... 29 2.23 No Restrictive Agreements.................................................. 29 2.24 Supplier and Customer Relationships........................................ 29 2.25 Product and Inventory Status............................................... 30 3. REPRESENTATIONS AND WARRANTIES OF VERITAS AND NEWCO............................... 30 3.1 Organization; Good Standing; Qualification and Power....................... 30 3.2 Capital Structure.......................................................... 31 3.3 Authority.................................................................. 32 3.4 SEC Documents.............................................................. 33 3.5 Disclosure; Information Supplied........................................... 34 3.6 Compliance with Applicable Laws............................................ 34 3.7 Litigation................................................................. 35 3.8 ERISA and Other Compliance................................................. 36 3.9 Absence of Certain Changes or Events....................................... 38 3.10 Full Force and Effect...................................................... 39 3.11 Agreements................................................................. 40 3.12 No Defaults................................................................ 41 3.13 Certain Agreements......................................................... 41 3.14 Taxes...................................................................... 41 3.15 Intellectual Property...................................................... 42 3.16 Fees and Expenses.......................................................... 44 3.17 Insurance.................................................................. 44 3.18 Ownership of Property...................................................... 44 3.19 Environmental Matters...................................................... 44 3.20 Interested Party Transactions.............................................. 45 3.21 Fairness Opinion........................................................... 45 3.22 Title to and Condition and Sufficiency of VERITAS Assets................... 45 3.23 No Restrictive Agreements.................................................. 46 3.24 Supplier and Customer Relationships........................................ 46 3.25 Product and Inventory Status............................................... 46 3.26 Tax Representations........................................................ 47 4. STI AND SSI COVENANTS............................................................. 47 4.2 Maintenance of Business.................................................... 47 4.3 Conduct of Business........................................................ 48 4.4 SSI Corporate Approvals.................................................... 49 4.5 Letter of SSI's Accountants............................................... 49 4.6 Prospectus/Proxy Statement................................................. 50 4.7 Regulatory Approvals....................................................... 51 4.8 Necessary Consents......................................................... 51 4.9 Access to Information...................................................... 51 4.10 Satisfaction of Conditions Precedent....................................... 51 4.11 No Other Negotiations...................................................... 52 4.12 Books and Records.......................................................... 53
-ii- 4.13 Transitional Support..................................................... 53 4.14 Development Agreement and Cross-License Agreement........................ 53 4.15 Settlement of Intercompany Accounts...................................... 53 4.16 Modification of Joint Contributed Agreements............................. 53 4.17 Key Employee Agreements.................................................. 54 4.18 Stockholder and Registration Rights Agreement............................ 54 4.19 Seagate IP Rights........................................................ 54 4.20 Directors'and Officers'Liability Insurance............................... 54 4.21 Closing Group Account.................................................... 55 5. VERITAS AND NEWCO COVENANTS..................................................... 55 5.1 Advice of Changes........................................................ 55 5.2 Maintenance of Business.................................................. 56 5.3 Conduct of Business...................................................... 56 5.4 Stockholder Approval..................................................... 57 5.5 Letter of VERITAS'Accountants............................................ 57 5.6 Prospectus/Proxy Statement............................................... 57 5.7 State Securities Law Compliance.......................................... 58 5.8 Regulatory Approvals..................................................... 59 5.9 Necessary Consents....................................................... 59 5.10 Access to Information.................................................... 59 5.11 Books and Records........................................................ 59 5.12 Transitional Support..................................................... 60 5.13 Development Agreement and Cross-License Agreement........................ 60 5.14 Satisfaction of Conditions Precedent..................................... 60 5.15 Voting Agreement......................................................... 60 5.16 VERITAS Employee Plans and Benefit Arrangements.......................... 60 5.17 Indemnification and Insurance-VERITAS.................................... 61 5.18 Indemnification and Insurance-Employees.................................. 63 5.19 Stockholder and Registration Rights Agreement............................ 64 5.20 No Other VERITAS Negotiations............................................ 65 6. CLOSING MATTERS................................................................. 66 6.1 Closing.................................................................. 66 6.2 Conversion of VERITAS Common Stock....................................... 66 6.3 Cancellation of SSI Options and Issuance of Newco Options................ 67 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SSI AND STI.............................. 67 7.1 Accuracy of Representations and Warranties............................... 67 7.2 Covenants................................................................ 67 7.3 Compliance with Law...................................................... 67 7.4 Consents................................................................. 67 7.5 Form S-4................................................................. 67 7.6 Opinion of VERITAS and Newco's Counsel................................... 67
-iii- 7.7 VERITAS Stockholder Approval................................................................ 68 7.8 No Legal Action............................................................................. 68 7.9 Tax Opinion................................................................................. 68 7.10 Election of The Contributing Companies Designees to the Board of Directors of Newco......... 68 7.11 Nasdaq Listing.............................................................................. 68 7.12 Incorporation of New Delaware Company....................................................... 68 7.13 HSR Act..................................................................................... 68 7.14 No Order.................................................................................... 68 7.15 Ancillary Agreements........................................................................ 69 7.16 Stockholder Approval........................................................................ 69 7.17 Delivery of Newco Shares.................................................................... 69 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF VERITAS AND NEWCO........................................... 69 8.1 Accuracy of Representations and Warranties.................................................. 69 8.2 Covenants................................................................................... 69 8.3 Compliance with Law......................................................................... 69 8.4 Consents.................................................................................... 70 8.5 Form S-4.................................................................................... 70 8.6 Opinion of Counsel to STI and SSI........................................................... 70 8.7 VERITAS Stockholder Approval................................................................ 70 8.8 SSI Corporate Approvals..................................................................... 70 8.9 No Legal Action............................................................................. 70 8.10 Tax Opinion................................................................................. 70 8.11 HSR Act..................................................................................... 70 8.12 No Order.................................................................................... 70 8.13 Ancillary Agreements........................................................................ 71 8.14 Sufficiency of Assets....................................................................... 71 8.15 Intellectual Property Assignments........................................................... 71 8.16 Modification of Joint Contributed Agreements................................................ 71 9. TERMINATION OF AGREEMENT........................................................................... 72 9.1 Termination................................................................................. 72 9.2 Notice of Termination....................................................................... 73 9.3 No Liability................................................................................ 73 9.4 Breakup Fee................................................................................. 74 10. SURVIVAL OF REPRESENTATIONS....................................................................... 74 10.1 No Survival of Representations.............................................................. 74 11. INDEMNIFICATION................................................................................... 74 11.1 Indemnification by SSI and STI.............................................................. 75 11.2 Time Limitations on Indemnification......................................................... 76 11.3 No Limitation on Other Rights............................................................... 76
-iv- 12. EMPLOYEE MATTERS.............................................................. 76 12.1 Right to Offer Employment.............................................. 76 12.2 Termination of Employment.............................................. 77 12.3 Cooperation............................................................ 78 12.4 Employees Who own SSI Capital Stock.................................... 78 13. TAX MATTERS................................................................... 78 13.1 Transaction Taxes; Representation; Transaction Tax Indemnity........... 78 13.2 No Limitation.......................................................... 79 13.3 Treatment of Indemnity Payments........................................ 79 13.4 Indemnity for Taxes.................................................... 79 13.5 Other Tax Matters...................................................... 80 13.6 Seagate Transaction Items.............................................. 84 14. MISCELLANEOUS................................................................. 86 14.1 Governing Law.......................................................... 86 14.2 Assignment; Binding Upon Successors and Assigns........................ 86 14.3 Severability........................................................... 86 14.4 Counterparts........................................................... 86 14.5 Other Remedies......................................................... 86 14.6 Amendment and Waivers.................................................. 86 14.7 Expenses............................................................... 87 14.8 Attorneys'Fees......................................................... 87 14.9 Notices................................................................ 87 14.10 Construction of Agreement.............................................. 88 14.11 No Joint Venture....................................................... 88 14.12 Further Assurances..................................................... 88 14.13 Absence of Third Party Beneficiary Rights.............................. 89 14.14 Public Announcement.................................................... 89 14.15 Certain Defined Terms.................................................. 89 14.16 Entire Agreement....................................................... 104
-v- Exhibit A - Certificate of Merger Schedule 1.4(b)(i)(B) - Liabilities of the Contributing Companies Exhibit 1.12 - Form of Newco Rights Agreement Exhibit 1.13(c)A - Form of Newco Amended and Restated Certificate of Incorporation Exhibit 1.13(c)B - Form of Newco Amended and Restated Bylaws SSI Disclosure Letter Veritas Disclosure Letter Exhibit 4.13 - Term Sheet for Transition Services Agreement Exhibit 4.14A - Development Agreement Exhibit 4.14B - Cross-License Agreement Exhibit 4.17A - STI and SSI Key Employees Exhibit 4.17B - Form of Key Employee Agreement Exhibit 4.18A - Registration Rights Agreement Exhibit 4.18B - Stockholder Agreement Exhibit 5.3(g) - Form of Amendment to Veritas Software Corporation Certificate of Incorporation Exhibit 5.15A - Form of Voting Agreement Exhibit 5.15B - Veritas Affiliates who Executed Voting Agreements Exhibit 5.16A - VERITAS Key Employees Exhibit 14.15A - Contributed Assets Exhibit 14.15B - Contributed Contracts Exhibit 14.15C - Contributed Subsidiaries Exhibit 14.15D - Group Products Exhibit 14.15E - Permitted Encumbrances Exhibit 14.15F - Exemplar of Methodology Used to Calculate VERITAS Percentage Interest Exhibit 14.15G - VERITAS Subsidiaries -vi- AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") hereby amends and restates, as of April 15, 1999, the Agreement and Plan of Reorganization entered into as of October 5, 1998, by and among VERITAS Software Corporation, a Delaware corporation including for all purposes VERITAS Surviving Corporation, ("VERITAS"), VERITAS Holding Corporation, a Delaware corporation ("NEWCO"), Seagate Technology, Inc., a Delaware corporation ("STI"), Seagate Software, Inc., a Delaware corporation and majority owned subsidiary of STI ("SSI") and Seagate Software Network & Storage Management Group, Inc., a Delaware corporation and wholly owned subsidiary of SSI ("NSMG"). The terms defined in Section 14.15 of this Agreement shall have the meanings therein specified in this Agreement. RECITALS -------- A. The parties intend that, subject to the terms and conditions of this Agreement, (i) a new Delaware corporation referred to herein as Newco has been formed by VERITAS solely for the purpose of the transactions contemplated hereunder; (ii) a newly formed, wholly owned subsidiary of Newco ("MERGER SUB") will be merged with and into VERITAS, with VERITAS being the surviving corporation of such merger (the "MERGER"), and all outstanding VERITAS securities will be converted, on a share for share basis, into Newco securities having identical rights, preferences and privileges, with Newco assuming any and all outstanding options, warrants, convertible debentures and other rights to purchase shares of capital stock of VERITAS and obligations to issue shares of capital stock of VERITAS upon conversion of convertible debentures (with all such Newco securities issued to former VERITAS security holders initially representing the VERITAS Percentage Interest in Newco), all on the terms set out in this Agreement and in the Certificate of Merger substantially in the form of Exhibit A hereto (the "CERTIFICATE OF MERGER") and the applicable provisions of - --------- Delaware Law; and (iii) the contribution by SSI, STI and certain of their subsidiaries as herein specified to Newco, all on the terms herein specified, of all Contributed Stock of the Contributed Companies (with each of the Contributed Companies thereby becoming a wholly owned subsidiary of Newco) and the Contributed Assets in consideration for the issuance by Newco to SSI of shares of Common Stock of Newco, $0.001 par value ("NEWCO COMMON STOCK"), and the offer by Newco to grant to Employees who are holders of options in SSI at the Effective Time (herein "OPTIONEES") options to purchase Newco Common Stock ("NEWCO OPTIONS") upon cancellation of their respective options to purchase Common Stock of SSI ("NEWCO OFFER"), which Newco Common Stock issued to SSI and Newco Options will represent in the aggregate a fully diluted equity interest in Newco equal to the difference between 100% and the VERITAS Percentage Interest. The transactions described in subpart (iii) of the foregoing sentence are collectively the "SEAGATE TRANSACTION." B. The Newco Common Stock issued in the Merger and in the Seagate Transaction and the offer of Newco Options upon cancellation by Employees of their SSI Options in the Seagate Transaction will be registered under the Securities Act, pursuant to a Newco registration statement. C. For federal income tax purposes, it is intended that (i) the Merger qualify as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code and as an exchange under the provisions of Section 351(a) of the Internal Revenue Code, and (ii) that the Seagate Transaction, qualifies as an exchange under the provisions of Section 351(a) of the Internal Revenue Code. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. PLAN OF REORGANIZATION 1.1 The Organization of Newco and Merger Sub. VERITAS has formed Newco ---------------------------------------- under the laws of the State of Delaware for the purposes of the transactions contemplated by the Merger and in accordance with the terms of this Agreement. Newco currently has no outstanding securities and has conducted no business and, prior to the Effective Time, will not issue any securities, will conduct no business or operations, will have no assets and will enter into no agreements nor incur any obligations or Liabilities, except as required or contemplated by this Agreement or necessary to perform its obligations hereunder. As soon as practicable after October 5, 1998, Newco shall form the Merger Sub as a wholly-owned subsidiary, which will conduct no business prior to Closing except as expressly contemplated hereunder. 1.2 The Merger. Subject to the terms and conditions of this Agreement, ---------- VERITAS will execute and deliver and will file with the Secretary of State of the State of Delaware in accordance with the relevant provisions of the Delaware Law, a Certificate of Merger providing for the Merger of Merger Sub with and into VERITAS, with VERITAS being the surviving corporation upon the effectiveness of the Merger and thereby becoming a wholly-owned subsidiary of Newco, pursuant to this Agreement, the Certificate of Merger and in accordance with applicable provisions of the Delaware Law as follows: (a) Conversion of VERITAS Common Stock. Each share of the Common ---------------------------------- Stock of VERITAS ("VERITAS COMMON STOCK"), that is issued and outstanding immediately prior to the Effective Time will by virtue of the Merger and at the Effective Time, and without any further action on the part of VERITAS, Newco or any holder of VERITAS Common Stock, be converted into one share (the "VERITAS RATIO") of validly issued, fully paid and nonassessable Newco Common Stock. -2- (b) Conversion of VERITAS Options, Warrants and other Convertible ------------------------------------------------------------- Securities. - ---------- (i) Conversion. At the Effective Time, each of the then ---------- outstanding options to purchase shares of VERITAS Common Stock (collectively, the "VERITAS OPTIONS") (consisting of all outstanding options granted under VERITAS' or VERITAS' predecessors' option plans, including but not limited to its 1985 Stock Option Plan, 1991 Executive Stock Option Plan, 1992 Stock Plan, 1993 Equity Incentive Plan, 1993 Director Stock Option Plan and 1996 Director Option Plan (collectively the "VERITAS PLANS")), and each of the then outstanding warrants to purchase VERITAS Common Stock (the "VERITAS WARRANTS") and any individual non-Plan options, and any convertible debenture or other convertible debt instrument convertible into VERITAS Common Stock ("VERITAS Debentures"), will, by virtue of the Merger, and without any further action on the part of any holder thereof, be assumed and converted into an option, warrant, convertible debenture, or other convertible debt instrument, as the case may be, to purchase an equivalent number of shares of Newco Common Stock, at an exercise price per share equal to the per share exercise price of such VERITAS Option or VERITAS Warrant, or at a conversion price per share equal to the conversion price per share of such VERITAS Debenture, as the case may be in effect at the Effective Time, but with VERITAS remaining the co-obligor on any such convertible debenture or other convertible debt instrument. The term, exercisability, vesting schedule, status as an "incentive stock option" under Section 422 of the Internal Revenue Code, if applicable, and all other terms and conditions of the VERITAS Options and VERITAS Warrants and VERITAS Debentures will be unchanged and all references in any option or warrant or debenture agreement governing such option or warrant or debenture to VERITAS shall be deemed to refer to Newco, where appropriate. Continuous service as an employee or consultant with VERITAS or any of the VERITAS Subsidiaries (as hereinafter defined) or VERITAS predecessors will be credited to an optionee of VERITAS for purposes of determining the number of shares of Newco Common Stock subject to exercise under a converted VERITAS Option after the Closing. (ii) Stock Rights. At the Effective Time, each of the then ------------ outstanding rights to purchase shares of VERITAS Common Stock (collectively, the "VERITAS STOCK PURCHASE PLAN RIGHTS"), consisting of all outstanding options to purchase shares under VERITAS' 1993 Employee Stock Purchase Plan and 1996 Employee Stock Purchase Plan (the "VERITAS STOCK PURCHASE PLAN"), will by virtue of the Merger, and without any further action on the part of any holder thereof, be assumed and converted into a right to purchase the same number of shares of Newco Common Stock on the next "purchase date" (as such term is defined in the VERITAS Stock Purchase Plan) following the Effective Time at a purchase price per share determined in accordance with the VERITAS Stock Purchase Plan. (c) Collection of VERITAS-Owned Shares. Each share of VERITAS Common ---------------------------------- Stock held in the treasury of VERITAS or any of which are owned by Newco, VERITAS, or any direct or indirect wholly-owned subsidiary of Newco or VERITAS immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof. -3- 1.3 Seagate Transaction. ------------------- (a) Issuance of Newco Common Stock. At the Effective Time and subject ------------------------------ to the terms and conditions of this Agreement, Newco will, in consideration for the contribution and transfer of the Contributed Stock and Assets to Newco as contemplated by this Agreement, perform the following: (i) First SSI Certificate. Issue to SSI 34,000,000 validly --------------------- issued, fully paid and nonassessable shares of Newco Common Stock, with such number of shares to be appropriately adjusted in the event of any VERITAS stock split, stock combination, reclassification or other similar capital change, or for any decrease in the VERITAS Closing Price below $35.91, prior to such issuance (the "FIRST SSI CERTIFICATE"). (ii) Offer of Newco Options for Canceled SSI Options. Prior ----------------------------------------------- to the Effective Time but contingent upon the Closing of the Seagate Transaction, Newco shall offer to issue Newco Options (each representing the right to purchase validly issued, fully paid and nonassessable Newco Common Stock) to the Optionees in consideration for cancellation of their SSI Options, which offer shall expire five business days after the Effective Time except that the offer to Optionees in the United Kingdom may remain open if required by applicable law until the date no later than the date that their SSI Options expire by their terms after such Optionees are no longer employees of STI, SSI or any of their subsidiaries, all on the terms specified in this Agreement. Five business days after the Effective Time, each of the options to purchase SSI Common Stock held by any of the Optionees that elect to cancel their SSI Options and who receive Newco Options in response to Newco's option offer made pursuant hereto (all such canceled options referred to in this sentence above, collectively, "CANCELED SSI OPTIONS"), will be canceled, SSI will deliver to Newco a list of such Canceled SSI Options in accordance with Section 5.1 hereof, and Newco will issue to Optionees on such list Newco Options to purchase that number of shares of Newco Common Stock determined by multiplying the number of shares of SSI Common Stock subject to a Canceled SSI Option at the Effective Time by the "SSI Ratio" (as defined below) at an exercise price per share of Newco Common Stock equal to the exercise price per share of such Canceled SSI Option immediately prior to the Effective Time divided by the SSI Ratio, rounded up to the nearest cent. Notwithstanding the preceding sentence, if the Offer to Optionees in the United Kingdom closes after the 5/th/ business day after the Effective Time then the options to purchase SSI Common Stock held by any of those United Kingdom Optionees who have elected to cancel their SSI Options and who receive Newco Options in response to Newco's option offer in the United Kingdom made pursuant hereto will be canceled upon the closing of the Newco option offer to such Optionees, SSI will deliver to Newco a list of such Canceled SSI Options in accordance with Section 5.1 hereof, and Newco will issue to such United Kingdom Optionees on such list Newco Options to purchase that number of shares of Newco Common Stock as determined in accordance with the preceding sentence. The "SSI RATIO" shall mean the quotient arrived at by dividing the SSI Per Share Value by the Newco Per Share Value. The "SSI PER SHARE VALUE" shall equal (A) the product obtained by multiplying (x) the number of validly issued, fully paid and nonassessable shares of Newco Common Stock which represents the SSI Percentage Interest by (y) the VERITAS Closing Price plus (B) the value of IMG (as determined by the Board of Directors of SSI upon advice of Morgan) plus (C) the proceeds to be received by SSI upon the assumed exercise of outstanding SSI Options (including the Canceled SSI Options and all other options to acquire SSI capital stock), all divided by (D) the total number of outstanding shares of common stock of SSI on a fully diluted as converted basis immediately prior to the Effective Time. Newco Per Share Value shall equal the VERITAS Closing Price. The "VERITAS CLOSING PRICE" shall mean the average closing price of one share of VERITAS Common Stock for the five (5) most recent days that VERITAS Common Stock has traded ending on the trading day five (5) business days prior to the Effective Time, as reported by the Nasdaq Stock Market. The SSI Ratio, collectively with the VERITAS Ratio shall be referred to herein as the "RATIOS". If the foregoing -4- calculation results in a Newco Option, which is issued for a SSI Option, being exercisable for a fraction of a share of Newco Common Stock, then the number of shares of Newco Common Stock subject to such option will be rounded down to the nearest whole number of shares, with no cash being payable for such resulting fractional share. The term, exercisability, vesting schedule, status as an "incentive stock option" under Section 422 of the Internal Revenue Code, if applicable, and all other terms and conditions of each Newco Option shall be the same as that of the Canceled SSI Option related thereto. Continuous service as an employee or consultant with SSI, STI or any of their direct or indirect subsidiaries will be credited to each Optionee for purposes of determining the number of shares of Newco Common Stock vested and exercisable under such issued Newco Option after the Effective Time. (iii) Second SSI Certificate. No later than the later of ---------------------- the twentieth (20/th/) business day after the Closing and the tenth (10/th/) day after the expiration of the Newco Offer to the Optionees in the United Kingdom, Newco shall issue to SSI that number of validly issued, fully paid and nonassessable shares of Newco Common Stock equal to the SSI Percentage Interest minus the number of shares issued on the First SSI Certificate and minus the number of shares of Newco Common Stock issuable upon exercise of the Newco Options issued with respect to the Canceled SSI Options pursuant to Section 1.3(a)(ii). For the sole purpose of calculating the number of shares of Newco Common Stock remaining due to SSI hereunder, the number of shares issuable upon exercise of such Newco Options shall be determined in accordance with the "treasury stock" methodology as set forth in the definition of the VERITAS Percentage Interest herein if the VERITAS Percentage Interest is determined on that basis. If the treasury stock methodology is not used to determine the VERITAS Percentage Interest, then the number of shares issuable upon exercise of Newco Options issued with respect to Canceled SSI Options shall be determined in the same manner as used to determine the number of shares of Newco Common Stock issuable upon exercise of Newco Options received by VERITAS option holders in exchange for their VERITAS Options. 1.4 Contribution and Transfer of Contributed Stock and Assets. --------------------------------------------------------- (a) Contribution and Transfer. Subject to the terms and conditions ------------------------- of this Agreement and in consideration for the issuance by Newco of Newco Common Stock as provided above, the Contributing Companies shall at the Effective Time, for good and valuable consideration receipt and sufficiency of which is hereby acknowledged on behalf of each of the Contributing Companies, other than SSI, contribute and transfer and deliver to Newco or cause to be contributed, transferred and delivered to Newco, and at the Effective Time Newco shall accept the contribution and transfer from the Contributing Companies, all right, title and interest in and to the Contributed Stock and Assets. Specifically, SSI will transfer and contribute to Newco the Contributed Stock and the Contributing Companies will transfer and contribute to Newco the Contributed Assets. All Contributed Assets of STI shall be deemed first contributed by STI to SSI and only then by SSI to Newco. Notwithstanding the preceding, the parties hereto agree to transfer the following Contributed Assets which are located outside of the United States as follows: -5- (i) With respect to Contributed Assets located in France, Japan, and Australia, such Contributed Assets shall be purchased and sold by and among the VERITAS and Seagate entities located in such countries in exchange for amounts of cash consideration, as determined by STI, equal in total to the extra amount contributed to Newco by SSI (beyond what otherwise would be contributed to Newco by the Contributing Companies and the Contributing Companies will receive no additional Newco Common Stock for the extra amount of contributed cash beyond the amounts of Newco Common Stock contemplated by this Agreement). The parties shall execute bills of sale reflecting the transfer of any such Contributed Assets which shall reflect the purchase price (contributed to Newco by SSI) and only such amount shall be reported as the purchase price for all Tax reporting purposes; no party shall have a position inconsistent therewith. (ii) The parties shall cooperate to facilitate the transfer of Employees with respect to facilities located in Singapore, Sweden, Malaysia, Mexico, Canada, Hong Kong and the P.R.C. (iii) Seagate Software Limited, a company organized under the laws of the United Kingdom, will register a branch in South Africa and the Contributed Assets and Employees located in South Africa shall be transferred to Seagate Software Limited. (b) Assumption and Exclusion of Liabilities. --------------------------------------- (i) Assumed Liabilities. As a result of the transfer to Newco ------------------- of the Contributed Stock as aforesaid, Newco will as a matter of law own all of the outstanding equity capital of the Contributed Companies, which Contributed Companies in turn shall remain liable for their respective Liabilities. In addition, subject to the terms and conditions of this Agreement, Newco (or a subsidiary of Newco designated by Newco and acceptable to SSI) shall, at the Effective Time, assume, and thereafter pay, perform and discharge when due those (and only those) Liabilities of the Contributing Companies and/or their direct and indirect subsidiaries (excluding the Liabilities of the Contributed Company Group which are governed by the first sentence of this Section 1.4(b)) that are expressly listed in the following subparagraphs of this Section 1.4(b)(i) (collectively, the "ASSUMED LIABILITIES") and no other Liabilities of the Contributing Companies whatsoever: (A) all Liabilities of the Contributing Companies under all Contributed Contracts; (B) all Liabilities of the Contributing Companies that are included in the Closing Group Account or that are listed on Schedule 1.4(b) --------------- (i)(B) attached hereto; - ------ (C) any and all Liabilities of STI, SSI, and of their respective direct and indirect subsidiaries with respect to Employees who accept an offer of employment by Newco excluding liabilities subject to indemnity under Section 11.1(a); and -6- (D) those Tax liabilities for which Newco is responsible pursuant to Section 13, below. (ii) Excluded Liabilities Not Assumed. Except for the -------------------------------- Liabilities of the Contributed Company Group (which will remain the sole responsibility of the applicable member of the Contributed Company Group) and except for the Assumed Liabilities expressly described above in Section 1.4(b), Newco shall not assume, pay, perform or discharge, or otherwise have any obligation, responsibility or liability whatsoever for, any and all Liabilities of SSI (including IMG), STI or their respective direct and indirect subsidiaries (whether now existing or hereafter arising), and said companies shall retain, and shall be solely responsible and liable for paying, performing and discharging when due, all such Liabilities (collectively, the "EXCLUDED LIABILITIES"). (c) Asset Contribution. The Contributing Companies will take all ------------------ actions and will sign and deliver any and all instruments and documents (including the Bill of Transfer) reasonably necessary or appropriate to fully effect and perfect the transfer to Newco (or if Newco so elects, any applicable Newco Subsidiary) of any and all of the Contributed Stock and Assets held by either of them and any Contributed Contracts to which they are a Party. This Section 1.4(c) shall survive Closing for two years. (d) Unassignable Assets. Notwithstanding any other provision of this ------------------- Agreement or any of the Ancillary Agreements, to the extent that any of the Contributed Assets are not assignable or otherwise transferable by the Contributing Companies to Newco without the consent, approval or waiver of another party thereto or any third party (including any governmental agency), or if such assignment or transfer would constitute a breach thereof or of any other material contract binding upon the transferor or any of its Affiliates, or a violation of any applicable law, then neither this Agreement nor such Ancillary Agreements shall constitute an assignment or transfer (or an attempted assignment or transfer) thereof until such consent, approval or waiver of such party or parties has been duly obtained. With respect to each such Contributed Asset, whose assignment or transfer to Newco requires the consent, approval or waiver of another party thereto or any third party, Newco and SSI shall cooperate and use their mutual reasonable, commercial efforts to obtain such consent, approval or waiver of such other party or parties or such third party to such assignment or transfer as promptly as practicable prior to the Effective Time; and each agrees to supply relevant information to such party or parties or such third party in order to facilitate such objective. Notwithstanding the foregoing, nothing contained herein shall obligate Newco or any Contributing Company to expend or pay any amount to third parties to obtain any consents, approvals or waivers, or to make alternative arrangements available; provided that where the Contributing Companies are unable to effectively assign or otherwise transfer to Newco any Contributed Asset without constituting a breach due to such lack of third party consent, the Contributing Companies shall make available to Newco the -7- economic benefits (such as inbound royalty payments), if any, received by the Contributing Companies from and after the Effective Time with respect to any such Contributed Asset. (e) No Fraudulent Conveyance. The Contributing Companies are not ------------------------ entering into this Agreement or any Ancillary Agreement with the intent to defraud, delay or hinder their respective creditors and the consummation of the transactions contemplated by this Agreement, and the Ancillary Agreements referenced in this Agreement will not have any such effect. The transfer of the Contributed Stock and Assets pursuant hereto will not give rise to any right of any creditor of the Contributing Companies to assert any claim whatsoever against Newco or any of the Contributed Stock and Assets in the hands of Newco or any of Newco's respective successors and assigns following the Effective Time which would have a Material Adverse Effect on Newco. SSI and its consolidated subsidiaries, taken as a group are Solvent, and will continue to be Solvent immediately following the transfer of the Contributed Stock and Assets pursuant to this Agreement. Neither SSI nor any of its consolidated subsidiaries nor any of the Contributed Stock and Assets is subject to, or the subject of, any Insolvency Proceeding or Insolvency Action. No writ of attachment, execution or similar process has been ordered, executed or filed against any of the Contributed Stock and Assets. To Seagate's Knowledge (i) there is not any reason to expect that any of the aforementioned actions, or any similar action, will take place or be taken, and (ii) there are no grounds for any of the aforementioned actions or like action. The parties agree that the securities issued by Newco to SSI and the Optionees and the other obligations on Newco's part to be performed under the terms of this Agreement and the Ancillary Agreements constitute full and fair equivalent consideration for the Contributed Stock and Assets exchanged therefor and the covenants, agreements and performances of the Contributing Companies under this Agreement and the Ancillary Agreements. 1.5 Dissenter's Rights. It shall be the sole responsibility of SSI to ------------------ disclose any dissenter's rights which SSI stockholders have with respect to the Seagate Transaction. 1.6 Newco Plans. Newco shall assume, effective as of the Closing, the ----------- VERITAS 1993 Equity Incentive Plan, 1993 Director Stock Option Plan and 1993 Employee Stock Purchase Plan and other VERITAS plans and non-plan grants and awards, as amended through the Effective Time (collectively, the "NEWCO PLANS"). Newco shall reserve a sufficient number of shares of Newco Common Stock for issuance pursuant to the Newco Options issued pursuant to Section 1.3(a)(ii) herein. 1.7 Registration. Newco will cause the Newco Common Stock issuable upon ------------ exercise of outstanding awards under the Newco Plans or upon exercise of the Newco Options issued to the Optionees upon cancellation of their Canceled SSI Options (collectively, the "STOCK RIGHTS") and the shares reserved for issuance pursuant to future awards under the Newco Plans to be registered on Form S-8 (the "FORM S-8") promulgated by the SEC within 10 days after the Effective Time and Newco will use its reasonable best efforts to maintain the effectiveness of such registration statement or registration statements for so long as any such Stock Rights shall remain outstanding. With -8- respect to those individuals who subsequent to the Merger will be subject to the reporting requirements of Section 16(a) of the Exchange Act (as hereinafter defined), Newco shall administer the Stock Rights (including the Newco Options issued upon any cancellation of the Canceled SSI Options) in a manner that complies with Rule 16b-3 promulgated by the SEC under the Exchange Act. 1.8 Effects of the VERITAS Merger. At the Effective Time: (a) the separate ----------------------------- existence of Merger Sub will cease and Merger Sub will be merged with and into VERITAS, with VERITAS being the surviving corporation of the Merger (the "VERITAS SURVIVING CORPORATION"), pursuant to the terms of this Agreement and the Certificate of Merger; (b) the Certificate of Incorporation of the VERITAS Surviving Corporation shall be in the form attached as Exhibit A-1 to the Certificate of Merger; (c) the Bylaws of VERITAS immediately prior to the Effective Time will be the Bylaws of the VERITAS Surviving Corporation; (d) the directors and officers of VERITAS immediately prior to the Effective Time will be the directors and officers of the VERITAS Surviving Corporation; (e) each share of the Common Stock of Merger Sub outstanding immediately prior to the Effective Time will be converted into one share of Common Stock of the VERITAS Surviving Corporation; (f) each share of VERITAS Common Stock and each VERITAS Option, VERITAS Warrant, VERITAS Debenture and VERITAS Stock Purchase Plan Right outstanding immediately prior to the Effective Time will be converted, as provided above in this Section 1; and (g) the Merger will, from and after the Effective Time, have all of the effects provided by applicable law, including, without limitation, the Delaware Law. 1.9 Tax Free Reorganization. The parties adopt this Agreement (to the ----------------------- extent it relates to the Merger) as a plan of reorganization and intend the Merger to be a tax-free reorganization under Section 368(a)(1)(A) of the Internal Revenue Code by virtue of the provisions of Section 368(a)(2)(E) of the Internal Revenue Code. The Newco Common Stock issued in the Merger will be issued solely in exchange for the VERITAS Common Stock, and no other transaction other than the Merger represents, provides for or is intended to be an adjustment to the consideration paid for the VERITAS Common Stock. No consideration that could constitute "other property" within the meaning of Section 356(b) of the Internal Revenue Code is being transferred by Newco for the VERITAS Common Stock in the Merger. The parties shall not take a position on any tax return inconsistent with this Section 1.9. In addition, Newco hereby represents, and will represent as of the Effective Time, that it intends to continue VERITAS' historic businesses or use a significant portion of VERITAS' business assets in a trade or business. 1.10 Tax-Free Section 351 Transaction. The contribution and transfer of the -------------------------------- Contributed Stock and Assets to Newco in exchange for Newco Common Stock are intended to constitute a tax-free exchange within the meaning of Section 351(a) of the Internal Revenue Code and the Newco Common Stock issued therein will be issued solely in exchange for the Contributed Stock and Assets transferred in the Seagate Transaction and no consideration that could constitute other property -9- within the meaning of Internal Revenue Code Section 351(b) is being transferred by Newco to SSI. The parties shall not take a position on any tax return inconsistent with this Section 1.10. 1.11 Hart-Scott-Rodino Filings. VERITAS, STI, and Newco will, and VERITAS ------------------------- shall use its reasonable best efforts to cause Warburg, Geoffrey Squire and Mark Leslie 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 1.11, 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 Seagate Transaction or 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. 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. 1.12 Adoption of Newco Rights Agreement. Newco will prior to the Effective ---------------------------------- Time have adopted a mutually agreed Rights Agreement (the "NEWCO RIGHTS AGREEMENT") a form of which is attached hereto as Exhibit 1.12. ------------ -10- 1.13 Board of Directors and Officers of Newco; Newco Certificate of -------------------------------------------------------------- Incorporation and Bylaws. - ------------------------ (a) Board of Directors. At the Effective Time, Newco will have a ------------------ staggered Board of Directors, consisting of three classes, A, B and C, consisting of three, four and three directors, respectively, with initial terms ending at the annual meeting of Newco Stockholders held in 1999, 2000 and 2001, respectively. At the Effective Time, the directors of Newco shall consist of the current VERITAS directors plus Stephen J. Luczo and Gregory B. Kerfoot, nominees of SSI. In addition Terence R. Cunningham as an employee of Newco shall also be appointed to the Board. At the Effective Time, Mark Leslie shall be the Chairman of the Board of Newco. At the Effective Time, the Class A Directors shall consist of Gregory B. Kerfoot, Geoffrey Squire and Roel Pieper, the Class B Directors shall consist of Mark Leslie, Joseph Rizzi, William Janeway and Terence R. Cunningham and the Class C Directors shall consist of Steven Brooks, Fred van den Bosch and Stephen J. Luczo. (b) Officers. At the Effective Time, Mark Leslie shall be the CEO and -------- Terence R. Cunningham shall be the President and Chief Operating Officer of Newco. (c) Certificate of Incorporation and Bylaws. Attached hereto as --------------------------------------- Exhibits 1.13(c)A and 1.13(c)B are the respective forms of Amended and Restated -------- -------- Certificate of Incorporation and Bylaws of Newco to be in effect at the Effective Time. 1.14 Registration on Form S-4. The Newco Common Stock to be issued in the ------------------------ Merger to VERITAS stockholders and the Newco Common Stock to be issued in the Seagate Transaction to SSI and the issuance of Newco Options upon cancellation of Canceled SSI Options shall be registered under the Securities Act on Form S-4 (as hereinafter defined). As promptly as practicable after October 5, 1998, Newco, with the cooperation of VERITAS and SSI, shall prepare and file with the SEC a Form S-4 registration statement (the "FORM S-4"), together with the prospectus/joint proxy statement to be included therein (the "PROSPECTUS/PROXY STATEMENT") and any other documents required by the Securities Act or the Exchange Act in connection with the Merger and the Seagate Transaction. The transactions described in the Form S-4 shall be closed as promptly as practicable following the effective date of the Form S-4, subject to Sections 7 and 8 hereof. 2. REPRESENTATIONS AND WARRANTIES OF SSI AND STI Except as set forth in the respectively referenced provisions of the SSI Disclosure Letter delivered by SSI and STI on behalf of themselves and any other Contributing Companies (collectively, "REPRESENTING SEAGATE ENTITIES") to VERITAS concurrently herewith and certified by an officer of SSI and STI, on behalf of all of the Representing Seagate Entities, respectively, to be true, accurate and complete to the best of his/her knowledge, SSI and STI, on behalf of each and all -11- of the Representing Seagate Entities, hereby represent and warrant to VERITAS that as of October 5, 1998: 2.1 Organization; Good Standing; Qualification and Power. The Contributed ---------------------------------------------------- Subsidiaries are all of the subsidiaries of the Contributed Companies or any of their direct or indirect subsidiaries. Each of the Contributed Companies and each of the Contributed Subsidiaries and each of the Contributing Companies is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation, has all requisite corporate power and authority to own, lease and operate any and all of the Group Assets held by such company and for the Conduct of the Group Business as now being conducted by such company, and is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary, other than in such jurisdictions where the failure so to qualify would not have a Material Adverse Effect on the Group Business. SSI has delivered to VERITAS or its counsel complete and correct copies of the charter documents of the Contributed Companies and SSI will deliver to VERITAS or its counsel prior to the Effective Time the equivalent charter documents of the Contributed Subsidiaries, in each case as amended through Closing. Except for the Contributed Subsidiaries, none of the Contributed Companies nor any of the Contributed Subsidiaries owns, directly or indirectly, any capital stock or other equity interest of any corporation or has any direct or indirect equity or ownership interest in any other business, whether organized as a corporation, partnership, joint venture or otherwise. 2.2 Capital Structure. ----------------- (a) Stock and Options. The authorized, issued and as of the date ----------------- of September 9, 1998, the outstanding capital stock of SSI, the Contributed Companies and the Contributed Subsidiaries is set forth in Section 2.2(a) of the SSI Disclosure Letter. Except as specified in Section 2.2(a) of the SSI Disclosure Letter, no shares of the capital stock of the Contributed Companies or of any of the Contributed Subsidiaries are held by any of them in their treasury or reserved for issuance upon the exercise of options or warrants. Except as specified in Section 2.2(a) of the SSI Disclosure Schedule, all outstanding shares of the capital stock of the Contributed Companies on October 5, 1998 are set forth in Section 2.2(a) of the SSI Disclosure Letter and are validly issued, fully paid and nonassessable and free and clear of any Encumbrances and not subject to preemptive rights under any statute, pursuant to the Certificate of Incorporation or Bylaws of the Contributed Companies, or pursuant to any agreement or document to which any of them is a party or by which any of them is bound. All outstanding shares of the capital stock of each of the Contributed Subsidiaries are validly issued, fully paid and nonassessable and are owned by a Contributed Company, or one of the Contributed Subsidiaries, free and clear of any Encumbrances. SSI has provided VERITAS with a correct and complete list of each of the options to purchase SSI Common Stock ("SSI OPTIONS") as of September 9, 1998, including the name of the optionees, the plan pursuant to which such SSI Options were issued (if applicable), the number of shares covered by such SSI Options, the per share exercise price of such SSI Options, and the vesting schedule -12- applicable to such SSI Options, including the number of shares vested as of such date. The final list of Canceled SSI Options delivered to VERITAS by SSI pursuant to Section 4.1(b) hereof will reflect but will not expressly identify any option grants, exercises or cancellations, elections to cancel and other changes to the Canceled SSI Options list occurring after October 5, 1998. (b) No Other Commitments. Except as set forth in Section 2.2(b) of -------------------- the SSI Disclosure Letter there are no options, warrants, calls, rights, commitments, conversion rights or agreements of any character to which the Contributed Companies is a party or by which any of them is bound obligating them to issue, deliver or sell, or cause to be issued, delivered or sold, any shares of their capital stock, or securities convertible into or exchangeable for shares of their capital stock, or obligating any of them to grant, extend or enter into any such option, warrant, call, right, commitment, conversion right or agreement. There is no voting trust, proxy or other agreement or understanding to which STI, SSI, or any of their respective direct or indirect subsidiaries is a party with respect to the voting of the capital stock of any member of the Contributed Company Group. All shares of capital stock of any member of the Contributed Company Group are held free and clear of any Encumbrances. (c) Registration Rights. Neither the Contributed Companies nor the ------------------- Contributing Companies is under any obligation to register under the Securities Act any of the presently outstanding securities of the Contributed Companies, any securities of the Contributed Companies that may be subsequently issued, which offering would have a Material Adverse Effect on Newco, except as disclosed in the SSI Disclosure Letter. Newco will have no obligation to assume any such outstanding registration rights obligations of the Contributed Companies or of the Contributing Companies. (d) No VERITAS Ownership. None of STI, SSI or any of their direct or -------------------- indirect subsidiaries owns, or will own immediately prior to the Effective Time, any VERITAS Common Stock. 2.3 Authority. (a) Corporate Action. Subject to approval of this Agreement and ---------------- the Ancillary Agreements by SSI's stockholders, each of STI, SSI and NSMG have all requisite corporate power and authority to enter into this Agreement and the Ancillary Agreements, to perform their respective obligations hereunder and thereunder, and to consummate the transactions contemplated by this Agreement and the Ancillary Agreements. This Agreement and the Ancillary Agreements attached to this Agreement have been duly approved by the Boards of Directors of SSI, STI and NSMG and, prior to the Effective Time, will be approved by the Board of Directors of each of the other Contributing Companies. This Agreement has been and, prior to the Effective Time, the Ancillary Agreements will be, duly executed and delivered by STI, SSI and NSMG. Subject to receiving such stockholder approval, this Agreement is, or, in the case of each of the Ancillary Agreements will be, -13- a valid and binding obligation of STI, SSI and NSMG, each enforceable against STI, SSI and NSMG in accordance with its respective terms, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity. (b) No Conflict. Neither the execution, delivery and performance of ----------- this Agreement and the Ancillary Agreements nor the consummation of the transactions contemplated hereby or thereby, nor compliance with the provisions hereof, will (i) conflict with, or result in any violations of, or cause a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, amendment, cancellation or acceleration of any obligation contained in, or the loss of any material benefit under, or result in the creation of any Encumbrance upon any of the Group Assets or Contributed Stock under, any term, condition or provision of (x) the Certificate of Incorporation or Bylaws or equivalent organizational documents of any of the Contributing Companies or the Contributed Companies or any of the Contributed Subsidiaries or (y) any of the Contributed Contracts or any other loan or credit agreement, note, bond, mortgage, indenture, lease or other material agreement, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Contributed Companies, the Contributed Companies' Property, the Contributed Stock or the Contributed Assets, other than any such conflicts, violations, defaults, rights or Encumbrances which, individually or in the aggregate, would not have a Material Adverse Effect on the Group Business; or (ii) require the affirmative vote of the holders of greater than a majority of the issued and outstanding capital stock of any member of the Contributing Companies or any member of the Contributed Company Group. (c) Governmental Consents. Except (i) as set forth in Section 2.3(c) --------------------- of the SSI Disclosure Letter; (ii) such filings, authorizations, orders and approvals as may be required under state takeover laws; (iii) such filings and notifications as may be necessary under the HSR Act; (iv) the filings, authorizations, orders, notifications, and approvals contemplated by this Agreement or the Ancillary Agreements; and (v) such other governmental or third party consents, filings, authorizations, orders and approvals which, if not obtained or made, would not have a Material Adverse Effect on Newco or have a material adverse effect on the ability of the Contributing Companies to consummate the transactions contemplated by this Agreement or the Ancillary Agreements, no consent, approval, order or authorization of, or registration, declaration or filing with, any governmental entity is required to be obtained by the Contributing Companies or any member of the Contributed Company Group in connection with the execution and delivery of this Agreement or the Ancillary Agreements by SSI, STI and NSMG or the performance of the Contributing Companies and the Contributed Companies of the respective obligations herein pertaining to such company. 2.4 SEC Documents. ------------- (a) SEC Reports. SSI and STI have delivered to VERITAS or its ----------- counsel correct and complete copies of the final version of each report, schedule, registration statement and -14- definitive proxy statement filed by SSI and/or STI with the SEC on or after June 27, 1997 with respect to the Group Business or the Group Assets (the "SEAGATE SEC DOCUMENTS"), which are the material documents (other than preliminary material) that SSI and STI were required to file with the SEC on or after June 27, 1997 with respect to the Group Business or the Group Assets. As of their respective dates or, in the case of registration statements, their effective dates, and except as disclosed in the Seagate SEC Documents, none of the Seagate SEC Documents (including all exhibits and schedules thereto and documents incorporated by reference therein) contained any untrue statement of a material fact or omitted to state a 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 as of such time of filing, and there is no requirement under the Securities Act or the Exchange Act, as the case may be, to have amended any such filing, except for such requirements as were fulfilled by the filing of such Seagate SEC Documents, the Seagate SEC Documents complied, when filed, in all material respects with the then applicable requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations promulgated by the SEC thereunder, and SSI and STI have filed in all material respects all documents and agreements that were required to be filed as exhibits to the Seagate SEC Documents. (b) SSI Financial Statements; Absence of Undisclosed Liabilities. The ------------------------------------------------------------ consolidated financial statements dated as of and for the period ending July 3, 1998 of SSI and its consolidated subsidiaries (the "SSI CONSOLIDATED FINANCIAL STATEMENTS") complied as to form in all material respects with the then applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may have been indicated in the notes thereto) and fairly present (subject, in the case of the unaudited statements, to normal year-end audit adjustments) the consolidated financial position of SSI and its respective consolidated subsidiaries as at the respective dates thereof and the consolidated results of their operations and cash flows for the respective periods then ended. SSI has no liabilities or obligations of any nature (matured or unmatured, fixed or contingent) which are, individually or in the aggregate, of a nature required to be disclosed on the face of a consolidated balance sheet for SSI and its consolidated subsidiaries prepared in accordance with GAAP and which would have a Material Adverse Effect on the Group Business, except for such liabilities or obligations as (i) were accrued or provided for in the consolidated balance sheet at July 3, 1998, included in the SSI Consolidated Financial Statements as of the date thereof (the "SSI CONSOLIDATED FINANCIAL STATEMENTS BALANCE SHEET DATE") or (ii) are of a normally recurring nature and were incurred after the SSI Consolidated Financial Statements Balance Sheet Date in the ordinary course of business consistent with past practice. All liabilities and valuation accounts established and reflected in the STI/SSI Consolidated Financial Statements are, to Seagate's Knowledge, reasonably adequate. At the SSI Consolidated Financial Statements Balance Sheet Date, there were no material loss contingencies (as such term is used in Statement No. 5 issued by the Financial Accounting Standards Board in March 1975) arising from the conduct of the business of SSI and its consolidated subsidiaries which are required to be provided for or -15- disclosed, but are not provided for or disclosed, in the SSI Consolidated Financial Statements in accordance with Statement No. 5. (c) Group Financial Statements; Absence of Undisclosed Liabilities. -------------------------------------------------------------- Attached as Schedule 2.4(c)(1) to the SSI Disclosure Letter are the audited combined financial statements of the Group Business dated as of July 3, 1998, including a combined balance sheet as of July 3, 1998 (the "1998 GROUP BALANCE SHEET") and a combined balance sheet for June 27, 1997, together with combined statements of operations, cash flows, and Group Business equity for the three years in the period ended July 3, 1998 (collectively the "GROUP FINANCIAL STATEMENTS"). The Group Financial Statements comply in all material respects with the then applicable accounting requirements and rules and regulations of the Securities and Exchange Commission with respect thereto, and present fairly, in all material respects, the combined financial position of the Group Business as of July 3, 1998 and June 27, 1997, and the combined results of its operations and its cash flows for each of the three years in the period ended July 3, 1998, in conformity with GAAP. The Contributed Company Group and the Contributing Companies (with respect to the Group Business) have no Liabilities of any nature (matured or unmatured, fixed or contingent) which (i) are related to or arose in connection with the Group Business; (ii) individually or in the aggregate, are of a nature required to be recorded on the face of or disclosed in the notes to the Group Financial Statements; and (iii) are material to the Group Business taken as a whole, except for such Liabilities as (A) were accrued, provided for or disclosed in the Group Financial Statements or (B) are of a normally recurring nature and were incurred after July 3, 1998, the date of the 1998 Group Balance Sheet (the "GROUP FINANCIAL STATEMENTS BALANCE SHEET DATE"), in the ordinary course of business consistent with past practice. All liabilities and valuation accounts established and reflected in the Group Financial Statements are, to Seagate's Knowledge, reasonably adequate. At the Group Financial Statements Balance Sheet Date, there were no material loss contingencies (as such term is defined in Statement No. 5) which are not properly provided for or disclosed in the Group Financial Statements as required by Statement No. 5. 2.5 Disclosure; Information Supplied. No representation or warranty made -------------------------------- by SSI or STI in this Agreement, nor any financial statement, certificate or exhibit prepared and furnished or to be prepared and furnished by them, or their respective representatives pursuant hereto or in connection with the transactions contemplated hereby, or in any Seagate SEC Document filed by them, when taken together, contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements or facts contained herein or therein, taken as a whole, not misleading in light of the circumstances under which they were furnished. None of the information supplied or to be supplied by STI or SSI for inclusion or incorporation by reference in the Form S-4 and Prospectus/Proxy Statement will, at the time the information is supplied contain, after giving effect to any supplement or amendment thereto, any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they are made, not materially misleading. -16- 2.6 Compliance with Applicable Laws. Except as disclosed in the Seagate ------------------------------- SEC Documents filed prior to October 5, 1998, the Group Business is not being conducted in violation of any law, ordinance, regulation, rule or order of any governmental entity where such violation would have a Material Adverse Effect on the Group Business. Except as disclosed in the Seagate SEC Documents filed prior to October 5, 1998, neither SSI, STI, any Contributing NSMG Company, nor any member of the Contributed Company Group has been notified in writing by any governmental entity that any investigation or review with respect to the Contributed Companies or any of the Contributed Subsidiaries, any of the Group Assets or the Group Business is pending or threatened, nor has any governmental entity notified any of them in writing of its intention to conduct the same, which investigation or review could reasonably be expected to have a Material Adverse Effect on the Group Business. The Group Assets include all permits, licenses and franchises from governmental entities required for the Conduct of the Group Business, except for those whose absence would not have a Material Adverse Effect on the Group Business and those which would terminate as a consequence of the Seagate Transaction. 2.7 Litigation. Except as would not reasonably be expected to have a ---------- Material Adverse Effect on the Group Business or as set forth in Section 2.7 of the SSI Disclosure Letter or as disclosed in the Seagate SEC Documents, there is no suit, action, arbitration, demand, claim or proceeding pending or, to Seagate's Knowledge, threatened against the Contributed Company Group, the Contributing Companies or the Group Assets; nor is there any judgment, decree, injunction, ruling or order of any governmental entity or arbitrator or settlement agreement outstanding against the Contributed Company Group or any of the Contributing Companies or the Group Assets. SSI has delivered or made available to VERITAS or its counsel correct and complete copies of all material correspondence prepared by its counsel for SSI auditors in connection with the last two completed audits of SSI's Financial Statements and the audit of the Group Financial Statements and any such correspondence since the date of the last such audit. No member of the Contributed Company Group and none of the Contributing Companies is a party to any decree, order or arbitration award (or agreement entered into in any administrative, judicial or arbitration proceeding with any governmental authority) with respect to the Group Assets, Employees, or Group Business that could reasonably be expected to have a Material Adverse Effect on the Group Business. Except for violations as would not have a Material Adverse Effect on the Group Business, none of the Contributing Companies nor any member of the Contributed Company Group is in violation of any decree, order or arbitration award that names such company, or any of such companies, as a party or that otherwise, to Seagate's Knowledge, involves such company or any of the Group Assets, or of any law, ordinance, statute, or governmental authority to which the Group Assets or the Contributed Stock are subject, including, without limitation, laws, rules and regulations relating to occupational health and safety, equal employment opportunities, fair employment practices, and sex, race, religious and age discrimination. To Seagate's Knowledge, there is no claim, action, suit, arbitration, mediation, investigation or other proceeding of any nature pending or, threatened, at law or in equity, by way of arbitration or before any court, governmental department, commission, board or agency that: (i) may adversely affect, contest or challenge any party's -17- authority, right or ability to perform its obligations under this Agreement or any of the Ancillary Agreements; (ii) challenges or contests the Contributing Companies' or the Contributed Companies' right, title or ownership of any of the Group Assets or the Contributed Stock or seeks to impose an Encumbrance (other than a Group Permitted Encumbrance) on, or a transfer of title or ownership of, any of the Group Assets or the Contributed Stock; (iii) asserts that any action taken by any employee, consultant or contractor of the Contributed Companies or Contributing Companies in connection with the Group Business infringes or misappropriates any Intellectual Property Rights of any third party; (iv) seeks to enjoin, prevent or hinder operation of the Group Business; (v) seeks to enjoin, prevent, or hinder the consummation of any of the transactions contemplated by this Agreement or any of the Ancillary Agreements; (vi) would impair or have an adverse affect on Newco's right or ability to use or exploit any of the Group Assets; (vii) involves or relates to any potentially material claim against Contributing Companies or the Group Assets by any creditor thereof; or (viii) involves any claim of fraudulent conveyance or any similar claim, except in cases (ii), (iii), (iv), (vi) and (vii) where such proceeding could not reasonably be expected to have a Material Adverse Effect on Newco. 2.8 ERISA and Other Compliance. -------------------------- (a) Section 2.8 of the SSI Disclosure Letter lists each employment, severance, compensation or other similar contract, arrangement or policy and each plan or arrangement (written or oral) providing for insurance coverage (including any self-insured arrangements), workers' benefits, vacation benefits, severance benefits, disability benefits, death benefits, hospitalization benefits, retirement benefits, deferred compensation, profit-sharing, bonuses, stock options, stock purchase, phantom stock, stock appreciation or other forms of incentive compensation or post-retirement insurance, compensation or benefits for employees, consultants or directors (other than workers compensation, unemployment compensation and other government mandated programs) which both (A) is entered into, maintained or contributed to, as the case may be, by any member of the Contributed Company Group or any of the Contributing Companies, and (B) covers any Employee (collectively as the "GROUP BENEFIT ARRANGEMENTS"). Each Group Benefit Arrangement maintained by any member of the Contributed Company Group has been maintained in substantial compliance with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations which are applicable to such Group Benefit Arrangement except as would not have a Material Adverse Effect on the Group Business. Section 2.8(a) of the SSI Disclosure Letter also identifies each "employee benefit plan," as defined in Section 3(3) of ERISA ("EMPLOYEE BENEFIT PLAN"), in which any of the Employees participate (collectively, the "GROUP EMPLOYEE PLANS"). Copies of all Group Benefit Arrangements have been made available to VERITAS or its counsel. All contributions or premiums currently due and payable with respect to any of the Group Employee Plans have been made as required under ERISA or have been accrued on the 1998 Group Balance Sheet or will be made prior to the Effective Time. -18- (b) None of the Group Employee Plans maintained by any of the Contributing Companies or any member of the Contributed Company Group (i) is a multiemployer plan, within the meaning of Section 3(37) or 4001(a)(3) of ERISA (a "MULTIEMPLOYER PLAN"), or a single employer pension plan, within the meaning of Section 4001(a)(15) of ERISA, for which Newco could incur liability under Section 4063 or 4064 of ERISA (a "MULTIPLE EMPLOYER PLAN"), or (ii) provides or promises to provide retiree medical or life insurance benefits except in connection with (a) benefit coverage mandated by applicable law, including without limitation, coverage provided pursuant to Section 4980B of the Code; (b) death or disability benefits under any of the Group Benefit Arrangements; (c) benefits arising in connection with a separation or severance program, plan or arrangement; and (d) life insurance benefits for any employee who dies while in service with any of the Contributing Companies or any member of the Contributed Company Group. None of the Contributing Companies or any member of the Contributed Company Group has incurred or will incur prior to or as of the Effective Time any material liability under, arising out of or by operation of Title IV of ERISA (other than liability for premiums to the Pension Benefit Guaranty Corporation arising in the ordinary course), including any liability in connection with (i) the termination or reorganization of any employee pension benefit plan subject to Title IV of ERISA or (ii) with withdrawal from any Multiemployer Plan or Multiple Employer Plan. (c) The appropriate Contributing Company or Contributed Company has timely provided, or will have provided prior to the Effective Time, to Employees entitled thereto all required notices and made coverage available pursuant to Section 4980B of the Internal Revenue Code and the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), with respect to any "qualifying event" (as defined in Section 4980B(f)(3) of the Internal Revenue Code). The appropriate Contributing Company or Contributed Company will timely provide to Employees entitled thereto all required notices and make coverage available pursuant to Internal Revenue Code Section 4980B and COBRA with respect to any "qualifying event" (as defined in Section 4980B(f)(3) of the Internal Revenue Code) occurring prior to and including the Effective Time. No material Tax payable on account of Section 4980B of the Internal Revenue Code has been incurred by the Contributing Companies or any of the Contributed Companies with respect to any current Employees (or their beneficiaries). (d) No benefit payable or which may become payable by any of the Contributed Companies or by any of the Contributing Companies with respect to any Employee shall constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Internal Revenue Code). (e) The Contributed Company Group and the Contributing Companies are in compliance with all applicable laws, agreements and contracts relating to employment, employment practices, wages, hours, and terms and conditions of employment (including, but not limited to, employee compensation matters) with respect in all such cases to the Employees, except where the failure to be in compliance would not have a Material Adverse Effect on Newco. -19- (f) The Contributed Company Group and the Contributing Companies have, to Seagate's Knowledge, good labor relations and to Seagate's Knowledge there are no facts indicating that the consummation of the transactions contemplated hereby will have a material adverse effect on labor relations with Employees or that any of the Employees intends to leave its or their employ, where in either case the same would have a Material Adverse Effect on the Group Business. (g) To Seagate's Knowledge, no Employee who is a key developer of a Group Product is subject to any agreement, obligation, order or other legal hindrance that impedes or might impede such Employee from devoting his or her full business time to the affairs of Newco after the Effective Time. (h) The Contributed Company Group and the Contributing Companies have, to Seagate's Knowledge and with respect only to the Employees, complied with all laws, rules and regulations relating to the employment of labor, including provisions thereof relating to wages, hours, equal opportunity, collective bargaining and the payment of social security and other Taxes, except where non-compliance would not have a Material Adverse Effect on the Group Business. (i) None of the Contributed Companies are indebted to any executive officer or director of any such Contributed Company, whether by loan, advance or otherwise, other than for salaries accrued but not yet payable and reimbursable out-of-pocket expenses incurred in the ordinary course of business consistent with past practice and not yet payable, nor, except as described in Section 2.8(i) to the SSI Disclosure Letter or except as disclosed in the 1998 Group Balance Sheet or the Seagate SEC Documents, is any officer, director, employee or shareholder so indebted to any of SSI or any of the Contributed Companies, nor does any Employee have any right to force SSI or any Contributing Company to repurchase any stock. 2.9 Absence of Certain Changes or Events. Except as disclosed in the ------------------------------------ Seagate SEC Documents filed prior to October 5, 1998, since the Group Balance Sheet Date (i.e., July 3, 1998) there has not occurred: (a) any change or event which could reasonably be expected to have a Material Adverse Effect on the Group Business; (b) any amendments or changes in the Certificate of Incorporation or Bylaws of any member of the Contributed Company Group; (c) any damage, destruction or loss to or of the Group Assets not covered by insurance, which would have a Material Adverse Effect on the Group Business; (d) any redemption, repurchase or other acquisition of shares of any member of the Contributed Company Group, or any declaration, setting aside or payment of any dividend or other distribution by any Contributing Company or any member of the Contributed Company Group -20- to any entity other than a member of the Contributed Company Group (whether in cash, stock or property) of the Group Assets or any proceeds generated by the conduct of the Group Business; (e) any material increase in or modification of the compensation or benefits payable, or to become payable, by the Contributed Companies to the Employees, except in the ordinary course of the business, consistent with past practice and except as necessary to respond to third party solicitation of Employees; (f) other than as required by applicable statute or governmental regulation, any material increase in or modification of any Group Benefit Arrangement (including, but not limited to, the granting of stock options, restricted stock awards or stock appreciation rights) that will become binding upon Newco upon consummation of the transactions contemplated herein, for or with respect to any of the Employees, other than (i) in the ordinary course of the business, consistent with past practice, or to respond to third party solicitation of Employees and (ii) if occurring after October 5, 1998, which is authorized, if required, pursuant to Section 4.3 below; (g) any sale of a material amount of the Group Assets, or any acquisition by any member of the Contributed Company Group of a material amount of assets, other than in the ordinary course of the business, consistent with past practice; (h) any alteration in any term of any outstanding capital stock or rights to acquire capital stock of SSI or any member of the Contributed Company Group, including, but not limited to, acceleration of the vesting or any change in the terms of any outstanding stock options; (i) other than in the ordinary course of business, consistent with past practice, (A) any incurrence, assumption or guarantee by any member of the Contributed Company Group of any debt of any person, other than any member of the Contributed Company Group, for borrowed money in an amount exceeding $2,500,000 in the aggregate; (B) issuance or sale by any member of the Contributed Company Group of any securities convertible into or exchangeable for their respective debt securities; or (C) issuance or sale of options or other rights to acquire from SSI, STI, or the Contributed Company Group, directly or indirectly, debt securities of any member of the Contributed Company Group, or any securities convertible into or exchangeable for any such debt securities ; (j) any creation or assumption by a Contributing Company or a member of the Contributed Company Group of any Encumbrance (other than Group Permitted Encumbrances) on any Group Asset in excess of $2,500,000 individually or in the aggregate, other than to refinance a liability reflected in the SSI Financial Statements or the Group Financial Statements in the ordinary course of business; (k) any making by any member of the Contributed Company Group of any loan, advance or capital contribution to or investment in any person other than to refinance a liability -21- reflected in the SSI Financial Statements or the Group Financial Statements and other than (i) loans, advances or capital contributions made in the ordinary course of the business, and (ii) other loans and advances, where the aggregate amount of any such items outstanding at any time does not exceed $2,500,000; (l) any amendment of, relinquishment, termination or non-renewal by the Contributing Companies or the Contributed Company Group of any Contributed Contract, other than in the ordinary course of business consistent with past practice; (m) any transfer or grant of a right under Intellectual Property Rights included in the Group Assets, other than those transferred or granted in the ordinary course of business, consistent with past practice, except for any grant of a right to source code or grant of any exclusive rights to any Intellectual Property Rights included in the Group Assets, each of which shall be set forth in Section 2.9(m) of the SSI Disclosure Letter; (n) any labor dispute with, or charge of unfair labor practice by, SSI (relating to Employees) or any member of the Contributed Company Group (other than routine individual grievances), any activity or proceeding by a labor union or representative thereof to organize any Employees or, to Seagate's Knowledge, any campaign being conducted to solicit authorization from Employees to be represented by such labor union, where such dispute, practice, activity, proceeding, or campaign would have a Material Adverse Effect on the Group Business; or (o) any agreement by any member of the Contributed Company Group to take any of the actions described in the preceding clauses (a) through (n) (other than the transactions contemplated by this Agreement or the Ancillary Agreements); or any change to accounting methods. 2.10 Full Force and Effect. Each of the Contributed Contracts and Group --------------------- Governmental Permits is in full force and effect and is not subject to any breach or default thereunder by any Contributing Company or any member of the Contributed Company Group or, to Seagate's Knowledge, any other party thereto, except for those Contributed Contracts and Group Governmental Permits, the absence of which would not have a Material Adverse Effect on the Group Business. 2.11 Agreements. Schedule 2.11 of the SSI Disclosure Letter lists all ---------- the contracts as of October 5, 1998 of the type described below to which any member of the Contributed Company Group is a party and which is material to the Group Business (herein, the "MATERIAL CONTRIBUTED CONTRACTS") (and copies of all such Material Contributed Contracts have been identified to and made available for review by VERITAS or its counsel): (a) contract with or commitment to any labor union which would have a Material Adverse Effect on the Group Business; -22- (b) continuing contract for the future purchase, sale or manufacture of products, material, supplies, equipment or services requiring payment to or from any member of the Contributed Company Group or any Contributing Company, the non-continuance of which would have a Material Adverse Effect on the Group Business, or in which any member of the Contributed Company Group or any Contributing Company has granted or received manufacturing rights, most favored nations pricing provisions or exclusive marketing rights relating to the Group Products, other than purchase contracts with vendors who are not the top ten (10) vendors of any member of the Contributed Company Group or of any Contributing Companies (as measured by purchases from them in the most recently ended fiscal year); (c) contract providing for the development of technology used or incorporated in any Group Products currently distributed in connection with the Group Business or which requires any member of the Contributed Company Group to perform specified development work for a third party, the non-continuance of which would have a Material Adverse Effect on the Group Business; (d) joint venture contract or agreement or other agreement which is reasonably expected to involve a sharing of profits or losses in any one year in excess of $2,500,000 individually or in the aggregate from any joint enterprise with any party (other than any member of the Contributed Company Group); (e) indenture, mortgage, promissory note, loan agreement, guarantee or other agreement or commitment for the borrowing of money, for a line of credit or for a leasing transaction of a type required to be capitalized in accordance with Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board (other than those reflected in the SSI Financial Statements or the Group Financial Statements, or those pursuant to which payments by any member of the Contributed Company Group will not exceed $2,500,000 in the aggregate); (f) agreement or arrangement for the sale of any Group Assets having a value individually or in the aggregate exceeding $2,500,000 (other than those entered into in the ordinary course of business consistent with past practice); (g) agreement which would restrict Newco from engaging in any material aspect of the Group Business or from selling any of the material Group Products in any material geographic area (including any agreement pursuant to which any of them has granted exclusive rights in the Group Products to a third party); (h) Seagate IP Rights Agreement (as defined in Section 2.15 below), other than agreements entered into with customers in the ordinary course of business, and, in any event, any agreement that grants rights or access to any source code for the Seagate IP Rights required for the Conduct of the Group Business, the unavailability of which would have a Material Adverse Effect on -23- the Group Business, excluding commercially available, non-customized software sold at retail or sold at less than $5,000 per license or per seat; or (i) agreement between or among STI, SSI and any member of the Contributed Company Group regarding inter-company loans, revenue or cost or Tax sharing, ownership or license of Seagate IP Rights for Group Products, or intercompany royalties or dividends. 2.12 No Defaults. Except as disclosed in the Seagate SEC Documents filed ----------- prior to October 5, 1998, to Seagate's Knowledge, there exists no event (including closing of the transactions contemplated by this Agreement), condition or occurrence which, after notice or lapse of time, or both, would constitute a default by the Contributing Companies who are parties thereto under any Contributed Contract in any manner which would have a Material Adverse Effect on the Group Business. 2.13 Certain Agreements. Neither the execution and delivery of this ------------------ Agreement or the Ancillary Agreements, nor the consummation of the transactions contemplated hereby and thereby, will, (i) result in any payment in an amount exceeding $250,000 individually or $2,500,000 in the aggregate (including, without limitation, severance, unemployment compensation, golden parachute, bonus or otherwise) becoming due by any member of the Contributed Company Group (or by any Contributing Company, with respect to the Group Business) or to any Employee(s) under any Group Benefit Arrangement or otherwise, (ii) increase any benefits otherwise payable by Newco under any Group Benefit Arrangement by more than $250,000 individually or $2,500,000 in the aggregate, or (iii) result in the acceleration of the time of payment or vesting of any such benefits. 2.14 Taxes. The Contributed Companies and, with respect to the Group ----- Businesses, the Contributing Companies, have filed, or caused to be filed, all Tax returns required to be filed by them and have paid, or caused to be paid, all Taxes that are shown on such Tax returns as due and payable, other than such Taxes as are being contested in good faith and for which adequate reserves have been established on the 1998 Group Balance Sheet, other than where the failure to so file, pay or withhold would not have a Material Adverse Effect on the Group Business. All Taxes required to have been paid or accrued by the Contributed Companies and, with respect to the Group Businesses, the Contributing Companies for all periods prior to the 1998 Group Balance Sheet have been fully paid (except for Taxes that are adequately provided for or reflected in the 1998 Group Balance Sheet) except where a failure to do so would not have a Material Adverse Effect on the Group Business. Since the date of the 1998 Group Balance Sheet, no material Tax liability relating to the Group Business has been assessed, or is, to Seagate's Knowledge, proposed to be assessed, incurred or accrued (other than liabilities for Taxes arising in the ordinary course of business). To Seagate's Knowledge, Seagate has not received any notification that any material issues have been raised (or are currently pending) by the Internal Revenue Service or any other taxing authority, including, without limitation, any sales tax authority, in connection with any of the Tax returns referred to in the first sentence of this Section 2.14, and no waivers of statutes of limitations have been given or -24- requested with respect to Tax returns or Taxes related to the Group Business or SSI and its consolidated subsidiaries. No taxing authority is currently conducting an audit of any of the aforesaid Tax returns or to Seagate's Knowledge is about to conduct such an audit with respect to the Group Business. Any deficiencies asserted or assessments (including interest and penalties) made as a result of any examination by the Internal Revenue Service or by appropriate national, state or departmental authorities of the Tax returns with respect to the Group Business or the Contributed Companies have been fully paid or are adequately provided for in the 1998 Group Balance Sheet, except where a failure to do so would not have a Material Adverse Effect on the Group Business, and, to Seagate's Knowledge, no material proposed (but unassessed) additional Taxes have been asserted and no material Tax liens have been filed against the Group Business or the Contributed Companies or against any of the Group Assets other than for Taxes not yet due and payable. None of the members of the Contributed Company Group (i) has made an election to be treated as a "consenting corporation" under Section 341(f) of the Internal Revenue Code or (ii) is a "personal holding company" within the meaning of Section 542 of the Internal Revenue Code. This representation does not apply to Taxes or Tax matters relating to Taxes for which Newco and its Affiliates are entitled to indemnification under Section 13 hereof. 2.15 Intellectual Property. --------------------- (a) The Contributed Companies and, insofar as it relates to the Group Business, the Contributing Companies own, or have the right to use, sell or license such Intellectual Property Rights as are necessary or required for the Conduct of the Group Business (such Intellectual Property Rights being hereinafter collectively referred to as the "SEAGATE IP RIGHTS") and such ownership or rights to use, sell or license are reasonably sufficient for the Conduct of the Group Business, except for any failure to own or have the right to use, sell or license that would not have a Material Adverse Effect on the Group Business. (b) All Seagate IP Rights are owned free and clear of any Encumbrances (other than Group Permitted Encumbrances). (c) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not constitute a material breach of any material instrument or material agreement in respect of any Seagate IP Rights licensed by or to any Contributing Company or Contributed Company (the "SEAGATE IP RIGHTS AGREEMENTS"), will not cause the forfeiture or termination or give rise to a right of forfeiture or termination of any Seagate IP Right or materially impair the right of Newco to use, sell or license any Seagate IP Right or portion thereof (except where such breach, forfeiture, termination or impairment would not have a Material Adverse Effect on the Group Business). (d) There are no royalties, honoraria, fees or other payments payable by any member of the Contributed Company Group or any Contributing Company to any person by reason -25- of the ownership, use, license, purchase, sale or disposition or acquisition of any of the Seagate IP Rights in an amount exceeding $100,000 in any one year. (e) To Seagate's Knowledge, no third party is infringing or misappropriating any of the Seagate IP Rights. (f) To Seagate's Knowledge, (i) neither the manufacture, marketing, license, sale or intended use of any Group Product violates any license or agreement relating thereto or infringes any Intellectual Property Right of any other party, (ii) there is no pending or threatened claim or litigation contesting the validity, ownership or right to use, sell, license or dispose of any Seagate IP Right, and (iii) no third party has notified the Contributing Companies or the Contributed Company Group that any Seagate IP Right, or the proposed use, sale, license or disposition thereof, conflicts or will conflict with the rights of any other party, nor is there any basis therefor, except for any violations, infringements, claims or litigation that would not have a Material Adverse Effect on the Group Business. (g) The Contributing Companies and the Contributed Company Group have taken reasonable and practicable steps designed to safeguard and maintain the secrecy and confidentiality of, and its proprietary rights in, all material trade secrets or other confidential information constituting Seagate IP Rights. To Seagate's Knowledge, no current or prior officers, employees or consultants of the Contributing Companies or the Contributed Company Group claim an ownership interest in any Seagate IP Rights as a result of having been involved in the development of such property while so employed, or retained, or otherwise. To Seagate's Knowledge, all development employees of the Seagate IP Rights, and all other officers, employees and consultants of the Contributed Company Group have executed and delivered an agreement regarding the protection of proprietary information and the assignment to his/her employer or principal of the Seagate IP Rights arising from the services performed by such persons, except where this absence of such agreement would not have a Material Adverse Effect on the Group Business. (h) Section 2.15(h) of the SSI Disclosure Letter sets forth and summarizes each of the Seagate IP Rights as of October 5, 1998 the absence of which would have a Material Adverse Effect on the Group Business that a third party owns and that SSI or the Contributed Business Group uses pursuant to a license, sublicense, agreement or other permission, and describes and identifies such license, sublicense, agreement or other permission (excluding shrink wrap licenses to commercially available software sold at retail). Such license, sublicense, agreement or permission covering the item is legal, valid, binding, enforceable and in full force and effect and will continue to be legal, valid, binding, enforceable and in full force and effect on identical terms to Newco's benefit immediately following the Effective Time, except where it would not have a Material Adverse Effect on Newco, and such license, sublicense, agreement or permission does not restrict the ability to market any material Group Product in any material jurisdiction or with respect to any material market or industry, and neither SSI nor the Contributed Company Group is in breach or default of -26- any such license, sublicense, agreement or permission in a manner which would have a Material Adverse Effect on the Group Business. No person other than the Contributing Companies holds any license or other right to manufacture, modify, or create derivative works of any of the Group Products, other than OEM agreements that would not have a Material Adverse Effect on the Group Business. No person (other than Newco) will be or become entitled to receive a copy of source code of any software included among the Group Assets as a result of this Agreement, any Ancillary Agreement or any other agreement or transaction contemplated by this Agreement. To Seagate's Knowledge, no person holds or has been granted access to any copy of source code of any software included among the Group Assets unless such person has agreed in writing (i) to hold such source code in confidence and take reasonable steps to preserve the secrecy of such source code, and (ii) not to use such source code for any purpose except (A) to support such person's internal use of such source code or (B) to modify such source code solely for the purpose of internally using such modifications. None of SSI or the Contributed Companies have knowingly taken or knowingly failed to take any action that, directly or indirectly, has caused any Intellectual Property Rights in source code of material Group Products to enter the public domain, such as would have a Material Adverse Effect on the Group Business. 2.16 Fees and Expenses. Except for the fees and expenses set forth in ----------------- SSI's engagement letter with Morgan, a copy of which has been provided to VERITAS (the "MORGAN STANLEY ENGAGEMENT LETTER"), no member of the Contributed Company Group and none of the Contributing Companies has paid or become obligated to pay any fee or commission to any broker, finder or intermediary in connection with the transactions contemplated by this Agreement and the Ancillary Agreements. 2.17 Insurance. The members of the Contributed Company Group maintain --------- fire and casualty, general liability, business interruption, directors and officers, product liability and sprinkler and water damage insurance that they believe to be reasonably prudent for their respective businesses. 2.18 Ownership of Property. Except for Group Permitted Encumbrances, --------------------- the Contributed Company Group and the Contributing Companies own, or at the Effective Time will own, the Contributed Company Assets, free and clear of all Encumbrances. All real and personal property included in the Group Assets is operational and suitable for its intended use, subject to ordinary wear and tear. To Seagate's Knowledge, no member of the Contributed Company Group is in violation in any material respect with any zoning, building or safety ordinance, regulation or requirement or other law or regulation applicable to the operation of its respective owned or leased properties (the violation of which would have a Material Adverse Effect on the Group Business). 2.19 Environmental Matters. --------------------- -27- (a) During the period that the Contributed Companies and the Contributing Companies (with respect to the Group Assets or any real estate leased thereunder) have leased or owned their respective properties or owned or operated their respective facilities, there have been, to Seagate's Knowledge, no disposals, releases or threatened releases of Hazardous Materials on, from, under or about such properties or facilities which would cause a Material Adverse Effect on Newco. To Seagate's Knowledge there is no presence, disposals, releases or threatened releases of Hazardous Materials on, from, under or about any of such properties or facilities, which may have occurred prior to said Member of the Contributed Company Group or the Contributing Companies (with respect to the Group Assets or any real estate leased thereunder) having taken possession of any of such properties or facilities, where such Hazardous Materials would cause a Material Adverse Effect on Newco. (b) None of the properties or facilities which are Group Assets is or has been the subject of an Environmental Violation, which would cause a Material Adverse Effect on Newco. During the time that a Member of the Contributed Company Group or the Contributing Companies (with respect to the Group Assets or any real estate leased thereunder) owned or leased its respective properties and facilities, none of said companies and, to Seagate's Knowledge, no third party, used, generated, manufactured or stored on, under or about such properties or facilities or transported to or from such properties or facilities any Hazardous Materials (except those Hazardous Materials associated with general office use or janitorial supplies) in a manner which would result in a Material Adverse Effect on Newco. (c) During the time that any member of the Contributed Company Group and the Contributing Companies (with respect to the Group Assets or any real estate leased thereunder) owned or leased its respective properties and facilities, to Seagate's Knowledge, there has been no litigation brought or threatened against any such Company, or any settlement reached by any such Company with, any party or parties concerning the presence, disposal, release or threatened release of any Hazardous Materials on, from or under any of such properties or facilities or relating to any alleged Environmental Violation, except for litigation or settlement which would not have a Material Adverse Effect on Newco. 2.20 Interested Party Transactions. Except as disclosed in the Seagate ----------------------------- SEC Documents filed prior to October 5, 1998, no officer or director of a Contributing Company, or any "affiliate" or "associate" (as those terms are defined in Rule 405 promulgated under the Securities Act) of a Contributing Company has, either directly or indirectly, a material interest in: (i) any person or entity which purchases from or sells, licenses or furnishes to the Contributed Company Group in connection with the Group Business, any goods, property, technology or intellectual or other property rights or services; or (ii) any Contributed Contract; which, in the case of either subpart (i) or (ii) would have a Material Adverse Effect on the Group Business. -28- 2.21 Fairness Opinion. SSI's Board of Directors has received an opinion ---------------- dated as of October 5, 1998 from Morgan to the effect that, as of October 5, 1998, the terms of the transactions contemplated by this Agreement and the Ancillary Agreements are fair to SSI from a financial point of view. 2.22 Title to and Condition and Sufficiency of Group Assets. A member ------------------------------------------------------ of the Contributed Company Group and/or a Contributing Company owns or at the Closing will own the Group Assets and have good and marketable title thereto, free and clear of all Encumbrances whatsoever, other than the Group Permitted Encumbrances. The Group Assets transferred to Newco constitute all assets, properties, rights, contracts and Intellectual Property Rights that are necessary or required for the Conduct of the Group Business, without (i) the need to purchase, license or acquire any other material asset or property; (ii) violating any contractual rights of any third party; or (iii) infringing, misappropriating or misusing any software or Intellectual Property Rights of any third party, except for such assets, properties, rights, contracts, software and Intellectual Property Rights, the absence of which would not have a Material Adverse Effect on the Group Business. Title to all Group Assets is freely transferable to and, with respect to the Contributed Assets and Stock, will be transferred to Newco free and clear of all Encumbrances, other than Group Permitted Encumbrances. Such transfer of the Contributed Assets and Stock can occur without obtaining the consent or approval of any person, except where the failure to transfer the Group Asset would not have a Material Adverse Effect on Newco. To the extent that VERITAS is assuming obligations that have an associated deferred revenue on the Closing Group Account, the cash associated with such deferred revenue shall be transferred to Newco. At the Closing, the Contributing Companies will contribute, transfer and deliver to Newco all right, title and interest in and to all Contributed Assets and Stock, free and clear of all Encumbrances, other than Group Permitted Encumbrances. The Group Products includes all software under development by the Group Business. 2.23 No Restrictive Agreements. Other than this Agreement and the ------------------------- Ancillary Agreements, neither any Member of the Contributed Company Group nor SSI nor any of the Group Assets is bound, or materially and adversely affected by, any judgment, injunction, order, decree, contract, covenant or agreement (noncompete or otherwise) that restricts or prohibits (or purports to restrict or prohibit) the Conduct of the Group Business or from competing for the sale of the Group Products anywhere in the world (including without limitation any contracts, covenants or agreements restricting the geographic area in which the Group Business may sell, license, market, distribute or support any Group Products) or restricting the markets, customers or industries that Newco may address after the Closing in the Conduct of the Group Business (collectively, "GROUP RESTRICTIVE AGREEMENTS"), in a manner, in any of the foregoing cases, which will have a Material Adverse Effect on Newco. 2.24 Supplier and Customer Relationships. To Seagate's Knowledge, (i) ----------------------------------- the Contributed Company Group has good commercial working relationships with the customers for the Group Business, and (ii) since January 1, 1998, no customer of, or supplier to the Group Business has -29- canceled or otherwise terminated any material relationship concerning the Group Business with the Contributed Company Group or SSI (with respect to the Group), or materially decreased or limited its purchases or provision of materials supplied to the Group Business or under any Material Contributed Contract from the corresponding period in 1997, where any of the foregoing actions would cause a Material Adverse Effect on the Group Business, and to Seagate's Knowledge, no customer or supplier has threatened to take any such action. 2.25 Product and Inventory Status. ---------------------------- (a) Product Quality, Warranty Claims. All Group Products -------------------------------- manufactured, sold, licensed, leased or delivered in connection with the Group Business conform in all material respects to applicable contractual commitments, express and implied warranties, and, to Seagate's Knowledge, there is no material Liability (nor any basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand giving rise to any material Liability) for replacement or repair thereof or other damages in connection therewith, except for such conformance as would not have a Material Adverse Effect on Newco. (b) Inventory. To Seagate's Knowledge, its inventories recorded --------- on the 1998 Group Balance Sheet consist primarily of materials used in software products, related supplies and packaging materials, all of which are merchantable, fit for the purpose for which they were procured or manufactured, and are in a condition and quantity usable in the ordinary course of business and to Seagate's Knowledge, none of these inventories are obsolete, damaged or defective, except in each case where the failure of these inventories to be so would not have a Material Adverse Effect on Newco or where a sufficient provision with respect to the possibility of such failure is included in the 1998 Group Balance Sheet. 3. REPRESENTATIONS AND WARRANTIES OF VERITAS AND NEWCO Except as set forth in the respectively referenced provisions of the VERITAS Disclosure Letter, delivered by VERITAS on behalf of VERITAS and each VERITAS Subsidiary (collectively, the "VERITAS GROUP"), to SSI and STI concurrently herewith and certified by an officer of VERITAS, on behalf of the VERITAS Group, respectively, to be true, accurate and complete to the best of his knowledge (the "VERITAS DISCLOSURE LETTER"), VERITAS, on behalf of the VERITAS Group, hereby represents and warrants to SSI and STI that as of October 5, 1998: 3.1 Organization; Good Standing; Qualification and Power. The VERITAS ---------------------------------------------------- Subsidiaries are all of the subsidiaries of VERITAS or any of its direct or indirect subsidiaries. VERITAS and each of the VERITAS Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation, has all requisite corporate power and authority to own, lease and operate any and all of the VERITAS Assets held by such company and for the Conduct of the VERITAS Business as now being conducted, and is duly qualified and in -30- good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary, other than in such jurisdictions where the failure so to qualify would not have a Material Adverse Effect on VERITAS. VERITAS has delivered to SSI or its counsel complete and correct copies of the Certificate of Incorporation and Bylaws of VERITAS as amended prior to September 30, 1998 and will deliver to SSI or its counsel prior to the Effective Time the equivalent charter documents of VERITAS and each of its Subsidiaries as amended to the Closing. Except for the VERITAS Subsidiaries, neither VERITAS nor any of the VERITAS Subsidiaries owns, directly or indirectly, any capital stock or other equity interest of any corporation or has any direct or indirect equity or ownership interest in any other business, whether organized as a corporation, partnership, joint venture or otherwise. 3.2 Capital Structure. ----------------- (a) Stock and Options. The authorized and issued and as of the ----------------- date of September 30, 1998 the outstanding capital stock of VERITAS, the VERITAS Subsidiaries and Newco is set forth in Section 3.2(a) of the VERITAS Disclosure Letter. Except as specified in Section 3.2(a) of the VERITAS Disclosure Letter, no shares of the capital stock of VERITAS or of any of the VERITAS Subsidiaries are held by any of them in their treasury or reserved for issuance upon the exercise of options or warrants. All outstanding shares of the capital stock of VERITAS on September 30, 1998 are set forth in Section 3.2(a) of the VERITAS Disclosure Letter and are validly issued, fully paid and nonassessable free and clear of any Encumbrances and not subject to preemptive rights pursuant to any statute, pursuant to the Certificate of Incorporation or Bylaws of VERITAS, or pursuant to any agreement or document to which any of them is a party or by which any of them is bound. All outstanding shares of the capital stock of each of the VERITAS Subsidiaries are validly issued, fully paid and nonassessable and are owned by VERITAS, or one of the VERITAS Subsidiaries, free and clear of any Encumbrances. Section 3.2(a) of the VERITAS Disclosure Letter contains a correct and complete list of each of the VERITAS Options, VERITAS Warrants and VERITAS Debentures as of September 30, 1998, including the name of the holders of such VERITAS Options and VERITAS Warrants, the plan pursuant to which such VERITAS Options were issued (if applicable), the number of shares covered by such VERITAS Options, VERITAS Warrants and VERITAS Debentures (or into which it is convertible), the per share exercise price of such VERITAS Options, VERITAS Warrants and VERITAS Debentures, and the vesting schedule applicable to such VERITAS Options, including the number of shares vested as of September 30, 1998. (b) No Other Commitments. Except as set forth in Section 3.2(b) -------------------- of the VERITAS Disclosure Letter, there are no options, warrants, calls, rights, commitments, conversion rights or agreements of any character to which VERITAS or any of its respective direct and indirect subsidiaries, is a party or by which any of them is bound obligating them to issue, deliver or sell, or cause to be issued, delivered or sold, any shares of their capital stock, or securities convertible into or exchangeable for shares of their capital stock, or obligating any of them to grant, extend or enter into -31- any such option, warrant, call, right, commitment, conversion right or agreement. There is no voting trust, proxy or other agreement or understanding to which VERITAS or any of its respective direct or indirect subsidiaries is a party with respect to the voting of the capital stock of any member of the VERITAS Group. All shares of capital stock of any member of the VERITAS Group are held free and clear of any Encumbrances. (c) Registration Rights. Neither VERITAS nor any of their ------------------- respective subsidiaries is under any obligation to register under the Securities Act any of its presently outstanding securities or any securities that may be subsequently issued which offering would have a Material Adverse Effect on Newco, except as disclosed in the VERITAS Disclosure Letter. 3.3 Authority. --------- (a) Corporate Action. Subject to approval of this Agreement and ---------------- the Ancillary Agreements by the stockholders of VERITAS, VERITAS has all requisite corporate power and authority to enter into this Agreement and the Ancillary Agreements, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated by this Agreement and the Ancillary Agreements. This Agreement and the Ancillary Agreements attached to this Agreement have been duly approved by the Boards of Directors of Newco and VERITAS. This Agreement and the Voting Agreements have been, and prior to the Effective Time, the other Ancillary Agreements will be, duly executed and delivered by Newco and VERITAS. Subject to receiving such stockholder approval, this Agreement and the Voting Agreements are, and at the Closing the other Ancillary Agreements will be, valid and binding obligations of Newco and VERITAS, enforceable against Newco and VERITAS in accordance with their respective terms, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity. (b) No Conflict. Neither the execution, delivery and performance ----------- of this Agreement and the Ancillary Agreements nor the consummation of the transactions contemplated hereby or thereby nor compliance with the provisions hereof will (i) conflict with, or result in any violations of, or cause a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, amendment, cancellation or acceleration of any obligation contained in, or the loss of any material benefit under, or result in the creation of any Encumbrance upon the any of the VERITAS Assets under, any term, condition or provision of (x) the Certificate of Incorporation or Bylaws of VERITAS or the equivalent organizational documents of any of the VERITAS Subsidiaries or (y) any loan or credit agreement, note, bond, mortgage, indenture, lease or other material agreement, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to VERITAS, VERITAS' property or the VERITAS Assets, other than any such conflicts, violations, defaults, rights or Encumbrances which, individually or in the aggregate, would not have a Material Adverse Effect on VERITAS; or (ii) require the affirmative vote of the holders of greater than a majority of the issued and outstanding capital stock of VERITAS. -32- (c) Governmental Consents. Except (i) as set forth in Section --------------------- 3.3(c) of the VERITAS Disclosure Letter; (ii) such filings, authorizations, orders and approvals as may be required under state takeover laws; (iii) such filings and notifications as may be necessary under the HSR Act; (iv) the filings, authorizations, orders, notifications, and approvals contemplated by this Agreement or the Ancillary Agreements; and (v) such other governmental or third party consents, filings, authorizations, orders and approvals which, if not obtained or made, would not have a Material Adverse Effect on Newco or have a material adverse effect on the ability of VERITAS to consummate the transactions contemplated by this Agreement or the Ancillary Agreements, no consent, approval, order or authorization of, or registration, declaration or filing with, any governmental entity is required to be obtained by the VERITAS Group in connection with the execution and delivery of this Agreement or the Ancillary Agreements by VERITAS, Newco, and the Merger Sub or the performance by them of their respective obligations hereunder or thereunder. 3.4 SEC Documents. ------------- (a) SEC Reports. VERITAS has delivered to SSI or its counsel ----------- correct and complete copies of the final version of each report, schedule, registration statement and definitive proxy statement filed by VERITAS with the SEC on or after June 27, 1997 (the "VERITAS SEC DOCUMENTS"), which are the material documents (other than preliminary material) that VERITAS was required to file with the SEC on or after June 27, 1997 with respect, in whole or in part, to VERITAS or the VERITAS Assets. As of their respective dates or, in the case of registration statements, their effective dates and except as disclosed in the VERITAS SEC Documents, none of the VERITAS SEC Documents (including all exhibits and schedules thereto and documents incorporated by reference therein) contained any untrue statement of a material fact or omitted to state a 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 there is no requirement under the Securities Act or the Exchange Act, as the case may be, to have amended any such filing. The VERITAS SEC Documents complied, when filed, in all material respects with the then applicable requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations promulgated by the SEC thereunder. VERITAS has filed all documents and agreements that were required to be filed as exhibits to the VERITAS SEC Documents. (b) VERITAS Financial Statements; Absence of Undisclosed ---------------------------------------------------- Liabilities. The audited consolidated financial statements, dated as of and for - ----------- the period ended, December 31, 1997, and the unaudited consolidated financial statements, dated as of and for the period ending June 30, 1998, of VERITAS and its consolidated subsidiaries ("VERITAS FINANCIAL STATEMENTS") complied as to form in all material respects with the then applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may have been indicated in the notes thereto) and fairly present (subject, in the case of the unaudited statements, to normal year-end audit adjustments) the consolidated financial position of the VERITAS Group as at the -33- respective dates thereof and the consolidated results of their operations and cash flows for the respective periods then ended. VERITAS has no liabilities or obligations of any nature (matured or unmatured, fixed or contingent) which are, individually or in the aggregate, of a nature required to be disclosed on the face of a consolidated balance sheet for VERITAS and its consolidated subsidiaries prepared in accordance with GAAP and which are material to the VERITAS Business, except for such liabilities or obligations as (i) were accrued or were provided for in the consolidated balance sheet dated June 30, 1998, included in the VERITAS Financial Statements as of the date thereof (the "VERITAS FINANCIAL STATEMENTS BALANCE SHEET DATE") or (ii) are of a normally recurring nature and were incurred after the VERITAS Financial Statements Balance Sheet Date in the ordinary course of business consistent with past practice. All liabilities and valuation accounts established and reflected in the VERITAS Financial Statements are to VERITAS' Knowledge reasonably adequate. At the VERITAS Financial Statements Balance Sheet Date, there were no material loss contingencies (as such term is used in Statement No. 5) which are not adequately provided for in the VERITAS Financial Statements as required by Statement No. 5. 3.5 Disclosure; Information Supplied. No representation or warranty -------------------------------- made by VERITAS in this Agreement, nor any financial statement, certificate or exhibit prepared and furnished or to be prepared and furnished by VERITAS or their respective representatives pursuant hereto or in connection with the transactions contemplated hereby, or in any VERITAS SEC Document filed by it, when taken together, contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements or facts contained herein or therein, taken as a whole not misleading in light of the circumstances under which they were furnished. None of the information supplied or to be supplied by VERITAS for inclusion or incorporation by reference in the Form S-4 and Prospectus/Proxy Statement will, at the time the information is supplied contain, after giving effect to any supplement or amendment thereto, no untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not materially misleading. The Prospectus/Proxy Statement will in all material respects comply as to form with the provisions of the Exchange Act and the rules and regulations promulgated by the SEC thereunder. 3.6 Compliance with Applicable Laws. Except as disclosed in the ------------------------------- VERITAS SEC Documents filed prior to October 5, 1998, the VERITAS Business is not being conducted in violation of any law, ordinance, regulation, rule or order of any governmental entity where such violation would have a Material Adverse Effect on VERITAS. Except as disclosed in the VERITAS SEC Documents filed prior to October 5, 1998, VERITAS has not been notified in writing by any governmental entity that any investigation or review with respect to VERITAS or any of the VERITAS Subsidiaries, any of the VERITAS Assets or the VERITAS Business is pending or threatened, nor has any governmental entity notified any of them in writing of its intention to conduct the same, which investigation or review could reasonably be expected to have a Material Adverse Effect on VERITAS. The members of the VERITAS Group have all material permits, -34- licenses and franchises from governmental entities required for the Conduct of the VERITAS Business, except for those whose absence would not have a Material Adverse Effect on VERITAS. 3.7 Litigation. Except as disclosed in the VERITAS SEC Documents filed ---------- prior to October 5, 1998, or as would not reasonably be expected to have a Material Adverse Effect on VERITAS, there is no suit, action, arbitration, demand, claim or proceeding pending or, to VERITAS' Knowledge, threatened against VERITAS or the VERITAS Assets; nor is there any judgment, decree, injunction, ruling or order of any governmental entity or arbitrator or settlement agreement outstanding against VERITAS or any of the VERITAS Assets. VERITAS has delivered or made available to SSI or its counsel correct and complete copies of all material correspondence prepared by its counsel for VERITAS' auditors in connection with the last two completed audits of VERITAS' financial statements and any such correspondence since the date of the last such audit. No member of the VERITAS Group is a party to any decree, order or arbitration award (or agreement entered into in any administrative, judicial or arbitration proceeding with any governmental authority) with respect to the VERITAS Assets, VERITAS Employees, or the VERITAS Business that could reasonably be expected to have a Material Adverse Effect on VERITAS. Except for violations as would not have a Material Adverse Effect on VERITAS, none of the members of the VERITAS Group is in violation of any decree, order or arbitration award that names such company, or any of such companies, as a party or that otherwise, to VERITAS' Knowledge, involves such company or any of such company's assets, or of any law, ordinance, statute, or governmental authority to which the VERITAS Assets are subject, including, without limitation, laws, rules and regulations relating to occupational health and safety, equal employment opportunities, fair employment practices, and sex, race, religious and age discrimination. There is no claim, action, suit, arbitration, mediation, investigation or other proceeding of any nature pending or, to VERITAS' Knowledge, threatened, at law or in equity, by way of arbitration or before any court, governmental department, commission, board or agency that: (i) may adversely affect, contest or challenge any party's authority, right or ability to perform its obligations under this Agreement or any of the Ancillary Agreements; (ii) challenges or contests VERITAS' right, title or ownership of any of the VERITAS Assets or seeks to impose an Encumbrance (other than a VERITAS Permitted Encumbrance) on, or a transfer of title or ownership of, any of the VERITAS Assets; (iii) asserts that any action taken by any employee, consultant or contractor of VERITAS in connection with the Group Business infringes or misappropriates any Intellectual Property Rights of any third party; (iv) seeks to enjoin, prevent or hinder operation of the VERITAS Business or the consummation of any of the transactions contemplated by this Agreement or any of the Ancillary Agreements; (v) would impair or have an adverse affect on Newco's right or ability to use or exploit any of the VERITAS Assets; or (vi) involves or relates to any potentially material claim against VERITAS by any creditor of VERITAS or involves any claim of fraudulent conveyance or any similar claim, except in cases (ii), (iii) and (v) where such proceeding could not reasonably be expected to have a Material Adverse Effect on Newco. -35- 3.8 ERISA and Other Compliance. -------------------------- (a) Section 3.8(a) of the VERITAS Disclosure Letter lists each employment, severance, compensation or other similar contract, arrangement or policy and each plan or arrangement (written or oral) providing for insurance coverage (including any self-insured arrangements), workers' benefits, vacation benefits, severance benefits, disability benefits, death benefits, hospitalization benefits, retirement benefits, deferred compensation, profit- sharing, bonuses, stock options, stock purchase, phantom stock, stock appreciation or other forms of incentive compensation or post-retirement insurance, compensation or benefits for employees, consultants or directors (other than workers compensation, unemployment compensation and other government mandated programs) which both (A) is entered into, maintained or contributed to, as the case may be, by any member of the VERITAS, and (B) covers any employee or former employee of the VERITAS Business (collectively, the "VERITAS BENEFIT ARRANGEMENTS"). Each VERITAS Benefit Arrangement maintained by VERITAS or any VERITAS Subsidiary has been maintained in substantial compliance with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations which are applicable to such VERITAS Benefit Arrangement except as would not have a Material Adverse Effect on VERITAS. Section 3.8(a) of the VERITAS Disclosure Letter also identifies each Employee Benefit Plan in which any of the employees participate (collectively, the " VERITAS EMPLOYEE PLANS"). Copies of all VERITAS Benefit Arrangements have been made available to SSI or its counsel. All contributions or premiums currently due and payable with respect to any of the VERITAS Employee Plans have been made as required under ERISA or have been accrued on the VERITAS Financial Statements as of the VERITAS Financial Statements Balance Sheet Date, or will be made prior to the Effective Time. (b) None of the VERITAS Employee Plans maintained by any member of the VERITAS Group (i) is a Multiemployer Plan, or a Multiple Employer Plan, for which Newco could incur liability under Section 4063 or 4064 of ERISA, or (ii) provides or promises to provide retiree medical or life insurance benefits except in connection with (a) benefit coverage mandated by applicable law, including without limitation, coverage provided pursuant to Section 4980B of the Code; (b) death or disability benefits under any of the VERITAS Benefit Arrangements; (c) benefits arising in connection with a separation or severance program, plan or arrangement; and (d) life insurance benefits for any employee who dies while in service with VERITAS. No member of the VERITAS Group has incurred or will incur prior to or as of the Effective Time any material liability under, arising out of or by operation of Title IV of ERISA (other than liability for premiums to the Pension Benefit Guaranty Corporation arising in the ordinary course), including any liability in connection with (i) the termination or reorganization of any employee pension benefit plan subject to Title IV of ERISA or (ii) with withdrawal from any Multiemployer Plan or Multiple Employer Plan. (c) The appropriate VERITAS entity has timely provided, or will have provided prior to the Effective Time, to VERITAS employees entitled thereto all required notices and made coverage available pursuant to Section 4980B of the Internal Revenue Code and COBRA, with -36- respect to any "qualifying event" (as defined in Section 4980B(f)(3) of the Internal Revenue Code). The appropriate VERITAS entity will timely provide to VERITAS employees entitled thereto all required notices and make coverage available pursuant to Internal Revenue Code Section 4980B and COBRA with respect to any "qualifying event" (as defined in Section 4980B(f)(3) of the Internal Revenue Code) occurring prior to and including the Effective Time. No material Tax payable on account of Section 4980B of the Internal Revenue Code has been incurred by any member of the VERITAS Group with respect to any current or former employees (or their beneficiaries). (d) No benefit payable or which may become payable by any member of the VERITAS Group with respect to any VERITAS employee shall constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Internal Revenue Code). (e) The VERITAS Group is in compliance with all applicable laws, agreements and contracts relating to employment, employment practices, wages, hours, and terms and conditions of employment, including, but not limited to, employee compensation matters, relating to VERITAS employees, except where the failure to be in compliance would not have a Material Adverse Effect on Newco. (f) The VERITAS Group has, to VERITAS' Knowledge, good labor relations and to VERITAS' Knowledge there are no facts indicating that the consummation of the transactions contemplated hereby will have a material adverse effect on labor relations with VERITAS employees or that any of the VERITAS employees intends to leave its or their employ, where the same would have a Material Adverse Effect on VERITAS. (g) To VERITAS' Knowledge, no VERITAS employee who is a key developer of a VERITAS product is subject to any agreement, obligation, order or other legal hindrance that impedes or might impede such executive or key employee from devoting his or her full business time to the affairs of Newco after the Effective Time. (h) The VERITAS Group has, to VERITAS' Knowledge and with respect to the VERITAS employees, complied with all laws, rules and regulations relating to the employment of labor, including provisions thereof relating to wages, hours, equal opportunity, collective bargaining and the payment of social security and other Taxes, except where non-compliance would not have a Material Adverse Effect on VERITAS. (i) VERITAS is not indebted to any executive, officer or director, whether by loan, advance or otherwise, other than for salaries accrued but not yet payable and reimbursable out-of-pocket expenses incurred in the ordinary course of business consistent with past practice and not yet payable, nor is any officer, director, employee or shareholder so indebted to VERITAS, except as disclosed in the VERITAS Balance Sheet or the VERITAS SEC Documents. -37- 3.9 Absence of Certain Changes or Events. Except as disclosed in the ------------------------------------ VERITAS SEC Documents filed prior to October 5, 1998, since the VERITAS Financial Statements Balance Sheet Date there has not occurred: (a) any change or event which could reasonably be expected to have a Material Adverse Effect on VERITAS; provided, however, that in no event will a change in the trading price of VERITAS Common Stock be deemed a Material Adverse Effect on VERITAS; (b) any amendments or changes in the Certificate of Incorporation or Bylaws of any member of the VERITAS Group; (c) any damage, destruction to or loss of VERITAS assets not covered by insurance, which would have a Material Adverse Effect on VERITAS; (d) any redemption, repurchase or other acquisition of shares of any member of the VERITAS Group (other than pursuant to arrangements with terminated employees or consultants in the ordinary course of business, consistent with past practice), or any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to the capital stock of any member of the VERITAS Group or, with respect to dividends or other distributions of cash or property arising from the VERITAS Business; (e) any material increase in or modification of the compensation or benefits payable or to become payable by VERITAS to the VERITAS employees, except in the ordinary course of the business, consistent with past practice and except as necessary to respond to third party solicitation of VERITAS employees; (f) other than as required by applicable statute or governmental regulation, any material increase in or modification of any VERITAS Group Benefit Arrangement (including, but not limited to, the granting of stock options, restricted stock awards or stock appreciation rights) that will become binding upon Newco upon consummation of the transactions contemplated herein, for or with respect to any of the VERITAS Employees, other than (i) in the ordinary course of the business, consistent with past practice, or to respond to third party solicitation of VERITAS Employees, and (ii) if occurring after October 5, 1998, which is authorized, if required, pursuant to Section 5.3 below; (g) any sale of a material amount of the VERITAS Assets, or any acquisition by any member of the VERITAS Group of a material amount of assets, other than in the ordinary course of the business, consistent with past practice; (h) any alteration in any term of any outstanding capital stock or rights to acquire capital stock of any member of the VERITAS Group, including, but not limited to, acceleration of the vesting or any change in the terms of any outstanding stock options; -38- (i) other than in the ordinary course of business, consistent with past practice, (A) any incurrence, assumption or guarantee by any member of the VERITAS Group of any debt of any person, other than any member of the VERITAS Group, for borrowed money in an amount exceeding $2,500,000 in the aggregate; (B) issuance or sale by any member of the VERITAS Group of any securities convertible into or exchangeable for their respective debt securities; or (C) issuance or sale of options or other rights to acquire from the VERITAS Group, directly or indirectly, debt securities of any member of the VERITAS Group, or any securities convertible into or exchangeable for any such debt securities; (j) any creation or assumption by any member of the VERITAS Group of any Encumbrance (other than VERITAS Permitted Encumbrances) on any VERITAS Asset in excess of $2,500,000 individually or in the aggregate, other than to refinance a liability reflected in the VERITAS Financial Statements in the ordinary course of business; (k) any making by any member of the VERITAS Group of any loan, advance or capital contribution to or investment in any person other than to refinance a liability reflected in the VERITAS Financial Statements and other than (i) loans, advances or capital contributions made in the ordinary course of the business, and (ii) other loans and advances, where the aggregate amount of all such items outstanding at any time does not exceed $2,500,000; (l) any amendment of, relinquishment, termination or non-renewal by VERITAS of any of the VERITAS Contracts, other than in the ordinary course of business consistent with past practice; (m) any transfer or grant of a right under the VERITAS IP Rights, other than those transferred or granted in the ordinary course of business, consistent with past practice, except for any grant of a right to source code or grant of any exclusive rights to any VERITAS IP Rights which are set forth in Section 3.11(h) and Section 3.11(i) of the VERITAS Disclosure Letter; (n) any labor dispute with69, or charge of unfair labor practice by, any member of the VERITAS Group (other than routine individual grievances), any activity or proceeding by a labor union or representative thereof to organize any VERITAS employees or, to VERITAS' Knowledge, any campaign being conducted to solicit authorization from VERITAS employees to be represented by such labor union, where such dispute, practice, activity, proceeding, or campaign would have a Material Adverse Effect on VERITAS; or (o) any agreement by any member of the VERITAS Group to take any of the actions described in the preceding clauses (a) through (n) (other than the transactions contemplated by this Agreement or the Ancillary Agreements), or any change to accounting methods. 3.10 Full Force and Effect. Each of the VERITAS Contracts and --------------------- Governmental Permits of VERITAS is in full force and effect and is not subject to any breach or default thereunder by any -39- member of the VERITAS Group or, to VERITAS' Knowledge, any other party thereto, except for those VERITAS Contracts and Governmental Permits of VERITAS, the absence of which would not have a Material Adverse Effect on VERITAS. 3.11 Agreements. Schedule 3.11 of the VERITAS Disclosure Letter lists ---------- all VERITAS contracts as of October 5, 1998 of the type described below to which any member of the VERITAS Group is a party and which are material to the VERITAS Business (the "MATERIAL VERITAS CONTRACTS") (and copies of all such VERITAS Contracts have been identified to and made available for review by SSI or its counsel): (a) contract with or commitment to any labor union which would have a Material Adverse Effect on VERITAS; (b) continuing contract for the future purchase, sale or manufacture of products, material, supplies, equipment or services requiring payment to or from any member of the VERITAS Group, the non-continuance of which would have a Material Adverse Effect on VERITAS, or in which any member of the VERITAS Group has granted or received manufacturing rights, most favored nations pricing provisions or exclusive marketing rights relating to the VERITAS Products, other than purchase contracts with vendors who are not the top ten (10) vendors of any member of the VERITAS Group (as measured by purchases from them in the most recently ended fiscal year); (c) contract providing for the development of technology used or incorporated in any VERITAS Products currently distributed in connection with the VERITAS Business or which requires any member of the VERITAS Group to perform specified development work for a third party, the non-continuance of which would have a Material Adverse Effect on VERITAS; (d) joint venture contract or agreement or other agreement which is reasonably expected to involve a sharing of profits or losses in any one year in excess of $2,500,000 individually or in the aggregate from any joint enterprise with any party other than any member of the VERITAS Group; (e) indenture, mortgage, promissory note, loan agreement, guarantee or other agreement or commitment for the borrowing of money, for a line of credit or for a leasing transaction of a type required to be capitalized in accordance with Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board (other than those reflected in the VERITAS Financial Statements or those pursuant to which payments by any member of the VERITAS Group will not exceed $2,500,000 in the aggregate); (f) agreement or arrangement for the sale of any VERITAS Assets having a value individually or in the aggregate of in excess of $2,500,000 (other than those entered into in the ordinary course of business consistent with past practice); -40- (g) agreement which would restrict Newco from engaging in any material aspect of the VERITAS Business or from selling any of the material VERITAS Products in any material geographic area; including any agreement pursuant to which any of them has granted exclusive rights to a third party; (h) VERITAS IP Rights Agreement (as defined in Section 3.15 below), other than agreements entered into with customers in the ordinary course of business, and, in any event, any agreement that grants rights or access to any source code for the VERITAS IP Rights, the unavailability of which would have a Material Adverse Effect on VERITAS, excluding commercially available non- customized software sold at retail or sold at less than $5,000 per license or per seat; or (i) agreement between or among VERITAS and any member of the VERITAS Group regarding inter company loans, revenue or cost or Tax sharing, ownership or license of VERITAS IP Rights for VERITAS Products, or intercompany royalties or dividends. 3.12 No Defaults. Except as disclosed in the VERITAS SEC Documents ----------- filed prior to October 5, 1998, to VERITAS' Knowledge, there exists no event (including closing of the transactions contemplated by this Agreement), condition or occurrence which, after notice or lapse of time, or both, would constitute a default by VERITAS under any VERITAS Contract in an manner which would have a Material Adverse Effect on VERITAS. 3.13 Certain Agreements. Neither the execution and delivery of this ------------------ Agreement or the Ancillary Agreements, nor the consummation of the transactions contemplated hereby and thereby, will: (i) result in any payment in an amount exceeding $250,000 individually or $2,500,000 in the aggregate (including, without limitation, severance, unemployment compensation, golden parachute, bonus or otherwise) becoming due by any member of the VERITAS Group or to any VERITAS employee(s) under any VERITAS Group Benefit Arrangement or otherwise, (ii) increase any benefits otherwise payable under any VERITAS Group Benefit Arrangement by more than $250,000 individually or $2,500,000 in the aggregate, or (iii) result in the acceleration of the time of payment or vesting of any such benefits. 3.14 Taxes. The VERITAS Group has filed, or caused to be filed, all ----- Tax returns required to be filed by the VERITAS Group and has paid, or caused to be paid, all Taxes that are shown on such Tax returns as due and payable, other than such Taxes as are being contested in good faith and for which adequate reserves have been established on the most recent balance sheet included in the VERITAS Financial Statements ("VERITAS BALANCE SHEET"), other than where the failure to so file, pay or withhold would not have a Material Adverse Effect on VERITAS. All Taxes required to have been paid or accrued by VERITAS for all periods prior to the VERITAS Balance Sheet Date have been fully paid (except for Taxes that are adequately provided for or reflected in the VERITAS Balance Sheet) except where a failure to do so would not have a Material Adverse Effect on -41- VERITAS. Since the date of the VERITAS Balance Sheet, no material Tax liability has been assessed, or to VERITAS' Knowledge proposed to be assessed, incurred or accrued (other than liabilities for Taxes arising in the ordinary course of business). To VERITAS' Knowledge, VERITAS has not received notification that any material issues have been raised (or are currently pending) by the Internal Revenue Service or any other taxing authority, including, without limitation, any sales tax authority, in connection with any of the Tax returns referred to in the first sentence of this Section 3.14, and no waivers of statutes of limitations have been given or requested with respect to Tax returns or Taxes related to the VERITAS Business. No taxing authority is currently conducting an audit of any of the aforesaid Tax returns of VERITAS or, to VERITAS' Knowledge, is about to conduct such an audit with respect to the VERITAS Business. Any deficiencies asserted or assessments (including interest and penalties) made as a result of any examination by the Internal Revenue Service or by appropriate national, state or departmental authorities of the Tax returns with respect to VERITAS have been fully paid or are adequately provided for in the VERITAS Balance Sheet except where a failure to do so would not have a Material Adverse Effect on VERITAS and to VERITAS' Knowledge no material proposed (but unassessed) additional Taxes have been asserted and no material Tax liens have been filed against VERITAS or any of the VERITAS Assets other than for Taxes not yet due and payable. None of the members of the VERITAS Group (i) has made an election to be treated as a "consenting corporation" under Section 341(f) of the Internal Revenue Code or (ii) is a "personal holding company" within the meaning of Section 542 of the Internal Revenue Code. This representation does not apply to Taxes or Tax matters relating to Taxes for which STI or SSI or any member of the Contributed Company Group is entitled to indemnification under Section 13 hereof. 3.15 Intellectual Property. --------------------- (a) VERITAS owns, or has the right to use, sell or license such Intellectual Property Rights as are necessary or required for the Conduct of the VERITAS Business (such Intellectual Property Rights being hereinafter collectively referred to as the "VERITAS IP RIGHTS") and such ownership or rights to use, sell or license are reasonably sufficient for the Conduct of the VERITAS Business, except for any failure to own or have the right to use, sell or license that would not have a Material Adverse Effect on VERITAS. (b) All VERITAS IP Rights are owned free and clear of any Encumbrances. (c) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not constitute a material breach of any material instrument or material agreement in respect of any VERITAS IP Rights (the "VERITAS IP RIGHTS AGREEMENTS"), will not cause the forfeiture or termination or give rise to a right of forfeiture or termination of any VERITAS IP Right or materially impair the right of Newco to use, sell or license any VERITAS IP Right or portion thereof (except where such breach, forfeiture, termination or impairment would not have a Material Adverse Effect on VERITAS). -42- (d) There are no royalties, honoraria, fees or other payments payable by any member of the VERITAS Group to any person by reason of the ownership, use, license, purchase, sale or disposition or acquisition of any of the VERITAS IP Rights in an amount exceeding $100,000 in any one year. (e) To VERITAS' Knowledge, no third party is infringing or misappropriating any of the VERITAS IP Rights. (f) To VERITAS' Knowledge, (i) neither the manufacture, marketing, license, sale or intended use of any product currently licensed or sold by VERITAS or any of the VERITAS Subsidiaries or currently under development by VERITAS or any of the VERITAS Subsidiaries violates any license or agreement relating thereto or infringes any Intellectual Property Right of any other party, (ii) there is no pending or threatened claim or litigation contesting the validity, ownership or right to use, sell, license or dispose of any VERITAS IP Right and (iii) no third party has notified VERITAS that any VERITAS IP Right or the proposed use, sale, license or disposition thereof, conflicts or will conflict with the rights of any other party, nor is there any basis therefor except for any violations, infringements, claims or litigation that would not have a Material Adverse Effect on VERITAS. (g) VERITAS has taken reasonable and practicable steps designed to safeguard and maintain the secrecy and confidentiality of, and its proprietary rights in, all material trade secrets or other confidential information constituting VERITAS IP Rights. To VERITAS' Knowledge, no current or prior officers, employees or consultants of VERITAS claim an ownership interest in any VERITAS IP Rights as a result of having been involved in the development of such property while so employed, or retained, or otherwise. To VERITAS' Knowledge, all development employees of the VERITAS IP Rights, and all other officers, employees and consultants of VERITAS have executed and delivered to VERITAS or the VERITAS Subsidiary an agreement regarding the protection of proprietary information and the assignment of all Intellectual Property Rights arising from the services performed for VERITAS or the VERITAS Subsidiary by such persons to his/her employer or principal which is VERITAS or a VERITAS Subsidiary, except where the absence of such agreement would not have a Material Adverse Effect on VERITAS. (h) Section 3.15(h) of the VERITAS Disclosure Letter sets forth and summarizes each of the VERITAS IP Rights as of October 5, 1998, the absence of which would have a Material Adverse Effect on VERITAS, that a third party owns and that VERITAS uses pursuant to a license, sublicense, agreement or other permission and describes and identifies such license, sublicense, agreement or other permission (excluding shrink wrap licenses to commercially available software sold at retail). Such license, sublicense, agreement or permission covering the item is legal, valid, binding, enforceable and in full force and effect and will continue to be legal, valid, binding, enforceable and in full force and effect on identical terms to Newco's benefit immediately following the Effective Time, except where it would not have a Material Adverse Effect on Newco, and such -43- license, sublicense, agreement or permission does not restrict the ability to market any material VERITAS Product in any material jurisdiction or with respect to any material market or industry, and VERITAS is not in breach or default of any such license, sublicense, agreement or permission in a manner which would have a Material Adverse Effect on the VERITAS Business. No person other than VERITAS holds any license or other right to manufacture, modify, or create derivative works based on any of the VERITAS Products, other than OEM agreements that would not have a Material Adverse Effect on VERITAS. No person (other than Newco) will be or become entitled to receive a copy of source code of any software included among the VERITAS Assets as a result of this Agreement, any Ancillary Agreement or any other agreement or transaction contemplated by this Agreement. To VERITAS' Knowledge, no person holds or has been granted access to any copy of source code of any software included among the VERITAS Assets unless such person has agreed in writing (i) to hold such source code in confidence and take reasonable steps to preserve the secrecy of such source code; and (ii) not to use such source code for any purpose except (A) to support such person's internal use of such source code or (B) to modify such source code solely for the purpose of internally using such modifications. VERITAS has not knowingly taken or knowingly failed to take any action that, directly or indirectly, has caused any Intellectual Property Rights in source code of material VERITAS Products to enter the public domain such as would have a Material Adverse Effect on VERITAS. 3.16 Fees and Expenses. Except for the fees and expenses set forth in ----------------- VERITAS' engagement letter with DLJ, a copy of which has been provided to STI and SSI, neither VERITAS, Newco nor any of the VERITAS Subsidiaries has paid or become obligated to pay any fee or commission to any broker, finder or intermediary in connection with the transactions contemplated by this Agreement and the Ancillary Agreements. 3.17 Insurance. The members of the VERITAS Group maintain fire and --------- casualty, general liability, business interruption, directors and officers, product liability and sprinkler and water damage insurance that they believe to be reasonably prudent for their respective businesses. 3.18 Ownership of Property. Except for VERITAS Permitted Encumbrances, --------------------- the VERITAS Group owns, or at the Effective Time will own, the VERITAS Assets, free and clear of all Encumbrances. All real and personal property included in the VERITAS Assets is operational and suitable for its intended use, subject to ordinary wear and tear. To VERITAS' Knowledge, no member of the VERITAS Group is in violation in any material respect with any zoning, building or safety ordinance, regulation or requirement or other law or regulation applicable to the operation of its respective owned or leased properties (the violation of which would have a Material Adverse Effect on VERITAS). 3.19 Environmental Matters. --------------------- -44- (a) During the period that VERITAS has leased or owned its respective properties or owned or operated their respective facilities, there have been, to VERITAS' Knowledge, no disposals, releases or threatened releases of Hazardous Materials on, from, under or about such properties or facilities which would cause a Material Adverse Effect on Newco. To VERITAS' Knowledge there is no presence, disposals, releases or threatened releases of Hazardous Materials on, from, under or about any of such properties or facilities, which may have occurred prior to VERITAS having taken possession of any of such properties or facilities where such Hazardous Materials would cause a Material Adverse Effect on Newco. (b) None of the properties or facilities of VERITAS is or has been the subject of an Environmental Violation, which would cause a Material Adverse Effect on Newco. During the time that VERITAS has owned or leased its respective properties and facilities, none of VERITAS nor, to VERITAS' Knowledge, any third party, has used, generated, manufactured or stored on, under or about such properties or facilities or transported to or from such properties or facilities any Hazardous Materials (except those Hazardous Materials associated with general office use or janitorial supplies) in a manner which would result in a Material Adverse Effect on Newco. (c) During the time that any members of the VERITAS Group have owned or leased their respective properties and facilities, to VERITAS' Knowledge, there has been no litigation brought or threatened against any of them by, or any settlement reached by any of them with, any party or parties concerning the presence, disposal, release or threatened release of any Hazardous Materials on, from or under any of such properties or facilities or relating to any alleged Environmental Violation, except for litigation or settlement which would not have a Material Adverse Effect on Newco. 3.20 Interested Party Transactions. Except as disclosed in the VERITAS ----------------------------- SEC Documents filed prior to October 5, 1998, no officer or director of VERITAS, or any "affiliate" or "associate" (as those terms are defined in Rule 405 promulgated under the Securities Act) of VERITAS has, either directly or indirectly, a material interest in: (i) any person or entity which purchases from or sells, licenses or furnishes to the VERITAS Group in connection with the VERITAS Business, any goods, property, technology or intellectual or other property rights or services; or (ii) any VERITAS Contract, which in the case of either subpart (i) or (ii) would have a Material Adverse Effect on VERITAS. 3.21 Fairness Opinion. VERITAS' Board of Directors has received an ---------------- opinion dated as of October 5, 1998 from DLJ to the effect that, as of October 5, 1998, the VERITAS Ratio is fair to VERITAS from a financial point of view. 3.22 Title to and Condition and Sufficiency of VERITAS Assets. A -------------------------------------------------------- member of the VERITAS Group owns, or at the Closing will own, all of the VERITAS Assets and has good and marketable title in and to all of the VERITAS Assets, free and clear of all Encumbrances -45- whatsoever, other than the VERITAS Permitted Encumbrances. The VERITAS Assets constitute all assets, properties, rights, VERITAS Contracts and Intellectual Property Rights that are necessary or required for the Conduct of the VERITAS Business without (i) the need to purchase, license or acquire any other material asset or property; (ii) violating any contractual rights of any third party; or (iii) infringing, misappropriating or misusing any software or Intellectual Property Rights of any third party, except for such assets, properties, rights, contracts, software and Intellectual Property Rights, the absence of which would not have a Material Adverse Effect on VERITAS. Except for the consents and approvals identified on Section 3.22 of the VERITAS Disclosure Letter, title to all VERITAS Assets is freely transferable to VERITAS free and clear of all Encumbrances, other than VERITAS Permitted Encumbrances, and without obtaining the consent or approval of any person, except where the failure to transfer the VERITAS Asset would not have a Material Adverse Effect on Newco. 3.23 No Restrictive Agreements. Other than this Agreement and the ------------------------- Ancillary Agreements Neither VERITAS nor any of the VERITAS Assets is bound or materially and adversely affected by, any judgment, injunction, order, decree, contract, covenant or agreement (noncompete or otherwise) that restricts or prohibits (or purports to restrict or prohibit) the Conduct of the VERITAS Business or from competing for the sale of VERITAS Products anywhere in the world (including without limitation any contracts, covenants or agreements restricting the geographic area in which the VERITAS Business may sell, license, market, distribute or support any VERITAS Products or restricting the markets, customers or industries that Newco may address after the Closing in the Conduct of the VERITAS Business) (collectively, "VERITAS RESTRICTIVE AGREEMENTS"), in a manner, in any of the foregoing cases, which will have a Material Adverse Effect on Newco. 3.24 Supplier and Customer Relationships. To VERITAS' Knowledge, (i) ----------------------------------- the VERITAS Group has good commercial working relationships with the customers for the VERITAS Business, and (ii) since January 1, 1998, no customer of, or supplier to, the VERITAS Business, has canceled or otherwise terminated any material relationship with VERITAS, or materially decreased or limited its purchases or provision of materials supplied to VERITAS from the corresponding period in 1997, where any of the foregoing actions would cause a Material Adverse Effect on VERITAS, and to VERITAS' Knowledge, no customer or supplier has threatened to take any such action. 3.25 Product and Inventory Status. ---------------------------- (a) Product Quality, Warranty Claims. All VERITAS Products -------------------------------- manufactured, sold, licensed, leased or delivered in connection with the VERITAS Business conform in all material respects to applicable contractual commitments, express and implied warranties, and to VERITAS' Knowledge, there is no material Liability (nor any basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand giving rise to any material Liability) for replacement or repair thereof or other damages in connection therewith, except for such non-conformance as would not have a Material Adverse Effect on Newco. -46- (b) Inventory. To VERITAS' Knowledge, its inventories recorded on the --------- VERITAS Financial Statements consist primarily of materials used in software products, related supplies and packaging materials, all of which are merchantable, fit for the purpose for which they were procured or manufactured, and are in a condition and quantity usable in the ordinary course of business and to VERITAS' Knowledge, none of these inventories are obsolete, damaged or defective, except in each case where the failure of these inventories to be so would not have a Material Adverse Effect on Newco or where a sufficient provision with respect to the possibility of such failure is included in the VERITAS Financial Statements. 3.26 Tax Representations. VERITAS and Newco are aware of no plan or ------------------- intention by VERITAS or Newco or any corporation related to VERITAS immediately after the Effective Time to repurchase any Newco capital stock issued pursuant to this Agreement from any person or entity that is or will become a Newco stockholder by reason of the transactions contemplated by this Agreement. VERITAS has not redeemed any shares of its capital stock or paid any extraordinary dividend in contemplation of the Merger. 4. STI AND SSI COVENANTS 4.1 Advice of Changes. ----------------- (a) During the period from October 5, 1998 until the earlier of the Effective Time or the termination of this Agreement in accordance with its terms, SSI will promptly advise VERITAS in writing, (i) of any event occurring subsequent to October 5, 1998 that would reasonably be likely to render any representation or warranty contained in Section 2 of this Agreement, if made on or as of the date of such event or the Effective Time, untrue or inaccurate in any material respect, (ii) of any event that would reasonably be likely to have a Material Adverse Effect on the Group Business, and (iii) of any material breach by STI or SSI of any covenant or agreement contained in this Agreement; provided, however, that the delivery of, or failure to deliver, any notice pursuant to this Section 4.1 shall not limit or otherwise affect the remedies available hereunder. (b) SSI will deliver to VERITAS by February 28, 1999 an electronic copy of SSI's option tracking system data file as of such date. Ten business days after the Effective Time, SSI will deliver to Newco an electronic copy of SSI's option tracking system data file as of such date, in the same form as the prior delivery, but which shall contain the final list of Canceled SSI Options. 4.2 Maintenance of Business. During the period from October 5, 1998 ----------------------- until the earlier of the Effective Time or the termination of this Agreement in accordance with its terms, the Contributed Company Group and the Contributing Companies will use reasonable efforts to carry on -47- and preserve the Group Business and relationships with customers, suppliers, employees and others related to Group Business in substantially the same manner as it has prior to October 5, 1998. 4.3 Conduct of Business. During the period from October 5, 1998 until ------------------- the earlier of the Effective Time or the termination of this Agreement in accordance with its terms, the Contributed Company Group and SSI will continue to conduct the Group Business and maintain business relationships related to the Group Business in the ordinary and usual course consistent with past practice and, except as otherwise disclosed herein or in the SSI Disclosure Letter, they will not, without the prior written consent of VERITAS, which consent shall not be unreasonably withheld or delayed, take any of the following actions where it would cause a Material Adverse Effect on the Group Business: (a) cause any of the Contributed Companies to borrow any money except for (A) working capital (including for Taxes) obtained from SSI or STI pursuant to the Intercompany Revolving Loan Agreement or (B) amounts that are not in the aggregate material to the financial condition of the Group Business, taken as a whole or (C) pursuant to existing credit facilities; (b) cause any of the Group Assets to become subject to any Encumbrance, except for Group Permitted Encumbrances and except for Encumbrances arising under credit facilities existing as of October 5, 1998; (c) dispose of any of Group Assets except in the ordinary course of business, consistent with past practice; (d) grant any exclusive license to any of the Seagate IP Rights or grant any other license to Seagate IP Rights except in the ordinary course of business, consistent with past practice; (e) materially amend or terminate any of the Material Contributed Contracts except those amended or terminated in the ordinary course of its business, consistent with past practice; (f) cause any of the Contributed Companies to declare, set aside or pay any cash or stock dividend or other distribution in respect of capital stock, or redeem or otherwise acquire any of its capital stock; (g) cause any of the Contributed Companies to make any loans or grant any guarantees, except (A) loans in the ordinary course of business, consistent with past practice, (B) advances that are not material in amount or (C) loans pursuant to any Section 401(a) Plan; (h) waive or release any material claim against a third party; -48- (i) cause any member of the Contributed Company Group to merge, consolidate or reorganize with or acquire any entity that is not a member of the Contributed Company Group, except as set forth in the SSI Disclosure Letter, except for transactions that are not material and except for any divestiture, spin off or other merger involving SSI's IMG group and as otherwise set forth in the last sentence of Section 4.11(a) or Section 1.4(a) hereof; (j) amend the Certificate of Incorporation or Bylaws of any of the Contributed Companies; (k) implement any layoffs or reductions in force involving a material number of Employees such as will trigger WARN Act responsibilities or liabilities; (l) fail to pay or withhold any material Tax related to the Group Business when due to be paid or withheld; (m) change accounting methods; or (n) agree to take, or permit any of their subsidiaries to take or agree to take, or enter into negotiations with respect to, any of the actions described in the preceding clauses in this Section 4.3. Notwithstanding the foregoing, nothing in this Section 4.3 hereof shall restrict or limit the conduct of any business of SSI, STI or their direct or indirect subsidiaries other than the Group Business and other than with respect to the Group Assets and nothing herein shall restrict or limit the conduct of any business of the Contributed Company Group or with respect to the Group Assets other than as set forth in this Section 4.3. 4.4 SSI Corporate Approvals. STI agrees to vote in favor of the Seagate ----------------------- Transaction at the meeting of SSI stockholders held to approve the Seagate Transaction. STI and SSI agree to vote in favor of the contribution to Newco of the Contributed Stock and Assets at each meeting of stockholders of the Contributing Companies. Without limiting the foregoing, STI and SSI shall vote in favor of the Seagate Transaction at each and every stockholders meeting, or with respect to any written consent in lieu thereof, at which any proposal regarding any such transactions, including the contribution and transfer of the Contributed Stock and Assets, is considered. The respective Boards of Directors of each of STI, SSI, the Contributing Companies and the Contributed Company Group have approved the Seagate Transaction and this Agreement. 4.5 Letter of SSI's Accountants. SSI shall use its reasonable best --------------------------- efforts to cause to be delivered to VERITAS a letter of Ernst & Young LLP, dated a date within two business days before the date on which the Form S-4 shall become effective and addressed to VERITAS, in form and substance reasonably satisfactory to VERITAS and customary in scope and substance for letters -49- delivered by independent public accountants in connection with registration statements similar to the Form S-4. 4.6 Prospectus/Proxy Statement. SSI will mail to its stockholders and -------------------------- option holders in a timely manner, for the purpose of evaluating the Seagate Transaction, the Prospectus/Proxy Statement in the Form S-4. SSI, VERITAS and Newco will prepare and file the Proxy Statement/Prospectus with the SEC as promptly as practicable, and each will use its respective best reasonable efforts to cause the Form S-4 to become effective as soon after such filing as practicable. In this regard, SSI, VERITAS and Newco will advise each other promptly as to the time at which the Form S-4 becomes effective and of the issuance by the SEC of any stop order suspending the effectiveness of the Form S-4 or the initiation of any proceedings for such purpose and each will use its respective reasonable best efforts to prevent the issuance of any stop order and to obtain as soon as possible the lifting thereof, if issued. Until the Effective Time, SSI will advise VERITAS and Newco promptly of any requirement of the SEC for any amendment or supplement of the Form S-4 or for additional information, and will not at any time file any amendment of or supplement to the prospectus contained therein (or to the prospectus filed pursuant to Rule 424(b) of the SEC) which shall not have been previously submitted to SSI in reasonable time prior to the proposed filing thereof or to which SSI shall reasonably object or which is not in compliance in all material respects with the Securities Act and the rules and regulations issued by the SEC thereunder. None of the information relating to SSI (or, to Seagate's Knowledge, any other person, contained in any document, certificate or other writing furnished or to be furnished by SSI) included in (i) the Prospectus/Proxy Statement at the time the Prospectus/Proxy Statement is mailed or at the Effective Time, as then amended or supplemented, or (ii) the Form S-4 at the time the Form S-4 becomes effective or at the Effective Time, as then amended or supplemented, will contain any untrue statement of a material fact or will omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading or necessary to correct any statement which has become false or misleading in any earlier communication. From and after the date the Form S-4 becomes effective and until the Effective Time, if any event known to SSI occurs as a result of which the Prospectus would 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, or if it is necessary at any time to amend the Form S-4 or the Prospectus/Proxy Statement to comply with the Securities Act, SSI will promptly notify VERITAS and Newco and an amended or supplemented Form S-4 or Prospectus/Proxy Statement will be prepared by VERITAS and Newco which will correct such statement or omission and will use its reasonable best efforts to cause any such amendment to become effective as promptly as possible. The Prospectus/Proxy Statement, as it relates to SSI and information relating to the Group Business, will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder in effect at the time the Prospectus/Proxy Statement is mailed. -50- 4.7 Regulatory Approvals. As promptly as reasonably practicable, STI and -------------------- SSI will themselves, and will cause each member of the Contributed Company Group, to execute and file, or join in the execution and filing, of any application or other document that may be necessary in order to obtain the authorization, approval or consent of any governmental body, federal, state, local or foreign, which may be reasonably required, or which VERITAS or Newco may reasonably request, in connection with the consummation of the transactions contemplated by this Agreement. STI and SSI will themselves, and will cause each member of the Contributed Company Group, to use its reasonable efforts to promptly obtain all such authorizations, approvals and consents and will cooperate fully with the other parties in promptly seeking to obtain the same. 4.8 Necessary Consents. SSI will itself, and will cause each Contributing ------------------ Company and each member of the Contributed Company Group to, use its reasonable efforts to obtain those consents required in connection with the Material Contributed Contracts, and to take such other actions as may be necessary or appropriate for the consummation of the transactions contemplated hereby and to allow Newco to Conduct the Group Business after the Effective Time. 4.9 Access to Information. From October 5, 1998 until the Effective Time, --------------------- each of STI and SSI will themselves, and will cause the Contributed Company Group, to allow VERITAS and its agents reasonable access to the files, books, records, technology and offices of SSI and the Contributed Company Group reasonably requested by VERITAS, but only to the extent necessary and relating to the Group Business, including, without limitation, any and all information relating to Contributed Company Group's Taxes, commitments, contracts, leases, licenses and real, personal, intellectual and intangible property and financial condition. Each of STI and SSI shall use its reasonable efforts to cause its accountants to cooperate with VERITAS and its agents in making available to VERITAS all financial information reasonably requested, including, without limitation, the right to examine all working papers pertaining to all Tax returns and financial statements prepared or audited by such accountants. No information or knowledge obtained by any party hereto in any investigation pursuant to this Section 4.9 will 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. All information obtained by VERITAS and its agents pursuant to this Section 4.9 shall be kept confidential in accordance with the confidentiality agreement, between VERITAS, STI, and SSI (the "NONDISCLOSURE AGREEMENT"). 4.10 Satisfaction of Conditions Precedent. STI and SSI will themselves, ------------------------------------ and will cause the Contributing Companies and the Contributed Company Group, to use reasonable efforts to satisfy or cause to be satisfied all the conditions precedent that are set forth in Section 8 and to cause the Merger, the Seagate Transaction and the other transactions contemplated by this Agreement to be consummated. Without limiting the foregoing, in connection with the agreements to be reached by the parties subsequent to October 5, 1998 and prior to the Effective Time, the parties agree to negotiate in good faith to reach agreement on all matters to be included in such agreements promptly after the signing of this Agreement. -51- 4.11 No Other Negotiations. --------------------- (a) STI and SSI shall, and shall cause each Contributing Company and each member of the Contributed Company Group and their respective officers, directors or employees or any investment bankers, attorneys or other advisors or representatives retained by any of them, to cease any and all existing activities, discussions or negotiations with any parties conducted heretofore with respect to any Contributed Group Alternative Proposal (as defined below). From and after October 5, 1998 until the earlier of the Effective Time or the termination of this Agreement in accordance with its terms, STI and SSI shall not authorize or permit any Contributing Company or any member of the Contributed Company Group (or any of their respective officers, directors or employees or any investment bankers, attorneys or other advisors or representatives retained by any of them), directly or indirectly, (i) to solicit, initiate or encourage the submission of any Contributed Group Alternative Proposal, (ii) to engage in discussions or negotiations regarding, provide non-public information with respect to, or to take any other action intended, designed or reasonably likely to facilitate any inquiries or the making of any proposal that constitutes, or would reasonably be expected to lead to, any Contributed Group Alternative Proposal, (iii) to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement with any person with respect to any Contributed Group Alternative Proposal, or (iv) to make or authorize any statement, recommendation or solicitation in support of any Contributed Group Alternative Proposal. For purposes of this Agreement, "CONTRIBUTED GROUP ALTERNATIVE PROPOSAL" means any inquiry, proposal or offer from any person or "group" (as defined under Section 13(d) of the Exchange Act and the rules and regulations thereunder) relating to any direct or indirect (a) acquisition, purchase, sale or other disposition of any of the Group Assets (other than in the ordinary course and disposal of worn or obsolete items consistent with past practice), (b) acquisition, purchase, sale or other disposition of any of the outstanding voting securities of any member of the Contributed Company Group, or (c) merger, consolidation, business combination, sale of any of the assets, recapitalization, liquidation, dissolution or similar transaction involving any member of the Contributed Company Group, other than the transactions contemplated by this Agreement. Notwithstanding the foregoing or any other provision of this Agreement, other than actions directly relating to the Contributed Company Group, the Group Assets or the Group Business, neither STI nor SSI shall be restricted or limited in any way from entering into discussions, negotiations or agreements of any kind or from taking any other actions of any kind, including, without limitation, transactions relating to the sale of any of its or its direct or indirect subsidiaries (other than any member(s) of the Contributed Company Group), equity securities (other than the Contributed Stock), or assets (other than Group Assets), or the merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving STI, SSI or any of their respective direct or indirect subsidiaries (other than the Contributed Company Group). (b) In addition to the obligations set forth in Section 4.11(a), SSI and STI, as promptly as practicable, shall advise VERITAS orally and in writing of any request for non-public information which SSI reasonably believes would lead to a Contributed Group Alternative Proposal, -52- or of any Contributed Group Alternative Proposal, the material terms and conditions of such request or Contributed Group Alternative Proposal, and the identity of the person making any such request, Contributed Group Alternative Proposal or inquiry. SSI will keep VERITAS informed in all material respects of the status and details (including material amendments) of any such request or Contributed Group Alternative Proposal. 4.12 Books and Records. If, in order properly to prepare documents ----------------- required to be filed with governmental authorities (including taxing authorities) or its financial statements, it is necessary that any party hereto be furnished with additional information relating to the Group Assets or any member of the Contributed Company Group, and such information is in the possession of a Contributing Company, then STI and SSI, for themselves and the other Contributing Companies, agree to use their good faith efforts to promptly furnish such information to the party needing such information, at SSI's cost and expense. This Section 4.12 shall survive Closing for two years except for records relating to preparation or audit of tax returns, for which this Section 4.12 will survive until the expiration of the applicable Tax statute of limitations. 4.13 Transitional Support. As soon as feasible after the date hereof, SSI -------------------- and Newco shall use good faith, commercially reasonable efforts to negotiate a Transition Services and Facilities Use Agreement the principal terms of which are as summarized on Exhibit 4.13 attached hereto (the "TRANSITION SERVICES ------------ AGREEMENT"). 4.14 Development Agreement and Cross-License Agreement. The Development ------------------------------------------------- Agreement and the Cross-License Agreement shall be effective as of the Effective Time. 4.15 Settlement of Intercompany Accounts. At the Closing, STI and SSI and ----------------------------------- their subsidiaries (other than the Contributed Company Group) shall pay to the Contributed Company Group, or the Contributed Company Group shall pay to STI and SSI or their subsidiaries (other than the Contributed Company Group), as appropriate, the balance owing on the Intercompany Accounts. 4.16 Modification of Joint Contributed Agreements. SSI has provided to -------------------------------------------- VERITAS a list of the Contributed Contracts and the contracts to which the Contributed Companies are a party which create rights or obligations of both the Group Business and the business of the Contributing Companies other than the Group Business (the "JOINT CONTRIBUTED AGREEMENTS"). As soon as feasible after the date hereof, SSI and VERITAS will negotiate to agree upon a mutually acceptable arrangement between SSI and Newco and, if required, other parties with respect to the treatment of such contracts. To date, the parties have agreed as follows: with respect to distributors who distribute both Group Products and the products of any business retained by the Contributing Companies or their subsidiaries (who are not a Contributed Company), the parties shall request that the other party (or parties) to such contract terminate the Joint Contributed Agreement and enter into two new contracts on the same terms and conditions as the terminated Joint Contributed Agreement, one with Newco (or the relevant Contributed Company) and one with the Contributing Company or -53- a retained subsidiary thereof, provide that Newco and its subsidiaries, on the one hand, and the Contributing Companies and their retained subsidiaries, on the other hand, shall each receive an equitable share of the benefits, payments and the Liabilities with respect to Group Products and each of the other products pursuant to the Joint Contributed Agreements, respectively, as the case may be (including, without limitation, price protection, accumulated rebate credits, product returns, warranty support and similar Liabilities). 4.17 Key Employee Agreements. STI and SSI will informally encourage ----------------------- (without having to incur any cost) each of the Key Employees listed on Exhibit ------- 4.17A to execute their respective Key Employee Agreements a form of which is - ----- attached hereto as Exhibit 4.17B. ------------- 4.18 Stockholder and Registration Rights Agreement. The Newco Common Stock --------------------------------------------- to be issued in the Seagate Transaction to SSI shall be entitled to registration rights on Form S-3 as provided in the Registration Rights Agreement, in the form attached hereto as Exhibit 4.18A (the "REGISTRATION RIGHTS AGREEMENT") and shall ------------- be subject to the other rights and restrictions contained in the Stockholder Agreement in the form attached hereto as Exhibit 4.18B (the "STOCKHOLDER ------------- AGREEMENT"). As of the Effective Time, the Registration Rights Agreement shall be executed by SSI and the Stockholder Agreement shall be executed by STI and SSI. 4.19 Seagate IP Rights. As soon as feasible after the date hereof SSI and ----------------- VERITAS shall confirm whether the Intellectual Property Rights and Intangible Assets required for the production, development, marketing and support of the Group Products are included in the Intellectual Property Rights included in the Group Assets duly transferred to Newco pursuant hereto. If additional items not so transferred are discovered, then (a) the Group Assets shall be expanded to include, and there shall be duly assigned to Newco by the appropriate Contributing Company, all such additional Intellectual Property Rights and Intangible Assets required for the production of the Group Products provided such Intellectual Property Rights were acquired or developed with funds charged to the Group Financial Statements; or (b) if not so charged to the Group Financial Statements, Newco shall be provided a non-exclusive, fully paid, perpetual, irrevocable license to use such Intellectual Property Rights and Intangible Assets for the purpose of producing, developing, marketing and supporting the Group Products. If the Intellectual Property Rights and Intangible Assets included or added to the Group Assets are also required for the production of the products produced by SSI and its subsidiaries (other than the Group Products) then Newco (or its subsidiary, which receives said Intellectual Property Rights and Intangible Assets constituting Group Assets) shall provide SSI, or its designated subsidiary, with a fully paid, non- exclusive, perpetual, irrevocable license to use such Intellectual Property Rights and Intangible Assets for the purpose of producing such other products. This Section 4.19 shall survive Closing for two years. 4.20 Directors' and Officers' Liability Insurance. STI and/or SSI shall -------------------------------------------- use their commercially reasonable efforts to maintain directors' and officers' liability insurance as STI and/or SSI shall have in effect from time to time, covering the acts or omissions on or before the Effective -54- Time of those Employees who are or have been directors and officers of STI or SSI or their subsidiaries and who become employees of Newco as of the Effective Time. STI and/or SSI will not voluntarily seek to increase the deductible nor decrease the limits under such insurance, provided however such action shall be governed by the insurance marketplace on commercially reasonable and available terms, and STI and/or SSI will endeavor to give written notice to VERITAS prior to any cancellation or non-renewal of the STI and/or SSI coverage. 4.21 Closing Group Account. SSI shall deliver to Newco the assets and --------------------- liabilities section of a balance sheet of the Group Business as of the Closing Date (the "CLOSING GROUP ACCOUNT") within thirty days following the Closing Date. The Closing Group Account shall be prepared in the same manner as the 1998 Group Balance Sheet and in compliance with the representations and warranties contained in Section 2.4(c) hereof. 5. VERITAS AND NEWCO COVENANTS 5.1 Advice of Changes. ----------------- (a) During the period from October 5, 1998 until the earlier of the Effective Time or the termination of this Agreement in accordance with its terms, VERITAS will promptly advise STI and SSI in writing (a) of any event occurring subsequent to October 5, 1998 that would reasonably be likely to render any representation or warranty of VERITAS or Newco contained in this Agreement, if made on or as of the date of such event or the Effective Time, untrue or inaccurate, (b) of any event that would reasonably be likely to have a Material Adverse Effect on VERITAS, and (c) of any material breach by VERITAS or Newco of any covenant or agreement contained in this Agreement; provided, however, that the delivery of, or failure to deliver, any notice pursuant to this Section 5.1 shall not limit or otherwise affect the remedies available hereunder. (b) Ten days prior to the Effective Time, VERITAS will deliver to SSI a certificate from VERITAS' transfer agent indicating the number of shares of Common Stock outstanding at the end of business on the eleventh day preceding the Effective Time and a certificate from VERITAS' Secretary indicating the number of shares of VERITAS Common Stock issuable upon exercise or conversion of any outstanding options, warrants or convertible debentures outstanding on such date. VERITAS will deliver to SSI by 8:00 a.m. on the fifteenth business day after the Effective Time a certificate from VERITAS' transfer agent indicating the number of shares of Common Stock outstanding at the end of business on the day of the Closing (calculated without regard to the shares of Common Stock issued with respect to the First SSI Certificate or issued in connection with the TeleBackup Transaction) and a certificate from VERITAS' Secretary indicating the number of shares of VERITAS Common Stock issuable upon exercise or conversion of any outstanding options, warrants or convertible debentures outstanding at the end of business on the day of the Closing (calculated without regard to shares issuable upon exchange of exchangeable shares of TeleBackup or issuable upon exercise of options issued in connection with the TeleBackup -55- transaction) and showing the calculation, as of the date of Closing, of the VERITAS Percentage Interest and the SSI Percentage Interest. 5.2 Maintenance of Business. During the period from October 5, 1998 until ----------------------- the earlier of the Effective Time or the termination of this Agreement in accordance with its terms, VERITAS will use its best efforts to carry on and preserve its business and its relationships with customers, suppliers, employees and others in substantially the same manner as it has prior to October 5, 1998. 5.3 Conduct of Business. During the period from October 5, 1998 until the ------------------- earlier of the Effective Time or the termination of this Agreement in accordance with its terms, VERITAS will continue to conduct its business and maintain its business relationships in the ordinary and usual course and consistent with past practice and, except as otherwise disclosed herein or in the VERITAS Disclosure Letter, it will not, without the prior written consent of SSI, which consent shall not be unreasonably withheld or delayed, take any of the following actions where it would cause a Material Adverse Effect on VERITAS: (a) borrow any money except for (A) amounts that are not in the aggregate material to the financial condition of VERITAS and its subsidiaries, taken as a whole or (B) pursuant to existing credit facilities; (b) cause any of the VERITAS Assets to become subject to any Encumbrance, except for VERITAS Permitted Encumbrances and except for VERITAS Encumbrances arising under credit facilities existing as of October 5, 1998; (c) dispose of any of VERITAS Assets except in the ordinary course of business, consistent with past practice; (d) declare, set aside or pay any cash or stock dividend or other distribution in respect of capital stock, or redeem or otherwise acquire any of its capital stock (other than pursuant to arrangements with terminated employees or consultants in the ordinary course of business, consistent with past practice) or issue capital stock representing more than a 35% interest in the total outstanding securities of VERITAS; (e) waive or release any material claims against a third party; (f) merge, consolidate or reorganize with, or acquire any entity, except as set forth in the VERITAS Disclosure Letter and except for transactions in which the aggregate consideration is below $100 million; (g) amend the Certificate of Incorporation or Bylaws of VERITAS or any of its subsidiaries (except as set forth in the Form of the Amendment to the VERITAS Certificate of -56- Incorporation attached hereto as Exhibit 5.3(g) or as otherwise expressly -------------- contemplated by this Agreement); (h) implement any layoffs or reductions in force involving a number of VERITAS employees such as will trigger WARN Act responsibilities or liabilities; (i) fail to pay or withhold any material Tax when due to be paid or withheld; or (j) agree to take, or permit any VERITAS entity to take or agree to take, or enter into negotiations with respect to, any of the actions described in the preceding clauses in this Section 5.3. Notwithstanding the foregoing, nothing in this Section 5.3 shall restrict or limit the conduct of any business of VERITAS or its direct or indirect subsidiaries or the use or disposition of the VERITAS Assets, other than as set forth in this Section 5.3. 5.4 Stockholder Approval. VERITAS will call the VERITAS Stockholders -------------------- Meeting, to be held within 45 days after the Form S-4 shall have been declared effective by the SEC, to submit the Merger, the Seagate Transaction and any related matters for the consideration and approval of the VERITAS stockholders. Subject to Section 9.1(i) and (j), the Prospectus/Proxy Statement will include a statement to the effect that VERITAS' Board of Directors is recommending that VERITAS stockholders vote in favor of the Merger and the Seagate Transaction. Such meeting will be called, held and conducted, and any proxies will be solicited, in compliance with applicable law. 5.5 Letter of VERITAS' Accountants. VERITAS shall use its reasonable best ------------------------------ efforts to cause to be delivered to STI and SSI a letter of Ernst & Young LLP, dated a date within two business days before the date on which the Form S-4 shall become effective and addressed to each of the Contributing Companies, in form and substance reasonably satisfactory to STI and SSI and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. 5.6 Prospectus/Proxy Statement. VERITAS will mail to its stockholders -------------------------- in a timely manner, for the purpose of considering and voting upon the Merger and the Seagate Transaction at the VERITAS Stockholders Meeting, the Prospectus/Proxy Statement in the Form S-4. VERITAS and Newco will prepare and file the Prospectus/Proxy Statement with the SEC as promptly as practicable, and each will use its respective best reasonable efforts to cause the Form S-4 to become effective as soon after such filing as practicable. In this regard, VERITAS and Newco will advise STI and SSI promptly as to the time at which the Form S-4 becomes effective and of the issuance by the SEC of any stop order suspending the effectiveness of the Form S-4 or the initiation of any proceedings for such purpose and each will use its respective reasonable best efforts to prevent the issuance of any stop order and to obtain as soon as possible the lifting thereof, if issued. Until the Effective Time, VERITAS and Newco will advise STI and SSI promptly of any requirement of the -57- SEC for any amendment or supplement of the Form S-4 or for additional information, and will not at any time file any amendment of or supplement to the prospectus contained therein (or to the prospectus filled pursuant to Rule 424(b) of the SEC) (the "PROSPECTUS") which shall not have been previously submitted to STI and SSI in reasonable time prior to the proposed filing thereof or to which STI or SSI shall reasonably object or which is not in compliance in all material respects with the Securities Act and the rules and regulations issued by the SEC thereunder. None of the information relating to VERITAS or Newco (or, to VERITAS' or Newco's knowledge, any other person, contained in any document, certificate or other writing furnished or to be furnished by VERITAS) included in (i) the Prospectus/Proxy Statement by Newco and/or VERITAS at the time the Prospectus/Proxy Statement is mailed or at the time of the meeting of VERITAS stockholders to vote on the Merger and the Seagate Transaction or at the Effective Time, as then amended or supplemented, or (ii) the Form S-4 at the time the Form S-4 becomes effective, as then amended or supplemented, will contain any untrue statement of a material fact or will omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading or necessary to correct any statement which has become false or misleading in any earlier communication with respect to the solicitation of proxies for the VERITAS Stockholder Meeting. From and after the date the Form S-4 becomes effective and until the Effective Time, if any event known to VERITAS or Newco occurs as a result of which the Prospectus/Proxy Statement would 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, or if it is necessary at any time to amend the Form S-4 or the Prospectus/Proxy Statement to comply with the Securities Act, VERITAS and Newco will promptly notify STI and SSI and will prepare an amended or supplemented Form S-4 or Prospectus/Proxy Statement which will correct such statement or omission and will use its reasonable best efforts to cause any such amendment to become effective as promptly as possible. The Prospectus/Proxy Statement, as it relates to VERITAS and Newco, will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder in effect at the time the Prospectus/Proxy Statement is mailed. 5.7 State Securities Law Compliance. VERITAS and Newco shall use their ------------------------------- respective reasonable best efforts to (i) qualify the Newco Common Stock to be issued pursuant to the Merger and the Seagate Transaction under the state securities or "blue sky" laws of every jurisdiction of the United States in which (a) any registered stockholder of VERITAS has an address on the records of VERITAS' transfer agent on the record date for determining the VERITAS stockholders entitled to notice of and to vote on the Merger and the Seagate Transaction or any other party receiving Newco securities hereunder resides and (b) a Nasdaq Stock Market or other exemption from the qualification requirements under such laws is unavailable, and (ii) qualify the Newco Options to be granted upon cancellation of the Canceled SSI Options to be assumed by VERITAS pursuant hereto under the state securities or "blue sky" laws of every jurisdiction of the United States in which (a) the records of VERITAS, STI, or SSI, as of the Effective Time, indicate that a holder of such -58- options resides and (b) a Nasdaq Stock Market or other exemption from the qualification requirements under such laws is unavailable. 5.8 Regulatory Approvals. As promptly as reasonably practicable, VERITAS -------------------- and Newco will execute and file, or join in the execution and filing, of any application or other document that may be necessary in order to obtain the authorization, approval or consent of any governmental body, federal, state, local or foreign which may be reasonably required, or which they may reasonably request, in connection with the consummation of the transactions contemplated by this Agreement. VERITAS and Newco will each use its respective reasonable efforts to promptly obtain all such authorizations, approvals and consents and will cooperate fully with the other parties in promptly seeking to obtain all such authorizations, approvals, and consents. 5.9 Necessary Consents. VERITAS and Newco will each use its respective ------------------ reasonable efforts to obtain such written consents under the Material VERITAS Contracts and to take such other actions as may be necessary or appropriate to allow the consummation of the transactions contemplated hereby and to allow VERITAS and Newco to carry on VERITAS' business and the Group Business after the Effective Time. 5.10 Access to Information. From October 5, 1998 until the Effective Time, --------------------- VERITAS and Newco will allow the Contributing Companies and their agents reasonable access to the files, books, records, technology and offices of VERITAS or Newco reasonably requested by the Contributing Companies including, without limitation, any and all information relating to Taxes, commitments, contracts, leases, licenses and real, personal, intellectual and intangible property and financial condition. VERITAS will use its reasonable efforts to cause its accountants to cooperate with the Contributing Companies and their agents in making available to such parties all financial information reasonably requested, including, without limitation, the right to examine all working papers pertaining to all Tax returns and financial statements prepared or audited by such accountants. No information or knowledge obtained by any party hereto in any investigation pursuant to this Section will 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 and the Seagate Transaction. All information obtained by the Contributing Companies or their agents pursuant to this Section shall be kept confidential in accordance with the Nondisclosure Agreement. 5.11 Books and Records. If, in order properly to prepare documents ----------------- required to be filed with governmental authorities (including taxing authorities) or its financial statements, it is necessary that any party hereto be furnished with additional information relating to the Group Assets, and such information is in the possession of Newco or VERITAS, then VERITAS and Newco on behalf of themselves and each member of the VERITAS Group agree to use their good faith efforts to promptly furnish such information to the party needing such information, at VERITAS' cost and expense. This Section 5.11 shall survive Closing for two years except for records relating to -59- preparation of and audit of tax returns, for which this Section 5.11 will survive until the expiration of the applicable Tax statute of limitations. 5.12 Transitional Support. As soon as feasible after the date hereof, -------------------- VERITAS and Newco shall use good faith, commercially reasonable efforts to negotiate the Transition Services Agreement. 5.13 Development Agreement and Cross-License Agreement. The Development ------------------------------------------------- Agreement and Cross-License Agreement shall be effective as of the Effective Time. 5.14 Satisfaction of Conditions Precedent. VERITAS and Newco will each ------------------------------------ use its respective reasonable best efforts to satisfy or cause to be satisfied all the conditions precedent that are set forth in Section 7 and to cause the Merger and the Seagate Transaction and the other transactions contemplated by this Agreement to be consummated. Without limiting the foregoing, in connection with the agreements to be reached by the parties after October 5, 1998 and prior to the Effective Time, the parties agree to negotiate in good faith to reach agreement on all matters to be included in such agreements promptly after the signing of this Agreement. 5.15 Voting Agreement. VERITAS will use its reasonable efforts to obtain ---------------- Voting Agreements in the form attached as Exhibit 5.15A (the "VOTING ------------- AGREEMENT"), executed by the VERITAS affiliates listed on Exhibit 5.15B. ------------- 5.16 VERITAS Employee Plans and Benefit Arrangements. ----------------------------------------------- (a) Newco will adopt the VERITAS Benefit Arrangements and VERITAS Employee Plans and will use reasonable efforts to provide the VERITAS Benefit Arrangements and VERITAS Employee Plans to the transferring Employees as is provided to VERITAS' employees who are similarly situated as soon as practicable. To the extent that Newco does not have VERITAS Benefit Arrangements and VERITAS Employee Plans in effect in a jurisdiction where there are transferring Employees, Newco shall adopt plans providing comparable benefits to the Group Employee plans for said transferring Employees. From and after the Effective Time Newco shall provide all transferring Employees with the opportunity to participate in any employee stock option or other incentive compensation plan of Newco and its affiliates on substantially the same terms and subject to substantially the same conditions as are available to similarly situated employees of VERITAS or Newco including beginning a new offering period beginning as of the Effective Time and ending on February 15, 2001 if necessary to permit transferring Employees to participate in Newco's employee stock purchase plan. Prior to the Effective Time, VERITAS, Newco and SSI shall mutually agree upon an integration plan relating to the Merger and the Seagate Transaction which shall include, among other things, provisions relating to compensation and other equity incentives for Employees. In addition, at the Effective Time, Newco shall enter into Key Employee Agreements (the form of which is attached hereto as Exhibit 4.17B) with the Key Employees who are identified on Exhibit 4.17A and on Exhibit 5.16A attached hereto. ------------- -60- (b) Waiting Periods, Premiums and Deductibles. Newco shall take all ----------------------------------------- steps necessary to cause each VERITAS Benefit Arrangement and each VERITAS Employee Plan to waive any "waiting period" or other requirement with respect to duration of employment with Newco which would prevent a transferring Employee or beneficiary thereof who is otherwise eligible to participate in such VERITAS Employee Plan and VERITAS Benefit Arrangement from participating in such VERITAS Employee Plan and VERITAS Benefit Arrangement immediately following the Effective Time. Newco shall pro rate any portion of a premium or deductible with respect to a VERITAS Employee Plan and VERITAS Benefit Arrangement for any transferring Employee or beneficiary thereof for any plan year that commenced prior to the Effective Time. (c) Recognition of Prior Service. Newco shall take all steps ---------------------------- necessary to cause each VERITAS Employee Plan and VERITAS Benefit Arrangement to recognize each transferring Employee's length of service under comparable employee benefit plans maintained by Seagate for purposes of eligibility, participation, vesting and benefit accrual in such VERITAS Employee Plan and VERITAS Benefit Arrangement as if such transferring Employee had been employed by Newco for such period. (d) Waiver of Restrictions. Newco shall take all steps necessary to ---------------------- cause each VERITAS Employee Plan which is an "employee welfare benefit plan" under Section 3(1) of ERISA to waive any restrictions or limitations with respect to "pre-existing conditions" or prior medical history which would apply to transferring Employee or beneficiary thereof who is otherwise eligible to participate in such VERITAS Employee Plan and VERITAS Benefit Arrangement from participating in such plan or arrangement without restriction or limitation. 5.17 Indemnification and Insurance-VERITAS. ------------------------------------- (a) The Certificate of Incorporation and Bylaws of Newco and VERITAS shall contain the provisions with respect to indemnification and limitation of liability for monetary damages set forth in the Certificate of Incorporation and Bylaws of VERITAS on October 5, 1998, which provisions shall not be amended, repealed or otherwise modified for a period of ten 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 VERITAS, unless such modification is required by law. (b) From and after the Effective Time, Newco and VERITAS shall honor, in all respects, all of the indemnity agreements entered into prior to October 5, 1998 by VERITAS, with its respective officers and directors, whether or not such persons continue in their positions with Newco or VERITAS following the Effective Time. Following the Effective Time, VERITAS' form of indemnification agreement shall be adopted as the form of indemnification agreement for Newco and the VERITAS Surviving Corporation shall be afforded the opportunity to enter into such -61- indemnification agreement, and shall be covered by such directors' and officers' liability insurance policies as Newco shall have in effect from time to time. (c) After the Effective Time, Newco and VERITAS will, jointly and severally, to the fullest extent permitted under applicable law, indemnify and hold harmless, each present and former director or officer of VERITAS or any of its subsidiaries (collectively, for purposes of this Section 5.17(c), the "INDEMNIFIED PARTIES") against any costs or expenses (including attorneys' fees), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal administrative or investigative, to the extent arising out of or pertaining to any action or omission in his or her capacity as a director or officer of VERITAS arising out of or pertaining to the transactions contemplated by this Agreement or the transactions contemplated hereby for a period of six years after October 5, 1998. In the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), (a) any counsel retained for the defense of the Indemnified Parties for any period after the Effective Time will be reasonably satisfactory to the Indemnified Parties, (b) after the Effective Time, VERITAS will pay the reasonable fees and expenses of such counsel, promptly after statements therefor are received, and (c) VERITAS will cooperate in the defense of any such matter; provided, however, that VERITAS will not be liable for any settlement effected without its written consent (which consent will not be unreasonably withheld); and provided, further, that, in the event that any claim or claims for indemnification are asserted or made within such six-year period, all rights to indemnification in respect of any such claim or claims will continue until the disposition of any and all such claims. The Indemnified Parties as a group may be defended by only one law firm (in addition to local counsel) with respect to any single action, unless there is, under applicable standards of professional conduct, a conflict on any significant issue between the positions of any two or more Indemnified Parties. (d) For the entire period from and after the Effective Time until at least six years after the Effective Time, Newco will cause VERITAS to use its commercially reasonable efforts to maintain in effect directors' and officers' liability insurance covering those persons who are currently covered by VERITAS' directors' and officers' liability insurance policy (a copy of which has been heretofore delivered or made available to Seagate) of at least the same coverage and amounts, containing terms that are no less advantageous with respect to claims arising at or before the Effective Time than VERITAS' policies in effect immediately prior to the Effective Time to those applicable to the then current directors and officers of Newco and VERITAS; provided, however, that in no event shall Newco or VERITAS be required to expend in excess of 150% of the annual premium currently paid by VERITAS for such coverage in which event Newco shall purchase such coverage as is available for such 150% of such annual premium. (e) Newco and VERITAS shall pay all expenses, including attorneys' fees, that may be incurred by any Indemnified Parties in enforcing the indemnity and other obligations provided for in this Section 5.17(e). -62- (f) In the event Newco or VERITAS or any of their respective successors or assigns (a) consolidates with or merges into any other person or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (b) transfers or conveys all or a substantial portion of its properties or assets to any person or entity, then, and in each such case, to the extent necessary to effectuate the purposes of this Section 5.17(f), proper provision shall be made so that the successors and the assigns of Newco and VERITAS assume the obligations set forth in this Section 5.17. (g) The provisions of this Section 5.17 shall survive the Effective Time and are intended to be for the benefit of, and shall be enforceable by, each officer and director of VERITAS STI, SSI and the Contributed Company Group described in Sections 5.17 and his or her heirs and representatives. 5.18 Indemnification and Insurance-Employees. --------------------------------------- (a) The Certificate of Incorporation and Bylaws of Newco shall contain the provisions with respect to indemnification and limitation of liability for monetary damages set forth in the Certificate of Incorporation and Bylaws of VERITAS as of October 5, 1998, which provisions shall not be amended, repealed or otherwise modified for a period of ten 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 (i) the Contributed Companies or (ii) of SSI (A) to the extent involved in the Group Business and (B) provided they become Employees, officers or directors of Newco ("GROUP PERSONS"), unless such modification is required by law. (b) From and after the Effective Time, Newco shall honor, in all respects, all of the indemnity agreements entered into prior to October 5, 1998 by SSI or any member of the Contributed Company Group with any Group Persons, whether or not such persons continue in their positions with Newco following the Effective Time. Following the Effective Time, VERITAS' form of indemnification agreement shall be adopted as the form of indemnification agreement for Newco and all continuing officers and directors of Newco shall be afforded the opportunity to enter into such indemnification agreement, and shall be covered by such directors' and officers' liability insurance policies as Newco shall have in effect from time to time. (c) After the Effective Time, Newco will, jointly and severally, to the fullest extent permitted under applicable law, indemnify and hold harmless, subject to Section 5.18(g), each of the Group Persons against any costs or expenses (including attorneys' fees), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal administrative or investigative, to the extent arising out of or pertaining to any action or omission in his or her capacity as a director or officer of SSI or any of the Contributed Companies arising out of or pertaining to the transactions -63- contemplated by this Agreement for a period of six years after the Closing Date. Notwithstanding the foregoing, the parties agree that claims against the Group Persons shall first be made against any directors' and officers' liability insurance, if any, then maintained by SSI or any of the Contributed Companies that provides coverage for such Group Persons. In the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), (a) any counsel retained for the defense of the Group Persons for any period after the Effective Time will be reasonably satisfactory to the Group Persons, (b) after the Effective Time, Newco will, subject to Section 5.18(g), pay the reasonable fees and expenses of such counsel, promptly after statements therefor are received, and (c) Newco will cooperate in the defense of any such matter; provided, however, that Newco will not be liable for any settlement effected without its written consent (which consent will not be unreasonably withheld); and provided, further, that, in the event that any claim or claims for indemnification are asserted or made within such six-year period, all rights to indemnification in respect of any such claim or claims will continue until the disposition of any and all such claims. The Group Persons as a group may be defended by only one law firm (in addition to local counsel) with respect to any single action unless there is, under applicable standards of professional conduct, a conflict on any significant issue between the positions of any two or more Group Persons. (d) Newco shall pay all expenses, including attorneys' fees, that may be incurred by any Group Persons in enforcing the indemnity and other obligations provided for their benefit in this Section 5.18. (e) In the event Newco or any of its respective successors or assigns (i) consolidates with or merges into any other person or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or a substantial portion of its properties or assets to any person or entity, then, and in each such case, to the extent necessary to effectuate the purposes of this Section 5.18, proper provision shall be made so that the successors and the assigns of Newco assume the obligations set forth in this Section 5.18. (f) The provisions of this Section 5.18 shall survive the Effective Time and are intended to be for the benefit of, and shall be enforceable by, each of the Group Persons and his or her heirs and representatives. (g) Notwithstanding any provision of this Section 5.18 to the contrary, Newco shall not assume and shall have no Liability relating to claims made by Minority Holders or SSI optionees arising out of the repurchase, sale, exchange or cancellation of SSI capital stock or options in connection with the Seagate Transaction (other than its obligations under Section 1.3(a)(ii)) or specifically relating to matters arising out of the IMG business. 5.19 Stockholder and Registration Rights Agreement. The Newco --------------------------------------------- Common Stock to be issued in the Seagate Transaction to SSI shall be entitled to registration rights on Form S-3 as -64- provided in the Registration Rights Agreement. As of the Effective Time, the Registration Rights Agreement shall be executed by Newco and the Stockholder Agreement shall be executed by Newco and VERITAS. 5.20 No Other VERITAS Negotiations. ----------------------------- (a) VERITAS shall, and shall cause its subsidiaries and its and their subsidiaries' officers, directors or employees or any investment bankers, attorneys or other advisors or representatives retained by any of them, to cease any and all existing activities, discussions or negotiations with any parties conducted heretofore with respect to any VERITAS Alternative Proposal (as defined below). From and after October 5, 1998 until the earlier of the Effective Time or the termination of this Agreement in accordance with its terms, VERITAS shall not, nor will it authorize or permit any of its subsidiaries or any of its or its subsidiaries' officers, directors or employees or any investment banker, attorney or other advisor or representative retained by any of them to, directly or indirectly, (i) solicit, initiate or encourage the submission of any VERITAS Alternative Proposal, (ii) engage in discussions or negotiations regarding, provide non-public information with respect to, or take any other action intended, designed or reasonably likely to facilitate any inquiries or the making of any proposal that constitutes or would reasonably be expected to lead to, any VERITAS Alternative Proposal, (iii) enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement with any person with respect to any VERITAS Alternative Proposal, or (iv) make or authorize any statement, recommendation or solicitation in support of any VERITAS Alternative Proposal. For purposes of this Agreement, "VERITAS ALTERNATIVE PROPOSAL" means any inquiry, proposal or offer from any person or "group" (as defined under Section 13(d) of the Exchange Act and the rules and regulations thereunder) relating to any direct or indirect acquisition, sale or other disposition purchase of more than 20% of the assets of VERITAS and its subsidiaries or more than a 35% interest in the total outstanding voting securities of VERITAS 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 thereunder) beneficially owning 35% or more of the total outstanding voting securities of VERITAS or any merger, consolidation, business combination, sale of substantially all the assets, recapitalization, liquidation, dissolution or similar transaction involving VERITAS, other than the transactions contemplated by this Agreement, provided, however, that no pending acquisition described in the VERITAS Disclosure Letter and no issuance of VERITAS Common Stock in connection therewith shall be considered a VERITAS Alternative Proposal. (b) Notwithstanding Section 5.20(a), prior to obtaining the approval of the stockholders of VERITAS of this Agreement and the Merger by the requisite vote under applicable law (the "VERITAS STOCKHOLDER APPROVAL"), VERITAS may in response to an unsolicited bona fide VERITAS Alternative Proposal, participate in discussions or negotiations with, furnish information to a third party making such proposal, make or authorize a statement or recommendation in support of solicitation of such proposal, or accept such proposal, if all of the following events shall have -65- occurred: (w) such third party has made a bona fide written proposal to the Board of Directors of VERITAS to consummate a VERITAS Alternative Proposal which proposal identifies a price or range of values to be paid for the outstanding securities or assets of VERITAS and its subsidiaries, (x) if consummated, after consultation with investment bankers of nationally recognized reputation, such Board of Directors has determined that it is reasonably likely to be financially more favorable to the stockholders of VERITAS than the terms of the transactions contemplated by this Agreement, (y) such Board of Directors has determined, after consultation with investment bankers of nationally recognized reputation, that such third party is financially capable of consummating such VERITAS Alternative Proposal; and (z) STI and SSI shall have been notified by VERITAS in writing of such VERITAS Alternative Proposal, including its principal financial and other material terms and conditions, including the identity of the person (and, if relevant, its Affiliates) making such proposal (it being understood that any amendment to the price, identity or material terms shall require an additional notice). (c) In addition to the obligations of VERITAS set forth in Section 5.20(a) and (b), VERITAS as promptly as practicable shall advise STI and SSI orally and in writing of any request for non-public information which VERITAS reasonably believes would lead to a VERITAS Alternative Proposal or of any VERITAS Alternative Proposal, the material terms and conditions of such request or VERITAS Alternative Proposal, and the identity of the person making any such request, VERITAS Alternative Proposal or inquiry. VERITAS will keep STI and SSI informed in all material respects of the status and details (including material amendments) of any such request or VERITAS Alternative Proposal. 6. CLOSING MATTERS 6.1 Closing. Subject to the termination of this Agreement as ------- provided in Section 9 below, the closing of the transactions contemplated by this Agreement (the "CLOSING") (i) will take place at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California 94306 on a date and at a time to be mutually agreed upon by the parties, which date shall be as soon as practicable after the VERITAS Stockholders Meeting and SSI Stockholders Meeting and, in any event, no later than the third business day after all conditions to Closing set forth herein shall have been satisfied or waived, unless another place, time and date is mutually selected by SSI and VERITAS and (ii) will take place concurrently with the Effective Time. 6.2 Conversion of VERITAS Common Stock. Each share of VERITAS ---------------------------------- Common Stock that is issued and outstanding immediately prior to the Effective Time will by virtue of the Merger and at the Effective Time, and without any further action on the part of VERITAS, Newco or any holder of VERITAS Common Stock, be converted into one share of validly issued, fully paid and nonassessable Newco Common Stock. -66- 6.3 Cancellation of SSI Options and Issuance of Newco Options. Newco, --------------------------------------------------------- contingent on the consummation of the Seagate Transaction, shall offer to issue at the Closing to each Employee who has agreed to cancel his/her SSI Options and who will become a Newco employee, that number of Newco Options as specified in and pursuant to the terms of Section 1.3(a)(ii). 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SSI AND STI The obligations of STI, SSI and the other Contributing Companies hereunder are subject to the fulfillment or satisfaction on or before the Closing of each of the following conditions (any one or more of which may be waived by SSI on behalf of all said entities, but only in a writing signed by SSI): 7.1 Accuracy of Representations and Warranties. The representations ------------------------------------------ and warranties of VERITAS and Newco set forth in Section 3 (as qualified by the VERITAS Disclosure Letter) shall be true and accurate as of October 5, 1998 and on and as of the Effective Time with the same force and effect as if they had been made at the Effective Time, except for those representations and warranties that address matters only as of a particular date (which shall remain true and correct as of such particular date), except, in all such cases, where such breaches of such representations and warranties, individually or in the aggregate, would not have resulted in, nor reasonably would be expected to result in, a Material Adverse Effect on VERITAS, and STI and SSI shall receive a certificate to such effect executed on behalf of VERITAS and Newco by a duly authorized officer of VERITAS and of Newco at the Effective Time. 7.2 Covenants. VERITAS and Newco shall have performed and complied in --------- all material respects with all of their respective covenants in this Agreement required to be complied with prior to the Effective Time; and STI and SSI shall receive a certificate to such effect executed by a duly authorized officer of VERITAS and of Newco at the Effective Time. 7.3 Compliance with Law. There shall be no order, decree or ruling by ------------------- any governmental agency which would prohibit or render illegal the transactions contemplated by this Agreement. 7.4 Consents. There shall have been obtained on or before the -------- Effective Time all permits, consents and authorizations, where the failure to obtain same would have resulted, or reasonably would be expected to result, in a Material Adverse Effect on VERITAS. 7.5 Form S-4. The Form S-4 shall have become effective under the -------- Securities Act and shall not be the subject of any stop-order and the Prospectus/Proxy Statement shall on the Effective Time not be subject to any proceedings commenced or overtly threatened by the SEC. 7.6 Opinion of VERITAS and Newco's Counsel. SSI shall have received -------------------------------------- from Fenwick & West LLP, counsel to VERITAS and Newco, an opinion in a form reasonably acceptable to SSI and its counsel, with such assumptions and qualifications as are customary for such opinions. -67- 7.7 VERITAS Stockholder Approval. The principal terms of this ---------------------------- Agreement, the Merger and the Seagate Transaction shall have been approved and adopted by the VERITAS stockholders in accordance with the Delaware Law and VERITAS' Certificate of Incorporation and Bylaws. 7.8 No Legal Action. No temporary restraining order, preliminary --------------- injunction or permanent injunction or other order preventing the consummation of the Merger or the Seagate Transaction shall have been issued by any federal or state court and remain in effect. 7.9 Tax Opinion. STI and SSI shall have received an opinion in form ----------- and substance satisfactory to them, from their respective counsel, to the effect that the Seagate Transaction will be treated as a tax-free transfer of property to Newco by them governed by Section 351 of the Internal Revenue Code, provided that if their counsel does not render such opinion, this condition shall nonetheless be deemed satisfied, if counsel to VERITAS and Newco renders such opinion in form and substance reasonably acceptable to them. The parties shall make representations reasonably requested by counsel related to said tax opinion, which representations may be relied upon by the counsel providing the opinion, and the opinion may contain such assumptions and qualifications as are customary for such opinions. 7.10 Election of The Contributing Companies Designees to the Board of ---------------------------------------------------------------- Directors of Newco. The Board of Directors of Newco shall have taken appropriate - ------------------ action to elect Gregory B. Kerfoot, Stephen J. Luczo and Terence R. Cunningham to the Board of Directors of Newco, effective upon the Effective Time. 7.11 Nasdaq Listing. The Newco Common Stock to be issued in the Merger -------------- and in the Seagate Transaction shall have been approved for quotation on the Nasdaq Stock Market, subject to notice of issuance. 7.12 Incorporation of New Delaware Company. Newco shall have formed ------------------------------------- Merger Sub prior to the Effective Time, and Newco and Merger Sub shall be duly organized, validly existing and in good standing under the laws of Delaware and such corporations shall not have engaged in any business activities during the period from incorporation to the Effective Time. SSI, at the Effective Time, shall receive a certificate to such effect signed by Newco incorporator on behalf of Newco. 7.13 HSR Act. Any waiting period (and any extension thereof) under the ------- HSR Act applicable to transactions contemplated hereby shall have expired or shall have been terminated. 7.14 No Order. No non-U.S., United States or state governmental -------- authority or other agency or commission or United States or state, federal or international court of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, injunction, decree, executive order, or other order (whether temporary, preliminary or permanent) which is in effect and has the effect of making the transactions contemplated by this Agreement illegal or otherwise restraining or prohibiting consummation of such transactions; provided, -68- however, that the parties hereto shall use their reasonable best efforts to have any such order or injunction vacated as soon as practicable. 7.15 Ancillary Agreements. VERITAS and Newco shall have executed and -------------------- delivered counterparts of each of the following Ancillary Agreements to which they are a party: (i) the Stockholder Agreement; (ii) the Registration Rights Agreement; and (iii) the Transition Services Agreement. 7.16 Stockholder Approval. The Seagate Transaction shall have been -------------------- approved by the requisite vote under applicable law by the stockholders of SSI. 7.17 Delivery of Newco Shares. Newco shall have delivered the First ------------------------ SSI Certificate to SSI. 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF VERITAS AND NEWCO The obligations of VERITAS, Merger Sub and Newco hereunder are subject to the fulfillment or satisfaction on or before the Closing of each of the following conditions (any one or more of which may be waived by VERITAS on behalf of all such parties, but only in a writing signed by VERITAS): 8.1 Accuracy of Representations and Warranties. The representations ------------------------------------------ and warranties of SSI and STI set forth in Section 2 (as qualified by the SSI Disclosure Letter) shall be true and accurate on October 5, 1998 and on and as of the Effective Time, with the same force and effect as if they has been made at the Effective Time, except for those representations and warranties that address matters only as of a particular date (which shall remain true and correct as of such particular date), except, in all such cases, where such breaches of such representations and warranties, individually or in the aggregate, would not have resulted in, nor reasonably would be expected to result in, a Material Adverse Effect on the Group Business, and VERITAS shall receive a certificate to such effect executed on behalf of SSI by a duly authorized officer of SSI. 8.2 Covenants. The Contributing Companies and the Contributed --------- Companies shall have performed and complied in all material respects with all of their respective covenants in this Agreement required to be complied with prior to the Effective Time; and VERITAS shall receive a certificate to such effect signed on behalf of SSI by a duly authorized officer of SSI. 8.3 Compliance with Law. There shall be no order, decree or ruling by ------------------- any court or governmental agency which would prohibit or render illegal the transactions contemplated by this Agreement. -69- 8.4 Consents. There shall have been obtained on or before the -------- Effective Time all permits, consents and authorizations, where the failure to obtain same would have resulted, or reasonably would be expected to result, in a Material Adverse Effect on the Group Business. 8.5 Form S-4. The Form S-4 shall have become effective under the -------- Securities Act and shall not be the subject of any stop-order or proceedings seeking a stop-order and the Prospectus/Proxy Statement shall at the Effective Time not be subject to any proceedings commenced or overtly threatened by the SEC. 8.6 Opinion of Counsel to STI and SSI. VERITAS shall have received --------------------------------- from Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to the Contributing Companies, an opinion in form reasonably acceptable to VERITAS, with such assumptions and qualifications as are customary for such opinions. 8.7 VERITAS Stockholder Approval. The principal terms of this ---------------------------- Agreement, the Merger and the Seagate Transaction shall have been approved and adopted by the VERITAS stockholders in accordance with applicable law and VERITAS' Certificate of Incorporation and Bylaws. 8.8 SSI Corporate Approvals. The principal terms of this Agreement ----------------------- and the Seagate Transaction (including the contribution and transfer of the Contributed Assets) shall have been approved and adopted by the SSI Stockholders in accordance with applicable law and its Certificate of Incorporation and Bylaws. 8.9 No Legal Action. No temporary restraining order, preliminary --------------- injunction or permanent injunction or other order preventing the consummation of the Merger shall have been issued by any federal or state court and remain in effect. 8.10 Tax Opinion. VERITAS and Newco shall have received an opinion in ----------- form and substance satisfactory to them from their counsel, to the effect that the Merger will be treated for federal income tax purposes as a tax-free reorganization within the meaning of Section 368 of the Internal Revenue Code, provided that if the counsel to VERITAS and Newco does not render such opinion, this condition shall nonetheless be deemed satisfied if counsel to SSI and STI renders such opinion to such parties in form and substance reasonably acceptable to them. The parties shall make representations reasonably requested by counsel related to said tax opinion, which representations may be relied upon by the counsel providing said opinion, with such qualifications as are customary for such opinions. 8.11 HSR Act. Any waiting period (and any extension thereof) under the ------- HSR Act applicable to the transactions contemplated hereby shall have expired or shall have been terminated. 8.12 No Order. No non-U.S., United States or state governmental -------- authority or other agency or commission or United States or state or federal or international court of competent -70- jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, injunction, decree, executive order, or other order (whether temporary, preliminary or permanent) which is in effect and has the effect of making the transactions contemplated by this Agreement illegal or otherwise restraining or prohibiting consummation of such transactions; provided, however, that the parties hereto shall use their reasonable best efforts to have any such order or injunction vacated, as soon as practicable. 8.13 Ancillary Agreements. The Contributing Companies shall have -------------------- executed and delivered counterparts of each of the following Ancillary Agreements to which they are a party: (i) the Stockholder Agreement; (ii) the Registration Rights Agreement; and (iii) the Transition Services Agreement. 8.14 Sufficiency of Assets. VERITAS and Newco shall be reasonably --------------------- satisfied that there has been no breach of the representation set forth in the second sentence of Section 2.22 and that the Contributed Stock and Assets shall have been duly transferred and delivered to Newco as required by this Agreement. 8.15 Intellectual Property Assignments. Newco shall have received from --------------------------------- the Contributing Companies assignments of the Contributing Companies' right, title and interest in the following Intellectual Property Rights included in the Contributed Assets: (i) patents on disc operating system backup and recovery system and on data back-up restore for a computer network (the "PATENT ASSIGNMENT"); (ii) the "Backup Exec" registered trademark (the "TRADEMARK ASSIGNMENT"); and (iii) the copyright on Back-up Exec (the "COPYRIGHT ASSIGNMENT", and, together with the Intellectual Property Rights in clauses (i) and (ii), collectively, the "CORE IP"), each duly executed on behalf of said company and notarized, and in a form reasonably acceptable to VERITAS and acceptable for recording with the United States Copyright Office or the United States Patent and Trademark Office, as applicable. In addition, the Contributing Companies shall have taken such steps in causing the registration of copyrights in the Core IP and the recordation of any previous assignments in the chain of title for the Core IP which are necessary to enable Newco to record the Core IP assignments. 8.16 Modification of Joint Contributed Agreements. A mutually -------------------------------------------- acceptable arrangement between SSI and Newco and, if required, the other parties thereto shall have been reached with respect to the treatment of the Joint Contributed Agreements, for example with distributors who distribute both Group Products and the products of any other business of the Contributing Companies or their subsidiaries, such that Newco, SSI and its subsidiaries including IMG shall receive payments with respect to Group Products and other products, respectively, as the case may be, and the appropriate party shall be responsible for price protection, accumulated rebate credits, product returns, warranty support and similar Liabilities. -71- 9. TERMINATION OF AGREEMENT 9.1 Termination. This Agreement may be terminated at any time prior ----------- to the Effective Time, whether before or after approval of the Merger by the stockholders of VERITAS or SSI: (a) by mutual written agreement of SSI, STI and VERITAS; (b) by SSI or STI, if there has been a breach by VERITAS or Newco of any representation or warranty set forth in this Agreement on the part of VERITAS or Newco, and, as a result of such breach, the conditions set forth in Section 7.1 would not then be satisfied and such breach is not cured within thirty (30) days after notice thereof from SSI to VERITAS (except that no cure period shall be provided for a breach by VERITAS or Newco which by its nature cannot be cured); (c) by SSI or STI, if there has been a breach by VERITAS or Newco of any covenant or agreement set forth in this Agreement on their part to be performed and as a result of such breach, the conditions set forth in Section 7.2 would not then be satisfied and such breach is not cured, within thirty (30) days after written notice thereof from SSI to VERITAS (except that no cure period shall be provided for a breach by VERITAS or Newco which by its nature cannot be cured); (d) by VERITAS, if there has been a breach by STI or SSI of any representation or warranty set forth in this Agreement on their part, and as a result of such breach, the conditions set forth in Section 8.1 would not then be satisfied and such breach is not cured within thirty (30) days after written notice thereof from VERITAS to SSI (except that no cure period shall be provided for a breach by STI or SSI which by its nature cannot be cured); (e) by VERITAS, if there has been a breach by STI or SSI of any covenant or agreement set forth in this Agreement on their part to be performed, and as a result of such breach, the conditions set forth in Section 8.2 would not then be satisfied and such breach is not cured within thirty (30) days after written notice thereof from VERITAS to SSI (except that no cure period shall be provided for a breach by STI or SSI which by its nature cannot be cured); (f) by VERITAS or STI or SSI, if the Merger and the Seagate Transaction shall not have been consummated on or before the Final Date for any reason, other than any wrongful action or failure to act or as a result of a breach of this Agreement or any Ancillary Document by the terminating party; (g) by VERITAS or STI or SSI, if a permanent injunction or other order by any federal or state court would make illegal or otherwise restrain or prohibit the consummation of the Merger and/or the Seagate Transaction shall have been issued and shall have become final and nonappealable; -72- (h) by VERITAS or STI or SSI, if the stockholders of VERITAS do not approve the Merger and/or the Seagate Transaction at a duly convened VERITAS stockholders meeting or any adjournment thereof by reason of the failure to obtain the required vote (a "VERITAS STOCKHOLDER REJECTION"); provided, that the right to terminate this Agreement under this Subsection (h) shall not be available to VERITAS where the failure to obtain VERITAS stockholder approval shall have been caused by any breach of this Agreement or any Ancillary Document by VERITAS; (i) by STI or SSI, if (a) the Board of Directors of VERITAS shall have withdrawn (or modified in a manner adverse to the VERITAS Stockholder Approval or the consummation of the Merger and/or the Seagate Transaction) its approval or recommendation of the Merger, the Seagate Transaction or this Agreement, (b) VERITAS shall have failed to include in the Proxy Statement/Prospectus the recommendation of the Board of Directors of VERITAS in favor of approval of the Merger, the Seagate Transaction, or this Agreement, (c) the Board of Directors of VERITAS shall have recommended or shall have approved any VERITAS Alternative Proposal, or (d) the Board of Directors of VERITAS shall have resolved to do any of the foregoing (collectively a "CHANGE IN VERITAS BOARD RECOMMENDATION"); or (j) by VERITAS, STI or SSI at any time prior to the VERITAS Stockholder Approval, if the Board of Directors of VERITAS shall have recommended or accepted a VERITAS Alternative Proposal provided that VERITAS is not in breach of Section 5.20. As used herein, the "FINAL DATE" shall be June 1, 1999, except that if ------ the FTC or the DOJ issues a "second request" under the HSR Act, then the Final Date shall be extended to June 30, 1999; and except that if a temporary, ------ preliminary or permanent injunction or other order by any Federal or state court which would prohibit or otherwise restrain consummation of the Merger and/or the Seagate Transaction shall have been issued and shall remain in effect on June 30, 1999, and such injunction shall not have become final and non-appealable, either party, by giving the other written notice thereof on or prior to June 30, 1999, may extend the time for consummation of the Merger and/or the Seagate Transaction up to and including the earlier of the date such injunction shall become final and non-appealable or July 31, 1999, so long as such party shall, at its own expense, use its reasonable best efforts to have such injunction dissolved. 9.2 Notice of Termination. Any termination of this Agreement under --------------------- Section 9.1 above will be effected by the delivery of notice of the terminating party to the other party hereto of such termination, specifying the grounds therefore. 9.3 No Liability. Except as provided in Section 9.4 below, and ------------ termination of this Agreement in accordance with this Section 9 will be without further obligation or liability upon any party in favor of the other parties hereto other than the obligations contained in the Nondisclosure Agreement, which will survive termination of this Agreement; provided, however, that -------- ------- nothing -73- herein will relieve any party from liability for any willful breach, misrepresentation or misconduct in connection with this Agreement. 9.4 Breakup Fee. ----------- (a) If this Agreement is terminated by SSI or STI or VERITAS pursuant to Section 9.1(h) as a result of a VERITAS Stockholder Rejection and prior to such rejection (i) an Alternative Proposal has not been publicly announced or otherwise publicly disclosed and not withdrawn, and (ii) no Change in Board Recommendation has occurred, then VERITAS shall promptly pay SSI and STI (by wire transfer or cashier's check) a nonrefundable fee equal to the actual reasonable legal, accounting and printing expenses incurred by STI, SSI, the Contributing Companies and/or the Contributed Company Group, but not exceeding $5 million, within three (3) business days following the delivery of an itemized list of such expenses by SSI and STI. (b) If this Agreement is terminated by SSI or STI or VERITAS (i) pursuant to Section 9.1(h) as a result of a VERITAS Stockholder Rejection after an Alternative Proposal has been publicly announced or otherwise publicly disclosed and not withdrawn, (ii) pursuant to Sections 9.1(i) or 9.1(j), then VERITAS shall promptly pay to SSI (by wire transfer or cashier's check) a nonrefundable fee equal to $50 million within ten (10) days following delivery of the notice of termination to or by SSI and STI pursuant to Section 9.2. (c) VERITAS acknowledges that the agreements contained in this Section 9.4 are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, none of STI, SSI or NSMG would enter into this Agreement; accordingly, if VERITAS fails to timely pay the amounts due pursuant to this Section 9.4, and, in order to obtain such payment, STI or SSI commences a suit which results in a judgment against VERITAS for the amounts set forth in this Section 9.4 and such judgment is not set aside or reversed, VERITAS shall pay to STI or SSI their reasonable costs and expenses (including attorneys' fees and expenses) in connection with such suit, together with interest on the amounts set forth in this Section 9.4 at the prime rate of CitiBank in effect on the date such payment was required to be made. 10. SURVIVAL OF REPRESENTATIONS 10.1 No Survival of Representations. Except as otherwise expressly ------------------------------ provided herein, all representations, warranties and covenants other parties contained in this Agreement will remain operative and in full force and effect, regardless of any investigation made by or on behalf of the parties to this Agreement, only until the Effective Time or any earlier termination of this Agreement in accordance with Section 9 above, whereupon such representations, warranties and covenants will expire (except for covenants and other provisions hereof that by their express terms survive for a longer period). 11. INDEMNIFICATION -74- 11.1 Indemnification by SSI and STI. SSI and STI agree, notwithstanding any ------------------------------ provision of Section 1.4 hereof to the contrary, to indemnify Newco and VERITAS against, and to hold Newco and VERITAS harmless from, all Loss arising out of any of the following (even if included in the Assumed Liabilities as otherwise being or allegedly being a Liability of one of the Contributed Companies or of the Contributed Subsidiaries): (a) all Liabilities to Minority Holders or Optionees arising out of the repurchase, sale or exchange of SSI capital stock or options in connection with the Seagate Transaction (other than a Newco Liability for failure to perform its obligations under Section 1.3(a)(ii) or the Newco Options issued pursuant thereto) or that arise from rights granted by SSI or STI to any Employees to require SSI or STI to repurchase shares of SSI capital stock upon termination of employment; (b) any of the Excluded Liabilities, except as may be provided in Section 13; (c) any demand, claim, debt, suit, cause of action, arbitration, investigation or other proceeding made or asserted by any Contributing Company or any stockholder, creditor, or Affiliate of any Contributing Company or by any receiver or trustee in bankruptcy of any Contributing Company of the property or assets of any Contributing Company, asserting that the transfer of the Contributed Stock and Assets to Newco hereunder constitutes a fraudulent conveyance, fraudulent transfer or a preference under any applicable foreign, state or federal law, including but not limited to the United States Bankruptcy Code, or any breach by any Contributing Company of its representations and covenants in Section 1.4(e) hereof (the Heading of which is "No Fraudulent Conveyance") or any Liabilities related to non-compliance with bulk transfer laws in connection with the Seagate Transaction; (d) IMG; (e) any material Liability omitted from the Group Financial Statements that was required by GAAP to be included or reflected therein (collectively, the "OMITTED BALANCE SHEET LIABILITIES"), or any Tax Liability associated with the Contributed Company Group or the Group Business that STI or SSI is otherwise responsible for or required to indemnify for under Section 13 and which (i) are not reflected on any line item in the 1998 Group Balance Sheet; (ii) are not disclosed on Schedule 1.4(b)(i)(B) attached hereto; or (iii) are not incurred in the Conduct of the Group Business in the ordinary course after the Group Financial Statements Balance Sheet Date (collectively, the "UNFORESEEN TAX LIABILITIES"), to the extent the aggregate of such Omitted Balance Sheet Liabilities and Unforeseen Tax Liabilities exceed $5,000,000 (the "THRESHOLD AMOUNT"); and, notwithstanding anything in Section 13.4(a)(ii), neither STI nor SSI shall have any obligation to indemnify Newco under Section 13.4(a)(ii) until the Threshold Amount is so exceeded; and Newco shall pay any and all of the Omitted Balance Sheet Liabilities and Unforeseen Tax Liabilities until the aggregate of such payments of Omitted Balance Sheet Liabilities and Unforeseen Tax Liabilities equals the Threshold Amount; or -75- (f) any breach of the representation in the second sentence of Section 2.22 hereof (the heading of which is "Title to and Condition and -------------------------- Sufficiency of Group Assets"). - --------------------------- 11.2 Time Limitations on Indemnification. Notwithstanding anything herein ----------------------------------- to the contrary, claims for indemnification under this Section 11 may be brought after the Closing and at any time prior to the expiration of the legal statute of limitations applicable to the subject matter of the claim underlying the claim for indemnification; provided that any claims under Section 11.1(e) or under Section 11.1(f) must be noticed within 60 days after conclusion of the first audit of Newco financial results following the Closing that includes the combined financial results of the Group Business and VERITAS (and in any event within twelve (12) months after the closing). To preserve a claim for indemnification under this Section 11, an indemnified party need only provide written notice in reasonable detail of such claim to SSI prior to the expiration of the applicable time limit (if any) described in the preceding sentence; and if an indemnified party provides such notice prior to the expiration of such time limit, such indemnified party may pursue such claim for indemnification after the expiration of such time limit. 11.3 No Limitation on Other Rights. The foregoing indemnification ----------------------------- provisions are in addition to, and not in derogation of, any statutory, equitable or common law remedies that Newco or any other indemnified party may have. 12. EMPLOYEE MATTERS 12.1 Right to Offer Employment. ------------------------- (a) Employees. Schedule 12.1 of the SSI Disclosure Letter contains a --------- ------------- preliminary list (the "PRELIMINARY List") of each Contributed Company employee or consultant and each other employee or consultant of SSI, STI or the Group Business who works in, or provides services in connection with, the Group Business or any of the Group Assets (each an "EMPLOYEE"). Within twenty (20) days prior to the Effective Time, SSI shall deliver to Newco a final list of the Employees (the "FINAL LIST"), which list shall identify those Employees who are active Employees of the Group Business as of that date, including those on vacation, sick leave, disability leave, family leave or personal leave of absence or who work full or part time, and which shall separately identify those Employees who are on a workers' compensation-related or disability leave. The Final List shall contain, with respect to each Employee, a true and accurate list of all locations at which Employees are working as of such date, together with the date of hire, location of employment, years of employment or service, current annual base salary or base wage, and of all other compensation arrangements for such Employees, including bonuses or other compensation arrangements. For purposes of this Agreement, "EMPLOYEES" means only those individuals (whether employees or consultants) included on such Final List. -76- (b) Offers of Employment. Effective at the Effective Time, Newco -------------------- shall offer to employ Employees on an "at-will" basis and subject to Newco's standard terms, conditions and policies of employment and the terms of this Agreement, and shall offer Employees (i) salary consistent with the salary earned by such Employees prior to the Effective Time but only to the extent such salary is not in excess of industry norms; and (ii) participation in incentive compensation arrangements, subject to Section 5.16 and consistent with the incentive compensation arrangements of employees of VERITAS in comparable positions. This Section 12.1(b) shall not be construed to create any third party beneficiary rights or any other rights of any kind in any Employee and no Employee shall have any cause of action as a third party beneficiary. Such offers of employment that will be extended by Newco to Employees will be on the same basis of time commitment (full or part time) as such Employee was employed by immediately prior to the Effective Time. Unless the parties otherwise agree, on the date of the Closing, SSI and STI shall notify each Employee who accepts an offer of employment extended by Newco as of the Effective Time, in a writing reasonably satisfactory to Newco, that such Employee's employment with STI or any of its direct or indirect subsidiaries is then terminated. Neither SSI or STI may make offers of employment to any Employees. Notwithstanding the foregoing sentence, SSI or STI may make offers of employment to Employees at the Scotts Valley location other than the Oracle Developers; provided, however, that SSI or STI may make offers of employment to the Oracle Developers if Newco changes their place of employment from Scotts Valley, California. (c) Non-U.S. Employees. Subject to Section 11.1(a), Newco shall be ------------------ responsible for any severance, any Liability arising out of failure to give requisite notice to any non-U.S. Employee or non-U.S. governmental agencies regarding possible employment transitions to Newco of the Employees or any other Liability arising out of the employment by Newco of, or the failure of Newco to employ any non-U.S. Employee. 12.2 Termination of Employment. ------------------------- (a) SSI and STI agree to comply with the provisions of the WARN Act and any other federal, state or local statute or regulation regarding termination of employment, plant closing or layoffs and to perform all obligations required of SSI and/or STI with respect to the cessation of any operations of the Group Business or any other business of SSI and/or STI or their subsidiaries, or the termination, re-assignment, re-location or change in position of any Employee (or other employee of them) who does not accept Newco's offer of employment. (b) SSI and/or STI shall (i) provide continuation health care coverage to all Employees and their qualified beneficiaries who incur a qualifying event prior to the Effective Time or who do not accept Newco's offer of employment pursuant to Section 12.1(b) in accordance with the continuation health care coverage requirements of COBRA and (ii) provide COBRA continuation coverage to any former employee of the Contributed Company Group who was previously employed in the Group Business (collectively, the "FORMER EMPLOYEES") and their -77- qualified beneficiaries to whom, at the Effective Time, such continuation coverage was being provided or to whom SSI and STI are under an obligation to provide such continuation coverage at the election of such Former Employee or qualified beneficiary. (c) Employees (as defined in Section 12.1(a)) who are terminated by Newco within two days after the Effective Time (the "TERMINATED EMPLOYEES") shall be entitled to elect COBRA continuation coverage with the appropriate Contributing Company for themselves or their qualified beneficiaries, provided, however that Newco shall reimburse SSI for the cost of -------- ------- such COBRA continuation coverage in excess of the premiums paid to SSI by the terminated employees and their qualified beneficiaries. 12.3 Cooperation. SSI and STI, VERITAS and Newco agree, for themselves ----------- and their affected subsidiaries, to cooperate fully with respect to the actions which are necessary or reasonably desirable to accomplish the transactions contemplated hereunder, including, without limitation, the provision of records and information as each may reasonably request and the making of all appropriate filings under ERISA and the Internal Revenue Code. 12.4 Employees Who own SSI Capital Stock. With respect to the unvested ----------------------------------- but purchased shares of SSI Common Stock (the "83(B) SHARES") owned by Terrence Cunningham, Dave Krinker, Dave Hallmen and Dave Galiotto (collectively, the "83(B) EMPLOYEES"), immediately prior to the Effective Time, thirty-five percent (35%) of the unvested 83(b) Shares held by each such 83(b) Employee shall become vested and, accordingly, SSI's repurchase option with respect to such 83(b) Shares shall lapse. The remaining sixty-five percent (65%) of the unvested 83(b) Shares held by each such 83(b) Employee shall be repurchased by SSI pursuant to the terms of such 83(b) Employee's restricted stock purchase agreement (the "REPURCHASED SHARES"). In addition, immediately prior to the Effective Time, SSI shall grant each 83(b) Employee an option (the "NEW SSI OPTION") to purchase shares of SSI common stock which shall have the same aggregate "Spread" (as defined in the next sentence) as the Repurchased Shares. The Spread shall mean the difference between the fair market value of a share of the SSI Common Stock on the sixth day prior to the Effective Time and the exercise price per share of the option or an 83(b) Share. Each New SSI Option shall be subject to SSI's standard terms for stock option grants, shall initially be unvested but shall preserve the vesting schedule of the Repurchased Shares and shall be included by Newco in its option exchange offer to the Employees pursuant to Section 1.3(a)(ii) of this Agreement. 13. TAX MATTERS 13.1 Transaction Taxes; Representation; Transaction Tax Indemnity. STI ------------------------------------------------------------ and/or SSI, on the one hand, and Newco, on the other, shall each bear half of the first $1,000,000 of Transaction Taxes (as defined below). Thereafter, STI and SSI shall be solely responsible for any and all sales, use, excise, value added, registration, stamp, property, documentary, transfer, withholding and similar taxes and levies, (including all real estate transfer taxes, but not any real estate transfer taxes -78- that would be triggered as a result of a change in control of a corporation) incurred, or that may be payable to any taxing authority, with respect to the sale, transfer, or delivery of the Contributed Stock and Assets and the assumption of the Assumed Liabilities, including any sales or use tax imposed on Newco pursuant to Section 6812 of the California Revenue and Taxation Code (collectively, "TRANSACTION TAXES"). Newco and STI and SSI agree to cooperate in minimizing the amount of any such Taxes and in the filing of all necessary documentation and all Tax returns, reports and forms ("RETURNS") with respect to all such Taxes, including any available pre-sale filing procedures. 13.2 No Limitation. Except as provided in Section 11, there shall be no ------------- limitation on the amount of a party's liability with respect to its indemnification obligations under Section 13; and, notwithstanding the provisions of Section 11.2, an indemnified party may assert any such indemnity claim at any time prior to expiration of the applicable Tax statutes of limitations applicable to the subject matter of the claim underlying the claim for indemnification under applicable law (including extensions). 13.3 Treatment of Indemnity Payments. All payments made by Seagate or ------------------------------- Newco, as the case may be, to or for the benefit of the other party pursuant to any indemnification obligations under this Agreement shall be treated for Tax purposes as adjustments to the value of the Contributed Stock and Contributed Assets, as capital contributions, or as appropriate, the satisfaction of a preexisting obligation and such treatment shall govern for purposes of this Agreement, unless there is a final determination as defined in Section 1313(a) of the Internal Revenue Code to the contrary, or any other event which conclusively established a contrary position. 13.4 Indemnity for Taxes. ------------------- (a) Except as otherwise provided in this Section 13 or Section 11, from and after the Closing, SSI and STI shall timely pay and indemnify and save Newco and its Affiliates harmless from any liability for, or arising out of or based upon, or relating to any Tax (including, without limitation, any obligation to contribute to the payment of a Tax determined on a consolidated basis with respect to a group of corporations that includes or included STI or SSI) (i) of STI or SSI or any member of the affiliated group of corporations (as defined in section 1504 of the Code) of which STI or SSI is a member (other than any member of the Contributed Company Group or with respect to any Tax relating to the income, business, assets, property or operations of the Group Business) for any taxable period or (ii) relating to the income, business, assets, property or operations of the Group Business or of the Contributed Company Group to the extent that such liability for Tax is not reflected in the SSI Disclosure Letter or the Group Financial Statements (irrespective of where it is reflected on the 1998 Group Balance Sheet), and is either (A) in respect of any taxable period that ends prior to the Group Financial Statements Balance Sheet Date or in respect of any taxable period that includes, but does not end on, the Group Financial Statements Balance Sheet Date, the portion of such period ending on the Group Financial Statements Balance Sheet Date or (B) with respect to -79- an excess loss account in the stock of any Contributed Company or from a deferred intercompany transaction (other than among members of the Contributed Company Group) entered into prior to the Group Financial Statements Balance Sheet Date and is triggered as a result of the Contributed Company Group ceasing to be affiliated with STI or SSI. The indemnity provisions of this Section 13.4(a) shall not apply to Taxes attributable to a breach of, or inaccuracy in, Section 13.6(a). (b) Notwithstanding anything contained in this Section 13, STI and SSI shall not be obligated to indemnify Newco for any Tax (including, without limitation, any obligation to contribute to the payment of a Tax determined on a consolidated basis with respect to a group of corporations that includes or included STI or SSI) by reason of an election or deemed election (including any protective election) with respect to transactions described in this Agreement made or filed post-Closing by Newco or any member of the Contributed Companies under Section 338 of the Internal Revenue Code. Further, no Section 338 election shall be made with respect to any of the transactions described in this Agreement. (c) Except to the extent otherwise provided in this Section 13, Newco shall timely pay and indemnify and save STI and its Affiliates harmless from any liability for, or arising out of or based upon or relating to any Tax (including, without limitation, any obligation to contribute to the payment of a Tax determined on a consolidated basis with respect to a group of corporations that includes or included STI or SSI) (i) relating to the income, business, assets, property or operations of the Group Business by Newco and its Affiliates or any member of the Contributed Company Group in respect of all taxable periods beginning after the Group Financial Statements Balance Sheet Date, or, in the case of any taxable period that includes but does not end on the Group Financial Statements Balance Sheet Date, the portion of such period commencing on the day following the Group Financial Statements Balance Sheet Date; and (ii) to the extent such liability for Tax is reflected in the Group Financial Statements (irrespective of where it is reflected on the 1998 Group Balance Sheet) or the SSI Disclosure Letter and such liability is for Tax relating to the income, business, assets, property or operations of the Group Business or of any member of the Contributed Company Group. Newco shall also be responsible for, shall pay and perform, and shall indemnify, defend and hold harmless the Contributing Companies from (i) those Tax indemnifications given to the former shareholders of On-Demand Software, Inc. by the Contributing Companies in connection with the sale of said company to NSMG (up to a maximum amount of $3,000,000), and (ii) Unforeseen Tax Liabilities for which Newco is responsible as provided in Section 11.1(e) (as determined without the limitations in Section 11.2). 13.5 Other Tax Matters. ----------------- (a) The Contributed Companies, the Contributing Companies, Newco and VERITAS will cooperate fully with each other in connection with the preparation of all returns and reports of Taxes, information returns, and all audit examinations of, or claims or assertions against, any member of the Contributed Company Group, in each case including but not limited to the -80- furnishing or making available of records, books of account or other materials and appropriate personnel necessary or helpful to the defense against the assertions of any taxing authority. STI and SSI shall, within a reasonable time after the Effective Time but no later than 60 days prior to the deadline (including extensions) of any Tax return of Newco or its affiliates that includes the operations of the Group Business or the Contributed Company Group, use their best efforts to deliver to Newco a schedule listing the tax basis of each of the Contributed Stock and Assets. (b) Except as provided in Section 13.5(c), in the event and to the extent that STI or any member of an affiliated group of corporations (as defined in Section 1504 of the Internal Revenue Code) of which STI is a member (other than any member of the Contributed Company Group) receives a refund or credit of Taxes for any taxable period that ends prior to the Effective Time or in respect of any period that includes, but does not end on, the Effective Time, the portion of such period ending on the Effective Time (the "PRE-CLOSING PERIOD") which is attributable to the carry back of losses, credits or similar items from any Tax return of any member of the Contributed Company Group, and in any case, in respect of any taxable period that begins after the Effective Time or in respect of any period that includes, but does not end on the Effective Time, the portion of such period commencing on the day following the Effective Time (the "POST-CLOSING PERIOD"), STI shall pay to Newco, net of any additional Tax payable by STI or its Affiliates by reason of such carryback, the amount of such refund or credit (including any interest received thereon) or Tax reduction. In the event that any refund or credit of Taxes or Tax reductions for which a payment has been made pursuant to this Section 13.5 subsequently is reduced or disallowed, the Contributed Companies and Newco shall indemnify and hold harmless STI and its Affiliates for any Tax liability, including interest and penalties, assessed by reason of such reduction or disallowance. (c) In the event that an indemnified party receives a refund or credit of Taxes for which it has been indemnified pursuant to Section 13.4 of this Agreement, such indemnified party agrees to pay to the indemnifying party the amount of such refund or credit (including any interest received thereon). In the event that any refund or credit of Taxes for which a payment has been made pursuant to this Section 13.5(c) subsequently is reduced or disallowed, the indemnifying party shall indemnify and hold harmless the indemnified party for any Tax liability, including interest and penalties, assessed by reason of such reduction or disallowance. (d) If any claim for Tax relating to the Group Business or the Contributed Company Group is asserted against STI or SSI or any Affiliate for any Pre-Closing Period, STI shall promptly notify Newco in writing of such fact. STI, SSI and their duly appointed representatives shall have the sole right to negotiate, resolve, settle or contest any such claim for Tax; provided, however, that they shall deal fairly and in good faith with respect to any claim for Tax which would require a payment by Newco to STI or its Affiliates under Section 13.4(c) and provided further, that with respect to any claim which would require a payment by Newco or have a Material Adverse Effect on the Group Business, no settlement will be agreed to without Newco's prior written consent. Such consent shall not be unreasonably withheld. If Newco fails to provide STI with written consent -81- within 30 days of a written request from STI, and submits a written objection the procedures in Section 7(c) of the Tax Allocation Agreement dated as of April 4, 1996 (the "TAX ALLOCATION AGREEMENT") shall be applied. Newco shall bear the legal and accounting costs and expenses incurred in contesting a matter for which it has withheld its consent. If any claim for Tax relating to the Contributed Company Group for any Post-Closing Period comes to the attention of STI, STI will notify Newco promptly of such claims and will cooperate fully with Newco and the Contributed Company Group in the resolution of such claim. A failure to promptly notify pursuant to this Section 13.6(d) shall not preclude another party's indemnification obligation. (e) STI shall prepare any Tax returns (including any amendments thereto) of the members of the Contributed Company Group for all taxable periods that end, with respect to the Contributed Company Group, on or before the Effective Time (including any short period ending on the Effective Time) and which are due either before or after the Effective Time and shall deliver to Newco for signing by the appropriate party and filing, any Tax returns of the members of the Contributed Company Group (including any amendments thereto) with respect to any such period that have not been filed prior to the Effective Time. STI shall deliver any such tax return or the portion thereof relating to the Group Business to Newco at least fifteen days prior to the date such tax return is due to be filed (taking into account any applicable extensions). STI shall report for federal income tax purposes the operations of the Group Business and the Contributed Company Group for any short period ending on the Effective Time, and shall be responsible for the filing of, the consolidated tax returns of STI's consolidated group which will include the income of the Group Business and the Contributed Company Group through the Effective Time and Newco will pay to STI any amounts relating to such tax returns required by Section 13.4(c) prior to the filing of such tax returns. In order appropriately to apportion any taxes relating to a period that includes (but that would not, but for this Section 13.5(e) end on the Effective Time), the parties hereto will, to the extent permitted by applicable law, elect with the relevant taxing authority to treat for all purposes the Effective Time as the last day of a taxable period of any member of the Contributed Company Group. STI shall, in respect of such returns, and Newco and the Contributed Company Group for returns with respect to the Post-Closing Period shall determine the income, gain, expenses, losses, deductions and credits of the Group Business and the Contributed Company Group in a manner (i) consistent with prior practice and actual operations in a manner that apportions such income, gain, expenses, loss, deductions and credits equitably from period to period and (ii) consistent with prior years. STI and SSI shall not pay a "FSC" commission with respect to the Group Business without the prior written consent of Newco. (f) The tax returns described in Section 13.5(e) shall be prepared in accordance with the Tax Allocation Agreement except to the extent it is inconsistent with Section 13.5(e). In addition, the parties agree that for the taxable periods the Contributed Companies are included in a consolidated return with STI or SSI, the parties will compensate each other for the use of losses and credits in the amounts determined in accordance with the Tax Allocation Agreement. The provisions of this Section 13 with respect to the consolidated groups or consolidated returns that include STI or -82- SSI or their Affiliates other than a Contributed Company shall apply mutatis mutandis with respect to combined or unitary groups or returns thereof. (g) Newco, STI and SSI shall make payments of estimated taxes (including amounts due with extensions) for which they are responsible under this agreement in accordance with the Tax Allocation Agreement. Any Tax which is due (including estimated Taxes) on or prior to the Effective Time and which is the responsibility of Newco, shall, in lieu of requiring a payment by Newco prior to the Effective Time, be satisfied by a payment out of the Group Assets or the Group Business or after payment of such Tax by STI or SSI through an increase in the account balances owed by the Group Business or the Contributed Companies to STI or SSI, which increase in the obligation will be satisfied by Newco subsequent to the Closing. A payment or indemnity obligation under this section 13 which is not made or satisfied when due shall accrue interest at the rate of 6% compounded daily. Notwithstanding anything in this Section 13 to the contrary, a party shall not have to bear the cost of a Tax liability more than once (e.g. a payment of an estimated tax shall be credited against any payment due when the return is filed). (h) Except as provided in paragraph 13.5(e), for purposes of allocating a Tax for which a party is otherwise responsible under Section 13.4, the portion of those Taxes that are attributable to the operations of the Group Business or of any member of the Contributed Company Group for a relevant period (the "INTERIM PERIOD") shall be (i) in the case of a Tax that is not based on a net income, the total amount of such Tax for the Interim Period in question multiplied by a fraction, the numerator of which is the number of days in the Interim Period and the denominator of which is the total number of days in such period, and (ii) in the case of a Tax that is based on net income, the Tax that is due shall be an amount as equitably determined by the parties based upon a hypothetical closing of the books. (i) If Newco, a Contributed Company or any of their respective Affiliates receive any notice of the assertion of any Tax liability relating to a member of the Contributed Company Group for which STI or SSI may be liable under this Agreement, Newco shall give prompt written notice thereof to STI or SSI. A failure to promptly notify pursuant to this paragraph shall not preclude another party's indemnification obligation. (j) After the Closing, Newco and the Contributed Companies will provide reasonable access to all relevant Newco and the Contributed Company Group relevant books, records, agreements and memoranda, and provide such assistance to STI and SSI as STI, SSI and their Affiliates shall reasonably request, with respect to any federal, foreign, state or local Tax matters pertaining to the members of the Contributed Company Group for taxable periods or transactions on or prior to the Effective Time. Newco will notify STI prior to disposition of such Tax records, if such disposition will take place within ten years after the Effective Time. -83- (k) Notwithstanding anything in this Agreement to the contrary, STI and Newco covenant and agree, (unless there has been a final determination as defined in Section 1313(a) of the Code or any other event which conclusively establishes a contrary position) for all Tax purposes including all Tax Returns and any Tax examinations, proceedings or controversies, to (and to cause any Affiliate or successor to their assets or businesses to) take each of the positions set forth below (and not to take any position inconsistent therewith) and to use good faith and reasonable best efforts to defend such positions: (i) The Merger (A) will qualify as a tax-free reorganization described in Section 368(a) of the Code and (B) when taken together with the Seagate Transaction, will qualify as a tax free transfer of the stock of VERITAS to Newco governed by Section 351(a) of the Code. (ii) The Seagate Transaction will qualify as a transfer of the Contributed Stock and Contributed Assets to Newco governed by Section 351(a) of the Code. (iii) None of the consideration issued in connection with the Seagate Transaction will be paid or issued for services or as a covenant not to compete. (l) STI and Newco agree to report to the other any communication from or with the Internal Revenue Service or any other Taxing Authority which relates in any way to the characterization of the transactions governed by this Agreement. Each of STI and Newco will file with its Federal income tax return for the taxable year in which the Merger and Seagate Transaction occurs (which tax return shall be timely filed) the information required by Treas. Reg. ss. 1.351-3 and 1.368-3 and to provide each other upon request with a statement to the effect that such party has complied with this requirement after filing. STI, the Contributed Companies, and Newco also will maintain such permanent records as are required by Treas. Reg. ss.ss. 1.351-3(c) and 1.368-3. 13.6 Seagate Transaction Items. ------------------------- (a) Newco and VERITAS covenant and represent that: (i) Newco and VERITAS have no plan or intention to permit or to cause VERITAS or any Contributed Company to be liquidated or to be merged with any other entity. (ii) Newco and VERITAS have no plan or intention to terminate the existence of Newco, VERITAS or any Contributed Company (including without limitation by merger). (iii) Newco and VERITAS have no plan or intention to cause or permit Newco to dispose of all or any portion of the stock of VERITAS or of any Contributed Company (including, without limitation, by merger) or the Contributed Assets, except in the ordinary course of business. -84- (iv) After taking into account (and thus deeming shares to be issued as of the Effective Time) any planned or intended (as of October 5, 1998 or the Effective Time) issuances of Newco stock and the exercise of any Newco stock rights (including warrants, options, convertible instruments), the stockholders of VERITAS immediately prior to the transactions contemplated by this Agreement and SSI shall hold on the day after the Effective Time at least 80% of the voting stock of Newco and at least 80% of each class of non-voting stock of Newco. This representation shall be deemed made twice, assuming in the alternative that the Newco shares held by SSI are (A) voting stock and (B) non- voting stock. (v) Other than the possible repurchase of employee shares as a result of an obligation of SSI that may be assumed by Newco, VERITAS and Newco have no plan or intention to redeem or otherwise reacquire any stock to be issued in the transactions contemplated in this Agreement. (vi) VERITAS and Newco are not aware of any plan or intent on the part of the officers, directors and 5% or greater stockholders of VERITAS to dispose of any Newco shares issued in the Merger in a transaction undertaken in connection with this transaction. (vii) VERITAS and Newco are not "investment companies" within the meaning of section 351(e) of the Code and section 1.351-1(c)(1)(ii) of the regulations promulgated thereunder. (viii) With respect to matters not covered by Section 13.6(a)(i) through 13.6(a)(vii), Newco shall not take, or permit its Affiliates to take, any action within two years of the Effective Time which it (or its advisors actually participating or advising in the action) actually know (at the time of such action) will preclude the ability of the Seagate Transaction to qualify as a tax-free exchange under section 351(a) of the Code. (ix) VERITAS and Newco shall make such additional representations and covenants as SSI or its counsel shall reasonably request prior to the closing for purposes of establishing the qualification under Section 351 of the Seagate Transaction (including without limitation with respect to matters associated with the TeleBackup Transaction), provided such representations and covenants are in a form and substance reasonably satisfactory to VERITAS and Newco. Any such representations shall be considered to be part of this section 13.6(a). (b) The representations and covenants of this Section 13, Section 1.9 and Section 1.10 shall survive the Closing of the Seagate Transaction at the Effective Time and extend through the expiration of the applicable Tax statutes of limitations (including extensions). -85- 14. MISCELLANEOUS ------------- 14.1 Governing Law. The internal laws of the State of California ------------- (irrespective of its choice of law principles) will govern the validity of this Agreement, the construction of its terms and the interpretation and enforcement of the rights and duties of the parties hereto, except that the fiduciary duties of the directors and managers of parties hereto and their Affiliates shall be governed by the law of the jurisdiction of such company's formation. 14.2 Assignment; Binding Upon Successors and Assigns. None of the ----------------------------------------------- parties hereto may assign any of its rights or obligations hereunder without the prior written consent of the other parties hereto; provided, however, that the sale or other transfer of the stock of any Contributing Company shall not be deemed an assignment provided that this Agreement remains enforceable against the Contributing Company after such stock sale or transfer. Subject to the preceding sentence, this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 14.3 Severability. If any provision of this Agreement, or the ------------ application thereof, will for any reason and to any extent be invalid or unenforceable, the remainder of this Agreement and 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 greatest extent possible, the economic, business and other purposes of the void or unenforceable provision. 14.4 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which will be an original as regards any party whose signature appears thereon and all of which together will constitute one and the same instrument. This Agreement will become binding when one or more counterparts hereof, individually or taken together, will bear the signatures of all the parties reflected hereon as signatories. 14.5 Other Remedies. 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 on such party, and the exercise of any one remedy will not preclude the exercise of any other. The parties agree that specific performance is an appropriate remedy for a breach of their respective obligations under this Agreement. 14.6 Amendment and Waivers. Any term or provision of this Agreement may --------------------- be amended by the parties hereto at anytime by execution of an instrument in writing signed on behalf of each of STI, SSI and VERITAS. At any time prior to the Closing, the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a writing signed by the party or parties to be bound thereby. The waiver by a -86- party of any breach hereof or default in the performance hereof will not be deemed to constitute a waiver of any other default or any succeeding breach or default. Delay in exercising any right under this Agreement shall not constitute a waiver of such right. This Agreement may be amended by the parties hereto at any time before or after approval of such party's stockholders, but, after such approval, no amendment will be made which by applicable law requires the further approval of a party's stockholders without obtaining such further approval. 14.7 Expenses. Except as herein expressly provided to the contrary in -------- this Agreement or the Ancillary Agreements, each party will bear its respective fees and expenses incurred with respect to the negotiation, preparation and performance of this Agreement and the transactions contemplated hereby; provided, however, that (i) SSI shall reimburse VERITAS upon the Closing for $300,000 of the cost incurred by VERITAS to print and file Form S-4 with respect to the Seagate Transaction; and (ii) upon Closing of the Merger and the Seagate Transaction, Newco shall pay 20% of the reasonable attorneys', accountants' and financial advisors' fees incurred by SSI and STI in connection with this Agreement. 14.8 Attorneys' Fees. Should suit be brought to enforce or interpret --------------- any part of this Agreement, the prevailing party will be entitled to recover, as an element of the costs of suit and not as damages, reasonable 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. 14.9 Notices. All notices and other communications pursuant to this ------- Agreement shall be in writing and deemed to be sufficient if contained in a written instrument and shall be deemed given if delivered personally, telecopied, sent by nationally-recognized overnight courier or mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following address (or at such other address for a party as shall be specified by like notice): If to SSI/STI to: Seagate Technology, Inc. and Seagate Software, Inc. 920 Disc Drive Scotts Valley, CA 95066 Attention: Thomas F. Mulvaney, Esq. Telecopier: (831) 438-6675 With a copy to: Wilson, Sonsini, Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 Attention: Larry Sonsini, Esq. Telecopier: (650) 493-6811 -87- And if to VERITAS or VERITAS Software Corporation or Newco to: VERITAS Software Corporation 1600 Plymouth Street Mountain View, CA 94043 Attention: Chief Executive Officer Telecopier: (650) 335-8050 With a copy to: Fenwick & West LLP Two Palo Alto Square Palo Alto, CA 94306 Attention: Gordon K. Davidson, Esq. Telecopier: (650) 494-1417 All such notices and other communications shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of a telecopy, when the party receiving such copy shall have confirmed receipt of the communication, (c) in the case of delivery by nationally-recognized overnight courier, on the business day following dispatch, and (d) in the case of mailing, on the third business day following such mailing. 14.10 Construction of Agreement. This Agreement has been negotiated by ------------------------- the respective parties hereto and their attorneys and the language hereof will not be construed for or against either party. A reference to a Section or an exhibit will mean a Section in, or exhibit to, this Agreement unless otherwise explicitly set forth. The titles and headings herein are for reference purposes only and will not in any manner limit the construction of this Agreement which will be considered as a whole. 14.11 No Joint Venture. Nothing contained in this Agreement will be ---------------- deemed or construed as creating a joint venture or partnership between any of the parties hereto. No party is by virtue of this Agreement authorized as an agent, employee or legal representative of any other party. No party will have the power to control the activities and operations of any other and their status is, and at all times, will continue to be, that of independent contractors with respect to each other. No party will have any power or authority to bind or commit any other. No party will hold itself out as having any authority or relationship in contravention of this Section. 14.12 Further Assurances. Each party agrees to cooperate fully with the ------------------ other parties and to execute such further instruments, documents and agreements and to give such further written assurances as may be reasonably requested by any other party to evidence and reflect the transactions described herein and contemplated hereby and to carry into effect the intents and purposes of this Agreement. -88- 14.13 Absence of Third Party Beneficiary Rights. Except as provided in ----------------------------------------- Sections 5.17 and 5.18, no provisions of this Agreement are intended, nor will be interpreted, to provide or create any third party beneficiary rights of any kind in any holder of the stock of VERITAS, Newco, any Contributing Company or a member of the Contributed Company Group or any Employee, client, customer, Affiliate, stockholder, partner or any party hereto or any other person or entity, and, except as so provided, all provisions hereof will be personal solely between the parties to this Agreement and no other person or entity shall have any cause of action as a third party beneficiary of this Agreement. 14.14 Public Announcement. Upon execution of this Agreement, VERITAS ------------------- and SSI promptly will issue a joint press release approved by both parties announcing the Merger and the Seagate Transaction. Thereafter, VERITAS or STI or SSI may issue such press releases, and make such other disclosures regarding the Merger and the Seagate Transaction, as they may each determine (after consultation with legal counsel) to be required under applicable securities laws or the rules of the Nasdaq Stock Market; VERITAS, SSI and STI shall confer with the other party prior to any press release or disclosure relating to the Merger or Seagate Transaction. 14.15 Certain Defined Terms. As used in this Agreement, the following --------------------- terms shall have the following meanings. "1998 GROUP BALANCE SHEET" is defined in Section 2.4(c). "AFFILIATE" means, with respect to a specified person, any other person that directly or indirectly controls, is controlled by, or is under common control with, such specified person or which hold at least a 10% ownership interest in said person. "ANCILLARY AGREEMENTS" means, collectively, the Stockholder Agreement, the Registration Rights Agreement, the Bill of Transfer, the Development Agreement, the agreements relating to the Patent Assignment, the Copyright Assignment and the Trademark Assignment, the Transition Services Agreement, the Cross-License Agreement and the Voting Agreement (as such terms are defined herein). "ASSUMED LIABILITIES" is defined in Section 1.4(b)(i). "BILL OF TRANSFER" means the Bill of Transfer for the Contributed Assets (other than the Contributed Stock) to be executed and delivered by the holders of such Contributed Assets and Newco at the Effective Time in form mutually acceptable to SSI and Newco. "CANCELED SSI OPTION" is defined in Section 1.3(a)(ii). "CERTIFICATE OF MERGER" is defined in Recital A. -89- "CHANGE IN VERITAS BOARD RECOMMENDATION" is defined in Section 9.1(i). "CLAIM ASSETS" shall mean all claims, security or similar deposits, rights to refunds, chooses in action, causes of action, rights of recovery or rights to damages, rights of set-off and other rights of recoupment (including without limitation any of the foregoing related to the payment of Taxes) to the extent arising out of the Conduct of the Group Business or directly related to any of the Group Assets. "CLOSING" has the meaning specified for such term in Section 6.1. "CLOSING GROUP ACCOUNT" is defined in Section 4.21. "COBRA" is defined in Section 2.8(c). "CONDUCT OF THE GROUP BUSINESS" means the conduct in all material respects of the Group Business as conducted on October 5, 1998 and at Closing. "CONDUCT OF THE VERITAS' BUSINESS" means the conduct in all material respects of the Group Business as conducted on October 5, 1998 and at Closing. "CONTRIBUTED ASSETS" shall mean those assets, including real property assets, that are owned, leased or licensed by the Contributing Companies that are (a) listed on Exhibit 14.15A attached hereto, (b) Intellectual Property -------------- Rights material to the production, development, support or marketing of the Group Products (subject to the provisions of Section 4.19), or (c) used primarily in the Group Business, and all Contributed Contracts to which any of the Contributing Companies is a party and subject to Section 4.15, all Financial Assets. "CONTRIBUTED COMPANIES" means Seagate Software Network & Storage Management Group, Inc., a Delaware corporation, Seagate Software Limited, a corporation formed under the laws of the United Kingdom, Seagate Software GmbH, a corporation formed under the laws of Germany, Seagate Software International Holdings Ltd., a limited liability company organized under the laws of the Cayman Islands, and Seagate Software Storage Management Group, Inc., a Delaware corporation, and Arcada Software Limited (U.K.), a corporation organized under the laws of the United Kingdom and Wales. "CONTRIBUTED COMPANY GROUP" means the Contributed Companies and the Contributed Subsidiaries. "CONTRIBUTED COMPANY PROPERTY" shall mean all of the assets, real, personal, tangible and intangible, owned, leased, licensed or otherwise held by any member of the Contributed Company Group. -90- "CONTRIBUTED CONTRACTS" means all agreements, contracts, understandings, arrangements, commitments, mortgages, indentures, leases, licenses, permits, franchises, instruments, notes, bonds, indemnities, guarantees, loan agreements, credit agreements, representations, warranties, deeds, assignments, powers of attorney, certificates, purchase orders, work orders, insurance policies, benefit plans, covenants, assurances or undertakings of any nature (i) to which any of the Contributed Company Group is a party, or (ii) which are used in the Group Business including but not limited to those listed on Exhibit 14.15B attached hereto subject in the case of Joint -------------- Contributed Agreements to the provisions of Section 8.16. The Contributed Contracts do not include the Tax Allocation Agreement dated April 4, 1996 or the Intra-Company Revolving Loan Agreement, dated June 28, 1996. "CONTRIBUTED GROUP ALTERNATIVE PROPOSAL" is defined in Section 4.11(a). "CONTRIBUTED SUBSIDIARIES" means the direct or indirect subsidiaries of the Contributed Companies identified in Exhibit 14.15C attached hereto. -------------- "CONTRIBUTED STOCK" means all of the capital stock of the Contributed Companies. "CONTRIBUTED STOCK AND ASSETS" means the Contributed Stock and the Contributed Assets. "CONTRIBUTING COMPANIES" means STI, SSI and any other subsidiary of STI or SSI (other than the Contributed Companies) which may own any interest in the Contributed Stock and Assets to be conveyed to Newco or that is liable for any Assumed Liability to be assumed by Newco under the term of this Agreement. "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a person, whether through the ownership of stock, as an officer, director or partner, by contract or otherwise. "COPYRIGHT ASSIGNMENT" is defined in Section 8.15. "CORE IP" is defined in Section 8.15. "CROSS-LICENSE AGREEMENT" means the Cross-License and OEM Agreement signed by the parties on October 5, 1998 attached hereto as Exhibit 4.14B executed and delivered by Seagate Software Information Management Group, Inc., Newco and VERITAS simultaneously with this Agreement. "DISPOSAL," "RELEASE," and "THREATENED RELEASE" shall have the definitions assigned thereto by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. ss. 9601 et seq., as amended ("CERCLA"). -91- "DELAWARE LAW" means the Delaware General Corporation Law, as in effect from time to time. "DEVELOPMENT AGREEMENT" means the Development and License Agreement signed by the parties on October 5, 1998 attached hereto as Exhibit 4.14A executed and delivered by Newco, VERITAS and STI simultaneously with this Agreement. "DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation. "DOLLARS" or "$" means U.S. dollars. "EFFECTIVE TIME" shall mean the effective time and date that the Certificate of Merger is deemed filed with the Secretary of State of the State of Delaware in accordance with the relevant provisions of the Delaware Law. "EMPLOYEE" and "EMPLOYEES" has the meaning specified in Section 12.1(a). "EMPLOYEE BENEFIT PLAN" is defined in Section 2.8(a). "ENCUMBRANCE" means any pledge, lien, collateral assignment, security interest, mortgage, deed of trust, title retention, conditional sale or other security arrangement, or any charge, adverse claim of title, ownership or use, or any other encumbrance of any kind. "ENVIRONMENTAL DAMAGE" means any actual or alleged Liability (including without limitation Liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on or relating to (i) the presence, discharge, emission or release into the environment of any Hazardous Substance or (ii) facts or circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. "ENVIRONMENTAL LAWS" means all federal, state, local and international laws and regulations relating to pollution, the protection of human health or the environment (including without limitation ambient air, surface water, ground water, land surface or subsurface strata), including without limitation laws and regulations relating to emissions, discharges, releases or threatened releases of Hazardous Substances, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rulings and regulations promulgated thereunder. "EXCHANGE ACT" is the Security Exchange Act of 1934, as amended. -92- "EXCLUDED LIABILITIES" shall have the meaning defined for it in Section 1.4(b)(ii). "FINAL DATE" is defined in the last paragraph of Section 9.1. "FINAL LIST" is defined in Section 12.1(a). "FINANCIAL ASSETS" shall mean (i) all cash and cash equivalents of any of the Contributed Companies, Contributed Subsidiaries or Contributing Companies arising from or generated by the Group Business; (ii) any of the Contributed Companies or Contributed Subsidiaries and other Group Business accounts receivable, unbilled receivables, and other amounts receivable from or to third parties; (iii) all rights of any of the Contributed Companies or Contributed Subsidiaries of every nature and description under or arising out of all insurance policies of any of the Contributed Companies or Contributed Subsidiaries; (iv) all Claim Assets; and (v) the minute books, stock ledgers and Tax records of any of the Contributed Companies or Contributed Subsidiaries. "FIRST SSI CERTIFICATE" is defined in Section 1.3(a)(i). "FORM S-4" is defined in Section 1.14. "FORM S-8" is defined in Section 1.7. "FORMER EMPLOYEES" is defined in Section 12.2(b). "GAAP" means United States generally accepted accounting principles and practices as in effect from time to time and applied consistently throughout the periods involved. "GOVERNMENTAL ANTITRUST AUTHORITY" means any federal, state, local or non-U.S. governmental or quasi-governmental authority charged with the administration or enforcement of antitrust, competition or merger control laws or regulations. "GOVERNMENTAL PERMITS" means all municipal, state, local, federal and other governmental franchises, permits, licenses, agreements, waivers and authorizations from, issued or granted by, any jurisdiction. "GROUP ASSETS" shall mean the Contributed Assets and all Contributed Company Property, considered collectively. "GROUP BENEFIT ARRANGEMENTS" is defined in Section 2.8(a). "GROUP BUSINESS" means the business of STI and its direct and indirect subsidiaries with respect to the Group Products, as reflected in the 1998 Group Balance Sheet, including without limitation the business of developing, manufacturing, marketing, licensing, distributing, using, operating, installing, servicing, supporting, maintaining, repairing or otherwise using or -93- commercially exploiting all or any aspect of any or all of the Group Products or of any Intangible Assets or Intellectual Property Rights related to any of the Group Products. "GROUP EMPLOYEE PLANS" is defined in Section 2.8(a). "GROUP FINANCIAL STATEMENTS" has the meaning given in Section 2.4(c). "GROUP FINANCIAL STATEMENTS BALANCE SHEET DATE" is defined in Section 2.4(c). "GROUP GOVERNMENTAL PERMITS" means those Governmental Permits required for the Conduct of the Group Business (including without limitation the manufacture or sale of the Group Products) that are held by any member of the Contributed Company Group or held, in whole or in part, primarily by a Contributing Company and required for the Conduct of the Group Business, or necessary for the use or operation of any of the Group Assets (including without limitation the Real Property Assets) or the manufacture or sale of any of the Group Products, to the extent legally transferable in accordance with this Agreement. "GROUP PERMITTED ENCUMBRANCE" means Encumbrances (a) as disclosed as an encumbrance in Exhibit 14.15E attached hereto or in the Seagate SEC Documents -------------- filed prior to October 5, 1998, (b) Encumbrances for Liabilities reflected in the Group Financial Statements or the VERITAS Financial Statements as appropriate, (c) liens for taxes not yet delinquent, (d) liens imposed by law and incurred in the ordinary course of business to carriers, warehousemen, laborers, material men and the like not yet due and payable, (e) immaterial imperfections of title set forth in the SSI Disclosure Letter (f) Encumbrances which are not material in amount or which will not materially interfere with the use of the Group Assets for the Conduct of the Group Business. "GROUP PERSONS" is defined in Section 5.18(a). "GROUP PRODUCTS" means the software and other products listed in the Group product list attached hereto as Exhibit 14.15D marketed or sold by any -------------- member of the Contributed Company Group or the Contributing Companies and all software under development for or licensed by the Group Business (together with all derivative works, upgrades, modifications, enhancements and configurations of any of the foregoing now existing or under development and all software and components included in any configuration of any of the foregoing, and all development and QA tools, utilities and diagnostics used to develop any of the foregoing, in each case whether or not ever commercially offered or price-listed, and whether or not in development). "GROUP RESTRICTIVE AGREEMENTS" is defined in Section 2.23. "HAZARDOUS MATERIALS" means: (i) any pollutant, contaminant, toxic, hazardous or noxious substance or waste which is regulated by the laws of any state, local, federal or other governmental authority or jurisdiction, including but not limited to the State of Florida and the United States -94- Government, and includes but is not limited to (a) any oil or petroleum compounds, flammable substances, explosives, radioactive materials, or any other materials or pollutants which pose a hazard to persons or cause any real property to be in violation of any Environmental Laws, (b) to the extent so regulated, asbestos or any asbestos-containing material of any kind or character, (c) polychlorinated biphenyls, as regulated by the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq., (d) any materials or substances -- --- designated as "hazardous substances" pursuant to (1) Section 311 of the Clean Water Act, 33 U.S.C. ss. 1251 et seq., or (2) Section 101 of the Comprehensive -- --- Environmental Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601 et -- seq., (e) "chemical substance," "new chemical substance," or "hazardous chemical - --- substance or mixture" pursuant to Sections 3, 6 and 7 of the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq., and (f) any "hazardous waste" pursuant -- --- to Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq. -- --- "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "IMG" means the business of SSI that does not constitute the Group Business. "INDEMNIFIED PARTIES" is defined in Section 5.17(c). "INSOLVENCY ACTION" means, with respect to a person, any or all of the following: (i) the voluntary or involuntary filing, with respect to such person, of a petition for relief, or any other effort to seek relief, under any Insolvency Proceeding; (ii) such person or any of its assets otherwise becoming the subject of an Insolvency Proceeding; (iii) the formal or informal dissolution, liquidation or winding up of such person, or any efforts to initiate or carry out such dissolution, liquidation or winding up; (iv) the appointment of (or efforts or attempts to appoint) a receiver, liquidator, sequestrator, trustee, custodian or other similar officer with respect to such person or any part of its assets or properties; or (v) any composition of the indebtedness of such person or any assignment for the benefit of such person's creditors. "INSOLVENCY PROCEEDING" means any or all of the following actions, events or proceedings: (i) any voluntary or involuntary case, contested matter or other proceeding under the United States Bankruptcy Code, as amended, and any successor law or laws thereto; or (ii) any case, action or other proceeding under any bankruptcy, insolvency, debt reorganization or similar law (whether now or hereafter in effect) of any state, country or other jurisdiction. "INTANGIBLE ASSETS" means, collectively, all intangible assets, properties and rights required for the development of the Group Products, constituting software (in both source code and binary code form), technology, works of authorship, manuals, logbooks, notebooks, user's guides, programmers' notes, documentation, know-how, trade secrets and training materials (for both training of customers and of service personnel). -95- "INTELLECTUAL PROPERTY RIGHTS" means, collectively, all of the following worldwide intangible legal rights including those existing or acquired by ownership, license or other legal operation, whether or not filed, perfected, registered or recorded and whether now or hereafter existing, filed, issued or acquired: (i) patents, patent applications, and patent rights, including any and all continuations, continuations-in-part, divisions, reissues, reexaminations or extensions thereof; (ii) inventions (whether patentable or not in any country), invention disclosures, industrial designs, improvements, trade secrets, proprietary information, know-how, technology and technical data; (iii) rights associated with works of authorship (including without limitation audiovisual works), including without limitation copyrights, copyright applications and copyright registrations, moral rights, mask work rights, mask work applications and mask work registrations; (iv) rights in trade secrets (including without limitation rights in Industrial Property, customer, vendor and prospect lists and all associated information or databases and other confidential or proprietary information), and all rights relating to the protection of the same including without limitation rights under nondisclosure agreements; (v) any other proprietary rights in technology, including software, all source and object code, algorithms, architecture, structure, display screens, layouts, inventions, development tools and all documentation and media constituting, describing or relating to the above, including, without limitation, manuals, memoranda, records, business information, or trade marks, trade dress or names, anywhere in the world; (vi) any rights analogous to those set forth in the preceding clauses and any other proprietary rights relating to intangible property, including without limitation brand names, trademarks, service marks, trademark and service mark registrations and applications therefor, trade names, rights in trade dress and packaging and all goodwill associated with the same; and (vii) all rights to sue or make any claims for any past, present or future infringement, misappropriation or unauthorized use of any of the foregoing rights and the right to all income, royalties, damages and other payments that are now or may hereafter become due or payable with respect to any of the foregoing rights, including without limitation damages for past, present or future infringement, misappropriation or unauthorized use thereof; and (viii) rights under license agreements for the foregoing. "INTERCOMPANY ACCOUNTS" means the net amounts payable by or owing to the Group Business as of the Effective Time as a consequence of the Conduct of the Group Business, in the ordinary course, (i) pursuant to (a) the Tax Allocation Agreement dated, as of April 4, 1996 between STI and SSI, as amended, (b) the Intercompany Revolving Loan Agreement dated as of June 28, 1996 between STI and SSI as amended, (c) the general services agreement, all of which are between the Contributed Company Group, on the one hand, and STI and its direct or indirect subsidiaries (other than the Contributed Company Group) on the other hand, or (ii) as a consequence of reimbursements by SSI or STI of amounts paid by them for the Conduct of the Business in the ordinary course; provided, however that in no event shall the Group Business be responsible for amounts attributable to the IMG business. "INTERIM PERIOD" is defined in Section 13.5(h). -96- "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, and the rulings and regulations promulgated thereunder. "JOINT CONTRIBUTED AGREEMENTS" is defined in Section 4.16. "KEY EMPLOYEES" means those individuals identified in Exhibits 4.17A and 5.16A attached hereto. "KEY EMPLOYEE AGREEMENTS" means the Key Employee Agreements in the form attached hereto as Exhibit 4.17B. "LIABILITIES" (or when used with reference to a single item described below, "LIABILITY") means debts, liabilities and obligations (whether pecuniary or not, including without limitation obligations to perform or forbear from performing acts or services), fines or penalties, whether accrued or fixed, absolute or contingent, matured or unmatured, determined or determinable, known or unknown, including without limitation those arising under any law, action or governmental order, liabilities for Taxes and those arising under any contract, agreement, arrangement, commitment or undertaking of any kind whatsoever (whether written or oral, express or implied), including, without limitation, those arising under any Contributed Contract. "LOSS" means and includes any and all Liability, loss, damage, claim, expense, cost, fine, fee, penalty, obligation, or injury, including, without limitation, those resulting from any and all claims, actions, suits, demands, assessments, investigations, judgments, orders, awards, arbitrations, settlements or other proceedings, together with reasonable costs and expenses, including the reasonable attorneys' and experts' fees, court costs, arbitration costs, filing fees and other legal costs and expenses relating thereto, together with interest accrued on each of the foregoing amounts from the date the same was incurred at the lower of (i) the prime rate charged from time to time by the Bank of America, N.T. & S.A. or (ii) the highest rate of interest permitted under applicable law. "MATERIAL ADVERSE EFFECT ON NEWCO" means any event, change or effect would have a material adverse effect on the business, tangible and intangible assets, financial condition, and future operations of Newco and its subsidiaries, taken as a whole, after the Effective Time or prevent in any material respect Newco from taking the actions anticipated by this Agreement and the Ancillary Agreements to be taken by Newco and its subsidiaries on and after the Effective Time. "MATERIAL ADVERSE EFFECT ON THE GROUP BUSINESS" means any event, change or effect which would have a material adverse effect on the business, tangible and intangible assets, financial condition, and results of operations of the Group Business, taken as a whole, or prevent in any material respect the performance by SSI, STI, and their subsidiaries of the actions anticipated by this Agreement and the Ancillary Agreements to be taken by them on or before the Closing. -97- "MATERIAL ADVERSE EFFECT ON VERITAS" means any event, change or effect would have a material adverse effect on the business, tangible and intangible assets, financial condition, and results of operations of VERITAS and the VERITAS Subsidiaries, taken as a whole, or prevent in any material respect the performance by VERITAS and its subsidiaries of the actions anticipated by this Agreement and the Ancillary Agreements to be taken by them on or before the Closing. "MATERIAL CONTRIBUTED CONTRACTS" is defined in the Preamble of Section 2.11. "MATERIAL VERITAS CONTRACTS" is defined in Section 3.11. "MERGER" is defined in Recital A. "MERGER SUB" is defined in Recital A. "MINORITY HOLDERS" means holders of shares of SSI other than STI. "MORGAN STANLEY ENGAGEMENT LETTER" is defined in Section 2.16. "MORGAN" means Morgan Stanley & Co. "MULTIEMPLOYER PLAN" is defined in Section 2.8(b). "MULTIPLE EMPLOYER PLAN" is defined in Section 2.8(b). "NEWCO COMMON STOCK" is defined in Recital A. "NEWCO OFFER" is defined in Recital A. "NEWCO OPTIONS" is defined in Recital A. "NEWCO PLANS" is defined in Section 1.6. "NEWCO RIGHTS AGREEMENT" is defined in Section 1.12. "NEWCO" means VERITAS Holding Corporation, a Delaware corporation. "NONDISCLOSURE AGREEMENT" is defined in Section 4.9. "NSMG" means Network & Storage Management Group, Inc., a Delaware corporation. "OMITTED BALANCE SHEET LIABILITIES" is defined in Section 11.1(e). "OPTIONEES" is defined in Recital A. -98- "PATENT ASSIGNMENT" is defined in Section 8.15. "PERSON" means any individual, partnership, limited liability company, firm, corporation, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended. "POST-CLOSING PERIOD" is defined in Section 13.5(b). "PRE-CLOSING PERIOD" is defined in Section 13.5(b). "PRELIMINARY LIST" is defined in Section 12.1(a). "PROSPECTUS" is defined in Section 5.6. "PROSPECTUS/PROXY STATEMENT" is defined in Section 1.14. "RATIOS" is defined in Section 1.3(a)(ii). "REAL PROPERTY ASSETS" shall mean all real property assets required for the Conduct of the Group Business. "REGISTRATION RIGHTS AGREEMENT" is defined in Section 4.18. "REPRESENTING SEAGATE ENTITIES" is defined in the Preamble of Section 2. "RETURNS" is defined in Section 13.1. "SEAGATE IP RIGHTS" is defined in Section 2.15(a). "SEAGATE IP RIGHTS AGREEMENTS" is defined in Section 2.15(c). "SEAGATE'S KNOWLEDGE" or "KNOWN TO SEAGATE." A particular fact or other matter shall be deemed to be within "Seagate's Knowledge" or "Known to Seagate" if any officer of SSI or a Contributed Company or any officer of STI responsible for the Group Business has current actual knowledge of such fact or other matter. "SEAGATE SEC DOCUMENTS" is defined in Section 2.4(a). "SEAGATE TRANSACTION" shall have the meaning described in Recital A hereto. "SEC" is the Securities and Exchange Commission. -99- "SECURITIES ACT" is the Securities Act of 1933, as amended. "SOLVENT" shall mean, with respect to any person on a particular date, that on such date (a) the fair value of the property of such person is greater than the total amount of liabilities, including contingent liabilities, of such person; (b) the present fair salable value of the assets of such person is not less than the amount that will be required to pay the probable liability of such person on its debts as they become absolute and matured; (c) such person does not intend to, and does not believe that it will, incur debts or liabilities beyond such person's ability to pay as such debts and liabilities mature; and (d) such person is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which such person's property would constitute an unreasonably small capital. The amount of contingent liabilities (such as litigation, guarantees and pension plan liabilities) at any time shall be computed as the amount that, in light of all the facts and circumstances existing at the time, represents the amount that can reasonably be expected to become an actual or matured liability. "SSI CONSOLIDATED FINANCIAL STATEMENTS" is defined in Section 2.4(b). "SSI CONSOLIDATED FINANCIAL STATEMENTS BALANCE SHEET" is defined in Section 2.4(b). "SSI DISCLOSURE LETTER" means a letter dated as of October 5, 1998 and supplemented with the prior written consent of VERITAS at any time prior to the Closing, delivered by STI and SSI to Newco and VERITAS concurrently with the execution of this Agreement and certified by an officer of each of STI and SSI on behalf of each such entity, to be true, accurate and complete. "SSI OPTIONS" is defined in Section 2.2(a). "SSI PERCENTAGE INTEREST" means a fully diluted equity interest in Newco (taking into account all options, warrants and convertible debentures on an as-converted basis) equal to 100% less the VERITAS Percentage Interest. "SSI RATIO" is defined in Section 1.3(a)(ii). "SSI PER SHARE VALUE" is defined in Section 1.3(a)(ii). "SSI" means Seagate Software, Inc., a Delaware corporation. "STATEMENT NO. 5" is Statement of Financial Accounting Standard No. 5. "STOCK RIGHTS" is defined in Section 1.7. "STOCKHOLDER AGREEMENT" is defined in Section 4.18. "STI" means Seagate Technology, Inc., a Delaware corporation. -100- "TAX" or "TAXES" means all taxes of any kind whatsoever (whether payable directly or by withholding), including without limitation franchise, income, gross receipts, personal property, real property, ad valorem, value added, sales, use, documentary, stamp, intangible personal property, withholding or other taxes, together with any interest and penalties, additions to tax or additional amounts with respect thereto imposed by any taxing authority. "TAX ALLOCATION AGREEMENT" is defined in Section 13.5(d). "TELEBACKUP TRANSACTION" means the acquisition by Newco of TeleBackup Systems, Inc., a Canadian company, pursuant to the terms of that certain Combination Agreement dated September 1, 1998 entered into between VERITAS and TeleBackup Systems, Inc. (the "TELEBACKUP COMBINATION AGREEMENT"). "THRESHOLD AMOUNT" is defined in Section 11.1(e). "TRADEMARK ASSIGNMENT" is defined in Section 8.15. "TRANSACTION TAXES" is defined in Section 13.1. "TRANSITION SERVICES AGREEMENT" is defined in Section 4.13. "UNFORESEEN TAX LIABILITIES" is defined in Section 11.1(e). "VERITAS" is VERITAS Software Corporation and VERITAS Surviving Corporation. "VERITAS ALTERNATIVE PROPOSAL" is defined in Section 5.20(a). "VERITAS ASSETS" are the tangible and intangible, real and personal assets owned, leased or licensed by VERITAS. "VERITAS BALANCE SHEET" is defined in Section 3.14. "VERITAS BENEFIT ARRANGEMENT" is defined in Section 3.8(a). "VERITAS BUSINESS" is the business of VERITAS as carried on immediately prior to the Seagate Transaction, including without limitation VERITAS' business of developing, manufacturing, marketing, licensing, distributing, using, operating, installing, servicing, supporting, maintaining, repairing or otherwise using or commercially exploiting all or any aspect of any or all of the VERITAS Products or VERITAS Assets. "VERITAS CLOSING PRICE" is defined in Section 1.3(a)(ii). "VERITAS COMMON STOCK" is defined in Section 1.2(a). -101- "VERITAS CONTRACTS" means all agreements, contracts, understandings, arrangements, commitments, mortgages, indentures, leases, licenses, permits, franchises, instruments, notes, bonds, indemnities, guarantees, loan agreements, credit agreements, representations, warranties, deeds, assignments, powers of attorney, certificates, purchase orders, work orders, insurance policies, benefit plans, covenants, assurances or undertakings of any nature to which VERITAS or the VERITAS Subsidiaries are a party. "VERITAS DEBENTURES" is defined in Section 1.2(b)(i). "VERITAS DISCLOSURE LETTER" is defined in the preamble of Section 3. "VERITAS EMPLOYEES" are the employees of VERITAS. "VERITAS EMPLOYEE PLANS" is defined in Section 3.8(a). "VERITAS FINANCIAL STATEMENTS" is defined in Section 3.4(b). "VERITAS FINANCIAL STATEMENTS BALANCE SHEET DATE" is defined in Section 3.4(b). "VERITAS GROUP" is defined in the Preamble of Section 3. "VERITAS IP RIGHTS" is defined in Section 3.15(a). "VERITAS IP RIGHTS AGREEMENTS" is defined in Section 3.15(c). "VERITAS' KNOWLEDGE" or "KNOWN TO VERITAS". A particular fact or other matter shall be deemed to be within "VERITAS' Knowledge" or "Known to VERITAS" if any officer of VERITAS has current actual knowledge of such fact or other matter. "VERITAS OPTIONS" is defined in Section 1.2(b)(i). "VERITAS PERCENTAGE INTEREST" means that percentage of the fully diluted Common Stock equivalent equity interests in Newco (assuming conversion of all convertible securities and exercise of all options and warrants) immediately following the Effective Time which equals the greater of (a) 60% or (b) that percentage which results in the holders of VERITAS Common Stock, options, warrants and convertible debentures immediately before the Effective Time owning, immediately after the Effective Time, 60% of the Common Stock equivalent equity interests in Newco computed using the treasury stock method with respect to the outstanding options and warrants but not with respect to convertible debentures (which shall be treated as if converted to Common Stock). For this purpose, "treasury stock method" means that the number of shares issuable upon exercise of all outstanding options and warrants of Newco immediately after the Effective Time (but excluding any shares issuable upon exchange of TeleBackup "Exchangeable Shares" (as such term is defined in the -102- TeleBackup Combination Agreement) or any shares issuable upon exercise of options assumed by Newco in connection with the TeleBackup Transaction) will be deemed to be reduced by the number of shares that could be repurchased at the VERITAS Closing Price with the proceeds from the hypothetical exercise of all such outstanding options and warrants which have exercise prices less than the VERITAS Closing Price. Attached hereto as Exhibit 14.15H is an exemplar of the methodology to be used in calculating the VERITAS Percentage Interest at the Closing. "VERITAS PERMITTED ENCUMBRANCE" means Encumbrances (a) as disclosed as an Encumbrance in the VERITAS Disclosure Schedule or the VERITAS SEC Documents filed prior to October 5, 1998, (b) Encumbrances for liabilities reflected in the VERITAS Financial Statements, (c) liens for current taxes not yet delinquent, (d) liens imposed by law and incurred in the ordinary course of business to carriers, warehousemen, laborers, material men and the like not yet due, (e) immaterial imperfections of title set forth in the VERITAS Disclosure Letter (f) Encumbrances which are not material in amount or which will not materially interfere with the use of the VERITAS Assets for the Conduct of the VERITAS Business. "VERITAS PLANS" is defined in Section 1.2(b)(i). "VERITAS PRODUCTS" means the software and other products marketed or sold by VERITAS and all of software products currently under development by or for VERITAS or for use or sale or license by VERITAS (in each case together with all of the software, products, and other items listed on VERITAS' products price list) and all derivative works, upgrades, modifications, enhancements and configurations of any of the foregoing and all software and components included in any configuration of any of the foregoing, and all development tools, utilities and diagnostics used to develop any of the foregoing in each case (whether or not ever commercially offered or price-listed, and whether or not in development). "VERITAS RATIO" is defined in Section 1.2(a). "VERITAS RESTRICTIVE AGREEMENTS" is defined in Section 3.23. "VERITAS SEC DOCUMENTS" is defined in Section 3.4(a). "VERITAS SUBSIDIARY" shall mean any direct or indirect subsidiary of VERITAS listed on Exhibit 14.15G attached hereto. "VERITAS STOCK PURCHASE PLAN" is defined in Section 1.2(b)(ii). "VERITAS STOCK PURCHASE PLAN RIGHTS" is defined in Section 1.2(b)(ii). "VERITAS STOCKHOLDER APPROVAL" is defined in Section 5.20(b). -103- "VERITAS STOCKHOLDER REJECTION" is defined in Section 9.1(h). "VERITAS SURVIVING CORPORATION" is defined in Section 1.8. "VERITAS WARRANTS" is defined in Section 1.2(b)(i). "VOTING AGREEMENT" is defined in Section 5.15. "WARBURG" is Warburg, Pincus Investors, L.P. a limited partnership. 14.16 Entire Agreement. This Agreement and the exhibits hereto ---------------- constitute the entire understanding and agreement of the parties hereto with respect to the subject matter hereof and supersede all prior and contemporaneous agreements or understandings, inducements or conditions, express or implied, written or oral, between the parties with respect hereto other than the Nondisclosure Agreement, which shall remain in full force and effect. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. [REMAINDER OF PAGE LEFT BLANK] -104- IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Agreement and Plan of Reorganization as of the date first above written.
VERITAS SOFTWARE CORPORATION, SEAGATE TECHNOLOGY, INC., a Delaware corporation a Delaware corporation By: /s/ Mark Leslie By: /s/ Stephen J. Luczo _______________________________________ ______________________________________ President and Chief Executive Officer President and Chief Executive Officer VERITAS HOLDING CORPORATION, a Delaware corporation By: /s/ Mark Leslie _______________________________________ President SEAGATE SOFTWARE, INC., SEAGATE SOFTWARE NETWORK & a Delaware corporation STORAGE MANAGEMENT GROUP, INC. a Delaware corporation By: /s/ Terence R. Cunningham By: /s/ Terence R. Cunningham _______________________________________ ______________________________________ President and Chief Operating Officer President and Chief Executive Officer
[SIGNATURE PAGE TO AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION] -105- EX-4.5 3 FORM OF STOCKHOLDER AGREEMENT EXHIBIT 4.5 STOCKHOLDER AGREEMENT This Stockholder Agreement (the "AGREEMENT") is entered into as of __________, 1999, (the "EFFECTIVE DATE") by and among VERITAS Software Corporation, a Delaware corporation ("VERITAS"), VERITAS Holding Corporation, a Delaware corporation ("NEWCO"), Seagate Technology, Inc., a Delaware corporation ("STI"), and Seagate Software, Inc., a Delaware corporation ("SSI", and collectively with STI and STI's other controlled subsidiaries, "SEAGATE"). RECITALS A. The parties have entered into an Agreement and Plan of Reorganization (the "PLAN") whereby (i) a newly formed, wholly owned subsidiary of Newco ("NEWCO VERITAS MERGER SUB") will be merged with and into VERITAS, with VERITAS being the surviving corporation of such merger (the "VERITAS MERGER"); (ii) all VERITAS securities will be converted, share-for-share, into Newco securities with identical rights, preferences and privileges (and Newco will assume all outstanding options, warrants, convertible debentures and other rights to purchase shares of capital stock of VERITAS); and (iii) Seagate will transfer to Newco all assets used in connection with the business previously carried on by Seagate's Network & Storage Management Group ("NSMG"), in consideration for which Newco will issue Newco securities to SSI and offer to issue Newco securities to former NSMG employees holding options to purchase SSI securities, which Newco securities in the aggregate will represent approximately 40% of the fully diluted equity securities of Newco (collectively, the "REORGANIZATION"). B. As an inducement for Newco to enter into the Plan, the parties desire to enter into this Agreement, which shall become effective on the effective date of the Reorganization and, among other things, grants Seagate certain rights and places certain restrictions on Seagate and on the Newco securities that Seagate now holds or hereafter acquires. NOW, THEREFORE, in consideration of the above recitals and the mutual covenants hereinafter set forth, the parties hereby agree as follows: 1. BOARD OF DIRECTORS 1.1 APPOINTMENTS. Upon the closing of the Plan, Newco shall increase the size of its Board of Directors (the "NEWCO BOARD") to ten persons and appoint Terence R. Cunningham and two designees of Seagate, Stephen J. Luczo, and Greg Kerfoot, as members of the Newco Board. 1.2 TWO DESIGNEES. For so long as Seagate owns at least 15% of the outstanding Common Stock of Newco, Newco and its Board of Directors shall nominate, in connection with each stockholder solicitation relating to the election of Newco directors, two candidates designated by Seagate who are reasonably acceptable to Newco. 1.3 ONE DESIGNEE. For so long as Seagate owns at least 5% and not more than 15% of the outstanding Common Stock of Newco, Newco and its Board of Directors shall nominate, in connection with each stockholder solicitation relating to the election of Newco directors, one candidate designated by Seagate who is reasonably acceptable to Newco. 1.4 AFFILIATES. For purposes of this Agreement, all shares held by an entity or person controlling, controlled by or under common control with Seagate will be deemed to be owned by Seagate. 1.5 VOTING OF MANAGEMENT SHARES. Newco shall use its best efforts (i) to cause the Newco Board to unanimously recommend to its stockholders that such stockholders vote in favor of the designee(s) of Seagate under Section 1.2 or 1.3 of this Agreement (the "SEAGATE DESIGNEE(S)"); and (ii) to cause the shares for which Newco's management holds proxies to be voted in favor of the election of such Seagate Designee(s) nominated pursuant to this Agreement. 1.6 VACANCIES. In the event that any Seagate Designee shall cease to serve as a member of the Board of Directors of Newco for any reason, the vacancy resulting therefrom shall be filled by another Seagate Designee. 1.7 EQUAL TREATMENT. Newco shall provide to the Seagate Designee(s) that are not employees of Newco the same compensation, rights and benefits and indemnities as are provided to other non-employee members of the Newco Board. 1.8 PARTICIPATION ON BOARD COMMITTEES. At the Effective Date, Newco will have two committees of the Board of Directors: a Compensation Committee and an Audit Committee. 1.9 STAGGERED BOARD OF DIRECTORS. At the Effective Date, Newco's Board of Directors shall be classified into three classes consisting of Classes A, B and C, with each class serving for staggered three year terms. As an initial matter, the Directors in Class A will serve for a term ending at Newco's annual meeting of stockholders in 1999; the Directors in Class B will serve for a term ending at Newco's annual meeting of stockholders in 2000; and the Directors in Class C will serve for a term ending at Newco's annual meeting of stockholders in 2001. At the Effective Date, the class A Directors shall consist of Gregory Kerfoot, Geoffrey Squire and Roel Pieper; the Class B Directors shall consist of Mark Leslie, Joseph Rizzi, William Janeway and Terence R. Cunningham; and the Class C Directors shall consist of Stephen Brooks, Fred van den Bosch and Stephen J. Luczo. 1.10 TERMINATION. All rights and obligations under this Section 1 shall terminate and have no further force or effect immediately upon Seagate ceasing to hold at least 5% of the outstanding Common Stock of Newco. 2. RESTRICTIONS UPON TRANSFER OF SHARES 2.1 PERMITTED SALES OF NEWCO STOCK. For so long as Seagate owns (of record or beneficially) at least 5% of the outstanding Common Stock of Newco, Seagate shall not sell, -2- transfer, assign, pledge, hypothecate or otherwise dispose of any interest in any Newco securities, directly or indirectly, for a period of one year following the consummation of the Plan, except as provided in Section 2.2 below, and thereafter shall not so dispose of any Newco securities except (i) to Newco or to a person or persons that Newco has previously approved in writing; (ii) pursuant to a Bona Fide Public Offering (as defined below); (iii) pursuant to Rule 144 under the Securities Act of 1933, as amended (the "SECURITIES ACT"); (iv) in other private transactions so long as such private transactions do not result, to the knowledge of Seagate, in any single person or group owning 5% or more of the total outstanding voting stock of Newco; (v) in response to a tender offer not opposed by the Newco Board; (vi) in a merger or consolidation approved by the Newco Board in which Newco is acquired; or (vii) pursuant to a plan of liquidation that is authorized by the Newco Board. As used in this Agreement, "BONA FIDE PUBLIC OFFERING" means a firm commitment underwritten public offering of Newco equity or convertible debt securities registered under the Securities Act in which Newco securities are offered to a broad range of investors and which registration has been declared effective by the Securities and Exchange Commission. 2.2 PERMITTED SALES DURING FIRST YEAR. Seagate may sell (a) up to a maximum number of 6,000,000 shares of Newco Common Stock in one BONA FIDE PUBLIC OFFERING in the first year following consummation of the Plan, and (b) in any quarters in which the BONA FIDE PUBLIC OFFERING referred to in clause (a) above has not been completed, Newco Common Stock according to the following schedule: (i) up to a maximum amount of 2,000,000 shares in the quarters ending in September, 1999, December, 1999, and March, 2000 and (ii) up to a maximum amount of 3,000,000 shares in the quarter ending in June, 2000. Newco shall pay all expenses incurred in connection with a BONA FIDE PUBLIC OFFERING pursuant to this Section including, without limitation, all registration and filing fees, printing expenses, custody fees, fees and disbursements of counsel for Newco, blue sky fees and expenses, and the expense of any special audits incident to or required by any such BONA FIDE PUBLIC OFFERING but not including any underwriting discounts and selling commissions applicable to the sale of the shares and all fees and disbursements of counsel for Seagate. 3. VOTING PROVISIONS. 3.1 PROPORTIONAL VOTING. For so long as Seagate owns (of record or beneficially) at least 5% of the outstanding Common Stock of Newco in connection with all matters to be voted on by the stockholders of Newco, Seagate shall vote all shares of Newco Common Stock then owned, directly or indirectly, by it in the same proportion as the votes cast by all other holders of Newco's Common Stock, except that Seagate may vote its shares as it determines in its sole discretion as to the following specific matters: (i) a change in the Fundamental Rights (as defined below) of Newco Common Stock; and (ii) a recapitalization in which Newco Common Stock is converted or exchanged for a security having substantially different Fundamental Rights than Newco Common Stock (but in all events excluding any recapitalization or reorganization accomplished in connection with a Corporate Event). A "CORPORATE EVENT" shall include any merger, acquisition, consolidation or reorganization, any transaction of a type contemplated by Section 351 of the Internal Revenue Code of 1986, as amended (the "CODE") or any other similar transaction whereby (a) Newco is acquired by a third party, (b) where there has been a "change of control" such that the stockholders of Newco prior to a transaction own, in the aggregate, less than a majority of the outstanding stock of Newco or the acquiring entity after the transaction, (c) Newco acquires another entity, or (d) Newco acquires all or substantially all of the assets of another entity. "FUNDAMENTAL RIGHTS" shall mean the right to vote Newco's shares and to participate pro rata with other holders of Newco Common Stock in any distribution to the holders of Newco Common Stock. 3.2 NO DISSENT. For so long as Seagate owns (of record or beneficially) at least 5% of the outstanding Newco Common Stock, Seagate agrees that it will not exercise dissenter's or appraisal rights or otherwise dissent or seek appraisal rights with respect to any Corporate Event involving Newco that has been approved by the Newco Board. -3- 4. STANDSTILL PROVISIONS. 4.1 STANDSTILL. Seagate hereby agrees that, until the fifth anniversary of the Effective Date, Seagate will not, without Newco's prior written consent: (i) acquire, or enter into discussions, negotiations, arrangements or understandings with any third party to acquire, beneficial ownership (as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of any Newco securities entitled to vote with respect to the election of any directors of Newco ("VOTING STOCK"), any securities convertible into, exchangeable for or exerciseable for, or that may otherwise become, Voting Stock, or any other right to acquire Voting Stock, if the effect of such acquisition would be that Seagate would then beneficially own and/or have the right to acquire more than [__] percent (__%) of the Voting Stock [THIS WILL BE THE PERCENTAGE OF VOTING STOCK HELD BY SEAGATE AS OF THE EFFECTIVE DATE] (the "STANDSTILL PERCENTAGE"); (ii) make, or in any way participate in, any "solicitation" of "proxies" (as such terms are defined or used in Regulation 14A under the Exchange Act, as such Regulation is currently in effect) with respect to the voting of any Voting Stock if Newco is at the time of such solicitation publicly-traded and subject to the proxy rules promulgated under the Exchange Act; or (iii) otherwise seek, either alone or in concert with others, to control the Newco Board or the policies of Newco. Notwithstanding the foregoing, nothing herein shall limit Seagate's ability to exercise its rights under Section 5 hereof. For purposes of this Section 4, any shares of Newco Common Stock or options or rights to acquire such Newco Common Stock acquired by Seagate Affiliates who are also employees or directors of Newco pursuant to Newco's option and employee stock purchase plans (including any options to purchase Newco securities issued to such persons under the terms of the Plan) shall be excluded from the calculation of the number of shares of Voting Stock held by Seagate. 4.2 EXCEPTIONS TO STANDSTILL. Notwithstanding the restrictions set forth in Section 4.1 above: (a) ACQUISITIONS. Seagate may acquire Voting Stock, and the limitations of Section 4.1 shall be suspended, upon the earlier of: (i) the date that a third party not affiliated with Seagate commences a tender or exchange offer that is made and is not withdrawn or terminated to purchase, or to exchange for cash or other consideration, Voting Stock that, if accepted or if otherwise successful, would result in such person or group beneficially owning or having the right to acquire shares of Voting Stock (not counting any shares of Voting Stock originally acquired by such third party from Seagate or any Seagate Affiliate) with aggregate Voting Power (as defined below) representing more than 50% of the Total Voting Power (as defined below) of Newco then in effect provided, however, that the foregoing standstill limitation will be -------- ------- reinstated if any such tender or exchange offer is withdrawn or terminated, (ii) the public announcement by Newco that it has entered into any agreement with respect to a merger, consolidation, reorganization or similar transaction involving Newco in which all the -4- stockholders of Newco before such transaction collectively will own less than 50% of the outstanding voting stock of the surviving or acquiring entity immediately after such transaction provided, however; that the foregoing -------- ------- standstill limitation will be reinstated if such transaction is terminated prior to consummation thereof, or (iii) the sale or disposition of all or substantially all of Newco's assets. (b) NO OBLIGATION TO DISPOSE. Seagate will not be obliged to dispose of any Voting Stock to the extent that the aggregate percentage of the Total Voting Power represented by shares of Voting Stock beneficially owned by Seagate or which Seagate has a right to acquire is increased beyond the Standstill Percentage: (i) as a result of a recapitalization of Newco or a repurchase or exchange of securities by Newco or any other action taken by Newco or its affiliates; (ii) as the result of any acquisition of Voting Stock made during the period when Seagate's "standstill" obligations are suspended pursuant to Section 4.2(a); (iii) by way of stock dividend or other distribution or rights or offerings made available to holders of shares of Voting Stock generally; (iv) with the consent of a simple majority of the [members of Newco's Board of Directors that have not been designated by Seagate; or (v) as part of a transaction on behalf of Seagate's Profit Sharing Retirement Plan, 401(k) Savings Plan, or any successor or additional retirement plans thereto (collectively, the "RETIREMENT PLANS") where Newco shares in such Retirement Plans are voted by a trustee for the benefit of Seagate employees or, for those Retirement Plans where Seagate controls voting, where Seagate agrees that any shares of Voting Stock in such Retirement Plans will be subject to the Voting Provisions of Section 3 hereof. (c) VOTING POWER. As used in this Section 4, (i) the term "VOTING POWER" means the number of votes such Voting Stock is entitled to cast with respect to the election of directors of Newco at any meeting of stockholders of Newco; and (ii) the term "TOTAL VOTING POWER" means the total number of votes which may be cast in the election of directors of Newco at any meeting of stockholders of Newco if all Voting Stock was represented and voted to the fullest extent possible at such meeting, other than votes that may be cast only upon the happening of a contingency that has not occurred. For purposes of this Section 4, "SEAGATE" shall mean not only Seagate, as defined in the preamble of this Agreement, but also any entity or person controlling, controlled by or under common control with Seagate (except as set forth in the last paragraph of Section 4.1). 5. RIGHT TO MAINTAIN. 5.1 GENERAL. If Newco is contemplating the issuance of Dilutive Securities (as defined in Section 5.2 below) to a third party (including but not limited to a customer, supplier, developer or reseller) as part of a strategic business relationship with such third party (a "STRATEGIC CUSTOMER"), SSI will have the right, pursuant to the terms and conditions of this Section 5, to purchase from Newco the same Dilutive Securities as are issued by Newco to the Strategic Customer ("MAINTENANCE SECURITIES") at the Purchase Price (as defined in Section 5.3) following the issuance by Newco of such securities to the Strategic Customer, solely in order to maintain SSI's Prior Percentage Interest (as defined in Section 5.4) in Newco (the "RIGHT OF MAINTENANCE"). Each right to purchase Maintenance Securities pursuant to this Section 5 shall -5- be on the same terms (other than price to the extent provided in Section 5.3 below) as the issuance of securities which gave rise to the right to purchase such Maintenance Securities. 5.2 DILUTIVE SECURITIES. "DILUTIVE SECURITIES" shall mean any Common Stock, Preferred Stock or voting capital stock of Newco, whether or not now authorized, which is issued to a Strategic Customer; provided, however, that the -------- ------- term "Dilutive Securities" does not include: ---- --- ------- (a) any Common Stock, Preferred Stock or other capital stock issued upon exercise of any options or warrants or upon conversion of any debentures or other convertible securities outstanding as of the date hereof; (b) any Common Stock, Preferred Stock or other capital stock issued to employees, directors, consultants or advisors, pursuant to incentive agreements, plans or arrangements approved by the Newco Board; (c) any securities (including Common Stock, Preferred Stock, capital stock or convertible debt securities) issued in connection with a Bona Fide Public Offering; (d) any securities issued in connection with any stock split, stock dividend or similar event in which SSI is entitled to participate on a proportionate basis; or (e) any securities issued in connection with any Corporate Event. 5.3 PURCHASE PRICE. (a) GENERAL. The per share "PURCHASE PRICE" of the Maintenance Securities shall equal the per share price at which such Dilutive Securities were issued, unless the issuance of such other Dilutive Securities occurred upon the exercise, conversion or exchange of other securities ("EXCHANGEABLE SECURITIES"), in which case, the per share "Purchase Price" of the Maintenance Securities shall equal the sum of (i) the per share amounts paid upon each such exercise, conversion or exchange, and (ii) the per share amount previously paid for the Exchangeable Securities (adjusted for any stock splits, stock dividends or other similar events). (b) CONSIDERATION OTHER THAN CASH. In the event that Dilutive Securities or Exchangeable Securities were issued for consideration other than cash, the per share amounts paid for such Dilutive Securities or Exchangeable Securities shall be determined jointly by Newco and SSI. (c) APPRAISER. If Newco and SSI are unable to reach agreement within a reasonable period of time with respect to (i) the fair market value of unlisted securities (the "MARKET PRICE"); or (ii) the per share amounts paid for Dilutive Securities or Exchangeable Securities issued for consideration other than cash, such Market Price or per share amounts paid, as the case may be, shall be determined by an appraiser jointly selected by Newco and SSI. The determination of such appraiser shall be final and binding on Newco and SSI. The fees and expenses of such appraiser shall be paid by Newco, provided that such fees and expenses shall be paid by SSI in the event that the appraiser's determination of the Market Price or the per share -6- amounts paid, as the case may be, is higher than, or no more than 5% lower than, the last amount previously offered by Newco. 5.4 PRIOR PERCENTAGE INTEREST. SSI's "PRIOR PERCENTAGE INTEREST" for purposes of the Right of Maintenance is the ratio of (a) the number of shares of Common Stock held by SSI as of the date of such Maintenance Notice (as defined in Section 5.6) (the "NOTICE DATE") that represent shares that SSI purchased pursuant to (i) the Plan, and (ii) prior exercises of the Right of Maintenance, to (b) the total number "Common Stock Equivalents" (as defined below) of Newco outstanding immediately prior to the issuance of the Dilutive Securities. The total number of Common Stock Equivalents of Newco shall be calculated assuming the conversion of all outstanding options, warrants and convertible debentures to Common Stock; provided, however, that the total number of shares subject to outstanding options (but not the number of shares issuable upon the exercise of convertible debentures) shall be calculated on the Treasury Method. 5.5 MAINTENANCE AMOUNT. SSI's "MAINTENANCE AMOUNT" with respect to any Maintenance Notice shall equal such number of Maintenance Securities as is obtained by multiplying the number of Dilutive Securities specified in such Maintenance Notice by SSI's Prior Percentage Interest, rounded to the nearest whole share. 5.6 NOTICE OF ISSUANCE. Within 15 business days of each issuance of Dilutive Securities, Newco shall give to SSI written notice (the "MAINTENANCE NOTICE") describing the number of Dilutive Securities issued since such prior Notice Date and the terms upon which Newco issued such Dilutive Securities, and the Maintenance Amount of Maintenance Securities that SSI is entitled to purchase as a result of such issuance. 5.7 PURCHASE OF MAINTENANCE SECURITIES. SSI shall have 15 business days from the receipt of a Maintenance Notice to elect to purchase up to SSI's Maintenance Amount of such Maintenance Securities at the Purchase Price as defined in Section 5.3 and upon the terms and conditions specified in the Maintenance Notice. The closing of such purchase shall occur within 5 business days after such election to purchase. If SSI fails to elect to purchase SSI's full Maintenance Amount of Maintenance Securities within such 15 business day period, then SSI shall forfeit the right hereunder to purchase that part of SSI's Maintenance Amount that it did not so elect to purchase. 5.8 TERMINATION. The Right of Maintenance shall terminate upon the earlier of (i) the third anniversary of the Effective Date; or (ii) such time as Seagate ceases to own at least ten percent of the outstanding Common Stock of Newco. -7- 6. GENERAL PROVISIONS. 6.1 NOTICES. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if deposited in the U.S. mail by registered or certified mail, return receipt requested, postage prepaid, as follows: (a) if to Newco, at: VERITAS Holding Corporation 1600 Plymouth Avenue Mountain View, CA Attention: Vice President, General Counsel Facsimile: 650-526-2581 with a copy to: Fenwick & West LLP Two Palo Alto Square, Suite 800 Palo Alto, CA 94306 Attention: Jacqueline Daunt, Esq. Facsimile: 650-494-1417 (b) If to Seagate: Seagate Software, Inc. 915 Disc Drive Scotts Valley, CA 95066-7427 Attention: General Counsel Facsimile: 831-438-0721 with a copy to: Wilson, Sonsini, Goodrich & Rosati P.C. 650 Page Mill Road Palo Alto, CA 94304-1050 Attention: Larry Sonsini, Esq. Facsimile: 650-493-6811 Any party hereto (and such party's permitted assigns) may by notice so given provide and change its address for future notices hereunder. Notice shall conclusively be deemed to have been given when personally delivered or when deposited in the mail in the manner set forth above. 6.2 ENTIRE AGREEMENT. This Agreement constitutes and contains the entire agreement and understanding of the parties with respect to the subject matter hereof and -8- supersedes any and all prior negotiations, correspondence, agreements, understandings, duties or obligations between the parties respecting the subject matter hereof. 6.3 AMENDMENT OF RIGHTS. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of Newco, SSI and STI (or any of their permitted successors or assigns). 6.4 GOVERNING LAW. This Agreement shall be governed by and construed exclusively in accordance with the internal laws of the State of Delaware as applied to agreements among Delaware residents entered into and to be performed entirely within Delaware, excluding that body of law relating to conflict of laws and choice of law. 6.5 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, then such provision(s) shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms. 6.6 THIRD PARTIES. Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the parties hereto and their successors and assigns, any rights or remedies under or by reason of this Agreement. 6.7 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall inure to the benefit of, and shall be binding upon, the successors and permitted assigns of the parties hereto. 6.8 CAPTIONS. The captions to sections of this Agreement have been inserted for identification and reference purposes only and shall not be used to construe or interpret this Agreement. 6.9 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.10 COSTS AND ATTORNEYS' FEES. In the event that any action, suit or other proceeding is instituted concerning or arising out of this Agreement or any transaction contemplated hereunder, the prevailing party shall recover from the other party all of such prevailing party's costs and attorneys' fees incurred in each such action, suit or other proceeding, including any and all appeals or petitions therefrom. -9- IN WITNESS WHEREOF, the parties hereto have executed this Stockholder Agreement as of the date and year first above written. SEAGATE SOFTWARE, INC. VERITAS HOLDING CORPORATION By:__________________________ By:________________________________ Name:________________________ Name:______________________________ Title:_______________________ Title: Vice President and General Counsel SEAGATE TECHNOLOGY, INC. VERITAS SOFTWARE CORPORATION By:__________________________ By:________________________________ Name:________________________ Name:______________________________ Title: Title: Vice President and General Counsel [SIGNATURE PAGE TO STOCKHOLDER AGREEMENT] -10- EX-10.16(1) 4 AMENDMENT NO. 1 TO CROSS-LICENSE & OEM AGREEMENT Exhibit 10.16.1 AMENDMENT NO. 1 TO CROSS-LICENSE AND OEM AGREEMENT This Amendment No. 1 to the parties' Cross-License and OEM Agreement (the "Amendment") is entered into as of the Effective Date by and between Seagate Software Information and Management Group, Inc., a British Columbia corporation, with offices at 840 Cambie Street, Vancouver, British Columbia, Canada V6E 2M6 (together with its Affiliates, "IMG") and VERITAS Holding Corporation, a Delaware corporation, with offices at 1600 Plymouth Street, Mountain View, California 94043 and VERITAS Software Corporation, a Delaware corporation, with offices at 1600 Plymouth Street, Mountain View, California 94043. WHEREAS, VERITAS and IMG have entered into a Cross-License and OEM Agreement (the "Cross-License Agreement"), effective upon the closing of the Merger Agreement; and WHEREAS, the parties desire to amend the Cross-License Agreement, to expand IMG's rights with respect to Manage Exec and with respect to Client Exec; NOW, THEREFORE, the parties agree that the Cross-License Agreement is amended as follows: 1. Definitions and Related Matters. Terms used herein shall have the ------------------------------- meaning specified therefor in the Cross-License Agreement. In addition, the following terms are defined as follows: (a) "VERITAS" shall mean VERITAS Holding Corporation and/or VERITAS Software Corporation . (b) "Effective Date" of this Amendment shall mean the date of the latter signature below. Manage Exec - ----------- 2. Section 1.6 of the Cross-License Agreement is corrected, in the first line thereof, by changing "Venus" to "VERITAS". 3. Section 1.7 of the Cross-License Agreement is amended to read in its entirety as follows: " 'Licensed Manage Exec' shall mean Manage Exec." 4. Clause (i) of Section 4.1(a) of the Cross-License Agreement is amended to read in its entirety as follows: "(i) to reproduce, have reproduced, use, display, and distribute Licensed Manage Exec and derivative works thereof (or portions thereof) (collectively, "IMG Manage Exec"), directly to End Users and/or to or through Distributors, provided that IMG's right to distribute IMG Manage Exec shall be limited to distribution of IMG Manage Exec bundled with or incorporated into Crystal Info and/or Crystal Reports (and/or any successor(s) thereto that add material value to IMG Manage Exec), and distribution of IMG Manage Exec to End Users of copies of Crystal Info and/or Crystal Reports (and/or any successor(s) thereto that add material value to IMG Manage Exec) previously distributed by IMG or its Distributors;". 5. The following is added at the end of Section 4.1(a) of the Cross-License Agreement: "IMG shall be entitled to market and distribute IMG Manage Exec under such names and marks as IMG chooses, including without limitation `Manage Exec'. Nothing in this section shall transfer to IMG ownership of (A) Manage Exec as provided to IMG by VERITAS, or (B) ownership of the trademark `Manage Exec'." 6. The second sentence of Section 4.1(b) of the Cross-License Agreement is amended to read in its entirety as follows: "VERITAS grants to IMG a nonexclusive, royalty free license to reproduce, use, and modify such source code solely for the purpose of supporting, maintaining, correcting errors in, enhancing, modifying, and creating derivative works of IMG Manage Exec." 7. In the second line of Section 4.2 of the Agreement, "Crystal Info" is changed to "Crystal Info, Crystal Reports, or a successor thereto, as applicable." 8. In Sections 4.2 and 4.3 of the License Agreement, each instance of "Licensed Manage Exec" is changed to "IMG Manage Exec." 9. The following is added at the end of Section 4.4 of the Cross-License Agreement: "Notwithstanding the foregoing, if VERITAS ceases offering support for Licensed Manage Exec, IMG shall be responsible for supporting End Users receiving Licensed Manage Exec from IMG or its Distributors." Client Exec - ----------- 10. Section 1.4 of the Cross-License Agreement is corrected, in the first line thereof, by changing "Venus" to "VERITAS". 11. Section 1.5 of the Cross-License Agreement is amended to read in its entirety as follows: " 'Licensed Client Exec' shall mean Client Exec." 12. Clause (i) of Section 3.1(a) of the Cross-License Agreement is amended to read in its entirety as follows: "(i) to reproduce, have reproduced, use, display, and distribute Licensed Client Exec and derivative works thereof (or portions thereof) (collectively, "IMG Client Exec"), directly to End Users and/or to or through Distributors, provided that IMG's right to distribute IMG Client Exec -2- shall be limited to distribution of IMG Client Exec bundled with or incorporated into Crystal Info and/or Crystal Reports (and/or any successor(s) thereto that add material value to IMG Client Exec), and distribution of IMG Client Exec to End Users of copies of Crystal Info and/or Crystal Reports (and/or any successor(s) thereto that add material value to IMG Client Exec) previously distributed by IMG or its Distributors;". 13. The following is added at the end of Section 3.1(a) of the Cross- License Agreement: "IMG shall be entitled to market and distribute IMG Client Exec under such names and marks as IMG chooses, including without limitation `Client Exec'. Nothing in this section shall transfer to IMG ownership of (A) Client Exec as provided to IMG by VERITAS, or (B) ownership of the trademark `Client Exec'." 14. The second sentence of Section 3.1(b) of the Cross-License Agreement is amended to read in its entirety as follows: "VERITAS grants to IMG a nonexclusive, royalty free license to reproduce, use, and modify such source code solely for the purpose of supporting, maintaining, correcting errors in, enhancing, modifying, and creating derivative works of IMG Client Exec." 15. In the second line of Section 3.1(c) of the Agreement, "Crystal Info" is changed to "Crystal Info, Crystal Reports, or a successor thereto, as applicable." 16. In Sections 3.1(c) and 3.2 of the License Agreement, each instance of "Licensed Client Exec" is changed to "IMG Client Exec." 17. The following is added at the end of Section 3.3 of the Cross-License Agreement: "Notwithstanding the foregoing, if VERITAS ceases offering support for Licensed Client Exec, IMG shall be responsible for supporting End Users receiving Licensed Manage Exec from IMG or its Distributors." 18. Section 5.7 of the Cross-License Agreement is corrected as follows: in the first line thereof, "VERITAS" is changed to "IMG", and in the second line thereof, "IMG" is changed to "VERITAS". 19. IMG hereby grants to VERITAS a nonexclusive, nontransferable, royalty free license to reproduce Crystal Reports (in object code or executable form only) and Crystal Info (in object code or executable form only) for VERITAS' internal use, provided that VERITAS' use of each copy of Crystal Reports and Crystal Info shall be subject to IMG's then current standard Crystal Reports or Crystal Info end user license agreement, except that (i) VERITAS' use of Crystal Reports and Crystal Info shall be at no charge; (ii) Crystal Reports and Crystal Info are provided and licensed to VERITAS "AS IS" AND WITHOUT WARRANTY OR SUPPORT, AND IMG DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE; and -3- (iii) IN NO EVENT SHALL IMG HAVE ANY LIABILITY, DIRECT, INDIRECT, CONSEQUENTIAL, OR OTHERWISE, TO VERITAS ARISING OUT OF THIS LICENSE OR VERITAS' USE OF CRYSTAL REPORTS OR CRYSTAL INFO PURSUANT TO THIS SECTION. VERITAS' right to use each copy of Crystal Reports and Crystal Info made pursuant to this section shall be perpetual (but subject to termination for default) as set forth in the applicable IMG end user agreement. 20. Except as set forth herein, the Cross-License Agreement shall remain unmodified. -4- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be signed by duly authorized officers or representatives as of the date first above written. SEAGATE SOFTWARE INFORMATION VERITAS HOLDING CORPORATION MANAGEMENT GROUP, INC. /s/ Ellen E. Chamberlain /s/ Jay Jones By: ___________________________________ By:_________________________________ Ellen E. Chamberlain Jay Jones Print Name: ___________________________ Print Name: ________________________ Senior VP, Chief Administrative Vice President of Administration Officer Title: ________________________________ Title:______________________________ April 16, 1999 April 16, 1999 Date: _________________________________ Date: ______________________________ VERITAS SOFTWARE CORPORATION /s/ Jay Jones By: _________________________________ Jay Jones Print Name: _________________________ Senior VP, Chief Administrative Officer Title: ______________________________ April 16, 1999 Date: _______________________________ [SIGNATURE PAGE FOR AMENDMENT NO. 1 TO CROSS-LICENSE AGREEMENT] -5- EX-23.1 5 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Exhibit 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No. 4 to the Registration Statement (Form S-4 No. 333-67585) of Seagate Technology, Inc. for the registration of shares of its common stock and to the incorporation by reference therein of our report dated July 14, 1998 (except for the twelfth paragraph of the Acquisition note, as to which the date is July 31, 1998, and the first and second paragraphs of the Patent Litigation note, as to which the date is August 17, 1998) with respect to the consolidated financial statements of Seagate Technology, Inc. incorporated by reference in its Annual Report (Form 10-K/A) for the year ended July 3, 1998 and the related consolidated financial statement schedule included therein, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP San Jose, California April 16, 1999 EX-23.2 6 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Exhibit 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No. 4 to the Registration Statement (Form S-4 No. 333-67585) of Seagate Technology, Inc. for the registration of shares of its common stock and to the incorporation by reference therein of our report dated July 17, 1998, with respect to the financial statements of Seagate Software, Inc. included in its Annual Report (Form 10-K/A) for the year ended July 3, 1998, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP San Jose, California April 16, 1999 -----END PRIVACY-ENHANCED MESSAGE-----