<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or 240.14a-12
</TABLE>
SEAGATE SOFTWARE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2), or
Item 22(a) of Schedule 14A
[ ] $500 per each party to the controversy pursuant to Exchange act Rule
14a-6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
LOGO
Dear Seagate Software Stockholder:
We have agreed to combine our Network & Storage Management Group business
with VERITAS Software Corporation. Seagate Software and the Network & Storage
Management Group's employees will receive approximately 40% of the combined
company, New VERITAS. After the combination, New VERITAS will own VERITAS and
our Network & Storage Management Group business. Our employees who become
employees of New VERITAS will have the opportunity to exchange their existing
Seagate Software stock options for similar options to buy stock of New VERITAS.
After the combination is completed, we will continue to operate our Information
Management Group business.
We have scheduled a special meeting of our stockholders at 915 Disc Drive,
Scotts Valley, California 95066 on May 27, 1999, at 8:00 a.m., Pacific time.
The enclosed materials give you detailed information about the contribution
of the Network & Management Storage Group business to New VERITAS. The materials
also include four other ballot items that we will propose at our special
meeting. We encourage you to read the enclosed materials in their entirety.
We cordially invite you to attend the special meeting in person. YOUR VOTE
IS VERY IMPORTANT. If you attend, you may vote in person if you wish, even
though you have previously returned your proxy.
I enthusiastically support the combination of VERITAS and our Network &
Storage Management Group business and join with the Seagate Software board of
directors in unanimously recommending that you vote in favor of the combination.
/s/Stephen J. Luczo
Stephen J. Luczo
Chairman of the Board of Directors
THE TRANSACTIONS DESCRIBED IN THIS DOCUMENT INVOLVE NUMEROUS RISKS. SEE
"RISK FACTORS" BEGINNING ON PAGE 22.
This document also relates to the issuance of up to 102,200,433 shares of
New VERITAS common stock in connection with the business combinations described
inside this document. We anticipate that this stock will be traded on the Nasdaq
National Market under the symbol "VRTS."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS DISCLOSURE DOCUMENT IS APRIL 22, 1999.
<PAGE> 3
LOGO
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To our Stockholders:
We will hold a special meeting of stockholders of Seagate Software, Inc., a
Delaware corporation, on May 27, 1999, at 915 Disc Drive, Scotts Valley,
California 95066, at 8:00 a.m., Pacific time, to consider and vote on the
following proposals:
- To approve the contribution of our Network & Storage Management Group
business to VERITAS Holding Corporation, which will become the parent
company of VERITAS Software Corporation, and to adopt the related
agreement and plan of reorganization. In the combination, Seagate
Software and the employees of the Network & Storage Management Group
business will receive 40% of the parent company.
- To elect directors.
- To approve an amendment of our certificate of incorporation.
- To amend our 1996 Stock Option Plan to increase the number of shares
authorized for grant and issuance by 4,000,000 shares and to approve the
material terms of such plan.
- To ratify the appointment of Ernst & Young LLP as our independent
auditors for the fiscal year ending July 2, 1999.
- To transact such other business as may properly come before the meeting.
The contribution of our Network & Storage Management Group business to the new
combined company and the related transactions, as well as the other proposals
set forth above, are more fully described in the materials accompanying this
notice. Stockholders of record at the close of business on March 31, 1999, are
entitled to notice of and to vote at the special meeting and any adjournment or
postponement thereof.
/s/ Susan J. Wolfe
Susan J. Wolfe
Vice President of Legal Affairs
and Corporate Secretary
Scotts Valley, California
April 22, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE YOUR PROXY CARD AND RETURN IT AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF
YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR EACH OF THE
PROPOSALS LISTED ABOVE.
<PAGE> 4
SUMMARY TABLE OF CONTENTS
The following is a summary of the more detailed table of contents appearing
on page 310.
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
FREQUENTLY ASKED QUESTIONS............ ii
SUMMARY............................... 1
RISK FACTORS.......................... 22
THE NSMG COMBINATION:
Reasons for the NSMG combination.... 52
What VERITAS security holders will
receive........................... 80
Agreements related to the NSMG
combination....................... 90
THE EMPLOYEE STOCK OPTION EXCHANGE
OFFER:
Procedure for exchanging Seagate
Software options.................. 100
What Seagate Software option holders
will receive in this exchange
offer............................. 101
THE TELEBACKUP COMBINATION:
Reasons for the TeleBackup
combination....................... 108
Income tax considerations........... 115
What TeleBackup security holders
will receive...................... 131
Agreements related to the TeleBackup
combination....................... 141
PRO FORMA FINANCIAL INFORMATION:
New VERITAS......................... 146
Seagate Software.................... 160
HISTORICAL FINANCIAL INFORMATION:
NSMG selected financial data........ 174
NSMG management's discussion and
analysis of financial condition
and results of operations......... 175
TeleBackup selected financial
data.............................. 204
TeleBackup management's discussion
and analysis of financial
condition and results of
operations........................ 205
DESCRIPTION OF THE COMPANIES'
BUSINESSES:
New VERITAS......................... 216
The Network and Storage Management
Group............................. 217
</TABLE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
TeleBackup.......................... 225
MANAGEMENT OF NEW VERITAS............. 230
SECURITY OWNERSHIP OF THE COMPANIES:
New VERITAS......................... 243
VERITAS............................. 246
Seagate Software.................... 248
MARKET PRICES OF THE COMPANIES'
STOCK............................... 250
DESCRIPTION OF NEW VERITAS CAPITAL
STOCK............................... 252
COMPARISON OF RIGHTS:
Between holders of New VERITAS,
Seagate Software and VERITAS
common stock...................... 269
Between holders of TeleBackup common
shares and Exchangeco exchangeable
shares............................ 275
ADDITIONAL PROPOSALS TO BE VOTED UPON:
VERITAS stockholders................ 286
Seagate Software stockholders....... 297
FINANCIAL STATEMENTS:
Index to financial statements of
TeleBackup Systems Inc. .......... F-i
Index to combined financial
statements of The Network and
Storage Management Group.......... F-13
APPENDICES:
Appendices relating to the NSMG
combination....................... A-E
Appendix relating to the employee
stock option exchange offer....... F
Appendices relating to the
TeleBackup combination............ G-O, W-X
Appendices relating to the
additional VERITAS proposals...... P-R
Appendices relating to the
additional Seagate Software
proposals......................... S-T
Documents incorporated by
reference......................... U-V
</TABLE>
We have labeled certain pages on the right edge with "VERITAS," "Seagate
Software" and "TeleBackup" to indicate that the information on those pages is
particularly relevant to holders of that company's securities. We have labeled
other pages with "Table of Contents," "FAQ," "Summary" and "Risk Factors" for
the convenience of all holders.
TABLE OF CONTENTS
i
<PAGE> 5
FREQUENTLY ASKED QUESTIONS
This document contains a great deal of important information. Your
individual circumstances will determine which aspects of that information apply
to you, and the decisions you will make in connection with this document. For
these reasons, this series of frequently asked questions will not answer all of
the questions you may have. Rather they are designed to give you a clearer
understanding of the choices you will make.
We will cover these topics:
<TABLE>
<S> <C>
- introductory questions page ii
- questions for VERITAS stockholders page ii
- questions for Seagate Software stockholders page iii
- questions for Seagate Software option holders who become
New VERITAS employees page iii
- questions for Seagate Software option holders who do not
become New VERITAS employees page iv
- questions for Seagate Software stockholders and vested
option holders about the Seagate Technology exchange offer page v
- questions for TeleBackup shareholders who are Canadian
residents page v
- questions for TeleBackup shareholders who are not Canadian
residents page vi
- other questions for all stockholders page vii
- who can help answer your questions page viii
</TABLE>
- --------------------------------------------------------------------------------
INTRODUCTORY QUESTIONS
Q: WHAT COMBINATIONS ARE PROPOSED?
A: There are two transactions being proposed:
- the NSMG combination, under which VERITAS will merge to become a subsidiary
of New VERITAS and Seagate Software will contribute its Network & Storage
Management Group business to New VERITAS; and
- the TeleBackup combination, under which New VERITAS, or VERITAS if the NSMG
combination is not approved, will acquire TeleBackup.
Q: WHAT IS "NEW VERITAS"?
A: New VERITAS is what we call the combined company after the NSMG combination.
It will become the parent company of VERITAS and TeleBackup and will also
directly own the Network & Storage Management Group business.
- --------------------------------------------------------------------------------
QUESTIONS FOR VERITAS STOCKHOLDERS
Q: WHAT WILL I RECEIVE IN THE NSMG COMBINATION?
A: If we complete the NSMG combination, you will receive in exchange one share
of New VERITAS common stock for each share of VERITAS common stock you own.
Your current VERITAS stock certificate will then no longer represent shares
of VERITAS, and will instead represent shares of New VERITAS. The VERITAS
stockholders, stock option holders and debenture holders will own about 60%
of New VERITAS.
Q: WHAT WILL I GIVE UP IN THE NSMG COMBINATION?
A: You will give up your stock ownership in VERITAS. However, you will not give
up your stock certificate or make any payment because your old stock
certificate will represent your interest in New VERITAS. PLEASE DO NOT SEND
YOUR VERITAS STOCK CERTIFICATES.
ii
<PAGE> 6
FAQ
Q: WHAT TAXES WILL I OWE AS A RESULT OF THE NSMG COMBINATION?
A: None. The NSMG combination will be tax-free to VERITAS and its stockholders
for U.S. federal income tax purposes. See page 74.
Q: WHAT WILL I RECEIVE IN THE TELEBACKUP COMBINATION?
A: You will not receive any shares or other consideration as a result of the
TeleBackup combination.
Q: WHAT WILL I GIVE UP IN THE TELEBACKUP COMBINATION?
A: Nothing. You will not give up your stock certificate or make any payments.
Q: WHAT TAXES WILL I OWE AS A RESULT OF THE TELEBACKUP COMBINATION?
A: None. The TeleBackup combination will be tax-free to VERITAS and its
stockholders for U.S. federal tax purposes. However, if you also own
TeleBackup shares, see page 116.
- --------------------------------------------------------------------------------
QUESTIONS FOR SEAGATE SOFTWARE STOCKHOLDERS
Q: WHAT WILL SEAGATE SOFTWARE AND ITS STOCKHOLDERS RECEIVE IN THE NSMG
COMBINATION?
A: Seagate Software will receive about 40% of New VERITAS. See page 81.
As a Seagate Software stockholder, you will not receive any shares of New
VERITAS. You may continue to hold your Seagate Software shares, or you may
elect to participate in the Seagate Technology exchange offer.
Q: WHAT WILL I GIVE UP IN THE NSMG COMBINATION?
A: Nothing. You will not give up your shares of Seagate Software stock or make
any payment.
Q: WHAT TAXES WILL I OWE AS A RESULT OF THE NSMG COMBINATION?
A: None. The NSMG combination will be tax-free to you for U.S. federal income
tax purposes. See page 74.
Q: WHY AM I RECEIVING THESE MATERIALS?
A: Because you have the right to vote on the NSMG combination. Seagate Software
is also requesting that you vote on the other matters listed on pages 44 and
297.
- --------------------------------------------------------------------------------
QUESTIONS FOR SEAGATE SOFTWARE OPTION HOLDERS WHO BECOME NEW VERITAS EMPLOYEES
Q: WHAT WILL I RECEIVE IN THE EMPLOYEE STOCK OPTION EXCHANGE OFFER?
A: Based upon the exchange ratio as of March 31, 1999, you will receive an
option to purchase 0.647488 shares of New VERITAS common stock for each
option to purchase one share of Seagate Software common stock that you
currently hold. See page 100.
Q: CAN YOU GIVE ME AN EXAMPLE OF WHAT I WILL RECEIVE IF I HOLD AN OPTION TO
PURCHASE 100 SHARES OF SEAGATE SOFTWARE AND PARTICIPATE IN THE EMPLOYEE STOCK
OPTION EXCHANGE OFFER?
A: The number of shares of New VERITAS you receive will be based on an exchange
ratio that will be finalized six business days before the closing of the NSMG
combination. For example, if that
iii
<PAGE> 7
exchange ratio is 0.647488 and you hold an option to purchase 100 shares of
Seagate Software common stock at an exercise price of $5.00 per share, for a
total exercise price of $500, you will receive an option to purchase 64
shares of New VERITAS common stock with an exercise price of $7.72 per share,
for a total price of $500.
Q: WHAT WILL I GIVE UP IN THE EMPLOYEE STOCK OPTION EXCHANGE OFFER?
A: Seagate Software will cancel your stock option agreements if you elect to
participate in the employee stock option exchange offer. You would not be
able to use those Seagate Software options to participate in the Seagate
Technology exchange offer that is described below, unless you have other
vested stock options or Seagate Software common stock.
Q: WHAT TAXES WILL I OWE AS A RESULT OF THE OPTION EXCHANGE?
A: None. The employee stock option exchange offer will be tax-free for U.S.
federal income tax purposes. See page 105.
Q: WHAT WILL HAPPEN IF I DO NOT EXCHANGE MY SEAGATE SOFTWARE STOCK OPTIONS IN
THE EMPLOYEE STOCK OPTION EXCHANGE OFFER?
A: If you do not participate in the employee stock option exchange offer, the
unvested portion of your Seagate Software stock options will be canceled as
of the date the NSMG combination is completed. You will have only 30 days
after the completion of the NSMG combination to exercise the vested portion
of your Seagate Software stock options. You should also consider the Seagate
Technology exchange offer described below.
Q: WHAT DO I NEED TO DO NOW?
A: Your options will not be exchanged automatically when you become an employee
of New VERITAS. If you wish to exchange your Seagate Software stock options
for New VERITAS stock options, please follow the instructions on page 5. If
you do not respond by this time, your options will expire.
Q: HOW WILL I KNOW WHAT THE OPTION EXCHANGE RATIO IS?
A: Simply call 877-707-5656 for updated information. If you are outside North
America, please dial the AT&T Direct Access Code for your country first,
which you can obtain from your local operator.
- --------------------------------------------------------------------------------
QUESTIONS FOR SEAGATE SOFTWARE OPTION HOLDERS WHO DO NOT BECOME NEW VERITAS
EMPLOYEES
Q: WHAT WILL I RECEIVE IN THE NSMG COMBINATION?
A: Nothing. You will not receive any options or other payment from the NSMG
combination. You will retain your Seagate Software stock options as long as
you remain an employee of Seagate Software. You can also participate in the
Seagate Technology exchange offer.
iv
<PAGE> 8
FAQ
Q: WHAT WILL I GIVE UP IN THE NSMG COMBINATION?
A: Nothing.
- --------------------------------------------------------------------------------
QUESTIONS FOR SEAGATE SOFTWARE STOCKHOLDERS AND VESTED OPTION HOLDERS ABOUT THE
SEAGATE TECHNOLOGY EXCHANGE OFFER
Q: WHAT IS THE SEAGATE TECHNOLOGY EXCHANGE OFFER?
A: Seagate Technology has offered you the opportunity to exchange your Seagate
Software shares for Seagate Technology shares. Information about this Seagate
Technology exchange offer will be sent to you separately. You should refer to
those materials to understand the terms, conditions and timing of the Seagate
Technology exchange offer.
Q: WHAT IS THE PURPOSE OF THE SEAGATE TECHNOLOGY EXCHANGE OFFER?
A: Seagate Software and its majority stockholder, Seagate Technology, want all
Seagate Software stockholders and option holders to have at least one
opportunity to receive the benefits of owning a security that can be readily
resold in the public markets.
Q: ARE THE NSMG COMBINATION AND THE SEAGATE TECHNOLOGY EXCHANGE OFFER CONNECTED?
A: Potentially, the Seagate Technology exchange offer will not take place unless
the Seagate Software stockholders approve the NSMG combination.
- --------------------------------------------------------------------------------
QUESTIONS FOR TELEBACKUP SHAREHOLDERS WHO ARE CANADIAN RESIDENTS
Q: WHAT WILL I RECEIVE IN THE TELEBACKUP COMBINATION IF I AM A CANADIAN
RESIDENT?
A: You will receive one class A non-voting share of a newly incorporated
indirect Alberta subsidiary of VERITAS, which we will call Exchangeco in this
document, for each of your TeleBackup common shares.
Q: WHAT CAN I DO WITH MY EXCHANGECO CLASS A NON-VOTING SHARES?
A: You may elect to receive approximately 0.13233 of an exchangeable share for
each Exchangeco class A non-voting share you own. You will also receive a
check for the value of any fractional share. If the NSMG combination is
completed, each Exchangeco exchangeable share will be exchangeable for one
share of New VERITAS common stock. If the NSMG combination is not completed,
each exchangeable share will instead be exchangeable for one share of VERITAS
common stock. If you do not properly elect to receive Exchangeco exchangeable
shares, you will receive 0.13233 of a share of New VERITAS common stock for
each Exchangeco class A non-voting share you own, plus a check for the value
of any fractional share. This election has consequences for you described
below.
These numbers are based on the exchange ratio as of March 31, 1999. The
exchange ratio may be different when the plan of arrangement is completed.
See page 131.
Q: CAN YOU GIVE ME AN EXAMPLE OF WHAT I WILL RECEIVE IF I OWN 100 TELEBACKUP
COMMON SHARES?
A: Based on an exchange ratio of 0.13233, if you elect to receive exchangeable
shares, you will receive 13 exchangeable shares, exchangeable for 13 shares
of New VERITAS common stock, and a check for the value of the remaining
fractional share. If the NSMG combination is not
v
<PAGE> 9
completed, your exchangeable shares will instead be exchangeable for 13
shares of VERITAS common stock.
If you did not elect to receive exchangeable shares, you will receive 13
shares of New VERITAS common stock and a check for the value of the remaining
fractional share. If the NSMG combination is not completed, you will instead
receive 13 shares of VERITAS common stock.
Q.: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER ELECT TO
RECEIVE EXCHANGEABLE SHARES FOR ME?
A: Your TeleBackup shares are probably held in "street name" if your shares are
listed on your account statement provided by your broker. Your broker will
make the election for you to receive exchangeable shares only if you so
instruct. Failure to elect to receive exchangeable shares will result in a
taxable disposition of TeleBackup common shares at their fair market value.
Q: WHAT WILL I GIVE UP IN THE TELEBACKUP COMBINATION?
A: You will turn in the certificates for your TeleBackup common shares.
Q: WHAT TAXES WILL I OWE AS A RESULT OF THE TELEBACKUP COMBINATION?
A: If you are a Canadian resident, the exchange of your TeleBackup common shares
for exchangeable shares should generally result in a disposition of the
TeleBackup shares for their cost amount for tax purposes. This has the effect
of deferring taxes based on a sale at the fair market value of the security
until you sell your exchangeable shares or exchange them for shares of New
VERITAS common stock. See page 116.
The exchange for New VERITAS or VERITAS shares will constitute a taxable
disposition of the TeleBackup common shares at fair market value.
Q: AS A SHAREHOLDER OF TELEBACKUP WHAT DO I NEED TO DO IF I WANT TO RECEIVE
EXCHANGEABLE SHARES?
A: Only Canadian residents can elect to receive exchangeable shares. If you are
a Canadian resident and you want to receive exchangeable shares for your
TeleBackup common shares you need to:
- complete the election form accompanying these materials;
- sign the election form; and
- mail the election form in the enclosed return envelope or deliver it so as
to reach Montreal Trust Company of Canada, Corporate Trust Department,
Suite 600, 530-8th Avenue S.W., Calgary, Alberta not later than 4:30 p.m.
Calgary time on May 25, 1999, the business day before the TeleBackup
meeting.
Q: HOW WILL I KNOW WHAT THE TELEBACKUP EXCHANGE RATIO IS?
A: Simply call 1-877-305-3753 in North America for updated information.
- --------------------------------------------------------------------------------
QUESTIONS FOR TELEBACKUP SHAREHOLDERS WHO ARE NOT CANADIAN RESIDENTS
Q: WHAT WILL I RECEIVE IN THE TELEBACKUP COMBINATION IF I AM NOT A CANADIAN
RESIDENT?
A: You will receive one class A non-voting share of a newly incorporated
indirect Alberta subsidiary of VERITAS, which we call Exchangeco in this
document, for each of your TeleBackup common
vi
<PAGE> 10
FAQ
shares. You will then receive approximately 0.13233 of a share of New VERITAS
common stock for each of your Exchangeco class A non-voting shares plus a
check for the value of any fractional share. If the NSMG combination is not
completed, you will instead receive 0.13233 of a share of VERITAS common
stock.
These numbers are based on the exchange ratio as of March 31, 1999. The
exchange ratio may be different when the plan of arrangement is completed.
See page 131.
Q: CAN YOU GIVE ME AN EXAMPLE OF WHAT I WILL RECEIVE IF I OWN 100 TELEBACKUP
COMMON SHARES?
A: Based on an exchange ratio of 0.13233, you will receive 13 shares of New
VERITAS common stock and a check for the value of the remaining fractional
share. If the NSMG combination is not completed, you will instead receive 13
shares of VERITAS common stock.
Q: WHAT WILL I GIVE UP IN THE TELEBACKUP COMBINATION?
A: You will turn in the certificates for your TeleBackup common shares.
Q: WHAT TAXES WILL I OWE AS A RESULT OF THE TELEBACKUP COMBINATION?
A: The exchange will constitute a taxable disposition at fair market value.
Q: HOW WILL I KNOW WHAT THE TELEBACKUP EXCHANGE RATIO IS?
A: Simply call 1-877-305-3753 in North America for updated information.
- --------------------------------------------------------------------------------
OTHER QUESTIONS FOR ALL STOCKHOLDERS
Q: WHEN DO YOU EXPECT THESE COMBINATIONS TO BE COMPLETED?
A: We are working toward completing the combinations as quickly as possible. We
hope to complete them at the end of May 1999.
Q: WHAT DO I NEED TO DO NOW TO VOTE?
A: Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed return envelope as soon as possible, so that your shares may
be represented at your meeting. If you sign and send in your proxy and do not
indicate how you want to vote, your proxy will be counted as a vote in favor
of the combination. You may instead choose to attend your meeting and vote
your shares in person.
Q: IF MY SHARES OF STOCK ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. Without instructions, your shares will not be voted. You should
instruct your broker to vote your shares, following the directions provided
by your broker. See page 41.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the combinations are completed, we will send TeleBackup
shareholders written instructions for exchanging their share certificates.
VERITAS stockholders need not surrender their VERITAS certificates. Seagate
Software stockholders will not exchange their stock certificates.
vii
<PAGE> 11
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the NSMG combination or the employee stock
option exchange offer, please contact:
SEAGATE SOFTWARE, INC. STOCKHOLDERS AND OPTION HOLDERS:
SEAGATE SOFTWARE, INC.
915 Disc Drive
Scotts Valley, CA 95066
Attention: Roberta Cohen
Phone: (831) 439-2860
email: Roberta
- -s
- [email protected]
VERITAS SOFTWARE CORPORATION STOCKHOLDERS:
VERITAS SOFTWARE CORPORATION
1600 Plymouth Street
Mountain View, CA 94043
Attention: Marge Duncan
Phone: (650) 526-2508
email: [email protected]
If you have more questions about the TeleBackup combination, please contact:
TELEBACKUP SYSTEMS INC. SHAREHOLDERS:
TELEBACKUP SYSTEMS INC.
200, 119 -- 14 St. N.W.
Calgary, Alberta T2N 1Z6
Attention: Lynn Thurlow
Phone: (403) 283-3995
email: [email protected]
VERITAS SOFTWARE CORPORATION STOCKHOLDERS:
VERITAS SOFTWARE CORPORATION
1600 Plymouth Street
Mountain View, CA 94043
Attention: Marge Duncan
Phone: (650) 526-2508
email: [email protected]
viii
<PAGE> 12
SUMMARY
For your convenience, we have summarized here information that is contained
elsewhere in this document. It highlights selected information and does not
contain all of the information that is important to you. To understand the
transactions more fully and for a more complete description of the legal terms
of these transactions, you should carefully read this document and the documents
to which we have referred. See "Where You Can Find More Information" and "We Are
Incorporating Our SEC Filings in this Document by Reference" on pages 34 and 35.
VERITAS SOFTWARE CORPORATION
1600 Plymouth Street
Mountain View, CA 94043
(650) 335-8000
VERITAS designs, develops and markets software products that help large
organizations rapidly and reliably access and restore important information
stored on their networked computer systems.
SEAGATE SOFTWARE, INC.
915 Disc Drive
Scotts Valley, CA 95066
(831) 438-6550
Seagate Software consists of two operating groups, the Information Management
Group and the Network & Storage Management Group. The Network & Storage
Management Group, which is being contributed to New VERITAS, offers software
that helps companies manage widely distributed networks of computers and secure
the storage of important information.
TELEBACKUP SYSTEMS INC.
200, 119 -- 14 St. N.W.
Calgary, Alberta T2N 1Z6
(403) 283-3995
TeleBackup designs, develops and markets software that enables the automated
backup and recovery of information stored on networked, remote and mobile
personal computer systems.
- --------------------------------------------------------------------------------
THE FOLLOWING IS A SUMMARY OF THE NSMG COMBINATION
VERITAS' and Seagate Software's reasons for the NSMG combination (page 52)
VERITAS and Seagate Software believe the NSMG combination will create a
leading provider of software products that help large organizations rapidly and
reliably access, manage, store and restore important information stored on their
networked computer systems. With VERITAS' UNIX and Windows NT products for large
organizations, or enterprises, and the Network & Storage Management Group's
Windows NT and Netware work-group solutions, we believe New VERITAS will have
the opportunity to create and deliver a broad range of desktop and enterprise
storage management solutions. Because our industry is extremely competitive, we
believe that the greater resources of New VERITAS will allow us to compete more
effectively and respond more quickly and effectively to changes in technology
and customer needs.
What are the key risks of the NSMG combination?
The NSMG combination is subject to a number of risks, such as:
- We may not be able to integrate the businesses successfully;
- The substantial charges to be incurred make it harder to reach expected
benefits;
- New VERITAS will sell products through new retail distribution channels,
which may present unexpected difficulties;
- New VERITAS will depend on large orders with lengthy sales cycles for a
portion of its revenues;
- New VERITAS will derive significant revenues from a few customers; and
- New VERITAS will derive most of its revenues from a small number of
product lines.
See page 22.
SUMMARY
1
<PAGE> 13
Ownership of New VERITAS after the NSMG combination (page 243)
The relationship of stockholders, option holders and other security holders
of Seagate Software and VERITAS to those companies and to New VERITAS is
presented below, both before and after the NSMG combination.
[Graphic: Chart of Veritas Holding Corporation and Seagate Software, Inc.
before and after the NSMG combinations].
Our financial advisors have given opinions to our boards (pages 59 and 65)
In deciding to approve the NSMG combination, our boards of directors
considered the opinions of each of our financial advisors.
2
<PAGE> 14
SUMMARY
VERITAS received an opinion from its financial advisor, Donaldson, Lufkin &
Jenrette Securities Corporation, that as of October 5, 1998 the ratio of one
share of New VERITAS common stock issued per one share of VERITAS common stock
was fair to VERITAS from a financial point of view. VERITAS has agreed to pay
Donaldson, Lufkin & Jenrette fees totaling $7,500,000. VERITAS paid $250,000 as
a retainer and $600,000 upon delivery of the fairness opinion. The remainder of
the fee is contingent upon consummation of the NSMG combination. Donaldson,
Lufkin & Jenrette and VERITAS believe that these fees are customary in
transactions of this nature.
Seagate Software received an opinion from its financial advisor, Morgan
Stanley & Co. Incorporated, that as of October 4, 1998 the consideration to be
received by Seagate Software from New VERITAS was fair to Seagate Software from
a financial point of view. Seagate Software has agreed to pay Morgan Stanley
fees totaling $7,500,000. Seagate Software has already paid a $150,000 retainer,
and has agreed to pay a $1 million agreement fee. The remainder of the fee is
contingent upon consummation of the NSMG combination. Morgan Stanley and Seagate
Software believe that these fees are customary in transactions of this nature.
WE ENCOURAGE YOU TO READ THESE OPINIONS CAREFULLY. THEY ARE ATTACHED AS
APPENDICES B AND C.
Our executives and directors may have interests in the NSMG combination
that are different from our stockholders' (page 78)
The following persons and entities have interests in the NSMG combination
which may differ from yours because of their status as a director, nominee for
director or executive officer of VERITAS, Seagate Software or New VERITAS. Those
interests include:
- Stephen J. Luczo, Terence R. Cunningham, Gregory B. Kerfoot and all of
the current directors of VERITAS will become directors of New VERITAS.
Terence Cunningham, Michael Colemere, David Hallmen and Michael Wentz,
and all of the current executive officers of VERITAS will become
executive officers of New VERITAS.
- Each person who becomes an executive officer or key employee of New
VERITAS will sign an employment agreement with New VERITAS that provides
for terms of employment and severance benefits, among other things.
- Immediately before the closing of the NSMG combination, Seagate Software
will repurchase 65% of the unvested Seagate Software shares owned by
Terence Cunningham, David Hallmen, David Galiotto and David Krinker.
These employees will each then be granted an option to purchase Seagate
Software common stock with an exercise price of approximately $10.00 per
share. These options are designed to provide the employee with the same
potential economic benefit as the employee would have had if he had
retained the repurchased Seagate Software shares. These options will be
exchangeable in the employee stock option exchange offer.
- Steven Brooks, a member of the VERITAS board of directors, was a managing
director of Donaldson, Lufkin & Jenrette, VERITAS' financial advisor, at
the time the VERITAS board approved the NSMG combination. Mr. Brooks
participated as a member of the VERITAS board in approving all aspects of
the NSMG combination other than the retention of Donaldson, Lufkin &
Jenrette as financial advisor.
- New VERITAS and Seagate Software will enter into a registration rights
agreement at the time of the NSMG combination. Seagate Software can
require New VERITAS to register for public resale all the New VERITAS
common stock that Seagate Software receives in the NSMG combination.
Seagate Software is expected to own approximately 34.6 million shares of
New VERITAS, or approximately 41% of the shares outstanding, after the
NSMG combination.
3
<PAGE> 15
- New VERITAS and Seagate Software will enter into a stockholder agreement
at the time of the NSMG combination. This agreement will:
- give Seagate Software the right to nominate two directors of New
VERITAS who will initially be Stephen J. Luczo and Gregory B. Kerfoot;
- give Seagate Software the right to maintain its percentage ownership
of New VERITAS;
- prohibit Seagate Software from increasing its ownership percentage of
New VERITAS for five years; and
- require Seagate Software to vote its New VERITAS stock in the same
proportion as votes cast by all other New VERITAS stockholders.
- VERITAS, New VERITAS and a subsidiary of Seagate Software have entered
into a cross-license and original equipment manufacturing agreement, and
New VERITAS and Seagate Technology have entered into a development and
license agreement. Under the cross-license and original equipment
manufacturing agreement, New VERITAS and Seagate Software will grant to
each other royalty-free licenses to their products which are necessary
for the continued development and sale of the other party's products.
Under both agreements, VERITAS will grant to a subsidiary of Seagate
Software, and to Seagate Technology, rights in all current and future
VERITAS products at royalty rates to be determined at a later time based
on VERITAS' then-current most favorable product royalty rates charged to
customers purchasing similar quantities of licenses. The payments by the
Seagate Software subsidiary and by Seagate Technology cannot be estimated
at this time because Seagate Software and Seagate Technology have not yet
formed a plan regarding which VERITAS products to sell, in what
quantities and by which method of distribution, all of which affect
royalties to VERITAS. The parties have also agreed to restrictions on to
whom they may assign their rights under the agreements or for whom they
can perform development services, as the case may be. In addition,
Seagate Technology and its affiliates have agreed not to re-enter the
Network & Storage Management Group's line of business and VERITAS'
business unless certain conditions are met.
- New VERITAS, Seagate Software and Seagate Technology will enter into a
transition services and facilities use agreement prior to the
consummation of the NSMG combination. This agreement will set out the
terms by which the parties will temporarily share certain resources after
the consummation of the NSMG combination.
- Individuals and entities, owning approximately 18.9% of the common stock
of VERITAS, have agreed to vote their shares in favor of the NSMG
combination.
- Seagate Technology has agreed to vote all shares of Seagate Software held
by it in favor of the NSMG combination agreement. As Seagate Technology
holds approximately 98.2% of the outstanding capital stock as of March
31, 1999 of Seagate Software, the Seagate Software stockholder vote in
favor of the NSMG combination is assured.
VERITAS may have to pay termination fees if the NSMG combination agreement
is terminated (page 89)
If the NSMG combination agreement is terminated as a result of the failure
to obtain the required vote of VERITAS stockholders, VERITAS must pay Seagate
Software a termination fee of $5.0 million if no alternative proposal to acquire
VERITAS has been publicly announced or $50 million if an alternative proposal
has been publicly announced. Seagate Software and Seagate Technology are under
no obligation to pay a termination fee to VERITAS.
4
<PAGE> 16
SUMMARY
You will not have dissenters' rights in the NSMG combination (page 78)
Neither the VERITAS nor the Seagate Software stockholders have dissenters'
rights in connection with the NSMG combination.
Accounting treatment of the NSMG combination (page 76)
We expect the NSMG combination will be accounted for as a purchase, which
means that we will incur substantial non-cash charges to earnings of
approximately $194.6 million per quarter over the next four years related to the
amortization of intangible assets.
We expect that Seagate Software will recognize a gain on the NSMG
combination equivalent to approximately 58% of the difference between the fair
value of the New VERITAS shares received and its carrying amount of the Network
& Storage Management Group business, which will be approximately $1,595 million.
After the NSMG combination closes, Seagate Software will report approximately
41% of the operations of New VERITAS, after certain adjustments, in its
financial statements.
- --------------------------------------------------------------------------------
THE FOLLOWING IS A SUMMARY OF THE EMPLOYEE STOCK OPTION EXCHANGE OFFER
Employees of the Network & Storage Management Group business who become
employees of New VERITAS can exchange their Seagate Software stock options for
options to purchase shares of New VERITAS common stock at an exchange ratio that
will be fixed shortly before the completion of the NSMG combination. See page
100.
Our reasons for the employee stock option exchange offer
VERITAS and Seagate Software negotiated the employee stock option exchange
offer to enable the Network & Storage Management Group business employees to
have similar incentives for New VERITAS' success as the stockholders of New
VERITAS have. Because Seagate Software will continue to operate its stock option
plan for its Information Management Group employees, the exchange of the Network
& Storage Management Group employee options of Seagate Software for New VERITAS
options will not be automatic.
Procedures you must follow to exchange your stock options (page 100)
Network & Storage Management Group employees who hold Seagate Software
stock options should send the enclosed notice of election, by mail postmarked on
or before June 7, 1999 unless the offer to you is extended, to:
Seagate Software, Inc.
915 Disc Drive
Scotts Valley, CA 95066
Attn.: Roberta Cohen
If you are a Network & Storage Management Group employee, you will
automatically become an employee of New VERITAS on the closing date and are
entitled to participate in the employee stock option exchange offer subject to
the terms and conditions set forth in this document and the notice of election.
IF YOU DO NOT COMPLETE APPENDIX F, THE NOTICE OF ELECTION TO PARTICIPATE IN
THE EXCHANGE OFFER, THE UNVESTED PORTION OF YOUR SEAGATE SOFTWARE STOCK OPTIONS
WILL BE CANCELED AS OF THE DATE THE NSMG COMBINATION IS COMPLETED. YOU WILL HAVE
ONLY 30 DAYS AFTER THE NSMG COMBINATION IS COMPLETED TO EXERCISE THE VESTED
PORTION OF YOUR SEAGATE SOFTWARE OPTIONS.
5
<PAGE> 17
How the exchange ratio is set (page 101)
The final exchange ratio for the employee stock option exchange offer will
be determined on the sixth business day prior to the completion of the NSMG
combination. It cannot be determined before then because it varies based on the
average closing price per share of VERITAS common stock and the number of shares
of Seagate Software common stock, stock options and securities convertible or
exchangeable for Seagate Software common stock then outstanding.
The tables on pages 102 and 103 illustrate how this exchange ratio will be
calculated.
The tax status of your options will remain the same (page 105)
Stock options that are incentive stock options prior to the exchange will
be exchanged for New VERITAS stock options that are incentive stock options.
Seagate Software options that are non-qualified stock options will be exchanged
for non-qualified New VERITAS stock options.
How will the vesting schedule of options change? (page 104)
Options that are currently vested will remain vested after the employee
stock option exchange. Unvested options will vest at an accelerated rate of
1/48th of the options per month, beginning on the date of the original option
grant.
- --------------------------------------------------------------------------------
THE FOLLOWING IS A SUMMARY OF THE TELEBACKUP COMBINATION
VERITAS' and TeleBackup's reasons for the TeleBackup combination (page 108)
VERITAS believes that the TeleBackup combination will provide it with the
opportunity to broaden its product line by adding products that enable remote
and mobile computer users to back up and restore their computer systems.
TeleBackup believes the TeleBackup combination will offer it access to more
distribution channels for its primary product and provide it with the resources
of a much larger organization including VERITAS' support organization. In
addition, TeleBackup believes that its shareholders will have greater liquidity
for their investment.
The TeleBackup combination is subject to a number of risks, such as:
- The market for TSI's primary product is unproven; and
- The exchange ratio fluctuates until shortly before consummation of the
TeleBackup combination.
Ownership of New VERITAS (page 243)
The relationship of stockholders and option holders of TeleBackup to New
VERITAS after the TeleBackup combination is presented graphically in Figure 2.
TeleBackup shareholders should not send in their share certificates until
instructed to do so after the TeleBackup combination is completed.
6
<PAGE> 18
SUMMARY
[Graphic: Chart of Veritas Holding Corporation, Seagate Software, Inc., and
TeleBackup Systems, Inc. before and after the NSMG and TeleBackup combinations].
7
<PAGE> 19
How the TeleBackup exchange ratio could vary (page 131)
The final exchange ratio will be determined at the effective time of the
TeleBackup combination. In the meantime, the exchange ratio can vary based upon
a number of factors, including:
- the number of outstanding TeleBackup common shares and options;
- the trading price per share of VERITAS common stock; and
- the status of TeleBackup's royalty buy-out obligation.
Therefore, the number of exchangeable shares or the number of shares of New
VERITAS common stock, as well as the value of the consideration TeleBackup
shareholders will receive, may vary.
Conditions to the TeleBackup combination (page 134)
VERITAS and TeleBackup will complete the TeleBackup combination only if we
satisfy or waive several conditions, including:
- the plan of arrangement and the TeleBackup combination agreement is
approved by not less than two-thirds of the votes cast in person or by
proxy by TeleBackup shareholders at the TeleBackup meeting;
- the approval by VERITAS stockholders of an amendment to the VERITAS
certificate of incorporation to authorize a special class of stock in
order to permit the exchangeable shares to be issued in connection with
the TeleBackup combination to vote at VERITAS meetings of stockholders;
- the holders of no more than 8% of the outstanding TeleBackup common
shares shall have exercised their rights of dissent; and
- no event has occurred which would have a material adverse effect on
either party.
Executives of TeleBackup may have interests in the TeleBackup combination
that are different from the shareholders' (page 130)
Dr. Bryon Osing, the President and Chief Executive Officer of TeleBackup,
Thomas Glassford, the Chief Operating Officer of TeleBackup, and Bruce Meyer,
the Executive Vice President, Marketing and Sales of TeleBackup, will each enter
into an employment agreement with TeleBackup and New VERITAS, or VERITAS, as the
case may be. The employment agreements provide for the employment of the
TeleBackup officers for a one-year period following closing of the TeleBackup
combination, base salary and target bonus compensation, stock option grants and
severance payments upon termination of employment without cause.
Exchangeable shares may be held for up to seven years (page 263)
Generally, you will have seven years from the closing of the TeleBackup
combination to sell your exchangeable shares or exchange them for New VERITAS
common stock. However, once there are fewer than 50,000 exchangeable shares
outstanding, the board of directors of the VERITAS subsidiary that issues the
exchangeable shares may specify an earlier date by which the exchangeable shares
must be sold or exchanged. At the end of the seven year period, or upon the
earlier date set by the board, all then outstanding exchangeable shares will
automatically be exchanged for an equal number of shares of New VERITAS common
stock, subject to adjustment if New VERITAS effects any stock splits,
consolidations or similar capital changes, plus an amount equal to all declared
but unpaid dividends on those exchangeable shares.
8
<PAGE> 20
SUMMARY
TeleBackup received a fairness opinion from its financial advisor (page
110)
In deciding to approve the TeleBackup combination, the board of directors
of TeleBackup received an opinion from OpMan Group that the TeleBackup exchange
ratio was fair to the shareholders of TeleBackup from a financial point of view.
WE ENCOURAGE YOU TO READ THIS OPINION CAREFULLY. It is attached as Appendix H to
this document.
TeleBackup has agreed to pay OpMan Group a monthly retainer fee of US$4,500
which commenced in February 1998. TeleBackup will also pay OpMan Group a success
fee upon the closing of the TeleBackup combination. The amount of the success
fee depends upon the amount of consideration received by TeleBackup shareholders
in the TeleBackup combination. Based on the market value of the VERITAS common
stock issuable in the TeleBackup combination as of March 31, 1999, OpMan Group
would receive a success fee of approximately US$4.4 million.
Either party may have to pay termination fees if the TeleBackup combination
agreement is terminated (page 139)
If the TeleBackup combination agreement is terminated because it was not
approved by TeleBackup's shareholders or because TeleBackup entertains an
acquisition proposal from a third party, TeleBackup must pay VERITAS a fee of
US$3.0 million and grant to VERITAS a fully-paid license to the technology used
in its main product. TeleBackup must pay VERITAS an additional US$10.0 million
if it agrees to be acquired or is acquired within 12 months of the termination.
If VERITAS' stockholders do not approve the proposal creating special
voting stock to implement the TeleBackup combination, VERITAS must pay
TeleBackup US$2.0 million, which will be credited by TeleBackup as a pre-paid
royalty amount under VERITAS' current license agreement with TeleBackup.
TeleBackup shareholders will have rights of dissent in the TeleBackup
combination (page 127)
Under Alberta law, TeleBackup shareholders have rights of dissent in
connection with the TeleBackup combination. VERITAS stockholders do not have
rights of dissent in connection with the TeleBackup combination.
Accounting treatment of the TeleBackup combination (page 126)
We expect that the TeleBackup combination will be accounted for as a
purchase, which means that New VERITAS will incur additional non-cash charges of
approximately $8.2 million per quarter over the next four years related to the
amortization of intangible assets.
9
<PAGE> 21
OWNERSHIP OF NEW VERITAS FOLLOWING THE COMBINATIONS
The following table illustrates the percentage ownership of each group in
New VERITAS. The percentages reflect the ownership of all common stock, assuming
the exercise of all stock options and conversion of all convertible debt of New
VERITAS and the exchange of the exchangeable shares, and are calculated based on
share prices and shares outstanding as of March 31, 1999.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
IF ONLY THE NSMG COMBINATION IS COMPLETED:
Number of shares Percentage of
of New VERITAS New VERITAS
- --------------------------------------------------------------------------------------------------
- VERITAS stockholders, option holders and 58,544,856 shares approximately 60.65%
convertible debt holders
- --------------------------------------------------------------------------------------------------
- NSMG employees participating in the 3,372,417 shares approximately 3.50%
exchange offer
- --------------------------------------------------------------------------------------------------
- Seagate Software 34,606,432 shares approximately 35.85%
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
IF ONLY THE TELEBACKUP COMBINATION IS
COMPLETED:
Number of shares Percentage of VERITAS
of New VERITAS
- --------------------------------------------------------------------------------------------------
- VERITAS stockholders, option holders and 58,544,856 shares approximately 97.41%
convertible debt holders
- TeleBackup shareholders and option holders 1,555,000 shares approximately 2.59%
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
IF BOTH COMBINATIONS ARE COMPLETED:
Number of shares Percentage of
of New VERITAS New VERITAS
- --------------------------------------------------------------------------------------------------
- VERITAS stockholders, option holders and 58,544,856 shares approximately 59.69%
convertible debt holders
- NSMG employees participating in the 3,372,417 shares approximately 3.44%
exchange offer
- Seagate Software 34,606,432 shares approximately 35.28%
- TeleBackup shareholders and option holders 1,555,000 shares approximately 1.59%
- --------------------------------------------------------------------------------------------------
</TABLE>
Please refer to Figure 2 for a graphical description of the relationship of
stockholders, option holders and other security holders of New VERITAS to that
company after giving effect to the NSMG combination and the TeleBackup
combination.
- --------------------------------------------------------------------------------
WHO WILL SERVE AS DIRECTORS AND EXECUTIVE OFFICERS OF NEW VERITAS FOLLOWING THE
COMBINATIONS (PAGE 230)
If we complete the NSMG combination, the board of directors of New VERITAS
will initially consist of all of the current board members of VERITAS except for
Roel Pieper, as well as Stephen J. Luczo, who is Seagate Software's chairman of
the board, Terence R. Cunningham, who is Seagate Software's president and chief
operating officer, and Gregory B. Kerfoot, who is Seagate Software's chief
strategic officer. Mr. Luczo is also the chief executive officer, president and
a director of Seagate Technology.
The executive officers of New VERITAS will consist of all of the current
executive officers of VERITAS, as well as Terence R. Cunningham, Michael
Colemere, David Hallmen and Michael
10
<PAGE> 22
SUMMARY
Wentz, each of whom is currently an officer of Seagate Software or an employee
of the Network & Storage Management Group business.
LISTING OF SHARES TO BE ISSUED IN THE COMBINATIONS
Listing of New VERITAS common stock (pages 74 and 115)
The shares of New VERITAS common stock to be issued in connection with the
combinations have been approved for listing on the Nasdaq National Market,
subject to official notice of issuance. The trading symbol for the New VERITAS
common stock will be "VRTS," the symbol currently used for VERITAS.
Listing of exchangeable shares and class A non-voting shares (page 115)
The Exchangeco exchangeable shares and the Exchangeco class A non-voting
shares have been approved for listing on the Alberta Stock Exchange. The shares
of New VERITAS common stock issuable when the Exchangeco exchangeable shares are
exchanged will be listed for trading on the Nasdaq National Market.
MARKET PRICES OF THE COMMON STOCK OF VERITAS,
SEAGATE TECHNOLOGY AND TELEBACKUP
<TABLE>
<CAPTION>
SEAGATE
VERITAS TECHNOLOGY TELEBACKUP
-------- ---------- ----------
<S> <C> <C> <C>
August 31, 1998 closing price -- the last trading
day before the announcement of the proposed
TeleBackup combination............................ US$44.88 US$17.13 C$ 5.30
October 5, 1998 closing price -- the last trading
day before the announcement of the proposed NSMG
combination....................................... US$45.38 US$23.00 C$ 7.50
April 15, 1999 closing price -- the last practical
trading day before the printing of this
document.......................................... US$83.38 US$28.69 C$14.80
</TABLE>
There is no established trading market for shares of Seagate Software
common stock.
We urge you to obtain current market quotations before making any decision
with respect to the combinations.
<TABLE>
<CAPTION>
TRADING
COMPANY STOCK EXCHANGE SYMBOL WHERE YOU CAN OBTAIN A QUOTE
------- ----------------------- -------- ----------------------------------
<S> <C> <C> <C>
VERITAS.............. Nasdaq National Market VRTS http://www.nasdaq.com
Seagate Technology... New York Stock Exchange SEG http://www.nyse.com
TeleBackup........... Alberta Stock Exchange TBP http://www.canada-stockwatch.com
</TABLE>
CURRENCIES AND EXCHANGE RATES
In this document, unless otherwise stated, Canadian Dollars have been
translated into U.S. Dollars at a rate US$0.6626 per C$1.00. This was the noon
buying rate in New York City for cable transfers in Canadian Dollars as
certified for customs purposes by the Federal Reserve Bank of New York on March
31, 1999. The noon buying rate was US$0.6708 per C$1.00 on April 15, 1999, the
last practicable date for which information was available prior to the date of
this document. These translations should not be taken as assurances that the
Canadian Dollar amounts actually represent these U.S. Dollar amounts or could be
converted into U.S. Dollars at the rate indicated. See page 203.
11
<PAGE> 23
SUMMARY SELECTED FINANCIAL DATA
We are providing the following financial information to aid you in your
analysis of the financial aspects of the NSMG and TeleBackup combinations. We
derived this information from the audited consolidated financial statements of
VERITAS for fiscal 1994 through 1998, audited financial statements of TeleBackup
of fiscal 1995 through 1998, audited financial statements of the Network &
Storage Management Group business for fiscal 1996 through 1998, unaudited
financial statements of the Network & Storage Management Group business for
fiscal 1994 and 1995, and the unaudited financial statements of the Network &
Storage Management Group business for the interim periods presented. The interim
financial data reflects all adjustments, consisting only of normal recurring
adjustments, which are considered necessary to present fairly the financial
information for such periods. The summary selected financial data for Seagate
Software can be found in Seagate Software's Form 10-K/A and Forms 10-Q/A, which
are incorporated by reference in this document. The information is only a
summary and you should read it in conjunction with each company's historical
financial statements and related notes included or incorporated by reference in
this document. The results of operations for any interim period are not
necessarily indicative of results for a full fiscal year, and historical results
are not necessarily indicative of future results.
UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
VERITAS and the Network & Storage Management Group business report their
quarterly and annual results of operations using methods required by generally
accepted accounting principles in the United States. TeleBackup reports
quarterly and annual results of operations using methods required by generally
accepted accounting principles in Canada. United States and Canadian generally
accepted accounting principles are not materially different with respect to
TeleBackup's financial statements. For a summary of the principal differences
between U.S. and Canadian generally accepted accounting principles see Note 13
in the consolidated financial statements of TeleBackup included in this
document.
Neither VERITAS nor TeleBackup has ever declared or paid cash dividends on
its common stock. New VERITAS currently anticipates that it will retain future
earnings to fund development and growth of its business and does not anticipate
paying any cash dividends in the foreseeable future.
VERITAS HISTORICAL FINANCIAL STATEMENTS
The audited consolidated financial statements and notes of VERITAS as of
December 31, 1997 and 1998 and for the three years in the period ended December
31, 1998 are incorporated by reference in this document. VERITAS' share and per
share data applicable to prior periods has been restated to give retroactive
effect to a 3-for-2 stock split in the form of stock dividend effected on May
20, 1998.
NETWORK & STORAGE MANAGEMENT GROUP BUSINESS AND SEAGATE SOFTWARE FINANCIAL
STATEMENTS
The audited combined financial statements and notes of the Network &
Storage Management Group business as of June 27, 1997 and July 3, 1998, and for
the three years in the period ended July 3, 1998 and the unaudited combined
financial statements as of January 1, 1999 and for the six months ended January
2, 1998 and January 1, 1999, are included in this document. The audited
consolidated financial statements and notes of Seagate Software as of June 27,
1997 and July 3, 1998 and for the three years in the period ended July 3, 1998,
and the unaudited consolidated financial statements as of January 1, 1999 and
for the six months ended January 2, 1998 and January 1, 1999 can be found in
Seagate Software's 1998 annual report on Form 10-K/A and in Seagate Software's
most recent quarterly reports on Form 10-Q/A. Each of these documents is
incorporated by reference
12
<PAGE> 24
SUMMARY
in this document. The Network & Storage Management Group business is an
operating division of Seagate Software, Inc. and has no formal capital
structure, so its per share information is not provided.
TELEBACKUP FINANCIAL STATEMENTS
The audited financial statements and notes of TeleBackup as of December 31,
1997 and 1998 and for the three years in the period ended December 31, 1998 are
included in this document.
FINANCIAL STATEMENTS NOT INCLUDED IN THIS DOCUMENT
The selected historical financial data for VERITAS as of December 31, 1994,
1995 and 1996 and for the years ended December 31, 1994 and 1995 have been
derived from audited consolidated financial statements not included or
incorporated by reference in this document.
The selected historical financial data for the Network & Storage Management
Group business as of and for the fiscal years ended July 1, 1994 and June 30,
1995 have been derived from unaudited combined financial statements not included
in this document.
The selected historical financial data for TeleBackup as of December 31,
1995 and 1996, and for the period from May 5, 1995 (inception) through December
31, 1995 have been derived from audited financial statements not included in
this document.
SELECTED HISTORICAL FINANCIAL DATA OF VERITAS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1994 1995 1996 1997 1998
-------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total net revenue....................................... $ 33,575 $47,826 $72,746 $121,125 $210,865
Merger-related costs.................................... -- -- -- 8,490 --
In-process research and development..................... -- -- 2,200 -- 600
Income (loss) from operations........................... (15,212) 1,193 11,858 20,076 53,668
Net income (loss)....................................... (15,274) 2,371 12,129 22,749 51,648
Net income (loss) per share -- basic.................... $ (0.38) $ 0.06 $ 0.28 $ 0.50 $ 1.10
Net income (loss) per share -- diluted.................. $ (0.38) $ 0.06 $ 0.26 $ 0.46 $ 1.00
Number of shares used in computing
per share amounts -- basic............................ 39,829 40,353 43,026 45,622 47,013
Number of shares used in computing
per share amounts -- diluted.......................... 39,829 43,062 46,496 49,493 51,671
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................. $ 14,690 $ 23,451 $ 67,413 $188,578 $198,842
Total assets.................................... 36,830 48,100 94,524 241,880 349,117
Long-term obligations........................... 6,366 6,205 1,468 100,911 100,773
Accumulated deficit............................. (124,064) (115,942) (103,813) (81,064) (29,416)
Stockholders' equity............................ 14,052 23,602 74,955 104,193 169,854
</TABLE>
13
<PAGE> 25
SELECTED HISTORICAL FINANCIAL DATA OF THE NETWORK & STORAGE MANAGEMENT GROUP
BUSINESS
<TABLE>
<CAPTION>
SIX
YEAR ENDED MONTHS ENDED
----------------------------------------------------- -----------------------
JULY 1, JUNE 30, JUNE 28, JUNE 27, JULY 3, JANUARY 2, JANUARY 1,
1994 1995 1996 1997 1998 1998 1999
-------- -------- --------- -------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues...................................... $ 24,866 $ 81,325 $ 116,742 $141,502 $175,046 $83,313 $107,400
Gross profit.................................. 18,187 59,837 89,397 109,390 151,711 70,251 98,790
In-process research and development........... -- 73,177 61,066 -- 6,800 -- --
Write-down of goodwill, developed technology
and intangibles............................. -- -- 2,157 13,091 1,900 1,900 --
Restructuring costs........................... -- -- 9,502 2,524 -- -- --
Income (loss) from operations................. (12,270) (82,958) (102,655) (41,208) 9,430 1,377 24,314
Net income (loss)............................. (7,356) (85,132) (94,596) (33,200) 2,856 (1,250) 13,323
</TABLE>
<TABLE>
<CAPTION>
AS OF
---------------------------------------------------------------
JULY 1, JUNE 30, JUNE 28, JUNE 27, JULY 3, JANUARY 1,
1994 1995 1996 1997 1998 1999
------- -------- -------- -------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................................ $13,089 $96,725 $137,600 $94,087 $74,721 $95,947
Group equity................................................ 6,950 44,919 64,315 34,601 38,033 51,654
</TABLE>
SELECTED HISTORICAL FINANCIAL DATA OF TELEBACKUP:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 5, 1995
(INCEPTION)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------
1995 1996 1997 1998
------------ -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Canadian GAAP
Revenue..................................................... C $ -- C $ 252 C $ 486 C$ 3,423
Net loss.................................................... (53) (1,141) (1,870) (1,570)
Net loss per share -- basic and fully diluted............... C$(0.01) C$ (0.18) C$ (0.25) C$ (0.17)
Number of shares used in computing per share
amounts -- basic and fully diluted........................ 5,475 6,288 7,385 9,347
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------
1995 1996 1997 1998
----- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Canadian GAAP
Working Capital............................................. C$ 35 C $ 979 C$ 1,568 C$ 3,693
Total assets................................................ 194 1,311 3,270 7,699
Long-term obligations....................................... -- 350 3,004 302
Accumulated deficit......................................... (53) (1,194) (3,064) (4,634)
Shareholders' equity (deficiency)........................... 120 835 (2) 4,252
</TABLE>
NEW VERITAS SUMMARY UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
We are providing the following summary unaudited pro forma financial data
to give you a better picture of what the results of operations and financial
position of the combined businesses of VERITAS, the Network & Storage Management
Group business, and TeleBackup might have looked like had the NSMG combination
and the TeleBackup combination occurred at an earlier date. This information is
provided for illustrative purposes only and does not show what the results of
operations or financial position of New VERITAS would have been if the NSMG
combination and the TeleBackup combination actually occurred on the dates
assumed. In addition, this information does
14
<PAGE> 26
SUMMARY
not indicate what New VERITAS' future consolidated operating results or
consolidated financial position will be.
HOW THE PRO FORMA FINANCIAL DATA WAS PREPARED
We derived this data from the New VERITAS unaudited pro forma combined
condensed statement of operations for the year ended December 31, 1998 and the
New VERITAS unaudited pro forma combined condensed balance sheet as of December
31, 1998. These statements give effect to the NSMG combination and the
TeleBackup combination accounted for using the purchase method of accounting.
The pro forma combined condensed statement of operations for the year ended
December 31, 1998 assumes the NSMG combination and the TeleBackup combination
took place on January 1, 1998. The pro forma combined condensed balance sheet
assumes the NSMG combination and the TeleBackup combination took place on
December 31, 1998.
THESE PRO FORMA FINANCIAL STATEMENTS HAVE BEEN BASED ON ASSUMPTIONS
We prepared these statements on the basis of assumptions described in the
notes, including assumptions relating to the allocation of the amount of
consideration paid to the assets and liabilities of the Network & Storage
Management Group business and TeleBackup based upon preliminary estimates of
their fair values. The actual allocation of the amount of consideration paid may
differ from those assumptions after valuations and other procedures to be
performed after the closings have taken place.
CHARGES RESULTING FROM THE COMBINATIONS
New VERITAS expects to incur charges to operations related to in-process
research and development currently estimated at $101.2 million as a result of
the NSMG combination and $1.9 million, as a result of the TeleBackup
combination.
In addition, New VERITAS expects to incur a restructuring charge after
closing of the NSMG combination, currently expected in the second quarter of
1999, in the range of $8.0 million to $11.0 million, primarily related to exit
costs with respect to duplicate facilities of VERITAS that New VERITAS plans to
vacate. These costs are in addition to the liability for the estimated costs to
vacate facilities of the Network & Storage Management Group business which will
become duplicative upon the closing of the NSMG combination, which liability
will be assumed by New VERITAS and included as a part of the purchase price. The
New VERITAS unaudited pro forma combined condensed balance sheet includes the
effect of these charges. However, the New VERITAS unaudited pro forma combined
condensed statements of operations do not reflect these charges because they are
non-recurring. These charges will be reflected in New VERITAS' consolidated
financial statements in the period when the NSMG combination and the TeleBackup
combination are consummated.
YOU SHOULD READ THESE SUMMARY PRO FORMA FINANCIAL STATEMENTS WITH THE HISTORICAL
FINANCIAL STATEMENTS
The New VERITAS summary unaudited pro forma combined condensed financial
data should be read in conjunction with the New VERITAS unaudited pro forma
combined condensed financial statements and the related notes, which begin at
page 146. They should also be read in conjunction with the audited financial
statements of VERITAS which are incorporated in this document by reference, and
the financial statements of the Network & Storage Management Group business and
TeleBackup which begin at page F-1 of this document. The New VERITAS summary
unaudited pro forma combined condensed financial data are not necessarily
indicative of what the actual results of operations and financial position would
have been had the NSMG combination and the TeleBackup
15
<PAGE> 27
combination taken place on January 1, 1998 or December 31, 1998, and do not
indicate future results of operations or financial position.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
---------------------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C>
NEW VERITAS UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
DATA:
Total net revenue........................................... $ 411,158
Loss from operations........................................ (726,586)
Net loss.................................................... (696,421)
Net loss per share -- basic................................. $ (8.38)
Net loss per share -- diluted............................... $ (8.38)
Number of shares used in computing per share
amounts -- basic.......................................... 83,123
Number of shares used in computing per share
amounts -- diluted........................................ 83,123
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1998
---------------------
(IN THOUSANDS)
<S> <C>
NEW VERITAS UNAUDITED PRO FORMA BALANCE SHEET DATA:
Working capital............................................. $ 158,642
Total assets................................................ 3,656,684
Long-term obligations....................................... 101,209
Accumulated deficit......................................... (143,966)
Stockholders' equity........................................ 3,209,046
</TABLE>
NEW VERITAS UNAUDITED COMPARATIVE PER SHARE DATA
The following tables present certain unaudited historical and unaudited pro
forma per share data that reflect the completion of the NSMG combination and the
TeleBackup combination. This data should be read in conjunction with the New
VERITAS unaudited pro forma combined condensed financial statements, and the
historical financial statements of VERITAS incorporated herein by reference and
of the Network & Storage Management Group business and TeleBackup included
elsewhere in this document. The New VERITAS unaudited pro forma combined
condensed per share data does not necessarily indicate the operating results
that would have been achieved had the NSMG combination and the TeleBackup
combination occurred at the beginning of the periods presented, and do 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. Therefore, historical
per share information is not presented.
16
<PAGE> 28
SUMMARY
The following options and other potential common securities, based upon the
options outstanding and closing price of VERITAS common stock as of December 31,
1998, have not been included in the computation of pro forma diluted net loss
per share because their effect would be antidilutive.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1998
--------------
POTENTIAL COMMON SECURITIES: (IN THOUSANDS)
<S> <C>
VERITAS options outstanding................................. 8,211
Options to be issued in connection with the NSMG
combination............................................... 3,482
Options to be issued in connection with the TeleBackup
combination............................................... 78
Common stock issuable upon conversion of VERITAS convertible
notes..................................................... 2,326
------
14,097
======
</TABLE>
Calculation of book value per share amounts
The pro forma book value per share is computed by dividing pro forma
stockholders' equity by the pro forma number of shares outstanding at the end of
each period for which the computation is made. For purposes of computing the
historical book value per share of VERITAS as of December 31, 1998, historical
book value of $169.9 million was divided by historical actual shares outstanding
of 47,628,742. For purposes of computing the book value per share of TeleBackup
as of December 31, 1998, historical book value of C$4.3 million was divided by
the actual shares outstanding of 11,158,745. For purposes of computing the pro
forma book value per share of New VERITAS as of December 31, 1998, pro forma net
book value of $3,209.0 million was divided by pro forma actual shares
outstanding of 83,739,174.
Calculation of TeleBackup equivalent pro forma per share amounts
The TeleBackup equivalent pro forma per share amounts are computed by
multiplying the New VERITAS pro forma combined per share amounts by the exchange
ratio of 0.13233 shares of New VERITAS common stock for each TeleBackup common
share.
<TABLE>
<CAPTION>
YEAR ENDED
OR AS OF
DECEMBER 31, 1998
-----------------
<S> <C>
VERITAS HISTORICAL:
Basic net income per share.................................. $1.10
Diluted net income per share................................ $1.00
Book value per share........................................ $3.57
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
OR AS OF
DECEMBER 31, 1998
-----------------
<S> <C>
TELEBACKUP HISTORICAL:
Basic and fully diluted net loss per share.................. C$(0.17)
Book value per share........................................ C$ 0.38
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
OR AS OF
DECEMBER 31, 1998
-----------------
<S> <C>
NEW VERITAS PRO FORMA COMBINED:
Basic net loss per share.................................... $(8.38)
Diluted net loss per share.................................. $(8.38)
Book value per share........................................ $38.32
Equivalent pro forma basic and fully diluted net loss per
TeleBackup share.......................................... $(1.11)
Equivalent pro forma book value per TeleBackup share........ $ 5.07
</TABLE>
17
<PAGE> 29
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.
Please see "Seagate Software Unaudited Pro Forma Condensed Financial
Statements" on page 160 for a more detailed explanation of this analysis.
HOW THE PRO FORMA FINANCIAL STATEMENTS WERE PREPARED
We derived these statements from the Seagate Software unaudited pro forma
condensed financial statements. 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. For
a more detailed description of the accounting treatment of the exchange
transaction between Seagate Software and New VERITAS, see "The NSMG
Combination -- Accounting treatment -- Accounting treatment by Seagate Software"
on page 76.
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.
18
<PAGE> 30
SUMMARY
SEAGATE SOFTWARE SELECTED UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
JULY 3, 1998 JANUARY 1, 1999
-------------- -----------------
PRO FORMA STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Total net revenue.......................................... $ 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
</TABLE>
<TABLE>
<CAPTION>
AS OF
JANUARY 1, 1999
PRO FORMA BALANCE SHEET DATA: ---------------
(IN THOUSANDS)
<S> <C>
Working capital............................................. 17,010
Total assets................................................ 1,651,162
Retained earnings........................................... 520,465
Stockholders' equity........................................ 996,134
</TABLE>
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 Software. The data presented below
should be read in conjunction with "Seagate Software Unaudited Pro Forma
Condensed Financial Statements" on page 160 and the historical financial
statements of Seagate Software in Seagate Software's 1998 annual report on Form
10-K/A and Seagate Software's quarterly reports on Form 10-Q/A which are
included and incorporated by reference in this document and the historical
financial statements of the Network & Storage Management Group business included
in this document. The unaudited pro forma combined 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 do 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 Software historical book value per share
For purposes of computing the historical book value per share of Seagate
Software as of July 3, 1998, stockholders' equity of $57.1 million, reduced by
the preferred stockholder liquidation preference of $409.8 million, was divided
by historical actual shares outstanding of 235,502. For purposes of computing
the historical book value per share of Seagate Software as of January 1, 1999,
stockholders equity of $68.6 million, reduced by the preferred stockholder
liquidation preference of $409.8 million, was divided by historical actual
shares outstanding of 366,034.
Calculation of Seagate Software 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 Seagate Software common
stock and that the shares from the exercise of stock options plus 608,665 shares
held by existing minority interest shareholders, 2,355,493 shares
19
<PAGE> 31
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. For purposes
of computing the pro forma book value per share of Seagate Software as of July
3, 1998, pro forma stockholders equity of $982.5 million, reduced by the
liquidation preference of $409.8 million, was divided by pro forma actual shares
outstanding of 2,556,745. For purposes of computing the pro forma book value per
share of Seagate Software as of January 1, 1999, pro forma stockholders equity
of $996.1 million, reduced by the liquidation preference of $409.8 million, was
divided by pro forma actual shares outstanding of 2,556,745.
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 they are non-recurring. These charges will
be reflected in Seagate Software'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 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 Software 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 Software 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 Software
will record in-process research and development charges of approximately $92.1
million in connection with the NSMG combination.
Acquisition of 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.
20
<PAGE> 32
SUMMARY
Historical and pro forma per share data
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
OR AS OF OR AS OF
JULY 3, 1998 JANUARY 1, 1999
------------ ----------------
<S> <C> <C>
SEAGATE SOFTWARE -- HISTORICAL
Basic net income (loss) per share......................... $ (56.33) $ 36.11
Diluted net income (loss) per share....................... $ (56.33) $ 0.14
Book value per common share............................... $(1,497.41) $(932.03)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
OR AS OF OR AS OF
JULY 3, 1998 JANUARY 1, 1999
------------ ------------------
<S> <C> <C>
SEAGATE SOFTWARE -- PRO FORMA
Basic net loss per share................................. $ (88.40) $ (41.78)
Diluted net loss per share............................... $ (88.40) $ (41.78)
Book value per common share.............................. $ 224.02 $ 229.35
</TABLE>
21
<PAGE> 33
RISK FACTORS
In evaluating the proposals to be voted on at your meeting or, if
applicable, whether to exchange Seagate Software stock options, please carefully
consider the information presented throughout this document, and in particular
the following risk factors. Some of these risk factors relate directly to the
transactions described in this document, while others relate to the businesses
of New VERITAS, VERITAS, the Network & Storage Management Group and TeleBackup.
RISKS RELATING TO THE NSMG AND TELEBACKUP COMBINATIONS
We might fail to integrate the businesses of VERITAS, the Network & Storage
Management Group and TeleBackup
Product line integration will be difficult. If we complete the acquisition
of the NSMG business and TeleBackup, which is not assured, New VERITAS will need
to integrate three independent businesses. One key issue will be the integration
of the product offerings of the Network & Storage Management Group business and
TeleBackup with those of VERITAS. This product line integration will involve
consolidation of products with duplicative functionality, coordination of
research and development activities, and convergence of the technologies
supporting the various products. For example, VERITAS' NetBackup product and the
Network & Storage Management Group's Seagate Backup Exec product share many
features and functions, and the Network & Storage Management Group's Seagate
Client Exec product is very similar to TeleBackup's TSInfoPro. Technology
convergence will be particularly difficult because the products of VERITAS and
the Network & Storage Management Group business lack a common technology
architecture. In particular, the Network & Storage Management Group products
were not designed for the degree of scalability that VERITAS' products were
designed for, nor for use on the variety of operating systems. Further, we have
no experience with product and technology integration on the scale contemplated
by the NSMG combination.
Other business integration issues could arise. Other problems inherent in
integrating the businesses of VERITAS, the Network & Storage Management Group
business and TeleBackup include:
- maintaining brand recognition for key products of the Network & Storage
Management Group business products, such as Seagate Backup Exec, and of
the TeleBackup product, TSInfoPro, while migrating customer
identification of the brands to New VERITAS;
- resolving channel conflicts that may arise between the original equipment
manufacturer and direct sales distribution channels of VERITAS and the
retail channels of the Network & Storage Management Group business;
- coordinating, integrating and streamlining geographically dispersed
operations, such as engineering facilities in: Mountain View, California;
San Luis Obispo, California; Roseville, Minnesota; Heathrow, Florida;
Durham, North Carolina; Tacoma Park, Maryland; Boulder, Colorado; Boston,
Massachusetts; Cambridge, Massachusetts; Bellevue, Washington; Calgary,
Alberta; and Pune, India; and
- coping with customers' uncertainty about continued support for
duplicative New VERITAS products.
The integration will be expensive and is likely to interrupt our business
activities. Any of these risks could harm New VERITAS' revenues and results of
operations.
22
<PAGE> 34
RISK
FACTORS
Management and employee integration issues could arise. Potential
management and employee integration problems include:
- resolving differences between the corporate cultures of VERITAS and the
Network & Storage Management Group business; and
- integrating the management teams of all three companies successfully.
Our officers and directors have interests that are different from or in
addition to yours, which could influence them to support the combinations
VERITAS, Seagate Technology, Seagate Software, members of their boards of
directors and management, and certain officers of TeleBackup will receive
benefits from the NSMG combination and the TeleBackup combination in addition to
those which you will receive. Because of these benefits, these persons may be
influenced to vote in favor of or to recommend the combinations. These interests
include:
- New VERITAS, VERITAS and a subsidiary of Seagate Software have entered
into a cross-license and original equipment manufacturer agreement;
- New VERITAS and Seagate Technology have entered into a development and
license agreement;
- The current executive officers and directors except for Roel Pieper of
VERITAS will become executive officers and directors of New VERITAS;
- Terence Cunningham, Michael Colemere, Michael Wentz and David Hallmen are
executive officers of Seagate Software or employees of the Network &
Storage Management Group business who will become executive officers of
New VERITAS and will be entitled to participate in the employee stock
option exchange offer;
- Terence Cunningham, Gregory Kerfoot and Stephen Luczo will become
directors of New VERITAS;
- Each of the Seagate Software executive officers and employees of the
Network & Storage Management Group who will become executive officers of
New VERITAS, and other key employees of the Network & Storage Management
Group business, will sign employment agreements with New VERITAS that
provide for terms of employment and severance benefits, among other
things;
- Byron Osing, Bruce Meyer and Thomas Glassford are executive officers of
TeleBackup who will enter into employment agreements with New VERITAS and
TeleBackup that provide for terms of employment and severance benefits,
among other things;
- Seagate Software will have the right to nominate two members of the New
VERITAS board of directors, who will be Stephen J. Luczo and Gregory B.
Kerfoot initially;
- New VERITAS will grant registration rights to Seagate Software enabling
it to resell its shares of New VERITAS common stock in the public market;
and
- Steven Brooks was a managing director of Donaldson, Lufkin & Jenrette
Securities Corporation, VERITAS' financial advisor, and a member of the
VERITAS board of directors when the VERITAS board approved the NSMG
combination. VERITAS has agreed to pay a total fee of $7.5 million to
this financial advisor upon the consummation of the NSMG combination.
23
<PAGE> 35
New VERITAS will incur significant accounting charges in connection with
the combinations that will reduce its earnings immediately and in the future
The significant costs of integration associated with the combinations
increases the risk that we will not realize the anticipated benefits. Because
New VERITAS will account for the NSMG combination and the TeleBackup combination
as purchases, we expect to incur non-cash charges of approximately $103.1
million to our operating statements, related to the write-off of in-process
research and development. We also will record goodwill and other intangible
assets of approximately $3,244.7 million. This amount will be amortized over
four years, and will result in charges to operations of approximately $202.8
million per quarter. In addition, we expect to incur a restructuring charge upon
closing, currently expected in the first half of 1999, in the range of $8.0
million to $11.0 million, primarily related to costs for duplicate facilities of
VERITAS which New VERITAS plans to vacate. These costs are in addition to the
liability for the estimated costs to New VERITAS to vacate facilities of the
Network & Storage Management Group business which will become duplicative upon
the completion of the NSMG combination. See "New VERITAS Unaudited Pro Forma
Combined Condensed Financial Statements" on page 146.
You will have different rights as a stockholder of New VERITAS than you
currently have as a stockholder of your company
In connection with the combinations, some holders of Seagate Software stock
options, and all security holders of TeleBackup, will acquire securities of New
VERITAS. They will have different rights as a stockholder or option holder of
New VERITAS.
Examples of how rights of TeleBackup shareholders will differ include:
Number of votes required for approval. Under Alberta law, certain
fundamental changes to TeleBackup's affairs require the approval of two-thirds
of the votes which are actually cast on the resolution considering the matter.
Under Delaware law, a majority of the shares outstanding must vote in favor of
the transaction. The Delaware threshold for stockholder approval may effectively
be higher than that required under Alberta law, depending upon how many
shareholders actually cast their votes. Votes which are not cast under Alberta
law are not counted, whereas under Delaware law they are deemed to be a negative
vote.
Dissenter's rights. Under Alberta law, there are additional corporate
actions which will trigger a right of dissent for a holder of TeleBackup common
shares which are not available under Delaware law. In addition, the oppression
remedy which entitles a disgruntled shareholder to seek relief from a court in
certain circumstances, is not available under Delaware law and therefore not
available to a holder of New VERITAS.
Residence of directors. There are also residency requirements for directors
under Alberta law whereas there are no residency requirements under Delaware
law.
Limited liability of directors. Delaware law allows for a limitation on the
liability of directors. Alberta law does not provide for a limitation on
liability.
Transactions with interested stockholders. Delaware law restricts certain
business combinations between the company and an "interested stockholder."
Alberta law provides no such controls. However, certain Canadian securities
legislation may apply to a transaction to impose similar controls.
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FACTORS
Examples of how the rights of Seagate Software optionees who acquire and
later exercise New VERITAS options will differ:
Classified board. New VERITAS will have a classified board of directors
where each member will have a three-year term and only one-third of the
directors will be elected annually. Seagate Software does not have a classified
board of directors.
Cumulative voting. The New VERITAS stockholders will not be entitled to
vote their shares cumulatively for directors. Seagate Software stockholders are
entitled to cumulate their votes in the election of directors.
Stockholder rights plan. New VERITAS has adopted a stockholder rights plan
for takeover defense purposes while Seagate Software has not.
See page 269.
The exchange ratio for the TeleBackup combination can vary prior to the
closing of the TeleBackup combination
The TeleBackup exchange ratio can vary. The number of exchangeable shares
issued by a subsidiary of VERITAS or shares of New VERITAS or VERITAS common
stock into which the TeleBackup common shares will be converted is determined by
the TeleBackup exchange ratio. The TeleBackup exchange ratio is set with
reference to the average closing price of VERITAS common stock on the Nasdaq
National Market during the 10 trading days ending two trading days before the
closing date of the TeleBackup combination. This ratio was 0.13233 as of March
31, 1999. It will fluctuate until it is fixed.
We urge you to check the current trading price of VERITAS common stock. To
see how the exchange ratio is calculated, see page 131. In addition, you may
call 1-877-305-3753 in North America for updated information about the exchange
ratio.
The exchange ratio for the employee stock option exchange offer can vary
prior to the closing of the NSMG combination
The exchange ratio for the employee stock option exchange offer is set by a
formula. As of March 31, 1999, the exchange ratio was 0.647488 VERITAS shares
for each Seagate Software share. This ratio varies depending upon the closing
price of VERITAS common stock over five trading days ending on the sixth
business day before the closing of the NSMG combination. The ratio also varies
depending upon the number of shares of Seagate Software common stock, options
and convertible securities outstanding prior to the closing of the NSMG
combination. Because of the timing of when the final exchange ratio is set, the
ratio is likely to fluctuate after a Seagate Software stock option holder has
elected to convert his or her stock options to New VERITAS options. Therefore,
the option holder may receive an option to purchase a different number of shares
of New VERITAS common stock than was the case at the time the option holder made
his or her choice. To see how the exchange ratio is calculated, see page 100. In
addition, for updated information call 877-707-5656 after first dialing the AT&T
Direct Access Code for the country from which you are calling if you are outside
North America.
RISKS RELATING TO NEW VERITAS AFTER THE NSMG AND TELEBACKUP COMBINATIONS
Our operating results may fluctuate significantly as a result of factors
outside our control, which could adversely affect our stock price
Fluctuations in our net income are likely to affect the market price of our
common stock in a manner that may be unrelated to our long-term operating
performance. The more likely it is that market prices of New VERITAS common
stock will fluctuate, the
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riskier is your decision to acquire New VERITAS common stock. In addition, the
number of factors that could affect our results makes an investment in New
VERITAS more risky than many other investments.
Our revenue in any quarter will depend substantially on orders we receive
and ship in that quarter. In addition, we typically receive a significant
portion of orders in any quarter during the last two weeks of the quarter, and
we cannot predict whether those orders will be placed, fulfilled and shipped in
that period. If we have lower revenues than we expect, we probably will not be
able to reduce our operating expenses quickly in response. Therefore, any
significant shortfall of revenue or delay of customer orders could have an
immediate adverse effect on our operating results in that quarter.
The operating results of VERITAS, the Network & Storage Management Group
business and TeleBackup have fluctuated in the past, and the operating results
of New VERITAS are likely to fluctuate significantly in the future. Factors that
could affect New VERITAS' operating results include:
- timing and magnitude of sales through original equipment manufacturers;
- the unpredictability of the timing and level of sales to resellers and
our direct sales force, which tend to generate sales later in our
quarters and than original equipment manufacturer sales;
- timing and magnitude of large orders;
- timing and amount of our marketing, sales and product development
expenses;
- cost and time required to develop new software products;
- the introduction, timing and market acceptance of new products;
- our ability to deliver products that are Year 2000 compliant;
- timing of revenue recognition for sales of software products and
services;
- changes in data storage and networking technology or introduction of new
operating system upgrades by original equipment manufacturers, which
could require us to modify our products or develop new products;
- the relative growth rates of the Windows NT and UNIX markets;
- timing of Microsoft's release of the next version of Windows NT, or
Windows 2000, and the rate of adoption of Windows 2000 by users;
- pricing policies and distribution terms; and
- the timing and magnitude of acquisitions.
We will depend on large orders with lengthy sales cycles for a significant
portion of our revenues
Customer orders can range in value from a few thousand to over a million
dollars. The length of time between initial contact with a potential customer
and sale of a product, or our sales cycle, outside the retail channel is
typically complex and lengthy, so it can last from three to nine months. These
direct sales also represent our largest orders. Therefore, New VERITAS' revenues
for a period are likely to be affected by the timing of larger orders, which
makes those revenues difficult to predict. Our revenues for a quarter could
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RISK
FACTORS
be reduced if large orders forecasted for a certain quarter are delayed or are
not realized. The cycle factors that could delay or defer an order, include:
- time needed for technical evaluations of our software by customers;
- customer budget restrictions;
- customer internal review and testing procedures; and
- engineering work needed to integrate our software with the customers'
systems.
We will face many difficulties in managing a larger company
In deciding whether to authorize the NSMG combination or to invest in
shares of New VERITAS common stock, you should bear in mind that the larger
company will create new challenges for our existing management. If we fail to
meet those challenges the value of your investment may decline. Both VERITAS and
the Network & Storage Management Group business have recently grown rapidly.
After the NSMG combination and the TeleBackup combination, we will have a
workforce approximately twice the size of the VERITAS workforce prior to the
combinations. New VERITAS will also need to hire additional sales, engineering
and support personnel for the foreseeable future. This growth is likely to
strain our management control systems and resources, including decision support,
accounting and management information systems. We will need to continue to
improve our financial and management controls and our reporting systems and
procedures to manage our employees and to obtain additional facilities.
New VERITAS will need to hire and retain many new sales and engineering
personnel, which is difficult
In deciding whether to authorize the NSMG combination or to invest in New
VERITAS common stock, you should also realize that New VERITAS' challenge
includes personnel needs that are more acute than those facing most companies.
As a result of the combinations, New VERITAS will need to hire many additional
sales and engineering personnel. Competition for individuals with these skills
is intense, particularly in many of the areas where New VERITAS will seek to
hire those persons. Additions of new personnel and departures of existing
personnel can be disruptive to our business and can result in the departure of
other employees. We will also remain dependent on the continued service of our
key personnel. Even though New VERITAS intends to enter into employment
agreements with key management personnel, these agreements cannot prevent the
departure of those employees. We do not have key person life insurance covering
any of our personnel, nor do we currently intend to obtain any of this
insurance.
We will be distributing our products through multiple distribution
channels, each of which is subject to risks
Our ability to manage multiple distribution channels is a new risk that
will face VERITAS stockholders after the NSMG combination. VERITAS has
historically sold its products through original equipment manufacturers and, to
a lesser extent, direct sales.
Retail distribution. Certain software products of the Network & Storage
Management Group business are sold primarily in the retail channel. VERITAS
management has little
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experience in this market and faces different challenges than it faces in
selling most of its products. For example:
- VERITAS does not have the same level of brand recognition in this
channel;
- this means of distribution typically involves shorter product life
cycles;
- the retail channel has higher risks of product returns;
- the retail channel has higher marketing expenses; and
- this channel has less predictable market demand.
Direct sales. We will also depend on our direct sales force to sell our
products. This also involves a number of risks, including:
- longer sales cycles for direct sales;
- our need to hire, train, retain and motivate our sales force; and
- the length of time it takes our new sales representatives to become
productive.
Original equipment manufacturers. A portion of our revenues are expected to
come from original equipment manufacturers that incorporate our storage
management software into systems they sell. We will have no control over the
shipping dates or volumes of systems the original equipment manufacturers ship.
They have no obligation to ship systems incorporating our software. They do not
have to recommend or offer our software products exclusively or at all, and have
no minimum sales requirements. They can terminate our relationship at any time.
These original equipment manufacturers could choose to develop their own storage
management products internally and incorporate those products into their systems
in lieu of our products. Our business could be harmed if some or all of our
current original equipment manufacturers discontinued selling New VERITAS'
products.
Development Agreements for original equipment manufacturers. VERITAS and
the Network & Storage Management Group business have important original
equipment manufacturer agreements with Hewlett-Packard, Sun Microsystems,
Microsoft, Dell, Seagate Technology and Compaq Computer. Under these agreements
we develop "lite" versions of our products to be included in these original
equipment manufacturers' systems software and products. Developing products for
these original equipment manufacturers causes us to divert significant resources
from other activities which are also important to our business. If these "lite
versions" do not result in substantial revenue, our business could be adversely
affected.
New VERITAS' distribution channels could conflict with one another
New VERITAS will have many different distribution channels, more than
VERITAS alone has. Our original equipment manufacturers, resellers and direct
sales force may target similar sales opportunities, which could lead to
inefficient allocation of sales resources. We may also try to sell full versions
of the products to customers of the original equipment manufacturers for whom we
have developed "lite" versions of our products. This would result in us
marketing similar products to end-users. These overlapping sales efforts could
also adversely affect our relationships with our original equipment
manufacturers and other sales channels and result in them being less willing to
market our products aggressively. If our indirect sales decline, we would need
to accelerate our investments in alternative distribution channels. We may not
be able to do this in a timely manner, or at all.
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RISK
FACTORS
Risks relating to our development agreements with Microsoft
We have important agreements with Microsoft under which we develop software
for its Windows operating system. However, if we do not develop these products
in time for the release of Microsoft's Windows NT 5.0, or Windows 2000,
operating system, Microsoft will not include them in this operating system. Even
if we do develop these products on time, Microsoft is not obligated under the
agreements to include them in this operating system. If for any reason our
software is not included in Windows 2000 we will lose our expected opportunity
to market additional products to the Windows NT installed customer base, as well
as suffer negative publicity. In addition, we would lose the investment we have
made in developing products for inclusion in Windows 2000.
Risks of delay of release of Windows 2000. Microsoft is not required to
release Windows 2000 on any particular date. Therefore, if the release of this
operating system is delayed, it will be more difficult for us to market and sell
our products to Windows NT users.
Microsoft could develop competing products Microsoft can also develop
enhancements to and derivative products from our software products that are
embedded in Windows NT products. If Microsoft developed any enhancements or
derivative products, or its own base products with equivalent functionality,
Microsoft could choose to compete with us.
Sales of a small number of product lines will make up a substantial portion
of our revenues
New VERITAS expects to derive a substantial majority of its revenue from a
limited number of software products and expects to continue to do so for the
foreseeable future. For example, in the year ended December 31, 1998, VERITAS
derived approximately 87.4% of its license revenue from storage management
products, which include Volume Manager, File System and NetBackup and the
Network & Storage Management Group business derived 87.9% of its revenue from
its Backup Exec product. If many customers do not purchase these products as a
result of competition, technological change or other factors, our revenues would
decrease. Also, VERITAS' Net Backup and Network & Storage Management Group's
Backup Exec product perform certain overlapping functions. After the
combination, it is possible that customers could select one product over the
other, which could result in reduced revenues for the other product. Therefore,
we may not receive the same aggregate level of revenues from these products as
we have received in the past.
Our products have relatively short life cycles
Our software products have a limited life cycle and it is difficult to
estimate when they will become obsolete. This makes it difficult for us to
forecast revenue and makes your investment in New VERITAS more risky. If we do
not develop and introduce new products before our existing products have
completed their life cycles, we would not be able to sustain our level of sales.
In addition, to succeed, many customers must adopt our new products early in the
product's life cycle. Therefore, if we do not attract sufficient customers early
in a product's life, we may not realize the amount of revenues we anticipated
for the product. We cannot be sure that we will continue to be successful in
marketing our key products.
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We derive significant revenues from only a few customers
Sales to a small number of customers generate a disproportionate amount of
our revenue. For example, in the year ended December 31, 1998, VERITAS derived
12% of its revenue from sales to Sun Microsystems and the Network & Storage
Management Group business derived 28% of its revenues from sales to Ingram Micro
Inc. If Sun Microsystems or Ingram Micro, or any other significant customer,
were to reduce its purchases from us, our revenues and therefore our business
would be harmed unless we were to increase sales to other customers
substantially. We do not have a contract with Sun Microsystems, Ingram Micro or
any other customer that requires the customer to purchase any specified number
of software licenses from us. Therefore, we cannot be sure that these customers
will continue to purchase our products at current levels.
New VERITAS plans to port products to new operating systems and we face
uncertainties in porting products and developing new products
Certain of VERITAS' products operate primarily on certain versions of the
UNIX computer operating system. VERITAS is redesigning, or porting, certain of
its software products to operate on the Windows NT operating system. VERITAS is
also developing new products for UNIX as well as for Windows NT. TeleBackup's
products operate primarily on the Windows and Windows NT operating systems. New
VERITAS intends to port the TeleBackup products to the UNIX operating system. We
may not be able to accomplish any of this work quickly or cost-effectively.
These activities require substantial capital investment, substantial
employee resources and the cooperation of the owners of the operating systems to
or for which the products are being ported or developed. For example, VERITAS'
porting and development work for the Windows NT market has required it to hire
additional personnel with Windows NT expertise and to devote engineering
resources to these projects. Operating system owners have no obligation to
assist in these porting or development efforts. In particular, we must obtain
from them a source code license to certain portions of the operating system
software, in order to port our products to or develop products for that
operating system. If they do not grant us a license or if they do not renew our
license, we would not be able to expand our product line easily into other
areas. For example, we rely on a source code license from Microsoft with respect
to our Windows NT development projects. Microsoft is under no obligation to
renew the source code license, which is subject to annual renewal.
The market for TSInfoPro is unproven
TeleBackup's primary product, TSInfoPro, which is designed to back up data
for remote PC users, represents new technology that has no proven market. A
market may not develop for this product or similarly unproven products in the
future. This could harm our business because the investment in TeleBackup, and
any additional development and marketing costs, would be lost, and any expected
revenue opportunities would not materialize.
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RISK
FACTORS
We face intense competition on several fronts
In considering whether to approve this NSMG combination, VERITAS
stockholders should bear in mind that the combined company will have new
competitors. Seagate Software option holders considering whether to accept the
employee stock option exchange offer should be aware that New VERITAS will face
a wide variety of tough competitors. Our principal competitors include:
- internal development groups within original equipment manufacturers that
provide storage management functions with their systems, such as Sun
Microsystems for its Solaris System, Compaq for its Digital UNIX, IBM for
its AIX System and Microsoft for its Windows NT;
- other software vendors and hardware companies that offer products with
some of our products' features, such as controller and disk subsystem
manufacturers;
- hardware and software vendors that offer storage application products,
such as the Cheyenne division of Computer Associates, for its ARCserve
product; EMC, for its Enterprise Data Manager product; IBM, for its
ADSTAR Distributed Storage Manager product; Intelliguard, for its BudTool
product; Spectralogic, for its Alexandria Network Librarian product;
StorageTek, for its REELbackup product; Hewlett-Packard, for its Omniback
product; and Legato Systems, for its NetWorker and GEMS products; and
- hardware and software vendors that offer high availability and clustering
products, such as Fulltime Software, Inc., formerly known as Qualix Group
Inc., for its Qualix HA product; Sun Microsystems, for its Sun Cluster
product; and Hewlett-Packard, for its HP-ServiceGuard product.
Many of our competitors have substantially greater financial and technical
resources than New VERITAS and may attempt to increase their presence in the
storage management market by acquiring or forming strategic alliances with other
competitors or business partners.
Year 2000 risks
We are in the process of conducting an extensive review of our products and
services and of our internal business systems and infrastructure to identify
potential year 2000 problems and are implementing remedial action to address
those problems. While we do not expect to encounter any problems that would be
material to our business or to incur significant costs in fixing year 2000
problems, if we do not identify and remedy these problems in a timely and
efficient manner, we could experience substantial disruptions to our operations.
Failure to achieve year 2000 readiness of our systems or products could lead to
loss of existing and potential customers and subsequent costly litigation claims
against us. Substantial disruptions to business could also be caused by factors
outside our control such as loss of water and power, telecommunications systems,
banking systems and transportation systems.
Expanding our international sales depends on economic stability in regions
that recently have been unstable
An investment in New VERITAS common stock is more risky than an investment
in many other companies because we plan to expand in overseas markets, such as
Asia, Russia and Latin America, that have recently experienced significant
economic turmoil. Continued turmoil could adversely affect our plans to increase
sales in these regions.
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Economic recession could also affect our ability to maintain or increase sales
in these or other regions in the future. Our concern is that recession could
lead to:
- restrictions on government spending imposed by the International Monetary
Fund;
- customers' reduced access to working capital to fund software purchases;
- higher interest rates; and
- reduced bank lending or other sources of financing for customers and
potential customers.
Any of these factors could cause foreign customers to not purchase our products.
Our foreign-based operations and sales create special problems that could
hurt our results
An investment in New VERITAS is riskier than in most businesses because we
will have significant offshore operations, including development facilities,
sales personnel and customer support operations. For example, as of March 31,
1999, VERITAS had approximately 135 engineers located in Pune, India, performing
product development work. These offshore operations are subject to certain
inherent risks, including:
- potential loss of developed technology through piracy, misappropriation,
or more lax laws regarding intellectual property protection;
- imposition of governmental controls, including trade restrictions;
- fluctuations in currency exchange rates and economic instability;
- longer payment cycles for sales in foreign countries;
- difficulties in staffing and managing the offshore operations;
- seasonal reductions in business activity in the summer months in Europe
and other countries; and
- political unrest, particularly in areas in which we have facilities.
In addition, our international sales will be denominated in local currency,
creating risk of foreign currency translation gains and losses that could harm
our financial results. If we generate profits or losses in foreign countries,
our effective income tax rate could also be harmed. The currency instability in
Asia and other financial markets may make our products more expensive than
products sold by other vendors that are priced in one of the affected
currencies. Therefore, foreign customers may choose not to purchase our
products.
New VERITAS will have a significant amount of debt
VERITAS sold $100.0 million principal amount of 5 1/4% convertible
subordinated notes in October 1997, and this debt will be assumed by New
VERITAS. The annual interest payments will be $5.25 million which New VERITAS
expects to fund from its cash flow from operations. As of December 31, 1998, the
ratio of VERITAS' long term debt to total capitalization was 37%. New VERITAS
will need substantial amounts of cash to fund interest payments and to repay the
principal amount of debt when it matures, while at the same time funding capital
expenditures and other working capital needs. While VERITAS' cash flow has been
sufficient to fund such interest payments to date, if New VERITAS cannot meet
its cash requirements from the cash generated by its
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RISK
FACTORS
business, it may not be able to respond to changing business or economic
conditions adequately, make acquisitions or otherwise fund its business.
If New VERITAS does not have sufficient cash to repay this debt when it
matures, it may not be able to refinance this debt on reasonable terms or at
all. This debt could be declared immediately due and payable if it does not make
timely payments on this debt.
New VERITAS' acquisition strategy involves risks
New VERITAS common stock is more risky than that of other companies because
New VERITAS plans to pursue a strategy of growth through acquisition. VERITAS
has grown aggressively through acquisitions in the past and New VERITAS expects
to pursue acquisitions in the future. Acquisitions involve a number of special
risks and challenges, including:
- our management's attention may be diverted, particularly in the case of
multiple concurrent acquisitions;
- we must integrate the target's operations and employees with our existing
business;
- we may have difficulty incorporating technology into our existing product
lines;
- key employees may leave; and
- we may have difficulty presenting a unified corporate image.
In the past, we have lost certain employees of acquired companies whom we
desired to retain. In some cases, the integration of the operations of acquired
companies took longer than initially anticipated. In addition, if the employees
of target companies remain geographically dispersed from our existing staff, we
may not realize some or all of the anticipated economies of scale.
Each of us could be harmed if the combinations are not completed
Each of us has expended substantial management time and incurred costs in
negotiating these combinations. These costs would not be recouped if the
combinations are not completed. If either the NSMG or TeleBackup combination is
not completed, we would continue to operate as independent entities, despite our
customers' and employees' expectations. Each of our reputations and
relationships with our customers could be damaged if we fail to complete the
combinations. If VERITAS does not complete the NSMG and TeleBackup combinations,
VERITAS may be required to pay a significant breakup fee to Seagate Software or
TeleBackup.
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 New VERITAS,
VERITAS, the Network & Storage Management Group business, Seagate Software or
TeleBackup. 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.
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For a discussion of the detailed factors we anticipate will influence our
future results, please refer to the "Risk Factors" section beginning on page 22
and to the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for the Network & Storage Management Group business and
TeleBackup, on pages 175 and 205, and of VERITAS and Seagate Software, which are
contained in their Forms 10-K and 10-Q on file with the SEC and available at
http://www.sec.gov.
WHERE YOU CAN FIND MORE INFORMATION
VERITAS and Seagate Software each file annual, quarterly and special
reports, proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
we file at the SEC's public reference rooms at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as at the SEC's regional offices at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of these materials may also
be obtained from the SEC at prescribed rates by writing to the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington D.C. 20549. Our filings
are also available to the public from commercial document retrieval services and
at the web site maintained by the SEC at http://www.sec.gov.
TeleBackup files annual and quarterly reports as well as information
circulars and other information with the Alberta Securities Commission and the
Alberta Stock Exchange. You may read and obtain copies of reports and other
information either from the Alberta Securities Commission at 400, 300 -- 5th
Avenue S.W., Calgary, Alberta T2P 3C4, or the Alberta Stock Exchange at 10th
Floor, 300 -- 5th Avenue S.W., Calgary, Alberta T2P 3C4 or at the Canadian
Securities Administrators Website at http://www.sedar.com.
New VERITAS has filed a registration statement on Form S-4 with respect to
the common stock to be issued to holders of VERITAS common stock and to Seagate
Software in the NSMG combination agreement, the options to purchase New VERITAS
common stock to be exchanged for options to purchase Seagate Software common
stock to be exchanged in the exchange offer, and the common stock to be issued
upon exchange of the Exchangeco exchangeable shares to be issued to Canadian
holders in the TeleBackup combination.
This document constitutes the prospectus of New VERITAS that is filed as
part of the registration statement. Other parts of the registration statement
are omitted from this document in accordance with the rules and regulations of
the SEC. Copies of the registration statement, including exhibits, may be
inspected, without charge, at the offices of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained from the SEC at prescribed
rates.
You should rely only on the information contained in this document to vote
on the proposals. We have not authorized anyone to provide you with information
that is different from what is contained in this document.
VERITAS has supplied all information contained in this document relating to
VERITAS and New VERITAS. Seagate Technology and Seagate Software have supplied
all information relating to the Network & Storage Management Group, Seagate
Software and Seagate Technology. TeleBackup has supplied all information
relating to TeleBackup.
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VERITAS SEAGATE
SOFTWARE
TELEBACKUP
WE ARE INCORPORATING OUR SEC FILINGS IN THIS DOCUMENT BY REFERENCE
VERITAS is incorporating by reference in this document its annual report on
Form 10-K for the fiscal year ended December 31, 1998 filed with the SEC on
March 30, 1999.
VERITAS incorporates by reference all documents that are filed with the SEC
pursuant to Sections 13 or 15 of the Exchange Act prior to the VERITAS meeting.
VERITAS will provide without charge to each person to whom a copy of this
document has been delivered, upon request, a copy of any or all of the documents
incorporated by reference, other than exhibits to those documents, unless the
exhibits are specifically incorporated by reference into the information that
this document incorporates. TO RECEIVE THESE DOCUMENTS ON TIME, YOU MUST REQUEST
THE INFORMATION NO LESS THAN FIVE BUSINESS DAYS BEFORE THE DATE OF YOUR
STOCKHOLDER OR SHAREHOLDER MEETING. Requests for copies should be directed to:
VERITAS SOFTWARE CORPORATION
1600 Plymouth Street
Mountain View, CA 94043
Attention: Marge Duncan
Seagate Software is incorporating by reference in this document its:
- annual report on Form 10-K for the fiscal 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; and
- current report on Form 8-K dated October 21, 1998.
Seagate Software incorporates by reference all documents that are filed
with the SEC pursuant to Sections 13 or 15 of the Exchange Act prior to the
Seagate Software meeting.
Seagate Software will provide without charge to each person to whom a copy
of these materials have been delivered, upon request, a copy of any or all of
the documents incorporated by reference, other than exhibits to those documents,
unless the exhibits are specifically incorporated by reference into the
information that this document incorporates. TO RECEIVE THESE DOCUMENTS ON TIME,
YOU MUST REQUEST THE INFORMATION NO LESS THAN FIVE BUSINESS DAYS BEFORE THE DATE
OF YOUR STOCKHOLDER MEETING. Requests for copies should be directed to:
SEAGATE SOFTWARE, INC.
915 Disc Drive
Scotts Valley, California 95066
Attention: Bill Rowley
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<PAGE> 47
THE VERITAS MEETING
WHEN AND WHERE THE MEETING WILL BE HELD
The special meeting of stockholders of VERITAS will be held at 8:00 a.m.,
Pacific time, on May 27, 1999, at 1600 Plymouth Street, Mountain View,
California 94043.
WHAT WILL BE VOTED UPON
At the VERITAS meeting, you will be asked to approve the following
proposals:
(1) The NSMG combination, which combination includes issuing stock options
to the employees of the Network & Storage Management Group business who
exchange their Seagate Software stock options in the NSMG combination.
In the NSMG combination, VERITAS will become a subsidiary of New
VERITAS and Seagate will contribute to New VERITAS the assets of its
Network & Storage Management Group business. The NSMG combination
agreement is attached to this document as Appendix A. See "The NSMG
Combination" on page 49 and "The NSMG Combination Agreement" on page
80.
(2) In connection with the proposed combination with TeleBackup, amendments
to the certificate of incorporation creating a new class of stock
called special voting stock and to authorize one share of special
voting stock. A copy of the proposed restated certificate of
incorporation of VERITAS is attached to this document as Appendix P.
See "The TeleBackup Combination" on page 106.
(3) Amendments to the certificate of incorporation increasing the number of
authorized shares of capital stock of VERITAS from 75,000,000 to
500,000,000;
(4) Amendments to the VERITAS 1993 Employee Stock Purchase Plan to:
- increase the number of shares reserved for issuance under the plan
from 2,250,000 to 4,000,000;
- provide for an automatic annual increase equal to 1% of the
outstanding shares of VERITAS common stock in the number of shares
reserved for issuance under the plan; and
- add an additional offering period if the NSMG combination is completed
before August 16, 1999. The purchase plan, as proposed to be amended,
is attached to this document as Appendix R.
(5) Amendments to the VERITAS 1993 Equity Incentive Plan increasing the
number of shares reserved for issuance under the plan from 9,225,000 to
16,000,000. The equity incentive plan will be assumed by New VERITAS.
The equity incentive plan, as proposed to be amended, is attached to
this document as Appendix Q.
(6) Amendments to the equity incentive plan providing for an automatic
annual increase equal to 4.5% of the outstanding shares of VERITAS
common stock in the number of shares reserved for issuance under that
plan.
We do not anticipate that any matter will be presented for action at the
meeting. If any other material matters are properly brought before the meeting,
we will re-solicit proxies.
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<PAGE> 48
VERITAS
ONLY STOCKHOLDERS ON APRIL 20, 1999 WILL BE ENTITLED TO VOTE
You will be entitled to vote at the VERITAS meeting only if you are a
holder of record of shares of VERITAS common stock at the close of business on
April 20, 1999, the VERITAS record date. On that date, there were 48,163,920
shares of VERITAS common stock outstanding and entitled to vote. These shares
were held of record by approximately 310 stockholders. VERITAS has been informed
that there are in excess of 15,000 beneficial owners.
Each VERITAS stockholder is entitled to one vote for each share of VERITAS
common stock you held on the VERITAS record date for each matter to be acted
upon in the VERITAS meeting.
VOTES REQUIRED TO APPROVE THE PROPOSALS
The approval and adoption of each of the proposals described above will
require the affirmative vote of the VERITAS stockholders as follows:
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------
PROPOSAL REQUIRES AFFIRMATIVE VOTE OF A MAJORITY
OF THE
- ----------------------------------------------------------------------------------
The NSMG combination Outstanding common stock
The amendments to the certificate of
incorporation
- ----------------------------------------------------------------------------------
The amendments to the VERITAS equity Outstanding common stock present in
incentive plan and VERITAS purchase person or represented by proxy at the
plan meeting and entitled to vote
- ----------------------------------------------------------------------------------
</TABLE>
SHARES HELD BY DIRECTORS, EXECUTIVE OFFICERS AND THEIR AFFILIATES
On April 20, 1999, directors and executive officers of VERITAS and their
affiliates as a group held 8,016,130 shares of VERITAS common stock, or
approximately 16.6% of the outstanding shares of VERITAS common stock. These
directors and executive officers of VERITAS have executed voting agreements with
Seagate Technology and Seagate Software, under which they have agreed to vote
such shares in favor of the NSMG combination. See "Agreements Related to the
NSMG Combination -- Voting agreements" on page 90.
VOTES NEEDED FOR A QUORUM
The required quorum for the transaction of business at the meeting is a
majority of the shares of VERITAS common stock outstanding on the VERITAS record
date.
EFFECT OF ABSTENTIONS AND BROKER NON-VOTES
Abstentions will be included in determining the number of shares present
and voting at the meeting and will have the same effect as votes against all of
the proposals.
For the proposals relating to the NSMG combination and the certificate of
incorporation, broker non-votes will have the same effect as votes cast against
the proposals.
For each of the proposals relating to the VERITAS equity incentive plan and
the VERITAS purchase plan, broker non-votes will have no effect.
37
<PAGE> 49
VERITAS WILL PAY THE EXPENSES OF PROXY SOLICITATION
VERITAS will pay the expenses of soliciting proxies to be voted at the
meeting. Following the original mailing of the proxies and other soliciting
materials, VERITAS and its agents also may solicit proxies by mail, telephone,
telegraph or in person. VERITAS has retained a proxy solicitation firm,
ChaseMellon Shareholder Services LLC, to aid it in the solicitation process.
VERITAS will pay that firm a fee equal to $6,500. Following the original mailing
of the proxies and other soliciting materials, VERITAS will request brokers,
custodians, nominees and other record holders of VERITAS common stock to forward
copies of the proxy and other soliciting materials to persons for whom they hold
shares of VERITAS common stock and to request authority for the exercise of
proxies. In these cases, VERITAS, upon the request of the record holders, will
reimburse the holders for their reasonable expenses.
HOW PROXIES WILL BE VOTED
All properly executed proxies received by VERITAS prior to the vote at the
meeting that are not revoked will be voted at the meeting according to the
instructions indicated on the proxies. If no direction is indicated, they will
be voted to approve each of the proposals.
HOW YOU CAN REVOKE YOUR PROXY
A VERITAS stockholder who has given a proxy may revoke it at any time
before it is exercised at the meeting, by:
- delivering to the Secretary of VERITAS by any means, including facsimile,
a written notice, bearing a date later than the date of the proxy,
stating that the proxy is revoked;
- signing and so delivering a proxy relating to the same shares and bearing
a later date prior to the vote at the meeting; or
- attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy.
Please note, that if your shares are held of record by a broker, bank or
other nominee and you wish to vote at the meeting, you must bring to the VERITAS
meeting a letter from the broker, bank or other nominee confirming your
ownership of the shares.
YOU DO NOT HAVE DISSENTERS' OR APPRAISAL RIGHTS
You are not entitled to dissenters' rights or appraisal rights with respect
to any proposals to be considered at the VERITAS meeting.
YOU MUST ACT BY A SPECIFIED DATE TO PRESENT A STOCKHOLDER PROPOSAL AT THE NEXT
VERITAS ANNUAL MEETING
Stockholders are entitled to present proposals for action at a forthcoming
meeting if they comply with the requirements of the proxy rules established by
the Securities and Exchange Commission. In order for submitted proposals by New
VERITAS stockholders to be considered for inclusion in the proxy statement for
the next annual meeting of New VERITAS stockholders if the NSMG combination is
approved, the proposals must be received a reasonable time before New VERITAS
begins to print and mail its proxy
38
<PAGE> 50
VERITAS
materials. If the NSMG combination is not approved, December 24, 1999 will be
the deadline for the submission of proposals for the next VERITAS annual
meeting.
If a stockholder intends to submit a proposal at the next annual meeting of
New VERITAS stockholders which is not eligible for inclusion in the proxy
statement relating to that meeting, the stockholder must give notice to New
VERITAS in accordance with the requirements set forth in the Securities Exchange
Act no later than a reasonable time before New VERITAS mails its proxy materials
for the meeting. If the NSMG combination is not approved, February 17, 2000 will
be the deadline for giving notice to VERITAS of the intent to submit a proposal
at the next VERITAS annual meeting. If a stockholder fails to comply with this
notice provision, the proxy holders will be allowed to use their discretionary
voting authority when and if the proposal is raised at that meeting, or the
annual meeting of New VERITAS stockholders if the NSMG combination is approved.
39
<PAGE> 51
THE TELEBACKUP MEETING
WHEN AND WHERE THE MEETING WILL BE HELD
The special meeting of shareholders of TeleBackup will be held at 3:00
p.m., Calgary time, on May 26, 1999 at the head office of TeleBackup at 200,
119 -- 14th Street N.W., Calgary, Alberta.
WHAT WILL BE VOTED UPON
At the TeleBackup meeting you will be asked to approve the following:
(1) A special resolution, the full text of which is set out in Appendix O
to this document, to approve the proposed plan of arrangement under
Section 186 of the Business Corporations Act (Alberta) and the
associated amended and restated combination agreement dated April 12,
1999 between TeleBackup, VERITAS Software Corporation and VERITAS
Holding Corporation.
(2) Any other matters as may properly come before the meeting.
SHAREHOLDERS ENTITLED TO VOTE
You will be entitled to vote at the TeleBackup meeting if you are a
registered holder of TeleBackup common shares at the close of business on April
19, 1999, the TeleBackup record date. On March 31, 1999, 11,751,345 common
shares of TeleBackup were issued and outstanding held of record by approximately
41 registered shareholders. TeleBackup believes that there are in excess of 500
beneficial holders. If you acquire TeleBackup common shares after the close of
business on April 19, 1999, in order to vote at the TeleBackup meeting you must:
- provide proof of ownership of the shares; and
- demand to be included in the list of persons entitled to attend and vote
at the TeleBackup meeting not later than 10 days before the TeleBackup
meeting.
VOTE REQUIRED TO APPROVE THE RESOLUTION
Registered holders of TeleBackup common shares are entitled to one vote for
each share held. The shareholder's resolution approving the plan of arrangement
must be approved by the affirmative vote of not less than two-thirds of the
votes cast by the holders of TeleBackup common shares present, in person or by
proxy, and entitled to vote at the TeleBackup meeting. Beneficial holders of
TeleBackup common shares should refer to page 41.
SHARES HELD BY DIRECTORS, EXECUTIVE OFFICERS AND THEIR AFFILIATES
As of March 31, 1999, the TeleBackup directors, executive officers and each
holder of more than 10% of TeleBackup's outstanding stock, held an aggregate of
4,707,551, or approximately 41% of the outstanding TeleBackup common shares.
Each of them has agreed to vote all TeleBackup common shares held by it in favor
of the approval of the arrangement.
VERITAS, its executive officers and directors and their respective
affiliates do not hold any TeleBackup common shares as of the TeleBackup record
date. Seagate Technology, Seagate Software and their directors, executive
officers and affiliates do not hold any TeleBackup common shares as of the
TeleBackup record date.
40
<PAGE> 52
TELEBACKUP
VOTES NEEDED FOR A QUORUM
The required quorum for the transaction of business at the TeleBackup
meeting is five percent of the TeleBackup common shares entitled to be voted at
the TeleBackup meeting.
EFFECT OF FAILURE TO VOTE
TeleBackup common shares which are not voted at the TeleBackup meeting are
not considered to be votes against the resolutions considered and will not be
included in the calculation of the majority required to pass those resolutions.
ADVICE TO BENEFICIAL HOLDERS OF SECURITIES
THE INFORMATION SET FORTH IN THIS SECTION IS OF SIGNIFICANT IMPORTANCE TO
MANY PUBLIC SHAREHOLDERS OF TELEBACKUP, AS A SUBSTANTIAL NUMBER OF THE PUBLIC
SHAREHOLDERS OF TELEBACKUP DO NOT HOLD TELEBACKUP COMMON SHARES IN THEIR OWN
NAMES.
Shareholders who do not hold their TeleBackup common shares in their own
names, who we will call "beneficial shareholders" in this section, should note
that only proxies and election forms deposited by shareholders whose names
appear on the records of TeleBackup as the registered holders of TeleBackup
common shares can be recognized and acted upon. If TeleBackup common shares are
listed in an account statement provided to a shareholder by a broker, then in
almost all cases those TeleBackup common shares will not be registered in the
shareholder's name on the records of TeleBackup. Those TeleBackup common shares
will more likely be registered under the name of the broker or an agent of a
broker. TeleBackup common shares held by brokers or their nominees can only be
voted and elections made upon the instructions of the beneficial shareholder.
Without specific instructions, brokers/nominees are prohibited from voting
TeleBackup common shares or making elections for their clients. The management
of TeleBackup does not know for whose benefit the TeleBackup common shares
registered in the name of a broker are held. Therefore, elections made by
beneficial shareholders cannot be recognized or acted upon and beneficial
shareholders cannot be recognized at the TeleBackup meeting for purposes of
voting their TeleBackup common shares in person or by proxy.
Every broker has its own mailing procedures and provides its own return
instructions, which should be carefully followed by beneficial shareholders in
order to ensure that their TeleBackup common shares are voted at the TeleBackup
meeting. The form of proxy supplied to a beneficial shareholder by its broker
may be identical to that provided to registered shareholders. However, their
purpose is limited to instructing the registered shareholder how to vote on
behalf of the beneficial shareholder.
The majority of brokers now delegate responsibility for obtaining
instructions from clients to Independent Investor Communications Corporation.
This company typically applies a special sticker to the proxy form, mails the
proxy form to the beneficial shareholders and asks beneficial shareholders to
return the proxy form to it. Independent Investor Communications then tabulates
the results of all instructions received and provides appropriate instructions
with respect to the voting of TeleBackup common shares. A beneficial shareholder
receiving a proxy with an Independent Investor Communications sticker on it
cannot use that proxy to vote TeleBackup common shares directly at the
TeleBackup meeting -- the proxy must be returned to Independent Investor
Communications well in advance of the TeleBackup meeting in order to have the
TeleBackup common shares voted.
41
<PAGE> 53
IF YOU ARE A BENEFICIAL SHAREHOLDER AND WISH TO VOTE IN PERSON AT THE
TELEBACKUP MEETING, PLEASE CONTACT YOUR BROKER OR AGENT WELL IN ADVANCE OF THE
TELEBACKUP MEETING TO DETERMINE HOW YOU CAN DO SO.
Only Canadian residents may elect to receive Exchangeco exchangeable shares
for their TeleBackup common shares. If you are not a Canadian resident you may
not make an election to receive Exchangeco exchangeable shares; instead you will
receive New VERITAS common stock or, if the NSMG combination is not completed,
you will receive VERITAS common stock. If you are a beneficial shareholder you
will not receive an election form. Instead, you will receive a letter from
TeleBackup reminding you to contact your broker to provide your instructions.
GENERAL PROXY INSTRUCTIONS
Following National Policy No. 41, TeleBackup has selected April 19, 1999 as
the record date for the TeleBackup meeting. Instruments of Proxy must be
addressed to the Secretary of TeleBackup and be delivered to the Montreal Trust
Company of Canada, Corporate Trust Department, Suite 600, 530 - 8th Avenue S.W.,
Calgary, Alberta, T2P 3S8 not later than 4:30 p.m. Calgary time on the business
day before the time for the holding of the TeleBackup meeting. Only registered
holders of TeleBackup common shares on the TeleBackup record date are entitled
to receive notice of and to vote at the TeleBackup meeting, unless after that
date a registered holder of TeleBackup common shares transfers its shares. In
this case, the transferee must produce properly endorsed certificates evidencing
such shares or otherwise establish that it owns such shares, and must request no
later than ten days prior to the TeleBackup meeting that the transferee's name
be included in the list of shareholders entitled to vote, in order to be
entitled to vote such shares at the TeleBackup meeting.
The instrument appointing a proxy must be in writing and must be executed
by the shareholder or his attorney authorized in writing or, if the shareholder
is a corporation, under its corporate seal or by an officer or duly authorized
attorney.
THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY ARE DIRECTORS AND/OR
EXECUTIVE OFFICERS OF TELEBACKUP. A SHAREHOLDER SUBMITTING THE PROXY HAS THE
RIGHT TO APPOINT A PERSON, WHO NEED NOT BE A SHAREHOLDER OF TELEBACKUP, TO
REPRESENT HIM AT THE TELEBACKUP MEETING, OTHER THAN THE PERSON DESIGNATED IN THE
FORM OF PROXY FURNISHED BY TELEBACKUP. TO EXERCISE THIS RIGHT, THE NAMES OF THE
PERSONS DESIGNATED BY MANAGEMENT SHOULD BE CROSSED OUT AND THE NAME OF THE
SHAREHOLDER'S APPOINTEE SHOULD BE LEGIBLY PRINTED IN THE BLANK SPACE PROVIDED.
TELEBACKUP WILL PAY THE EXPENSES OF PROXY SOLICITATION
TeleBackup will pay the expenses of soliciting proxies to be voted at the
TeleBackup meeting. Following the original mailing of the proxies, proxies may
be solicited by personal interviews, telephone or telecopier by directors,
officers and employees of TeleBackup, who will not be compensated for that
service. TeleBackup may also retain any agents as it deems appropriate for the
solicitation of proxies at normal industry rates.
HOW PROXIES WILL BE VOTED
The shares represented by proxy in favor of management nominees shall be
voted on any ballot at the TeleBackup meeting and where the shareholder
specifies the choice with respect to any matter to be acted upon, the shares
shall be voted on any ballot according to the specification so made. IN THE
ABSENCE OF SUCH SPECIFICATION, SHARES WILL BE VOTED IN FAVOR OF THE PROPOSED
RESOLUTION. THE PERSONS APPOINTED UNDER THE FORM OF PROXY
42
<PAGE> 54
TELEBACKUP
FURNISHED BY TELEBACKUP ARE CONFERRED WITH DISCRETIONARY AUTHORITY WITH RESPECT
TO AMENDMENTS OR VARIATIONS OF THOSE MATTERS SPECIFIED IN THE PROXY AND NOTICE
OF THE TELEBACKUP MEETING. AT THE TIME OF MAILING OF THIS DOCUMENT, MANAGEMENT
OF TELEBACKUP KNOWS OF NO SUCH AMENDMENT, VARIATION OR OTHER MATTER.
HOW YOU CAN REVOKE YOUR PROXY
A shareholder who has submitted a proxy may revoke it at any time prior to
the exercise thereof by:
- depositing an instrument in writing executed by him or by his attorney
authorized in writing:
-- at the registered office of TeleBackup at any time up to and
including the last business day preceding the day of the TeleBackup
meeting, or an adjournment of the TeleBackup meeting, at which the
proxy is used; or
-- with the chairman of the TeleBackup meeting on the day of the
TeleBackup meeting or an adjournment of the TeleBackup meeting; or
- in any other manner permitted by law.
RIGHTS OF DISSENT
Holders of TeleBackup common shares are entitled to rights of dissent with
respect to the resolution to be considered at the TeleBackup meeting. See "The
TeleBackup Combination -- Rights of dissent" on page 127.
PRINCIPAL HOLDERS OF TELEBACKUP VOTING SHARES
Set out below are the names of all persons or companies who, to the
knowledge of the directors and senior officers of TeleBackup, beneficially own,
directly or indirectly, or exercise control or direction over, voting securities
carrying more than 10% of the voting rights of all outstanding voting securities
of TeleBackup as of March 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY OWNED OUTSTANDING
DIRECTLY OR INDIRECTLY, VOTING
NAME TYPE OF OWNERSHIP CONTROLLED OR DIRECTED SECURITIES
---- ----------------- ----------------------- -------------
<S> <C> <C> <C>
694114 Alberta Ltd............. Of record and beneficial 1,472,700 13.2%
Panzer Group Ltd............... Of record and beneficial 1,283,910 11.5%
</TABLE>
Irphan (John) Rajani, a director of TeleBackup, is the controlling
shareholder, a director and an officer of 694114 Alberta Ltd.
Byron Osing, the President and a director of TeleBackup, is the controlling
shareholder, a director and an officer of Panzer Group Ltd.
43
<PAGE> 55
THE SEAGATE SOFTWARE MEETING
WHEN AND WHERE THE MEETING WILL BE HELD
The special meeting of stockholders of Seagate Software will be held at
8:00 a.m., Pacific time on Thursday, May 27, 1999, at 915 Disc Drive, Scotts
Valley, California 95066.
WHAT WILL BE VOTED UPON
At the Seagate Software meeting, you will be asked to approve the following
proposals:
(1) The contribution of Seagate Software's Network & Storage Management
Group business to New VERITAS, which will become the parent company of
VERITAS Software Corporation, and adoption of the NSMG combination
agreement that is attached as Appendix A. See pages ii and 48.
(2) The election of directors to serve for the ensuing year or until their
successors are elected. See page 297.
(3) Approval of the amendment and restatement of Seagate Software's
certificate of incorporation to:
- eliminate the cumulative dividend payable to the holders of Series A
preferred stock;
- amend the liquidation provisions therein so that they will not apply
to the transactions contemplated by the NSMG combination agreement;
- increase the number of Seagate Software shares of common stock
authorized for issuance thereunder by 204,400,000 shares to an
aggregate of 300,000,000 shares; and
- clarify that shares of common stock issued or issuable to directors
and employees of, and consultants to, Seagate Software's parent
company or subsidiaries are not additional shares of common stock for
purposes of the dilutive issuances provisions.
See page 300.
(4) Amendments to the Seagate Software, Inc. 1996 Stock Option Plan to
increase the number of shares of common stock authorized for grant and
issuance thereunder by 4,000,000 shares to an aggregate of 16,600,000
shares and approval of the material terms of such plan including, but
not limited to, share limitations for purposes of Section 162(m) of the
Internal Revenue Code. See page 304.
(5) The ratification of the appointment of Ernst & Young LLP as independent
auditors of Seagate Software for the fiscal year ending July 2, 1999.
See page 308.
(6) The transaction of other business that may properly come before the
Seagate Software meeting, including any motion to adjourn to a later
date to permit further solicitation of proxies if necessary to
establish a quorum or to obtain additional votes in favor of the
transactions contemplated by the NSMG combination agreement, or before
any postponements or adjournments.
44
<PAGE> 56
SEAGATE
SOFTWARE
ONLY STOCKHOLDERS ON MARCH 31, 1999 WILL BE ENTITLED TO VOTE
You will be entitled to vote at the Seagate Software meeting only if you
are a holder of record of shares of Seagate Software common stock or preferred
stock at the close of business on March 31, 1999, the Seagate Software record
date. On that date there were 1,071,431 shares of Seagate Software common stock
outstanding, which were held by 316 holders, and 54,633,333 shares of Series A
preferred stock outstanding, which were held by two holders. The shares of
Series A preferred stock include 7,200,000 shares of Series A preferred stock
issuable upon the cancellation of a single share of Seagate Software special
voting preferred stock.
You will be entitled to one vote for each share of Seagate Software common
stock and Series A preferred stock you held on the record date on each matter to
be acted upon that may properly come before the Seagate Software meeting.
VOTE REQUIRED TO APPROVE THE PROPOSALS
The approval and adoption of each of the proposals described above will
require the affirmative vote of the Seagate Software stockholders as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSAL REQUIRES AFFIRMATIVE VOTE OF A MAJORITY OF THE
- --------------------------------------------------------------------------------------
<S> <C>
The contribution of the Network & Outstanding common stock and preferred stock,
Storage Management Group business to voting together as a single class and
New VERITAS and the adoption of the outstanding preferred stock, voting as a
related NSMG combination agreement separate class
- --------------------------------------------------------------------------------------
The election of directors to serve Present and voting common stock and preferred
for the ensuing year or until their stock, voting together as a single class.
successors are elected Stockholders may cumulate votes by following
the procedures set forth below.
- --------------------------------------------------------------------------------------
The amendments to Seagate Software's Outstanding preferred stock, voting as a
certificate of incorporation separate class, and outstanding common stock
and preferred stock, voting together as a
single class
- --------------------------------------------------------------------------------------
The amendments to the Seagate plan Present and voting common stock and preferred
and to approve the material terms of stock, voting together as a single class
such plan
- --------------------------------------------------------------------------------------
The appointment of Ernst & Young LLP Present and voting common stock and preferred
as independent auditors stock, voting together as a single class
- --------------------------------------------------------------------------------------
</TABLE>
YOU MAY CUMULATE YOUR VOTES FOR DIRECTORS
You may cumulate your votes for the election of directors and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of shares you hold. You may also distribute the votes
you hold on the same principal among as many candidates as you may select.
However, you cannot vote for more than five individuals. You cannot cumulate
votes for any nominee unless the nominee's name has been placed in nomination
prior to the voting and you have given notice, prior to the voting, of your
intent to cumulate votes. If you give notice of your intent to cumulate votes,
the proxy holders will also cumulate the votes for which they hold proxies and
45
<PAGE> 57
distribute such votes among the candidates nominated by the Seagate Software
board of directors as necessary to ensure the election of these individuals.
SEAGATE TECHNOLOGY HAS AGREED TO VOTE FOR THE NSMG COMBINATION
In accordance with the terms of the NSMG combination agreement, Seagate
Technology is obligated to vote its shares of Seagate Software common stock,
Series A preferred stock and special voting preferred stock for approval and
adoption of the NSMG combination. As a result, Seagate Technology will vote all
of the shares of Seagate Software beneficially owned by Seagate Technology and
its affiliates at the Seagate Software record date, that represented 98.2% of
the Seagate Software voting stock outstanding, for approval and adoption of the
NSMG combination. As a result, approval of this proposal is assured.
SHARES HELD BY DIRECTORS, EXECUTIVE OFFICERS AND THEIR AFFILIATES
On March 31, 1999, the directors and officers of Seagate Software
beneficially owned approximately 99% of the outstanding voting stock of Seagate
Software including shares held by Seagate Technology and one of its
subsidiaries, over which the directors and officers may be deemed to have voting
control.
VOTES NEEDED FOR A QUORUM
The required quorum for the transaction of business at the Seagate Software
meeting is a majority of the shares of each of the Seagate Software common stock
and preferred stock outstanding on the Seagate record date.
EFFECT OF ABSTENTIONS AND BROKER NON-VOTES
Abstentions will be counted in establishing the quorum at the Seagate
Software meeting and will have the same effect as a vote against each of the
proposals presented to the Seagate Software stockholders. Because no Seagate
Software shares are held through brokers, there will be no broker non-votes.
ADJOURNING THE MEETING
In the event that there are not sufficient votes to approve and adopt the
NSMG combination agreement at the time of the Seagate Software meeting, the NSMG
combination agreement could not be approved unless the Seagate Software meeting
was adjourned in order to permit further solicitation of proxies from Seagate
Software stockholders. Proxies that are being solicited by the Seagate Software
board grant the discretionary authority to vote for any such adjournment, if
necessary. If it is necessary to adjourn the Seagate Software meeting, and the
adjournment is for a period of less than 30 days, no notice of the time and
place of the adjourned meeting is required to be given to you other than an
announcement of such time and place at the Seagate Software meeting. A majority
of the voting power represented and voting at the Seagate Software meeting is
required to approve any such adjournment, whether or not a quorum is present at
the Seagate Software meeting. We believe it is unlikely that the Seagate
Software meeting will be adjourned because the shares of Seagate Software's
capital stock held by Seagate Technology are sufficient to establish a quorum.
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<PAGE> 58
SEAGATE
SOFTWARE
SEAGATE SOFTWARE WILL PAY THE EXPENSES OF PROXY SOLICITATION
Seagate Software will pay the expenses of soliciting proxies to be voted at
the Seagate Software meeting. Following the original mailing of the proxies,
this document and other soliciting materials, proxies may be solicited by
Seagate Technology's and Seagate Software's directors, officers and other
employees without additional compensation personally or by telephone, facsimile
or telegram.
HOW PROXIES WILL BE VOTED
The Seagate Software proxy accompanying this document is solicited on
behalf of the Seagate Software board of directors for use at the Seagate
Software meeting. If you are a Seagate Software stockholder, we request that you
complete, date and sign the accompanying proxy and return it in the enclosed
envelope or otherwise mail it to Harris Trust Company of California. When
proxies are properly dated, executed and returned, the shares they represent
will be voted at the Seagate Software meeting in accordance with your
instructions. If no specific instructions are given, your shares will be voted:
- for the approval and adoption of the NSMG combination agreement for the
election of the nominees for directors set forth herein;
- for the approval of the amendment and restatement of the Seagate Software
certificate of incorporation;
- for the amendment of the Seagate option plan to authorize the issuance of
4,000,000 additional shares of common stock thereunder and approval of
the material terms of the Seagate option plan;
- for the ratification of the appointment of Ernst & Young LLP as
independent auditors of Seagate Software for the fiscal year ending July
2, 1999; and
- at the discretion of the proxy holders, upon such other business as may
properly come before the Seagate Software meeting or any adjournment or
postponement thereof.
HOW YOU CAN REVOKE YOUR PROXY
If you have given a proxy, you may revoke it at any time before it is
exercised at the Seagate Software meeting by:
- delivering a written notice stating that the proxy is revoked to the
Secretary of Seagate Software by any means, including facsimile, bearing
a date later than the date of the proxy;
- signing and delivering a proxy relating to the same shares that bears a
later date prior to the vote at the Seagate Software meeting; or
- attending the Seagate Software meeting and voting in person
If you attend the Seagate Software meeting your proxy will not be revoked
unless you also take one of the other actions outlined above.
YOU DO NOT HAVE DISSENTERS' OR APPRAISAL RIGHTS FOR THE NSMG COMBINATION
You are not entitled to dissenters' rights or appraisal rights with respect
to any of the proposals to be considered at the Seagate Software meeting.
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YOU MUST ACT BY A SPECIFIED DATE TO PRESENT A STOCKHOLDER PROPOSAL AT THE NEXT
SEAGATE SOFTWARE ANNUAL MEETING
As a Seagate Software stockholder, you are entitled to present proposals
for action at a forthcoming meeting if they comply with the requirements of the
proxy rules established by the Securities and Exchange Commission. If you intend
to present a proposal at Seagate Software's next annual meeting of stockholders,
the proposal must be received by Seagate Software no later than September 1,
1999 in order that the proposals be considered for inclusion in the proxy
statement and form of proxy relating to that meeting.
The attached proxy card grants the proxy holders discretionary authority to
vote on any matter raised at the Seagate Software meeting. If you intend to
submit a proposal at the next Seagate Software annual meeting of stockholders,
which is not eligible for inclusion in the proxy statement relating to that
meeting, you must give notice to Seagate Software in accordance with the
requirements set forth in the Securities Exchange Act no later than October 1,
1999. If you fail to comply with the foregoing sentence, the proxy holders will
be allowed to use their discretionary voting authority when and if the proposal
is raised at the next Seagate Software annual meeting of stockholders.
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SEAGATE
SOFTWARE
VERITAS
THE NSMG COMBINATION
BACKGROUND OF THE NSMG COMBINATION
In October of 1997, Mr. Luczo, President and CEO of Seagate Technology,
called Mr. Leslie, President and Chief Executive Officer of VERITAS, to inquire
about meeting at Comdex, a trade show, to discuss a possible combination.
In October and December of 1997, Mr. Leslie had telephone conversations
with Mr. Luczo to discuss the possibility of a combination of VERITAS and
Seagate Software.
In October of 1997, Mr. Leslie and Mr. Cunningham, President and Chief
Operating Officer of Seagate Software, had a dinner meeting to discuss the
possibility of a combination between Seagate Software and VERITAS.
On November 10, 1997, Mr. Luczo and Mr. Leslie had a phone conversation
regarding the possibility of a combination.
In March of 1998, Mr. Luczo telephoned Mr. Leslie to approve the
commencement of formal discussions. Mr. Luczo contacted Mr. Cunningham and Mr.
Kerfoot, Chief Strategic Officer of Seagate Software, to give them the
authorization to go forward with discussions.
On April 29, 1998, Mr. Leslie, Mr. van den Bosch, Mr. Sallaberry and Mr.
Levine from VERITAS and Mr. Cunningham, Mr. Kerfoot and Mr. Hallmen from Seagate
Software met for an initial exploratory meeting. They discussed the potential
strategic value of a combination of the companies.
From May 26 to June 5, 1998, Mr. Leslie and Mr. Cunningham had telephone
meetings and in person meetings to continue exploratory discussions of a
possible merger of VERITAS and Seagate Software or the Network & Storage
Management Group of Seagate Software. Mr. Leslie and Mr. Cunningham discussed
the probable structural obstacles to a deal; including the requirement of
purchase accounting, and Seagate Software's alternatives relative to a planned
initial public offering.
From June 10, 1998 through June 29, 1998 officers of VERITAS met with
officers of Seagate Software to discuss technology, product, sales and marketing
issues for a combined company.
On June 12, 1998, Mr. Lonchar from VERITAS met with Mr. Hallmen and Ms.
Chamberlain from Seagate Software to discuss the potential management structure
of a combined company in a proposed merger of VERITAS and the Network & Storage
Management Group.
On July 7, 1998, after executing a mutual non-disclosure agreement allowing
for the exchange of non-public information, Mr. Leslie, Mr. Lonchar, Mr. Levine,
Mr. van den Bosch and representatives from Donaldson Lufkin & Jenrette
Securities Corporation, or DLJ, for VERITAS and Mr. Cunningham, Mr. Kerfoot, Ms.
Chamberlain, Mr. Hallmen, Mr. Ater, Mr. Colemere, Mr. Waite and representatives
from Morgan Stanley & Co. Incorporated, or Morgan Stanley, for Seagate Software
met to make business plan presentations to executives and each of our financial
advisors in order to evaluate potential business strategies and market
opportunities. The discussions focused on long-term strategy.
On July 15, 1998, the VERITAS board held a meeting and authorized Mr.
Leslie, the Chief Executive Officer of VERITAS, to continue the discussions with
Seagate Software
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beyond the exploratory stage. The board investigated the form of a transaction,
the financial results that would need to be addressed and the difficulty of
doing such a transaction, but encouraged Mr. Leslie to continue the discussions.
On July 15, 1998, VERITAS retained DLJ as its financial advisor in
connection with a possible business combination with Seagate Software or the
Network & Storage Management Group business of Seagate Software and signed an
agreement with Donaldson, Lufkin & Jenrette on July 28, 1998.
On July 15, 1998, the Seagate Software board of directors held a meeting
and authorized Mr. Luczo, Mr. Cunningham, Mr. Hallmen and Ms. Chamberlain to
continue discussions with VERITAS. At this meeting the Seagate Software board of
directors authorized management to retain Morgan Stanley to act as its financial
advisor.
On July 22, 1998, Mr. Levine and Mr. Sallaberry of VERITAS met in Monterey,
California with Mr. Hallmen of Seagate Software to conduct sales due diligence
on the Network & Storage Management Group business of Seagate Software, as
VERITAS sought only to purchase the Network & Storage Management Group business.
On July 23, 1998, representatives of Morgan Stanley met with the
representatives of DLJ to discuss the willingness of Seagate Technology and
Seagate Software to sell only the Network & Storage Management Group business of
Seagate Software.
On August 6, 1998, Mr. Levine of VERITAS met with Mr. Hallmen of Seagate
Software and Mr. Brown of Seagate Technology to discuss and negotiate possible
terms of a combination arrangement of VERITAS and the Network & Storage
Management Group business. These discussions concerned the agreement that would
be required between Seagate Technology and New VERITAS after the transaction,
including the possibility of a joint development and original equipment
manufacturer agreement. These additional agreements were completed prior to
announcement.
On August 7, September 3, September 30 and October 1, 1998, senior
executives of both companies met to discuss product strategies and market
potential, and presented a potential high level combined product plan.
Throughout the months of August and September 1998, Mr. Leslie had
discussions with Mr. Luczo and Mr. Cunningham to negotiate terms of an
arrangement, including among others, issues surrounding price, timing, and form
of transaction where the Network & Storage Management Group business of Seagate
Software would be merged into VERITAS in a stock-for-stock transaction in which
Seagate Software would receive VERITAS common stock. Much of the discussions
related to the difficulty Seagate Software faced in an approach to segregate the
Network & Storage Management Group business from the Information Management
Group business such that a sale could be accomplished and stockholders and
employees treated fairly. Various alternative corporate structures for creating
New VERITAS were also discussed. Other important issues discussed concerned
Seagate Technology's ownership in New VERITAS, as to "sterilizing" the voting
shares held by Seagate Technology, restricting Seagate Technology from acquiring
additional ownership, assuring orderly disposition of shares in the event of
sale, the necessity of VERITAS entering into a joint development and original
equipment manufacturer agreement with Seagate Technology, and terms of contracts
for executive management.
On August 12, 1998, we held an all hands meeting at the offices of VERITAS'
legal counsel to provide a high level overview of the two companies to each of
our representatives, financial advisors and our outside counsel. At the meeting,
we also
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SEAGATE
SOFTWARE
VERITAS
discussed a proposed schedule and the logistics for accomplishing a combination
of VERITAS and the Network & Storage Management Group business.
On August 14 and August 20, 1998, Mr. Leslie had meetings with Mr.
Cunningham to further discuss the terms of a combination arrangement.
On August 25, 1998, Mr. Levine of VERITAS met with Mr. Hallmen of Seagate
Software to discuss a term sheet for the combination arrangement.
On August 26, 1998, the parties circulated a term sheet that reflected a
preliminary agreement on the relative ownership percentages of the combined
entity and proposed some of the key terms on which VERITAS and Seagate Software
would proceed to negotiate definitive agreements.
On August 31, 1998, the VERITAS board of directors reviewed the principal
terms of the proposed term sheet and authorized its officers to negotiate
definitive agreements to be brought back to the VERITAS board for approval.
During September 1998, additional meetings took place between the
marketing, communications and human resources teams from VERITAS and Seagate
Software for the purpose of due diligence and planning logistics of public and
internal announcements in the event the parties reached agreement on the
material terms of the proposed combination. We also discussed providing
information regarding the combination to employees and customers if we reached
an agreement regarding the contribution of the Network & Storage Management
Group business to VERITAS.
Our management, outside counsel and financial advisors met to negotiate the
terms of the NSMG combination and the definitive agreement a number of times
from late August through early October.
On September 2, 3, 9, 18 and 21, 1998, officers of VERITAS met with
officers of Seagate Software to conduct due diligence with respect to the
Network & Storage Management Group business.
On September 15, 1998, certain members of the Seagate Software board of
directors held a conference call regarding, among other things, the valuation of
the NSMG combination.
On September 18, 1998, VERITAS' counsel distributed the first draft of the
NSMG combination agreement.
On September 25, 1998, Mr. Leslie and Mr. Cunningham met to discuss
organizational planning and post combination issues in the event the parties
reached a definitive agreement.
On September 25, 1998, Ms. Chamberlain, Mr. Galiotto, Mr. Hallmen and
representatives of Morgan Stanley met with Mr. Cully, Mr. Lonchar and
representatives of DLJ at the offices of Morgan Stanley to conduct financial due
diligence on VERITAS. This meeting also included a sales review with Mr. Hallmen
and Mr. Flanagan of Seagate Software and Mr. Sallaberry and Mr. Levine of
VERITAS.
On September 28, 1998, the Seagate Technology and Seagate Software boards
of directors met to discuss the NSMG combination and the proposed agreement.
On September 29, October 4 and October 5, 1998, Mr. Leslie of VERITAS and
Mr. Luczo of Seagate Technology had telephone conversations discussing certain
terms of the proposed combination.
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On October 3, 4 and 5, 1998, Mr. Jones and Mr. Levine of VERITAS met with
Ms. Wolfe of Seagate Software and Mr. Mulvaney of Seagate Technology and Seagate
Software's outside counsel to negotiate a development and license agreement
between VERITAS and Seagate Technology and a cross-license and original
equipment manufacturer agreement between VERITAS and the Information Management
Group of Seagate Software.
From October 2 to 5, 1998, counsel to VERITAS and Seagate Software
negotiated the terms of the NSMG combination agreement and the ancillary
agreements.
On October 4, 1998, the board of directors of each of VERITAS and Seagate
Software met to consider the proposed NSMG combination and the related
transactions. The boards reviewed, among other things, the background of the
proposed combination, strategic alternatives, financial and valuation analyses
of the transaction, and the terms of the NSMG combination agreement. After
extensive discussion and consideration, each board approved the terms of the
NSMG combination and authorized its counsel to complete the definitive NSMG
combination agreement and the ancillary agreements including the cross-license
and original equipment manufacturer agreement between VERITAS and Information
Management Group and the development and license agreement between VERITAS and
Seagate Technology. At the meetings, the boards of VERITAS and Seagate Software
each received an oral financial fairness opinion from their respective financial
advisors, which was subsequently confirmed in writing.
On October 5, 1998, each company executed and delivered the NSMG
combination agreement that was announced immediately thereafter by the issuance
of a joint press release. A development and license agreement between VERITAS
and Seagate Technology and a cross-license and original equipment manufacturer
agreement between VERITAS and Seagate Software's Information Management Group
were simultaneously executed.
On April 15, 1999, each company executed and delivered an amended and
restated NSMG combination agreement.
REASONS FOR THE NSMG COMBINATION
The VERITAS board and the Seagate Software board unanimously recommend that
the stockholders of their respective companies vote "For" the approval and
adoption of the NSMG combination for the reasons set forth below.
Joint reasons for the NSMG combination
We have identified a number of potential mutual benefits of the NSMG
combination that they believe will contribute to the success of New VERITAS.
These potential benefits include:
- The network and storage management software industry in which both of us
compete is extremely competitive. In addition, over the last twelve
months, a number of larger companies have acquired smaller companies in
the network and storage management software industry. We recognized that
substantial technical, financial and other resources are necessary to
compete with these larger, more diversified network and storage
management software companies. The NSMG combination may allow each of us
through our participation in New VERITAS, to achieve greater scale and
greater presence in the network and storage management software industry.
We believe New VERITAS will have a stronger position from which to
compete more effectively against larger software companies. Our combined
experience, financial resources, size, complementary breadth of product
offerings and the complementary scope of distribution channels may allow
New VERITAS
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SEAGATE
SOFTWARE
VERITAS
to respond more quickly and effectively to technological change,
increased competition and customer demands in an industry experiencing
rapid innovation and change:
- The combined research and development and technology resources resulting
from the NSMG combination may allow us to compete more effectively by
developing more advanced products in a shorter time period than could be
developed by either of us independently. Because achieving a rapid rate
of technical innovation in the network and storage management software
industry is critical, increasing our technical personnel may permit us to
respond more quickly and effectively to changes and to anticipate the
advancements in our industry more readily;
- The product portfolios of VERITAS and the Network & Storage Management
Group business are complementary. The combination of the Network &
Storage Management Group's desktop and workgroup Windows NT and Netware
products with VERITAS' enterprise UNIX and Windows NT storage management
products would create the opportunity for us to create and deliver a
broader range of desktop to enterprise storage management products to our
customers;
- We anticipate that we will benefit from the combined original equipment
manufacturer and strategic alliance partner relationships of VERITAS and
the Network & Storage Management Group business, which include many
industry leaders, including Microsoft, Oracle, SAP, Compaq, Digital
Equipment Corporation, Tandem, Dell Computer, Sun Microsystems, and
Hewlett-Packard, among others. We currently anticipate that we will
supply Microsoft with four of its five Windows NT 5.0 storage management
technologies, including NTBackup, the Remote Storage Service HSM applet,
the Automated System Recovery applet for disaster recovery and the
Logical Disk Manager;
- The Network & Storage Management Group's retail distribution capability
complements VERITAS' direct sales, value-added-reseller and original
equipment manufacturer channels, giving us the opportunity to access a
broader range of key storage management sales channels and market
segments;
- The combination of VERITAS' enterprise level backup and recovery product
and hierarchical storage management products with the desktop and
workgroup level backup and recovery and hierarchical storage management
products of the Network & Storage Management Group business provide an
opportunity for us to create and offer solutions that allow customers to
migrate from desktop or workgroup level storage management software
implementations to enterprise level implementations. The combination will
also allow our customers to manage their desktop or workgroup level
storage management software implementations as part of a more extensive
enterprise implementation;
- By combining VERITAS' international operations with the international
operations of the Network & Storage Management Group business, we will
have the opportunity to expand our international presence;
- The combination of the Network & Storage Management Group business and
VERITAS will give us the opportunity to benefit from economies of scale
generated by our greater critical mass when addressing the storage
management needs of large global businesses implementing storage
management systems; and
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- our senior management have complementary skills and share a complementary
culture and vision for "end-to-end storage management." The combination
will provide New VERITAS with a stronger and broader management team.
In addition to the joint reasons discussed above, the board of directors of
each company also considered separate reasons for approving the NSMG
combination, which are summarized below.
VERITAS' reasons for the NSMG combination
The VERITAS board of directors believes the following are additional
reasons for stockholders of VERITAS to vote "For" approval and adoption of the
NSMG combination:
- VERITAS currently derives substantially all of its revenue from license,
support, training and consulting for the UNIX platform. The VERITAS board
believes that its continued success is dependent upon its ability to
develop and acquire new products for the Windows NT platform. The
combination with the Network & Storage Management Group business adds a
number of leading Windows NT storage management software products to the
VERITAS product line;
- The VERITAS board recognized that the Network & Storage Management Group
business has built a large and diverse retail distribution channel for
the desktop and workgroup Windows NT storage management market segment.
The NSMG combination may provide VERITAS with a greater opportunity to
sell New VERITAS' Windows NT products into this retail distribution
channel;
- The Network & Storage Management Group business has a comprehensive
workgroup and multi-tiered channel support and a highly-rated technical
support organization, which, when combined with VERITAS' enterprise
professional services, training and direct support model, could provide
New VERITAS with a superior service and technical support infrastructure
for both its high-volume workgroup and enterprise customers;
- The VERITAS board recognized that VERITAS was building Windows NT
products and developing a strategy to create a retail distribution
channel for those products. The combination of VERITAS and the Network &
Storage Management Group business will help accelerate this strategy; and
- New VERITAS is likely to be followed by a larger group of research
analysts and, as a result of the issuance of shares in the NSMG
combination, it is likely that New VERITAS' trading volumes will increase
over that of VERITAS and increase stockholder liquidity.
In the course of its deliberations, the VERITAS board of directors reviewed
with VERITAS' management a number of factors relevant to the NSMG combination.
In particular, it considered, among other things:
- the proposed terms of the NSMG combination, including the terms of the
stockholder agreement, registration rights agreement, the development and
license agreement, the cross-license and original equipment manufacturer
agreement and proposed employment agreements and transition services and
facilities use agreement and other ancillary agreements;
- the likelihood of realizing superior benefits through alternative
business strategies, including internal growth and development;
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SEAGATE
SOFTWARE
VERITAS
- information concerning VERITAS' and the Network & Storage Management
Group's respective businesses, historical financial performances,
operations and products, including the due diligence reports from
VERITAS' management and legal, accounting and financial advisers;
- the historical volatility and trading volumes of the VERITAS common
stock;
- the effect on stockholder value of VERITAS as a stand-alone entity, of:
- a combination of VERITAS and the Network & Storage Management Group
business;
- other possible strategic alternatives for VERITAS that the VERITAS
board had examined;
- the potential increase in value from, and risks associated with,
internally developing a retail distribution channel for VERITAS'
Windows NT products; and
- the possibility of synergies from combining the VERITAS and the
Network & Storage Management Group business product lines;
- an analysis of the relative value that the Network & Storage Management
Group business might contribute to the future business and prospects of
New VERITAS;
- the compatibility of the management and businesses of VERITAS and the
Network & Storage Management Group business; and
- the financial analysis presented by its financial advisor and the opinion
that its financial advisor delivered that as of the date of such opinion
and based upon the limitations set forth therein, the exchange ratio of
VERITAS common stock for New VERITAS common stock was fair from a
financial point of view to VERITAS. See "-- Opinions of financial
advisors" on page 59.
The VERITAS board of directors also considered certain risks that could
arise in connection with the NSMG combination, including:
- the potential disruption of VERITAS' business that might result from
employee and customer uncertainty and lack of focus following
announcement of the NSMG combination or the integration of the operations
of VERITAS and the Network & Storage Management Group business;
- the risk that the announcement of the NSMG combination could result in
decisions by customers to defer purchases of products of VERITAS or the
Network & Storage Management Group business;
- the risks of product integration due to overlapping products and
technology;
- the possibility that the NSMG combination might not close;
- the effects of the public announcement of the NSMG combination on the
VERITAS common stock price and VERITAS' sales and operating results, its
ability to attract and retain key management, marketing and technical
personnel and the progress of certain of its development projects;
- the substantial accounting charges to be incurred due to the NSMG
combination related to the write-off of in-process research and
development and the substantial amount of intangible assets that would
have to be amortized as a result of the NSMG combination being accounted
for as a purchase;
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- the risk that redundancy in staffing and infrastructure could reduce
efficiency and increase costs;
- the difficulties of successfully integrating such a large company into
VERITAS, managing geographically dispersed operations and the risk that
employees of the Network & Storage Management Group business may not stay
with New VERITAS;
- the risk that synergies and cost savings anticipated by the NSMG
combination would not be achieved;
- the risk that the other benefits sought to be achieved by the NSMG
combination will not be achieved; and
- the other risks described under "Risk Factors" on page 22.
In the view of the VERITAS board, these risks were not sufficient either
individually or in the aggregate to outweigh the advantages of the NSMG
combination.
In view of the wide variety of factors, both positive and negative,
considered by the VERITAS board, the VERITAS board did not find it practical to
and did not quantify or otherwise assign relative weights to the specific
factors considered. In addition, individual members of the VERITAS board may
have given different weight to different factors. In the course of its
deliberations, the VERITAS board did not establish a range of values for
VERITAS; however, based on the factors outlined above including the opinion of
its financial advisor, the VERITAS board continues to believe that the NSMG
combination is in the best interest of VERITAS and its stockholders and
continues to recommend approval and adoption of the NSMG combination by the
VERITAS stockholders.
Seagate Software's reasons for the NSMG combination
In addition to the joint reasons described above, the Seagate Software
board believes that the NSMG combination will be beneficial to Seagate Software
for the following additional reasons:
- The Seagate Software board recognized that VERITAS serves a large
enterprise market segment, particularly in the direct sales channel that
is currently underserved by the Network & Storage Management Group
business. The NSMG combination may provide new opportunities to sell the
Network & Storage Management Group's products to a larger group of end
user customers. VERITAS also possesses the customer service and technical
support resources necessary to provide high levels of customer support to
a large enterprise customers. The NSMG combination may therefore result
in more efficient and higher levels of support to the Network & Storage
Management Group's customers.
- Because the consideration to be received in the NSMG combination is the
common stock of New VERITAS, Seagate Software will benefit from any
synergies achieved by the combination of the Network & Storage Management
Group business and VERITAS.
- The Network & Storage Management Group business currently derives
substantially all of its revenue from license, support, training and
consulting for the Windows NT platform. The Seagate Software board
believes that the Network & Storage Management Group's continued success
would be affected by its ability to develop and acquire new products for
the UNIX platform absent the NSMG combination.
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SEAGATE
SOFTWARE
VERITAS
- The Seagate Software board recognized that the Network & Storage
Management Group business was building a UNIX product and developing a
strategy to create alternative distribution channels for that product.
The combination of VERITAS and the Network & Storage Management Group
business will help accelerate this strategy.
In reaching its decision to approve the NSMG combination agreement and the
NSMG combination and to recommend that Seagate Software's stockholders vote to
approve and adopt the NSMG combination agreement, the Seagate Software board
also considered the following factors:
- The Seagate Software board considered its knowledge of the business,
operations, properties, assets, financial condition and operating results
of the Network & Storage Management Group business and the Information
Management Group;
- The Seagate Software board considered the reports and opinions of Seagate
Software's management, including those resulting from management's due
diligence investigations concerning the business, technology, products,
operations, financial condition and prospects of VERITAS;
- The Seagate Software board considered Seagate Software's and the Network
& Storage Management Group's future prospects and what those prospects
may be as a result of the NSMG combination;
- The Seagate Software board considered the effect on stockholder value of
Seagate Software as an independent entity, compared to the effect of the
contribution of the Network & Storage Management Group business to New
VERITAS, in the light of the financial condition and prospects of the
Network & Storage Management Group business and the current economic and
industry environment. The factors considered included:
-- other possible strategic alternatives for Seagate Software and the
Network & Storage Management Group business including continuing to
execute Seagate Software's business plan with the Network & Storage
Management Group business and the Information Management Group
operating as a single corporate identity;
-- the potential for increased value in New VERITAS as compared to
either the Network & Storage Management Group business or VERITAS
alone; and
-- the possibility of synergies from combining the product lines,
research and development programs and sales and marketing
organizations of the Network & Storage Management Group business and
VERITAS;
- The Seagate Software board considered the opinion of Morgan Stanley that,
as of such date and based upon the limitations therein, the consideration
to be received was fair from a financial point of view to Seagate
Software. See page 65;
- The Seagate Software board considered the terms and conditions of the
NSMG combination agreement and the ancillary agreements, which were the
product of extensive arm's length negotiations. See "The NSMG Combination
Agreement" on page 80;
- The Seagate Software board considered the relationship between the market
value of the VERITAS common stock to be issued in exchange for Seagate
Software's
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interest in the Network & Storage Management Group business and the
consideration received in comparable merger transactions;
- The Seagate Software board considered the compatibility of the respective
business philosophies of the Network & Storage Management Group and
VERITAS;
- The Seagate Software board considered the opportunity for the Network &
Storage Management Group business employees to be granted options to
purchase New VERITAS common stock for which there is a public resale
market;
- The Seagate Software board considered that Seagate Software would hold
approximately 40% of the equity of New VERITAS and would do so by means
of a transaction which is designed to be a tax-free exchange to Seagate
Software and its parent company, Seagate Technology;
- The Seagate Software board considered Seagate Software management's view
as to the potential for other third parties to enter into strategic
relationships or business combinations with Seagate Software and/or the
Network & Storage Management Group business;
- The Seagate Software board considered the compatibility of the corporate
cultures of the Network & Storage Management Group and VERITAS, because
the Seagate Software Board believed compatibility is important for the
successful integration of the companies;
- The Seagate Software board considered the risks that the synergies and
cost savings anticipated to be achieved from the NSMG combination would
not be achieved;
- The Seagate Software board considered the risk that the operations of the
Network & Storage Management Group business and VERITAS would not be
successfully integrated;
- The Seagate Software board considered the potential disruption of its
business that might result from employee uncertainty and lack of focus
following announcement of the NSMG combination;
- The Seagate Software board considered the risk that despite the
intentions and efforts of the parties to support their respective
products, the announcement of the NSMG combination could result in
decisions by customers to defer purchases of licenses for its products;
- The Seagate Software board considered the risk that despite the
intentions and efforts of the parties, key technical and management
employees of the Network & Storage Management Group business might leave
New VERITAS after the NSMG combination;
- The Seagate Software board considered the substantial accounting charges
to be incurred in fiscal year 1999, as well as the substantial amount of
goodwill and intangibles that will have to be amortized for periods up to
four years following the NSMG combination;
- The Seagate Software board considered the adverse effects on Seagate
Software's business, operation and financial condition in the event the
NSMG combination was unable to close following public announcement of the
NSMG combination agreement. Those risks include:
-- the effect on Seagate Software's sales and operating results,
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SEAGATE
SOFTWARE
VERITAS
-- the effect on Seagate Software's ability to attract and retain key
management, marketing and technical personnel; and
-- the effect on the progress of certain development projects;
- The Seagate Software board considered the other risks described under
"Risk Factors" on page 22.
The above discussion of the information and factors considered by the
Seagate Software board is not intended to be exhaustive. However, Seagate
Software believes it includes all material factors considered by the Seagate
Software board. In view of the variety of factors considered in connection with
its evaluation of the NSMG combination, the Seagate Software board did not find
it practicable to and did not quantify or otherwise assign relative weight to
the specific factors considered. In addition, individual members of the Seagate
Software board may have given different weight to different factors. In the
course of its deliberations, the Seagate Software board did not establish a
range of values for Seagate Software; however, based on the factors outlined
above including the opinion of its financial advisor, Morgan Stanley, the
Seagate Software board determined that the NSMG combination is advisable and
fair to and in the best interests of Seagate Software. The board of directors of
Seagate Software unanimously voted to recommend to the Seagate Software
stockholders that the NSMG combination agreement be approved and adopted.
OPINIONS OF FINANCIAL ADVISORS
Opinion of VERITAS' financial advisor
DLJ is VERITAS' financial advisor. In its role as financial advisor, DLJ
was requested to render an opinion as to the fairness from a financial point of
view to VERITAS of the exchange ratio of one share of New VERITAS common stock
issued per share of VERITAS common stock in the merger of VERITAS with New
VERITAS which is part of the NSMG combination. DLJ delivered its written opinion
dated October 5, 1998 to the effect that, as of the date of the opinion and
based upon and subject to the assumptions, limitations and qualifications set
forth in its opinion, the exchange ratio was fair to VERITAS from a financial
point of view.
YOU SHOULD READ THIS OPINION IN ITS ENTIRETY FOR ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW
UNDERTAKEN BY DLJ IN ARRIVING AT ITS OPINION. THE DESCRIPTION OF DLJ'S OPINION,
WHILE MATERIALLY COMPLETE, IS A SUMMARY AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION, WHICH IS ATTACHED AS APPENDIX B TO
THIS DOCUMENT AND INCORPORATED BY REFERENCE.
DLJ's opinion was prepared for the VERITAS board and addresses only the
fairness of the exchange ratio to VERITAS from a financial point of view.
- DLJ's opinion does not constitute a recommendation to any stockholder of
VERITAS as to how to vote at the VERITAS meeting.
- DLJ did not express, and DLJ's opinion does not constitute, an opinion as
to the prices at which the VERITAS common stock or the New VERITAS common
stock will actually trade at any time.
- DLJ's opinion did not address the relative merits of the NSMG combination
compared to those of other business strategies considered by the VERITAS
board.
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<PAGE> 71
- DLJ's opinion does not address the VERITAS board's decision to proceed
with the NSMG combination.
- The type and amount of consideration was determined by arm's length
negotiations between VERITAS, Seagate Technology and Seagate Software. No
restrictions or limitations were imposed by VERITAS upon DLJ with respect
to the investigations made or procedures followed by DLJ in rendering its
opinion.
In arriving at its opinion, DLJ:
- reviewed the NSMG combination agreement;
- reviewed financial and other information that was publicly available or
furnished to it by VERITAS, Seagate Technology or Seagate Software;
- at the direction of VERITAS, certain publicly available research analyst
projections for VERITAS for the period beginning January 1, 1998 and
ending December 31, 1999;
- reviewed the information provided during discussions with the management
of VERITAS, Seagate Technology and Seagate Software which included
certain financial projections of the Network & Storage Management Group
for the period beginning January 1, 1998 and ending December 31, 1999
prepared by the management of VERITAS;
- compared certain financial and securities data of VERITAS and certain
financial data of the Network & Storage Management Group business with
various other companies whose securities are traded in public markets;
- reviewed prices paid in certain other business combinations; and
- conducted other financial studies, analyses and investigations as DLJ
deemed appropriate for purposes of its opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by VERITAS, Seagate Technology
and Seagate Software or their respective representatives or that was otherwise
reviewed by DLJ. In particular:
- DLJ relied upon the estimates of the management of VERITAS and Seagate
Software of the operating synergies achievable as a result of the NSMG
combination;
- DLJ assumed that the financial projections of the Network & Storage
Management Group business supplied to it were reasonably prepared on the
basis reflecting the best currently available estimates and judgments of
the management of VERITAS as to the future operating and financial
performance of the Network & Storage Management Group business;
- DLJ assumed that it was VERITAS' management's view that the publicly
available research analyst projections for VERITAS to which VERITAS had
directed DLJ's attention were reasonable and in all material respects
representative of VERITAS' prospects;
- DLJ assumed that New VERITAS' ownership of the contributed assets as
defined on page 72 and the contributed companies as defined on page 72
will provide New VERITAS with sufficient rights to conduct the business
currently conducted, or proposed to be conducted, by the Network &
Storage Management Group.
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SEAGATE
SOFTWARE
VERITAS
- DLJ did not assume any responsibility for making any independent
evaluation of any assets or liabilities or for making any independent
verification of any of the information reviewed by DLJ.
- DLJ relied as to certain legal matters on advice of counsel to VERITAS.
- DLJ assumed that the merger of VERITAS with New VERITAS and the
contribution of the Network & Storage Management Group will be
implemented on a tax-free basis under sections 368 and 351 of the
Internal Revenue Code.
DLJ's opinion was necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to
DLJ as of, the date of DLJ's opinion. It should be understood that, although
subsequent developments may affect DLJ's opinion, DLJ does not have any
obligation to update, revise or reaffirm its opinion.
The following is a summary of certain financial analyses performed by DLJ
in connection with its opinion and presented by DLJ at the October 4, 1998
meeting of the VERITAS board. These summaries of financial analyses include
information presented in tabular format. In order to fully understand the
financial analyses used by DLJ, the tables must be read together with the text
of each summary. The tables alone do not constitute a complete description of
the financial analysis.
Peer group comparison. To provide comparative market information, DLJ
compared selected historical and projected earnings and operating results and
resulting multiples for the Network & Storage Management Group business to
corresponding data and multiples of selected systems management software vendors
whose securities are publicly traded. In conducting its analysis, DLJ compared
the implied multiples from the consideration to be paid for the Network &
Storage Management Group business to the multiples from the market valuation of
publicly traded companies selected by DLJ based upon qualitative factors that
DLJ deemed relevant. The peer group companies included:
- BMC Software, Inc.;
- Compuware Corporation;
- Legato Systems, Inc.;
- Network Associates, Inc.;
- PLATINUM Technology, Inc.; and
- VERITAS.
Data and multiples considered by DLJ included the ratios of enterprise value to
revenues and equity value to net income, in each case for the latest 12 months
and as projected for the years ending December 31, 1998 and 1999.
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<PAGE> 73
The following table presents, for the periods indicated, the multiples
implied by the ratio of enterprise value to revenues and the ratio of equity
value to net income. The information in the table is based on the closing stock
price of VERITAS common stock on October 1, 1998. For all periods the averages
exclude high and low values. Enterprise value is defined as market value plus
debt, plus minority interests, plus preferred stock, less cash and cash
equivalents.
<TABLE>
<CAPTION>
PEER GROUP COMPANIES
TRADING MULTIPLES MULTIPLES IMPLIED BY THE
--------------------- EXCHANGE RATIO FOR THE
LOW AVERAGE HIGH NETWORK & STORAGE MANAGEMENT GROUP
---- ------- ---- ----------------------------------
<S> <C> <C> <C> <C>
ENTERPRISE VALUE AS A RATIO OF:
Revenue for the last twelve
months.................... 1.8 11.5 17.2 10.5
Projected revenue in 1998.... 1.6 9.5 13.6 9.4
Projected revenue in 1999.... 1.2 7.1 10.6 6.8
EQUITY VALUE AS A RATIO OF:
Net income for the last
twelve months............. 22.1 52.2 88.9 484.8
Projected net income in
1998...................... 17.1 43.0 74.3 225.0
Projected net income in
1999...................... 11.7 30.6 52.0 43.9
</TABLE>
Analysis of selected precedent transactions. DLJ also performed an analysis
of selected merger and acquisition transactions of software vendors consisting
of 15 transactions announced and/or closed during the period from June 1995 to
July 1998. In reviewing the multiples in these selected precedent transactions,
DLJ compared, among other things, the multiples implied by the ratios of
enterprise value to revenues and equity value to net income, in each case for
the latest 12 month period and as projected for the years ending December 31,
1998 and 1999.
The following table presents, for the periods indicated, the multiples
implied by the ratio of enterprise value to revenues and the ratio of equity
value to net income. The information in the table is based on the closing stock
price of VERITAS common stock on October 1, 1998. For all periods the averages
exclude high and low values.
<TABLE>
<CAPTION>
SELECTED PRECEDENT
TRANSACTION MULTIPLES MULTIPLES IMPLIED BY THE
---------------------- EXCHANGE RATIO FOR THE
LOW AVERAGE HIGH NETWORK & STORAGE MANAGEMENT GROUP
---- ------- ----- ----------------------------------
<S> <C> <C> <C> <C>
ENTERPRISE VALUE AS A RATIO
OF:
Revenue for the last twelve
months................... 3.1 5.5 17.3 10.5
Projected revenue in 1998... 2.5 3.7 9.9 9.4
Projected revenue in 1999... 2.0 2.9 6.5 6.8
EQUITY VALUE AS A RATIO OF:
Net income for the last
twelve months............ 24.1 38.4 60.7 484.8
Projected net income in
1998..................... 21.0 35.2 101.1 225.0
Projected net income in
1999..................... 18.7 27.7 60.1 43.9
</TABLE>
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SEAGATE
SOFTWARE
VERITAS
No company, transaction or business utilized in the peer group comparison
or analysis of selected precedent transactions is identical to VERITAS, the
Network & Storage Management Group business, the contribution of the Network &
Storage Management Group business or the merger of VERITAS with New VERITAS in
the NSMG combination. Accordingly, an analysis of the results of the foregoing
is not entirely mathematical, but necessarily involves complex considerations
and judgments concerning differences in financial and operating characteristics
of companies and other factors. These factors could affect the acquisition,
public trading or other values of the companies, transactions or business
segments being analyzed.
Relative contribution analysis. DLJ analyzed the relative contribution of
the Network & Storage Management Group business to the combined entity,
excluding synergies, with respect to total revenues, earnings before interest
and taxes and net income. This analysis was performed for the year ended
December 31, 1997 and projected results for the years ending December 31, 1998
and 1999. As a result of the NSMG combination, the Network & Storage Management
Group business will represent approximately 40.0% of the combined equity value,
including shares to be issued to Seagate Software and holders of options to
purchase shares of Seagate Software. This compares with the Network & Storage
Management Group business contributions to the combined entity's 1997 pro forma
results of approximately 55.7% of revenue. The Network & Storage Management
Group contributions to the combined entity's projected results for:
- the year ending December 31, 1998 are estimated at approximately 50.1% of
revenue, 35.3% of earnings before interest and taxes and 18.9% of net
income; and
- the year ending December 31, 1999 are estimated at approximately 48.2% of
revenue, 45.5% of earnings before interest and taxes and 44.7% of net
income.
Pro forma analysis. DLJ also performed a pro forma financial impact
analysis to determine the impact of the acquisition of the Network & Storage
Management Group business to the stockholders of VERITAS. DLJ analyzed the
impact of the acquisition of the Network & Storage Management Group business on
VERITAS' projected earnings before interest and taxes and earnings per share for
the year ending December 31, 1999, in each case including and excluding the
effect of amortizing goodwill incurred, and including and excluding certain
operating synergies that the managements of VERITAS and Seagate Technology
estimated, in connection with the acquisition of the Network & Storage
Management Group business.
The analysis indicated that, assuming no realization of synergies in
connection with the acquisition of the Network & Storage Management Group
business:
- on a pro forma basis, including the effect of amortizing goodwill, the
acquisition of the Network & Storage Management Group business would be
dilutive to projected earnings before interest and taxes by 266.0% and to
net income by 395.2%; and
- on a pro forma basis, excluding the effect of amortizing goodwill, the
acquisition of the Network & Storage Management Group business would be
accretive to projected earnings before interest and taxes by 8.7% and to
net income by 8.4%.
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<PAGE> 75
The analysis also indicated, assuming realization of the estimated
operating synergies in connection with the acquisition of the Network & Storage
Management Group business:
- on a pro forma basis, including the effect of amortizing goodwill, the
acquisition of the Network & Storage Management Group business would be
dilutive to projected earnings before interest and taxes by 231.0% and to
net income by 361.7%; and
- on a pro forma basis, excluding the effect of amortizing goodwill, the
acquisition of the Network & Storage Management Group business would be
accretive to projected earnings before interest and taxes by 43.8% and to
net income by 41.8%.
The summary set forth above, while describing the material analyses
performed by DLJ in connection with its opinion, does not purport to be a
complete description of the analyses performed by DLJ. This summary describes
the principal elements of the analyses contained in the materials presented by
DLJ to the VERITAS board in connection with DLJ rendering its opinion.
The preparation of a fairness opinion involves serious determinations as to
the most appropriate and relevant methods of financial analysis, and the
application of these methods to the particular circumstances. Therefore a
fairness opinion is not readily susceptible to summary description. Each of the
analyses conducted by DLJ was carried out in order to provide a different
perspective on the transaction and add to the total mix of information
available. DLJ did not form a conclusion as to whether any individual analysis,
considered in isolation, supported or failed to support an opinion as to the
fairness from a financial point of view to VERITAS of the exchange ratio.
Rather, in reaching its conclusion, DLJ considered the results of the analyses
in light of each other and ultimately reached its opinion based on the results
of the analyses taken as a whole. DLJ did not place particular reliance or
weight on any individual factor, but instead, DLJ concluded that its analyses,
taken as a whole, supported its determination. Accordingly, notwithstanding the
separate facts summarized above, DLJ believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could
create an incomplete or misleading view of the evaluation process underlying its
opinion. The analyses performed by DLJ are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by the analyses.
Under an engagement letter between VERITAS and DLJ dated July 28, 1998,
VERITAS agreed to pay DLJ:
- a retainer fee of $250,000 on that day;
- $600,000 upon delivery of DLJ's opinion as to the fairness from a
financial point of view to VERITAS of the exchange ratio, regardless of
the conclusion reached; and
- $7,500,000 upon consummation of the NSMG combination, less the amounts
paid previously.
In the event a transaction, as defined in the engagement letter, is not
consummated and VERITAS is entitled to receive any form of compensation, then
DLJ shall be entitled to receive the lesser of $5,000,000 or 25% of the amount
of the compensation received by VERITAS. In addition, VERITAS has agreed to
reimburse DLJ for all out-of-pocket expenses, including the reasonable fees and
expenses of its counsel, incurred by DLJ in connection with its engagement.
VERITAS has also agreed to indemnify DLJ and selected related parties for
selected liabilities and expenses arising out of its engagement or related
transactions, including liabilities under federal securities laws. The terms of
the fee
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SEAGATE
SOFTWARE
VERITAS
arrangement with DLJ were negotiated at arm's length between VERITAS and DLJ.
The VERITAS board was aware of the arrangement, including the fact that a
significant portion of the aggregate fee payable to DLJ is contingent upon
consummation of the NSMG combination. Each of DLJ and VERITAS believe that these
fees are customary in transactions of this nature.
VERITAS selected DLJ to act as its financial advisor in connection with the
NSMG combination based upon DLJ's qualifications, expertise and reputation,
including the fact that DLJ, as a part of its investment banking services, is
regularly engaged in the valuation of businesses and securities in connection
with mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. DLJ performed investment banking and other services for VERITAS in the
past and was compensated for such services. In the ordinary course of business
DLJ may trade the securities of VERITAS and Seagate Technology for its own
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities.
Steven Brooks, a member of the VERITAS board, was a managing director of
DLJ at the time the VERITAS board approved the NSMG combination. Mr. Brooks
participated in certain of the negotiations of the terms of the NSMG combination
in his capacity as a managing director of DLJ. However, Mr. Brooks was not a
member of the DLJ team responsible for obtaining the internal approval of, or
presenting to the VERITAS board, DLJ's fairness opinion. Mr. Brooks participated
as a member of the VERITAS board in approving all aspects of the NSMG
combination, other than the retention of DLJ.
Opinion of Seagate Software's financial advisor
Morgan Stanley is Seagate Software's financial advisor. Under an engagement
letter dated as of September 17, 1998, Seagate Software employed Morgan Stanley
to provide it with financial advisory services and a financial fairness opinion
in connection with the NSMG combination. At the meeting of the Seagate Software
board on October 4, 1998, Morgan Stanley rendered its oral opinion, subsequently
confirmed in writing, that as of October 4, 1998, based upon and subject to the
various considerations set forth in the opinion, the consideration to be
received by Seagate Software pursuant to the NSMG combination agreement was fair
from a financial point of view to Seagate Software.
You should consider the following when reading the discussion of Seagate
Software's financial advisor in this document:
- YOU ARE URGED TO READ THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN
STANLEY DATED OCTOBER 5, 1998 THAT IS ATTACHED AS APPENDIX C TO THIS
DOCUMENT AND WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF
THE REVIEW UNDERTAKEN BY MORGAN STANLEY IN RENDERING ITS OPINION.
- YOU ARE URGED TO AND SHOULD READ THE OPINION CAREFULLY AND IN ITS
ENTIRETY.
- Morgan Stanley's opinion is directed to the Seagate Software board and
addresses only the fairness of the consideration to be received by
Seagate Software under to the NSMG combination agreement from a financial
point of view as of the date of the opinion.
- Morgan Stanley's opinion does not address any other aspect of the NSMG
combination and does not constitute a recommendation to any holder of
Seagate Software common stock as to how to vote at the Seagate Software
meeting.
65
<PAGE> 77
- The description of the opinion of Morgan Stanley set forth in this
document, while materially complete, is a summary and is qualified in its
entirety by reference to the full text of the opinion.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
information of Seagate Software and VERITAS;
- reviewed certain internal financial statements and other financial and
operating data concerning Seagate Software, the Network & Storage
Management Group business and VERITAS prepared by the managements of
Seagate Software and VERITAS;
- discussed the past and current operations and financial condition and the
prospects of Seagate Software and the Network & Storage Management Group
business, with senior executives of Seagate Software including
information relating to certain strategic, financial and operational
benefits anticipated from the NSMG combination;
- discussed the past and current operations and financial condition and the
prospects of VERITAS with senior executives of VERITAS, including
information relating to certain strategic, financial and operational
benefits anticipated from the NSMG combination;
- reviewed the pro forma impact of the NSMG combination on the earnings per
share of VERITAS;
- reviewed the reported prices and trading activity for VERITAS common
stock with that of certain other publicly-traded companies and their
securities;
- compared the financial performance of Seagate Software, the Network &
Storage Management Group business and VERITAS with that of certain other
publicly-traded companies and their securities;
- reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
- reviewed and discussed with the senior managements of Seagate Software
and VERITAS their strategic rationales for the NSMG combination and
certain alternatives to the NSMG combination;
- participated in discussions and negotiations among representatives of
Seagate Software and VERITAS and their financial and legal advisors;
- reviewed the NSMG combination agreement and related agreements; and
- performed other analyses and considered other factors as Morgan Stanley
deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for the purposes
of its opinion. With respect to the internal financial statements and other
financial and operating data and discussions relating to strategic, financial
and operational benefits anticipated from the NSMG combination provided by
Seagate Software and VERITAS, Morgan Stanley assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the prospects of Seagate Software and the
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SEAGATE
SOFTWARE
VERITAS
Network & Storage Management Group business and VERITAS. Morgan Stanley relied
upon the following which Morgan Stanley did not independently verify:
- the assessment by the managements of Seagate Software and VERITAS of
their ability to retain key employees of Seagate Software, the Network &
Storage Management Group business and VERITAS;
- the assessment by the managements of Seagate Software and VERITAS of the
strategic and other benefits expected to result from the NSMG
combination;
- the assessment by the managements of Seagate Software and VERITAS of
Seagate Software's, the Network & Storage Management Group's and VERITAS'
technologies and products;
- the timing and risks associated with the integration of the Network &
Storage Management Group business with VERITAS; and
- the validity of and risks associated with Seagate Software's, the Network
& Storage Management Group's and VERITAS' existing and future products
and technologies.
Morgan Stanley did not make any independent valuation or appraisal of the
assets or liabilities or technology of Seagate Software, the Network & Storage
Management Group business or VERITAS, nor has it been furnished with any
appraisals. In addition, Morgan Stanley assumed that the NSMG combination will
be accounted in accordance with U.S. generally accepted accounting principles,
treated as a tax-free reorganization and/or exchange under the Internal Revenue
Code of 1986 and closed on the terms set forth in the NSMG combination
agreement. Morgan Stanley's opinion was necessarily based on financial,
economic, market and other conditions as in effect on and the information made
available to it as of the date of its opinion.
The following is a brief summary of certain of the analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
opinion letter dated October 5, 1998. These summaries of financial analyses
include information presented in tabular format. In order fully to understand
the financial analyses used by Morgan Stanley, the tables must be read together
with the text of each summary. The tables alone do not constitute a complete
description of the financial analyses.
Comparative stock price performance. Morgan Stanley reviewed the recent
stock price performance of VERITAS and compared such performance with that of
the following peer index companies:
- Computer Associates International, Inc.;
- BMC Software, Inc.;
- Compuware Corporation;
- Network Associates, Inc.;
- PLATINUM Technology, Inc.;
- Symantec Corporation;
- Cognos Incorporated;
- Legato Systems, Inc.;
- Boole & Babbage, Inc.;
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<PAGE> 79
- Hyperion Solutions Corporation; and
- Business Objects S.A.
Morgan Stanley observed that over the period from October 2, 1997 to
October 2, 1998, the market price of VERITAS common stock increased 65% compared
with an increase of 10% for the peer index companies and an increase of 4% for
the Morgan Stanley High Technology 35 Index.
Peer group comparison. Morgan Stanley compared certain financial
information of VERITAS with publicly available information for Legato and
several groups of companies:
- Storage Related Companies
-- EMC Corporation
-- Iomega Corporation
-- Storage Technology Corporation
-- Read-Rite Corporation
-- Komag Incorporated
- Business Intelligence Software Companies
-- Microstrategy Incorporated
-- Cognos Incorporated
-- Hyperion Solutions
-- Business Objects S.A.
-- Brio Technology, Inc.
-- Actuate Software Corporation
- Systems/Network Management Companies
-- Computer Associates International, Inc.
-- BMC Software, Inc.
-- Compuware Corporation
-- Network Associates, Inc.
-- PLATINUM Technology, Inc.
-- Symantec Corporation
-- Boole & Babbage, Inc.
Based on estimates from securities research analysis, with median values
shown except for VERITAS and Legato, such analysis showed that as of October 2,
1998:
<TABLE>
<CAPTION>
STOCK PRICE TO
PROJECTED
CALENDAR YEAR AGGREGATE VALUE TO STOCK PRICE TO PROJECTED
----------------------- ----------------------------- CALENDAR YEAR 1999
1998 1999 LAST TWELVE CALENDAR NET INCOME DIVIDED BY
NET INCOME NET INCOME MONTHS REVENUE 1998 REVENUE LONG TERM GROWTH RATES
---------- ---------- -------------- ------------ ------------------------
<S> <C> <C> <C> <C> <C>
VERITAS.................. 71.0x 49.7x 15.1x 11.1x 1.0x
Legato................... 69.2x 45.2x 14.7x 10.9x 1.1x
Storage Related 24.3x 11.0x 0.7x 0.9x 0.7x
Companies..............
Business Intelligence 18.3x 16.1x 3.4x 2.6x 0.5x
Software Companies.....
Systems/Network 19.3x 14.6x 4.1x 4.0x 0.7x
Management Software
Companies..............
</TABLE>
No company utilized in the peer group comparison analysis as a comparison
is identical to VERITAS. In evaluating the peer groups, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market
68
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SEAGATE
SOFTWARE
VERITAS
and financial conditions and other matters, many of which are beyond control of
VERITAS. These factors include, among others, the impact of competition on the
business of VERITAS and the industry generally, industry growth and the absence
of any adverse material change in the financial condition and prospects of
VERITAS or the industry or in the financial markets in general. Mathematical
analysis, such as determining the average or median, is not in itself a
meaningful method of using peer group data.
Analysis of selected precedent transactions. As part of its analysis,
Morgan Stanley reviewed a number of selected software transactions and compared
certain statistics for the selected software transactions to the relevant
financial statistics for the Network & Storage Management Group based on the
closing price for VERITAS common stock as of October 2, 1998. The analysis of
the selected software transactions, based on median estimates of Next Twelve
Months' Net Income by securities research analysts, and the analysis based on a
modified estimate of the Network & Storage Management Group's future financial
performance, or the NSMG adjusted case showed:
<TABLE>
<CAPTION>
IMPLIED AGGREGATE VALUE
IMPLIED OFFER PRICE (BASED ON OFFER PRICE) TO
TO NEXT TWELVE LAST TWELVE MONTHS'
MONTHS' NET INCOME REVENUES
------------------- -------------------------
<S> <C> <C>
Network & Storage Management
Group........................ 32.5x 10.0x
NSMG adjusted case............. 43.4x --
Selected Software
Transactions................. 31.4x 5.2x
</TABLE>
No company utilized in the precedent transactions analysis as a comparison
is identical to the Network & Storage Management Group business or VERITAS. In
evaluating the precedent transactions, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond
control of the Network & Storage Management Group business and VERITAS, such as
the impact of competition on the business of the Network & Storage Management
Group business and VERITAS and the industry generally, industry growth and the
absence of any adverse material change in the financial condition and prospects
of the Network & Storage Management Group business and VERITAS or the industry
or in the financial markets in general. Mathematical analysis, such as
determining the average or median, is not in itself a meaningful method of using
precedent transactions data.
Relative contribution analysis. Morgan Stanley analyzed the pro forma
contribution of each of the Network & Storage Management Group business and
VERITAS to New VERITAS assuming consummation of the NSMG combination and based
on estimates
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<PAGE> 81
from Seagate Software management and from securities research analysts,
respectively. The analysis showed, among other things, the following:
<TABLE>
<CAPTION>
% CONTRIBUTION BY
----------------------------
NETWORK & STORAGE
MANAGEMENT GROUP VERITAS
----------------- -------
<S> <C> <C>
LAST TWELVE MONTHS:
EBIT................................. 27.9% 72.1%
Net Income........................... 36.1% 63.9%
PROJECTED CALENDAR YEAR 1998
EBIT................................. 33.0% 67.0%
EBIT (adjusted case)................. 27.1% 72.9%
Net Income........................... 39.3% 60.7%
Net Income (adjusted case)........... 32.7% 67.3%
PROJECTED CALENDAR YEAR 1999
EBIT................................. 47.3% 52.7%
EBIT (adjusted case)................. 40.5% 59.5%
Net Income........................... 50.9% 49.1%
Net Income (adjusted case)........... 43.7% 56.3%
OFFERED PRICE.......................... 40.0% 60.0%
</TABLE>
Discounted equity value. Morgan Stanley performed an analysis of the
present value of the implied value of the Network & Storage Management Group
business on a stand alone basis based on the Network & Storage Management
Group's assumed future value. Morgan Stanley observed the following, based on a
range of earnings estimates from Seagate Software management for the calendar
years 2000 and 2001:
NETWORK & STORAGE MANAGEMENT GROUP
<TABLE>
<CAPTION>
DISCOUNT FULLY DILUTED
MULTIPLE RANGE RATES EQUITY VALUE
-------------- -------- -------------
<S> <C> <C>
20.0 - 30.0x..................................... 15.0% - 20.0% $1.2Bn to $2.1Bn
20.0 - 30.0x (NSMG adjusted case)................ 15.0% - 20.0% $0.9Bn to $1.5Bn
Implied value of VERITAS offer as of October 2,
1998........................................... $1.7Bn
</TABLE>
Morgan Stanley also performed an analysis of the present value per share of
the implied value of VERITAS on a stand alone basis based on VERITAS' future
trading price. Morgan Stanley observed the following, based on a range of
earnings per share estimates from securities research analysts for the calendar
years 2000 and 2001:
VERITAS
<TABLE>
<CAPTION>
DISCOUNT
MULTIPLE RANGE RATES SHARE PRICE
-------------- -------- -----------
<S> <C> <C>
45.0 - 55.0x........................................ 15.0% - 25.0% $52.62 - $91.18
Closing share price as of October 2, 1998........... $48.25
</TABLE>
Pro forma NSMG combination analysis. Morgan Stanley analyzed the pro forma
impact of the NSMG combination on VERITAS' projected earnings per share for the
calendar year 1999. This analysis was based on earnings projections by the
management of Seagate Software for the Network & Storage Management Group
business and by securities research analysts for VERITAS. Morgan Stanley
observed that:
- the NSMG combination would result in earnings per share accretion for
VERITAS, prior to giving effect to any synergies, of 26.5% for calendar
year 1999 on a cash earnings basis, defined as earnings excluding
non-cash charges such as goodwill amortization; and
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SEAGATE
SOFTWARE
VERITAS
- the NSMG combination would result in earnings per share dilution for
VERITAS on a reported basis, prior to giving effect to any synergies, of
234.6% for calendar year 1999 on earnings estimates reported by
securities research analysts.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that selecting any
portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less weight than
other analyses and factors, and may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of the Network & Storage Management Group
business or VERITAS. In performing its analyses, Morgan Stanley made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of the
Network & Storage Management Group business or VERITAS. Any estimates contained
in Morgan Stanley's analyses are not necessarily indicative of future results or
actual values, which may be significantly more or less favorable than those
suggested by such estimates.
The analyses performed were prepared solely as part of Morgan Stanley's
analysis of the fairness of the consideration to be received by Seagate Software
pursuant to the NSMG contribution agreement from a financial point of view to
Seagate Software and were conducted in connection with the delivery of the
Morgan Stanley opinion. The analyses do not purport to be appraisals or to
reflect the prices at which the Network & Storage Management Group business or
VERITAS might actually be sold.
The consideration to be received by Seagate Software under the NSMG
combination agreement was determined through arm's-length negotiations between
Seagate Software and VERITAS and was approved by the Seagate Software board of
directors. Morgan Stanley provided advice to Seagate Software during the
negotiations. However, Morgan Stanley did not recommend any specific
consideration to Seagate Software or that any specific consideration constituted
the only appropriate consideration for the NSMG combination.
In addition, Morgan Stanley's opinion and presentation to the Seagate
Software board of directors was one of many factors taken into consideration by
Seagate Software's board in making its decision to approve the NSMG combination.
Consequently, the Morgan Stanley analyses should not be viewed as determinative
of the opinion of the Seagate Software board of directors with respect to the
consideration or of whether the Seagate Software board of directors would have
been willing to agree to a different consideration.
The Seagate Software board of directors retained Morgan Stanley based upon
Morgan Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan Stanley,
as part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate, estate and other purposes. In the past, Morgan Stanley
and its affiliates have provided financial advisory services for Seagate
Technology and have received fees for the rendering of these services. In the
ordinary course of Morgan
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<PAGE> 83
Stanley's trading and brokerage activities, Morgan Stanley or its affiliates may
at any time hold long or short positions, may trade or otherwise effect
transactions, for its own account or for the account of customers in the equity
securities of Seagate Technology or VERITAS.
Under the engagement letter, Morgan Stanley provided financial advisory
services and a financial fairness opinion in connection with the NSMG
combination. Seagate Software agreed to pay Morgan Stanley fees totaling $7.5
million. These fees include a $125,000 retainer fee and $1.0 million upon
announcement. The remainder of the fee is contingent upon consummation of the
NSMG combination. In addition, Seagate Software has also agreed to indemnify
Morgan Stanley and its affiliates, their respective directions, officers, agents
and employees and each person, if any controlling Morgan Stanley or any of its
affiliates against certain liabilities and expenses, including certain
liabilities under the federal securities laws, arising out of Morgan Stanley's
engagement.
STRUCTURE OF THE NSMG COMBINATION
The VERITAS merger
VERITAS will merge with a wholly-owned subsidiary of New VERITAS and become
a wholly-owned subsidiary of New VERITAS. VERITAS stockholders will become
stockholders of New VERITAS.
The contribution of the Network & Storage Management Group
Seagate Software will contribute the capital stock of the contributed
companies, and Seagate Technology and Seagate Software and some of their
subsidiaries will contribute to New VERITAS, the contributed assets. The
contributed assets and the contributed companies will be owned by New VERITAS.
"Contributed companies" means Seagate Software Network & Storage Management
Group, Inc., Seagate Software Limited, Seagate Software GmbH, Seagate Software
International Holdings Ltd., Seagate Software Storage Management Group, Inc. and
Arcada Software Limited (U.K.).
"Contributed assets" means, subject to exceptions, (1) the assets listed on
certain schedules to the NSMG combination agreement, (2) intellectual property
rights material to the products of the Network & Storage Management Group, or
(3) assets used primarily in the Network & Storage Management Group business.
"Contributing companies" means Seagate Technology, Seagate Software and
certain other subsidiaries of Seagate Technology.
As a result of the transfer to New VERITAS of the capital stock of the
contributed companies, New VERITAS will own all of the outstanding equity
capital of the contributed companies, each of which will remain liable for their
existing liabilities. In addition, New VERITAS or a subsidiary shall assume the
following liabilities relating to the Network & Storage Management Group
business:
- all liabilities of the contributing companies under all contracts
contributed as part of the contributed assets;
- all liabilities of the contributing companies that are included in the
combined balance sheet for the fiscal year ended July 3, 1998 of the
Network & Storage Management Group business and certain other identified
liabilities totaling $221,354;
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<PAGE> 84
SEAGATE
SOFTWARE
VERITAS
- all liabilities of Seagate Technology, Seagate Software, and their
subsidiaries with respect to employees who accept an offer of employment
by New VERITAS, excluding certain indemnified liabilities; and
- identified tax liabilities including those taxes attributable to the
operations of the contributed companies since July 3, 1998.
Except for the liabilities of the contributed companies and their
subsidiaries, which will remain the sole responsibility of the applicable
contributed company, and the assumed liabilities described above, New VERITAS
will not assume or otherwise have any obligation for any liabilities of Seagate
Software, including those related to the Information Management Group, Seagate
Technology or their subsidiaries.
Seagate Technology and Seagate Software have agreed that for two years
after the NSMG combination, they will take all actions reasonably necessary to
fully transfer to New VERITAS the capital stock of the contributed companies and
the contributed assets held by them or their subsidiaries and any contributed
contracts to which they are a party.
RESTRICTIONS ON RESALE OF NEW VERITAS COMMON STOCK
The shares of New VERITAS common stock to be issued in the NSMG combination
will have been registered under the Securities Act. These shares will be freely
transferable without restriction, except for shares received by Seagate Software
or by any person who is an "affiliate" of either of us. Shares held by these
affiliates may be resold by them only in transactions permitted by the resale
provisions of Rule 145 or Rule 144 in the case of persons who become affiliates
of New VERITAS. Persons who may be deemed to be affiliates of VERITAS, Seagate
Software or New VERITAS generally include individuals or entities that control,
are controlled by, or are under common control with, that party and may include
certain officers and directors of such party as well as principal stockholders
of that party.
New VERITAS, Seagate Software and Seagate Technology will enter into the
stockholder agreement. This agreement provides that, so long as Seagate Software
and Seagate Technology collectively own 5% of the outstanding stock of New
VERITAS, they may only sell Shares of New VERITAS common stock under certain
circumstances. In addition, Seagate Software and Seagate Technology may only
sell shares of New VERITAS common stock as follows:
- no shares in the quarter ending in June, 1999;
- 2,000,000 shares in the quarter ending in September, 1999;
- 2,000,000 shares in the quarter ending in December, 1999;
- 2,000,000 shares in the quarter ending in March, 2000; and
- 3,000,000 shares in the quarter ending in June, 2000.
They will also have the right to sell up to 6,000,000 shares in an underwritten
public offering once in the first year after completion of the NSMG combination,
but if they exercise this right, they will be prohibited from selling other
shares in the quarter that the offering is completed. See "Agreements Related to
the NSMG Combination -- Stockholder agreement" on page 91.
New VERITAS and Seagate Software will enter into a registration rights
agreement. See "Agreements Related to the NSMG Combination -- Registration
rights agreement" on page 93.
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<PAGE> 85
RESALE OF SHARES ISSUED UNDER THE VERITAS OPTION PLANS
New VERITAS will be required within 10 days of the closing of the NSMG
combination to file with the Securities and Exchange Commission a registration
statement for the shares of New VERITAS common stock issuable upon exercise of
the New VERITAS stock options issued in the exchange offer.
NASDAQ LISTING
The New VERITAS common stock will be traded on the Nasdaq National Market
under the symbol "VRTS."
It is a condition to the closing of the NSMG combination that the shares of
New VERITAS common stock to be issued to Seagate Software be approved for
listing on the Nasdaq National Market, subject to official notice of issuance.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS OF THE NSMG COMBINATION
This discussion is based on currently existing provisions of the Internal
Revenue Code, existing and proposed regulations and current administrative
rulings and court decisions, all of which may change and may be interpreted
differently. Any change, including changes which may be retroactive, could alter
the tax consequences described below. The Internal Revenue Service may adopt a
contrary position.
Tax implications for VERITAS, VERITAS stockholders, VERITAS option holders
and VERITAS convertible debenture holders
Counsel to VERITAS, Fenwick & West LLP, is of the opinion that the merger
of VERITAS with a wholly-owned subsidiary of New VERITAS will be a
"reorganization" for U.S. federal income tax purposes within the meaning of
section 368(a) of the Internal Revenue Code. The VERITAS merger is the part of
the NSMG combination that generally affects holders of VERITAS common stock,
options and debentures. This means that, subject to the limitations and
qualifications described below in this section:
- VERITAS stockholders will not recognize gain or loss when they receive
New VERITAS common stock solely in exchange for their shares of VERITAS
common stock in the VERITAS merger;
- The aggregate tax basis of the New VERITAS common stock received by
holders of VERITAS common stock, including any fractional share of New
VERITAS common stock not actually received, will be the same as the
aggregate tax basis of the VERITAS common stock surrendered in the
exchange;
- The holding period of the New VERITAS common stock received by holders of
VERITAS common stock in the VERITAS merger will include the period the
exchanged VERITAS common stock was considered to be held, provided that
the VERITAS common stock surrendered is held as a capital asset at the
time of the VERITAS merger;
- VERITAS will not recognize gain solely as a result of the VERITAS merger;
- The change to the convertible debentures of VERITAS at the effective time
making each such convertible debenture convertible into the common stock
of New VERITAS rather than VERITAS, will not result in gain or loss to
the holders of the convertible debentures; and
74
<PAGE> 86
SEAGATE
SOFTWARE
VERITAS
- VERITAS option holders will not recognize gain or loss as a result of the
conversion of their VERITAS options into New VERITAS options. The New
VERITAS options received will be subject to the same tax treatment as the
option exchanged, whether incentive stock options or non-qualified stock
options.
Holders of VERITAS common stock should be aware that this discussion does
not deal with all federal income tax considerations that may be relevant to
particular holders in light of their particular circumstances. These
considerations include special rules related to persons or entities such as:
- dealers in securities;
- persons who are subject to the alternative minimum tax provisions of the
Code;
- foreign persons; and
- persons who acquired their shares in connection with stock option or
stock purchase plans or in other compensatory transactions.
In addition, this discussion does not address the tax consequences of the
VERITAS merger under foreign, state or local tax laws or the tax consequences of
transactions effectuated prior to or after the VERITAS merger. HOLDERS OF
VERITAS COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
CONSEQUENCES OF THE VERITAS MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM IN THEIR PARTICULAR CIRCUMSTANCES.
Tax implications for Seagate Software stockholders and Seagate Software
option holders who elect to receive New VERITAS options
Counsel to Seagate Software and Seagate Technology, Wilson Sonsini Goodrich
& Rosati, Professional Corporation, is of the opinion that the NSMG combination
will not cause any gain or loss to be recognized by Seagate Software
stockholders and that the option exchange offer will not cause any gain or loss
to be recognized by participating Seagate Software option holders.
Limitations of the tax opinions
Neither VERITAS nor Seagate Software has requested a ruling from the IRS
with regard to any of the federal income tax consequences of the VERITAS merger
or the contribution of the Network & Storage Management Group.
The opinions described above do not bind the IRS nor preclude it from
adopting a contrary position. These opinions are subject to certain
qualifications and are conditioned upon the following assumptions:
- the truth and accuracy of the statements, covenants, representations and
warranties in the NSMG combination agreement, in the representations to
be received by counsel from New VERITAS, VERITAS, Seagate Technology,
Seagate Software and certain stockholders of VERITAS, Seagate Technology
and Seagate Software to support the opinions, and in other documents
related to New VERITAS, VERITAS, Seagate Technology and Seagate Software
relied upon by their respective counsel, for those opinions;
- the performance of all covenants contained in the NSMG combination
agreement and the tax representations without waiver or breach of any
material provision thereof;
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<PAGE> 87
- the accuracy of any representation or statement made "to the best of
knowledge" or similarly qualified without such qualification;
- the reporting of the NSMG Combination as a transaction governed by
Sections 368 and 351 of the Internal Revenue Code by New VERITAS,
VERITAS, Seagate Technology and Seagate Software in their respective
federal income tax returns; and
- other customary assumptions as to the accuracy and authenticity of
documents provided to such counsel.
Consequences of a contrary IRS determination
A successful IRS challenge to the reorganization status of the VERITAS
merger would result in a VERITAS stockholder recognizing gain or loss with
respect to each share of VERITAS common stock surrendered. This gain or loss
would equal the difference between the stockholder's basis in the share and the
fair market value, at the time of the VERITAS merger, of the New VERITAS common
stock received. A VERITAS stockholder's aggregate basis in the New VERITAS
common stock received would equal its fair market value, and the VERITAS
stockholder's holding period for the New VERITAS stock would begin the day after
the VERITAS merger.
Even if the VERITAS merger qualifies as a reorganization, a recipient of
shares of New VERITAS common stock would recognize gain to the extent that those
shares were considered to be received in exchange for services or property. Gain
would also have to be recognized to the extent that a holder of VERITAS common
stock was treated as receiving, directly or indirectly, consideration other than
New VERITAS common stock in exchange for the holder's VERITAS common stock. All
or a portion of those gain amounts may be taxable as ordinary income.
ACCOUNTING TREATMENT
Accounting treatment by New VERITAS
The NSMG combination will be accounted for under the purchase method of
accounting. The purchase price of the contributed assets, or the aggregate
merger consideration, including direct costs of the NSMG combination, will be
allocated to the assets acquired, including in-process research and development,
and liabilities assumed based upon their estimated relative fair values. The
excess purchase consideration will be allocated to goodwill.
After the NSMG combination, the results of VERITAS' operations will include
the results of operations of the Network & Storage Management Group business.
The amount of the purchase price allocated to in-process research and
development will be charged to expense immediately after the effective time of
the NSMG combination.
The VERITAS merger and the resulting conversion of VERITAS common stock
into New VERITAS common stock will be treated as a reorganization with no change
in the recorded amount of VERITAS' assets and liabilities. The financial
statements of VERITAS will become the financial statements of New VERITAS upon
the closing of the VERITAS merger.
Accounting treatment by Seagate Software
The NSMG combination will be accounted for by Seagate Software as if
Seagate Software sold approximately 58% of the Network & Storage Management
Group to New
76
<PAGE> 88
SEAGATE
SOFTWARE
VERITAS
VERITAS. Seagate Software will retain an approximate 41% interest in the Network
& Storage Management Group business through its 41% ownership of New VERITAS.
Accordingly, Seagate Software will recognize a gain equal to the difference
between 58% of the fair value of the New VERITAS stock received and 58% of the
carrying amount of its investment in the Network & Storage Management Group, the
pro rata gain, immediately after the closing of the NSMG combination. Seagate
Software will account for its interest in New VERITAS using the equity method.
Under this method it will attribute a portion of its investment to certain
intangible assets, including goodwill and in-process research and development.
The in-process research and development will be expensed in the period when the
combination is completed. All remaining intangible assets and goodwill will be
amortized over their estimated useful lives of four years.
Subsequent to the NSMG combination, Seagate Software will account for its
investment in New VERITAS using the equity method of accounting. 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 the carrying amount of Seagate Software's
investment in New VERITAS and New VERITAS' net assets.
In addition to the above, in the Seagate Technology exchange offer, Seagate
Technology, the parent company of Seagate Software, will offer to exchange
outstanding shares of Seagate Software common stock held by current and former
directors, officers, employees and consultants of Seagate Software and Seagate
Technology for Seagate Technology common stock. As a result of the Seagate
Technology exchange offer, Seagate Software will record certain additional
intangible assets, including goodwill, equal to the fair value of the Seagate
Technology stock issued.
The Seagate Software unaudited pro forma statements beginning on page 160
are based upon certain assumptions and allocate the fair value of assets and
liabilities based upon preliminary estimates. The ultimate pro rata gain to be
recognized by Seagate Software is dependent upon the same factors described
above for New VERITAS, as well as the number and average exercise prices of
Seagate Software stock options outstanding in total for all Seagate Software
employees and outstanding for Network & Storage Management Group employees as a
group, and the total value ascribed to the Information Management Group of
Seagate Software which is currently based upon a preliminary estimate of the
Information Management Group. As a result of these factors, the actual gain and
related allocation of fair value to intangible assets and goodwill may differ
materially from the amounts assumed in the Seagate Software unaudited pro forma
statements.
GOVERNMENTAL AND REGULATORY APPROVALS
The NSMG combination may not be completed until notifications have been
given and certain information has been furnished to the Federal Trade Commission
and the Antitrust Division of the United States Justice Department and specified
waiting period requirements under the Hart-Scott-Rodino Antitrust Improvements
Act, or the HSR Act, have been satisfied. All required filings under the HSR Act
have been made and the waiting periods for the filings have expired.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of the transactions such as the NSMG combination. Despite the
expiration of the waiting periods under the HSR Act, at any time before or after
the completion of
77
<PAGE> 89
the NSMG combination, the Federal Trade Commission, the antitrust division,
state attorneys general or others could take action under antitrust laws. These
actions could include seeking to enjoin the NSMG combination, seeking to cause
the divestiture of significant assets of VERITAS or Seagate Software or seeking
to impose conditions on New VERITAS with respect to the business operations of
the combined companies. If a challenge is made, we may not prevail or we may be
required to terminate the NSMG combination agreement, to divest assets, to
license proprietary technology to third parties or accept conditions in order to
complete the NSMG combination.
In addition, we have made filings in certain foreign countries including
Germany.
NO DISSENTERS' OR APPRAISAL RIGHTS
Neither VERITAS nor Seagate Software stockholders are entitled to
dissenters' or appraisal rights with respect to the NSMG combination.
INTERESTS OF PERSONS IN THE NSMG COMBINATION
The members of the boards of VERITAS, Seagate Software and Seagate
Technology and the managements of VERITAS, Seagate Software and Seagate
Technology identified below, have interests in the NSMG combination that are
different from, or in addition to, the interests in the NSMG combination of
VERITAS or Seagate Software stockholders. These interests are described below:
VERITAS officers and directors will have positions with New VERITAS
All of the current directors of VERITAS except Roel Pieper as well as Mr.
Luczo, Mr. Cunningham and Mr. Kerfoot, will become directors of New VERITAS.
All of the VERITAS executive officers and Mr. Cunningham, Mr. Colemere, Mr.
Hallmen and Mr. Wentz will become executive officers of New VERITAS. Further,
these individuals will execute employment agreements with New VERITAS that
provide for terms of employment and severance benefits, among other things. See
"Management of New VERITAS" on page 230.
Two Seagate Software executives as well as other Seagate Software employees
may participate in the exchange offer
Mr. Colemere holds options to purchase 125,000 shares of Seagate Software
common stock at exercise prices ranging from $6.00 to $12.75 per share and Mr.
Wentz holds options to purchase 75,000 shares of Seagate Software common stock
at exercise prices ranging from $4.00 to $8.75 per share.
Immediately before the closing of the NSMG combination, Seagate Software
will repurchase 65% of the unvested Seagate Software shares owned by Terence
Cunningham, David Hallmen, David Galiotto and David Krinker. These employees
will each then be granted an option to purchase Seagate Software common stock
with an exercise price of approximately $10.00 per share. These options are
designed to provide the employee with the same potential economic benefit as the
employee would have had if he had retained the repurchased Seagate Software
shares. See "Treatment of Seagate Software stock held by certain Seagate
Software officers and employees" on page 82.
These persons may exchange their Seagate Software stock options for New
VERITAS stock options in the exchange offer. Optionees of Seagate Software who
become employees of New VERITAS may elect to exchange their Seagate Software
options for New
78
<PAGE> 90
SEAGATE
SOFTWARE
VERITAS
VERITAS options in the employee stock option exchange offer. See "The Employee
Stock Option Exchange Offer" on page 100.
Relationship with a director and DLJ
Steven Brooks, a member of the VERITAS board of directors, was a managing
director of DLJ, VERITAS' financial advisor, at the time the NSMG combination
was approved. The amount of DLJ's fees was negotiated by VERITAS management and
DLJ and was approved by all of the members of the VERITAS Board with Mr. Brooks
abstaining from voting. Mr. Brooks participated in certain of the negotiations
of the terms of the NSMG combination in his capacity as a managing director of
DLJ. However, Mr. Brooks was not a member of the DLJ team responsible for
obtaining the internal approval of, or presenting to the VERITAS board, DLJ's
fairness opinion. Mr. Brooks participated as a member of the VERITAS board in
approving all aspects of the NSMG combination, other than the retention of DLJ.
Seagate Software will enter into a number of agreements
Voting agreements. The following individuals and entities have entered into
voting agreements with Seagate Software by which they have agreed to vote in
favor of the NSMG combination: Mark Leslie, William Janeway, Peter Levine, Roel
Pieper, Joseph Rizzi, Geoff Squire, Fred van den Bosch, Steven Brooks, Jay
Jones, Ken Lonchar, Paul Sallaberry and Warburg, Pincus Investors, L.P.
Collectively, these stockholders hold 18.9% of the outstanding shares of
VERITAS. See page 90.
Stockholder agreement. VERITAS, New VERITAS and Seagate Software will enter
into a stockholder agreement at the time of the closing of the NSMG combination.
This agreement will give Seagate Software the right to have New VERITAS nominate
up to two directors for election to New VERITAS's board. These nominees will
initially be Mr. Luczo and Mr. Kerfoot. Seagate Software will also have the
right to maintain its ownership percentage in New VERITAS if New VERITAS issues
stock to third parties in connection with strategic business relationships. See
page 91.
Registration rights agreement. New VERITAS and Seagate Software will enter
into a registration rights agreement at the time of the closing of the NSMG
combination. This agreement will give Seagate Software the right to require New
VERITAS to register for public sale the New VERITAS common stock to be owned by
Seagate Software. See page 94.
License agreements. VERITAS, New VERITAS and Seagate Software Information
Management Group, Inc. have entered into a cross-license and original equipment
manufacturer agreement. Seagate Technology, VERITAS and New VERITAS have entered
into a development and license agreement. These agreements provide for the
development and/or licensing of certain products among the parties and
restrictions on the parties' ability to compete with each other or to enter into
relationships with competitors of the other party. See pages 94 and 97.
Transition services agreement. VERITAS, New VERITAS, Seagate Technology and
Seagate Software will enter into a transition services and facilities use
agreement prior to the consummation of the NSMG combination. This agreement will
set forth the terms by which the parties will temporarily share some of their
resources after the NSMG combination. See page 99.
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<PAGE> 91
THE NSMG COMBINATION AGREEMENT
This section of this document describes the NSMG combination agreement. A
copy of this agreement is attached as Appendix A to this document. The summary
is materially complete, but you should read the full and complete text of the
NSMG combination agreement as it may contain information that is important to
you.
CLOSING
The closing of the NSMG combination will take place as soon as practicable
after the VERITAS and Seagate Software meetings and no later than the third
business day after all conditions to closing under the NSMG combination
agreement are satisfied or waived. The VERITAS merger will become effective upon
the filing of a certificate of merger for the VERITAS merger in the offices of
the Secretary of State of the State of Delaware.
WHAT VERITAS SECURITY HOLDERS WILL RECEIVE
Conversion of shares
Each share of common stock of VERITAS that is issued and outstanding will
be automatically converted into one share of New VERITAS common stock. As of
March 31, 1999 there were 48,092,431 shares of VERITAS common stock outstanding.
Conversion of options, convertible securities and purchase rights
Stock options. Each outstanding option to purchase shares of VERITAS
common stock will be automatically assumed and converted into an option to
purchase an equivalent number of shares of New VERITAS common stock. The
exercise price per share will remain unchanged. As of March 31, 1999, there were
options to purchase 8,126,844 shares of VERITAS common stock outstanding.
Convertible debt. All debt obligations of VERITAS will remain those of
VERITAS and New VERITAS will become a co-obligor of the obligations. The VERITAS
convertible debt which was convertible into common stock of VERITAS will become
convertible into New VERITAS common stock on identical terms as it was
convertible into VERITAS common stock. As of March 31, 1999, there was
outstanding $100 million aggregate principal amount of convertible notes of
VERITAS which were convertible into approximately 2,325,581 shares of VERITAS
common stock.
Employee stock purchase plan rights. Each of the outstanding rights to
purchase shares of VERITAS common stock under the VERITAS Employee Stock
Purchase Plan will be assumed and converted into a right to purchase the same
number of shares of New VERITAS common stock on the next purchase date under the
VERITAS stock purchase plan following the effective time. The purchase price per
share will be determined in accordance with the stock purchase plan.
VERITAS STOCKHOLDERS WILL NOT NEED TO SURRENDER SHARE CERTIFICATES
Holders of VERITAS common stock will not need to surrender their stock
certificates. After the effective time, their stock certificates will be deemed
to represent an equivalent number of shares of New VERITAS common stock.
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SEAGATE
SOFTWARE
VERITAS
WHAT SEAGATE SOFTWARE WILL RECEIVE FOR CONTRIBUTING THE NETWORK & STORAGE
MANAGEMENT GROUP TO NEW VERITAS
New VERITAS will issue to Seagate Software shares of New VERITAS common
stock representing 40%, calculated treating the options under the treasury stock
method, of the fully diluted equity securities of New VERITAS less the number of
shares of New VERITAS common stock issuable upon exercise of the New VERITAS
options issued in the exchange offer.
In the exchange offer, New VERITAS will offer to issue New VERITAS options
based upon an exchange ratio formula to the employees of Seagate Software who
become employees of New VERITAS in exchange for their Seagate Software options.
This will have the same effect as if New VERITAS had assumed the options. See
"The Employee Stock Option Exchange Offer -- Acceptance of Seagate Software
options for exchange and delivery of New VERITAS options" on page 103.
STOCK OPTION AND BENEFIT PLANS AND RELATED SECURITIES
VERITAS options
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 assumed by New VERITAS will be
unchanged.
Seagate Software options
New VERITAS has agreed to issue options to purchase New VERITAS common
stock to the Seagate Software employees who will become New VERITAS employees in
exchange for their options to purchase Seagate Software common stock. See "The
Employee Stock Option Exchange Offer" on page 100.
VERITAS stock plans
In addition, the VERITAS stock option and stock purchase plans, as proposed
to be amended, will be assumed and continued by New VERITAS. See proposals 4, 5
and 6 under "Additional Proposals to be Voted upon by VERITAS Stockholders" on
page 286. A vote for the NSMG combination will be deemed to constitute approval
of the issuance of New VERITAS options in exchange for the cancellation of the
exchanged Seagate Software options and the assumption and continuation of the
VERITAS plans.
Employee benefit plans
New VERITAS has agreed to use reasonable efforts to provide the VERITAS
benefit arrangements and VERITAS employee plans to the employees of Seagate
Software or Seagate Technology who become New VERITAS employees. To the extent
that New VERITAS does not have any such plan or arrangement in effect in a
jurisdiction where there are transferring employees, New VERITAS has agreed to
adopt plans providing comparable benefits to the plans for the transferring
employees.
New VERITAS has agreed to provide all transferring employees with the
opportunity to participate in any employee stock option or other incentive
compensation plan of New VERITAS on substantially the same terms and conditions
as are available to similarly situated employees of VERITAS or New VERITAS.
Further, the VERITAS employee stock purchase plan will be amended to provide for
the beginning of a new offering period as soon as possible following the NSMG
combination if necessary to permit transferring
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employees to participate in New VERITAS' employee stock purchase plan. Prior to
the effective time, VERITAS, New VERITAS and Seagate Software will mutually
agree upon an integration plan which will include, among other things,
provisions relating to compensation and other equity incentives for employees.
New VERITAS has agreed to take all steps necessary to cause each of the
benefit arrangements and employee plans of VERITAS to waive any waiting period
or other requirement for duration of employment with New VERITAS which would
prevent a transferring employee who is otherwise eligible to participate in the
plan from participating in the plan immediately following the effective time.
New VERITAS has also agreed to pro rate any portion of a premium or deductible
with respect to a plan for any transferring employee for any plan year that
commenced prior to the effective time.
New VERITAS has also agreed to take all steps necessary to cause each
employee plan to recognize each transferring employee's length of service under
comparable employee benefit plans maintained by Seagate Technology. Therefore,
for purposes of eligibility, participation, vesting and benefit accrual, the
transferring employee will be treated as if employed by New VERITAS for the
period.
TREATMENT OF SEAGATE SOFTWARE STOCK HELD BY CERTAIN SEAGATE SOFTWARE OFFICERS
AND EMPLOYEES
Terence Cunningham, David Krinker, David Hallmen and David Galiotto each
own shares of Seagate Software common stock that are subject to repurchase by
Seagate Software when each such person ends his employment with Seagate
Software. Immediately before the NSMG combination, Seagate Software will waive
its right to repurchase 35% of each person's unvested shares. Seagate Software
will repurchase the remaining 65% of these unvested shares. These employees will
instead be granted options to purchase Seagate Software common stock. The
exercise price of these options will be determined in such a way as to ensure
that these employees will have the same economic benefit, in terms of the
difference between the exercise price and the fair market value of the Seagate
Software common stock, as those employees would have had if they retained the
repurchased Seagate Software shares. These options will have the same vesting
schedule as the schedule which applied to the repurchased shares and will be
exchangeable in the employee stock option exchange offer.
CONDITIONS TO THE NSMG COMBINATION
The obligations of Seagate Technology, Seagate Software and the other
contributing companies, on the one hand, and of New VERITAS and VERITAS, on the
other, to effect the NSMG combination are subject to a number of conditions,
including:
- the NSMG combination shall have been approved and adopted by both the
VERITAS stockholders and the Seagate Software stockholders;
- New VERITAS shall have received assignments from the contributing
companies of all of their rights, title and interest in certain
intellectual property rights included in the contributed assets;
- the board of directors of New VERITAS shall have appointed Mr. Luczo, Mr.
Cunningham and Mr. Kerfoot to the board of directors of New VERITAS; and
- the relevant parties shall have entered into the stockholder agreement,
the registration rights agreement and the transition services and
facilities use agreement.
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SEAGATE
SOFTWARE
VERITAS
In addition to the conditions listed above, the NSMG combination is subject
to additional customary conditions, including:
- the New VERITAS common stock to be issued in the NSMG combination shall
have been approved for quotation on the Nasdaq National Market, subject
to notice of issuance;
- the representations and warranties of the other party contained in the
NSMG combination agreement shall be accurate except for representations
and warranties that address matters as of a particular date and where the
breaches have not resulted in a material adverse effect on VERITAS or New
VERITAS;
- compliance with the covenants contained in the NSMG combination
agreement;
- the other party shall have obtained all permits, consents, and
authorizations required to be obtained;
- each of VERITAS and Seagate Software shall have received an opinion of
their counsel as to the tax consequences of the NSMG combination; and
- any applicable waiting periods shall have expired or been terminated and
no order preventing the consummation of the NSMG combination, shall have
been issued by any federal or state court or governmental agency.
Any of the conditions to the obligations of one party may be waived by the
other.
REPRESENTATIONS AND WARRANTIES
The NSMG combination agreement contains customary representations and
warranties of the parties. These representations and warranties relate to, among
other things, the parties' organizations, capital structures, authority to enter
into the transaction, filings with securities regulatory authorities, absence of
defaults under material contracts, absence of material litigation, the accuracy
of information supplied for this document, intellectual property rights and
other matters. Seagate Software and Seagate Technology have made additional
representations and warranties including representations relating to title to,
condition and sufficiency of the contributed companies and the contributed
assets.
COVENANTS
Covenants by both parties
The NSMG combination agreement contains mutual covenants, including:
- the negotiation of a mutually acceptable arrangement between Seagate
Software and New VERITAS and, if required, the other parties to the
agreement, with respect to the contracts that govern products relating to
both the Network & Storage Management Group business and the Information
Management Group business of Seagate Software;
- the good faith negotiation of a transition services and facilities use
agreement;
- the notification to the other party of:
-- any event reasonably likely to render any of their representations or
warranties untrue or inaccurate in any material respect;
-- any event reasonably likely to have a material adverse effect on
either VERITAS or the Network & Storage Management Group business; and
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-- any material breach by them of any covenant or agreement contained in
the NSMG combination agreement;
- carrying on and preserving its business in the ordinary and usual course
consistent with past practice;
- obtaining consents required in connection with the material contracts;
and
- tax matters, including the preparation and defense of tax returns.
In addition, each party has agreed that it will not, without the prior
consent of the other:
- borrow any money except, in the case of Seagate Software, for working
capital under to an intercompany revolving loan agreement with Seagate
Technology, or immaterial amounts or under existing credit facilities;
- cause any of the contributed assets to become subject to any
non-permitted liens encumbrance;
- dispose of any of the assets except in the ordinary course of business,
consistent with past practice;
- declare or pay any cash or stock dividend or other distribution in
respect of capital stock;
- waive or release any material claims or rights;
- amend the certificate of incorporation or bylaws of VERITAS or of any of
the contributed companies;
- implement any layoffs or reductions in force involving a material number
of employees such as will trigger WARN Act responsibilities or
liabilities; and
- fail to pay or withhold any material tax when due to be paid or withheld.
VERITAS and New VERITAS covenants
VERITAS and New VERITAS have agreed to:
- have its VERITAS board of directors recommend the NSMG combination;
- qualify the New VERITAS common stock to be issued in the NSMG combination
under state securities or "blue sky" laws;
- have New VERITAS adopt the VERITAS employee plans, and have New VERITAS
use reasonable efforts to provide the VERITAS employee plans to the
transferring employees as provided to VERITAS employees who are similarly
situated;
- maintain the indemnification, limitations of liability and directors' and
officers' insurance for VERITAS executive officers and directors; and
- maintain indemnification and insurance for directors, officers, employees
and agents of the contributed companies and Seagate Software involved in
the Network & Storage Management Group business and who become employees,
officers or directors of New VERITAS or VERITAS.
In addition, each of VERITAS and New VERITAS have agreed that it will not,
without the prior consent of Seagate Software, merge, consolidate or reorganize
with, or acquire any entity, except for transactions in which the aggregate
consideration is below $100 million.
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SEAGATE
SOFTWARE
VERITAS
Seagate Technology and Seagate Software covenants
Seagate Technology and Seagate Software have agreed to:
- ensure that all intellectual property rights and intangible assets
required for the production, development, marketing and support of the
products of the Network & Storage Management Group business have been
transferred to New VERITAS;
- settle intercompany accounts;
- informally encourage some of their key employees to enter into employment
agreements with New VERITAS;
- furnish, for two years after the closing, additional information relating
to the contributed assets or any contributed company, in order to
facilitate the preparation of documents to be filed with governmental
authorities or financial statements; and
- maintain directors' and officers' liability insurance covering acts on or
before the effective time of employees who become New VERITAS employees.
In addition, Seagate Software and the contributed companies and
subsidiaries have agreed that they will not, without the prior consent of
VERITAS, where it would cause a material adverse effect:
- grant any exclusive license to any of the intellectual property rights
relating to the Network & Storage Management Group business or grant any
other license to those rights except in the ordinary course of business;
- materially amend or terminate any of the material contracts of the
Network & Storage Management Group, except in the ordinary course of
business;
- cause any of the contributed companies to make any loans or grant any
guarantees, except loans in the ordinary course of business or advances
that are not material in amount; or
- cause any member of the contributed companies to merge, consolidate or
reorganize with or acquire any entity that is not a member of the
contributed companies subject to certain exceptions.
RESTRICTIONS ON SOLICITING ALTERNATIVE PROPOSALS
Obligations of Seagate Technology and related parties
Seagate Technology and Seagate Software have agreed that they will not
directly or indirectly:
- solicit, initiate or encourage the submission of any Seagate alternative
proposal described below;
- engage in discussions or negotiations regarding any Seagate alternative
proposal;
- 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 Seagate alternative
proposal;
- enter into any letter of intent, acquisition agreement or other similar
agreement with any person with respect to any Seagate alternative
proposal; or
- make or authorize any statement, recommendation or solicitation in
support of any Seagate alternative proposal.
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"Seagate alternative proposal" means any inquiry, proposal or offer
relating to any direct or indirect (a) acquisition, purchase, sale or other
disposition of any of the Network & Storage Management 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 voting securities of any contributed company, or (c) merger, consolidation,
sale of any of the assets, liquidation, or similar transaction involving any
contributed company.
Obligations of VERITAS
VERITAS has agreed that it will not directly or indirectly:
- solicit, initiate or encourage the submission of any VERITAS alternative
proposal;
- engage in discussions or negotiations regarding any VERITAS alternative
proposal;
- 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;
- enter into any letter of intent, acquisition agreement or other similar
agreement with any person with respect to any VERITAS alternative
proposal; or
- make or authorize any statement, recommendation or solicitation in
support of any VERITAS alternative proposal.
"VERITAS alternative proposal" means any inquiry, proposal or offer
relating to any direct or indirect (a) acquisition, sale or other disposition
purchase of more than 20% of the assets of VERITAS or more than a 35% interest
in the total outstanding voting securities of VERITAS, (b) tender offer or
exchange offer that would result in any person or group beneficially owning 35%
or more of the total outstanding voting securities of VERITAS, or (c) merger,
consolidation, sale of substantially all the assets, liquidation or similar
transaction.
VERITAS may, in response to an unsolicited VERITAS alternative proposal,
participate in discussions or negotiations with, furnish information to a third
party, make a recommendation in support of the proposal, or accept the proposal,
subject to the following:
- the third party has made a bona fide written proposal to the VERITAS
board which identifies a price or range of values to be paid for the
outstanding securities or assets of VERITAS;
- after consultation with investment bankers of nationally recognized
reputation, the VERITAS board determines that the transaction is
reasonably likely to be financially more favorable to the stockholders of
VERITAS than the NSMG combination;
- The VERITAS board determines, after consultation with investment bankers
of nationally recognized reputation, that the third party is financially
capable of consummating the VERITAS alternative proposal; and
- VERITAS has notified Seagate Technology and Seagate Software in writing
of the VERITAS alternative proposal, including its principal financial
and other material terms and conditions, including the identity of the
person making the proposal.
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SEAGATE
SOFTWARE
VERITAS
Notices
Each party must advise the other of any request for non-public information
which it reasonably believes would lead to any VERITAS alternative proposal in
the case of VERITAS, or a Seagate alternative proposal, in the case of Seagate
Technology or Seagate Software.
INDEMNIFICATION
General indemnification
Seagate Software and Seagate Technology have agreed to indemnify New
VERITAS and VERITAS against:
- all liabilities to minority stockholders or optionees of Seagate Software
arising out of the repurchase, sale or exchange of Seagate Software
capital stock or options in connection with the NSMG combination. These
liabilities exclude liabilities from the exchange of New VERITAS options
for Seagate Software options in the employee stock option exchange offer
or that arise from rights granted by Seagate Software or Seagate
Technology to any employees to require Seagate Software or Seagate
Technology to repurchase shares of Seagate Software capital stock upon
termination of their employment;
- any claim by any contributing company asserting that the transfer of the
capital stock of the contributed companies and the contributed stock and
assets to New VERITAS constitutes a fraudulent conveyance, fraudulent
transfer or a preference under any applicable state or federal law;
- any breach by any contributing company of its representations and
covenants relating to fraudulent conveyances or any liabilities related
to non-compliance with bulk transfer laws in connection with the NSMG
combination;
- all losses arising from Seagate Software's Information Management Group
business;
- any material liability
-- omitted from the financial statements of the Network & Storage
Management Group business that was required by generally accepted
accounting principles to be included or reflected in the financial
statements. We refer to these liabilities as omitted balance sheet
liabilities, or
-- any unforeseen tax liability that Seagate Technology or Seagate
Software is required to indemnify for as described below.
This indemnification is triggered only to the extent the aggregate of
those liabilities exceed $5.0 million; or
- any breach of the representation in the NSMG combination agreement
relating to title, condition and sufficiency of the Network & Storage
Management Group assets.
Time limits for bringing indemnification claims
Claims for indemnification may generally be brought at any time prior to
the expiration of the legal statute of limitations applicable to the subject
matter of the claim. Claims described in the previous two bulleted paragraphs
must be brought no later than 60 days after the first audit of New VERITAS
financial results after the closing of the NSMG combination, but in no event
later than one year from the closing.
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Tax indemnification
Except with respect to unforeseen tax liabilities for which New VERITAS is
responsible, Seagate Software and Seagate Technology shall also indemnify New
VERITAS with respect to certain tax matters, including for any tax:
- of Seagate Technology or Seagate Software or any member of the affiliated
group of corporations other than (1) any contributed company or (2) with
respect to any tax relating to the income, business, assets, property or
operations of the Network & Storage Management Group business; or
- relating to the income, business, assets, property or operations of the
Network & Storage Management Group business or of any contributed company
to the extent that the liability for tax is not disclosed to New VERITAS,
and is either (a) in respect of any taxable period that ends prior to
July 3, 1998 or in respect of any taxable period that includes, but does
not end on, July 3, 1998, the portion of that period ending on July 3,
1998 or (b) with respect to an excess loss account in the stock of any
contributed company or from a deferred intercompany transaction other
than among the contributed companies entered into prior to July 3, 1998
and is triggered as a result of any contributed company ceasing to be
affiliated with Seagate Technology or Seagate Software.
New VERITAS must indemnify Seagate Technology and its affiliates with
respect to certain tax matters including for:
- any tax relating to the income, business, assets, property or operations
of the Network & Storage Management Group business by New VERITAS and its
affiliates in respect of all taxable periods beginning after July 3,
1998, or, in the case of any taxable period that includes but does not
end on July 3, 1998, the portion of that period commencing on the day
following July 3, 1998;
- to the extent a liability for tax is reflected in the Network & Storage
Management Group financial statements or previously disclosed to New
VERITAS;
- unforseen tax liabilities and omitted balance sheet liabilities, but only
to the extent the aggregate amount does not exceed $5.0 million; and
- tax liabilities relating to prior indemnifications given by the
contributing companies in a previous acquisition up to a maximum amount
of $3.0 million.
TERMINATION OF THE NSMG COMBINATION AGREEMENT
The NSMG combination agreement will terminate if the closing has not
occurred by June 1, 1999, except that this date may be extended in certain
circumstances relating to antitrust clearance or injunctions issued by a federal
or state court.
The NSMG combination agreement may be terminated by:
- mutual written agreement of Seagate Software, Seagate Technology and
VERITAS;
- any party, if there has been a material breach by the other of any
representation, warranty, the covenant or agreement set forth in the NSMG
combination Agreement, and the breach is not corrected within 30 days
after notice;
- any party, if the NSMG combination is not completed on or before June 1,
1999 for any reason, other than any wrongful action or as a result of a
breach of the NSMG combination agreement or related agreement by the
terminating party;
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SEAGATE
SOFTWARE
VERITAS
- by any party, if a permanent injunction or other order by any federal or
state court restraining or prohibiting the NSMG combination shall have
become final and non-appealable;
- by any party, if the stockholders of VERITAS do not approve the NSMG
combination unless the failure to obtain approval was caused by any
breach by VERITAS of the NSMG combination agreement or any related
agreement in which case VERITAS cannot terminate it;
- by Seagate Technology or Seagate Software, if (a) the board of directors
of VERITAS withdraws or modifies in an adverse manner its approval or
recommendation of the NSMG combination, or (b) the board of directors of
VERITAS recommends or approves any VERITAS alternative proposal; or
- by any party at any time prior to the VERITAS stockholder approval, if
the VERITAS board recommends or accepts a VERITAS alternative proposal,
unless it violates the non-solicitation obligations described under
"-- Restrictions on soliciting alternative proposals" on page 85.
TERMINATION FEES
VERITAS shall pay Seagate Software and Seagate Technology a fee equal to
the actual reasonable legal, accounting and printing expenses incurred by them,
not to exceed $5.0 million, if the NSMG combination agreement is terminated
because the VERITAS stockholders do not approve the NSMG combination and prior
to the rejection:
- a VERITAS alternative proposal has not been publicly announced or
otherwise publicly disclosed and not withdrawn; and
- no change in the VERITAS board's recommendation has occurred.
VERITAS will pay Seagate Software $50.0 million if the NSMG combination
agreement is terminated because the VERITAS stockholders do not approve the NSMG
combination after a VERITAS alternative proposal has been publicly disclosed and
not withdrawn and prior to the rejection:
- there has been a change in the VERITAS board recommendation; or
- VERITAS accepts a VERITAS alternative proposal.
EXPENSES OF THE NSMG COMBINATION
Each party will bear its own fees and expenses incurred with respect to the
negotiation, preparation and performance of the NSMG combination agreement and
the related transactions. However, Seagate Software shall reimburse VERITAS upon
the closing of the NSMG combination for $300,000 of the cost incurred by VERITAS
to print and file the registration statement of which this document forms a
part. Upon closing of the NSMG combination, New VERITAS shall pay 20% of the
reasonable attorneys', accountants' and financial advisors' fees incurred by
Seagate Software and Seagate Technology in connection with the NSMG combination
agreement.
NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations, warranties and covenants of the parties contained in
the NSMG combination agreement will remain operative only until the effective
time or any earlier
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termination of the NSMG combination agreement, except for covenants and other
provisions that by their express terms survive for a longer period.
AMENDMENT AND WAIVER OF THE NSMG COMBINATION AGREEMENT
Any term or provision of the NSMG combination agreement may at any time be
amended or waived in a writing signed by all of the parties. After approval by a
party's stockholders, no amendment will be made which by law requires the
further approval of a party's stockholders without obtaining the further
approval.
AGREEMENTS RELATED TO THE NSMG COMBINATION
VOTING AGREEMENTS
Voting agreements with Seagate Software
The following have entered into voting agreements with Seagate Software:
- Warburg, Pincus Investors, L.P.;
- Mark Leslie;
- William Janeway;
- Peter Levine;
- Roel Pieper;
- Joseph Rizzi;
- Geoff Squire;
- Fred van den Bosch;
- Steven Brooks;
- Jay Jones;
- Ken Lonchar; and
- Paul Sallaberry.
Collectively, these stockholders hold 18.9% of the outstanding shares of
VERITAS common stock.
Voting agreement terms
Under the voting agreements, each of these stockholders has agreed that
they will vote their shares in favor of the adoption of the NSMG combination
agreement and approval of the NSMG combination. They have also agreed to vote
against any actions or agreements that would result in a breach of any
representation, warranty, covenant or obligation under the NSMG combination
agreement, and against any actions or certain transactions which are intended
to, or could reasonably be expected to, impede, interfere with, delay, postpone,
discourage or harm the NSMG combination.
These stockholders have also delivered irrevocable proxies with respect to
matters covered by the voting agreements. In addition, subject to exceptions,
these stockholders have agreed not to sell, transfer, dispose of or encumber any
shares held by them until the effective time or the valid termination of the
NSMG combination agreement.
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SEAGATE
SOFTWARE
VERITAS
These stockholders have also agreed that they shall not, directly or
indirectly:
- solicit or initiate discussions or engage in negotiations with any person
or take any action intended, designed or reasonably likely to facilitate
the efforts of any person relating to an acquisition proposal;
- furnish any nonpublic information regarding their respective companies to
any person in connection with or in response to an acquisition proposal
or potential acquisition proposal;
- approve, endorse or recommend any acquisition proposal; or
- enter into any letter of intent or other similar document or any contract
contemplating or otherwise relating to any acquisition proposal.
Voting covenants of Seagate Technology and Seagate Software
Seagate Technology has agreed to vote in favor of the NSMG combination at
the Seagate Software meeting. Seagate Technology beneficially owns 98.2% of the
outstanding voting securities of Seagate Software.
STOCKHOLDER AGREEMENT
Nomination rights
VERITAS, New VERITAS, Seagate Software and Seagate Technology, including
Seagate Technology's other controlled subsidiaries, will enter into a
stockholder agreement which will provide that so long as Seagate Software and
Seagate Technology continue to own at least 5.0% and not more than 15.0% of the
outstanding shares of New VERITAS common stock, Seagate Software and Seagate
Technology shall be entitled to name one nominee to the New VERITAS board. So
long as Seagate Software and Seagate Technology continue to own at least 15.0%
of the outstanding shares of New VERITAS common stock, Seagate Software and
Seagate Technology shall be entitled to name two nominees to the New VERITAS
board. Each nominee must be reasonably acceptable to New VERITAS. New VERITAS is
also obligated to use its best efforts to cause to be voted the shares held by
New VERITAS' management or board of directors in favor of those nominees. New
VERITAS must also use its best efforts to cause the New VERITAS board of
directors to unanimously recommend to its stockholders to vote in favor of the
nominees.
Limits on resales
So long as Seagate Technology and Seagate Software collectively own at
least 5.0% of New VERITAS' outstanding common stock, Seagate Software and
Seagate Technology may only sell shares of New VERITAS common stock as follows:
- no shares in the quarter ending in June, 1999;
- 2,000,000 shares in the quarter ending in September, 1999;
- 2,000,000 shares in the quarter ending in December, 1999;
- 2,000,000 shares in the quarter ending in March, 2000; and
- 3,000,000 shares in the quarter ending in June, 2000.
They will also have the right to sell up to 6,000,000 shares in an underwritten
public offering once in the first year after completion of the NSMG combination,
but if they
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exercise this right, they will be prohibited from selling other shares in the
quarter that the offering is completed. They may not transfer, assign, pledge or
otherwise dispose of any New VERITAS securities for one year after the closing
of the NSMG combination.
After that date, they may not sell their New VERITAS stock except:
- to New VERITAS or to a person or persons that New VERITAS has previously
approved in writing;
- in a bona fide underwritten public offering;
- under Rule 144 under the Securities Act;
- in other private transactions so long as such private transactions do not
result in any single person or group owning 5% or more of the total
outstanding voting stock of New VERITAS;
- in response to a tender offer not opposed by the New VERITAS board;
- in a merger or consolidation approved by the New VERITAS board in which
New VERITAS is acquired; or
- in a plan of liquidation that is authorized by the New VERITAS board.
Voting provisions
So long as Seagate Technology and Seagate Software own at least 5.0% of the
outstanding common stock of New VERITAS, they shall vote all shares of New
VERITAS common stock owned by them in the same proportion as the votes cast by
all other holders of New VERITAS' common stock. Seagate Software and Seagate
Technology may, however, vote their shares in their sole discretion in the
following specific matters:
- a proposal involving a change in the right to vote and participate pro
rata with other common stockholders in any distribution to the holders of
New VERITAS common stock; and
- a recapitalization in which New VERITAS common stock is converted or
exchanged for a security having substantially different rights to vote
and participate pro rata in any distribution to the holders of New
VERITAS than New VERITAS common stock.
These voting provisions do no apply to any proposals for any
recapitalization or reorganization accomplished in connection with any merger,
acquisition, consolidation or reorganization, any transaction of a type
contemplated by Section 351 of the Internal Revenue Code or any other similar
transaction where (a) New VERITAS is acquired by a third party, (b) there has
been a "change of control" so that the stockholders of New VERITAS prior to a
transaction own, in the aggregate, less than a majority of the outstanding stock
of New VERITAS or the acquiring entity after the transaction, (c) New VERITAS
acquires another entity, or (d) New VERITAS acquires all or substantially all of
the assets of another entity.
They also may not exercise dissenter's or appraisal rights for any event
described in clauses (a) through (d) of the preceding paragraph that has been
approved by the New VERITAS board of directors.
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<PAGE> 104
SEAGATE
SOFTWARE
VERITAS
Standstill provisions
Until the fifth anniversary of the NSMG combination, Seagate Technology or
Seagate Software will not, without New VERITAS' prior written consent:
- acquire, or enter into discussions, negotiations, arrangements or
understandings with any third party to acquire beneficial ownership of
any New VERITAS voting securities if Seagate Technology or Seagate
Software would then beneficially own and/or have the right to acquire
more than the percentage of New VERITAS common stock held by it
immediately after the closing of the NSMG combination, which we refer to
as the standstill percentage;
- make, or in any way participate in, any solicitation of proxies with
respect to the voting of any voting securities of New VERITAS; or
- seek, either alone or in concert with others, to control the New VERITAS
board or the policies of New VERITAS.
The limitations described above shall be suspended upon the earlier to
occur of:
- the date that a third party not affiliated with Seagate Technology or
Seagate Software commences a tender or exchange offer, that is not
withdrawn or terminated, and that would result in a person or group
beneficially owning in the aggregate more than 50.0% of the total voting
power of New VERITAS. If any tender or exchange offer is withdrawn or
terminated, the standstill limitation will be reinstated;
- the public announcement by New VERITAS that it has entered into any
agreement with respect to a merger, consolidation, reorganization or
similar transaction involving New VERITAS in which all the stockholders
of New VERITAS collectively will own less than 50.0% of the outstanding
voting stock of the surviving or acquiring entity immediately after the
transaction. The standstill limitation will be reinstated if the
transaction is terminated prior to being completed; or
- the sale or disposition of substantially all of New VERITAS' assets.
If Seagate Software or Seagate Technology acquires shares that cause it to
own a percentage of New VERITAS's outstanding stock that is greater than the
standstill percentage, it will not be obliged to dispose of any New VERITAS
voting stock to the extent the increased shares were acquired:
- as a result of a recapitalization of New VERITAS or a repurchase or
exchange of securities by New VERITAS or any other action taken by New
VERITAS or its affiliates;
- as the result of any acquisition of New VERITAS voting stock made during
the period when the "standstill" obligations are suspended as described
above;
- by way of stock dividend or other distribution or rights or offerings
made available to holders of shares of New VERITAS voting stock
generally;
- with the consent of a majority of the members of New VERITAS' board of
directors that have not been designated by Seagate Technology or Seagate
Software; or
- as part of a transaction on behalf of certain retirement plans for the
benefit of Seagate Technology or Seagate Software employees.
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<PAGE> 105
Right of first refusal
Seagate Software will have the right to maintain its percentage ownership
in the event that New VERITAS sells securities to a third party as part of a
strategic business relationship with that party.
REGISTRATION RIGHTS AGREEMENT
Demand registration rights
Seagate Software will have "demand" rights to cause New VERITAS to register
for public resale the shares of New VERITAS common stock received by it in the
NSMG combination. Seagate Software may make a demand once in any nine month
period and that demand must relate to a sale of shares having an aggregate sales
price of at least $2.5 million.
Piggyback registration rights
In addition, Seagate Software will have certain "piggyback" registration
rights if New VERITAS determines to register any of its securities for its own
account under the Securities Act. These "piggyback" rights do not apply to
registrations in connection with:
- the issuance of debt securities by New VERITAS;
- New VERITAS' employee benefit plans;
- registrations relating to any acquisitions by New VERITAS;
- transactions covered by Rule 145 under the Securities Act; or
- registrations on any form which does not include substantially the same
information as would be required to be included in a registration
statement covering the sale of Seagate Software's New VERITAS securities.
Seagate Software may require New VERITAS to include all or a portion of its
shares in the registration. However, the managing underwriter, if any, may limit
the number of shares to be included by Seagate Software in the registration to
an extent.
When the registration rights expire
The registration rights of Seagate Software will expire at the time that
all shares of New VERITAS received by Seagate Software in the NSMG combination
may be resold in a three month period under Rule 144.
Cost of registration
Seagate Software will bear all expenses incurred in connection with these
registrations.
CROSS-LICENSE AND ORIGINAL EQUIPMENT MANUFACTURER AGREEMENT
Licenses granted
VERITAS, New VERITAS and Seagate Software Information Management Group,
Inc., or Information Management Group, have entered into a three-year
cross-license and original equipment manufacture agreement, or the cross-license
agreement, that will be
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<PAGE> 106
SEAGATE
SOFTWARE
VERITAS
effective at the closing of the NSMG combination. This agreement, as amended,
provides for the licensing of:
- certain Network & Storage Management Group products and VERITAS products
to the Information Management Group; and
- certain Information Management Group products to VERITAS.
New VERITAS will not share in any other revenues generated by the
Information Management Group upon the Information Management Group's sale of the
licensed products.
Under the cross-license agreement, VERITAS will grant to the Information
Management Group a non-exclusive, royalty-free license to reproduce and
distribute certain Network & Storage Management Group products in object code
form, as follows:
the Information Management Group may reproduce and distribute:
- Ashwin, solely in connection with Information Management Group products;
- a limited version of Manage Exec, solely as bundled with or to the
installed base of users of Crystal Info; and
- a limited version of Client Exec, solely as incorporated into Crystal
Info.
VERITAS will also grant to the Information Management Group non-exclusive,
royalty-free rights in the source code of Network & Storage Management Group
products as follows:
the Information Management Group may:
- modify Ashwin;
- modify Manage Exec solely to make enhancements, provide support or
correct errors;
- modify Client Exec solely to make enhancements, provide support or
correct errors; and
- distribute the modified versions in connection with the object code
license above.
Under the cross-license agreement, the Information Management Group will
grant to VERITAS a non-exclusive, royalty-free license to reproduce and
distribute a restricted version of Crystal Reports, solely in connection with
products transferred to VERITAS in connection with the NSMG combination. IMG
will also grant to VERITAS a non-exclusive, non-transferable, perpetual, royalty
free license to reproduce and use Crystal Reports and Crystal Info for VERITAS'
internal use.
Finally, VERITAS will also grant to the Information Management Group
certain rights regarding all current and future VERITAS products during the term
of the cross-license agreement, including those acquired by VERITAS from the
Network & Storage Management Group. These products are divided into three
categories: base software products, original equipment manufacturer software
products and application software products. The base software products include
Volume Manager Lite and File System Lite. The original equipment manufacturer
software products include Volume Manager Full, File System Full, Clustered
Volume Manager and Clustered File System. The application software products
include NetBackup, HSM, Clustered Server, Storage Replicator, Storage Manager,
Storage Optimizer and Editions. The Information Management Group will pay
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<PAGE> 107
VERITAS royalties for these products at rates equal to the rates VERITAS charges
similarly situated customers for similar volumes.
VERITAS will grant to the Information Management Group rights to modify the
base software products, the original equipment manufacturer software products
and the application software products, only to achieve and ensure compatibility
of those products with the Information Management Group products, and for
maintenance and support purposes. The Information Management Group may reproduce
and distribute the base software products in object code form, solely in
connection with bona fide the Information Management Group products that add
value to the base software products. The Information Management Group may
reproduce and distribute the original equipment manufacturer software products
in object code form. The Information Management Group may reproduce and
distribute the application software products in object code form. The
Information Management Group will market and distribute the application software
products under VERITAS trademarks. The Information Management Group may market
the base software products and original equipment manufacturer software products
under the Information Management Group trademarks, VERITAS trademarks, or
third-party trademarks. The Information Management Group will pay VERITAS
certain royalties for these products as set forth in the cross-license
agreement.
Technical support
The Information Management Group and VERITAS have also agreed to provide to
the other end-user technical and help-desk support for certain products.
Development work to be performed by New VERITAS
If the Information Management Group wishes to develop new products or
technologies, or additional features to existing VERITAS products, or to ensure
integration between the Information Management Group products and VERITAS
products, the Information Management Group may request that VERITAS perform this
development. If VERITAS agrees to do so, then the parties will agree upon a
statement of work, and proceed with the development according to that statement
of work. The Information Management Group will pay VERITAS development fees with
respect to the development services described above at an initial annual rate of
$180,000 per person year, which under certain conditions may be refundable to
the Information Management Group. Therefore, New VERITAS will initially account
for development fees received under this agreement as a liability. The
Information Management Group may recover these fees by deducting 15% of
royalties otherwise payable to VERITAS from the Information Management Group's
sale of products resulting from the development.
Ownership of licensed products
VERITAS will retain its ownership of the licensed products and related
documentation supplied by VERITAS to the Information Management Group, except
for new developments, which will jointly and equally be owned by VERITAS and the
Information Management Group. Further, VERITAS and the Information Management
Group will jointly and equally own all modifications to licensed software
prepared by or for the Information Management Group.
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<PAGE> 108
SEAGATE
SOFTWARE
VERITAS
Discontinuing of licensed products by VERITAS
VERITAS will have the right to discontinue any licensed product or related
documentation upon 30 days prior written notice to the Information Management
Group. However, this does not prohibit the Information Management Group from
exercising its reproduction and distribution licenses, so long as it does not
distribute the discontinued products under VERITAS trademarks.
Indemnification
VERITAS will indemnify and defend the Information Management Group and
certain related parties against any claim that any licensed base software
product, original equipment manufacturer software product or application
software product infringes any patent, copyright, trade secret, or other
intellectual property right.
No assignment by the Information Management Group
The Information Management Group has agreed that it will not assign its
rights under the cross-license agreement to any of VERITAS' direct competitors
as identified in an exhibit to the cross-license agreement and as updated by
VERITAS annually. The Information Management Group has also agreed that as long
as it is an affiliate of Seagate Technology it will be subject to the
noncompetition restrictions set forth in the development agreement to which
Seagate Technology is subject.
DEVELOPMENT AND LICENSE AGREEMENT
License granted
VERITAS, New VERITAS and Seagate Technology have entered into a 10-year
development and license agreement, effective at the effective time of the NSMG
combination, which provides for the licensing to Seagate Technology of all
current and future products of VERITAS including, without limitation, those
acquired from the Network & Storage Management Group. Specifically, VERITAS will
grant Seagate Technology a non-exclusive, except with respect to some other
companies, license to:
- modify the base software products and the original equipment manufacturer
software products, without restriction;
- modify the application software products only for maintenance and support
purposes;
- modify the application software products only for maintenance and support
purposes;
- distribute the base software products in object code form, solely as
bundled with Seagate Technology products that add value to the base
software products;
- reproduce and distribute the original equipment manufacturer software
products in object code form; and
- reproduce and distribute the application software products in object code
form.
Under this agreement VERITAS agreed to license specified categories of its
products to Seagate Technology at the lowest price it provides those products to
third parties other than strategic partners, or to license other products to
Seagate at mutually agreeable prices, but no greater than the lowest prices
charged similarly situated third parties for similar volumes.
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<PAGE> 109
Development work to be performed
If Seagate Technology wishes to develop new products or technologies, or
additional features to existing VERITAS products, or to ensure integration
between Seagate Technology products and VERITAS products, it may request that
VERITAS perform development work. If VERITAS agrees to do so, then the parties
will agree upon a statement of work, and proceed with the development according
to that statement of work. Seagate Technology will pay VERITAS development fees
with respect to the development services described above at an initial annual
rate of $180,000 per person year which under certain conditions may be
refundable to Seagate Technology. Therefore, New VERITAS will initially account
for development fees received under this agreement as a liability. Seagate
Technology may recover these fees by deducting 15% of royalties otherwise
payable to VERITAS from Seagate Technology's sale of products resulting from the
applicable development.
Ownership of licensed products
VERITAS will retain its ownership of the licensed products and related
documentation supplied by VERITAS to Seagate, except for new developments, which
will jointly and equally be owned by VERITAS and Seagate Technology. Further,
Seagate Technology will own all modifications to licensed software prepared by
or for Seagate Technology. Seagate Technology will pay VERITAS royalties for the
distribution of software products.
Product compatibility
VERITAS and Seagate Technology will cooperate following the closing of the
NSMG combination to help ensure compatibility of their products, and to help
ensure new VERITAS products and technologies are available, in a timely fashion,
for use on Seagate Technology products.
Marketing or cooperation
VERITAS agreed not to perform product development work for any listed disk
drive company or enter with an agreement with a disk drive company authorizing
it to distribute listed VERITAS products for six to 12 months after their
release. These provisions will remain in effect for at least four years and will
be renewed for one year periods automatically if royalties paid by Seagate
Technology exceed a specified threshold.
Limitations on re-entering the Network & Storage Management Group business
Seagate Technology agreed not to compete with VERITAS, directly or
indirectly, in VERITAS' lines of business after the closing of the NSMG
combination, including those lines of business in which the Network & Storage
Management Group is engaged. The limitations apply only to activities where:
- Seagate Technology sells a software product without any accompanying
hardware or storage components; or
- Seagate Technology conducts such activities as a partner, owner,
consultant or investor of more than 5% of the equity of the entity that
is competing.
These limitations on Seagate Technology will terminate upon the earlier of
(1) the expiration of the development agreement or (2) if Seagate Technology
provides VERITAS
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<PAGE> 110
SEAGATE
SOFTWARE
VERITAS
six months after giving notice of its intention to compete and each of the
following conditions are satisfied:
- Seagate Software's designees resign from New VERITAS' board of directors;
- Seagate Technology remains bound by the restrictions for six months after
giving notice; and
- Seagate Technology and its affiliates hold less than 10% of the New
VERITAS' voting power.
Discontinuing licensed products by VERITAS
VERITAS will have the right to discontinue any licensed product or related
documentation upon 30 days prior written notice to Seagate Technology. However,
this does not prohibit Seagate Technology from exercising its reproduction and
distribution license, so long as it does not distribute the discontinued
products under VERITAS trademarks.
Indemnification
VERITAS will indemnify and defend Seagate Technology and certain related
parties against any claim that any licensed software product infringes any
patent, copyright, trade secret, or other intellectual property right.
EMPLOYMENT AGREEMENTS
The executive officers of VERITAS and Seagate Software and the employees of
the Network & Storage Management Group who will become executive officers or are
otherwise considered key employees of New VERITAS will enter into executive
employment agreements with New VERITAS. These agreements will provide for
employment of one or two years and severance benefits, among other things. To
identify those persons who are expected to become executive officers of New
VERITAS and enter into executive employment agreements, please refer to
"Management of New VERITAS" on page 230.
TRANSITION SERVICES AGREEMENT
VERITAS, New VERITAS, Seagate Technology and Seagate Software will enter
into a two year transition services and facilities use agreement at the closing
of the NSMG combination. This agreement will set forth the terms by which New
VERITAS and VERITAS will continue to use certain facilities and services of
Seagate Technology and Seagate Software after the NSMG combination, including:
- management information services;
- telephone;
- telecommunications;
- engineering support;
- administrative support; and
- facilities.
The agreement itself will not obligate or authorize the performance of any
services. Only separately negotiated and executed statements of work will create
legal obligations for services. Each statement of work will relate to specific
services and will set forth the duration of and payment for the services.
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<PAGE> 111
THE EMPLOYEE STOCK OPTION EXCHANGE OFFER
TERMS OF THE EMPLOYEE STOCK OPTION EXCHANGE OFFER
Options to purchase Seagate Software common stock were granted by Seagate
Software to employees of the Network & Storage Management Group business under a
stock option agreement between the employee and Seagate Software. Upon the terms
and subject to the conditions set forth in this section and in the accompanying
notice of election, New VERITAS may accept for exchange all Seagate Software
options issued to these employees that are properly tendered and not withdrawn
on or prior to the expiration date. The expiration date means 5:00 p.m., Pacific
time, on June 7, 1999 which is five business days after the proposed closing
date of the NSMG combination unless you are an employee in the United Kingdom,
in which case the expiration date may be later. If New VERITAS, in its sole
discretion, has extended the period of time for which the exchange offer is
open, the expiration date is the latest time and date to which the exchange
offer is extended.
As of March 31, 1999, options to purchase 5,208,466 shares of Seagate
Software common stock granted to employees of Seagate Software and the
contributed companies who worked in the Network & Storage Management Group were
outstanding. New VERITAS' obligation to accept Seagate Software options for
exchange in the exchange offer is subject to certain conditions set forth below
and under "-- Acceptance of Seagate Software options for exchange and delivery
of New VERITAS options" on page 103.
New VERITAS expressly reserves the right, at any time or from time to time,
to extend the period of time during which this exchange offer is open either to
all offerees as a group or only as to employees in the United Kingdom, and delay
acceptance for exchange of any Seagate Software options, by mailing written
notice of the extension to the relevant holders as described below. During any
extension, all Seagate Software options previously tendered will remain subject
to the exchange offer.
If you elect to exchange Seagate Software options, the election will be
deemed to be an election to exchange all of your Seagate Software options.
New VERITAS will mail written notice of any extension of the expiration
date, amendment or written notice of non-acceptance of the exchange, or
termination of the exchange offer to the relevant holders of the Seagate
Software options as promptly as practicable. The notice will be mailed to the
relevant holders of record of the Seagate Software options promptly after the
decision to extend.
PROCEDURE FOR EXCHANGING SEAGATE SOFTWARE OPTIONS
If you tender to New VERITAS your Seagate Software options and New VERITAS
accepts them, assuming the other conditions of the employee stock option
exchange offer described in this section are met, you will have entered into a
binding agreement with New VERITAS upon the terms and subject to the conditions
set forth in this section and in the accompanying notice of election in Appendix
F. You must send a properly completed and duly executed notice of election to
Seagate Software at the address under "-- Seagate Software is acting as exchange
agent" on page 105 on or prior to the expiration date to participate in this
exchange offer.
THE METHOD OF DELIVERY OF NOTICES OF ELECTION AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF THE DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT
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<PAGE> 112
SEAGATE
SOFTWARE
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED IN ALL
CASES. SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
NO NOTICES OF ELECTION SHOULD BE SENT TO SEAGATE SOFTWARE.
All questions as to the validity, form, eligibility, including time of
receipt and acceptance of the notice of election will be determined by New
VERITAS and Seagate Software in their sole discretion. This determination will
be final and binding. New VERITAS reserves the absolute right to reject any
notice of election not properly delivered. New VERITAS also reserves the
absolute right in its sole discretion to waive any defects or irregularities or
conditions of the employee stock option exchange offer either before or after
the expiration date, including the right to waive the ineligibility of any
holder who seeks to tender Seagate Software option agreements in this exchange
offer. The interpretation of the terms and conditions of the exchange offer as
to any particular Seagate Software option either before or after the expiration
date, including the notice of election and the related instructions, by New
VERITAS shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Seagate Software options for
exchange must be cured within a reasonable period of time that New VERITAS shall
determine. Neither New VERITAS, Seagate Software nor any other person shall be
under any duty to give notification of any defect or irregularity with respect
to any tender of Seagate Software option for exchange, or shall any of them
incur any liability for failure to give any notification.
CONSEQUENCES OF FAILURE TO EXCHANGE SEAGATE SOFTWARE OPTIONS
If you are a Network & Storage Management Group employee and you accept an
offer of employment made by New VERITAS, you will automatically become an
employee of New VERITAS on the closing date and are entitled to participate in
the employee stock option exchange offer subject to the terms and conditions set
forth in this section and the notice of election. If you are a Network & Storage
Management Group employee and your notice of election is not post-marked by the
expiration date of your exchange offer or if you do not submit a notice of
election, your Seagate Software options will terminate according to the terms of
the Seagate Software 1996 stock plan. This means that:
- the unvested portion of your Seagate Software options will terminate as
of the closing date of the NSMG combination;
- you will have 30 days from the completion of the NSMG combination to
exercise the vested portion of your Seagate Software options; and
- any vested options that you do not exercise will be cancelled on the 31st
day after the closing of the NSMG combination.
These consequences will occur because you will no longer be an employee of
Seagate Software and will not be eligible to participate in its plans.
WHAT SEAGATE SOFTWARE OPTION HOLDERS WILL RECEIVE IN THIS EXCHANGE OFFER
For each Seagate Software option accepted for exchange, the Seagate
Software option will be canceled and you will receive a New VERITAS stock option
covering a number of shares of New VERITAS common stock equal to the NSMG
exchange ratio, as defined below, times the number of shares of Seagate Software
subject to the options rounded down to the nearest whole number of shares. The
exercise price per share will equal the
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exercise price per share of the Seagate Software option divided by the NSMG
exchange ratio, rounded up to the nearest cent.
The NSMG exchange ratio equals the quotient obtained by dividing (A) the
Seagate Software Per Share Value by (B) the VERITAS Closing Price.
The Seagate Software Per Share Value is calculated by:
- first, multiplying (x) the number of shares of New VERITAS common stock
which are to be issued to Seagate Software and to option holders who
exchange their Seagate Software options for New VERITAS options by (y)
the VERITAS Closing Price;
- second, adding that product to the value of the business of Seagate
Software which does not constitute the Network & Storage Management Group
business of Seagate Software. This value is based upon a preliminary
valuation which will be determined by the Seagate Software board of
directors upon advice of Morgan Stanley;
- third, adding the proceeds to be received by Seagate Software upon the
assumed exercise of all outstanding stock options; and
- fourth, dividing that sum by the total number of outstanding shares of
common stock of Seagate Software, including shares subject to all
outstanding stock options, warrants and other convertible securities
immediately prior to the effective time of the NSMG combination.
The VERITAS Closing Price is the average closing price of one share of New
VERITAS common stock on the Nasdaq National Market over the five trading-day
period ending six business days prior to the effective time of the NSMG
combination.
FOR ILLUSTRATIVE PURPOSES ONLY
Following is a table which illustrates how the exchange ratio would be
calculated for a Seagate Software option with an exercise price of $5.00 per
share if, at the effective time of the NSMG combination, the VERITAS Closing
Price is $75.00:
<TABLE>
<S> <C> <C>
Multiply the aggregate number of shares of New VERITAS to be
issued to Seagate Software and its employees who exchange
their Seagate Software options for New VERITAS options.... 38,000,000 shares
times the VERITAS Closing Price............................. X $75.00 per share
= $2,850,000,000
add Seagate Software's preliminary estimate of the value of
the Information Management Group business................. + $325,000,000
add the proceeds from the assumed exercise of all
outstanding options....................................... + $103,000,000
= $3,278,000,000
divide that sum by total Seagate Software fully diluted
shares outstanding........................................ / 67,000,000 shares
Seagate Software Per Share Value............................ = $48.92537
=======================
divide the Seagate Software Per Share Value by the VERITAS
Closing Price............................................. $48.92537 / $75.00
exchange ratio.............................................. = 0.65234
An option to purchase 1,000 shares of Seagate Software
common stock at an exercise price of $5.00 per share would
be exchanged for a New VERITAS option to purchase......... 652 shares
at an exercise price per share of........................... $7.67
=======================
</TABLE>
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SEAGATE
SOFTWARE
Because the trading price of VERITAS common stock and the number of
outstanding fully-diluted shares of common stock of Seagate Software can change
prior to the expiration date or the effective time of the NSMG combination, we
strongly encourage you to obtain a current exchange ratio. You can obtain the
current NSMG exchange ratio by calling 877-707-5656 worldwide. If you are
outside North America, you must dial the AT&T Direct Access Code for the country
from which you are placing your call before dialing 877-707-5656. You may obtain
your AT&T Direct Access Code from your local operator. The exchange ratio could
also change if VERITAS issues additional securities in excess of the currently
outstanding fully diluted outstanding stock. Except for the acquisition of
TeleBackup, VERITAS has no current plans to issue additional shares.
The following table illustrates how the exchange ratio would be affected by
the trading price of the VERITAS common stock and the number of outstanding
shares of Seagate Software common stock, including stock options and other
convertible securities.
FOR ILLUSTRATIVE PURPOSES ONLY
VERITAS STOCK PRICE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$55.00 $60.00 $65.00 $70.00 $75.00 $80.00 $85.00 $90.00 $95.00
--------- --------- --------- --------- --------- --------- --------- --------- ---------
66.6
TOTAL million 0.68741 0.67768 0.66944 0.66238 0.65626 0.65090 0.64618 0.64198 0.63822
------------------------------------------------------------------------------------------------------------
66.7
FULLY- million 0.68638 0.67666 0.66844 0.66138 0.65527 0.64993 0.64521 0.64101 0.63726
------------------------------------------------------------------------------------------------------------
66.8
DILUTED million 0.68536 0.67565 0.66743 0.66039 0.65429 0.64895 0.64424 0.64005 0.63631
------------------------------------------------------------------------------------------------------------
66.9
SEAGATE million 0.68433 0.67464 0.66644 0.65941 0.65331 0.64798 0.64328 0.63910 0.63536
------------------------------------------------------------------------------------------------------------
67.0
SOFTWARE million 0.68331 0.67363 0.66544 0.65842 0.65234 0.64701 0.64232 0.63814 0.63441
------------------------------------------------------------------------------------------------------------
67.1
SHARES million 0.68229 0.67263 0.66445 0.65744 0.65137 0.64605 0.64136 0.63719 0.63346
------------------------------------------------------------------------------------------------------------
67.2
OUTSTANDING million 0.68128 0.67163 0.66346 0.65646 0.65040 0.64509 0.64041 0.63624 0.63252
------------------------------------------------------------------------------------------------------------
</TABLE>
RESALES OF OPTION SHARES
The exchanged options as well as the shares of New VERITAS common stock
issuable upon exercise of the exchanged options will continue to be subject to
restrictions on transfers. In general, the options are not transferable and the
shares of New VERITAS common stock issuable upon their exercise may not be
offered or sold unless registered under the Securities Act. New VERITAS
anticipates that it will register under the Securities Act the New VERITAS
common stock issuable under the exchanged options shortly after the employee
stock option exchange offer is completed.
NO GUARANTEE OF EMPLOYMENT
A condition to you receiving a New VERITAS option in this exchange offer is
that you become employed by New VERITAS or its subsidiaries. The tender of a
Seagate Software option is not a guarantee that you will be employed or will
continue to be employed by New VERITAS or any of its subsidiaries. Any
employment relationship that is created in the future will be governed by the
terms of an employment "offer letter" and will only be on an "at will" basis.
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ACCEPTANCE OF SEAGATE SOFTWARE OPTIONS FOR EXCHANGE AND DELIVERY OF NEW VERITAS
OPTIONS
New VERITAS will accept, promptly after the expiration date, all Seagate
Software options properly tendered under the notice of election and will
exchange with Seagate Software options for New VERITAS options promptly after:
- you deliver a properly completed and duly executed notice of election;
- the closing of the NSMG combination; and
- the commencement of your employment with New VERITAS or one of its
subsidiaries.
If any tendered Seagate Software options are not accepted, agreements
representing the unaccepted or non-exchanged Seagate Software options will be
returned without expense as promptly as practicable after the expiration or
termination of the exchange offer.
OPTION TERMS
The term, exercisability, status as an incentive stock option if
applicable, and all other terms of the New VERITAS option shall be the same as
that of the exchanged Seagate Software option. The vesting schedule will be
changed to provide for monthly vesting over a 48-month period retroactive to the
date of the Seagate Software option grant. In addition, you will be credited for
continuous service as an employee or consultant with Seagate Software or Seagate
Technology or any of their direct or indirect subsidiaries for purposes of
determining the number of shares of New VERITAS common stock vested under the
New VERITAS option.
CANCELLATION OF SEAGATE SOFTWARE OPTIONS
Upon the acceptance by New VERITAS of your Seagate Software options, the
Seagate Software options will be cancelled and may no longer be exercised.
WITHDRAWAL RIGHTS
Tenders of Seagate Software options may be withdrawn at any time prior to
5:00 p.m., June 7, 1999, Pacific time, which is five business days after to the
proposed closing date of the NSMG combination.
For a withdrawal to be effective, we must receive a written or facsimile
notice of withdrawal at the address set forth below under "-- Seagate Software
is acting as exchange agent." Any notice of withdrawal must contain your name
and identify the Seagate Software options to be withdrawn. It must also include
the number of shares of Seagate Software common stock subject to such Seagate
Software options. Properly withdrawn Seagate Software options may be retendered
by following the procedures described under "-- Procedure for exchanging Seagate
Software options" on page 100 at any time on or prior to the expiration date.
RETURN OF OPTIONS
Any Seagate Software options that have been tendered for exchange but which
are not exchanged for any reason will be returned to you without cost as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer.
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<PAGE> 116
SEAGATE
SOFTWARE
SEAGATE SOFTWARE IS ACTING AS EXCHANGE AGENT
Seagate Software is acting as the exchange agent for the exchange offer.
All executed notices of election should be sent via mail, post-marked prior to
the expiration date to Seagate Software at the address set forth below or sent
via facsimile to the number set forth below. We recommend that you use
registered mail, return receipt requested. Questions and requests for
assistance, requests for additional copies of this document or of the notice of
election should be directed to Seagate Software, addressed as follows:
By mail or by hand:
Seagate Software, Inc.
915 Disc Drive
Scotts Valley, CA 95066
Attn: Roberta Cohen
Via facsimile:
Facsimile: (831) 439-9438
Telephone: (831) 439-2860
DELIVERY OF THE NOTICE OF ELECTION TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID
DELIVERY OF THE NOTICE OF ELECTION.
FEES AND EXPENSES
New VERITAS 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 the exchange.
DISSENTERS' RIGHTS
You will not have dissenters' rights or appraisal rights in connection with
the employee stock option exchange offer.
TAX CONSEQUENCES TO HOLDERS OF SEAGATE SOFTWARE OPTIONS
Holders of Seagate Software options who receive New VERITAS options solely
in replacement of Seagate Software options in the employee stock option exchange
offer will not recognize gain or loss as a result of the exchange. New VERITAS
options will continue to be subject to the same tax treatment as the Seagate
Software options that were exchanged, whether incentive stock options or
non-qualified stock options.
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<PAGE> 117
THE TELEBACKUP COMBINATION
BACKGROUND OF THE TELEBACKUP COMBINATION
During the last quarter of 1997 and the first quarter of 1998, VERITAS
management and members of the VERITAS board of directors continued the long
standing practice of reviewing technologies of strategic importance to its
end-to-end storage management solutions for possible acquisition or partnership.
Protecting data for remote and mobile users was identified as an area of
strategic importance upon which VERITAS should focus. During the three month
period commencing February 1998, VERITAS conducted a comprehensive survey and
review of the leading providers of remote or mobile user data protection
solutions. TeleBackup and two other companies were identified as the leading
providers of such technology at that time.
On December 12, 1997, Dr. Byron Osing, the Chief Executive Officer of
TeleBackup and Bruce Meyer, the Executive Vice President, Sales and Marketing of
TeleBackup, met with Peter Levine, Senior Vice President, OEM Sales, of VERITAS,
at VERITAS' principal executive offices in Mountain View, California to discuss
a possible original equipment manufacturer relationship as well as the market
potential of their joint technologies and the fit of TeleBackup technology with
the VERITAS product line and distribution network.
On February 13, 1998, Michael Miracle, the Senior Director of Business
Development of VERITAS, telephoned Dr. Osing to follow up on the matters
discussed at the December 1997 meeting. The parties agreed to pursue more
in-depth discussions.
On February 18, 1998, Mr. Miracle had a telephone conference with Dr.
Osing, Thomas Glassford, the Chief Operating Officer of TeleBackup, and Mr.
Meyer to discuss a corporate and product overview of the two companies. The
parties explored the organizational fit of VERITAS and TeleBackup in terms of
market and product synergies and a product/marketing/research relationship was
discussed.
On February 22, 1998, a telephone conference regarding an original
equipment manufacturer relationship between the companies was held between Mr.
Meyer, Mr. Levine and Mr. Miracle.
On February 23, 1998, TeleBackup retained Michael Mahoney of the OpMan
Group as its financial advisor to assist with negotiations with potential
strategic partners.
On March 12, 1998, Mr. Miracle met with Dr. Osing, Mr. Glassford and Mr.
Meyer at the principal offices of TeleBackup in Calgary, Canada. A
non-disclosure agreement was signed between the two companies at that meeting. A
review was conducted of TeleBackup's product and business plans. Mr. Miracle was
then given a tour of TeleBackup's facilities and viewed some product
demonstrations and performed an in-depth examination of TeleBackup's technology
features, future development plans, marketing and sales activities and
organizational details.
On March 23, 1998, VERITAS' management reviewed a survey of the remote
backup industry and strategies for such business. Management decided to proceed
with further technical reviews of TeleBackup's products and to continue
discussions with TeleBackup concerning a possible strategic relationship.
On March 24, 1998, an additional meeting to explore a possible strategic
relationship was held between Mark Leslie, President and Chief Executive Officer
of VERITAS, Mr. Levine and Mr. Miracle of VERITAS, with Dr. Osing and Mr.
Glassford of
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<PAGE> 118
VERITAS
TELEBACKUP
TeleBackup, at the principal executive offices of VERITAS in Mountain View,
California. The parties reached an initial conclusion that TeleBackup would be a
good fit with VERITAS from the perspective of a strategic business partnership.
During the last week of March, 1998, the TeleBackup board of directors
discussed the possibility of a strategic relationship with VERITAS and its
implications on TeleBackup.
On April 1, 1998, Mr. Miracle, Fred van den Bosch, Executive Vice
President, Engineering, of VERITAS, Doug Pansch and Rick Huebsch of VERITAS,
conducted an in-depth review of TeleBackup's technology, product plans, support
operations and technical staff at TeleBackup's offices in Calgary. Significant
discussions were held regarding product integration.
On April 2, 1998, Mr. Miracle and Mr. Levine met with Cal Manz, a director
of TeleBackup, Dr. Osing and Mr. Mahoney in Calgary for an in-depth review of
TeleBackup's corporate financial history, partnerships, current business plans
and potential synergies with VERITAS. Kenneth Lonchar, the Vice President of
Finance and Chief Financial Officer of VERITAS joined the meeting by conference
call to discuss potential transaction terms.
During the week of April 6, 1998, Mr. Leslie had various telephone
discussions with Dr. Osing and Mr. Mahoney to discuss potential transaction
terms.
On April 21, 1998, an internal due diligence organizational meeting was
held at VERITAS in Mountain View, California.
On April 28, 1998, Jay Jones, Vice President, General Counsel and Secretary
of VERITAS, Mr. Levine, Steven Brooks, a director of VERITAS, and Cecily Joseph,
Corporate Counsel of VERITAS, met with the TeleBackup principals and
TeleBackup's counsel in Calgary to perform due diligence.
Various due diligence and negotiation meetings were conducted by TeleBackup
representatives with representatives from the VERITAS legal, engineering and
sales departments during the latter part of April and the month of May.
On May 7, 1998, Dr. Osing and Mr. Glassford met with Mr. Leslie at VERITAS'
office in Mountain View, California to perform a due diligence review with
respect to VERITAS.
Various meetings between Mr. Leslie, Mr. Levine, Mr. Jones, Dr. Osing, Mr.
Meyer and Mr. Lynn Thurlow, the Chief Financial Officer of TeleBackup, were
conducted to conclude the negotiation of the terms of a distribution agreement
with TeleBackup with respect to the TSInfoPro software product of TeleBackup.
On June 16, 1998, VERITAS and TeleBackup entered into a source distribution
license agreement effective as of June 1, 1998 with respect to the license and
distribution of the TSInfoPro software product by VERITAS.
On June 18, 1998, representatives of VERITAS met with representatives of
TeleBackup in Calgary to plan VERITAS' product marketing, support and
manufacturing plan for distribution of the TSInfoPro product as a VERITAS
product.
On June 23, 1998, the distribution agreement was publicly announced.
On July 9, 1998, TeleBackup management met with various VERITAS regional
sales managers to discuss TSInfoPro product marketing and field sales
opportunities at
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<PAGE> 119
TeleBackup's offices. Potential sales plans for TeleBackup's products were also
discussed in some detail.
On August 24, 1998, Mr. Leslie contacted Dr. Osing to discuss the
possibility of proceeding with an acquisition of TeleBackup.
During the remainder of August 1998, VERITAS continued to conduct legal and
financial due diligence and representatives of both companies negotiated the
principal terms of the TeleBackup combination agreement and related agreements.
On August 31, 1998, the VERITAS board of directors met to discuss the
TeleBackup combination and authorized the officers of VERITAS to execute a
definitive agreement with TeleBackup with respect to the TeleBackup combination.
On September 1, 1998, the TeleBackup board of directors met to discuss the
proposed combination and receive a report from their financial advisors, the
OpMan Group, as to the fairness of the transaction. See "-- Opinion of financial
advisor" on page 110. At the meeting, the board also authorized the officers of
TeleBackup to execute a definitive agreement with VERITAS with respect to the
TeleBackup combination.
On September 1, 1998, the TeleBackup combination agreement was executed by
VERITAS and TeleBackup, and the combination was publicly announced.
On April 12, 1999, an amended and restated TeleBackup combination agreement
was executed by VERITAS, New VERITAS and TeleBackup.
REASONS FOR THE TELEBACKUP COMBINATION
VERITAS' reasons for the TeleBackup combination
The VERITAS board of directors has approved the TeleBackup combination
agreement and identified several potential benefits of the TeleBackup
combination that it believes will contribute to the success of New VERITAS.
These potential benefits include the opportunity to broaden the VERITAS product
line by the addition of technology that provides automatic backup and restore
functionality for remote and mobile PC users, and to leverage VERITAS' extensive
customer base and channels of distribution in connection with marketing and
selling TeleBackup's products.
TeleBackup's reasons for the TeleBackup combination
The TeleBackup board of directors has approved the TeleBackup combination.
It based its approval on its determination that the TeleBackup exchange ratio is
fair to TeleBackup and to TeleBackup shareholders and upon a number of other
factors, including the following:
- VERITAS has established significant distribution channels for its
products through its direct sales organization, original equipment
manufacturers and resellers, while TeleBackup's primary focus to date has
been on research and development operations. The TeleBackup combination
will allow TeleBackup to leverage these sales channels without
significant future investment by TeleBackup;
- the combination will result in synergies arising from complementary
product lines and resource allocation with respect to development,
testing and support;
- TeleBackup will have the opportunity to benefit from VERITAS' large
support services organization, allowing TeleBackup to concentrate on
other operational areas;
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VERITAS
TELEBACKUP
- the combined companies should be able to compete more effectively in the
data storage communications market and to provide more comprehensive
solutions to enterprise customers;
- VERITAS has a highly experienced management team with an established
record of continued growth and managing the successful integration of
acquired companies;
- the combination of TeleBackup with VERITAS will result in a combined
company with greater financial, technological and human resources to
develop new generations of products;
- the value of the shares of VERITAS common stock that the TeleBackup
shareholders will receive in the TeleBackup combination represents a
premium of approximately 65% over the average of the closing market
prices of TeleBackup common shares for the thirty trading days prior to
the execution of the TeleBackup combination agreement; and
- the shares of VERITAS common stock will have a significantly larger
market float and greater liquidity than the TeleBackup common shares
currently have.
The TeleBackup board of directors also considered the following information
in concluding that the TeleBackup combination and the TeleBackup exchange ratio
are fair to TeleBackup and its shareholders:
- its knowledge of the business, operations, property, assets, financial
condition, operating results and prospects of TeleBackup and VERITAS;
- current industry, economic and market conditions and trends and its
informed expectations of the future of the industry in which TeleBackup
operates;
- the terms of the TeleBackup combination agreement;
- the structure and accounting and tax treatment of the TeleBackup
combination;
- the respective corporate cultures and strategies of TeleBackup and
VERITAS; and
- TeleBackup's alternatives for growth.
While significant deliberations of the TeleBackup board of directors
concerning the TeleBackup combination were conducted without knowledge of and
prior to the announcement of the NSMG combination, the TeleBackup board of
directors has also considered the TeleBackup combination with a view to the
combined business assuming the NSMG combination is completed. The TeleBackup
board of directors has determined that all the reasons to support the TeleBackup
combination continue to be valid and that the TeleBackup combination and related
transactions continue to be fair and in the best interests of TeleBackup and its
shareholders.
In considering the proposed TeleBackup combination, the TeleBackup board of
directors recognized that there were risks associated with the TeleBackup
combination, including the risk that the potential benefits described above may
not be realized or that there may be higher than expected costs associated with
realizing these benefits and the risks described in this document under "Risk
Factors" on page 22.
In view of the variety of factors considered in connection with its
evaluation of the TeleBackup combination, the TeleBackup board of directors did
not find it practicable to and did not quantify or otherwise assign relative
strengths to the specific factors considered in reaching its determination.
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<PAGE> 121
The TeleBackup board unanimously recommends that the shareholders vote
"For" the TeleBackup combination and the approval and adoption of the plan of
arrangement for the reasons set forth above.
OPINION OF FINANCIAL ADVISOR
In its role as financial advisor to TeleBackup, the OpMan Group was
requested to render an opinion to TeleBackup as to the fairness, from a
financial point of view, of the TeleBackup exchange ratio. The OpMan Group has
represented that it specializes in mergers and acquisitions of information
technology organizations, as well as financing, original equipment
manufacturing/distribution transaction brokering and operations management
consulting. The OpMan Group regularly participates in this capacity in valuing
organizations and has been involved in numerous information technology mergers
and acquisitions. The opinion from the OpMan Group was obtained by the
TeleBackup board of directors but was not required under applicable Canadian
securities laws.
The OpMan Group delivered its written opinion dated August 31, 1998 to the
effect that, as of the date of such opinion, based upon and subject to the
assumptions, limitations and qualifications set forth in the opinion, the
TeleBackup exchange ratio was fair, from a financial point of view, to the
shareholders of TeleBackup.
The opinion was prepared for the TeleBackup board of directors and only
addresses the fairness of the TeleBackup exchange ratio from a financial point
of view and does not constitute a recommendation to any shareholder of
TeleBackup as to how it should vote at the TeleBackup meeting. The OpMan Group
did not express, and the opinion does not constitute, an opinion as to the
prices at which the TeleBackup exchangeable shares or the New VERITAS common
stock will actually trade at any time. The opinion did not address the relative
merits of the TeleBackup combination compared to any other business strategies
considered by the TeleBackup board of directors, nor did it address the decision
of the TeleBackup board of directors to proceed with the TeleBackup combination.
The TeleBackup exchange ratio was determined by arm's length negotiations
between TeleBackup and VERITAS. No restrictions or limitations were imposed by
TeleBackup with respect to the review conducted or the procedures followed by
the OpMan Group in rendering the opinion.
In deriving its opinion, the OpMan Group engaged in the following
activities:
- a review of the financial and business terms of the TeleBackup
combination agreement;
- a review and analysis of financial and operational data of both
TeleBackup and VERITAS as well as a review of the audited and unaudited
financial statements of TeleBackup and VERITAS for the past several
years;
- discussions with VERITAS and TeleBackup about their respective views of
the strategic rationale for the proposed transaction;
- a comparison of certain aspects of the financial performance of both
VERITAS and TeleBackup, as well as their respective stock prices, with
other public companies it deemed comparable;
- an analysis of available information concerning other mergers and
acquisitions it believed to be comparable in whole or in part to the
proposed transaction;
- a review of the historical closing prices and trading activity of the
TeleBackup common shares and the VERITAS common stock;
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VERITAS
TELEBACKUP
- an analysis of the anticipated effect of the proposed transaction on the
future financial performance of the consolidated entity, including the
potential for revenue enhancements and cost savings; and
- participation in negotiations and discussions related to the transaction
among TeleBackup and VERITAS and their respective financial and legal
advisors.
In rendering its opinion, the OpMan Group relied upon and assumed the
accuracy and completeness of all financial and operational information that was
available from public sources, as well as financial and operational information
provided to it by TeleBackup. In particular the OpMan Group:
- relied upon the financial projections and the operating synergies, if
any, provided by TeleBackup management as a result of the TeleBackup
combination; and
- assumed that the publicly available consensus estimates published by
financial research analysts were reasonable in all material respects of
VERITAS' prospects.
The OpMan Group did not conduct nor obtain an independent appraisal or
valuation of any of VERITAS' assets.
The following is a summary of certain financial analysis performed by the
OpMan Group in connection with its opinion. This summary does not constitute a
complete description of the financial analysis.
Peer Group Comparisons. To provide comparative market information, the OpMan
Group compared selected historical and projected earnings and operating results
to current market values, resulting in a range of valuation multiples for
TeleBackup. The OpMan Group compared the consideration offered by VERITAS for
TeleBackup to the multiples calculated using the peer group. The peer group was
selected by the OpMan Group based upon qualitative factors that the OpMan Group
deemed relevant. The peer group included Legato Systems, Concord Communications,
International Network Services and EMC Software.
PEER GROUP MULTIPLE ANALYSIS
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLOSE
SHARE PRICE FY 1998E 1999E 1998 1999
PEER GROUP TICKER 8/31/98 END EPS EPS MULTIPLE MULTIPLE
---------- ------ ----------- ---- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Legato Systems,
Inc................ LGTO $35.125 Dec $ 0.65 $ 0.99 54.0 35.5
Concord
Communications..... OCRD $26.750 Dec $ 0.37 $ 0.64 72.3 41.8
INS.................. INSS $33.000 Jun $ 0.47 $ 0.71 70.2 46.5
BMC Software......... EMCS $49.750 Mar $ 1.07 $ 1.42 46.3 35.0
Average for peer group 60.8 39.7
Median for peer group 62.1 38.6
Use lower of average median 60.8 38.6
Public market discount 30% 30%
Multiple used 42.5 27.0
TeleBackup estimated net income (tax effected @ 34%) $1,114 $3,320 47,386 89,801
Average of 1992/1999 multiples - estimated value $68,593
</TABLE>
Comparable Acquisitions. The OpMan Group also performed an analysis of
selected recently announced or completed mergers and acquisitions of software
vendors similar to TeleBackup. These acquisitions were announced or completed
between January 1, 1997
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<PAGE> 123
and August 31, 1998. In reviewing these transactions, the OpMan Group compared,
among other things, the multiple to trailing twelve month revenue and net income
(if any) to the total consideration paid. The transactions included:
- Platinum Technology acquisition of Advanced Software Concepts;
- VERITAS acquisition of OpenVision;
- Computer Associates acquisition of Cheyenne; and
- Seagate Technology acquisition of Palidrome.
Discounted Cash Flow Analysis. Using a range of market based discount rates,
the OpMan Group prepared a discounted cash flow analysis which supported a
valuation in the range being contemplated by the board of directors of
TeleBackup.
TELEBACKUP VALUATION ANALYSIS
VALUATION METHODOLOGY -- DISCOUNTED CASH FLOW
($ IN THOUSANDS)
<TABLE>
<CAPTION>
BASED ON PRE-TAX INCOME TELEBACKUP PRE-TAX INCOME
DISCOUNT
RATE LOW MID HIGH YEAR LOW MID HIGH
- -------- --- --- ---- ---- --- --- ----
<C> <C> <C> <C> <S> <C> <C> <C>
10% $77,292 $151,139 $297,165 1998 $ 428 $ 1,714 $ 3,001
15% $61,073 $119,029 $233,854 1999 $ 5,108 $ 5,108 $ 5,108
20% $48,858 $ 95,082 $186,624 2000 $ 7,583 $15,165 $ 32,926
25% $39,768 $ 76,951 $150,357 2001 $15,057 $30,115 $ 64,074
30% $32,697 $ 63,031 $123,391 2002 $25,212 $50,423 $ 98,587
35% $27,186 $ 52,205 $102,029 2003 $34,038 $68,071 $133,092
40% $22,839 $ 43,634 $ 85,217 2004 $42,545 $85,089 $186,366
</TABLE>
The net present value of TeleBackup was calculated only with respect to the
years 1998 to 2002. Income beyond the year 2002 was not included. Pre-tax growth
assumptions after the year 2002 are 35% in 2003 and 25% in 2004 for all cases.
<TABLE>
<CAPTION>
TELEBACKUP REVENUE
YEAR LOW MID HIGH
---- --- --- ----
<C> <C> <C> <C> <S> <C> <C> <C>
1998 $ 2,931 $ 4,254 $ 5,574
1999 $ 7,662 $ 12,769 $ 17,877
2000 $ 31,550 $ 63,100 $137,000
2001 $ 62,650 $125,300 $288,600
2002 $104,900 $209,800 $410,200
</TABLE>
<TABLE>
<CAPTION>
BASED ON NET INCOME (ASSUMES 35% TAX RATE) TELEBACKUP NET INCOME
DISCOUNT
RATE LOW MID HIGH YEAR LOW MID HIGH
- -------- --- --- ---- ---- --- --- ----
<C> <C> <C> <C> <S> <C> <C> <C>
10% $50,240 $ 98,241 $193,157 1998 $ 278 $ 1,114 $ 1,951
15% $39,698 $ 77,369 $152,005 1999 $ 3,320 $ 3,320 $ 3,320
20% $31,823 $ 61,803 $121,306 2000 $ 4,929 $ 9,857 $ 21,402
25% $25,849 $ 50,018 $ 98,057 2001 $ 9,787 $19,575 $ 41,648
30% $21,253 $ 40,970 $ 80,204 2002 $16,388 $32,775 $ 64,082
35% $17,671 $ 33,933 $ 66,319 2003 $22,124 $44,246 $ 85,510
40% $14,345 $ 28,395 $ 55,391 2004 $27,654 $55,308 $108,138
</TABLE>
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VERITAS
TELEBACKUP
Pro Forma Analysis: The OpMan Group also performed a pro forma financial
impact analysis to determine the impact of the TeleBackup combination on
TeleBackup. This pro forma analysis determined:
- The TeleBackup combination, at the proposed consideration, would not
be dilutive to the earnings per share of the combined entity, and in
fact, would be accretive. Assuming all other factors were considered
equal, this should result in a higher total valuation of the combined
entity than if the acquisition did not occur; and
- The combined company, excluding any synergies and cost savings, would
produce higher earnings per share than the two standalone entities
could produce.
At the time of issuing the opinion, the OpMan Group was acting as an
original equipment manufacturer/distribution deal broker to TeleBackup. Under a
letter agreement between TeleBackup and the OpMan Group, dated February 23,
1998, TeleBackup agreed to pay the OpMan Group a monthly retainer fee of
US$4,500, and a "success fee," payable upon consummation of the sale of
TeleBackup, the amount of which is dependent upon the amount of consideration
received by the TeleBackup shareholders in the transaction. Based on the market
value of the number of shares of New VERITAS common stock issuable by New
VERITAS in the TeleBackup combination as of March 31, 1999, the OpMan Group will
receive a success fee of approximately $4.4 million. TeleBackup and the OpMan
Group believe that the fee arrangements reached are customary in transactions of
this nature.
STRUCTURE OF THE TELEBACKUP COMBINATION
To effect the TeleBackup combination, the TeleBackup shareholders are being
asked to approve a plan of arrangement providing for an arrangement under the
Business Corporations Act (Alberta), which we will call the Alberta Act in this
document. If the plan of arrangement becomes effective, TeleBackup will
amalgamate with a wholly owned Alberta subsidiary of Exchangeco incorporated
solely for the purposes of the arrangement that we will call Amalco in this
document. Exchangeco will be a wholly owned Alberta subsidiary of TeleBackup
Holdings, Inc., a Delaware subsidiary of VERITAS which will also be incorporated
solely for the purposes of the arrangement. The amalgamated entity, which we
will call New TeleBackup in this document, will become a subsidiary of New
VERITAS. As part of the amalgamation, holders of TeleBackup common shares who
have not exercised rights of dissent will receive one Exchangeco class A
non-voting share for each TeleBackup share they hold. These Exchangeco class A
non-voting shares will be immediately exchanged:
- in the case of Canadian residents who have properly elected to receive
them, for the number of Exchangeco exchangeable shares equal to the
TeleBackup exchange ratio multiplied by the number of Exchangeco class A
non-voting shares held by the holders. Each Exchangeco exchangeable share
will be exchangeable for one share of New VERITAS common stock. This
number will be adjusted to reflect stock splits, consolidations and
similar changes in the capital of New VERITAS; or
- in the case of all other TeleBackup shareholders, for the number or
shares of New VERITAS common stock equal to the TeleBackup exchange ratio
multiplied by the number of Exchangeco class A non-voting shares held by
the holders.
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If the NSMG combination is not completed, shares of VERITAS will be issued
instead of New VERITAS.
No fractional shares will be issued in the exchanges of Exchangeco class A
non-voting shares described above. Instead a check will be issued to each
TeleBackup shareholder for the market value of any fractional shares to which
they are entitled.
In order to afford holders of Exchangeco exchangeable shares voting rights
which are analogous to those attached to the shares of New VERITAS common stock,
New VERITAS will issue to a trustee one share of New VERITAS special voting
stock. The voting stock will be held by the trustee for the benefit of the
holders of Exchangeco exchangeable shares and will carry a number of votes equal
to the number of shares of New VERITAS common stock into which the Exchangeco
exchangeable shares are exchangeable at the relevant time. A holder of
Exchangeco exchangeable shares will be able to instruct the trustee as to the
voting of the votes attached to the special voting stock that relate to such
holder's Exchangeco exchangeable shares.
RESALE OF TELEBACKUP EXCHANGEABLE SHARES AND NEW VERITAS COMMON STOCK
United States
The issuance of Exchangeco exchangeable shares or New VERITAS common stock
to holders of TeleBackup common shares will not be registered under the
Securities Act but will instead be issued in reliance upon the exemption
available under Section 3(a)(10) of the Securities Act. Section 3(a)(10) exempts
the issuance of securities in exchange for one or more outstanding securities
from registration where the terms and conditions of the issuance and exchange of
such securities have been approved by any court of competent jurisdiction. The
Alberta court rendered an amended interim order on April 20, 1999 and subject to
the approval of the plan of arrangement by the TeleBackup shareholders, a
hearing on the fairness of the plan of arrangement will be held on May 27, 1999
by the Alberta court. See "The TeleBackup Combination Agreement -- Conditions to
the TeleBackup combination -- Court approval" on page 134.
The Exchangeco exchangeable shares will be freely transferable without
restriction except that Exchangeco exchangeable shares to be received by persons
who are deemed to be "affiliates" of TeleBackup prior to the TeleBackup
combination, as "affiliates" is defined for purposes of Rule 145, may be resold
by them only in transactions permitted by the resale provisions of Rule 145, or
Rule 144 in the case of such persons who become affiliates of New VERITAS.
Persons who may be deemed to be affiliates of an issuer generally include
individuals or entities that control, are controlled by, or are under common
control with, such issuer and may include certain officers and directors of such
issuer as well as principal shareholders of such issuer.
TeleBackup and VERITAS have entered into affiliate agreements with each
TeleBackup affiliate restricting the sale, pledge or other disposal of
Exchangeco exchangeable shares, VERITAS options, the underlying VERITAS common
stock acquired, or any securities paid as a dividend on that stock in connection
with the restrictions set forth in Rule 145. See "Agreements Related to the
TeleBackup Combination -- Agreements with TeleBackup affiliates" on page 142.
The issuance of New VERITAS common stock from time to time in exchange for
the Exchangeco exchangeable shares will be registered on a registration
statement under the Securities Act. It is a condition to the closing of the
TeleBackup combination agreement that the registration statement has been
declared effective by the Securities and
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VERITAS
TELEBACKUP
Exchange Commission. New VERITAS will use best efforts to maintain the
effectiveness of the registration statement for a period of seven years or for
whatever shorter period that the Exchangeco exchangeable shares are outstanding.
As a result of the registration, the shares of New VERITAS common stock issued
from time to time in exchange for the Exchangeco exchangeable shares will be
freely transferable under U.S. federal securities laws.
Canada
New VERITAS and TeleBackup are applying for rulings or orders of certain
provincial securities regulatory authorities in Canada to permit the issuance to
TeleBackup shareholders of the Exchangeco class A non-voting shares and
subsequently the Exchangeco exchangeable shares and shares of New VERITAS common
stock, and to permit resale of the Exchangeco exchangeable shares in these
provinces without restriction. These resales may only be made by shareholders
who are not "control persons," if no unusual effort is made to prepare the
market for any resale, or to create a demand for the securities which are the
subject of any resale. Furthermore, no extraordinary commission or consideration
can be paid. Applicable Canadian securities legislation provides a rebuttable
presumption that a person or company is a "control person" in relation to an
issuer where the person or company alone or in combination with others holds
more than 20% of the outstanding voting securities of the issuer.
New VERITAS and TeleBackup are also applying for rulings or orders of
certain provincial securities regulatory authorities in Canada to permit the
issuance of shares of New VERITAS common stock to holders of Exchangeco
exchangeable shares, and to permit the resale of shares of New VERITAS common
stock by the holders without the requirement of filing a prospectus with these
authorities.
STOCK EXCHANGE LISTINGS
Exchangeco shares
On March 26, 1999, the Alberta Stock Exchange accepted notice of the
proposed arrangement and conditionally approved the listing and posting for
trading of the Exchangeco class A non-voting shares and the Exchangeco
exchangeable shares, subject to fulfilling the Alberta Stock Exchange's filing
requirements. There is no current intention to list the Exchangeco class A
non-voting shares or the Exchangeco exchangeable shares on any other stock
exchange in Canada or the United States.
New VERITAS common stock
The New VERITAS common stock issuable in the TeleBackup combination from
time to time will be traded on the Nasdaq National Market under the symbol
"VRTS." It is a condition to the consummation of the TeleBackup combination that
the shares of New VERITAS common stock will have been approved for listing on
the Nasdaq National Market, subject to official notice of issuance.
INCOME TAX CONSIDERATIONS TO TELEBACKUP SHAREHOLDERS
Canadian federal income tax considerations to TeleBackup shareholders
The following is TeleBackup's discussion of the principal Canadian federal
income tax considerations applicable to TeleBackup shareholders in relation to
the TeleBackup combination, who, for purposes of the Income Tax Act (Canada),
hold their TeleBackup common shares and will hold their Exchangeco class A
non-voting shares, Exchangeco
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exchangeable shares and shares of New VERITAS common stock as capital property
and deal at arm's length with TeleBackup, Exchangeco and New VERITAS. The
following discussion is based upon the opinion of Parlee McLaws, Calgary,
Alberta, counsel for TeleBackup, and Osler, Hoskin and Harcourt, Calgary,
Alberta, counsel for New VERITAS, which is attached to this document as Appendix
W. All TeleBackup shareholders should consult their own tax advisors as to
whether, as a matter of fact, they hold their TeleBackup common shares and will
hold their Exchangeco class A non-voting shares, Exchangeco exchangeable shares
and shares of New VERITAS common stock as capital property for purposes of the
Tax Act.
This discussion does not apply to a holder with respect to whom New VERITAS
is a foreign affiliate within the meaning of the Tax Act. This discussion also
does not apply to a holder that is a "financial institution" as defined in the
Tax Act for purposes of the mark-to-market rules.
This discussion is based on the current provisions of the Tax Act, the
related regulations, the current provisions of the Canada-United States Income
Tax Convention, or the tax treaty between the U.S. and Canada, and counsel's
understanding of the current published administrative practices of Revenue
Canada. This summary takes into account the amendments to the Tax Act and
regulations publicly announced prior to the date of this document and assumes
that the proposed amendments will be enacted in their present form. However, no
assurances can be given that the proposed amendments will be enacted in the form
proposed, or at all.
Except for the foregoing, this discussion does not take into account or
anticipate any changes in law or administrative practice, whether by
legislative, administrative or judicial decision or action, nor does it take
into account provincial, territorial or foreign income tax legislation or
considerations, which may differ from the Canadian federal income tax
considerations described in this section.
TeleBackup shareholders should be aware that this discussion does not deal
with all income tax considerations that may be relevant to particular
shareholders in light of their particular circumstances.
CANADIAN SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THEIR PARTICULAR CIRCUMSTANCES AND THE CONSEQUENCES OF THE TRANSACTIONS
DESCRIBED HEREIN. NO ADVANCE INCOME TAX RULING HAS BEEN OBTAINED FROM REVENUE
CANADA TO CONFIRM THE TAX CONSEQUENCES OF ANY OF THE TRANSACTIONS DESCRIBED
HEREIN.
For purposes of the Tax Act, all amounts relating to the acquisition,
holding or disposition of shares of New VERITAS common stock, including
dividends, adjusted cost base and proceeds of disposition must be converted into
Canadian dollars based on the prevailing U.S. dollar exchange rate at the time
such amounts arise.
Shareholders resident in Canada
The following portion of the summary is applicable to TeleBackup
shareholders who, for purposes of the Tax Act and any bilateral tax treaty, are
resident or deemed to be resident in Canada.
Amalgamation of Amalco and TeleBackup and receipt of Exchangeco class A
non-voting shares
Upon the amalgamation of Amalco and TeleBackup, holders of TeleBackup
common shares will be deemed to have disposed of their TeleBackup common shares
for proceeds
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VERITAS
TELEBACKUP
of disposition equal to their adjusted cost base immediately before the
amalgamation and to have acquired the Exchangeco class A non-voting shares for a
cost equal to the proceeds of the disposition.
Exchange of Exchangeco class A non-voting shares for New VERITAS common
stock
On the exchange of Exchangeco class A non-voting shares for shares of New
VERITAS common stock holders will, in general, realize a capital gain or a
capital loss equal to the amount by which the proceeds of disposition of the
Exchangeco class A non-voting shares, net of any reasonable costs of
disposition, exceed or are less than the adjusted cost base to the holders of
the Exchangeco class A non-voting shares. For these purposes, the proceeds of
disposition will generally be the fair market value of the New VERITAS common
shares received on the exchange plus any amount received by the holder in lieu
of a fractional New VERITAS common share. The taxation of capital gains and
capital losses is described below in respect of a redemption or exchange of
Exchangeco exchangeable shares.
Exchange of Exchangeco class A non-voting shares for Exchangeco exchangeable
shares
Provided that, at the closing of the TeleBackup combination, the aggregate
adjusted cost base of a holder's Exchangeco class A non-voting shares exceeds
the sum of:
- the amount of any cash received in respect of a fractional Exchangeco
exchangeable share; and
- the fair market value of the voting rights and exchange rights under the
voting, support and exchange trust agreement acquired by the holder in
connection with the exchange of its Exchangeco class A non-voting shares
and net of any reasonable costs of disposition,
the holder will not realize a capital gain for purposes of the Tax Act on the
exchange.
To the extent that the sum, net of any reasonable costs of disposition,
exceeds the aggregate adjusted cost base of the holder's Exchangeco class A
non-voting shares, the holder will realize a capital gain for purposes of the
Tax Act. The taxation of capital gains is described below in respect of a
redemption or exchange of Exchangeco exchangeable shares.
On the exchange, an Exchangeco shareholder will be deemed to have acquired:
- Exchangeco exchangeable shares for a cost equal to the amount, if any, by
which the adjusted cost base to such holder of the Exchangeco class A
non-voting shares exceeds the sum of (1) the fair market value of the
voting rights and exchange rights in respect of the shareholder's
Exchangeco exchangeable shares and (2) any cash received by the holder in
lieu of a fractional Exchangeco exchangeable share; and
- the voting rights and exchange rights in respect of the shareholder's
Exchangeco exchangeable shares for a cost equal to their fair market
value.
For these purposes, a holder of Exchangeco class A non-voting shares will
be required to determine the fair market value of the voting rights and exchange
rights on a reasonable basis for purposes of the Tax Act. TeleBackup is of the
view and has advised counsel that the voting rights and exchange rights have
only nominal value. Therefore, a holder of Exchangeco class A non-voting shares
should not realize a capital gain on the exchange of Exchangeco class A
non-voting shares for Exchangeco exchangeable shares. This
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determination of value is not binding on Revenue Canada and counsel can express
no opinion on matters of factual determination such as this.
Call rights
TeleBackup is of the view and has advised counsel that no amount should be
allocated to the liquidation call right, the redemption call right and the
retraction call right granted to New VERITAS under the plan of arrangement which
we refer to in this document as call rights. In particular, TeleBackup is of the
view that the call rights have only nominal value. On this basis, no shareholder
should realize a gain at the time that call rights are granted to New VERITAS.
The determinations of value are not binding on Revenue Canada and counsel can
express no opinion on matters of factual determination such as this. If Revenue
Canada successfully asserts that a holder of Exchangeco exchangeable shares had
received consideration for granting the call rights, the holder will realize a
capital gain equal to the amount of the consideration received.
Dividends
In the case of an Exchangeco shareholder who is an individual, dividends
received or deemed to be received on the Exchangeco exchangeable shares will be
included in computing the Exchangeco shareholder's income, and will be subject
to the gross-up and dividend tax credit rules contained in the Tax Act normally
applicable to taxable dividends received from corporations resident in Canada.
The Exchangeco exchangeable shares will be "taxable preferred shares" and
"short-term preferred shares" for purposes of the Tax Act. Accordingly,
Exchangeco will be subject to a 66 2/3% tax under Part VI.1 of the Tax Act on
dividends, other than certain excluded dividends, paid or deemed to be paid on
the Exchangeco exchangeable shares. Such tax may be recoverable if and to the
extent Exchangeco is subject to tax under Part I of the Tax Act. Dividends
received or deemed to be received on the Exchangeco exchangeable shares will not
be subject to the 10% tax under Part IV.1 of the Tax Act applicable to certain
corporate shareholders.
If New VERITAS or any person with whom New VERITAS does not deal at arm's
length is a "specified financial institution" under the Tax Act at a point in
time that a dividend is paid on an Exchangeco exchangeable share, then, subject
to the exemption described below, dividends received or deemed to be received by
an Exchangeco shareholder that is a corporation will not be deductible in
computing taxable income but will be fully includable in taxable income under
Part I of the Tax Act. The dividend will not be subject to tax under Part IV of
the Tax Act. A corporation will generally be a specified financial institution
for these purposes if it is a bank, a trust company, a credit union, an
insurance corporation or a corporation whose principal business is the lending
of money to persons with whom the corporation is dealing at arm's length or the
purchasing of debt obligations issued by such persons or a combination thereof,
and corporations controlled by or related to such entities. New VERITAS has
informed counsel that it is of the view that neither it, nor any person with
whom it does not deal at arm's length, nor any partnership or trust of which New
VERITAS or any person with whom it does not deal at arms-length basis is a
member or beneficiary, is a specified financial institution at the current time
but there can be no assurances that this status will not change prior to any
dividend which is received or deemed to be received by a corporate shareholder.
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VERITAS
TELEBACKUP
This denial of the dividend deduction for a corporate shareholder will not
in any event apply if at the time a dividend is received or deemed to be
received:
- the Exchangeco exchangeable shares are listed on a prescribed stock
exchange, which currently includes the Alberta Stock Exchange;
- New VERITAS controls Exchangeco; and
- the recipient, together with persons with whom the recipient does not
deal at arm's length or any partnership or trust of which the recipient
or person is a member or beneficiary, respectively, does not receive
dividends on more than 10% of the issued and outstanding Exchangeco
exchangeable shares.
Subject to the above, in the case of a shareholder that is a corporation,
other than a "specified financial institution" as defined in the Tax Act,
dividends received or deemed to be received on the Exchangeco exchangeable
shares will normally be deductible in computing its taxable income.
In the case of a shareholder that is a specified financial institution,
such a dividend will be deductible in computing its taxable income only if
either:
- the specified financial institution did not acquire the Exchangeco
exchangeable shares in the ordinary course of the business carried on by
such institution; or
- at the time of the receipt of the dividend by the specified financial
institution, the Exchangeco exchangeable shares are listed on a
prescribed stock exchange in Canada, which currently includes the Alberta
Stock Exchange, and the specified financial institution, either alone or
together with persons with whom it does not deal at arm's length, does
not receive or is not deemed to receive dividends in respect of more than
10% of the issued and outstanding Exchangeco exchangeable shares.
A shareholder that is a "private corporation," as defined in the Tax Act,
or any other corporation resident in Canada and controlled or deemed to be
controlled by or for the benefit of an individual or a related group of
individuals may be liable under Part IV of the Tax Act to pay a refundable tax
of 33 1/3% on dividends received or deemed to be received on the Exchangeco
exchangeable shares to the extent that such dividends are deductible in
computing the shareholder's taxable income.
Redemption or exchange of Exchangeco exchangeable shares
On the redemption, including a retraction, of an Exchangeco exchangeable
share by Exchangeco, the holder of an Exchangeco exchangeable share will be
deemed to have received a dividend equal to the amount, if any, by which the
redemption proceeds exceeds the paid-up capital at that time of the Exchangeco
exchangeable share so redeemed. The redemption proceeds will generally be equal
to the fair market value, at the time of the redemption, of the share of New
VERITAS common stock received by the shareholder from Exchangeco on the
redemption plus the amount, if any, of all accrued but unpaid dividends on the
Exchangeco exchangeable share. The amount of any deemed dividend will be subject
to the tax treatment accorded to dividends described above. On the redemption,
the holder of an Exchangeco exchangeable share will also be considered to have
disposed of the Exchangeco exchangeable share, but the amount of the deemed
dividend will be excluded in computing the shareholder's proceeds of disposition
for purposes of computing any capital gain or capital loss arising on the
disposition of the Exchangeco exchangeable share. In the case of a shareholder
that is a corporation, in some
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circumstances, the amount of any deemed dividend may be treated as proceeds of
disposition and not as a dividend.
On the exchange of an Exchangeco exchangeable share with New VERITAS for a
share of New VERITAS common stock, or upon the disposition of an Exchangeco
exchangeable share to New VERITAS under New VERITAS' retraction call right or
the redemption call right under the plan of arrangement, the holder will in
general realize a capital gain or a capital loss equal to the amount by which
the proceeds of disposition of the Exchangeco exchangeable share, net of any
reasonable costs of disposition, exceed or are less than the adjusted cost base
to the holder of the Exchangeco exchangeable share. For these purposes, the
proceeds of disposition will generally be the fair market value of a share of
New VERITAS common stock at the time of exchange plus the amount of all accrued
but unpaid dividends on the Exchangeco exchangeable share received by the holder
as part of the exchange consideration.
Three-quarters of any of this capital gain, or the taxable capital gain,
will be included in the Exchangeco shareholder's income for the year of
disposition. Three-quarters of any capital loss so realized, or the allowable
capital loss, may, subject to the detailed rules of the Tax Act, be deducted by
the holder against taxable capital gains for the year of disposition. Any excess
of allowable capital losses over taxable capital gains of the shareholder for
the year of disposition may, subject to the detailed rules of the Tax Act, be
carried back up to three taxation years or forward indefinitely and deducted
against net taxable capital gains in those other years.
A shareholder that is throughout the relevant taxation year a
"Canadian-controlled private corporation," as defined in the Tax Act, may be
liable to pay an additional refundable tax of 6 2/3% on its "aggregate
investment income" for the year, which is defined to include an amount in
respect of taxable capital gains but not dividends or deemed dividends
deductible in computing taxable income.
If the holder of an Exchangeco exchangeable share is a corporation, the
amount of any capital loss arising from a disposition or deemed disposition of
an Exchangeco exchangeable share may be reduced by the amount of dividends
received or deemed to have been received by it on the share or on the Exchangeco
class A non-voting shares previously owned by the holder, to the extent and
under circumstances prescribed by the Tax Act. Similar rules may apply where a
holder is a member of a partnership or a beneficiary of a trust that owns
Exchangeco exchangeable shares or where a trust or partnership of which a
corporation is a beneficiary or a member is a member of a partnership or a
beneficiary of a trust that owns Exchangeco exchangeable shares.
The cost base of a share of New VERITAS common stock received on the
retraction, redemption or exchange of an Exchangeco exchangeable share will be
equal to the fair market value of the share of New VERITAS common stock at the
time of the event. The cost of any New VERITAS common stock will be averaged
with the adjusted cost base of any other New VERITAS common stock held by an
Exchangeco shareholder immediately before that time for purposes of determining
the holder's adjusted cost base of the holder's New VERITAS common stock.
Because of the existence of the retraction call right, a holder exercising
the right of retraction in respect of an Exchangeco exchangeable share cannot
control whether it will receive a share of New VERITAS common stock by way of
redemption of the Exchangeco exchangeable share by Exchangeco or by way of
purchase of the Exchangeco exchangeable share by New VERITAS. As described
above, the Canadian federal income
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VERITAS
TELEBACKUP
tax consequences of a redemption differ from those of a purchase. However, a
holder who exercises the right of retraction will be notified if the retraction
call right will not be exercised by New VERITAS, and if the holder does not wish
to proceed, such holder may cancel the notice of retraction and retain such
holder's Exchangeco exchangeable share.
New VERITAS common stock
Dividends on New VERITAS common stock will be included in the recipient's
income for the purposes of the Tax Act. These dividends received by an
individual New VERITAS stockholder will not be subject to the gross-up and
dividend tax credit rules in the Tax Act. A corporation which is a New VERITAS
stockholder will include these dividends in computing its income and generally
will not be entitled to deduct the amount of the dividends in computing its
taxable income. United States non-resident withholding tax on the dividends will
be eligible for foreign tax credit or deduction treatment where applicable under
the Tax Act.
Disposition of New VERITAS common stock
A disposition or deemed disposition of a share of New VERITAS common stock
by a holder will generally result in a capital gain or capital loss equal to the
amount by which the proceeds of disposition, net of any reasonable costs of
disposition, exceed or are less than the adjusted cost base to the holder of the
share of New VERITAS common stock.
Eligibility for investment
Foreign property. Provided the Exchangeco class A non-voting and Exchangeco
exchangeable shares are listed on a prescribed stock exchange in Canada and
Exchangeco maintains a substantial presence in Canada, the Exchangeco class A
non-voting and Exchangeco exchangeable shares will not be foreign property under
the Tax Act for trusts governed by registered pension plans, registered
retirement savings plans, registered retirement income funds and deferred profit
sharing plans or for certain other tax-exempt persons. TeleBackup has informed
Canadian tax counsel that it currently satisfies the substantial presence test
and expects that Exchangeco will continue to do so. The voting rights and
exchange rights will be foreign property under the Tax Act. However, as
indicated above, TeleBackup is of the view that the fair market value of these
rights is nominal. New VERITAS common stock will be foreign property under the
Tax Act.
Qualified investments. Provided the Exchangeco class A non-voting and
Exchangeco exchangeable shares are listed on a prescribed stock exchange in
Canada, which currently includes the Alberta Stock Exchange, the Exchangeco
class A non-voting and Exchangeco exchangeable shares will be qualified
investments under the Tax Act for trusts governed by registered retirement
savings plans, registered retirement income funds and deferred profit sharing
plans. In certain other circumstances, the shares may also be qualified
investments. New VERITAS common stock will be a qualified investment under the
Tax Act for these plans provided the shares remain listed on the Nasdaq National
Market or are listed on certain other stock exchanges prescribed under the
regulations to the Tax Act. The voting rights and exchange rights of the
Exchangeco exchangeable shares will not be qualified investments under the Tax
Act. However, as indicated above, TeleBackup is of the view that the fair market
value of these rights is nominal.
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Dissenting shareholders
Holders of TeleBackup common shares are permitted to dissent from the plan
of arrangement in the manner set out in section 184 of the Alberta Act, as
modified by the interim order of the Alberta court. A dissenting TeleBackup
shareholder will be entitled, in the event the plan of arrangement becomes
effective, to be paid by TeleBackup the fair value of the TeleBackup common
shares held by such holder determined as of the appropriate date. See "-- Rights
of dissent" on page 127. Under the current administrative practice of Revenue
Canada, where a shareholder dissents from an amalgamation and receives a cash
payment for his shares from the amalgamated corporation, the shareholder is
considered to have realized proceeds of disposition rather than a deemed
dividend. Because of uncertainties under the relevant legislation as to whether
an amount paid to a holder of TeleBackup common shares who dissents from the
arrangement will be treated as proceeds of disposition or as the payment of a
dividend to the extent such payment exceeds the paid-up capital of the
TeleBackup common shares, dissenting shareholders should consult their own tax
advisors on this matter. Additional income tax considerations may be relevant to
dissenting shareholders who fail to perfect or withdraw their claims pursuant to
the right of dissent.
Shareholders not resident in Canada
The following portion of the summary applies to holders of TeleBackup
common shares who, for purposes of the Tax Act and any bilateral tax treaty:
- have not been and will not be resident or deemed to be resident in Canada
at any time while they have held TeleBackup common shares or will hold
Exchangeco class A non-voting or Exchangeco exchangeable shares or shares
of New VERITAS common stock; and
- to whom these shares are not taxable Canadian property and in the case of
a non-resident of Canada who carries on an insurance business in Canada
and elsewhere, the shares are not "designated insurance property" as
defined in the Tax Act and are not effectively connected with its
Canadian insurance business.
Generally, TeleBackup common shares, Exchangeco class A non-voting and
Exchangeco exchangeable shares and shares of New VERITAS common stock will not
be taxable Canadian property provided that:
- the shares are listed on a prescribed stock exchange, which currently
include the Alberta Stock Exchange and Nasdaq National Market;
- the holder does not use or hold, and is not deemed to use or hold, the
TeleBackup common shares, the Exchangeco class A non-voting or Exchangeco
exchangeable shares or the shares of New VERITAS common stock, as
applicable, in connection with carrying on a business in Canada; and
- the holder, persons with whom the holder does not deal at arm's length,
or the holder and such persons, has not owned, or had under option, 25%
or more of the issued shares of any class or series of the capital stock
of TeleBackup, Exchangeco or New VERITAS at any time within five years
preceding the date in question.
In the case of the shares of New VERITAS, even if the holder exceeds the
25% threshold with respect to shares of New VERITAS common stock referred to in
the last bullet point, the shares of New VERITAS common stock may not be taxable
Canadian property. However, holders should consult their own tax advisors to
determine whether
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VERITAS
TELEBACKUP
their shares of New VERITAS common stock constitute taxable Canadian property.
TeleBackup has applied for the listing of the Exchangeco class A non-voting and
Exchangeco exchangeable shares on the Alberta Stock Exchange and New VERITAS has
indicated that it intends to use its best efforts to cause Exchangeco to
maintain this listing.
A holder of TeleBackup common shares will not be subject to tax under the
Tax Act on the amalgamation of TeleBackup and Amalco and the receipt of the
Exchangeco class A non-voting shares, the exchange of Exchangeco class A
non-voting shares for Exchangeco exchangeable shares or on the exchange of an
Exchangeco exchangeable share for a share of New VERITAS common stock, except to
the extent the exchange gives rise to a deemed dividend, or on the sale or other
disposition of an Exchangeco exchangeable share or a share of New VERITAS common
stock.
Dividends paid on the Exchangeco exchangeable shares are subject to
non-resident withholding tax under the Tax Act at the rate of 25%, although this
rate may be reduced under the provisions of an applicable income tax treaty. For
example, under the Tax Treaty, the rate is generally reduced to 15% in respect
of dividends paid to a person who is the beneficial owner and who is resident in
the United States for purposes of the Tax Treaty.
A holder whose Exchangeco exchangeable shares are redeemed either under
TeleBackup's redemption right or under the holder's retraction rights will be
deemed to receive a dividend as described above, which deemed dividend will be
subject to withholding tax as described in the preceding paragraph.
Holders of TeleBackup common shares are permitted to dissent from the plan
of arrangement in the manner set out in section 184 of the Alberta Act, as
modified by the interim order of the Alberta court. A dissenting TeleBackup
shareholder will be entitled, in the event the plan of arrangement becomes
effective, to be paid by TeleBackup the fair value of the TeleBackup common
shares held by the holder determined as of the appropriate date. See "-- Rights
of dissent" on page 127. Under the current administrative practice of Revenue
Canada, where a shareholder dissents from an amalgamation and receives a cash
payment for his shares from the amalgamated corporation, the shareholder is
considered to have realized proceeds of disposition rather than a deemed
dividend. Because of uncertainties under the relevant legislation as to whether
an amount paid to a holder of Telebackup common shares who dissents from the
arrangement will be treated as proceeds of disposition or as the payment of a
dividend to the extent such payment exceeds the paid-up capital of the
Telebackup common shares, dissenting shareholders should consult their own tax
advisors on this matter. Deemed dividends will be subject to withholding tax as
described above. Any capital gain realized by a dissenting TeleBackup
shareholder will not be taxed under the Tax Act if the TeleBackup common shares
in respect of which the right of dissent is exercised are not taxable Canadian
property, as described above. Additional income tax considerations may be
relevant to dissenting TeleBackup shareholders who fail to perfect or withdraw
their claims pursuant to the right of dissent.
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United States federal income tax considerations to TeleBackup shareholders
Special U.S. tax counsel for TeleBackup, Kleinberg, Kaplan, Wolff & Cohen,
P.C., is of the following opinion with respect to the principal U.S. federal
income tax considerations of the TeleBackup combination, arising from and
relating to the plan of arrangement, including the receipt and ownership of new
VERITAS common stock, which are generally applicable to TeleBackup shareholders
who are:
- "United States persons" who hold TeleBackup common shares as capital
assets; and
- non-U.S. TeleBackup shareholders.
For U.S. federal income tax purposes, "United States persons" are U.S.
citizens or resident aliens, as determined under the U.S. Internal Revenue Code,
corporations or partnerships organized under the laws of the U.S. or any state,
estates subject to U.S. federal income tax on income regardless of source, and
trusts subject to the primary supervision of a court within the U.S. and over
which one or more U.S. persons control all substantial decisions.
TeleBackup shareholders that are U.S. shareholders
The receipt of New VERITAS common stock by U.S. shareholders will be a
taxable event for U.S. federal income tax purposes. U.S. shareholders will
realize and recognize gain or loss equal to the difference between their tax
basis in their TeleBackup common shares and the fair market value of the New
VERITAS common stock received in exchange for their shares.
In the arrangement, U.S. holders will initially receive Exchangeco class A
non-voting shares for TeleBackup common shares and then, in the same
transaction, receive New VERITAS common stock in exchange for Exchangeco class A
non-voting shares. Since simultaneously or soon after, and as part of, the same
transaction, U.S. holders will receive New VERITAS common stock for Exchangeco
class A non-voting shares which they receive for their TeleBackup common shares,
U.S. holders will be subject to U.S. federal income tax. They will be subject to
tax as if they sold or exchanged their TeleBackup common shares for the fair
market value of the New VERITAS common stock received and they will realize and
recognize gains or losses equal to the difference between their tax bases in the
TeleBackup common shares and the fair market value of the New VERITAS common
stock received.
The gain or loss will be capital gain or loss which will be long-term
capital gain or loss if the TeleBackup common shares have been held for more
than one year at the time of the exchange for the New VERITAS common stock. A
U.S. holder will take as such holder's tax basis in the shares of New VERITAS
common stock the fair market value of the shares of the New VERITAS common stock
at the time of the exchange. The holding period of the shares of the New VERITAS
common stock received by the U.S. holder in the exchange will begin on the day
after the U.S. holder receives the shares of New VERITAS common stock.
For U.S. federal income tax purposes, gain realized on the exchange of the
TeleBackup common shares generally will be treated as U.S. source gain, except
that under the terms of the tax treaty such gain might, in some circumstances,
be treated as sourced in Canada. Canadian tax, if any, imposed on the exchange
should be available as a credit against U.S. federal income taxes, subject to
applicable limitations, or alternatively, be deductible in computing U.S.
taxable income.
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VERITAS
TELEBACKUP
A U.S. holder of New VERITAS common stock generally will be required to
include in gross income as ordinary income dividends paid on the New VERITAS
common stock to the extent paid out of current or accumulated earnings and
profits of New VERITAS, as determined under U.S. federal income tax principles.
TeleBackup shareholders that are not U.S. shareholders
The following discusses the principal U.S. federal income tax consequences
generally applicable to holders of TeleBackup common shares that are not U.S.
shareholders.
A non-U.S. holder generally will not be subject to U.S. federal income tax
on gain recognized on the receipt of the Exchangeco class A non-voting shares or
Exchangeco exchangeable shares, on the sale or exchange of Exchangeco class A
non-voting shares or Exchangeco exchangeable shares, or on the receipt or sale
of New VERITAS common stock unless the gain is effectively connected with a U.S.
trade or business or, in the case of gains recognized by an individual, the
individual is present in the U.S. for 183 days or more and certain other
conditions are satisfied. If New VERITAS is at any time a U.S. real property
holding corporation, certain U.S. federal income tax rules may apply. New
VERITAS believes that it is not a U.S. real property holding corporation.
Although New VERITAS considers it unlikely that it will become a U.S. real
property holding corporation, no assurance can be given as to this issue.
TeleBackup and New VERITAS do not currently intend that New VERITAS will
withhold U.S. withholding tax from dividends from Exchangeco class A non-voting
shares or Exchangeco exchangeable shares. The IRS may, however, assert that U.S.
withholding tax is payable with respect to dividends paid on the Exchangeco
exchangeable shares to non-U.S. holders if the stock were characterized as stock
in New VERITAS for U.S. federal income tax purposes. If so characterized,
holders of Exchangeco exchangeable shares might be subject to U.S. withholding
tax on dividends at a rate of 30 percent, which rate may be reduced by an
applicable income tax treaty in effect between the U.S. and the non-U.S.
holder's country of residence. This rate is generally 15 percent on dividends
paid to residents of Canada under the tax treaty.
Dividends received by a non-U.S. holder with respect to New VERITAS common
stock generally will be subject to U.S. withholding tax at a rate of 30 percent,
which rate may be subject to reduction by an applicable income tax treaty. This
rate is generally 15 percent on dividends paid to residents of Canada under the
tax treaty.
Limitations of the tax opinion
This discussion is based on the U.S. tax code, existing and proposed
Treasury regulations and judicial and administrative determinations which are in
effect as of the date of this document and which are subject to change at any
time, possibly on a retroactive basis. No advance income tax ruling has been, or
will be, sought or obtained from the U.S. Internal Revenue Service regarding the
U.S. federal income tax consequences of any aspect of the plan of arrangement.
An opinion of counsel only represents counsel's best legal judgment and has no
binding effect or official status of any kind. Accordingly, the IRS could
challenge the status of the taxation of the arrangement as discussed in this
document. Furthermore, if challenged, a court could agree with the IRS.
This discussion does not address aspects of U.S. taxation other than U.S.
federal income taxation. It also does not address aspects of U.S. federal income
taxation that may be applicable to particular U.S. shareholders, including,
without limitation, holders of TeleBackup common shares acquired as a result of
the exercise of employee stock options,
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<PAGE> 137
tax-exempt organizations, financial institutions, insurance companies,
broker-dealers, persons having a "functional currency" other than the U.S.
Dollar, holders who hold TeleBackup common shares as part of a straddle, wash
sale, hedging or conversion transaction, holders who do not hold their
TeleBackup common shares as capital assets and holders subject to tax under the
U.S. tax code provisions applicable to certain U.S. expatriates. In addition,
this discussion does not address the U.S. state or local tax consequences or the
foreign tax consequences of the plan of arrangement or the receipt and ownership
of the Exchangeco class A non-voting shares or shares of New VERITAS common
stock.
UNITED STATES SHAREHOLDERS AND NON-U.S. SHAREHOLDERS ARE URGED TO CONSULT
WITH AND RELY SOLELY ON THEIR TAX ADVISORS WITH RESPECT TO THE UNITED STATES
FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES AND THE FOREIGN TAX CONSEQUENCES OF
THE PLAN OF ARRANGEMENT, INCLUDING THE RECEIPT AND OWNERSHIP OF EXCHANGECO CLASS
A NON-VOTING SHARES AND NEW VERITAS COMMON STOCK.
ACCOUNTING TREATMENT
The TeleBackup combination will be accounted for under the purchase method
of accounting, under U.S. generally accepted accounting principles. The total
purchase price, including direct costs of the TeleBackup combination, will be
allocated to the assets acquired, including in-process research and development,
and liabilities assumed based upon their estimated relative fair values. The
excess purchase consideration will be allocated to goodwill.
After the TeleBackup combination, the results of VERITAS' operations will
include the results of operations of TeleBackup. The amount of the purchase
price allocated to in-process research and development will be charged to
expense immediately after the effective time for the TeleBackup combination.
PROCEDURES FOR EXCHANGE OF SHARE CERTIFICATES BY TELEBACKUP SHAREHOLDERS
A letter of transmittal will be forwarded to the registered holders of
TeleBackup common shares as soon as practicable following the effective date of
the TeleBackup combination. When the letter of transmittal is duly completed and
returned together with the certificate(s) for TeleBackup common shares, the
TeleBackup shareholder will be able to exchange such TeleBackup common shares
for that number of Exchangeco exchangeable shares or shares of New VERITAS
common stock, as the case may be, to which the holder is entitled under the plan
of arrangement. See "The TeleBackup Combination Agreement -- What TeleBackup
security holders will receive -- The TeleBackup exchange ratio" on page 131 for
how to determine the exchange ratio.
HOLDERS OF TELEBACKUP COMMON SHARES SHOULD NOT SURRENDER THEIR SHARE
CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
Any use of the mails to transmit a certificate for TeleBackup common shares
and a related letter of transmittal is at the risk of the TeleBackup
shareholder. If these documents are mailed, it is recommended that registered
mail, with return receipt requested and properly insured, be used.
If the arrangement proceeds and the TeleBackup combination is completed,
certificates representing the appropriate number of Exchangeco exchangeable
shares or New VERITAS common stock issuable to a former holder of TeleBackup
common shares will be issued to each shareholder who complies with the
procedures set out above. Each
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<PAGE> 138
VERITAS
TELEBACKUP
shareholder will also receive a check for the amount, if any, payable in lieu of
a fractional Exchangeco exchangeable share or New VERITAS common share. The
share certificates and check, if any, will as soon as practicable after the date
of receipt of a certificate for TeleBackup common shares and a related letter of
transmittal, be either forwarded to the holder at the address specified in the
letter of transmittal by first class mail, or made available at the offices of
Montreal Trust Company of Canada for pick-up by the holder, if requested by the
holder in the letter of transmittal.
Where a certificate for TeleBackup common shares has been destroyed or lost
the registered holder of that certificate should immediately contact Montreal
Trust Company of Canada regarding the issuance of a replacement certificate upon
the holder satisfying any requirements that may be imposed by TeleBackup in
connection with issuance of the replacement certificate.
GOVERNMENTAL AND REGULATORY MATTERS
To complete several of the matters related to the TeleBackup combination,
including the listing of the Exchangeco class A non-voting shares and the
Exchangeco exchangeable shares on the Alberta Stock Exchange, TeleBackup will
require the approval of:
- securities commissions in Canadian jurisdictions where shareholders
reside;
- the Alberta Stock Exchange; and
- the Alberta court.
ONGOING CANADIAN REPORTING OBLIGATIONS
After the plan of arrangement is effected, TeleBackup will cease to be a
reporting issuer in certain Canadian provinces and Exchangeco will instead
become a reporting issuer. TeleBackup is applying for exemptions from statutory
financial and other reporting requirements, including exempting insiders of
Exchangeco from the requirement of filing reports with respect to trades of
Exchangeco securities, in those Canadian provinces. It is likely that the
exemptions will be issued on the condition that (a) New VERITAS files with the
relevant provincial securities regulatory authorities copies of certain of its
reports filed with the SEC, and (b) the holders of Exchangeco exchangeable
shares receive certain materials that are sent to the holders of New VERITAS
common stock.
RIGHTS OF DISSENT
While the following description of the rights of dissenting TeleBackup
shareholders is materially complete, it is not a comprehensive statement of the
procedures to be followed by a dissenting shareholder who seeks payment of the
fair value of their TeleBackup common shares. This summary is qualified in its
entirety by the reference to the full text of the interim order of the Alberta
court and Section 184 of the Alberta Act which are attached to this document as
Appendices J and L. A TeleBackup shareholder who intends to exercise its right
of dissent and appraisal should carefully consider and comply with the
provisions of the Section 184, as modified by the interim order. Failure to
comply with these provisions and procedures described in those provisions may
result in the loss of all rights of dissent.
The Alberta court hearing the application for the final court order has the
discretion to alter the rights of dissent described in this document based on
the evidence presented at the hearing for the final court order.
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<PAGE> 139
Right to dissent
Under the interim order, a TeleBackup shareholder of record is entitled, in
addition to any other right it may have, to dissent and to be paid by TeleBackup
the fair value of TeleBackup common shares held by it. The fair value is
determined as of the close of business on the last business day before the day
on which the resolution approving the TeleBackup combination was adopted. A
TeleBackup shareholder may dissent only with respect to all of the shares held
by it or on behalf of any one beneficial owner and registered in the dissenting
shareholder's name.
What you must do if your shares are registered in the name of another person
Persons who are beneficial owners of TeleBackup common shares registered in
the name of a broker, custodian, nominee or other intermediary who wish to
dissent, should be aware that only the registered owner of the shares is
entitled to dissent. Therefore, a beneficial owner of TeleBackup common shares
desiring to exercise its right of dissent must make arrangements for the
TeleBackup common shares beneficially owned by it to be registered in its name
prior to the time the written objection to the resolution adopting the plan of
arrangement is required to be received by TeleBackup, or, alternatively, make
arrangements for the registered holder of TeleBackup common shares to dissent on
its behalf.
Required notice to be sent by a dissenting shareholder
A dissenting TeleBackup shareholder must send to TeleBackup a written
objection to the resolution adopting the plan of arrangement, which written
objection must be received by the corporate secretary of TeleBackup at the
registered office of TeleBackup before the TeleBackup meeting or by the chairman
of the meeting at or before the TeleBackup meeting. A TeleBackup shareholder
wishing to exercise the right to dissent with respect to its TeleBackup common
shares may not vote those shares at the TeleBackup meeting, either by the
submission of a proxy or by personally voting, in favour of the plan of
arrangement.
Value of shares and offer to purchase
An application may be made to the Alberta court by TeleBackup or by a
dissenting TeleBackup shareholder to fix the fair value of the dissenting
shareholder's TeleBackup common shares. If an application to the Alberta court
is made by either TeleBackup or a dissenting TeleBackup shareholder, TeleBackup
must, unless the Alberta court otherwise orders, send to each dissenting
TeleBackup shareholder a written offer to pay it an amount considered by the
board of directors of TeleBackup to be the fair value of the TeleBackup common
shares. The offer, unless the Alberta court otherwise orders, will be sent to
each dissenting TeleBackup shareholder at least 10 days before the date on which
the application is returnable, if TeleBackup is the applicant, or within 10 days
after TeleBackup is served with notice of the application, if a TeleBackup
shareholder is the applicant. The offer will be made on the same terms to each
dissenting TeleBackup shareholder and will be accompanied by a statement showing
how the fair value was determined.
A dissenting TeleBackup shareholder may make an agreement with TeleBackup
for the purchase of its TeleBackup common shares by TeleBackup in the amount of
TeleBackup's offer or otherwise at any time before the Alberta court pronounces
an order fixing the fair value of the TeleBackup common shares.
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<PAGE> 140
VERITAS
TELEBACKUP
Costs of pursuing an application
A dissenting TeleBackup shareholder is not required to give security for costs
in respect of an application and, except in special circumstances, will not be
required to pay the costs of the application and appraisal. On the application,
the Alberta court will make an order fixing the fair value of the TeleBackup
common shares of all dissenting TeleBackup shareholders who are parties to the
application, giving judgement in that amount against TeleBackup and in favour of
each of those dissenting TeleBackup shareholders, and fixing the time within
which TeleBackup must pay the amount due to the dissenting TeleBackup
shareholders. The Alberta court may in its discretion allow a reasonable rate of
interest on the amount payable to each dissenting TeleBackup shareholder
calculated from the date on which the TeleBackup shareholder ceases to have any
rights as a shareholder until the date of payment.
No further rights as a shareholder
Upon the plan of arrangement becoming effective, or upon the making of an
agreement between TeleBackup and the dissenting TeleBackup shareholder as to the
payment to be made by TeleBackup to the dissenting TeleBackup shareholder, or
upon the pronouncement of an Alberta court order, whichever first occurs, the
TeleBackup shareholder will cease to have any rights as a shareholder other than
the right to be paid the fair value of such shareholder's TeleBackup common
shares. The fair value shall be the amount agreed to between TeleBackup and the
TeleBackup shareholder or it shall be the amount of the judgement, as the case
may be.
Withdrawal of dissent
Until one of these events occurs, the TeleBackup shareholder may withdraw
its dissent, or TeleBackup may rescind the resolution adopting the plan of
arrangement, and in either event the dissent and appraisal proceedings relating
to that TeleBackup shareholder will be discontinued.
No payments for dissenters if TeleBackup would be insolvent
TeleBackup shall not make a payment to a dissenting TeleBackup shareholder
if there are reasonable grounds for believing that TeleBackup is or would after
the payment be unable to pay its liabilities as they become due, or that the
realizable value of the assets of TeleBackup would be less than the aggregate of
its liabilities. In these circumstances, TeleBackup must notify each dissenting
TeleBackup shareholder that it is unable lawfully to pay dissenting TeleBackup
shareholders for their shares. In that case, the dissenting TeleBackup
shareholder may, by written notice to TeleBackup within 30 days after receipt of
the notice, withdraw its written objection. Should the TeleBackup shareholder so
withdraw its objection, the TeleBackup shareholder will be reinstated to its
full rights as a shareholder. If the TeleBackup shareholder fails to withdraw
its objection, the shareholder retains a status as a claimant against TeleBackup
to be paid as soon as TeleBackup is lawfully entitled to do so or, in a
liquidation, to be ranked subordinate to creditors but prior to shareholders of
TeleBackup.
Treatment of shares if no dissenters' rights are permitted
All TeleBackup common shares held by TeleBackup shareholders who exercise
their right of dissent will, if the holders are ultimately entitled to be paid
the fair value of the shares, be deemed to be transferred to TeleBackup in
exchange for the shares' fair value as
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of the effective date of the TeleBackup combination. If the TeleBackup
shareholders ultimately are not so entitled to be paid the fair value, they will
be subject to the plan of arrangement on the same basis as all other TeleBackup
shareholders.
Maximum number of dissenting stockholders permitted
The TeleBackup combination agreement provides that it is a condition to the
obligations of New VERITAS to complete the TeleBackup combination that holders
of not more than 8% of the issued and outstanding TeleBackup common shares
exercise their right of dissent as described above. See "The TeleBackup
Combination Agreement -- Conditions to the TeleBackup combination" on page 134.
See also "The TeleBackup Combination -- Income tax considerations to TeleBackup
shareholders" on page 116.
No dissenters' rights for VERITAS or New VERITAS stockholders
Under Delaware law, neither VERITAS stockholders nor New VERITAS
stockholders will be entitled to dissenters' or appraisal rights with respect to
the TeleBackup combination.
INTERESTS OF PERSONS IN THE TELEBACKUP COMBINATION
Certain members of the board and officers of TeleBackup have interests in
the TeleBackup combination that are different from or in addition to the
interests in the TeleBackup combination of TeleBackup stockholders generally.
These interests are described below.
Employment and noncompetition agreements
At the closing of the TeleBackup combination, New VERITAS and TeleBackup
will enter into an employment agreement and a noncompetition agreement with each
of Dr. Byron Osing, the President and Chief Executive Officer of TeleBackup,
Thomas Glassford, the Chief Operating Officer of TeleBackup, and Bruce Meyer,
the Executive Vice President, Marketing and Sales of TeleBackup. The employment
agreement will provide for the terms of employment of these persons by
TeleBackup for a period of one year following the TeleBackup combination. The
noncompetition agreement provides for certain noncompetition covenants of the
abovementioned TeleBackup officers for a period of two years from the effective
time of the TeleBackup combination. See "Agreements Related to the TeleBackup
Combination -- Employment agreements" and "-- Noncompetition agreements" on
pages 143 and 144.
Indemnification of TeleBackup officers and directors
The TeleBackup combination agreement provides that all rights to
indemnification for TeleBackup employees, agents, directors and officers will
and remain in full force and effect after the plan of arrangement.
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VERITAS
TELEBACKUP
THE TELEBACKUP COMBINATION AGREEMENT
This section of this document describes the TeleBackup combination
agreement. A copy of this agreement is attached as Appendix G to this document.
The TeleBackup combination agreement has been assigned by VERITAS to New
VERITAS. The summary is materially complete but you should read the full and
complete text of the TeleBackup combination agreement, as it may contain
information that is important to you.
WHAT TELEBACKUP SECURITY HOLDERS WILL RECEIVE
Exchange of TeleBackup common shares
Upon the completion of the TeleBackup combination, each shareholder who is
a Canadian resident and who properly elects to receive Exchangeco exchangeable
shares will receive one Exchangeco class A non-voting share for each TeleBackup
common share they own. Each of these Exchangeco class A non-voting shares will
then be exchanged into a fraction of an Exchangeco exchangeable share equal to
the TeleBackup exchange ratio. Each Exchangeco exchangeable share is
exchangeable into one share of New VERITAS common stock or, if the NSMG
combination is not completed, VERITAS common stock.
If you are a Canadian resident and you want to receive exchangeable shares
for your TeleBackup common shares you need to:
- complete the election form accompanying these materials;
- sign the election form; and
- mail the election form in the enclosed return envelope or deliver it so
as to reach Montreal Trust Company of Canada, Corporate Trust Department,
Suite 600, 530-8th Avenue S.W., Calgary, Alberta not later than 4:30 p.m.
Calgary time on May 25, 1999, the business day before the TeleBackup
meeting.
Each shareholder who is not a Canadian resident or who has not properly
elected to receive Exchangeco exchangeable shares will receive one Exchangeco
class A non-voting share for each TeleBackup common share they own. Each
Exchangeco class A non-voting share will then be exchanged for a fraction of a
share of New VERITAS common stock or, if the NSMG combination is not completed,
a fraction of a share of VERITAS common stock, equal to the TeleBackup exchange
ratio.
The TeleBackup exchange ratio
The TeleBackup exchange ratio is calculated by dividing:
- a certain number of shares of New VERITAS common stock, which we will
call the TeleBackup combination shares, determined on the basis of the
average of the closing sales prices of one share of VERITAS common stock
on the Nasdaq National Market over the 10 day trading period ending 2
trading days preceding the closing of the TeleBackup combination by
- the total number of TeleBackup common shares outstanding as of the
effective time of the TeleBackup combination and the total number of
TeleBackup common shares issuable upon exercise of all TeleBackup options
then outstanding.
If that average stock price is more than $41.32 per share, the TeleBackup
combination shares will be the number of shares of New VERITAS common stock
determined by dividing $70,654,000 by that average stock price down to a minimum
of 1,555,000 shares.
If that average stock price is between $33.81 per share and $41.32 per
share, the TeleBackup combination shares will equal 1,710,000 shares of New
VERITAS common stock.
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If that average stock price is less than $33.81 per share, the TeleBackup
combination shares will equal the number of shares of New VERITAS common stock
determined by dividing $57,808,000 by that average stock price up to a maximum
of 1,900,000 shares.
The value of the consideration to be received by the TeleBackup
shareholders will, accordingly, vary depending on the market price per share of
VERITAS common stock. The table below illustrates:
- the TeleBackup exchange ratio determined at various illustrative VERITAS
stock prices;
- the value of the shares of New VERITAS common stock issuable in the
TeleBackup combination, including those issuable upon the exchange of the
Exchangeco exchangeable shares, per TeleBackup common share;
- the approximate total number of shares of New VERITAS common stock
issuable in exchange for the Exchangeco class A non-voting shares and
upon the exchange of the Exchangeco exchangeable shares at each New
VERITAS stock price; and
- and the total value of the consideration to be received by TeleBackup
shareholders and option holders.
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------
TELEBACKUP APPROXIMATE
EXCHANGE RATIO VALUE FOR EACH TOTAL NUMBER OF TOTAL VALUE OF
VERITAS PER TELEBACKUP NEW VERITAS CONSIDERATION
STOCK PRICE COMMON SHARE COMMON SHARE SHARES ISSUABLE TO BE RECEIVED
- -----------------------------------------------------------------------------------------
US $95.00 0.13233 US $12.5714 1,555,000 $147,725,000
90.00 0.13233 11.9097 1,555,000 139,950,000
85.00 0.13233 11.2481 1,555,000 132,175,000
80.00 0.13233 10.5864 1,555,000 124,400,000
75.00 0.13233 9.9248 1,555,000 116,625,000
70.00 0.13233 9.2631 1,555,000 108,850,000
65.00 0.13233 8.6015 1,555,000 101,075,000
60.00 0.13233 7.9398 1,555,000 93,300,000
55.00 0.13233 7.2782 1,555,000 85,525,000
50.00 0.13233 6.6165 1,555,000 77,750,000
45.44 0.13233 6.0131 1,555,000 70,659,200
- -----------------------------------------------------------------------------------------
45.00 0.13361 6.0125 1,570,089 70,654,005
43.00 0.13982 6.0123 1,643,116 70,653,988
41.32 0.14552 6.0129 1,710,000 70,657,200
- -----------------------------------------------------------------------------------------
41.00 0.14552 5.9663 1,710,000 70,110,000
40.00 0.14552 5.8208 1,710,000 68,400,000
35.00 0.14552 5.0932 1,710,000 59,850,000
33.81 0.14552 4.9200 1,710,000 57,815,100
- -----------------------------------------------------------------------------------------
33.00 0.14907 4.9193 1,751,758 57,808,014
32.00 0.15373 4.9194 1,806,500 57,808,000
30.43 0.16166 4.9193 1,899,704 57,807,992
- -----------------------------------------------------------------------------------------
30.00 0.16168 4.8504 1,900,000 57,000,000
- ---------------------
</TABLE>
The average of the closing price of the VERITAS common stock for the 10
trading days ended March 31, 1999, was $82.3125 per share.
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VERITAS
TELEBACKUP
On March 31, 1999, there were 11,363,545 TeleBackup common shares, and
options to purchase 387,800 TeleBackup common shares outstanding.
The above description of the TeleBackup exchange ratio assumes that
TeleBackup has exercised its royalty buy-out rights under its agreement with
Datasafe Communications Ltd. TeleBackup management anticipates that the
TeleBackup option to buy-out its Datasafe royalty obligation will be exercised
prior to the closing of the TeleBackup combination. In the event this obligation
is outstanding on the closing date of the TeleBackup combination, the number of
TeleBackup combination shares used for the purpose of calculating the TeleBackup
exchange ratio would be reduced and therefore the exchange ratio would decrease.
Based on the capitalization of TeleBackup on March 31, 1999, and assuming a
TeleBackup exchange ratio of 0.13233, an aggregate of 1,503,738 shares of New
VERITAS common stock would be issuable to former holders of TeleBackup common
shares assuming all of the Exchangeco exchangeable shares were exchanged for
shares of New VERITAS common stock.
Fractional shares
No fractional shares will be issued in the TeleBackup combination. Instead,
each Exchangeco shareholder who would otherwise be entitled to a fraction of an
Exchangeco exchangeable share or a fraction of New VERITAS common stock, as the
case may be, shall be paid an amount in Canadian Dollars, rounded to the nearest
whole cent. The amount shall equal the product obtained when the fraction is
multiplied by the Canadian Dollar equivalent of the average closing sales price
of VERITAS common stock on the Nasdaq National Market over the period of 10
trading days ending 2 trading days before the closing of the TeleBackup
combination. See "-- TeleBackup combination mechanics" on page 134.
Exchange of TeleBackup options
Upon the closing of the TeleBackup combination, each TeleBackup option will
be exchanged for a New VERITAS option exercisable for a number of whole shares
of New VERITAS common stock equal to the number of TeleBackup common shares
subject to the TeleBackup option multiplied by the TeleBackup exchange ratio.
The exercise price per share of New VERITAS common stock will equal the US
dollar equivalent of the exercise price per share of the TeleBackup option
divided by the TeleBackup exchange ratio. In this calculation, the number of
shares of New VERITAS common stock will be rounded down to the nearest whole
number of shares and the total exercise price for the New VERITAS option will be
reduced by the exercise price of any fractional share. All other terms of the
TeleBackup options will remain unchanged.
As of March 31, 1999, 387,800 options to purchase TeleBackup common shares
were outstanding. Assuming that the same number of TeleBackup options are
outstanding at the closing of the TeleBackup combination, and further assuming a
TeleBackup exchange ratio of 0.13233, New VERITAS options to purchase
approximately 51,318 shares of New VERITAS common stock will be issued in
exchange for these TeleBackup options at that time.
CLOSING DATE FOR THE TELEBACKUP COMBINATION
Subject to the terms and conditions of the TeleBackup combination
agreement, the closing of the TeleBackup combination will take place at a time
to be mutually agreed upon by New VERITAS and TeleBackup, and, in any event,
will take place no later than the third business day after all conditions to the
closing have been satisfied or waived. The TeleBackup combination will become
effective immediately after the issuance of a final
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<PAGE> 145
order of the Alberta court approving the plan of arrangement and the issuance by
the Registrar under the Alberta Act of a certificate of amalgamation for New
TeleBackup and a certificate of amendment for Exchangeco.
TELEBACKUP COMBINATION MECHANICS
Under the plan of arrangement:
- the articles of incorporation of Exchangeco will be amended to remove the
private company restrictions;
- TeleBackup will amalgamate with Amalco to form New TeleBackup;
- holders of TeleBackup common shares, other than holders of TeleBackup
common shares who have lawfully exercised their rights of dissent, will
exchange their TeleBackup common shares for an equal number of Exchangeco
class A non-voting shares;
- New TeleBackup will issue New TeleBackup common voting shares to
Exchangeco in exchange for its Amalco common voting shares and in
consideration of the issuance of Exchangeco class A non-voting shares to
the holders of TeleBackup common shares;
- New TeleBackup will issue New TeleBackup preferred non-voting shares to
New VERITAS in exchange for its Amalco preferred non-voting shares;
- the articles of incorporation of Exchangeco will be amended to create the
Exchangeco exchangeable shares;
- Exchangeco, VERITAS, New VERITAS and a Canadian trust company will enter
into the voting, support and exchange trust agreement;
- New VERITAS will issue the special voting stock to the Trustee;
- Exchangeco will issue a fraction of an Exchangeco exchangeable share
equal to the TeleBackup exchange ratio described above in exchange for
each Exchangeco class A non-voting share held by Canadian residents who
have properly elected to receive Exchangeco exchangeable shares; and
- VERITAS will exercise a right to acquire all of the remaining issued and
outstanding Exchangeco class A non-voting shares by issuing to the
holders thereof a fraction of a share of New VERITAS common stock equal
to the TeleBackup exchange ratio for each Exchangeco class A non-voting
share.
CONDITIONS TO THE TELEBACKUP COMBINATION
Court approval
Under Alberta law, the plan of arrangement must be approved by the Alberta
court. Prior to the mailing of this document, TeleBackup obtained an interim
order of the Alberta court providing for the calling and holding of the
TeleBackup meeting and other procedural matters. A copy of the interim order is
attached to this document as Appendix J. The notice of petition for the final
order of the Alberta court approving the plan of arrangement is attached to this
document as Appendix K.
Subject to the approval of the plan of arrangement by the TeleBackup
shareholders at the TeleBackup meeting, the hearing relating to the final court
order is scheduled to take place on May 27, 1999 at 1:15 p.m. Calgary time in
the Alberta court at Calgary. All
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VERITAS
TELEBACKUP
TeleBackup shareholders who wish to participate or be represented, or to present
evidence or arguments, at that hearing must serve and file a notice of
appearance as set out in the notice of petition for the final court order and
satisfy any other requirements. At the hearing of the petition in respect of the
final court order, the Alberta court will consider, among other things, the
fairness and reasonableness of the plan of arrangement. The Alberta court may
approve the plan of arrangement as proposed or as amended in any manner the
Alberta court may direct, subject to compliance with any terms and conditions,
if any, as the Alberta court deems fit.
Assuming the final court order is granted and the other conditions to the
TeleBackup combination agreement are satisfied or waived, it is anticipated that
articles of arrangement will be filed to give effect to the plan of arrangement.
The voting, support and exchange trust agreement will then be executed and
delivered, and the various other documents necessary to consummate the
transactions contemplated under the TeleBackup combination agreement will be
executed and delivered.
It is presently anticipated that the TeleBackup combination will become
effective on or about May 31, 1999.
Other conditions
The obligations of New VERITAS and TeleBackup to complete the TeleBackup
combination are subject to a number of conditions, including among others:
- the approval of the plan of arrangement and the TeleBackup combination
agreement by the TeleBackup shareholders;
- the approval of the restated certificate of incorporation by the VERITAS
stockholders;
- the absence of any event, change or effect that is materially adverse to
a party's condition, financial or otherwise, properties, assets,
liabilities, businesses, operations, results of operations or prospects,
excluding effects resulting from changes in general economic conditions
or conditions generally affecting the personal computer application
software industry or a decline in either party's stock price;
- the effectiveness of the New VERITAS registration statement with respect
to the issuance of shares of New VERITAS common stock subject to the
Exchangeco exchangeable shares and the absence of any stop order or
proceedings seeking a stop order with respect to the New VERITAS
registration statement or this document; and
- holders of no more than 8% of the TeleBackup common shares shall have
notified TeleBackup of their intention to dissent from the TeleBackup
combination.
In addition to the conditions listed above, the obligations of the parties
to effect the TeleBackup combination are subject to additional customary
conditions, including:
- the New VERITAS common stock to be issued in the TeleBackup combination
shall have been approved for quotation on the Nasdaq National Market,
subject to notice of issuance;
- the truth and accuracy of the representations and warranties of a party
contained in the TeleBackup combination agreement on the closing date
except where the breach of a representation and warranty has not resulted
in a material adverse effect on that party;
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<PAGE> 147
- compliance in all material respects with the parties' respective
covenants contained in the TeleBackup combination agreement;
- the other party shall have obtained on or before the effective time, all
permits, consents, and authorizations required to be obtained pursuant to
the TeleBackup combination agreement;
- the receipt by each of VERITAS and TeleBackup of an opinion of their
respective counsel as to the tax consequences of the TeleBackup
combination; and
- any applicable waiting periods 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
TeleBackup combination, shall have been issued by any federal or state
court or governmental agency which remains in effect.
Any of the conditions to the obligations of a party to close the TeleBackup
combination may be waived by that party.
REPRESENTATIONS AND WARRANTIES
The TeleBackup combination agreement contains certain customary
representations and warranties of the parties relating to, among other things,
their respective organizations, capital structures, authority to enter into the
transaction, filings with securities regulatory authorities, compliance with
applicable laws, the accuracy of information supplied for this document,
intellectual property rights, disclosure of all material information and other
matters. TeleBackup made additional representations and warranties to New
VERITAS including representations relating to TeleBackup's operations, financial
condition and payment of taxes.
COVENANTS
Under the TeleBackup combination agreement, TeleBackup has covenanted that
it will maintain its business and will not take certain actions outside the
ordinary course without New VERITAS' consent and it will use its best efforts to
consummate the TeleBackup combination.
TeleBackup has also agreed to advise New VERITAS of material changes and to
provide New VERITAS with interim financial information. Further, the parties
have agreed to apply for and use their best efforts to obtain all regulatory and
other consents and approvals required for the consummation of the transactions
contemplated by the TeleBackup combination agreement. In addition, each party
has agreed to use best efforts to complete the transactions contemplated by the
TeleBackup combination agreement, including the preparation and mailing of this
document and to provide the other party and its counsel with the information as
they may reasonably request. New VERITAS additionally agreed that all rights to
indemnification for employees, agents, directors and officers of TeleBackup will
remain in effect after the TeleBackup combination. New VERITAS also agreed to
list the New VERITAS common stock issuable under the plan of arrangement,
including those issuable upon the exchange of Exchangeco exchangeable shares, on
the Nasdaq National Market, to cause the Exchangeco class A non-voting shares
and the Exchangeco exchangeable shares to be listed on the Alberta Stock
Exchange and to cause New TeleBackup to continue TeleBackup's historic business
or to use a significant portion of TeleBackup's business assets in a business.
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VERITAS
TELEBACKUP
RESTRICTIONS ON SOLICITING ALTERNATIVE PROPOSALS
Until the earlier of the closing of the TeleBackup combination or the
termination of the TeleBackup combination agreement, TeleBackup will not and
will use best efforts to ensure that none of TeleBackup's directors, officers,
employees, agents, representatives or affiliates will:
- solicit, initiate or engage in discussions or negotiations with any
person, encourage submission of any inquiries, proposals or offers by any
person, or take any other action intended or designed to facilitate the
efforts of any person, other than New VERITAS, to acquire TeleBackup or
any material portion of its capital stock or assets;
- provide nonpublic information with respect to TeleBackup or afford access
to the properties, books or records of TeleBackup to any person other
than New VERITAS, in connection with a possible proposal described above;
- make or authorize any statement, recommendation or solicitation in
support of any possible proposal described above by any person, other
than New VERITAS; or
- enter into an agreement providing for a possible proposal described above
with any person, other than New VERITAS.
Notwithstanding the restrictions described above, prior to the TeleBackup
meeting, TeleBackup and its directors are not prohibited from:
- engaging in discussions or negotiations with a party concerning an
unsolicited proposal described above;
- providing non-public information with respect to TeleBackup that has been
provided to New VERITAS; or
- making any statement or recommendation in support of a proposal described
above.
In each case TeleBackup's directors must first determine in good faith,
based upon advice of outside legal counsel, that these actions are required in
the exercise of the TeleBackup board of directors' fiduciary duties under
applicable law. In these circumstances, TeleBackup must first notify New VERITAS
of the determination and provide New VERITAS with a copy of any proposal or
other written communication concerning a possible proposal and copies of all
documents containing or referring to non-public information of TeleBackup
supplied to a third party. TeleBackup has agreed to promptly communicate to New
VERITAS the terms of any offer or proposal to enter negotiations relating to a
proposal that it may receive and the identity of the person making such offer or
proposal.
INDEMNIFICATION BY TELEBACKUP AFFILIATES
The following affiliates of TeleBackup have agreed to indemnify New VERITAS
and its officers, directors, agents, employees and any person who controls New
VERITAS from and against any claims, demands, actions, losses, liabilities,
damages or expenses arising out of any misrepresentation, breach of or default
under representations, warranties or covenants made by TeleBackup:
- Dr. Byron Osing;
- Thomas Glassford;
- Bruce Meyer;
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<PAGE> 149
- William Copithorne;
- Lynn Thurlow;
- Fred Calloway;
- Cal Manz;
- Eamon Hoey;
- Irphan (John) Rajani;
- Kenbeau Ltd;
- 708204 Alberta Ltd; and
- 713801 Alberta Ltd.
To secure these indemnification obligations, 10% of the total number of
Exchangeco exchangeable shares or New VERITAS common stock to be issued to these
TeleBackup affiliates in the TeleBackup combination will be deposited in escrow
under an escrow agreement to be entered into at closing. An indemnification
claim will be settled by returning to New VERITAS a number of Exchangeco
exchangeable shares or New VERITAS common stock having a value equal to the
claim. The value of the Exchangeco exchangeable shares or New VERITAS common
stock will be based on the closing price of VERITAS common stock on the Nasdaq
National Market on the closing date of the TeleBackup combination. See
"Agreements Related to the TeleBackup Combination -- Escrow agreement" on page
143.
The escrow shares will represent VERITAS' or New VERITAS' only source of
recovery if it has a claim for indemnification. It will not be able to recover
cash from these TeleBackup affiliates or any shares other than those which were
placed in escrow. Furthermore, VERITAS or New VERITAS may not make a claim for
indemnification until the aggregate incurred damages exceeds $200,000, in which
case all such damages become recoverable. These limits on the indemnification do
not apply in connection with an intentional misrepresentation or fraud or in
connection with criminal matters.
TERMINATION OF TELEBACKUP COMBINATION AGREEMENT
The TeleBackup combination agreement may be terminated by mutual agreement
of the parties at any time prior to the closing of the TeleBackup combination.
Also, either party may terminate the TeleBackup combination agreement prior to
the closing of the TeleBackup combination if:
- there has been a breach of any representation, warranty, covenant or
agreement contained in the TeleBackup combination agreement on the part
of the other party which could give rise to a material adverse effect,
and the breach has not been cured within 15 business days after notice;
- all conditions for closing the TeleBackup combination have not been
satisfied or waived by June 1, 1999, other than as a result of (a) a
breach by the terminating party, or (b) in the case of termination by
TeleBackup, other than as a result of a breach by certain TeleBackup
directors, officers and shareholders of the TeleBackup affiliate
agreements or voting agreements;
- any required approval of the shareholders of TeleBackup or the
stockholders of VERITAS shall not have been obtained; or
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<PAGE> 150
VERITAS
TELEBACKUP
- any permanent injunction or other order of a U.S. or Canadian federal,
provincial or state court shall have become final or non-appealable and
would (a) make illegal or otherwise restrain or prohibit the consummation
of the plan of arrangement, (b) prohibit New VERITAS' ownership or
operation of all or any material portion of the business or assets of
TeleBackup, or (c) compel New VERITAS to dispose of or hold separate all
or any material portion of the business or assets of TeleBackup.
The TeleBackup combination agreement may also be terminated by New VERITAS
if the TeleBackup board of directors exercises its right to engage in
discussions or negotiations with or furnish information to a third party in
connection with a proposal described earlier or makes any recommendation to the
TeleBackup shareholders against the TeleBackup combination and the plan of
arrangement or in support of a proposal described earlier.
The TeleBackup combination agreement may also be terminated by TeleBackup
if the TeleBackup board of directors determines that it is required, or
advisable, by reason of its fiduciary duties to recommend to the TeleBackup
shareholders that they vote against the TeleBackup combination and the plan of
arrangement and approve instead a proposal. Any proposal must be financially
more favorable to the TeleBackup shareholders than the arrangement and must be
the subject of a firm written offer from a third party that is capable of
consummating the proposal.
TERMINATION FEES
TeleBackup shall pay VERITAS a fee of $US3.0 million if the TeleBackup
combination agreement is terminated:
- by either party as a result of the failure of TeleBackup's shareholders
to approve the TeleBackup combination and the plan of arrangement;
- by New VERITAS under to an acquisition proposal termination described in
the next to the last paragraph of the preceding section; or
- by TeleBackup under a superior proposal termination;
New VERITAS would also be granted a worldwide, perpetual, royalty-free and fully
paid license to use, modify, create derivative works of, copy and distribute
TeleBackup's TSInfoPro software in source code and object code form.
If the TeleBackup combination agreement is terminated for the above
reasons, and TeleBackup enters into an agreement regarding an acquisition
proposal or consummates an acquisition proposal within 12 months after the date
of the termination, TeleBackup will pay New VERITAS the additional sum of
US$10.0 million.
New VERITAS is not entitled to receive any payment if it is in breach of
the TeleBackup combination agreement or the VERITAS stockholders have not
approved the restated certificate of incorporation.
If the TeleBackup combination agreement is terminated as a result of the
failure of VERITAS' stockholders to approve the restated certificate of
incorporation, then New VERITAS shall promptly pay to TeleBackup a fee of US$2.0
million. This amount will be credited by TeleBackup as pre-paid royalties of New
VERITAS under the source distribution license agreement and, upon this payment,
New VERITAS shall similarly have a license to TeleBackup's TSInfoPro software in
source code and object code form.
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TeleBackup is not entitled to receive any payment if it is in breach of the
TeleBackup combination agreement or if the TeleBackup shareholders have not
approved the plan of arrangement.
The payment of these fees will be the exclusive remedy against the
terminating party for terminating the TeleBackup combination agreement.
EXPENSES
All fees and expenses incurred in connection with the TeleBackup
combination will be paid by the party incurring the fees and expenses, whether
or not the TeleBackup combination is consummated.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
TeleBackup's representations and warranties will remain in effect after the
combination for a limited time
TeleBackup's representations and warranties relating to its financial
statements remain effective until New VERITAS issues a press release with
respect to its audited financial statements for the 1999 fiscal year or January
31, 2000, whichever occurs later. The other TeleBackup representations and
warranties remain effective for a period of one year after the closing of the
TeleBackup combination. New VERITAS may only bring a claim for breach of a
representation or warranty by TeleBackup during the time when the
representations and/or warranties remain in effect.
New VERITAS' representations and warranties will not remain in effect
The representations and warranties of New VERITAS contained in the
TeleBackup combination agreement do not survive the closing of the TeleBackup
combination.
AMENDMENT AND WAIVER OF THE TELEBACKUP COMBINATION AGREEMENT
Any term or provision of the TeleBackup combination agreement may be
amended or waived at any time in writing signed by all of the parties. After
approval by a party's stockholders, no amendment will be made which by law
requires the further approval of that party's stockholders without obtaining the
further approval.
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VERITAS
TELEBACKUP
AGREEMENTS RELATED TO THE TELEBACKUP COMBINATION
VOTING AGREEMENTS
Voting agreements with VERITAS
The following have entered into voting agreements with VERITAS:
- Dr. Byron Osing;
- Thomas Glassford;
- Bruce Meyer;
- William Copithorne;
- Lynn Thurlow;
- Karsten Nielsen;
- Fred Calloway;
- Cal Manz;
- Eamon Hoey;
- Irphan (John) Rajani;
- Kenbeau Ltd;
- 708204 Alberta Ltd; and
- 713801 Alberta Ltd.
Terms of the voting agreements with VERITAS
Under these voting agreements, each person has agreed to vote their
TeleBackup common shares in favor of approval of the TeleBackup combination and
the plan of arrangement. They have also agreed to vote against approval of any
action or agreement that would result in a breach of any representation,
warranty, covenant or obligation of TeleBackup in the TeleBackup combination
agreement.
These stockholders have also agreed that they will not:
- solicit or initiate discussions or engage in negotiations with any person
other than New VERITAS;
- take any action intended, designed or reasonably likely to facilitate the
efforts of another person to acquire TeleBackup or any material portion
of its capital stock;
- furnish any nonpublic information regarding TeleBackup to another person;
- engage in discussions with another person;
- approve, endorse or recommend any proposal; or
- enter into any letter of intent or agreement contemplating that type of
transaction.
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<PAGE> 153
Voting agreements with TeleBackup
The following have entered into voting agreements with TeleBackup:
- Warburg Pincus Investors, L.P.;
- Mark Leslie;
- Fred van den Bosch;
- Peter Levine;
- Joseph Rizzi;
- Roel Pieper;
- Jay Jones;
- Ken Lonchar;
- Geoff Squire;
- Paul Sallaberry;
- David Spenhoff;
- Steven Brooks; and
- William Janeway.
Terms of voting agreements with TeleBackup
These persons have agreed to vote their VERITAS common stock in favor of
approval of the restated certificate of incorporation of VERITAS and against any
action or agreement that would result in a breach of any representation,
warranty, covenant or obligation of VERITAS in the TeleBackup combination
agreement.
AGREEMENTS WITH TELEBACKUP AFFILIATES
The parties who signed the voting agreements with VERITAS described above
also entered into agreements where they agreed that they will not sell,
transfer, exchange, pledge or otherwise dispose of any securities they receive
in TeleBackup combination unless:
- the transaction is permitted under the provisions of rule 145(d) under
the U.S. Securities Act;
- the person has provided a written opinion of counsel reasonably
satisfactory to New VERITAS and to New VERITAS' counsel that no
registration under the Securities Act would be required in connection
with the proposed sale or transfer;
- a registration statement under the Securities Act covering the
transaction has been filed with the SEC and made effective under the
Securities Act; or
- an authorized representative of the SEC has rendered written advice to
the person to the effect that the SEC would take no action with respect
to the proposed disposition.
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<PAGE> 154
VERITAS
TELEBACKUP
ESCROW AGREEMENT
Deposit of shares into escrow
New VERITAS, Chase Manhattan Bank and the TeleBackup affiliates will enter
into an escrow agreement. Under this agreement, certificates representing 10% of
the total number of exchangeable shares which may be issued in the TeleBackup
combination will be deposited with Chase Manhattan Bank as collateral to secure
the indemnification obligations of the TeleBackup affiliates under the
TeleBackup combination agreement. See "The TeleBackup Combination
Agreement -- Indemnification by TeleBackup affiliates" on page 137 for
information on the indemnification obligations.
Release of shares from escrow
The escrow shares will be released from escrow one year after the closing
of the TeleBackup combination. Any shares that have been delivered to New
VERITAS in satisfaction of indemnification claims and any shares that are
subject to pending but unresolved indemnification claims will be deducted from
the shares to be distributed. So long as the escrow shares are held in escrow,
the holders will be entitled to vote their escrow shares and will retain all
incidents of ownership of the escrow shares that are not inconsistent with the
terms of the TeleBackup combination agreement. Holders are entitled to receive
any cash dividends or other distributions made in respect to the escrow shares,
except for dividends paid in shares of New VERITAS common stock which will also
be placed in escrow.
How escrow claims are resolved
Notice. Promptly upon becoming aware of any claim giving rise to
indemnification rights under the TeleBackup combination agreement, New VERITAS
will provide notice of the claim to the representative of the TeleBackup
affiliates and the escrow agent.
Uncontested claims. If the representative does not contest the claim or pay
the amount demanded within 60 days of the notice, the escrow agent will transfer
escrow shares to New VERITAS having a value equal to the amount of the claim.
The value of the escrow shares is based on the closing price of VERITAS common
stock on the Nasdaq National Market on the closing date of the TeleBackup
combination.
Contested claims. If the representative contests the claim, matters that
are subject to third party claims brought against New VERITAS in a litigation or
arbitration will await the final decision, award or settlement of the action.
Matters that are subject to direct claims by New VERITAS will be settled by
binding arbitration.
EMPLOYMENT AGREEMENTS
Dr. Byron Osing, Mr. Thomas Glassford and Mr. Bruce Meyer will each enter
into an employment agreement with New VERITAS and TeleBackup. These agreements
provide that they will be employed by TeleBackup for a period of one year
following consummation of the TeleBackup combination. Following this one year
period, either New VERITAS, TeleBackup or the relevant employee can terminate
the employment for any reason.
Dr. Osing's agreement
Dr. Osing will serve as a Vice President and General Manager of a business
group within New VERITAS and will have an annual base salary of $120,000
together with
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target annual bonus compensation of $120,000 subject to achieving certain
business objectives.
Mr. Glassford's agreement
Mr. Glassford will serve as a Senior Manager, Software Engineering and will
have an annual base salary of C$105,000, together with target annual bonus
compensation of C$20,000 subject to achieving certain business objectives.
Mr. Meyer's agreement
Mr. Meyer will serve as Vice President, Remote Backup Products, and will
have an annual base salary of $90,000, together with target annual sales
commission compensation of $90,000.
Stock options
Dr. Osing, Mr. Glassford and Mr. Meyer will also receive options to
purchase shares of New VERITAS common stock. These awards will be similar to
those granted to employees of New VERITAS holding similar positions. The options
will have an exercise price per share equal to the fair market value of the New
VERITAS common stock on the date of grant and will be subject to the standard
vesting criteria generally applicable to New VERITAS employee stock option
grants.
Severance payments
The employment agreements also provide for severance payments to the
employees in the event of the termination of their employment without cause
during the term of the agreement.
NONCOMPETITION AGREEMENTS
Dr. Osing, Mr. Glassford and Mr. Meyer will each enter into noncompetition
agreements with New VERITAS and TeleBackup. These noncompetition agreements
provide that, for a period of two years following the closing of the TeleBackup
combination, the person will not engage in any business that is competitive with
or substantially similar to the business conducted by TeleBackup at or prior to
consummation of the TeleBackup combination.
These persons have also agreed that, during this period, they will not
solicit business on behalf of anyone other than TeleBackup or New VERITAS from
any customer of TeleBackup. Furthermore, these persons will not solicit any
employee or consultant of New VERITAS or TeleBackup to terminate their
employment or services with New VERITAS or TeleBackup.
VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT
At the closing of the TeleBackup combination, New VERITAS, VERITAS,
Exchangeco and Montreal Trust Company of Canada, as trustee, will enter into a
voting, support and exchange trust agreement. The agreement will provide for,
among other things:
- the issuance of the special voting stock to the trustee for the benefit
of the holders of the Exchangeco exchangeable shares and the mechanism by
which the holders receive notice of, and vote at, New VERITAS stockholder
meetings;
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VERITAS
TELEBACKUP
- the obligations of New VERITAS in connection with declaring dividends,
distributions or other rights with respect to the New VERITAS common
stock to ensure that the holders of Exchangeco exchangeable shares
receive equivalent dividends, distributions or rights; and
- the exchange rights of the trustee for the benefit of the holders of the
Exchangeco exchangeable shares in the event of Exchangeco's or New
VERITAS' insolvency or liquidation. See "Description of Exchangeco Share
Capital -- Voting, support and exchange trust agreement" on page 264.
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NEW VERITAS UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
consist of the New VERITAS unaudited pro forma combined condensed statement of
operations for the year ended December 31, 1998 and the New VERITAS unaudited
pro forma combined condensed balance sheet as of December 31, 1998.
What these pro forma statements show
The New VERITAS unaudited pro forma combined condensed financial statements
give effect to the NSMG combination and the TeleBackup combination accounted for
using the purchase method of accounting. The New VERITAS unaudited pro forma
combined condensed statement of operations for the year ended December 31, 1998
assumes the NSMG combination and the TeleBackup combination took place on
January 1, 1998. The New VERITAS unaudited pro forma combined condensed balance
sheet assumes the NSMG combination and the TeleBackup combination took place on
December 31, 1998.
The New VERITAS unaudited pro forma combined condensed statement of
operations combine VERITAS' and TeleBackup's historical results of operations
for the year ended December 31, 1998 with the Network & Storage Management
Group's twelve months ended January 1, 1999.
Basis of presentation
The New VERITAS unaudited pro forma combined condensed financial statements
reflect the NSMG combination and the TeleBackup combination accounted for using
the purchase method of accounting and have been prepared on the basis of
assumptions described in the notes including assumptions relating to the
allocation of the amount of consideration paid, to the assets and liabilities of
the Network & Storage Management Group and TeleBackup based upon preliminary
estimates of their fair value. The actual allocation of the consideration paid
may differ from those assumptions reflected in the New VERITAS unaudited pro
forma combined condensed financial statements after valuations and other
procedures to be performed after the closing of the NSMG combination and the
TeleBackup combination are completed.
Charges for in-process research and development
New VERITAS expects to incur charges to income related to in-process
research and development currently estimated at $101.2 million as a result of
the NSMG combination and $1.9 million as a result of the TeleBackup combination.
Restructuring charges
In addition, as a result of the NSMG combination, New VERITAS expects to
incur a restructuring charge upon closing, currently expected in the second
quarter of 1999, in the range of $8.0 million to $11.0 million, primarily
related to exit costs with respect to duplicate facilities of VERITAS which New
VERITAS plans to vacate. These costs are in addition to the liability for the
estimated costs to vacate facilities of the Network & Storage Management Group
business which will become duplicative upon the closing of the NSMG combination,
which liability will be assumed by New VERITAS and included as a part of the
purchase price. The New VERITAS unaudited pro forma combined condensed balance
sheet includes the effect of these charges; however, the New VERITAS unaudited
pro forma combined condensed statements of operations do not reflect these
charges since they are non-recurring. These charges will be reflected in New
VERITAS'
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VERITAS SEAGATE
SOFTWARE
TELEBACKUP
consolidated financial statements in the period the NSMG combination and
TeleBackup combination are consummated.
These pro forma unaudited combined condensed financial statements should be
read with each company's financial statements
The New VERITAS unaudited pro forma combined condensed financial statements
should be read in conjunction with the related notes included in this document
and the audited financial statements of VERITAS, the Network & Storage
Management Group and TeleBackup, including the notes to each, that are included
elsewhere, or incorporated by reference, in this document. The New VERITAS
unaudited pro forma combined condensed financial statements do not necessarily
indicate what the actual operating results or financial position would have been
had the NSMG combination and the TeleBackup combination taken place on January
1, 1998 or December 31, 1998. They also do not purport to indicate New VERITAS'
future results of operations or financial position.
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NEW VERITAS UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NEW
VERITAS NETWORK & STORAGE VERITAS
SOFTWARE MANAGEMENT TELEBACKUP PRO FORMA
CORPORATION GROUP SYSTEMS INC. COMBINED
YEAR TWELVE MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, JANUARY 1, DECEMBER 31, PRO FORMA DECEMBER 31,
1998 1999 1998 ADJUSTMENTS 1998
------------ ----------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net revenue:
User license fees................... $167,703 $188,072 $ 934 $ (100)(15) $ 356,609
Services............................ 43,162 11,061 1,376 (1,050)(15) 54,549
-------- -------- ------- --------- ----------
Total net revenue............. 210,865 199,133 2,310 (1,150) 411,158
Cost of revenue:
User license fees................... 8,798 11,981 211 (700)(15) 20,290
Services............................ 20,663 2,917 345 2,384(2) 26,309
Amortization of developed
technology........................ -- 3,985 -- 58,425(6) 64,060
1,650(12)
-------- -------- ------- --------- ----------
Total cost of revenue......... 29,461 18,883 556 61,759 110,659
-------- -------- ------- --------- ----------
Gross profit.......................... 181,404 180,250 1,754 (62,909) 300,499
Operating expenses:
Selling and marketing............... 76,392 75,905 994 (2,384)(2) 150,907
Research and development............ 40,239 33,677 824 74,740
General and administrative.......... 10,505 21,121 930 32,556
In-process research and
development....................... 600 6,800 -- 7,400
Amortization of goodwill and other
intangibles....................... -- 10,380 -- 719,999(6) 761,482
31,103(12)
-------- -------- ------- --------- ----------
Total operating expenses...... 127,736 147,883 2,748 748,718 1,027,085
-------- -------- ------- --------- ----------
Income (loss) from operations......... 53,668 32,367 (994) (811,627) (726,586)
Interest and other income, net........ 11,821 423 -- 12,244
Interest expense...................... (5,700) (240) (65) (6,005)
-------- -------- ------- --------- ----------
Income (loss) before income taxes..... 59,789 32,550 (1,059) (811,627) (720,347)
Provision for (benefit from) income
taxes............................... 8,141 15,121 -- (47,188)(14) (23,926)
-------- -------- ------- --------- ----------
Net income (loss)..................... $ 51,648 $ 17,429 $(1,059) $(764,439) $ (696,421)
======== ======== ======= ========= ==========
Net income (loss) per share --basic... $ 1.10 $ (8.38)
======== ==========
Net income (loss) per
share -- diluted.................... $ 1.00 $ (8.38)
======== ==========
Number of shares used in computing per
share amounts -- basic.............. 47,013 36,110 83,123
======== ========= ==========
Number of shares used in computing per
share amounts -- diluted............ 51,671 31,452 83,123
======== ========= ==========
</TABLE>
See accompanying Notes to New VERITAS Unaudited Pro Forma
Combined Condensed Financial Statements.
148
<PAGE> 160
VERITAS SEAGATE
SOFTWARE
TELEBACKUP
NEW VERITAS UNAUDITED PRO FORMA COMBINED
CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
NEW
VERITAS NETWORK & STORAGE VERITAS
SOFTWARE MANAGEMENT TELEBACKUP PRO FORMA
CORPORATION GROUP SYSTEMS INC. COMBINED
DECEMBER 31, JANUARY 1, DECEMBER 31, PRO FORMA DECEMBER 31,
1998 1999 1998 ADJUSTMENTS 1998
------------ ----------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $139,086 $ $ 4,001 $ 21,011(1) $ 164,098
Short-term investments.............. 72,040 -- -- 72,040
Loan receivable..................... -- 21,011 (21,011)(1) --
Accounts receivable................. 52,697 23,706 427 76,830
Other current assets................ 13,509 4,884 20 (203)(7) 15,210
(3,000)(15)
-------- --------- ------- ---------- ----------
Total current assets.......... 277,332 49,601 4,448 (3,203) 328,178
Long-term investments................. 31,925 -- -- 31,925
Property and equipment, net........... 26,518 11,455 560 38,533
Goodwill and other intangibles, net... -- 34,891 -- (34,891)(1) 3,244,706
3,113,695(1)
131,011(8)
Other assets.......................... 13,342 -- -- 13,342
-------- --------- ------- ---------- ----------
Total assets.................. $349,117 $ 95,947 $ 5,008 $3,206,612 $3,656,684
======== ========= ======= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................... $ 4,958 $ 4,530 $ 171 $ -- $ 9,659
Accrued compensation and benefits... 11,267 10,886 -- 22,153
Other accrued liabilities........... 11,196 9,122 112 (700)(15) 19,730
Income taxes payable................ 13,424 12,704 -- 26,128
Accrued acquisition and
restructuring costs............... -- -- -- 33,500(3) 51,500
7,000(9)
11,000(16)
Deferred revenue.................... 37,645 5,790 1,850 (3,069)(1) 40,366
(1,850)(15)
-------- --------- ------- ---------- ----------
Total current liabilities..... 78,490 43,032 2,133 45,881 169,536
Non-current liabilities:
Convertible subordinated notes...... 100,000 -- -- 100,000
Other non-current liabilities....... 773 240 196 1,209
Deferred income taxes............... -- 1,021 -- 172,800(7) 176,893
3,072(13)
-------- --------- ------- ---------- ----------
Total non-current
liabilities................. 100,773 1,261 196 175,872 278,102
Stockholders' equity:
Common stock........................ 199,858 258,884 6,159 2,769,340(4) 3,353,600
119,359(10)
Accumulated deficit................. (29,416) (207,230) (3,286) 106,030(5) (143,966)
1,386(11)
(450)(15)
(11,000)(16)
Deferred compensation............... (32) -- -- (32)
Accumulated other comprehensive
income (loss)..................... (556) -- (194) 194(8) (556)
-------- --------- ------- ---------- ----------
Total stockholders' equity.... 169,854 51,654 2,679 2,984,859 3,209,046
-------- --------- ------- ---------- ----------
Total liabilities and
stockholders' equity........ $349,117 $ 95,947 $ 5,008 $3,206,612 $3,656,684
======== ========= ======= ========== ==========
</TABLE>
See accompanying Notes to New VERITAS Unaudited Pro Forma
Combined Condensed Financial Statements.
149
<PAGE> 161
NOTES TO NEW VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
1. Basis of pro forma presentation
NSMG combination
The New VERITAS unaudited pro forma combined condensed financial statements
reflect the contribution of assets and liabilities of the Network & Storage
Management Group and the issuance of 34,606,432 shares of New VERITAS common
stock which was based on the capitalization of VERITAS and Seagate Software 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 determined based on the
average closing price per share of VERITAS common stock for a few days before
and after the closing date. In addition, New VERITAS will offer holders of
options to purchase Seagate Software common stock 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. Based on
outstanding options as of March 31, 1999, New VERITAS would issue options to
purchase a maximum of 3,372,417 New VERITAS shares, of which 1,369,874 options
would be vested and 2,002,543 options would be unvested. The value of the
options to be issued by New VERITAS in exchange for the Seagate Software options
was determined by estimating their fair value as of March 31, 1999 using the
Black-Scholes option pricing model with the following weighted average
assumptions:
- risk free interest rate of 5.15%;
- dividend yield of 0.0%;
- expected option life of 0.5 years for vested options;
- expected option life of 3.0 years for unvested options; and
- volatility factor of the expected market price of New VERITAS common
stock of 0.65.
The NSMG combination will be accounted for under the purchase method of
accounting.
TeleBackup combination
The New VERITAS unaudited pro forma combined condensed financial statements
also reflect the issuance of 1,503,682 shares for the outstanding equity
interest of TeleBackup based on the capitalization of VERITAS and TeleBackup 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 determined based on the
average closing price per share of VERITAS common stock for a few days before
and after the closing date. 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, outstanding
options to purchase 387,800 shares of TeleBackup common stock would be exchanged
for options to purchase 51,318 shares of New VERITAS common stock, of which all
the options would be vested. The value of the options to be issued by New
VERITAS in the exchange for the TeleBackup options, was determined by estimating
their fair value as of March 31,
150
<PAGE> 162
NOTES TO NEW VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
VERITAS SEAGATE
SOFTWARE
TELEBACKUP
1999 using the Black-Scholes option pricing model with the following weighted
average assumptions:
- risk-free interest rate of 5.15%;
- dividend yield of 0.0%;
- expected option life of 0.5 years; and
- volatility factor of the expected market price of New VERITAS common
stock of 0.65.
The TeleBackup combination will be accounted for under the purchase method
of accounting.
The New VERITAS unaudited pro forma combined condensed financial statements
have been prepared on the basis of assumptions relating to the allocation of the
amount of consideration paid, to the assets and liabilities of the Network &
Storage Management Group business and TeleBackup based on preliminary estimates
of their fair value. The actual allocation of the amount such consideration may
differ from that reflected in the New VERITAS unaudited pro forma combined
condensed financial statements after valuations and other procedures to be
performed after the closing of the NSMG combination and the TeleBackup
combination have been completed. Below is a table of the estimated acquisition
cost, purchase price allocation and annual amortization of the intangible assets
acquired, in thousands:
NETWORK & STORAGE MANAGEMENT GROUP BUSINESS
<TABLE>
<CAPTION>
ANNUAL
AMORTIZATION AMORTIZATION
LIFE OF INTANGIBLES
------------ --------------
<S> <C> <C> <C>
Estimated acquisition cost
Estimated value of securities to be issued..........
Common stock...................................... $2,794,469
Stock options..................................... 233,755
Acquisition costs................................... 33,500
----------
Total estimated acquisition cost.............. $3,061,724
==========
Purchase price allocation
Tangible net assets acquired........................ $ 19,832
Intangible assets acquired:
Distribution channel/OEM agreements............... 257,200 4 $ 64,300
Developed technology.............................. 233,700 4 58,425
Trademark/assembled workforce/other intangibles... 37,110 4 9,278
In-process research and development............... 101,200
Goodwill.......................................... 2,585,685 4 646,421
Deferred tax liabilities.......................... (173,003)
---------- --------
Total......................................... $3,061,724 $778,424
========== ========
</TABLE>
151
<PAGE> 163
NOTES TO NEW VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
TELEBACKUP
<TABLE>
<CAPTION>
ANNUAL
AMORTIZATION AMORTIZATION
LIFE OF INTANGIBLES
------------ --------------
<S> <C> <C> <C>
Estimated acquisition cost
Estimated value of securities to be issued............
Common Stock........................................ $121,422
Stock options....................................... 4,096
Acquisition costs..................................... 7,000
--------
Total estimated acquisition cost................ $132,518
========
Purchase price allocation
Tangible net assets acquired.......................... $ 2,679
Intangible assets acquired
Distribution channel/OEM agreements................. 3,100 4 $ 775
Developed technology................................ 6,600 4 1,650
Trademark/assembled workforce....................... 1,630 4 408
In-process research and development................. 1,900
Goodwill............................................ 119,681 4 29,920
Deferred tax liabilities............................ (3,072)
-------- -------
Total........................................... $132,518 $32,753
======== =======
</TABLE>
Tangible net assets of the Network & Storage Management Group business
acquired principally include cash, accounts receivable, fixed assets and other
current assets. Liabilities assumed principally include accounts payable,
accrued compensation and other current 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 the
business relationships from the acquired entity to New VERITAS 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.
152
<PAGE> 164
NOTES TO NEW VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
VERITAS SEAGATE
SOFTWARE
TELEBACKUP
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 research and
development of the Network & Storage Management Group business and TeleBackup
will be charged to expense upon consummation of the NSMG combination and the
TeleBackup combination but has not been reflected in the New VERITAS unaudited
pro forma combined condensed statements of operations as it is non-recurring in
nature. However, this charge has been reflected in the New VERITAS unaudited pro
forma combined condensed balance sheet.
The write-offs were necessary because the acquired in-process research and
development had not yet reached technological feasibility and had no future
alternative uses. New VERITAS expects that the acquired in-process research and
development will be successfully developed, but these products may not achieve
commercial viability.
The nature of the efforts required to develop the purchased in-process
research and development 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 research and development was
determined by estimating the projected net cash flows related to the products,
including costs to 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 the projects were based on management's estimates of revenues and
operating profits related to the projects.
Management's overview of the in-process projects and the estimates for the
remaining development efforts are described below:
Network & Storage Management Group business products
- Seagate Backup Exec for NT -- Backup Exec(TM) for Windows NT offers a
compatible backup solution for Windows NT environments. Integrated
wizards provide steps through routine operations and a new graphical user
interface simplifies management tasks. Intelligent Disaster Recovery(TM)
automates data recovery with the only point-in-time rapid recovery
system. With its Microsoft common object model-based scaleable
architecture, virus detection and cleaning, and agent accelerator
technology, total cost of ownership is minimized, performance is
maximized and data is secured. Management estimates the completion and
release of version 8.0 of this product in September 1999.
- Backup Exec for Netware -- Backup Exec for NetWare is the first NetWare 5
compatible data protection solution that offers reliability, high
performance and full Netware directory services integration for
enterprise-wide data sharing. To minimize total cost of ownership and
administration overhead, ExecView provides centralized monitoring and
management. Intelligent disaster recovery combined with "working set"
backup delivers fast and reliable disaster recovery for every server
protected by Backup Exec. Advanced barcode reader and media portal
support provides ease-of-
153
<PAGE> 165
NOTES TO NEW VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
use and complete automation to further simplify network administration.
Management estimates the completion and release of version 8.1 of this
product in September 1999.
- Storage Migrator(TM) -- Storage Migrator is a multi-tier hierarchical
storage management application for Windows NT that delivers enterprise
functionality to client/server environments. The product reduces the
total cost of ownership by proactively managing inactive data, migrating
it from on-line storage, such as disc drives, to near-line devices, such
as optical drives, then finally to archival storage resources, such as
tape devices over user defined periods of time. Management estimates the
completion and release of this product in June 1999.
- Desktop Management Suite(TM) -- Desktop Management Suite is a fully
integrated suite of software solutions including network inventory,
WinLand, software installation, or WinInstall, and software metering, or
WinSmart or Desktop Management Suite centralizes the management of
distributed network desktops by automating tasks such as inventory,
software distribution, application metering, backup and remote control.
Desktop Management Suite reduces the total cost of managing network
desktops and standardizes the administration of desktops across the
enterprise. Seagate has begun development to create a more complete
personal computer client management solution with WinInstall and WinLand.
Management estimates the completion and release of Desktop Management
Suite version 4.0 and WinInstall version 7.0 in November 1999.
- Manage Exec(TM) -- Manage Exec is a proactive server health monitoring,
alerting and reporting solution that centralizes enterprise
administration by providing information technology professionals with a
unique view of servers worldwide and real-time problem analysis. Manage
Exec is a powerful, simple, scaleable solution for managing the behavior
of heterogeneous networks worldwide from one central location. Manage
Exec automatically monitors, analyzes and reports on Windows NT and
Novell NetWare systems health, establishes profiles of normal server and
application behavior and proactively sends alerts when these policies are
broken. As a result, problems that once may have resulted in catastrophic
failure are now effectively resolved before network users are impacted.
To make this product suitable for enterprise sales, Seagate began
"enterprization." Management estimates the completion and release of
version 6.0 of this product in September 1999.
- NerveCenter(TM) -- NerveCenter is a market leading, rules-based event
management application designed to ensure high levels of network and
application availability. NerveCenter uses graphical network behavior
models to filter through voluminous network messages, identify critical
problems and automatically launch appropriate corrective actions.
NerveCenter is the first end-to-end event management solution across
network devices, applications and UNIX, Windows NT systems. version 4.0
was under development at the Network & Storage Management Group which
would provide a basis for a storage area network management solution.
Management estimates the completion and release of version 4.0 in 1999.
- Policy Exec(TM) version 1.0 -- Policy Exec is a policy management system
that creates policies according to goals, completely automates storage
management tasks, and provides fault isolation and automated corrective
action. Management estimates the completion and release of this product
in May 1999.
154
<PAGE> 166
NOTES TO NEW VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
VERITAS SEAGATE
SOFTWARE
TELEBACKUP
- Replication Exec(TM) -- Replication Exec provides real time data
protection for NT servers, back-up staging, rapid recovery, disaster
protection bandwidth throttling, and intelligent data distribution.
Replication Exec delivers the most flexible and intelligent data
replication for Windows NT environments. It can efficiently and
automatically duplicate files or file systems at any number of locations
for complete data protection or information distribution. Replication
Exec offers centralized management, high replication performance, minimal
system overhead, both real-time and schedule-based replication, and
selectable bandwidth usage. Replicate remote data to a central site for
centralized backup, offload backup from production servers for 24x7
operations, or distribute information to any number of servers on the
local area network or wide area network from a central site. In August
1998, the Network & Storage Management Group business released the first
version of this product. However, this version does not have sufficient
features to serve the enterprise customer. A next release version 2.0 was
under development at the Network & Storage Management Group business to
add these required features. Management estimates the completion and
release of version 2.0 of this product in September 1999.
TeleBackup was founded in 1995 to further the development of remote backup
technology. TeleBackup is an information technology company that is developing
dynamic software that allows corporations and end-users to backup their data
remotely. TeleBackup's software initiates all backups automatically with no
required intervention by the user. It also safeguards against disaster by
storing the data at an offsite location. TeleBackup's unique features make the
process of backing up large amounts of data significantly faster than any other
known technology using standard modems.
TeleBackup products
- TSInfoPro 2.05 -- TSInfoPro is a new system for eliminating data loss
designed to support Microsoft Windows 98. Features include enhanced
compact disc disaster recovery, improved querying, open file manger, and
encryption. Management estimates the completion and release of this
product in April 1999.
- TSInfoPro 3.00 -- An improved system for eliminating data loss with a
graphical user interface. Features include increased bandwidth,
redesigned client and server interfaces, file processing, and
administrative applications. Significant development efforts were begun
and TeleBackup including, creating a larger bandwith, a major redesign of
the graphical user interface and changing 90% of the server to be
available for NT. Management estimates the completion and release of this
product in December 1999.
Some of the potential risks involved in completing the development for the
TeleBackup releases include, but are not limited to the following. The user
interface development could be expensive due to the options and technologies
needed in identifying the target customer. In addition, the hierarchical storage
management and NetBackup will likely need some more modification to run or work
well together.
The server product is not quite available for NT, but is expected to be
soon, and the admin. station for NT is in the beginning phase of several phases.
155
<PAGE> 167
NOTES TO NEW VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Research and development effort
The Network & Storage Management Group business estimates approximately
$6.0 million to complete the development of the identified in-process projects
that are being acquired by VERITAS. TeleBackup estimates approximately $630,000
to complete the development of the identified in-process projects that are being
acquired. The Network & Storage Management Group's and TeleBackup's research and
development expenditure forecasts include, but are not limited to:
- technology coding;
- feasibility tests;
- platform integration; and
- alpha and beta testing.
Due to the fact that the transactions have not been consummated, the
calculations are preliminary. Therefore, more information will be forthcoming as
the analysis is completed of the in-process research and development acquired at
the Network & Storage Management Group and TeleBackup.
Factors that could affect analysis.
The following factors have the potential to affect analysis:
- the effect of the uncertainty surrounding the successful development of
the in-process research and development products is one of the many
factors that comprise the selected discount rate;
- there is risk associated with the revenue of all of the identified
in-process research and development projects. The expected benefit from
the in-process research and development projects is expected to occur at
the release dates for each of the projects discussed previously; and
- if any of the estimates for release dates, product life cycle, or product
revenue are different, then there may be an impact on the future results
of the company.
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 New VERITAS unaudited pro forma combined condensed statement of
operations has been prepared as if the NSMG combination and the TeleBackup
combination had occurred at the beginning of the period presented. The pro forma
basic and diluted net loss per share are based on the weighted average number of
shares of VERITAS common stock outstanding during each period and the number of
shares of New VERITAS common stock to be issued in connection with the NSMG
combination and the TeleBackup combination. The following options and other
potential common securities, based upon the options outstanding and closing
price of VERITAS common
156
<PAGE> 168
NOTES TO NEW VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
VERITAS SEAGATE
SOFTWARE
TELEBACKUP
stock as of December 31, 1998 have not included in the computation of pro forma
diluted net loss per share because their effect would be antidilutive.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
POTENTIAL COMMON SECURITIES 1998
--------------------------- --------------
(IN THOUSANDS)
<S> <C>
VERITAS options outstanding................................. 8,211
Options to be issued in connection with the NSMG
combination............................................... 3,482
Options to be issued in connection with the TeleBackup
combination............................................... 78
Common stock issuable upon conversion of VERITAS'
convertible notes......................................... 2,326
------
14,097
======
</TABLE>
3. Conversion of TeleBackup to U.S. generally accepted accounting
principles and US$
The financial statements for TeleBackup which were prepared in accordance
with Canadian generally accepted accounting principles have been conformed to
U.S. generally accepted accounting principles for purposes of including them in
the New VERITAS unaudited pro forma combined condensed financial statements.
None of the adjustments necessary to conform the TeleBackup financial statements
to U.S. generally accepted accounting principles were material to either the
historical financial statements of TeleBackup or the New VERITAS unaudited pro
forma combined condensed financial statements. The balance sheet and statements
of operations for TeleBackup were translated to U.S. dollars using average
exchange rates for the New VERITAS unaudited pro forma combined condensed
statements of operations and period-end and historical exchange rates for the
New VERITAS unaudited pro forma combined condensed balance sheet, as applicable.
4. Pro forma adjustments
The New VERITAS unaudited pro forma combined condensed financial statements
give effect to the following pro forma adjustments:
(1) To state the assets and liabilities of the Network Storage &
Management Group business at their fair values.
(2) To reclassify certain customer support costs of the Network & Storage
Management Group business to cost of revenues to conform to VERITAS'
presentation.
(3) To reflect the accrual of acquisition costs arising from the NSMG
combination, estimated to be approximately $33.5 million consisting of:
- $17.8 million of direct transaction costs, consisting primarily of
financial advisory services, legal, accounting and government filing
fees;
- $11.3 million for operating lease commitments on sales and
administrative facilities of the Network & Storage Management Group
business that become duplicative and will be vacated. The costs
accrued represent operating lease obligations from the date the
facilities are expected to be vacated through the end of the lease
term, net of any anticipated sublease payments. New VERITAS expects
that all duplicate facilities will be vacated within one year
157
<PAGE> 169
NOTES TO NEW VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
after consummation of the NSMG combination. The operating leases on
these duplicate facilities have various termination dates through
2012; and
- $4.4 million for liabilities related to involuntary employee
termination benefits to be paid to Network & Storage Management Group
business employees whose positions are redundant with current VERITAS
positions and relocations of Network & Storage Management Group
business employees whose function is being relocated to support a
centralized infrastructure. The involuntary terminations and
relocation benefits relate to employees across all functional
organizations.
New VERITAS expects that a plan will be finalized in the quarter following
the consummation of the NSMG combination and initial execution of this plan will
begin in the second quarter of 1999. New VERITAS also expects the plan to be
fully implemented within one year from the consummation of the NSMG combination.
(4) To reflect the elimination of the Network & Storage Management Group's
contributed capital of $258.9 million and the issuance of New VERITAS common
stock and stock options of $3,028.2 million in connection with the NSMG
combination.
(5) To reflect the elimination of the Network & Storage Management Group's
accumulated deficit of $207.2 million and the write-off of in-process research
and development $101.2 million.
(6) To reflect amortization of goodwill, distribution channel/original
equipment manufacturer agreements, developed technology and trademark/assembled
workforce/other intangibles related to the NSMG combination.
(7) To reflect the net tax effect of book/tax basis differences in the
acquired intangibles, excluding goodwill and in-process research and
development. Deferred tax assets have been recognized based on the projected
reversal of taxable temporary differences and have been netted against deferred
tax liabilities for purposes of allocating the purchase price related to the
NSMG combination.
(8) To state the assets and liabilities of TeleBackup at their fair
values.
(9) To reflect the accrual of acquisition costs arising from the
TeleBackup combination, estimated to be approximately $7.0 million consisting
of:
- $6.3 million of direct transaction costs, consisting primarily of
financial advisory services, legal, accounting and government filing
fees;
- $600,000 for liabilities related to involuntary employee termination
benefits to be paid to TeleBackup employees whose positions are
redundant with current VERITAS employee positions and relocations of
TeleBackup employees whose function is being relocated to support a
centralized infrastructure. The involuntary terminations and
relocation benefits relate to engineering and administrative
employees; and
- $100,000 for operating lease commitments on facilities of TeleBackup
that will be vacated. The costs accrued represent operating lease
obligations from the date the facilities are expected to be vacated
through the end of the lease term in 2000, net of any anticipated
sublease payments. New VERITAS expects that all duplicate facilities
will be vacated within one year after consummation of the Telebackup
combination.
158
<PAGE> 170
NOTES TO NEW VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
VERITAS SEAGATE
SOFTWARE
TELEBACKUP
New VERITAS expects that the plan will be finalized in the quarter
following the consummation of the TeleBackup combination and initial execution
of the plan will begin in the second quarter of 1999. New VERITAS also expects
that the plan will be fully implemented within one year from the consummation of
the TeleBackup combination.
(10) To reflect the elimination of the TeleBackup's common stock of $6.2
million and the issuance of New VERITAS common stock and stock options of $125.5
million in connection with the TeleBackup combination.
(11) To reflect the elimination of the TeleBackup's accumulated deficit of
$3.3 million and the write-off of in-process research and development of $1.9
million.
(12) To reflect amortization of goodwill, distribution channel/original
equipment manufacturer agreements, developed technology, and trademark/assembled
workforce related to the TeleBackup combination.
(13) To reflect the net tax effect of book/tax basis differences in the
acquired intangibles, excluding goodwill and in-process research and
development. Deferred tax assets have been recognized based on the projected
reversal of taxable temporary differences have been netted against deferred tax
liabilities for purposes of allocating the purchase price related to the
TeleBackup combination.
(14) To reflect tax benefits for New VERITAS based upon pro forma losses
incurred.
(15) To eliminate the effect of the intercompany transactions between
VERITAS and TeleBackup.
(16) To reflect the accrual for restructuring costs to be incurred as a
result of the NSMG combination of $11.0 million. The $11.0 million includes
$10.0 million for costs to exit duplicate facilities of VERITAS which New
VERITAS plans to vacate and $1.0 million for liabilities related to involuntary
employee termination benefits to be paid to VERITAS employees.
5. Effect of TeleBackup on pro forma combined condensed financial
statements
If the proposed business combination between VERITAS and TeleBackup is not
consummated, the future operating results and financial position of New VERITAS
will include only the combined operating results and financial position of
VERITAS and the Network & Storage Management Group business. By excluding
TeleBackup from the pro forma results, pro forma net revenues, net loss and net
loss per share, total assets and stockholders' equity would be reduced by the
amounts indicated below.
<TABLE>
<CAPTION>
YEAR ENDED
OR AS OF
DECEMBER 31,
1998
-------------------------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C>
Pro forma net revenues.................................... $ 1,160
Pro forma net loss........................................ $ 32,219
Pro forma net loss per share.............................. $ 0.24
Pro forma total assets.................................... $133,019
Pro forma stockholders' equity............................ $123,168
</TABLE>
159
<PAGE> 171
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 the six months ended January 1, 1999 give effect to the transaction
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 transaction as if it had taken place on January 1, 1999.
The Seagate Software unaudited pro forma condensed statements of operations
include the historical results of 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 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, the
parent company of Seagate Software, will offer to purchase certain outstanding
shares of Seagate Software common stock in exchange for Seagate Technology
common stock. The accompanying Seagate Software unaudited pro forma condensed
statements of operations
160
<PAGE> 172
SEAGATE
SOFTWARE
VERITAS
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 on Proposal 3: Amendment of Seagate Software
certificate of incorporation, which will permit the NSMG combination without
triggering a liquidation event, 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 and the audited financial
statements of Seagate Software and the Network & Storage Management Group
business, including the notes to each, that are included elsewhere or
incorporated by reference in this document.
161
<PAGE> 173
SEAGATE SOFTWARE UNAUDITED PRO FORMA
CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JULY 3, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------
LESS: EQUITY
NETWORK & INTEREST
STORAGE IN OPERATIONS PURCHASE OF
SEAGATE MANAGEMENT OF NEW MINORITY
SOFTWARE GROUP VERITAS INTEREST PRO FORMA
-------- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- -------------------------
* 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.
162
<PAGE> 174
SEAGATE
SOFTWARE
VERITAS
SEAGATE SOFTWARE UNAUDITED PRO FORMA
CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JANUARY 1, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
LESS: PRO FORMA ADJUSTMENTS
NETWORK & ------------------------------
STORAGE EQUITY INTEREST PURCHASE OF
SEAGATE MANAGEMENT IN OPERATIONS MINORITY
SOFTWARE GROUP OF NEW VERITAS INTEREST PRO FORMA
----------- ---------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
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 (loss) 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
</TABLE>
- ------------------------
* 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.
163
<PAGE> 175
SEAGATE SOFTWARE UNAUDITED PRO FORMA
CONDENSED BALANCE SHEETS
AS OF JANUARY 1, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
LESS: PRO FORMA ADJUSTMENTS
NETWORK & ------------------------------
STORAGE EQUITY INTEREST PURCHASE OF
SEAGATE MANAGEMENT IN NEW MINORITY
SOFTWARE GROUP VERITAS INTEREST PRO FORMA
--------- ---------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
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 AND
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 capital...... 346,650 111,453(3.o) 475,991
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
========= ======= ========== ======== ==========
</TABLE>
See accompanying Notes to Seagate Software Unaudited Pro Forma
Condensed Financial Statements.
164
<PAGE> 176
SEAGATE
SOFTWARE
VERITAS
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 of 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 fair value
of the underlying stock. This value has been included as a 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 condensed financial 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
165
<PAGE> 177
NOTES TO SEAGATE SOFTWARE
UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
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 the 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 purchase 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 purchase of shares 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 projected 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 and Storage Management Groups' employees will be converted to 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 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 only held 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.
166
<PAGE> 178
NOTES TO SEAGATE SOFTWARE
UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEAGATE
SOFTWARE
VERITAS
The Seagate Software 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 Software 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:
NEW VERITAS
(IN THOUSANDS)
COMPUTATION OF PRO RATA GAIN
<TABLE>
<S> <C>
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
==========
</TABLE>
167
<PAGE> 179
NOTES TO SEAGATE SOFTWARE
UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
ANNUAL
AMORTIZATION AMORTIZATION
AMOUNT LIFE OF INTANGIBLES
---------- ------------ --------------
<S> <C> <C> <C>
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 interest 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
========== ========
</TABLE>
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%.
168
<PAGE> 180
NOTES TO SEAGATE SOFTWARE
UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEAGATE
SOFTWARE
VERITAS
ACQUISITION OF MINORITY INTEREST OF SEAGATE SOFTWARE
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ANNUAL
AMORTIZATION AMORTIZATION
AMOUNT LIFE OF INTANGIBLES
---------- ------------ --------------
<S> <C> <C> <C>
Allocation of minority interest purchase
price
Intangible assets
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 and 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
==========
</TABLE>
169
<PAGE> 181
NOTES TO SEAGATE SOFTWARE
UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
COMPENSATION EXPENSE ACCOUNTING
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C> <C> <C>
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
----------
$ 8,524
----------
Compensation expense.................... $ 86,679
==========
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
--------------
<S> <C>
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
Total Seagate Software shares and options outstanding at
January 1, 1999........................................... 66,840,979
Divided by: Value of Seagate Software common stock per
share..................................................... $ 52.28
</TABLE>
Seagate Software intends to accelerate vesting on 87,395 restricted shares
of Seagate Software common stock held by certain employees that would have
otherwise expired. In connection with the acceleration, Seagate Software expects
to record additional compensation expense of $3,867,000 in the period such
acceleration is granted.
170
<PAGE> 182
NOTES TO SEAGATE SOFTWARE
UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEAGATE
SOFTWARE
VERITAS
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 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 research and
development 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
research and development 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 research and development for New
VERITAS and TeleBackup was determined by estimating the projected net cash flows
related to such
171
<PAGE> 183
NOTES TO SEAGATE SOFTWARE
UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
products, including costs to 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:
<TABLE>
<S> <C>
Estimated exercises of Seagate Software stock options
prior to the closing date that will be repurchased 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......... 138,753
Outstanding common stock currently held by Seagate
Technology............................................. 62,500
---------
Total common shares outstanding................... 2,556,746
=========
</TABLE>
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 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 the 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.
(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
172
<PAGE> 184
NOTES TO SEAGATE SOFTWARE
UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEAGATE
SOFTWARE
VERITAS
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 the loan receivable from Seagate Technology and
affiliates to 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 subject to
repurchase 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.
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.
173
<PAGE> 185
NETWORK & STORAGE MANAGEMENT GROUP
SELECTED HISTORICAL COMBINED FINANCIAL DATA
The combined financial data with respect to the fiscal years ended June 28,
1996, June 27, 1997 and July 3, 1998 are derived from the audited Combined
Financial Statements of the Network & Storage Management Group business, which
are included elsewhere in this document. The combined financial data set forth
below with respect to the fiscal years ended July 1, 1994 and June 30, 1995 are
derived from the unaudited Combined Financial Statements of the Network &
Storage Management Group business which are not included in this document. The
selected combined financial data set forth below as of January 1, 1999 and for
the six months ended January 2, 1998 and January 1, 1999 were derived from
unaudited combined financial statements of the Network & Storage Management
Group business that, in the opinion of management, reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position of the Network & Storage Management Group
business at that date and results of operations for those periods. The results
for the six months ended January 1, 1999 are not necessarily indicative of the
results for any future period. The following data should be read in conjunction
with the combined financial statements of the Network & Storage Management Group
and notes thereto included elsewhere in this document and in the section
entitled "The Network & Storage Management Group -- Management's Discussion and
Analysis of Financial Condition and Results of Operations" on the next page.
<TABLE>
<CAPTION>
SIX
YEAR ENDED MONTHS ENDED
----------------------------------------------------- -----------------------
JULY 1, JUNE 30, JUNE 28, JUNE 27, JULY 3, JANUARY 2, JANUARY 1,
1994 1995 1996 1997 1998 1998 1999
-------- -------- --------- -------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $ 24,866 $ 81,325 $ 116,742 $141,502 $175,046 $83,313 $107,400
Gross profit...................... 18,187 59,837 89,397 109,390 151,711 70,251 98,790
In-process research and
development..................... -- 73,177 61,066 -- 6,800 -- --
Write-down of goodwill, developed
technology and intangibles...... -- -- 2,157 13,091 1,900 1,900 --
Restructuring costs............... -- -- 9,502 2,524 -- -- --
Income (loss) from operations..... (12,270) (82,958) (102,655) (41,208) 9,430 1,377 24,314
Net income (loss)................. $ (7,356) $(85,132) $ (94,596) $(33,200) $ 2,856 $(1,250) $ 13,323
</TABLE>
<TABLE>
<CAPTION>
AS OF
---------------------------------------------------------------
JULY 1, JUNE 30, JUNE 28, JUNE 27, JULY 3, JANUARY 1,
1994 1995 1996 1997 1998 1999
------- -------- -------- -------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................................... $13,089 $96,725 $137,600 $94,087 $74,721 $95,947
Group equity..................................... 6,950 44,919 64,315 34,601 38,033 51,654
</TABLE>
The Network & Storage Management Group business is an operating division of
Seagate Software and has no formal capital structure; accordingly, per share
information is not provided.
174
<PAGE> 186
SEAGATE
SOFTWARE
VERITAS
THE NETWORK & STORAGE MANAGEMENT GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Network & Storage Management Group develops and markets software
products and provides related services enabling information technology
professionals to manage distributed network resources and to secure and protect
enterprise data. The Network & Storage Management Group operates in a single
industry segment. Its products offer features such as system backup, disaster
recovery, migration, replication, automated client protection, storage resource
management, scheduling, event correlation and desktop management.
The Network & Storage Management Group is an operating division of Seagate
Software, which is a majority-owned and consolidated subsidiary of Seagate
Technology. Seagate Technology is a data technology company that provides
products for storing, managing and accessing digital information on computer
systems. The Network & Storage Management Group is headquartered in Scotts
Valley, California and has 17 offices and operations in seven countries
worldwide.
The statements of operations include all revenues and costs attributable to
the Network & Storage Management Group, including allocations of certain
corporate administration, finance, and management costs. These costs were
proportionately allocated to the Network & Storage Management Group based on
time studies and detailed inquiries performed with Seagate Software's corporate
marketing and general and administrative departmental managers. In addition,
some of Seagate Software's operations are shared locations involving activities
of the Network & Storage Management Group and to other businesses of Seagate
Software. Costs incurred in shared locations are allocated among the Seagate
Software businesses based on identification of the costs as relating to the
specific businesses. Where specific identification is not possible, the costs
are allocated between the Network & Storage Management Group and other
businesses of Seagate Software using methodologies that management believes are
reasonable. Transactions and balances between entities and locations within the
Network & Storage Management Group itself have been eliminated.
From August 1994 to June 1996, Seagate Technology acquired seven software
companies that were engaged in developing and marketing network and/or storage
management software products. In addition, in February 1996, Seagate Technology
merged with Conner in a transaction accounted for as a pooling of interests. In
connection with the merger, Seagate Technology purchased the outstanding
minority interests in Conner's storage management software operations under
Arcada for $85.1 million, which resulted in allocations to goodwill and other
intangibles of $47.4 million, a writeoff of in-process research and development
of $43.9 million and a deferred tax liability of $6.2 million. In June 1998, the
Network & Storage Management Group acquired Eastman Software Storage Management
Group, Inc., a subsidiary of Eastman Kodak Company, for $10.0 million in cash,
which resulted in allocations to goodwill and other intangibles of $3.2 million
and a writeoff of in-process research and development of $6.8 million. The
accompanying financial statements present the combined results of operations of
the acquired companies from the dates of acquisition.
The Network & Storage Management Group operates and reports financial
results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June
30. Accordingly, fiscal 1998 ended on July 3, 1998, fiscal 1997 ended on June
27, 1997 and fiscal 1996 ended on
175
<PAGE> 187
June 28, 1996. Fiscal 1998 was comprised of 53 weeks and fiscal years 1997 and
1996 were comprised of 52 weeks. Fiscal 1999 will be a 52-week year and will end
on July 2, 1999.
Arcada, which was acquired by the Network & Storage Management Group
pursuant to Seagate Technology's merger with Conner, had a fiscal year that
ended on the Saturday closest to December 31. Accordingly, Arcada's statement of
operations for the year ended December 30, 1995 has been combined with the
Network & Storage Management Group's statement of operations for the year ended
June 30, 1995. In order to conform Arcada's fiscal year end to the Network &
Storage Management Group's fiscal year end, the Network & Storage Management
Group's combined statement of operations for the year ended June 28, 1996
includes six months, July 1, 1995 through December 31, 1995, for Arcada which
are also included in the Network & Storage Management Group's combined statement
of operations for the year ended June 30, 1995. Arcada's duplicated results for
the period from July 1, 1995 to December 30, 1995 includes revenues of $37.7
million, operating expenses of $29.3 million, and a net loss of $80,000.
BUSINESS COMBINATIONS
Valuation methodology. In accordance with the provisions of Accounting
Principles Board Opinion 16, all identifiable assets, including identifiable
intangible assets, were assigned a portion of the cost of the acquired
enterprise (purchase price) on the basis of their respective fair values. This
included the portion of the purchase price properly attributed to incomplete
research and development projects that should be expensed according to the
requirements of Interpretation 4 of Statement of Financial Accounting Standard
No. 2.
Intangible assets were identified through:
- analysis of the acquisition agreement;
- consideration of the Network & Storage Management Group's intentions for
future use of the acquired assets; and
- analysis of data available concerning the business's products,
technologies, markets, historical financial performance, estimates of
future performance and the assumptions underlying those estimates.
The economic and competitive environment in which the Network & Storage
Management Group and the company to be acquired operate was also considered in
the valuation analysis.
Specifically, purchased research and development was identified and valued
through extensive interviews and discussions with the Network & Storage
Management Group and the company to be acquired's management and the analysis of
data provided by the company to be acquired concerning the company to be
acquired's developmental products, their respective stage of development, the
time and resources needed to complete them, their expected income generating
ability, target markets and associated risks. The Income Approach, which
includes an analysis of the markets, cash flows, and risks associated with
achieving such cash flows, was the primary technique utilized in valuing each
purchased research and development project. A portion of the purchase price was
allocated to the developmental projects based on the appraised fair values of
such projects.
176
<PAGE> 188
SEAGATE
SOFTWARE
VERITAS
Arcada Software, Inc.
Overview
As of the acquisition date, Arcada had spent a significant amount of money
on research and development related to the re-development efforts to add
features and utilities to the Desktop, NetWare and Windows NT products such as
disk grooming, hierarchical storage management, upgraded graphical user
interfaces, file and server replication, and server mirroring in order to
continue to meet increasingly complex user needs.
In accordance with Statement of Financial Accounting Standards No. 86,
paragraph 38, "Accounting for the Costs of Computer Software to be Sold, Leased,
or Otherwise Marketed," "the cost of software purchased to be integrated with
another product or process will be capitalized only if technological feasibility
was established for the software component and if all research and development
activities for the other components of the product or process were completed at
the time of the purchase." Although Seagate Software purchased existing products
from Arcada, since the majority of the original underlying code and base
technology for the NetWare and Windows NT product families was completed in the
1990 time frame, the technologies, as of the date of valuation, were undergoing
significant re-development.
Assumptions
Revenue
Future revenue estimates were generated for the following product families:
- Desktop;
- NetWare; and
- Windows NT.
Aggregate revenue for Arcada products was estimated to be approximately $94
million for the ten and one-half months ending December 31, 1996. Revenues were
estimated to increase to approximately $161 million and $234 million for
calendar years 1997 and 1998 when most of the in-process projects were expected
to be complete and shipping. Thereafter, revenue was estimated to increase at
rates ranging from 35% to 40% for calendar years 1999 through 2002. Revenue
estimates were based on:
- aggregate revenue growth rates for the business as a whole;
- individual product revenues;
- growth rates for the storage management software market;
- the aggregate size of the storage management software market;
- anticipated product development and introduction schedules;
- product sales cycles; and
- the estimated life of a product's underlying technology.
The estimated product development cycle of the new products ranged from 12
to 18 months. Actual revenues for calendar years 1997 and 1998 were less than
those estimated.
177
<PAGE> 189
Operating expenses
Operating expenses used in the valuation analysis of Arcada included:
- cost of goods sold;
- general and administrative expense;
- selling and marketing expense; and
- research and development expense.
In developing future expense estimates, an evaluation of both Seagate
Software and Arcada's overall business model, specific product results,
including both historical and expected direct expense levels, as appropriate,
and an assessment of general industry metrics was conducted.
Cost of goods sold. Cost of goods sold, expressed as a percentage of
revenue, for the developed and in-process technologies ranged from approximately
5% to 30% -- 30% for Desktop, 10% for NetWare and 5% for Windows NT. The Network
& Storage Management Group's cost of goods sold was 23% for fiscal 1996, 23% for
fiscal 1997 and 13% for fiscal 1998.
General and administrative expense. General and administrative expense,
expressed as a percentage of revenue, for the developed and in-process
technologies ranged from 12% in calendar 1996 to 8% in calendar 1998 and beyond.
Selling and marketing expense. Selling and marketing expense, expressed as
a percentage of revenue, for the developed and in-process technologies was
estimated to be 30% throughout the estimation period.
Research and development expense. Research and development expense consists
of the costs associated with activities undertaken to correct errors or keep
products updated with current information, also referred to as "maintenance"
research and development). Maintenance research and development includes all
activities undertaken after a product is available for general release to
customers to correct errors or keep the product updated with current
information. These activities include routine changes and additions. The
maintenance research and development expense was estimated to be 5% of revenue
for the developed technologies and 3% of revenue for the in-process technologies
throughout the estimation period.
In addition, as of the date of acquisition, the Network & Storage
Management Group management anticipated the costs to complete the Desktop,
NetWare, and Windows NT technologies at approximately $6.8 million, $4.5 million
and $7.5 million, respectively. Since the acquisition date, all projects
originally acquired from Arcada were commercially released prior to the end of
the fourth quarter of fiscal 1997.
Effective tax rate
The effective tax rate utilized in the analysis of developed and in-process
technologies was 38%, which reflects Seagate's combined federal and state
statutory income tax rates, exclusive of non-recurring charges at the time of
the acquisition and estimated for future years.
178
<PAGE> 190
SEAGATE
SOFTWARE
VERITAS
Discount rate
The discount rates selected for Arcada's developed and in-process
technologies were 15% and 17.5%, respectively. In the selection of the
appropriate discount rates, consideration was given to (1) the weighted average
cost of capital, approximately 13% to 15% at the date of acquisition of its
parent, Seagate Technology, Inc. and (2) the weighted average return on assets,
approximately 18%. The discount rate utilized for the in-process technology was
determined to be higher than Seagate's weighted average cost of capital due to
the fact that the technology had not yet reached technological feasibility as of
the date of valuation. In utilizing a discount rate greater than Seagate's
weighted average cost of capital, management has reflected the risk premium
associated with achieving the forecasted cash flows associated with these
projects.
Eastman Software Storage Management Group
Overview
Eastman Software Storage Management Group's two primary products are
OPEN/stor for Windows NT and AvailHSM for NetWare. By integrating Eastman's
product line, the Network & Storage Management Group will be able to convert
their Storage Migrator product into a stand-alone hierarchical storage
management application for Windows NT environments. As of the date of
acquisition, the Network & Storage Management Group abandoned the AvailHSM
product and technology due to dated features and functionality; the valuation
analysis did not include a fair value for the AvailHSM product.
As for OPEN/stor at the date of acquisition, the Network & Storage
Management Group planned to phase out the product over the following 12 to 15
months. The Network & Storage Management Group's purpose for the acquisition was
for the next generation technologies that were underway at Eastman, referenced
by project names Sakkara and Phoenix. These projects were complete re-writes of
Eastman's prior generation technology that would allow the product to be sold
stand-alone upon completion.
In accordance with statement of financial accounting standards no. 86,
paragraph 38, "the cost of software purchased to be integrated with another
product or process will be capitalized only if technological feasibility was
established for the software component and if all research and development
activities for the other components of the product or process were completed at
the time of the purchase." Although the Network & Storage Management Group
purchased existing products from Eastman, the existing products did not operate
on a stand-alone basis. Therefore, as mentioned above, all of the original
underlying code and base technology for the next generation products were in the
process of being completely re-written as date of valuation.
Assumptions
Revenue
Future revenue estimates were generated for the following technologies:
- OPEN/stor;
- Sakkara; and
- Phoenix.
179
<PAGE> 191
Aggregate revenue for existing Eastman products was estimated to be
approximately $167,000 for the one month ending June 30, 1998. Revenues were
estimated to increase to approximately $3.9 million and $7.1 million for fiscal
years 1999 and 2000 when most of the in-process projects were expected to be
complete and shipping. Thereafter, revenue was estimated to increase at rates
ranging from 20% to 30% for fiscal years 2001 through 2006. Revenue estimates
were based on:
- aggregate revenue growth rates for the business as a whole;
- individual product revenues;
- growth rates for the storage management software market;
- the aggregate size of the storage management software market;
- anticipated product development and introduction schedules;
- product sales cycles; and
- the estimated life of a product's underlying technology.
Operating expenses
Operating expenses used in the valuation analysis of Eastman included:
- cost of goods sold;
- general and administrative expenses;
- selling and marketing expense; and
- research and development expense.
In developing future expense estimates, an evaluation of both the Network &
Storage Management Group and Eastman's overall business model, specific product
results, including both historical and expected direct expense levels as
appropriate, and an assessment of general industry metrics was conducted.
Cost of goods sold. Cost of goods sold, expressed as a percentage of
revenue, for the developed and in-process technologies was estimated to be
approximately 5% throughout the estimation period. The Network & Storage
Management Group's cost of goods sold was 23% for fiscal 1996 and 1997.
General and administrative expense. General and administrative expense,
expressed as a percentage of revenue, for the developed and in-process
technologies was estimated to be approximately 10% throughout the estimation
period.
Selling and marketing expense. Selling and marketing expense, expressed as
a percentage of revenue, for the developed and in-process technologies was
estimated to be 27% throughout the estimation period.
Research and development expense. Research and development expense consists
of the costs associated with activities undertaken to correct errors or keep
products updated with current information, also referred to as "maintenance"
research and development. Maintenance research and development includes all
activities undertaken after a product is available for general release to
customers to correct errors or keep the product updated with current
information. These activities include routine changes and additions. The
maintenance research and development expense was estimated to be 5% of revenue
for the developed and in-process technologies throughout the estimation period.
180
<PAGE> 192
SEAGATE
SOFTWARE
VERITAS
In addition, as of the date of acquisition, the Network & Storage
Management Group's management anticipated the costs to complete the in-process
technologies at approximately $1.8 million.
Effective tax rate
The effective tax rate utilized in the analysis of developed and in-process
technologies was 38%, which reflects the Network & Storage Management Group's
combined federal and state statutory income tax rates, exclusive of
non-recurring charges at the time of the acquisition and estimated for future
years.
Discount rate
The discount rates selected for Eastman's developed and in-process
technologies were 15% and 20%, respectively. In the selection of the appropriate
discount rates, consideration was given to (1) the weighted average cost of
capital, approximately 15% at the date of acquisition and (2) the weighted
average return on assets, approximately 18%. The discount rate utilized for the
in-process technology was determined to be higher than the Network & Storage
Management Group's weighted average cost of capital due to the fact that the
technology had not yet reached technological feasibility as of the date of
valuation. In utilizing a discount rate greater than the Network & Storage
Management Group's weighted average cost of capital, management has reflected
the risk premium associated with achieving the forecasted cash flows associated
with these projects.
Calypso Software Systems, Inc.
Calypso was a software developer in the enterprise network/system
management market. Calypso provided software which was designed to enable
companies to automate the management of their distributed applications. At the
date of acquisition, Calypso had two main products: Maestro Vision and Atrium
Extendible Management System for Spectrum. Both existing products, as of the
acquisition date, were planned to be phased out over the following 24 months.
Calypso, at the acquisition date, was in the process of developing the next
generation Atrium Extendible Management System product that was to be sold
stand-alone. Both Maestro and Atrium Extendible Management System for Spectrum
were originally designed for use only on certain system platforms, Cabletron and
Spectrum, respectively. However, Atrium Extendible Management System,
stand-alone, would allow systems managers on any system platform to distribute
software; monitor central processing units, memory, and operating system
administration; manage applications, file systems, and print services; and
perform UNIX and NT system administration.
As of the date of acquisition, Calypso had undergone or was in the process
of undergoing the re-write of code in C++, adding navigator capabilities,
developing web server and browser interoperability, developing CORBA
interoperability, and developing Network OLE/COM interoperability for Atrium
Extendible Management System, stand-alone. The estimated cost to complete, at
the date of acquisition, was approximately $750,000. These in-process research
and development projects were successfully completed prior to a restructuring of
operations in the third quarter of fiscal 1997. As a result of this
restructuring and a change in Seagate Software's strategic direction, in the
first quarter of fiscal 1998 Seagate Software disposed of all the developed and
in-process technologies originally acquired from Calypso.
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OnDemand Software, Inc.
OnDemand developed and marketed electronic software distribution products
for network management in the client/server environment. OnDemand's flagship
product was WinINSTALL. As of the date of acquisition, OnDemand was in the
process of developing the next generation of WinINSTALL Version 6.0. A
significant feature of Version 6.0 which is not available by any competitive
product, was a rollback with clone capability, which would allow the user to
selectively return a PC to a previous state upon installation failure or upon
user demand. In order for WinINSTALL Version 6.0 to become a commercially viable
product, OnDemand, as of the valuation date, had undergone or was in the process
of undergoing significant development efforts, including:
- developing rollback facilities, including clone capability;
- expanding global editor to be included in the WinINSTALL registry file;
- improving WinINSTALL Remote to ease package generation and distribution;
- adding a feature that would allow optional electronic mail notification
on installation failure and on installation refusals due to license
limitations; and
- expanding copy options and interactive install displays, adding
substitution variables and allowing version control of backup files.
As of the date of acquisition, Seagate Software management anticipated the
costs to complete WinINSTALL Version 6.0 at approximately $920,000. Since the
acquisition date, the acquired in-process research and development from OnDemand
has been completed and the related products were released during fiscal 1997.
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SOFTWARE
VERITAS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, line items in
the Network & Storage Management Group's statements of operations expressed as a
percentage of total revenue.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------- -----------------------
JUNE 28, JUNE 27, JULY 3, JANUARY 2, JANUARY 1,
1996 1997 1998 1998 1999
-------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Licensing......................... 88% 93% 91% 91% 91%
Licensing from Seagate
technology..................... 8 3 3 3 4
Maintenance, support and other.... 4 4 6 6 5
--- --- --- --- ---
Total revenues............ 100 100 100 100 100
Cost of revenues:
Licensing......................... 11 8 8 9 5
Licensing from Seagate
Technology..................... 3 1 * * *
Maintenance, support and other.... * 1 1 1 2
Amortization of developed
technologies................... 9 12 4 6 1
--- --- --- --- ---
Total cost of revenues.... 23 22 13 16 8
--- --- --- --- ---
Gross profit........................ 77 78 87 84 92
Operating expenses:
Sales and marketing............... 48 48 39 40 38
Research and development.......... 28 24 18 19 17
General and administrative........ 17 18 13 14 10
In-process research and
development.................... 52 * 4 -- --
Amortization of goodwill and other
intangibles.................... 11 14 7 9 4
Restructuring costs............... 8 2 * -- --
--- --- --- --- ---
Total operating
expenses............... 164 106 81 82 69
--- --- --- --- ---
Income (loss) from operations....... (87) (28) 6 2 23
Interest expense.................. (1) (2) (1) (1) *
Other, net........................ * * * * *
--- --- --- --- ---
Interest and other, net........ (1) (2) (1) (1) *
--- --- --- --- ---
Income (loss) before income taxes... (88) (30) 5 1 23
Benefit from (provision for) income
taxes............................. 8 7 (3) (2) (10)
--- --- --- --- ---
Net income (loss)................... (80)% (23)% 2% (1)% 13%
=== === === === ===
</TABLE>
- -------------------------
* Less than 1%
RESTATEMENT OF FINANCIAL STATEMENTS
The Network & Storage Management Group had previously allocated a portion
of goodwill to developed technology and evaluated the impairment of goodwill
based on the revenues from the related software. Using this method, the Network
& Storage Management Group recorded write-downs and write-offs of goodwill in
fiscal 1997 in the amount of $10,259,000. The Network & Storage Management Group
has re-evaluated its methodology and determined that goodwill should not be
allocated to developed technology under Accounting Principles Board Opinion 17,
"Intangible Assets." As a result, the Network & Storage Management Group has
made adjustments to decrease the amounts of
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goodwill previously written-down and written-off from $10,259,000 to $6,173,000
in fiscal 1997. The additional goodwill of $4,086,000 is being amortized over
the remaining estimated useful lives of approximately 5 years.
The effect of this adjustment on previously reported combined financial
statements as of and for the years ended July 3, 1998 and June 27, 1997 is as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
AS REPORTED AS RESTATED
--------------------- ---------------------
AS OF AND FOR AS OF AND FOR
THE YEARS ENDED THE YEARS ENDED
--------------------- ---------------------
JUNE 27, JULY 3, JUNE 27, JULY 3,
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Amortization of goodwill........ $ 23,987 $ 12,456 $ 20,250 $ 13,236
Income (loss) from operations... (44,945) 10,210 (41,208) 9,430
Net income (loss)............... (36,937) 3,636 (33,200) 2,856
Goodwill and other intangible
assets, net................... 52,480 38,374 56,217 41,331
Accumulated deficit............. (227,146) (223,510) (223,409) (220,553)
</TABLE>
The effect of this adjustment on previously reported combined financial
statements as of and for the six months ended January 1, 1999 and January 2,
1998 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
AS REPORTED AS RESTATED
----------------------- -----------------------
AS OF AND FOR AS OF AND FOR
THE SIX MONTHS ENDED THE SIX MONTHS ENDED
----------------------- -----------------------
JANUARY 2, JANUARY 1, JANUARY 2, JANUARY 1,
1998 1999 1998 1999
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Amortization of goodwill........ $ 7,618 $ 4,762 $ 8,008 $ 5,152
Income (loss) from operations... 1,767 24,704 1,377 24,314
Net income (loss)............... (860) 13,713 (1,250) 13,323
Goodwill and other intangible
assets, net................... 40,124 32,324 43,471 34,891
Accumulated deficit............. (228,006) (209,797) (224,659) (207,230)
</TABLE>
SIX MONTHS ENDED JANUARY 2, 1998 VERSUS SIX MONTHS ENDED JANUARY 1, 1999
Revenues
The Network & Storage Management Group's revenues are primarily derived
from the sale of product licenses, software maintenance, technical support,
training and consulting. The Network & Storage Management Group recognizes
license revenues in accordance with the American Institute of Certified Public
Accountants Statement of Position 97-2, "Software Revenue Recognition." Revenues
from software license agreements are recognized at the time of product delivery.
Service revenues from customer maintenance fees for ongoing customer support and
product updates are recognized ratably over the maintenance term, which is
typically 12 months. Service revenues from training and consulting are
recognized when such services are performed.
Total revenues increased 29% from $83.3 million in the six months ended
January 2, 1998 to $107.4 million in the six months ended January 1, 1999.
License revenues grew 28% from $76.3 million in the six months ended
January 2, 1998 to $97.7 million in the six months ended January 1, 1999 due
primarily to increased sales of Seagate Backup Exec, the Network & Storage
Management Group's leading
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SOFTWARE
VERITAS
storage management product featuring backup and restore solutions for
Microsoft's Windows NT Server and Windows NT workstation operating systems.
Indirect revenues, which include distribution and original equipment
manufacturer sales, increased 31% from $74.5 million in the six months ended
January 2, 1998 to $97.4 million in the six months ended January 1, 1999.
Direct revenues, which include corporate licensing and other direct sales
to users, increased 14% from $8.8 million in the six months ended January 2,
1998 to $10.0 million in the six months ended January 1, 1999.
Revenues increased within the Americas 22% from $56.1 million in the six
months ended January 2, 1998 to $68.3 million in the six months ended January 1,
1999. Revenues grew internationally 44% from $27.2 million in the six months
ended January 2, 1998 to $39.1 million in the six months ended January 1, 1999
due in part to the Network & Storage Management Group's continued expansion of
its European distribution channel.
Revenues from Seagate Technology increased 58% from $2.4 million in the six
months ended January 2, 1998 to $3.8 million in the six months ended January 1,
1999 primarily due to increased sales of Seagate Backup Exec for Windows NT to
Seagate Technology's original equipment manufacturer tape drive operations.
Total maintenance, support and other revenues grew 26% from $4.7 million in
the six months ended January 2, 1998 to $5.9 million in the six months ended
January 1, 1999 primarily due to increases in the sales of maintenance
agreements and training and consulting services resulting from a larger
installed customer base.
Cost of revenues
The cost of revenues consists of amortization of acquired developed
technology, royalties, product packaging, documentation, duplication, production
and the cost of maintenance, technical support and consulting services. Acquired
developed technology is amortized based on the greater of the straight-line
method over its estimated useful life, 30 to 48 months or the ratio of current
revenues to the total of current and anticipated future revenues.
The total cost of revenues decreased 34% from $13.1 million in the six
months ended January 2, 1998 to $8.6 million in the six months ended January 1,
1999.
Cost of license revenues decreased from $7.1 million in the six months
ended January 2, 1998 to $5.0 million in the six months ended January 1, 1999
and represented 9% and 5% of related license revenues, respectively.
The cost of license revenues from Seagate Technology decreased from
$307,000 in the six months ended January 2, 1998 to $272,000 in the six months
ended January 1, 1999 and represented 13% and 7% of related license revenues,
respectively. Both declines were due primarily to reductions in product
packaging and documentation costs resulting from a shift in mix to CD-ROMs from
disks and increased sales of higher-margin server products.
The cost of maintenance, support and other revenues increased from $883,000
in the six months ended January 2, 1998 to $1.7 million in the six months ended
January 1, 1999 and represented 19% and 29% of related service revenues,
respectively. The increase was primarily due to expansion of the Network &
Storage Management Group's professional services workforce necessary to support
the growth in training and consulting revenues.
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The amortization of developed technology decreased from $4.7 million in the
six months ended January 2, 1998 to $1.6 million in the six months ended January
1, 1999 representing 6% and 1% of total revenues, respectively. This decrease
was primarily due to decreases in amortization expense based on lower levels of
intangible assets because certain assets have become fully amortized.
Sales and marketing
Sales and marketing expenses consist primarily of personnel-related
expenses, advertising, sales and marketing promotions and customer technical
support costs. Sales and marketing expenses increased from $33.4 million in the
six months ended January 2, 1998 to $41.0 million in the six months ended
January 1, 1999 and represented 40% and 38% of total revenues, respectively. The
increase was primarily due to increases in advertising, promotion and technical
support costs in Europe and other international regions necessary to support the
related revenue growth.
Research and development
Research and development expenses consist primarily of personnel-related
expenses, depreciation of development equipment and facilities and occupancy
costs. In accordance with statement of financial accounting standards No. 86,
software development costs are expensed as incurred until technological
feasibility has been established, at which time such costs are capitalized until
the product is available for general release to customers. To date, the
establishment of technological feasibility of the Network & Storage Management
Group's products and general release of such software has substantially
coincided. As a result, software development costs qualifying for capitalization
have been insignificant.
Research and development expenses increased from $15.9 million in the six
months ended January 2, 1998 to $17.9 million in the six months ended January 1,
1999 and represented 19% and 17% of total revenues, respectively. The increase
was primarily due to increases in personnel and related expenses and the
acquisition of development activities associated with the purchase of Eastman
Software Storage Management Group, Inc.
General and administrative
General and administrative expenses consist primarily of personnel-related
expenses for finance, legal, information technology, human resources, general
management, fixed asset writedowns and outside services. General and
administrative expenses decreased from $11.6 million in the six months ended
January 2, 1998 to $10.4 million in the six months ended January 1, 1999 and
represented 14% and 10% of total revenues, respectively. The decrease was
primarily due to decreased information technology related expenses, partially
offset by increases in other general and administrative expenses necessary to
support the Network & Storage Management Group's growth.
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SEAGATE
SOFTWARE
VERITAS
Amortization of goodwill and other intangibles
Goodwill represents the excess of the purchase price of acquired companies
over the estimated fair values of the tangible and intangible net assets
acquired. Goodwill is amortized on a straight-line basis over periods up to
seven years. Other intangible assets consist of acquired trademarks, assembled
workforces, distribution networks, developed technology, customer base, and
covenants not to compete. Amortization of other intangibles, other than acquired
developed technology, is provided based on the straight-line method over the
respective useful lives of the assets ranging from one to five years.
The amortization of goodwill and other intangibles decreased from $8.0
million in the six months ended January 2, 1998 to $5.2 million in the six
months ended January 1, 1999. This amortization represented 10% of total
revenues in the six months ended January 2, 1998 and 5% of total revenues in the
six months ended January 1, 1999. The decrease was primarily due to decreases in
amortization expense based on lower levels of intangible assets and write-downs
and write-offs of the carrying value of goodwill and other intangible assets of
approximately $1,900,000 during the quarter ended January 2, 1998, based on
asset values for the assembled work forces and associated goodwill that had
become impaired.
Interest and other, net
Total interest and other, net increased from a net expense of $667,000 in
the six months ended January 2, 1998 to a net income of $229,000 in the six
months ended January 1, 1999. This total interest and other, net represented 1%
of total revenues in the six months ended January 2, 1998 and 0% of total
revenues in the six months ended January 1, 1999. The increase in interest
income and other, net was primarily due to lower interest expense on a lower
level of outstanding borrowings from Seagate Technology.
Income taxes
The Network & Storage Management Group expects its annual effective tax
rate on anticipated operating income for the 1999 fiscal year to approximate
46%. The projected effective tax rate exceeds the U.S. statutory rate primarily
due to the amortization of goodwill which is not deductible for tax purposes,
and foreign taxes on certain earnings generated in higher tax rate
jurisdictions. This expected annual effective tax rate of 46% has been used to
record the provision for income taxes for the six month period ended January 1,
1999 compared with a 276% effective tax rate used to record the provision for
income taxes for the comparable year-ago period. The effective tax rate used to
record the provision for the income taxes for the six month period ended January
2, 1998 was based on the expected annual effective tax rate applicable to
anticipated fiscal 1998 operating income as adjusted for amortization of
nondeductible goodwill.
The Network & Storage Management Group is included in the consolidated
federal and certain combined and consolidated state and foreign income tax
returns of Seagate Technology. Seagate Technology and the Network & Storage
Management Group have entered into a tax allocation agreement. Under certain
terms of the tax allocation agreement, Network & Storage Management Group's
ability to recognize the tax benefits of certain net operating loss
carryforwards and foreign and domestic tax credits can be impacted by Seagate
Technology's anticipated operating income for fiscal 1999. Accordingly, Network
& Storage Management Group's expected annual effective tax rate of 46% on
anticipated operating income may be subject to adjustment in future quarters.
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FISCAL YEAR ENDED JUNE 27, 1997 VERSUS FISCAL YEAR ENDED JULY 3, 1998
Revenues
Total revenues increased 24% from $141.5 million in fiscal 1997 to $175.0
million in fiscal 1998.
License revenues grew 23% from $130.7 million in fiscal 1997 to $160.2
million in fiscal 1998 due primarily to increased sales of Seagate Backup Exec,
the Network & Storage Management Group's leading storage management product
featuring backup and restore solutions for Microsoft's Windows NT Server and
Windows NT Workstation operating systems.
The Network & Storage Management Group continued to expand both its
indirect and direct sales channels. Indirect revenues, which include
distribution and original equipment manufacturer sales, increased 25% from
$124.8 million in fiscal 1997 to $156.3 million in fiscal 1998 while direct
revenues, which include corporate licensing and other direct sales to users,
increased 12% from $16.7 million in fiscal 1997 to $18.7 million in fiscal 1998.
Revenues increased within the Americas 13% from $102.2 million in fiscal
1997 to $115.3 million in fiscal 1998. Revenues grew internationally 52% from
$39.3 million in fiscal 1997 to $59.7 million in fiscal 1998 due in part to the
Network & Storage Management Group's continued expansion of its European
distribution channel.
Revenues from Seagate Technology increased 3% from $4.9 million in fiscal
1997 to $5.0 million in fiscal 1998 primarily due to increased sales of Seagate
Backup Exec for Windows NT to Seagate Technology's original equipment
manufacturer tape drive operations.
Total maintenance, support and other revenues grew 66% from $5.9 million in
fiscal 1997 to $9.8 million in fiscal 1998 primarily due to increases in the
sales of maintenance agreements and training and consulting services resulting
from a larger installed customer base.
During fiscal 1998, the Network & Storage Management Group generated export
revenues from the United States of approximately $57.8 million. Expenses from
the Network & Storage Management Group's sales offices outside of the U.S. were
approximately $20.1 million as remeasured to the U.S. dollar from foreign
currencies. The principal currency for the sales offices is the British pound.
The Network & Storage Management Group believes that its exposure to foreign
currency fluctuations is not material and does not engage in foreign currency
hedging programs.
Cost of revenues
The cost of license revenues increased from $11.8 million in fiscal 1997 to
$13.7 million in fiscal 1998 and remained consistent at 9% of related license
revenues during both fiscal years.
The cost of license revenues from Seagate Technology decreased from $1.8
million in fiscal 1997 to $411,000 in fiscal 1998 and represented 37% and 8% of
related license revenues, respectively. The decrease was due primarily to
reductions in product packaging and documentation costs resulting from a shift
in mix to CD-ROMs from disks and increased sales of higher-margin server
products.
The cost of maintenance, support and other revenues increased from $789,000
in fiscal 1997 to $2.1 million in fiscal 1998 and represented 13% and 21% of
related service
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VERITAS
revenues, respectively. This increase was primarily due to expansion of the
Network & Storage Management Group's professional services workforce necessary
to support the growth in training and consulting revenues. The lower service
revenue margins in 1998 were primarily due to increased spending for additional
personnel and new facilities to support higher levels of customer support
services, such as training, consulting and preferred technical support.
The amortization of developed technology decreased from $17.7 million in
fiscal 1997 to $7.1 million in fiscal 1998 and represented 12% and 4% of total
revenues, respectively. The decrease was primarily due to higher write-downs in
fiscal 1997 of certain developed technologies amounting to approximately $6.9
million as a result of asset values that had become impaired based on reductions
in estimated future cash flows and decreases in amortization expense based on
lower levels of intangible assets.
In 1997 the unamortized software costs were reviewed under the guidance of
Statement of Financial Accounting Standards No. 86 for potential impairment. The
Network & Storage Management Group compared the net realizable value on a
product by product basis to the unamortized costs. Impairments were caused by a
number of factors including the Network & Storage Management Group's decision to
stop selling products or technologies such as DOS, new acquisitions, or new
product designs. Additionally in 1997, the Network & Storage Management Group
incurred a write-off to expected net realizable value related to the decision to
close down and sell one of its acquisitions, Calypso Software Systems, Inc. The
Network and Storage Management Group is not currently generating revenue from
any products for which the related developed technology has been impaired.
The write-downs of inventory to net realizable value in fiscal 1998 were
the result of new product introductions and, in the second quarter of fiscal
1998, the consolidation of the Network & Storage Management Group's fulfillment
warehouses to a single outsourcing partner. As a result of the change in
strategy to move to a single outsourcing partner, the Network & Storage
Management Group was required contractually to purchase components from some of
its terminated vendors. This inventory was reviewed in conjunction the new
outsourcing partner and the components that were excess or obsolete were written
down.
The inventory write-down in fiscal 1997 related to Sytron products for
which the decision was made in 1997 to no longer market these products.
Sales and marketing
Sales and marketing expenses increased slightly from $68.2 million in
fiscal 1997 to $68.3 million in fiscal 1998. These expenses represented 48% of
total revenues in fiscal 1997 and 39% of total revenues in fiscal 1998. The
slight increase was primarily due to increases in advertising, promotion and
technical support costs necessary to support revenue growth. These increases
were partially offset by reductions in workforce in fiscal 1997 due to facility
consolidations.
Research and development
Research and development expenses decreased from $33.6 million in fiscal
1997 to $31.7 million in fiscal 1998. These expenses represented 24% of total
revenues in fiscal 1997 and 18% of total revenues in fiscal 1998. The decrease
was primarily due to facility consolidations and reductions in workforce in
fiscal 1997.
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General and administrative
General and administrative expenses decreased from $26.0 million in fiscal
1997 to $22.3 million in fiscal 1998. These expenses represented 18% of total
revenues in fiscal 1997 and 13% of total revenues in fiscal 1998. The decrease
was primarily due to decreases in personnel-related expenses from facility
consolidations and reductions in workforce in fiscal 1997 and decreased legal
costs.
Write-off of in-process research and development
During fiscal 1998, $6.8 million of in-process research and development was
written off in connection with the purchase of Eastman Software Storage
Management Group, Inc.
Amortization of goodwill and other intangibles
The amortization of goodwill and other intangibles decreased from $20.3
million in fiscal 1997 to $13.2 million in fiscal 1998. This amortization
represented 14% of total revenues in fiscal 1997 and 8% of total revenues in
fiscal 1998. The decrease was primarily due to decreases in amortization expense
based on lower levels of intangible assets and write-downs and write-offs of the
carrying value of goodwill and other intangible assets of approximately $6.2
million in fiscal 1997 versus $1.9 million in fiscal 1998 as a result of asset
values that had become impaired.
Long-lived assets other than developed technology, including associated
goodwill, are assessed for impairment under the guidance of Statement of
Financial Accounting Standards Board No. 121 (SFAS 121), and any write-offs or
write-downs are included in amortization of goodwill and other intangibles.
Goodwill not under the scope of SFAS 121 is assessed for impairment under the
guidance of Accounting Principles Board No. 17, and any write-offs or
write-downs are also included in amortization of goodwill and other intangibles.
Developed technology is assessed for impairment under the guidance of Statement
of Financial Accounting Standards Board No. 86, and any related write-offs or
write-downs are included in costs of revenues. During fiscal 1997 and 1998, the
Network & Storage Management Group recorded impairment charges for write-offs
and write-downs of acquired intangible assets and goodwill, exclusive of amounts
relating to developed technology as follows:
In 1997, the Network & Storage Management Group determined that it would
abandon and discontinue selling substantially all of the current and future
products and technologies obtained in the 1994 acquisition of Palindrome
Corporation in favor of selling and supporting the current and future products
and technologies obtained in the 1996 acquisition of Arcada Holdings, Inc.
Additionally, in 1997, the Network & Storage Management Group decided to close
down and sell Calypso Software Systems, Inc. and to abandon and discontinue
sales of the developed and future DOS products and technologies acquired from
Frye Computer Systems, Inc. In connection with these determinations, the Network
& Storage Management Group recorded impairment charges to write-off and
write-down goodwill amounting to approximately $6.2 million.
In 1998, the Network & Storage Management Group assessed the recoverability
of long-lived assets and as a result wrote-off assembled workforce and related
goodwill amounting to $1.9 million for Network Computing, Inc., Netlabs, Inc.
and Creative Interaction Technologies, Inc.
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Restructuring
Restructuring charges were $2.5 million in fiscal 1997 and none in fiscal
1998. See management's discussion and analysis of restructuring costs for the
fiscal year ended June 28, 1996 versus fiscal year ended June 27, 1997.
Interest and other, net
Total interest and other, net decreased from a net expense of $2.6 million
in fiscal 1997 to a net expense of $713,000 in fiscal 1998, representing 2% and
1% of total revenues, respectively. The decrease in interest and other, net was
primarily due to lower interest expense on a lower level of average outstanding
borrowings from Seagate Technology.
Income taxes
The Network & Storage Management Group recorded a $10.6 million benefit
from income taxes at an effective rate of 24% for fiscal 1997 compared with a
$5.9 million provision for income taxes at an effective rate of 67% in fiscal
1998. The effective rate used to record the provision for income taxes in fiscal
1998 was greater than the statutory rate primarily due to foreign taxes in
excess of the U.S. statutory tax rate, state income taxes, and goodwill
amortization for certain acquisitions that was not deductible for tax purposes.
The effective rate used to record the benefit from income taxes in fiscal 1997
was less than the statutory rate primarily due to increases in the valuation
allowance for deferred tax assets and goodwill amortization for certain
acquisitions that were not deductible for tax purposes.
FISCAL YEAR ENDED JUNE 28, 1996 VERSUS FISCAL YEAR ENDED JUNE 27, 1997
Revenues
Total revenues increased 21% from $116.7 million in fiscal 1996 to $141.5
million in fiscal 1997.
The increase in licensing revenues was due in part to growth in the market
for storage management software products and related services, expansion of the
Network & Storage Management Group's European distribution channels and
increased sales of Seagate Backup Exec for Windows NT.
The increase in maintenance, support and other revenues was due in part to
higher training and consulting revenues resulting from a larger customer base.
Additionally, the fiscal 1997 results included a full year of operations
for the fiscal 1996 acquisition of OnDemand Software, Inc., which resulted in
increases in licensing revenues of approximately $6.8 million in fiscal 1997 as
compared with fiscal 1996.
During fiscal 1997, the Network & Storage Management Group generated export
revenues from the United States of approximately $40.7 million. Expenses from
the Network & Storage Management Group's sales offices outside of the U.S. were
approximately $15.7 million as remeasured in the U.S. Dollar from foreign
currencies, principally the British Pound. The principal currency for such
operations is the British Pound. The Network & Storage Management Group believes
that its exposure to foreign currency fluctuations is not material and does not
engage in foreign currency hedging programs.
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Cost of revenues
The total cost of revenues increased from $27.3 million in fiscal 1996 to
$32.1 million in fiscal 1997 and represented 23% of total revenues in fiscal
1996 and 22% of total revenues in fiscal 1997. The majority of the increase in
absolute dollars was due to an increase in the amortization of acquired
developed technology due to a higher level of intangible assets. Additionally,
in fiscal 1997 the Network & Storage Management Group wrote off and wrote down
certain developed technologies amounting to approximately $6.9 million as a
result of asset values that had become impaired based on the Network & Storage
Management Group's phasing out of certain products.
In 1997 the unamortized software costs were reviewed under the guidance of
Statement of Financial Accounting Standards No. 86 for potential impairment. The
Network & Storage Management Group business compared the net realizable value on
a product by product basis to the unamortized costs including goodwill.
Impairments were caused by a number of factors including the Network & Storage
Management Group's decision to stop selling products or technologies such as
DOS, new acquisitions, or new product designs. Additionally in 1997, the Network
& Storage Management Group incurred a write-off related to the decision to close
down and sell one of its acquisitions, Calypso Software Systems, Inc. The
write-off was to the expected net realizable value. The Network and Storage
Management Group is not currently generating revenue from any products for which
the related developed technology has been impaired.
The inventory write-down in fiscal 1997 related to Sytron products for
which the decision was made in 1997 to no longer market these products.
Sales and marketing
Sales and marketing costs increased from $55.9 million in fiscal 1996 to
$68.2 million in fiscal 1997 and represented 48% of total revenues in both
periods. The increase in absolute dollars was due to increased personnel,
advertising and promotion costs necessary to support revenue growth and the
expansion of the Network & Storage Management Group's European distribution
channel. Additionally, the fiscal 1997 results included a full year of
operations for the Network & Storage Management Group's fiscal 1996 acquisitions
compared with a partial year of operations in fiscal 1996.
Research and development
Research and development expenses increased from $32.5 million in fiscal
1996 to $33.6 million in fiscal 1997. These expenses represented 28% of total
revenues in fiscal 1996 and 24% total revenues in fiscal 1997. The increase in
absolute dollars was primarily due to increases in new product development and
localization costs, partially offset by facility consolidations and reductions
in workforce. Additionally, the fiscal 1997 results included a full year of
operations for the Network & Storage Management Group's fiscal 1996 acquisitions
compared with a partial year of operations in fiscal 1996.
General and administrative
Total general and administrative expenses increased from $20.0 million in
fiscal 1996 to $26.0 million in fiscal 1997. These expenses represented 17% of
total revenues in fiscal 1996 and 18% of total revenues in fiscal 1997. The
increase in absolute dollars was primarily due to increases in corporate
administrative expenses, information systems and legal costs necessary to
support the Network & Storage Management Group's growth. Additionally, the
fiscal 1997 results included a full year of operations for the Network &
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SOFTWARE
VERITAS
Storage Management Group's fiscal 1996 acquisitions compared with a partial year
of operations in fiscal 1996.
Write-off of in-process research and development
During fiscal 1996, total write-offs of in-process research and development
were $61.1 million as a result of the Network & Storage Management Group's
fiscal 1996 acquisitions.
Amortization of goodwill and other intangibles
Amortization of goodwill and other intangibles increased from $13.0 million
in fiscal 1996 to $20.3 million in fiscal 1997. This amortization represented
11% of total revenues in fiscal 1996 and 14% of total revenues in fiscal 1997.
The increase in absolute dollars was primarily due to increased amortization
expense on a higher level of intangible assets and write-downs and write-offs of
the carrying value of goodwill and other intangible assets of approximately $6.2
million as a result of asset values that had become impaired.
Long-lived assets other than developed technology, including associated
goodwill, are assessed for impairment under the guidance of Statement of
Financial Accounting Standards Board No. 121 (SFAS 121), and any write-offs or
write-downs are included in amortization of goodwill and other intangibles.
Goodwill not within the scope of SFAS 121 is assessed for impairment under the
guidance of Accounting Principals Board No. 17, and any write-downs or
write-offs are also included in amortization of goodwill and other intangibles.
Developed technology is assessed for impairment under the guidance of Statement
of Financial Accounting Standards Board No. 86, and any related write-offs or
write-downs are included in costs of revenues. During 1997 and 1996, the Network
& Storage Management Group recorded impairment charges for write-offs and
write-downs of acquired intangible assets and goodwill, exclusive of amounts
relating to developed technology as follows:
In 1996, the former owner of Frye Computer Systems, Inc., a 1995
acquisition, Mr. Frye, left the Network & Storage Management Group. With his
departure, the Network & Storage Management Group decided to release Mr. Frye
from his remaining non-compete period and to not use the Frye name trademark in
future periods. As a result, the remaining carrying value of the intangible
assets relating to the covenant not to compete and the trademark, and associated
goodwill, totaling $2.2 million were written off in their entirety.
In 1997, the Network & Storage Management Group determined that it would
abandon and discontinue selling substantially all of the current and future
products and technologies obtained from the 1994 acquisition of Palindrome
Corporation in favor of selling and supporting the current and future products
and technologies obtained from the 1996 acquisition of Arcada Holdings, Inc.
Additionally, in 1997, the Network & Storage Management Group decided to close
down and sell Calypso Software Systems, Inc. and to abandon and discontinue
sales of the developed and future products and technologies acquired from Frye
Computer Systems, Inc. In connection with these determinations, the Network &
Storage Management Group recorded write-offs and write-downs of goodwill
amounting to approximately $6.2 million.
Restructuring
Fiscal 1996 charges. Restructuring charges were $9.5 million in fiscal 1996
and $2.5 million in fiscal 1997. The 1996 restructuring charges pertain to the
acquisition of
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Arcada Holdings, Inc. in February 1996. As a result of the acquisition, the
Network & Storage Management Group business had obtained duplicate technologies
and product lines in data protection and storage management software as those
assets acquired in the Palindrome Corporation acquisition in fiscal 1995. The
Network & Storage Management Group determined that it would be beneficial to
consolidate the world-wide sales, marketing, research and development, technical
support and other operations and administrative functions of its network and
storage management business. A restructuring plan was approved by the Seagate
Software board of directors in March 1996 and the plan resulted in facility
closures and staff reductions of 43 at the Arcada facilities in Westboro,
Massachusetts, the United Kingdom and France, as well as staff reductions of 69
at the former Palindrome facility in Naperville, Illinois. In addition, because
Arcada had a better industry reputation and superior products to those of
Palindrome, the Network & Storage Management Group's plan and strategy going
forward was to focus on the technologies and products acquired from Arcada. The
revenue relating to products acquired from Palindrome for fiscal 1996 was $15.9
million and the net operating loss relating to products acquired from Palindrome
for fiscal 1996 was $2.1 million. For fiscal 1997, the revenue relating to
products acquired from Palindrome was $3.3 million and the net operating loss
relating to products acquired from Palindrome for fiscal 1997 was $3.7 million.
The non-cash restructuring charges included amounts for abandonment of the
Palindrome trademarks, impairment of the capitalized workforce intangible assets
pertaining to the acquisition of Palindrome because of the planned layoff of
personnel, write-off of a duplicate trade show booth, and write-off of obsolete
Palindrome marketing materials. Cash restructuring charges included amounts for
severance and benefits to terminated Palindrome employees, costs for facilities
lease termination, other contract cancellation fees, and merger related costs
incurred by Arcada in the acquisition of the Arcada minority pooling of
interests by Seagate Technology.
Fiscal 1997 charges. The fiscal 1997 restructuring charges netted to $2.5
million, comprised of a $3.4 million restructuring charge that included the
closure of the Network & Storage Management Group's facility located in
Cupertino, California. This facility closure resulted in cash charges for
severance and benefits for 69 employee terminations and non-cash charges for
excess facilities and the write down of equipment. In addition, the $3.4 million
included amounts related to the decision, after concluding a sale was no longer
viable, to no longer pursue the technologies acquired in the fiscal 1996
acquisition of Calypso Software Systems, Inc. and to shut down its operations.
This decision resulted in cash charges for severance and benefits for 35
employee terminations and non-cash charges for the write off of certain
remaining intangible assets of Calypso. The revenue and net operating loss
relating to products acquired from Calypso for fiscal 1996 was $444,000 and
$53,000 respectively. For fiscal 1997, the revenue and net operating loss
relating to products acquired from Calypso was $640,000 and $47,000
respectively.
The restructuring charges recorded in fiscal 1997 were reduced by $957,000
for the reversal of amounts pertaining to the fiscal 1996 restructuring charges
as a result of a higher than planned number of voluntary employee terminations
without severance benefits prior to the facility shutdown and completion of
other aspects of the restructuring plan at less than the originally estimated
cost, net of an increase in the accrual for facilities lease payments due to
changes in estimates of the costs to terminate leases after facilities closure.
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SEAGATE
SOFTWARE
VERITAS
A summary of Network & Storage Management Group business restructuring
activities for the past three years is provided below in thousands:
<TABLE>
<CAPTION>
SEVERANCE CONTRACT LEGAL AND
AND EMPLOYEE CANCELLATION ACCOUNTING OTHER
BENEFITS FACILITIES EQUIPMENT INVENTORY INTANGIBLES FEES FEES EXPENSES
------------ ---------- --------- --------- ----------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 restructuring
charges............ $1,554 $1,571 $ 1,018 $ 300 $ 4,312 $67 $ 525 $ 155
Cash charges......... (518) -- -- -- -- -- (568) --
Non-cash charges..... -- (121) (116) -- (4,052) -- -- (138)
------ ------ ------- ----- ------- --- ----- -----
Reserve balances,
June 28, 1996...... 1,036 1,450 902 300 260 67 (43) 17
1997 restructuring
charges............ 770 505 728 -- 1,378 -- -- 100
Cash charges......... (975) (915) -- -- -- -- -- --
Non-cash charges..... -- (72) (44) -- (1,378) -- -- --
Adjustments and
reclassifications.. (351) 267 (172) (300) (260) (67) 43 (117)
------ ------ ------- ----- ------- --- ----- -----
Reserve balances,
June 27, 1997...... 480 1,235 1,414 -- -- -- -- --
Cash charges......... (373) (519) (9) -- -- -- -- --
Non-cash charges..... -- -- (1,045) -- -- -- -- --
Adjustments and
reclassifications.. (107) 467 (360) -- -- -- -- --
------ ------ ------- ----- ------- --- ----- -----
Reserve balances,
July 3, 1998....... -- 1,183 -- -- -- -- -- --
Cash charges
(unaudited)........ -- (251) -- -- -- -- -- --
------ ------ ------- ----- ------- --- ----- -----
Reserve balances,
January 1, 1999
(unaudited)........ $ -- $ 932 $ -- $ -- $ -- $-- $ -- $ --
====== ====== ======= ===== ======= === ===== =====
<CAPTION>
TOTAL
-------
<S> <C>
1996 restructuring
charges............ $ 9,502
Cash charges......... (1,086)
Non-cash charges..... (4,427)
-------
Reserve balances,
June 28, 1996...... 3,989
1997 restructuring
charges............ 3,481
Cash charges......... (1,890)
Non-cash charges..... (1,494)
Adjustments and
reclassifications.. (957)
-------
Reserve balances,
June 27, 1997...... 3,129
Cash charges......... (901)
Non-cash charges..... (1,045)
Adjustments and
reclassifications.. --
-------
Reserve balances,
July 3, 1998....... 1,183
Cash charges
(unaudited)........ (251)
-------
Reserve balances,
January 1, 1999
(unaudited)........ $ 932
=======
</TABLE>
The Network & Storage Management Group's remaining restructuring reserves
at January 1, 1999 pertain to continuing lease payments on facilities that were
closed and abandoned as a result of the Palindrome restructuring. The Network &
Storage Management Group has been unable to sublease these facilities and
anticipates that the remaining restructuring reserves will be utilized over the
period through lease termination in fiscal 2002.
The fiscal 1996 restructuring reserve of $9,502,000 was for the following
specific items:
Severance and employee benefits ($1,554,000) -- Severance and employee
benefits included amounts for consolidation of operations and termination of
employees at the
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Arcada facilities in Westboro, Massachusetts, the United Kingdom and France, as
well as at the former Palindrome facility in Naperville, Illinois.
Excess facilities ($1,571,000) -- This accrual was designed to provide for
rent termination costs and rent expense for facilities located in Naperville,
Westboro, the United Kingdom and France that are to be closed as a result of the
restructuring actions.
Equipment ($1,018,000) -- This amount is a reserve for equipment at the
Naperville, Westboro, the United Kingdom and France facilities. It consists of
computer equipment, furniture and fixtures and software at these facilities that
will not be used after the locations are closed. All of the equipment provided
for in this reserve has been abandoned.
Inventory ($300,000) -- This consists of obsolete packaging material that
will no longer be used and original equipment manufacturer inventory of $80,000
that will no longer be sold.
Intangibles ($4,312,000) -- This writedown consists of Palindrome
intangible assets of $3,534,000, $390,000 of developed technology related to
Atlas and $388,000 of goodwill related to the Sytron acquisition. The Palindrome
intangible assets were further broken down into trademark of $1,000,000,
workforce of $1,188,000, distribution network of $69,000 and goodwill of
$1,277,000. The Network & Storage Management Group decided to pursue the Arcada
brand name and trademark and abandon the Palindrome trademark. As a result,
Network & Storage Management Group business determined that it would lay off
substantially all of the 121 employees of Palindrome located at the Naperville
facility. At the time of original purchase, Network & Storage Management Group
business proportionally allocated goodwill to long-lived intangible assets based
upon the original purchase price. The amounts of goodwill included in the
restructuring reserve relate to the remaining unamortized goodwill associated
with the intangible assets written off.
Contract cancellation ($67,000) -- This $67,000 item is a canceled contract
for outsourced Technical Support with a vendor used by Palindrome.
Legal/Accounting fees ($525,000) -- This $525,000 represents an estimate of
the legal and accounting fees that were to be incurred by Arcada from the
acquisition of Arcada stock by Seagate Technology.
Other ($155,000) -- This represents a trade show booth valued at $100,000
that is redundant and $55,000 for obsolete marketing materials.
The above assets were not impaired in a prior period because their
impairment arose specifically from the restructuring actions taken as a result
of the acquisition of the minority interest in Arcada in the third quarter of
fiscal 1996. Prior to the acquisition, Palindrome products were marketed and
sold as part of the Seagate Software portfolio.
In fiscal 1997, Seagate Software recorded an additional restructuring
reserve of $3,481,000 that resulted primarily from the plan to shutdown
Manchester operations and the decision to try to sell the Calypso technology and
a separate decision to consolidate the Network & Storage Management Group
operations which resulted in the shutdown of the Company's facility in
Cupertino, California.
Severance and employee benefits ($770,000) -- Severance and employee
benefits included amounts for the shutdown and termination of employees at the
Cupertino, California facility due to a consolidation of operations and the
shutdown and termination of employees at the Calypso facility in Manchester, New
Hampshire due to a decision to no longer pursue the Calypso products and
technologies.
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SOFTWARE
VERITAS
Excess facilities ($505,000) -- This accrual was designed to provide for
rent termination costs and rent expense for facilities closures in Manchester,
New Hampshire and Cupertino, California.
Equipment ($728,000) -- This reserve is for equipment in the Manchester and
Cupertino facilities that would not be used after the shutdowns. It consisted of
largely of computer equipment but also included amounts for furniture and
fixtures and software. All of the equipment provided for in this reserve has
been abandoned.
Intangibles ($1,378,000) -- This asset consisted of Calypso related
intangibles first capitalized upon the acquisition of Calypso in fiscal 1996.
The amounts written down included net developed technology of $1,086,000 and
assembled workforce of $292,000. These assets were written off based on
management's plan to sell Calypso and its products and technologies.
Other ($100,000) -- This represents miscellaneous additional costs related
to the Manchester Calypso shutdown.
The above assets were not impaired in a period prior to recording the
restructuring reserves because their impairment arose specifically from the
business decision and plan in the fourth quarter of fiscal 1997 to close the
Manchester Calypso facility and abandon that technology and the additional
decision to consolidate operations of the company and close the Cupertino
facility.
Interest and other, net
Total interest and other, net increased from a net expense of $705,000 in
fiscal 1996 to a net expense of $2.6 million in fiscal 1997 and represented 1%
and 2% of total revenues, respectively. The increase in interest and other, net
was primarily due to higher interest expense on a higher level of outstanding
borrowings from Seagate Technology.
Income taxes
The Network & Storage Management Group recorded a $8.8 million benefit from
income taxes at an effective rate of 8% for fiscal 1996 compared with a $10.6
million benefit from income taxes at an effective rate of 24% in fiscal 1997.
The effective rate used to record the benefit from income taxes in each fiscal
year was less than the statutory rate primarily from increases in the valuation
allowance for deferred tax assets, goodwill amortization, and charges in fiscal
1996 for in-process research and development for certain acquisitions that were
not deductible for tax purposes.
BALANCE SHEET DISCUSSION
The Network & Storage Management Group's total cash was $4.9 million as of
July 3, 1998 and $0 as of January 1, 1999. The decrease in cash was primarily
due to the Network & Storage Management Group's participation in the
consolidated cash management program of Seagate Technology and the differences
reflect the timing of the transfer of cash to the parent company. The accounts
receivable balance was $15.9 million on July 3, 1998 and $23.7 million as of
January 1, 1999. The increase in accounts receivable was primarily due to
increased sales and an increase in days sales outstanding. The loan receivable
from Seagate Technology and affiliates was $0 as of July 3, 1998 and $21.1
million as of January 1, 1999. The increase in the loan receivable is due to the
Network & Storage Management Group's participation in the consolidated cash
management program of Seagate Technology and the difference in the loan balance
reflects the timing of the
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transfer of cash to the parent company. The other current assets balance was
$480,000 as of July 3, 1998 and $4.2 million as of January 1, 1999. This
increase was primarily due to prepaid costs associated with the NSMG combination
with VERITAS. The goodwill and other intangibles balance for the Network &
Storage Management Group was $41.3 million as of July 3, 1998 and $34.9 million
as of January 1, 1999. The decrease was due to ongoing goodwill and intangible
amortization.
The Network & Storage Management Group's loan payable to Seagate Technology
and affiliates was $10.6 million as of July 3, 1998 and $0 as of January 1,
1999. The decrease in the loan payable was due primarily to the Network &
Storage Management Group's participation in the consolidated cash management
program of Seagate Technology and the differences in the loan payable reflects
the timing of the transfer of cash to the parent company. Accrued employee
compensation was $8.0 million as of July 3, 1998 and $10.9 million as of January
1, 1999. The increase is primarily due to increases in payroll costs associated
with increased headcount. Headcount increased from 959 employees as of July 3,
1998 to 1,045 employees as of January 1, 1999. Accrued expenses were $7.1
million as of July 3, 1998 and $9.1 million as of January 1, 1999. The increase
is primarily due to accruals for expenses incurred as a result of the NSMG
combination with VERITAS. Accrued income taxes were $1.3 million as of July 3,
1998 and $12.7 million as of January 1, 1999, respectively. The increase was
primarily due to accrued income taxes on increased domestic and foreign earnings
and the timing of the settlement of the intercompany tax liability with Seagate
Technology, the parent company.
LIQUIDITY AND CAPITAL RESOURCES
The Network & Storage Management Group's total cash was $4.9 million and $0
as of July 3, 1998 and January 1, 1999, respectively. The decrease in cash was
primarily due to loan repayments to Seagate Technology of $99.6 million offset
by additional borrowings from Seagate Technology of $67.9 million and purchases
of equipment, leasehold improvements and intangible assets, partially offset by
cash provided by operating activities. The Network & Storage Management Group's
cash is maintained in highly liquid operating accounts and primarily consists of
bank deposits.
The Network & Storage Management Group's operations have been financed by
cash flows from operating activities and borrowings from Seagate Technology.
Such borrowings are available to Seagate Software under a revolving loan
agreement between Seagate Software and Seagate Technology. Under the revolving
loan agreement, Seagate Technology finances certain of the Network & Storage
Management Group's working capital requirements. The revolving loan agreement,
which provides for maximum borrowings by Seagate Software of up to $60.0
million, is renewable every two years, and interest is paid at the LIBOR rate
plus 2% per annum on such borrowings. Under the loan agreement, the Network &
Storage Management Group was in a net receivable position of $21.0 million as of
January 1, 1999.
During the six months ended January 1, 1999, the Network & Storage
Management Group made investments totaling approximately $2.6 million for new
office facilities, leasehold improvements, computers, furniture and office
equipment. The Network & Storage Management Group presently anticipates it will
make investments in 1999 of approximately $10.7 million in equipment and
leasehold improvements. Such investments, both actual and planned, will continue
to be required if the NSMG combination is consummated. Additionally, product
development activities may include cash used to acquire technology. The Network
& Storage Management Group expects that such
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SEAGATE
SOFTWARE
VERITAS
investments will be funded from existing cash balances and cash flows from
operations or from borrowings under the revolving loan agreement.
The Network & Storage Management Group believes its current cash balances,
its available borrowings from Seagate Technology and cash flows generated from
the Network & Storage Management Group's operations will be sufficient to meet
its anticipated cash needs for working capital and capital expenditures for at
least the next 12 months. Furthermore, the Network & Storage Management Group
anticipates that future operating and investing activities may be financed by
additional borrowings from Seagate Technology, equity financing or other
sources. The Network & Storage Management Group believes that additional
financing from Seagate Technology will be available at a reasonable cost.
The Network & Storage Management Group does not anticipate that the NSMG
combination or any other known trends or uncertainties will have a significant
impact on its cash flows from continuing operations. While borrowings under the
revolving loan agreement with Seagate Technology will not be available following
consummation of the NSMG combination, the Network & Storage Management Group
believes that its working capital and capital expenditure requirements will be
funded by existing cash balances, cash flows from operations, financing from New
VERITAS or other sources for at least the next 12 months.
NEW ACCOUNTING PRONOUNCEMENTS
The Network & Storage Management Group intends to adopt Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" during fiscal 1999. This standard will
require additional disclosure, but will not have a material effect on the
Network & Storage Management Group's financial position or results of
operations. This standard changes the way companies report segment information
and requires segments to be determined based on how management measures
performance and makes decisions about allocating resources. This standard will
first be reflected in the Network & Storage Management Group's consolidated
financial statements for fiscal 1999.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement of position
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. It also provides guidance for
determining whether computer software is internal-use software and on accounting
for the proceeds of computer software originally developed or obtained for
internal use and then subsequently sold to the public. The Network & Storage
Management Group has not yet determined the impact, if any, of adopting this
statement. The disclosures prescribed by this statement of position will be
effective for the Network & Storage Management Group's combined financial
statements for the fiscal year ending July 2, 1999.
In June 1998, the Financial Accounting Standards Board issued statement of
financial accounting standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that derivatives be recognized in the balance sheet at fair value and specifies
the accounting for changes in fair value. This statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999,
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and will be effective for the Network & Storage Management Group's fiscal year
2000. The Network & Storage Management Group generally does not use derivative
financial instruments and believes that the impact of adopting this statement
will not be material.
YEAR 2000 READINESS
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. This could result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions, send invoices, or engage in
normal business activities.
The Network & Storage Management Group considers a product to be year 2000
ready if the product's performance and functionality are unaffected by
processing of dates prior to, during and after the year 2000, but only if all
products, for example hardware, firmware, and software used with the products
properly exchange accurate date data with it.
The Network & Storage Management Group's products
The Network & Storage Management Group's products are used in numerous
operating environments. The Network & Storage Management Group has assessed its
products to determine whether or not they are year 2000 ready. Although the
Network & Storage Management Group believes certain of its software products are
year 2000 ready, it has determined that certain of its software products are not
and will not be year 2000 ready. Products that are not year 2000 ready are not
material to the Network & Storage Management Group's business, financial
condition or results of operations. The inability of one or more of its products
to properly manage and manipulate dates related to the year 2000 could result in
a material adverse effect on its business, financial condition or results of
operations, including increased warranty costs, customer satisfaction issues and
potential lawsuits. The Network & Storage Management Group is taking measures to
inform customers that those products are not and will not be year 2000 ready. To
assist customers in evaluating their year 2000 issues, the Network & Storage
Management Group has developed a list of those products that are year 2000 ready
as stand-alone products. The list is located on Seagate Software's World Wide
Web page and is periodically updated as additional product assessments are made.
The Network & Storage Management Group anticipates that substantial
litigation may be brought against vendors, including the Network & Storage
Management Group, of all software components of systems in which another
vendor's component products are unable to properly manage data related to the
year 2000. The Network & Storage Management Group's customer agreements
typically contain provisions designed to limit the Network & Storage Management
Group's liability for such claims. As a result of existing or future federal,
state or local laws or ordinances or unfavorable judicial decisions, it is
possible that these measures will not provide the Network & Storage Management
Group with protection from liability claims. If any such claims are brought
against the Network & Storage Management Group, regardless of their merit, the
Network & Storage Management Group's business, financial condition and results
of operations could be materially adversely affected from factors that include
increased warranty costs, customer satisfaction issues and the costs of
potential lawsuits.
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SEAGATE
SOFTWARE
VERITAS
The Network & Storage Management Group's systems
The Network & Storage Management Group has also initiated a comprehensive
program to address year 2000 readiness in its internal systems and in those of
its customers and suppliers. The Network & Storage Management Group's program
has been designed to address its most critical internal systems first and to
gather information regarding the year 2000 compliance of products supplied to
the Network & Storage Management Group and into which its products are
integrated. The scope of the Network & Storage Management Group's internal year
2000 readiness project includes information technology, non-information
technology and embedded technology for all critical systems, and includes all
offices worldwide, critical vendors, suppliers, customers and partners. The
Network & Storage Management Group currently expects to be year 2000 ready
before December 31, 1999.
The Network & Storage Management Group is approaching year 2000 readiness
in five stages: inventory, assessment, testing, remediation and contingency
planning. Anticipated dates of completion are as follows:
<TABLE>
<CAPTION>
ANTICIPATED DATE
OF COMPLETION
----------------
<S> <C> <C>
1. Inventory Complete
2. Assessment April 30, 1999
3. Testing June 1, 1999
4. Remediation September 30, 1999
5. Contingency Planning September 30, 1999
</TABLE>
These activities are intended to encompass all major categories of systems
in use by the Network & Storage Management Group, including operations,
technical support, engineering, sales, finance and human resources. To date, the
Network & Storage Management Group has not incurred material costs related to
assessment and remediation of year 2000 readiness. The Network & Storage
Management Group is still in the process of conducting its year 2000 audit. The
Network & Storage Management Group currently estimates the costs of internal
year 2000 issues will be less than $3.0 million. However, if the costs of the
future remediation exceed such amount, then the costs required to address the
year 2000 issue could have a material adverse effect on the Network & Storage
Management Group's business, financial condition or results of operations.
The Network & Storage Management Group's material third party relationships
include relationships with fulfillment houses, banks, payroll services vendors,
utilities, distribution partners and key customers. These relationships have
been examined, and the Network & Storage Management Group is now assessing the
risks relating to these relationships. The Network & Storage Management Group
believes that certain of these relationships are of significant importance to
its future operations. The Network & Storage Management Group has contacted its
significant suppliers and has received assurances of year 2000 compliance from a
number of those contacted. However, most of the Network & Storage Management
Group's suppliers are under no contractual obligation to provide such
information to the Network & Storage Management Group. The Network & Storage
Management Group does not currently have reason to believe that any such third
parties have significant internal year 2000 problems that will not remediated.
However, in the event any such third parties were to have an unremediated year
2000 problem, it could have a material adverse effect on The Network & Storage
Management Group's business, financial condition or results of operations.
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Customer Purchasing Patterns
The Network & Storage Management Group believes that the purchasing
patterns of customers and potential customers may be affected by year 2000
issues as companies expend significant resources to correct or patch their
current software systems for year 2000 readiness or defer purchases of new
systems to avoid encountering additional unforeseen year 2000 problems.
Additional short-term expenditures for remediation of existing year 2000
problems may result in reduced funds being available to purchase products such
as those offered by the Network & Storage Management Group, which could have a
material adverse effect on the Network & Storage Management Group's business,
operating results or financial condition.
The Network & Storage Management Group believes that a most likely worst
case year 2000 scenario would result in significant disruptions of its business,
including the possible loss of power and disruption of transportation system.
The Network & Storage Management Group believes that no effective contingency
planning for such disruption is possible. The Network & Storage Management Group
also believes that additional elements of the most likely worst case year 2000
scenario include the loss of fulfillment services, banking services, and/or
distribution services. Although discussions of contingency planning for these
problems has begun, no contingency plan is yet in place. The Network & Storage
Management Group currently expects to complete contingency planning by September
30, 1999. The Network & Storage Management Group could experience material
adverse effects on its business if it fails to successfully implement a
contingency plan. Those material adverse effects could include delays in the
delivery or sale of products.
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VERITAS
TELEBACKUP
EXCHANGE RATE OF CANADIAN AND U.S. DOLLARS
The following table sets forth, for each period indicated:
- the high and low exchange rates for one Canadian Dollar expressed in U.S.
Dollars
- the average of the exchange rates on the last day of each month during
such period; and
- the exchange rate at the end of such period, based upon the noon buying
rate in New York City for cable transfers in Canadian Dollars, as
certified for customs purposes by the Federal Reserve Bank of New York:
<TABLE>
<CAPTION>
12-MONTH PERIOD ENDED DECEMBER 31,
---------------------------------------------
1995 1996 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
High.......................... US$0.7527 US$0.7513 US$0.7487 US$0.7123
Low........................... 0.7023 0.7235 0.6945 0.6311
Average....................... 0.7288 0.7333 0.7222 0.6740
Period End.................... 0.7323 0.7301 0.6999 0.6504
</TABLE>
On March 31, 1999, the noon buying rate was one Canadian Dollar equalled
0.6626 U.S. Dollars.
The following table sets forth, for each period indicated:
- the high and low exchange rates for one U.S. Dollar expressed in Canadian
Dollars,
- the average of such exchange rates on the last day of each month during
the period, and
- the exchange rate at the end of the period, based upon the noon spot rate
of the Bank of Canada:
<TABLE>
<CAPTION>
12-MONTH PERIOD ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
High............................... C$1.4267 C$1.3865 C$1.4399 C$1.5845
Low................................ 1.3275 1.3287 1.3345 1.4040
Average............................ 1.3726 1.3636 1.3844 1.4836
Period End......................... 1.3640 1.3706 1.4305 1.5375
</TABLE>
On March 31, 1999, the noon spot rate was one U.S. Dollar equalled 1.5123
Canadian Dollars.
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<PAGE> 215
TELEBACKUP SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data should be read with the
TeleBackup financial statements and related notes and "TeleBackup Management's
Discussion and Analysis of Financial Condition and Results of Operations" on the
next page. The statement of operations data for each of the three years in the
period ended December 31, 1998 and the period from May 5, 1995 or inception, to
December 31, 1995 and the balance sheet data at December 31, 1997 and 1998 are
derived from financial statements of TeleBackup which have been audited by KPMG
LLP, independent auditors, and are included elsewhere in this document. These
operating results are not necessarily indicative of the results that may be
expected for the entire year. The dollar amounts below are expressed in Canadian
dollars.
SELECTED HISTORICAL FINANCIAL DATA OF TELEBACKUP:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 5, 1995
(INCEPTION) YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, ------------------------------
1995 1996 1997 1998
------------ -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Canadian GAAP
Sales....................................................... C $ -- C $ 252 C $ 486 C$ 3,423
Net loss.................................................... (53) (1,141) (1,870) (1,570)
Net loss per share -- basic and fully diluted............... C$(0.01) C$ (0.18) C$ (0.25) C$ (0.17)
Number of shares used in computing per share
amounts -- basic and fully diluted........................ 5,475 6,288 7,385 9,347
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------
1995 1996 1997 1998
----- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Canadian GAAP
Working Capital............................................. C$ 35 C $ 979 C$ 1,568 C$ 3,693
Total assets................................................ 194 1,311 3,270 7,699
Long-term obligations....................................... -- 350 3,004 302
Accumulated deficit......................................... (53) (1,194) (3,064) (4,634)
Shareholders' equity (deficiency)........................... 120 835 (2) 4,252
</TABLE>
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VERITAS
TELEBACKUP
TELEBACKUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Background
Telebackup develops and markets software solutions for local and remote
backup and recovery of electronic information stored on networked, remote and
mobile personal computers. Computer users that have units which are mobile in
nature, for example, laptops and notebooks, or users that are located remotely
from their organizations, can automatically backup their systems remotely, using
TeleBackup's TSInfoPRO technology, over a transmission medium such as a
telephone line, the Internet or an intranet, thereby ensuring restoration of
their entire system in the event of data loss or system failure. TeleBackup was
a development-stage company until 1997 when TeleBackup began its sales and
marketing efforts in earnest.
TSInfoPRO EDV product
TeleBackup licenses its TSInfoPRO EDV product to electronic data vaulting
service providers, such as telephone and cable companies and Internet service
providers, who seek to provide remote backup and recovery services to personal
computer users on an outsourced basis. Sales to the electronic data vaulting
market are primarily made through TeleBackup's strategic partner Storage
Technology Corporation. Under the terms of a software development, distribution
and support agreement dated January 1, 1998 between StorageTek and TeleBackup,
StorageTek has been granted an exclusive license to market, use and commercially
distribute to electronic data vaulting service providers a modified version of
TSInfoPRO electronic data vaulting which functions with StorageTek products.
StorageTek markets the TeleBackup technology under its own brand name, "REX."
Telebackup is entitled to royalties on gross revenues generated by StorageTek
from StorageTek's supply of data vaulting services accessed using the TSInfoPRO
electronic data vaulting technology, and the sublicense by StorageTek of the
TSInfoPRO electronic data vaulting technology to third party electronic data
vaulting service providers. In consideration of the grant of exclusive license
rights, StorageTek paid US$750,000 to TeleBackup upon execution of the
StorageTek agreement, and in order to maintain such exclusive rights, TeleBackup
must receive a minimum royalty payment of US$375,000 per quarter from
StorageTek. If StorageTek does not meet this minimum royalty requirement, its
license becomes non-exclusive. StorageTek's first payment of US$375,000 was
earned in the fourth quarter of 1998. TeleBackup has also licensed the TSInfoPRO
technology to other electronic data vaulting service providers for which it also
receives royalties. StorageTek accounted for 24% of TeleBackup's net revenue in
1997 and 48% of TeleBackup's net revenue in the year ended December 31, 1998.
TSInfoPRO "Corporate" and TSInfoPRO "NT Enterprise" products
In January 1998, TeleBackup introduced its TSInfoPRO "Corporate" and
TSInfoPRO "NT Enterprise" products, which provide an in-house backup solution
targeted at corporate customers for backup of networked workstations and mobile
personal computer and remote users located outside the corporate network
environment. These new products have not generated significant revenues to date.
TeleBackup intends to market these products through original equipment
manufacturers, value-added resellers and reseller relationships under which
TeleBackup will receive a user license fee each time the original equipment
manufacturer, value-added reseller or reseller licenses a copy of a TeleBackup
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<PAGE> 217
product to an end-user customer. Under the StorageTek agreement, these products
have been licensed to StorageTek for commercial distribution on a non-exclusive
basis.
In June 1998, Telebackup entered into a source distribution license
agreement with VERITAS under which VERITAS received a non-exclusive license to
use and commercially distribute the TSInfoPRO software products and to modify
and create derivative works of the TSInfoPRO source code for commercial
distribution. In return VERITAS will pay royalties to TeleBackup based on net
revenue generated by VERITAS from the distribution of the TSInfoPRO products.
TeleBackup was paid a lump sum of U.S. $3.0 million which consisted of a
one-time source code license fee of U.S. $100,000 and U.S. $2.9 million for
non-recurring engineering fees. VERITAS accounted for 49% of TeleBackup's net
revenue in the year ended December 31, 1998.
Other sources of revenue
TeleBackup derives maintenance and support revenues from annual maintenance
agreements. The maintenance agreements provide for error corrections and product
upgrades for an annual fee based upon the cost of the software purchased. Until
TeleBackup has a large installed base of customers, it does not anticipate that
maintenance and support revenues will be significant.
TeleBackup also derives revenue from performing custom software development
requested by customers. This revenue generally consists of fees derived from
non-recurring engineering efforts to modify TeleBackup's products to work with a
customer's products and from development of new product features or extensions
of existing product features performed at the request of the customer. Both the
StorageTek agreement and the VERITAS distribution agreement provide for
significant funding to TeleBackup towards custom development efforts. As of
December 31, 1998, TeleBackup had completed the majority of the custom
development work to be performed under the StorageTek agreement and
approximately U.S. $300,000 of custom software development revenue had been
recognized with respect to custom development work for StorageTek. TeleBackup
recognizes revenue from the VERITAS distribution agreement as the custom
development work is performed. At December 31, 1998, U.S. $1,050,000 had been
recognized with respect to custom development work for VERITAS.
Until January 1998, TeleBackup distributed computer hardware to which the
TeleBackup software had been configured as part of its strategy to provide
turnkey solutions to electronic data vaulting service providers. TeleBackup
abandoned its hardware sales strategy when it expanded its relationship with
StorageTek.
Datasafe agreement
Under the terms of a marketing and royalty agreement dated December 29,
1994, as amended, with Datasafe Communications Ltd. TeleBackup obtained an
exclusive license to use, modify and distribute certain source code from
Datasafe which is incorporated into the TSInfoPRO product. Through fiscal 1997,
TeleBackup was obligated to pay Datasafe an annual royalty equal to the greater
of 10% of TeleBackup's software revenues or C$25,000 per quarter. The agreement
was amended in late 1997 to fix the royalty rate at C$200,000 per year for
fiscal 1998 and onwards. During fiscal 1998, the royalty was payable in four
increments of C$25,000 for the first and second quarters and C$75,000 for the
third and fourth quarters. During fiscal 1999 and after, the royalty will be
payable in four equal installments of C$50,000 per quarter. TeleBackup is
entitled to purchase the
206
<PAGE> 218
VERITAS
TELEBACKUP
rights to the source code outright for a lump sum payment of C$2,000,000 which
TeleBackup intends to do prior to the closing of the TeleBackup combination.
RESULTS OF OPERATIONS
The following tables set forth, for the fiscal periods indicated, the
percentage of total revenue represented by certain line items from TeleBackup's
statement of operations expressed as a percentage of total revenue.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net revenues:
Product sales.......................................... 93% 71% 40%
Maintenance and support................................ 7 5 6
Custom software development............................ 0 24 54
---- ---- ---
Total net revenues............................. 100 100 100
---- ---- ---
Cost of sales:
Product sales.......................................... 42 25 9
Maintenance, support and development................... 17 13 15
---- ---- ---
Total cost of sales............................ 59 38 24
---- ---- ---
Gross profit............................................. 41 62 76
Operating expenses:
General and administrative............................. 197 166 34
Selling and marketing.................................. 122 102 32
Marketing and royalty agreement........................ 40 21 6
Research and development............................... 120 119 31
Interest expense, net.................................. 5 17 3
Depreciation and amortization.......................... 10 22 16
---- ---- ---
Total operating expenses....................... 494 447 122
---- ---- ---
Net loss................................................. (453)% (385)% (46)%
---- ---- ---
</TABLE>
YEARS ENDED DECEMBER 31, 1997 AND 1998
Net revenue
Net revenue consists of royalty payments, license fees, maintenance and
support fees and custom development fees. TeleBackup's total net revenues
increased 604% from C$486,047 for the year ended December 31, 1997 to
C$3,422,976 for the year ended December 31, 1998. TeleBackup believes that the
percentage increases in revenue occurring in this period are not necessarily
indicative of future results. The increase was largely the result of royalties,
license fees and custom software development fees paid to or recognized by
TeleBackup in the latter part of the year in connection with product sales under
the StorageTek agreement and the VERITAS distribution agreement. Revenue
recognition under the VERITAS distribution agreement did not commence in full
until the third quarter of 1998 and StorageTek's first minimum royalty payment
was not earned until the fourth quarter of 1998. Whether revenue recognition
under these agreements will continue at a similar rate will depend on whether
StorageTek maintains exclusivity and when VERITAS' US$2.9 million for
non-recurring engineering fees are earned, among other factors.
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<PAGE> 219
Product sales increased 299% from C$347,235 for the year ended December 31,
1997 to C$1,384,411 for the year ended December 31, 1998. The increase was due
to revenues generated under the StorageTek agreement and growth in the market
acceptance of TeleBackup's products.
Maintenance and support revenues increased 765% from C$23,112 for the year
ended December 31, 1997 to C$200,000 for the year ended December 31, 1998. The
increase was primarily due to maintenance revenues generated under the
StorageTek agreement and the VERITAS distribution agreement.
Custom software development fees increased 1,489% from C$115,700 for the
year ended December 31, 1997 to C$1,838,565 for the year ended December 31,
1998. The increase was due to significant custom software development undertaken
by TeleBackup in connection with the StorageTek agreement and the VERITAS
distribution agreement.
Cost of sales
Cost of product sales consists primarily of manuals, distribution costs
and, up to January 1, 1998, the cost of hardware sold by TeleBackup as part of
its turnkey solution. Costs of maintenance, support and development consist of
personnel-related costs of providing support, training, maintenance and custom
development services.
Cost of product sales increased 151% from C$123,930 for the year ended
December 31, 1997 to C$311,369 for the year ended December 31, 1998. The
increase was due to the increase in product sales.
Cost of maintenance, support and development increased 734% from C$61,444
for the year ended December 31, 1997 to C$512,347 for the year ended December
31, 1998. The increase was primarily due to personnel additions to TeleBackup's
support organization and to TeleBackup's engineering organization to meet
increased demand for maintenance and support and the increased custom software
development activities undertaken for StorageTek and VERITAS.
Operating expenses
General and administrative. General and administrative expenses consist
primarily of salaries and related benefits, as well as professional fees for
legal, accounting and recruiting services. General and administrative costs
increased 46% from C$808,256 for the year ended December 31, 1997 to C$1,180,981
for the year ended December 31, 1998. As a percentage of total revenues, general
and administrative costs decreased from 166% for the year ended December 31,
1997 to 34% for the year ended December 31, 1998. The decrease reflected the
leveling off of TeleBackup's recruiting efforts with respect to the buildup of
its general and administrative infrastructure as its staffing in 1998 became
sufficient to handle TeleBackup's then current needs. TeleBackup anticipates
that its general and administrative expenses will increase in the future as
TeleBackup expands its operations. Approximately 49% of TeleBackup's general and
administrative expenses were incurred in the three months ended December 31,
1998. This is attributable to expenses associated with the signing of the
VERITAS combination agreement such as approximately $87,000 in legal costs, and
the recording of $136,000 of bad debt expense in response to fourth quarter
customer economic events.
Selling and marketing. Selling and marketing expenses consist primarily of
salaries, related benefits, commissions and other costs associated with
TeleBackup's sales and marketing efforts. Selling and marketing expenses
increased 120% from C$495,538 for the
208
<PAGE> 220
VERITAS
TELEBACKUP
year ended December 31, 1997 to C$1,090,763 for the year ended December 31,
1998. Selling and marketing expenses decreased as a percentage of total net
revenue from 102% to 32% for the year ended December 31, 1997 and 1998
respectively. The increase in absolute dollars is attributable to increased
selling and marketing staffing and the costs of expanding marketing programs.
TeleBackup intends to continue to expand its selling and marketing
infrastructure and, therefore, selling and marketing expenses are expected to
increase in absolute dollars.
Marketing and royalty agreement. Marketing and royalty agreement costs
represent royalties payable by TeleBackup under the Datasafe agreement.
Royalties for the year ended December 31, 1997 and 1998 were C$100,000 and
C$200,000 respectively. Total royalties for future years are fixed at C$200,000
per year.
Research and development. Research and development expenses consist
primarily of salaries, related benefits, consulting fees and other related
costs. Research and development expenses increased 81% from C$576,475 for the
year ended December 31, 1997 to C$1,045,717 for the year ended December 31,
1998. The increase was due primarily to increased staffing levels. As a
percentage of total revenues, research and development expenses increased from
119% for the year ended December 31, 1997 to 31% for the year ended December 31,
1998. In order for TeleBackup to remain competitive, TeleBackup believes that
continued investment in research and development is required and TeleBackup
expects these expenses to continue to increase in future years.
Interest and bank charges, net. Interest and bank charges, net consist
primarily of interest expense related to the convertible debentures issued by
TeleBackup in September 1997 and TeleBackup's credit facility. Interest expense
increased 19% from C$81,937 for the year ended December 31, 1997 to C$97,754 for
the year ended December 31, 1998. The increase was due to the interest expense
related to the debentures.
Depreciation and amortization charges. Depreciation and amortization
expenses are attributable to the cost of the equipment used to support ongoing
operations and the costs of acquiring third-party software technology.
TeleBackup licensed certain technology from Delta Technologies in exchange for
issuing common shares to them having an aggregate value of C$300,000. This cost
will be amortized over two years at a rate of C$37,500 per quarter. Depreciation
and amortization expenses increased 412% from C$108,073 for the year ended
December 31, 1997 to C$553,851 for the year ended December 31, 1998.
YEARS ENDED DECEMBER 31, 1996 AND 1997
Net revenue
TeleBackup's total net revenue increased 93% to C$486,047 in 1997 from
C$251,884 in 1996. The increase in total net revenue was attributable to
increased market acceptance and sales of TeleBackup's product and custom
development revenues generated under the StorageTek agreement.
Product sales increased 49% to C$347,235 in 1997 from C$233,353 in 1996.
These increases were largely due to increased sales of TSInfoPRO EDV, and in
particular revenue generated under the StorageTek agreement.
Maintenance and support revenues increased 25% to C$23,112 in 1997 from
C$18,531 in 1996. The increases were primarily due to sales of maintenance
contracts in connection with new product sales.
Custom software development fees increased 100% to C$115,700 in 1997 from
no custom software development fees in 1996. The increase represented fees paid
to
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<PAGE> 221
TeleBackup in connection with non-recurring engineering efforts under the
StorageTek agreement.
Cost of sales
Total cost of sales increased from C$149,417 in 1996 to C$185,374 in 1997,
an increase of 24%. The increase was primarily due to increased product sales,
with consequent increases in the cost of hardware and personnel-related costs
for performing custom software development.
Cost of product sales increased 17% to C$123,930 in 1997 from C$106,058 in
1996. The increase relates primarily to the cost of hardware for increased sales
of turnkey systems by TeleBackup.
Cost of maintenance, support and development increased 42% to C$61,444 in
1997 from C$43,359 in 1996. The increase resulted from increased sales of
maintenance contracts and the costs of performing custom software development
under the StorageTek agreement.
Operating expenses
General and administrative. General and administrative expenses increased
63% to C$808,256 in 1997 from C$496,753 in 1996. General and administrative
expenses as a percentage of revenue were 166% and 197% in 1997 and 1996,
respectively. The increase in expenses reflects the expansion of TeleBackup's
administrative infrastructure in connection with the overall expansion of its
operations.
Selling and marketing. Selling and marketing expenses increased 61% to
C$495,538 in 1997 from C$306,870 in 1996. The increase was primarily due to
increased staffing levels and the costs resulting from marketing programs such
as advertising and trade show participation. Selling and marketing expenses
decreased as a percentage of net revenues to 102% in 1997 from 122% in 1996 as a
result of increased revenues from product sales.
Marketing and royalty agreements. Marketing and royalty agreements costs
consisted of royalties payable under the Datasafe agreement which amounted to
C$100,000 in each of 1997 and 1996.
Research and development. Research and development expenses increased 90%
to C$576,475 in 1997 from C$302,650 in 1996. Research and development expenses
as a percentage of revenue were 119% and 120% in 1997 and 1996, respectively.
Interest and bank charges, net. Interest and bank charges, net increased
506% to C$81,937 in 1997 from C$13,514 in 1996. The increase was due primarily
to the increase of TeleBackup's operating line of credit from C$350,000 to
C$500,000 and the issuance of convertible debentures on September 30, 1997,
offset in part by interest income received from short-term investments.
Depreciation and amortization. Depreciation and amortization for 1997 was
C$108,073 compared to C$24,117 in 1996. These costs are attributable to the
depreciation of equipment used to support TeleBackup operations.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998 TeleBackup had cash, cash equivalents and short-term
investments of C$6,151,624 which represented 80% of total assets. Cash, cash
equivalents and short-term investments are liquid with maturities of sixty days
or less. The short-term investments consist of investment grade commercial
paper. At December 31, 1998,
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<PAGE> 222
VERITAS
TELEBACKUP
TeleBackup had C$302,260 of long-term obligations and shareholder's equity was
C$4,251,645.
Net cash provided from operations was C$1,650,010 for the year ended
December 31, 1998 as compared to a net use of cash of C$2,040,238 for the year
ended December 31, 1997. The improvement in cash provided by operating
activities was primarily due to a decreased amount of accounts receivable and a
C$2,710,805 increase in deferred revenue.
TeleBackup's investing activities used cash of C$350,580 and C$887,589 in
the years ended December 31, 1998 and 1997, respectively, and consisted
primarily of capital expenditures.
Financing activities provided cash of C$3,491,618 for the year ended
December 31, 1998 primarily from the issuance of common shares upon exercise of
outstanding stock options and warrants. In the year ended December 31, 1997,
financing activities provided cash of C$3,363,275 which resulted from the
issuance of convertible debentures, common shares upon exercise of stock
options, and of warrants.
On September 30, 1997, TeleBackup effected a rights offering pursuant to
which TeleBackup issued unsecured redeemable convertible debentures, for an
aggregate principal amount of approximately C$2,750,000, convertible into common
shares at a conversion price of C$1.50 per share, together with accompanying
warrants to purchase an aggregate of approximately 910,000 common shares at
C$3.00 per share. The debentures carried a 6% annual interest rate, payable
semi-annually on June 30 and December 31. As of December 31, 1998, all
debentures issued in the rights offering have been converted into common shares
or redeemed and all warrants issued in connection with the rights offering have
been exercised or have been canceled.
TeleBackup believes that its current cash, cash equivalents and temporary
investments and cash flow from operations will be sufficient to fund operating
expenses through fiscal 1999, including anticipated capital expenditures.
YEAR 2000 READINESS
The year 2000 problem is present in a software product or an imbedded
microprocessor if the software used will not recognise what month/year it is on
various dates leading up to, at and after January 1, 2000. Many currently
installed computer systems and software products are unable to distinguish
between twentieth century dates and twenty-first century dates because these
systems may have been developed using two digits rather than four to determine
the applicable year. For example, computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This error could result in system failures, generation of erroneous data
or miscalculations causing disruption of operations, including a temporary
inability to process transactions, send invoices or engage in similar normal
business activities. As a result, many companies' software and computer systems
may need to be upgraded or replaced to avoid those problems at the turn of the
century. The year 2000 problem is pervasive and complex and significant
uncertainty exists in the software industry concerning the potential impact of
this problem. TeleBackup is assessing the potential overall impact of the
impending century change on TeleBackup's business, results of operations and
financial condition.
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<PAGE> 223
TeleBackup's products
Based on TeleBackup's assessment to date, TeleBackup believes the current
version of its TSInfoPRO software product and services are year 2000
compliant -- it is capable of adequately distinguishing twenty-first century
dates from twentieth century dates. New releases of TSInfoPRO, service packs and
new TeleBackup products are being designed to be year 2000 compliant.
TeleBackup's products undergo normal quality testing procedures, which now
include full year 2000 testing. Nonetheless, TeleBackup's products may not
contain all necessary date code changes to prevent year 2000 problems.
All TSInfoPRO software product releases up to version 2.03.08 are not year
2000 compliant and will experience operational difficulties on or after January
1, 2000. TeleBackup does not plan to undertake remedial action to make these
older product versions compliant. Instead, TeleBackup has provided all customers
using these older product versions with free upgrades to TSInfoPRO version 2.04
which is year 2000 compliant.
The year 2000 performance of TeleBackup's products is dependent upon the
customer's internal computing environment in which the customer operates the
TeleBackup product. Use of TeleBackup's products in connection with other
products that are not year 2000 compliant, including non-compliant hardware,
software and firmware, may result in inaccurate exchange of dates and result in
performance problems or system failures. In these cases, the TeleBackup product
may require special remedial work based on a particular customer's installation
which will result in additional costs for support and development.
Any failure of TeleBackup's products to perform could result in claims
against TeleBackup. Although TeleBackup has not been a party to any litigation
proceeding to date that involves year 2000 issues with its products or services,
TeleBackup may, in the future, be required to defend its products or services in
this type of proceeding, or to negotiate resolutions of claims based on year
2000 issues. TeleBackup's customer agreements typically contain provisions
designed to limit TeleBackup's liability for such claims. However, as a result
of existing or future laws or unfavorable judicial decisions, it is possible
that these agreement provisions will not provide TeleBackup with protection from
liability claims. The costs of defending and resolving year 2000-related
disputes, regardless of their merits, and any liability of TeleBackup for
year-2000 related damages could have a material adverse effect on TeleBackup's
business, results of operations and financial condition.
TeleBackup's systems
TeleBackup's business depends on numerous internal systems that could
potentially be impacted by year 2000 related problems. Those systems include:
- hardware and software systems used by TeleBackup in the management of its
business, such as Quickbooks, the Office 95/97 product suite and hardware
supplied by major vendors such as IBM, Sun Microsystems and HP;
- product testing and problem management software;
- internal and external communications infrastructure and networks,
including voice and data network services;
- office equipment such as copiers and fax machines;
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VERITAS
TELEBACKUP
- non-information technology systems and services upon which TeleBackup's
business is dependent such as power, telephone systems and building
systems; and
- embedded technology in TeleBackup's facilities, such as HVAC, elevators,
lighting systems and fire protection systems.
TeleBackup has initiated a comprehensive program to address year 2000
readiness in its internal systems including a review of information technology,
non-information technology and embedded technology for all critical systems. The
scope of this review has been defined into several categories -- internal
information processing applications such as accounting and software license
management, external information processing services such as payroll and e-mail,
information technology infrastructure such as communications infrastructure and
workstations, and physical plant embedded processors such as HVAC and security
systems. Under this plan, all applications, systems, services or infrastructure
within a particular category that could potentially experience year 2000
problems are being inventoried. An analysis of each item is then being performed
to determine the problems associated by this item. Remedial plans, as required,
are then being established to correct the problems that have been identified.
The remedial plans must then be implemented within an established time frame.
<TABLE>
<CAPTION>
IMPACTED SYSTEMS STATUS IMPLEMENTATION
---------------- ------ --------------
<S> <C> <C>
Internal Information Internal assessment completed 3rd Qtr/1998
Processing Applications External assessment being initiated 1st Qtr/1999
Remedial plans tabled 1st Qtr/1999
Remedial requirements implemented 2nd Qtr/1999
External Information Internal assessment completed 1st Qtr/1999
Processing Services Compliance verification requested 1st Qtr/1999
Compliance verified 2nd Qtr/1999
Information Technology Internal assessment completed 1st Qtr/1999
Infrastructure External assessment being initiated 1st Qtr/1999
Remedial plans tabled 1st Qtr/1999
Remedial requirements implemented 2nd Qtr/1999
Physical Plant Internal assessment completed 1st Qtr/1999
Replacement planned and implemented 2nd Qtr/1999
</TABLE>
TeleBackup has moved its business to new facilities effective April 1,
1999. In connection with this move, most of the physical infrastructure of
TeleBackup's business, exclusive of computing equipment, will be replaced.
TeleBackup will demand year 2000 compliance certification from equipment and
systems vendors during this replacement process. Assurances regarding year 2000
compliance of physical plant, including embedded processors, are also being
sought from the lessor of TeleBackup's new facilities.
In connection with TeleBackup's initial internal assessment of the various
categories described above, no significant year 2000 problems have been
identified to date. TeleBackup recently hired Logicorp Data Systems Ltd, a
consulting firm that specializes in the assessment of business operations and
infrastructure, to perform an independent verification of TeleBackup's internal
systems. This firm may also assist with the tabling of remedial plans for
eliminating any year 2000 problems and will provide support for the
implementation of these remedial plans. The initial cost of retaining Logicorp
is approximately C$10,000.
The assessment phase should be completed by May 15, 1999 and implementation
of the any required remedial actions will be carried out commencing June 1,
1999. It is
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expected that remedial action will primarily consist of replacement or upgrade
of computer equipment within TeleBackup's infrastructure.
Third party risks
If TeleBackup's significant suppliers or customers do not successfully and
timely achieve year 2000 compliance, TeleBackup's business or operations could
be adversely affected. TeleBackup is reviewing what actions are needed to
mitigate vulnerability to problems with suppliers and third parties' systems.
Such actions include a review of vendor contracts and formal communication with
suppliers to request certification that products are year 2000 compliant.
The TSInfoPRO software is developed using various software compilers such
as Visual C++, and has various third party technology embedded in it, such as
PKWare's compression, FairCom's database, InstallShield for the installation
process and ExeBuilder. Based on the testing of TSInfoPRO to date, TeleBackup
has not identified any year 2000 problems associated with embedded technology.
TeleBackup has sought verification from the vendors of these embedded products
that the products are year 2000 compliant.
TeleBackup's most material third party relationships are with Storage
Technologies and VERITAS. Both parties have represented to TeleBackup that their
products and services are year 2000 compliant. Following an analysis of
potential year 2000 problems for TeleBackup stemming from such relationships,
TeleBackup does not anticipate any material issues in this regard.
Year 2000 costs
The total cost of these year 2000 compliance activities has not been, and
is not anticipated to be, material to TeleBackup's business, results of
operations and financial condition. However, these costs and the timing in which
TeleBackup plans to complete its year 2000 modification and testing processes
are based on management's estimates. Any failure of TeleBackup to identify and
remedy significant year 2000 problems in a timely, efficient and inexpensive
manner could adversely affect TeleBackup's business.
The expense incurred by TeleBackup in analyzing and making changes to the
TSInfoPRO product to achieve year 2000 compliance represented approximately 1%
of the total cost of development of TSInfoPRO version 2.04 and did not have a
significant impact on TeleBackup's financial position.
TeleBackup does not anticipate significant costs in connection with the
remediation of internal information processing applications due to the very
small number of internal applications that TeleBackup uses. Similarly,
TeleBackup does not anticipate significant costs in connection with remediation
of external information processing services as such costs are expected to be
borne by the outside providers that provide such services to TeleBackup. The
expense associated with replacement or upgrade of parts of TeleBackup's
information technology infrastructure could be more significant if substantial
issues are identified within TeleBackup's communications network or workstation
equipment. However, based on its analysis to date, TeleBackup believes that the
total cost of achieving year 2000 compliance will not exceed C$75,000.
It is expected that any expenses associated with the remediation of
physical plant will be negligible due to TeleBackup's relocation to new
facilities and the associated procurement by TeleBackup of new equipment that
will be year 2000 compliant.
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VERITAS
TELEBACKUP
To date, TeleBackup has not delayed any internal information technology or
product development initiatives as a result of year 2000 concerns.
Contingency plan
If TeleBackup's analysis of the year 2000 readiness of TSInfoPro is not
correct, TeleBackup's products could experience severe operational problems
which could lead to loss of existing and potential customers and subsequent
costly litigation against TeleBackup. Moreover, if year 2000 problems with
TeleBackup's internal information systems are not identified and remedied in a
timely manner, TeleBackup's business operations could be significantly disrupted
resulting in the inability to support customers and address product problems,
delays in product production and distribution, inability to process product
orders and issue invoices, and reduction of collections. Furthermore,
TeleBackup's business could be significantly disrupted by factors outside its
control, including the possible loss of water and power, telecommunications
systems and banking services. Any one or more of these scenarios would have a
material adverse effect on TeleBackup's business, results of operations and
financial condition.
There is currently no contingency plan in place to address unforeseen or
uncorrected year 2000 problems before occurrence. As TeleBackup completes its
review of internal systems for the identification of potential year 2000
problems, TeleBackup expects to effect some contingency planning. TeleBackup
could experience material adverse effects on its business if it fails to
successfully implement a contingency plan.
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<PAGE> 227
BUSINESS OF NEW VERITAS
New VERITAS has not conducted any substantial business activities to date.
New VERITAS will be the parent company of VERITAS and will directly own the
Network & Storage Management Group business. The business of New VERITAS will be
substantially similar to the business currently conducted by VERITAS, the
Network & Storage Management Group business and TeleBackup. However, it is
anticipated that New VERITAS will seek to distribute the products of VERITAS,
the Network & Storage Management Group and TeleBackup through the distribution
channels utilized by the constituent companies. It is also anticipated that New
VERITAS will seek to integrate certain functionality which is common to each
product across each product line.
See "Business of VERITAS" in VERITAS' Annual Report on Form 10-K, "Business
of the Network & Storage Management Group" on page 217 and "Business of
TeleBackup" on page 225.
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<PAGE> 228
VERITAS SEAGATE
SOFTWARE
TELEBACKUP
BUSINESS OF THE NETWORK & STORAGE MANAGEMENT GROUP
THE NETWORK & STORAGE MANAGEMENT GROUP'S RELATIONSHIP WITH SEAGATE SOFTWARE AND
SEAGATE TECHNOLOGY
Seagate Software develops and markets software products and provides
related services enabling business users and information technology
professionals to store, access and manage electronic information about their
businesses. Headquartered in Scotts Valley, California, Seagate Software has
over 40 offices and operations in 18 countries worldwide. Seagate Software
believes that the growth of information and the need for information
infrastructures in an increasingly decentralized decision making setting are key
challenges in client/server computing environments. Seagate Software's strategy
is to respond to these challenges by offering business software solutions that
consist of three core components -- information delivery, information analysis
and information availability.
Seagate Software is 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 enterprise information
management market. The Information Management Group offers products that 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 and the resulting contribution of the Network &
Storage Management Group business to New VERITAS, Seagate Software will continue
to operate its Information Management Group business. In fiscal 1998, the
Information Management Group represented approximately 40.0% of Seagate
Software's total revenue.
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
data. The Network & Storage Management Group's products include features to
copy, store, retrieve, move, protect and schedule retrieval and release of
electronically stored data. The Network & Storage Management Group business
represented approximately 60.0% of Seagate Software's total revenue in fiscal
1998 and approximately 64.3% in the six months ended January 1, 1999. The
Network & Storage Management Group is operated as a division of Seagate Software
but shares with Seagate Software some corporate administration, finance and
locations. The Network & Storage Management Group also shares certain internal
computing resources with Seagate Software and the Information Management Group,
as well as licenses for third party software that operates on those internal
systems.
Seagate Software is a majority-owned and consolidated subsidiary of Seagate
Technology, a data technology company that provides products for storing,
managing and accessing digital information on computer systems. 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 Technology, Seagate
Software and their subsidiaries. In addition, options to purchase 11,136,215
shares of Seagate Software common stock were outstanding as of March 31, 1999.
Pursuant to a general services agreement between Seagate Software and
Seagate Technology dated June 28, 1997, Seagate Technology provides
administrative, accounting and similar services requested by Seagate Software
and the Network & Storage
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Management Group. The services provided by Seagate Technology include, but are
not limited to:
- providing general accounting services, budgeting, forecasting, cost
control and other financial planning services;
- assisting with employee benefits administration, hiring and payroll
administration;
- providing legal and government relations services such as preparing
applications for export licenses;
- tax analysis, documentation, reporting and withholding for customs
duties, import taxes, value-added taxes, and any other charges or taxes
imposed on the Network & Storage Management Group's products;
- assisting the Network & Storage Management Group with federal, state,
and international tax planning, provisions, audits, and compliance,
including income, sales and use, property, VAT, and similar taxes;
- providing assistance relating to the marketing, promotion, and sale of
the Network & Storage Management Group's products;
- providing services and support relating to information technology and
facilities; and
- managerial oversight, including screening of potential acquisitions,
partnership relationships, joint ventures or similar transactions.
During fiscal 1996, 1997 and 1998 Seagate Technology charged the Network &
Storage Management Group $1.8 million, $1.5 million and $1.2 million,
respectively, for various corporate services. The Network & Storage Management
Group pays service fees to Seagate Technology each fiscal year that represent a
reasonable estimate of Seagate Technology's direct and indirect costs in
performing services for the Network & Storage Management Group.
The Network & Storage Management Group's revenues from Seagate Technology
were $9.4 million, $4.9 million and $5.0 million, in fiscal 1996, 1997 and 1998,
respectively. This revenue primarily consisted of shipments to Seagate
Technology's original equipment manufacturer tape drive divisions located in
Costa Mesa, California and Scotland. Additionally, this revenue is supported by
license agreements, which have comparable terms and pricing as those agreements
between the Network & Storage Management Group and third party customers.
Certain of the Network & Storage Management Group's original equipment
manufacturer and distributor customers are subject to agreements with Seagate
Software that include products of both the Network & Storage Management Group
and the Information Management Group.
THE NETWORK & STORAGE MANAGEMENT GROUP'S PRODUCTS
The Network & Storage Management Group offers a breadth of network and
storage management products featuring:
- Seagate Backup Exec Desktop Editions -- Provides complete plug-and-play
backup and restore functions for desktop users running Microsoft Windows
NT Workstation, Windows 98, Windows 95, Windows 3.x and DOS.
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VERITAS SEAGATE
SOFTWARE
TELEBACKUP
- Seagate Backup Exec Server and Enterprise Editions -- Provides a backup
and restore solution for server and network users running Novell NetWare,
Microsoft Windows NT LANs and workstations.
- Seagate Backup Exec Storage Migrator -- Facilitates the proactive
management of inactive data by migrating it from on-line storage such as
disk drives, to near-line devices such as optical drives, or to archival
storage resources such as tape devices, over user-defined periods of time
through a multi-tier hierarchical storage management application
delivering enterprise functionality to client/server environments.
- Seagate Client Exec -- Protects critical client data on workstations and
laptops. Users receive automatic, regular and transparent protection of
their critical data, and administrators have the flexibility to control
which users are protected, what type of data is protected and when the
protection should occur.
- Seagate Desktop Management Suite -- Provides a fully integrated suite of
software solutions including network inventory, software distribution,
remote control, network backup and software metering.
- Seagate ExecView -- Provides an integrated cross-platform storage
management console for enterprise networks using Microsoft Windows NT and
Novell NetWare. Users can manage both Seagate Backup Exec for NetWare and
Seagate Backup Exec for Windows NT servers from a single console.
- Seagate Manage Exec -- Centralizes enterprise administration by providing
information technology professionals with a unique view of servers
worldwide and real-time problem analysis through a proactive server
health monitoring, alerting and reporting solution.
- Seagate NerveCenter -- Provides an enterprise-event automation solution
for Windows NT and UNIX environments.
- Seagate WinINSTALL -- Provides a script-free, automated software
distribution tool for 16- and 32-bit applications.
The Network & Storage Management Group provides its software products to
customers under non-exclusive 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 Network & Storage Management Group
business does not sell or transfer title to its software products to customers.
The Network & Storage Management Group business enters into both object-code
only and source-code licenses of its products. Under the Network & Storage
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.
Seagate Software and the Network & Storage Management Group also have
relationships with Microsoft that include a license that allows Microsoft to
bundle the Information Management Group's products and the Network & Storage
Management Group's products with selected Microsoft products. Additionally, the
Network & Storage Management Group developed the backup utility for Microsoft
Windows 98 and is developing the system disaster recovery and backup utilities
for Windows NT 5.0. The Network & Storage Management Group has also developed
the hierarchical storage management technology to be included in Windows NT
Server 5.0.
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RESEARCH AND DEVELOPMENT
The Network & Storage Management Group incurred research and development
expenses of approximately $32.5 million in fiscal 1996, $33.6 million in fiscal
1997, $31.7 million in fiscal 1998 and $17.9 million in the six months ended
January 1, 1999. Certain of the research and development expenses, which have
not been material to date, were funded by the Network & Storage Management
Group's customers. The Network & Storage Management Group is pursuing its
product development objectives by focusing on internally developed software
products and product enhancements, acquiring products, technologies and
businesses complementary to the Network & Storage Management Group's existing
product lines and forming alliances with leading technology companies.
SALES AND MARKETING
The Network & Storage Management Group utilizes direct sales forces and
indirect sales channels, such as distributors and original equipment
manufacturers, for sales of its products to end users. These distributors and
original equipment manufacturers may also sell other products that are
complementary to or compete with those of the Network & Storage Management
Group. The Network & Storage 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 manufacturers will not place a
higher priority on competing products. Agreements with its distributors and
original equipment manufacturers are generally non-exclusive and may be
terminated by either party without cause. In addition, certain of those
relationships are governed by agreements providing for Seagate Software to
supply both the Network & Storage Management Group and the Information
Management Group products.
The Network & Storage Management Group generally markets its products
domestically and overseas through a network of Seagate Software subsidiaries
that include members of the Network & Storage Management Group in England and
Germany. These subsidiaries utilize authorized distributors and direct sales
forces. The Network & Storage Management Group adapts certain products for
foreign markets and prepares marketing and sales support programs accordingly.
The Network & Storage 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 Network & Storage Management Group's marketing efforts are designed to
increase awareness and consideration of, and to generate leads for, the Network
& Storage Management Group's products. Marketing activities include print
advertising 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 Network & Storage 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 for the Network & Storage Management Group.
Revenue from Ingram Micro Inc. accounted for 17%, of the Network & Storage
Management Group's total revenues in fiscal 1996, 22% in fiscal 1997 and 27% in
fiscal 1998 and 30% in the six months ended January 1, 1999. Revenue from Tech
Data, Inc. accounted for 12% of total revenues in fiscal 1998. Indirect
revenues, which include sales to distributors and original equipment
manufacturers, were 79% of total revenues during fiscal 1996, 88% during fiscal
1997, 89% during fiscal 1998 and 91% during the six months
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VERITAS SEAGATE
SOFTWARE
TELEBACKUP
ended January 1, 1999. Revenues outside of the Americas were 10% during fiscal
1996, 28% during fiscal 1997, 34% during fiscal 1998, and 36% during the six
months ended January 1, 1999.
The Network & Storage Management Group generated export revenues from the
United States of approximately $32.5 million during fiscal 1996, $40.7 million
during fiscal 1997, $57.8 million during fiscal 1998, and $37.0 million during
the six months ended January 1, 1999. The Network & Storage Management Group's
revenues outside of the Americas were primarily denominated in the U.S. dollar,
and accordingly the Network & Storage 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 Network & Storage Management Group operates its own technical support
groups and relies on those of other Seagate Software subsidiaries. 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 Network &
Storage Management Group's products. Certain technical support groups also offer
seven-day, 24-hour toll-free telephone services. The Network & Storage
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 Network & Storage 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 Network & Storage
Management Group competes is comprised of numerous competitors and the Network &
Storage Management Group expects competition to increase. The Network & Storage
Management Group has recently experienced increased competition from additional
entrants into its markets, including companies that specialize in the
development, marketing and support of software products that help companies
manage widely distributed networks of computers and securely store information.
Many of the Network & Storage Management Group's current and prospective
competitors have significantly greater financial, technical and marketing
resources than the Network & Storage Management Group. In addition, many
prospective customers may have the internal capability to implement software
solutions that help companies manage widely distributed networks of computers
and securely store information.
The competitive factors affecting the market for the Network & Storage
Management Group's software products include the following:
- product functionality;
- performance and reliability;
- demonstrable cost effective benefits for users relative to cost;
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- price;
- quality of customer support and user documentation;
- ease of installation;
- vendor reputation;
- experience; and
- financial stability.
The Network & Storage Management Group believes that it currently competes
effectively with respect to these factors. The Network & Storage 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 Network & Storage 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 Network & Storage
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
The Network & Storage Management Group, by and through Seagate Technology
and/or predecessor companies, has been awarded four United States patents, has
one allowed but as of yet unissued United States patent and has one United
States and three foreign patent applications pending. Because software
technology changes rapidly, the Network & Storage 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 Network & Storage Management Group
nevertheless believes that patents are of value to its business and intends to
continue its efforts to obtain patents, when available, in connection with its
research and development programs. Any patents obtained may not provide
substantial protection or be of commercial benefit to the Network & Storage
Management Group. It is also possible that their validity will be challenged.
The Network & Storage Management Group's license agreements have
restrictions in place to protect and defend the Network & Storage Management
Group's intellectual property. The Network & Storage Management Group realize
that although it has incorporated these restrictions, there is a possibility for
unauthorized use of the Network & Storage Management Group's software. In
addition to relying on these contractual rights, the Network & Storage
Management Group has an ongoing trademark registration program in which it
registers certain of its product names, slogans, and logos in the United States
and in some foreign countries.
Seagate and Seagate Software are registered trademarks of Seagate Software,
Inc. Nerve Center, Ashwin and Backup Exec are registered trademarks of Seagate
Software Network & Storage Management Group, Inc. Client Exec, Exec View, Manage
Exec, Seagate WinINSTALL, Crystal Info, Crystal Reports, are trademarks of
Seagate Software Network & Storage Management Group, Inc. Seagate and Seagate
Technology are the registered trademarks of Seagate Technology, Inc.
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VERITAS SEAGATE
SOFTWARE
TELEBACKUP
PROPERTIES
The Network & Storage Management Group's executive offices are located in
Scotts Valley, California. Principal facilities are located in Florida,
California and England. The Network & Storage Management Group leases all of its
facilities under leases that expire at various intervals through 2008. The
following is a summary of square footage of premises leased by the Network &
Storage Management Group, or by Seagate Software or Seagate Technology on the
behalf of the Network & Storage Management Group as of January 1, 1999. In
addition to the Network & Storage Management Group facilities listed below, the
Network & Storage Management Group has employees that are located at facilities
leased or owned by Seagate Technology or the Information Management Group.
<TABLE>
<CAPTION>
TOTAL
LOCATION SQUARE FEET
-------- -----------
<S> <C>
North America
Central California........................................ 53,429
Northern California....................................... 13,830
Colorado.................................................. 12,042
Mid-Continent............................................. --
Northeast USA............................................. 23,484
Southeast USA............................................. 116,407
Other USA................................................. 2,925
-------
Total North America............................... 222,117
Europe
England................................................... 8,365
France.................................................... 5,250
Germany................................................... 14,041
-------
Total Europe...................................... 27,656
Asia
Japan..................................................... 3,469
Malaysia.................................................. 1,760
-------
Total Asia........................................ 5,229
-------
Total............................................. 255,002
=======
</TABLE>
Northern California facilities exclude approximately 44,361 square feet of
space leased to others. Mid-continent facilities exclude approximately 17,135
square feet of unoccupied space. Southeast USA facilities exclude approximately
5,000 square feet of unoccupied space. Facilities in England exclude
approximately 65,000 square feet of space under construction.
LEGAL PROCEEDINGS
On December 22, 1998, a former employee commenced an action in the Superior
Court of Santa Cruz county, California, 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
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a division of the Network & Storage Management Group business. No specific
damage amount has yet been claimed.
Seagate Software believes this complaint has no merit and intends
vigorously to defend this action. However, if an unfavorable outcome were to
arise, there can be no assurance that such outcome would not have a material
adverse effect on Seagate Software's liquidity, financial position, or results
of operations.
In addition, 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.
EMPLOYEES
As of January 1, 1999, the Network & Storage Management Group employed
approximately 1,045 persons. The Network & Storage 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 Network Storage & Management Group's employees are represented by a labor
union or are the subject of a collective bargaining agreement. The Network
Storage & Management Group has never experienced a work stoppage and believes
that its employee relations are good.
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VERITAS
TELEBACKUP
BUSINESS OF TELEBACKUP
OVERVIEW
TeleBackup develops and markets software technology that enables the
automated backup and recovery of electronic information created and stored on
networked, remote and mobile personal computer-based computer systems.
TeleBackup's TSInfoPRO technology has been designed to provide automated online
backup, storage and disaster recovery of information on mobile personal
computers such as laptops or notebooks, and remote units, such as remote offices
and telecommuting work sites, via wide area network, local area network or
dial-up communications infrastructure. TeleBackup markets its products through
distribution partners, who re-brand the product under their own trade names, as
well as through value-added resellers.
"Remote computer backup" is one of the terms used to describe the process
of moving copies of data files from one computer, over a transmission medium
such as a telephone line or frame relay link, to a secondary computer system and
storage medium, which is not situated at the same location. The purpose of the
process is to ensure that computer users who have units that are mobile in
nature, or who are located remotely from their organization, have the capability
to adequately backup and restore their entire systems to functionality should
data loss or system failure occur.
With TeleBackup's products, users can backup and restore information on
their PCs through transmission mediums such as dial up phone lines, Internet and
Intranet connections, wireless connections, corporate wide area network or
corporate local area networks. TeleBackup products are designed to overcome
obstacles such as low transmission bandwidth speeds, or low data transfer rates,
on such mediums, large amounts of redundant files in operating systems and
application packages, unstable communications mediums, unsophisticated users,
and other factors that traditionally render efficient personal computer backup
and recovery difficult.
TeleBackup's technology can also be implemented on storage area network
based data storage management architectures, in which dedicated, shared storage
mediums, attached to a specialized network infrastructure, are utilized to
support a variety of computer users across the enterprise.
PRODUCTS
TSInfoPRO EDV
This product is licensed to electronic data vaulting service providers such
as telephone and cable companies and Internet service providers, who, on an
out-sourced service basis, provide remote backup and recovery services to
personal computer users. The service provider establishes a safe, offsite
storage vault location at which the backup server farm and archived data are
stored and managed. Remote and mobile personal computer users subscribe to a
service offering and can back up their computer systems to that service provider
over their transmission medium of choice, such as telephone lines or the
Internet, through the TSInfoPro EDV technology.
TSInfoPRO Corporate
This product was introduced in early 1998 and is targeted for
implementation on a wide range of server repository engines, including Sun
Solaris, Windows NT and SCO Unix, within the data center of enterprise
customers. The Corporate product can be used
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to back up and recover personal computer units on the organization's local area
network or wide area network, as well as remote and mobile users connecting by
dial-up communications infrastructure. These remote and mobile units can be
supported over the Internet or the organization's own intranet.
TSInfoPRO also includes security features such as authentication codes for
session validation, user personal identification numbers for file or system
restoration, a data scrambling process that acts in a similar capacity to a DES
or RSA encryption technique, and the storage of files in a compressed,
unreadable format.
MARKETING AND DISTRIBUTION
TeleBackup markets its products through original equipment manufacturers
and value-added resellers and does not directly sell to end-users. Under a
typical original equipment manufacturer arrangement, the TSInfoPRO product is
re-branded with the trademark of the original equipment manufacturer, or
directly integrated into such original equipment manufacturer's own backup and
storage management product lines, and then distributed to end users via the
original equipment manufacturer's direct sales force and distribution channel.
The original equipment manufacturer generally provides first level support.
TeleBackup also enters into distribution agreements with value-added resellers
that market and sell the product under the TSInfoPRO brand name. Value-added
resellers typically assume all marketing and selling activities, as well as
"level one" customer support. TeleBackup provides support to original equipment
manufacturer and value-added reseller partners that covers error corrections,
product upgrades, and resolution of problems reported to the distribution
partner's own helpdesk and technical support groups that they cannot solve
directly.
TeleBackup has original equipment manufacturer distribution agreements with
two major partners, StorageTek and VERITAS. StorageTek currently re-brands
TSInfoPRO as "REX" and "PowerBAK" The REX project is an electronic data vaulting
service initiative that was initially launched in Canada in 1997, and was
launched in the U.S. market in the fall of 1998. TeleBackup receives a sliding
scale percentage of gross revenues generated by the REX project. The StorageTek
agreement also enables StorageTek to re-brand and distribute the TSInfoPro
Corporate products that are targeted at the in-house corporate usage market.
StorageTek will re-brand a turnkey unit, consisting of server, storage, and
TSInfoPRO software as PowerBAK. North American distribution of this product line
commenced in the fall of 1998. Under the VERITAS distribution agreement, VERITAS
will integrate the TSInfoPRO product into its NetBackup product line. TeleBackup
intends to pursue additional original equipment manufacturer and distribution
partners within the storage management and general information technology
industry.
The TeleBackup product is also re-branded and sold by distributors under
the names "RightBAK," "Saf-T-Net," "Datasafe," "Data Protection Services" and
"InterBAK."
RESEARCH AND DEVELOPMENT
TeleBackup believes that technical leadership is key to the company's
success and anticipates that it will continue to commit substantial resources to
research and development. Future success will depend in large part on
TeleBackup's ability to continue to enhance existing products, respond to
changing customer requirements and introduce, in a timely manner, new products
that keep pace with technological developments and emerging industry standards.
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VERITAS
TELEBACKUP
In particular, research and development efforts will continue to be focused
upon expanding the functionality and improving the performance of the TeleBackup
products, developing broader platform support for both the client and the server
components of the products and providing enhanced operation and management of
the products. The StorageTek agreement also requires TeleBackup to provide a
defined level of development resources to create product differentiation between
TSInfoPRO EDV and the StorageTek version of the product referred to as REX.
TeleBackup may not have the resources necessary to perform its obligations to
StorageTek. Furthermore, its development efforts may not be successful.
Currently, TeleBackup's main research and development initiatives are:
- development of an e-commerce interface for the StorageTek version of
TSInfoPro EDV;
- extension and refinement of the system management functions in the
administration component of the product, including interfacing to major
system management software products;
- extension of client support to Windows '98 and when appropriate Windows
NT 5.0;
- extension of server support to HP-UX and other selected UNIX operating
systems; and
- database and file processing and transmission processes to increase
capacity and improve performance.
TeleBackup believes that it will have to devote significant time and
resources to these efforts and it may not be successful in developing and
marketing such enhancements to its existing products, or new products
incorporating new technology, on a timely basis. Furthermore, TeleBackup's
products may not achieve market acceptance or adequately address the changing
needs of the marketplace. If TeleBackup is unable to successfully accomplish
those development efforts, TeleBackup's business would be materially and
adversely affected.
At March 31, 1999 TeleBackup's research and development staff consisted of
20 employees located at TeleBackup's Calgary, Alberta headquarters. TeleBackup
must hire additional research and development personnel for timely completion of
development projects. The market for those personnel is very competitive and
they may not be able to be hired on a timely basis.
From time to time, TeleBackup or its competitors may announce new products,
capabilities or technologies that have the potential to replace or shorten the
life cycles of TeleBackup's existing products. Announcements of currently
planned or other new products could cause customers to defer the purchase of
existing TeleBackup products.
COMPETITION
Several small companies are focused on the development of remote backup
technologies, in addition to the direct delivery of electronic data vaulting
services. These include Connected Corp. in Framingham, Massachusetts, Atrieva in
Seattle, Washington, STAC Inc. in San Diego, California, and Core Data in
Phoenix, Arizona. Connected Corp. and Atrieva are primarily in the business of
marketing electronic data vaulting services to end users, although Connected
Corp. does re-package its product for the corporate market. STAC and Core Data
are product developers, focusing on the corporate market via direct sales, as
well as distribution partners.
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All competitors are Windows NT-centric, while TeleBackup provides
UNIX-based server repository operating systems options in addition to Windows
NT. Competitors also differ in the degree of system backup and recovery provided
to users, with certain companies offering data file set backup and recovery
capability only as opposed to the full system backup and recovery capability of
TeleBackup's products.
The principal competitive factors affecting the market for TeleBackup's
products are ease of use, functionality and features, product quality, product
architecture, breadth of distribution, price, customer support and name
recognition. In the future, TeleBackup will be required to respond promptly and
effectively to the challenges of technological change and its competitors
innovations. TeleBackup may not be able to provide products that compare
favorably with the products of TeleBackup's competitors. Also, competitive
pressures could require TeleBackup to reduce its prices.
INTELLECTUAL PROPERTY
Measures TeleBackup takes to protect its intellectual property
TeleBackup considers certain features of its software products and
documentation to be proprietary and relies on copyright, trademark and trade
secret laws, confidentiality agreements, license arrangements and other measures
to establish and protect its intellectual property. TeleBackup does not
currently hold any patents but has filed one patent application relating to its
TSInfoPRO technology.
In addition, TeleBackup attempts to protect its proprietary rights by
entering into non-disclosure agreements with its employees, consultants,
distributors and business partners. Software, documentation and other
proprietary intellectual property are covered by licensing agreements which
contain certain restrictions on transferability and unauthorized use and
disclosure of confidential information.
Infringement risks
Although TeleBackup has incorporated these restrictions and safeguards,
other parties could attempt to copy or obtain its technology or products without
authorization. TeleBackup's protection of its proprietary rights, including any
patent that may be issued, may not be adequate. Also, TeleBackup's competitors
could independently develop similar technology, duplicate TeleBackup's products
or design around any patent issued to TeleBackup or its other intellectual
property rights.
Litigation risks
TeleBackup is not aware that its products, trademarks or other proprietary
rights infringe the proprietary rights of third parties. However, third parties
could still assert infringement claims against TeleBackup in the future and any
assertion could result in costly litigation or require TeleBackup to enter into
an unfavorable licensing arrangement with that party. As the number of software
products in the industry increases and the functionality of these products
further overlap, TeleBackup believes that software developers may become
increasingly subject to infringement claims. Any claims, with or without merit,
can be time consuming and expensive to defend.
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VERITAS
TELEBACKUP
Trademarks
TSInfoPRO is a registered trademark of TeleBackup Systems Inc. TeleBackup,
TSInfoPRO EDV, TSInfoPRO Corporate and TSInfoPRO NT Enterprise are trademarks of
TeleBackup Systems Inc.
EMPLOYEES
As of March 31, 1999, TeleBackup had 41 full-time employees, including 20
in research and development, 7 in sales and marketing, 10 in customer support
and 4 in finance and administration. TeleBackup believes that its future success
will depend in part on its ability to hire and retain qualified personnel.
FACILITIES
TeleBackup's principal executive offices are located in Calgary, Alberta,
Canada at a leased facility totaling approximately 18,526 square feet, held
under a lease which will expire in March, 2004. In addition, TeleBackup leases a
further 8,000 square feet, held under five separate leases which expire in
February 2003.
LEGAL PROCEEDINGS
TeleBackup is not currently a party to any litigation or other legal
proceedings that, in the opinion of management, could have a material adverse
effect on TeleBackup's business, operating results or financial condition.
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<PAGE> 241
MANAGEMENT OF NEW VERITAS
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information as of March 31, 1999 with
respect to persons who are expected to serve as executive officers or directors
of New VERITAS:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Mark Leslie 53 Chief Executive Officer and Chairman of the
Board
Terence R. Cunningham 39 President and Chief Operating Officer, Director
Geoffrey W. Squire 52 Executive Vice-President and Vice-Chairman of
the Board
Fred van den Bosch 52 Executive Vice President of Engineering,
Director
Peter J. Levine 38 Senior Vice President, Strategic Operations
Kenneth Lonchar 41 Senior Vice President, Finance and Chief
Financial Officer
Paul A. Sallaberry 43 Senior Vice President, Worldwide Sales
Jay A. Jones 44 Senior Vice President, Chief Administrative
Officer and Secretary
Michael Colemere 35 Vice President, Product Marketing
Michael Wentz 46 Vice President, Technical Services
David Hallmen 35 Vice President, Merger Integration
Steven Brooks 47 Director
William H. Janeway 55 Director
Gregory B. Kerfoot 39 Director
Stephen J. Luczo 42 Director
Joseph D. Rizzi 56 Director
</TABLE>
Directors will hold office until the next annual meeting of stockholders
and until their successors have been elected and qualified or until their
earlier resignation or removal. Executive officers will be chosen by and will
serve at the discretion of the Board of Directors. There is no family
relationship between any proposed director or executive officer of New VERITAS
and any other director or executive officer of New VERITAS.
Mr. Leslie has served as President and Chief Executive Officer of VERITAS
since 1990 and as a director of VERITAS since 1988. Prior to 1990, he was the
principal and owner of Leslie Consulting, a management consulting firm and
President and Chief Executive Officer of Rugged Digital Systems, Inc., a
computer manufacturer. Mr. Leslie is also Chairman of the Board of Versant
Object Technology Corporation, an object-oriented database software company.
Mr. Cunningham currently serves as Seagate Software's President and Chief
Operating Officer and as President of the Network & Storage Management Group. In
May 1994, Mr. Cunningham joined Seagate Technology in connection with its
acquisition of Crystal Computer Services, a computer services company founded by
Mr. Cunningham in 1984. Mr. Cunningham served as Crystal's President until May
1996, when he was named President of the Storage Management Group. Later in
1996, he was named Executive Vice President and General Manager of the Network &
Storage Management Group business. Since July 1997 Mr. Cunningham has served as
President and Chief Operating Officer for
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VERITAS SEAGATE
SOFTWARE
TELEBACKUP
Seagate Software as well as Executive Vice President and General Manager of the
Network & Storage Management Group business.
Mr. Squire has been Co-Chairman of the Board of Directors and Executive
Vice-President of VERITAS since April 1997, when VERITAS merged with OpenVision.
Mr. Squire became a director of OpenVision in January 1994 and was appointed
Chief Executive Officer of OpenVision in July 1995. From January 1994 to
November 1994, Mr. Squire was Executive Vice President and Chief Executive
Officer of International Operations and from November 1994 to June 1995, he was
President and Chief Operating Officer of OpenVision. Prior to that time, Mr.
Squire worked at Oracle Corporation most recently as a member of Oracle's
Executive Committee as Chief Executive, International Operations. Mr. Squire has
sat on the Council of the U.K. Computing Services and Software Association since
1990. In 1995, Mr. Squire was elected as the founding President of the European
Information Services Association. Mr. Squire also serves as a director of
Industri-Mathematik International Corp.
Mr. van den Bosch has served as Executive Vice President, Engineering of
VERITAS since July 1997. Mr. van den Bosch served as Senior Vice President,
Engineering of VERITAS from 1991 to July 1997 and was appointed as a director of
VERITAS in February 1996. From 1970 until 1990, he served in various positions
with Philips Information Systems, including Director of Technology.
Mr. Levine has served as Senior Vice President of Strategic Operations of
VERITAS since January 1999, after serving as Senior Vice President, OEM Sales
from December 1997 to December 1998. Mr. Levine served as Vice President, OEM
Sales of VERITAS from December 1995 to December 1997. From January 1995 to
November 1995, Mr. Levine was Director of Marketing of VERITAS. From July 1992
to December 1994, Mr. Levine was an original equipment manufacturer sales
representative at VERITAS. Prior to 1992, Mr. Levine held several software
engineering and consulting positions at MIT's Project Athena, the Open Software
Foundation and Apollo Computer.
Mr. Lonchar has served as Chief Financial Officer and Senior Vice
President, Finance of VERITAS since February 1999. Mr. Lonchar became Chief
Financial Officer in April 1997 and served as Vice President, Finance of VERITAS
from April 1997 until February 1999. Mr. Lonchar was Chief Financial Officer and
Senior Vice President of OpenVision from December 1995 until the Merger in April
1997. Prior to joining OpenVision, Mr. Lonchar was Vice President, Finance and
Administration and Chief Financial Officer of Microtec Research, Inc., a
publicly-traded software company. Mr. Lonchar is a certified public accountant.
Mr. Sallaberry has served as Senior Vice President, Worldwide Sales of
VERITAS since July 1997. Mr. Sallaberry served as Vice President, North American
Sales of VERITAS from April 1997 to July 1997. Mr. Sallaberry was OpenVision's
Senior Vice President of Sales from October 1992 until June 1994. Mr. Sallaberry
rejoined OpenVision in February 1995 as Senior Vice President of North American
Operations. From 1989 through 1992, he served in various positions at Oracle
Corporation, most recently as Vice President, Vertical Sales Division.
Mr. Jones has served as Senior Vice President, Chief Administrative Officer
since January 1999. Mr. Jones served as Vice President, General Counsel and
Secretary of VERITAS since April 1997. Mr. Jones joined OpenVision as General
Counsel in March 1993 and was appointed Vice President, General Counsel and
Secretary in July 1994 and served in those capacities until the merger in April
1997. Prior to March 1993, Mr. Jones
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<PAGE> 243
served in various management positions at Oracle Corporation and WordStar
International Incorporated, a word-processing software company. Mr. Jones is a
member of the California Bar Association.
Mr. Colemere joined Seagate Software as Vice President of Product
Management in December 1996. Before joining Seagate Software, Mr. Colemere was
the Director of Strategic Business Development at Cheyenne from April 1994 to
December 1996. Prior to his position with Cheyenne, Mr. Colemere also held a
range of product management and development management positions with Novell,
including Director of Engineering Program Management for Novell's NetWare
Products Division.
Mr. Wentz currently serves as Vice President of Technical Services for the
Network & Storage Management Group. He joined Seagate Software in February of
1996 as part of its acquisition of Arcada Software, Inc. Mr. Wentz joined Arcada
in May of 1994 where he served in a similar capacity as Vice President of
Technical Support Services. Prior to joining Arcada, Mr. Wentz served as
Director of Technical Support Operations at Samna Corporation and then at Lotus
Development Corporation after its acquisition of Samna.
Mr. Hallmen currently serves as Vice President of business development at
Seagate Software. Before Arcada's acquisition by Seagate Software in February
1996, Mr. Hallmen was Vice President of marketing for Arcada. Prior to joining
Arcada, Mr. Hallmen was Vice President of sales and marketing for Artisoft,
Inc., a developer and manufacturer of personal computer network hardware and
software.
Mr. Brooks has been a director of VERITAS since April 1996. Since February
1999, Mr. Brooks has been General Partner of Broadview Capital Partners, a
private equity firm. From September 1997 to February 1999, Mr. Brooks was a
managing director of Donaldson, Lufkin & Jenrette Securities Corporation, an
investment banking firm. See "The NSMG Combination -- Interests of persons in
the NSMG combination" on page 78. From 1996 to 1997, Mr. Brooks was a private
investor and a consultant to technology companies. From 1994 to 1996, Mr. Brooks
served as Managing Director and Head of Global Technology Investment Banking at
the Union Bank of Switzerland Securities, LLC. Prior to 1994, Mr. Brooks was a
private investor and consultant to high-technology firms, and served as Managing
Partner of investment banking at Robertson, Stephens & Co., a San
Francisco-based investment bank. Mr. Brooks is a director of Paychex, Inc. a
national payroll processing and business services company, and QRS, an
electronic commerce company.
Mr. Janeway has been a director of VERITAS since April, 1997. Mr. Janeway
has been a Managing Director of E.M. Warburg Pincus & Co., LLC since 1988. Prior
to 1988, he served in a management capacity at F. Eberstadt & Co., Inc. Mr.
Janeway is a director of ECsoft Group, PLC, Vanstar Corporation, Maxis, Inc.,
Zilog, Inc., and Industri-Mathematik Intl. Corp.
Mr. Kerfoot currently serves as Seagate Software's Chief Strategic Officer
and as President of the Information Management Group. In May 1994, he joined
Seagate Technology in connection with its acquisition of Crystal, where he had
previously served as Director of Research and Development and Chief Architect of
Crystal Reports, and continued as Crystal's Director of Research and Development
until May 1996, when he was named President of the Information Management Group.
Since July 1997, Mr. Kerfoot has served as Chief Strategic Officer for Seagate
Software as well as President of the Information Management Group.
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VERITAS SEAGATE
SOFTWARE
TELEBACKUP
Mr. Luczo currently serves as Chairman of the Board of Directors of Seagate
Software and as Chief Executive Officer, President and Director of Seagate
Technology. Prior to becoming Seagate Software's Board Chairman in July 1997,
Mr. Luczo served as Seagate Software's Chief Operating Officer between March
1995 and July 1997. Mr. Luczo joined Seagate Technology in October 1993 as
Senior Vice President, Corporate Development and was promoted to Executive Vice
President, Corporate Development in March 1995, where he served until September
1997. He was promoted to President and Chief Operating Officer of Seagate
Technology in September 1997, and served in the latter capacity until August
1998. In July 1998, Mr. Luczo was promoted to Chief Executive Officer and
appointed to the Board of Directors. Before joining Seagate Technology in 1993,
Mr. Luczo was Senior Managing Director and co-head of the Bear Stearns and Co.
Global Technology Group. Mr. Luczo also serves on the boards of directors of
Gadzoox Microsystems, Inc. and Dragon Systems, Inc.
Mr. Rizzi has been a director of VERITAS since 1987. Prior to that date, he
served as a general partner of Matrix Partners, a venture capital firm and as
Chief Executive Officer of Elxsi, a computer company.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors of New VERITAS will have the following committees:
Audit committee
The audit committee will review with New VERITAS' independent public
accountants and with New VERITAS' internal accounting staff the scope and
results of the independent accountants' audit work, New VERITAS' annual
financial statements, and New VERITAS' internal accounting and control systems.
The audit committee will also recommend to the Board the firm of independent
public accountants to be selected to audit New VERITAS' accounts and make
further inquiries as it deems necessary or desirable to inform itself as to the
conduct of New VERITAS' affairs.
It is anticipated that Mr. Brooks and Mr. Rizzi will be the members of the
audit committee.
Compensation committee
The compensation committee will review and make recommendations to the
board regarding the compensation for officers and compensation guidelines for
employees of New VERITAS and administer New VERITAS' stock purchase and stock
option plans.
It is anticipated that Mr. Rizzi and an independent director will be
members of the compensation committee.
COMPENSATION OF DIRECTORS
How board members will be compensated
Non-employee directors of New VERITAS will receive a specified number of
stock options under the directors' plan to be assumed by New VERITAS. None of
the members of the VERITAS board has received, and none of New VERITAS'
directors will receive, any fees for attending board or board committee
meetings, other than reimbursement of actual expenses they incur to attend
meetings.
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Grant of options to directors
The VERITAS 1993 Directors' Stock Option Plan provides that each
non-employee director who is first elected or reelected to the board, is granted
an option to purchase 54,000 shares of VERITAS common stock on the later to
occur of (1) the date he or she is first elected or reelected to the VERITAS
board or (2) the date his or her most recent prior option granted by VERITAS
becomes fully vested as to all shares. A non-employee director who received a
grant prior to the assumption of the directors' plan by New VERITAS, shall not
be granted an initial grant.
Each non-employee director will receive a succeeding grant of an option to
purchase 13,500 shares of VERITAS or New VERITAS common stock, as applicable,
each year on the anniversary date of the most recent prior option granted to him
or her by VERITAS or New VERITAS, as applicable, provided the individual is
still a member of the board. A non-employee director shall not receive a
succeeding grant earlier than the first anniversary of his or her initial grant.
Exercisability of options
Options granted under the directors' plan are immediately exercisable. Once
exercised, VERITAS or New VERITAS will have a right to repurchase unvested
shares. This repurchase right lapses as the shares vest. Initial grants vest as
to 3,375, and succeeding grants vest as to 844, of the shares on the last day of
each calendar quarter, provided that the non-employee director attends at least
one board meeting during the quarter. If the non-employee director attends a
meeting that occurs prior to the date the option was granted, he or she will not
receive vesting credit with respect to that particular option as a result of
attending the meeting.
Terms of options
Options have a ten year term and will fully vest as to any shares that
remain unvested on the day immediately preceding the tenth anniversary of the
date the option is granted. Options cease vesting but remain exercisable if the
non-employee director ceases to be a member of the board, so long as he or she
continues to provide services to New VERITAS as a consultant.
Effect of mergers, consolidations, dissolutions or liquidations
In the event of a merger, consolidation, dissolution or liquidation of
VERITAS or New VERITAS, the sale of substantially all of the assets of VERITAS
or New VERITAS or any other similar corporate transaction, the vesting of all
options granted pursuant to the directors' plan will accelerate and the options
will become exercisable in full and will terminate in accordance with
termination provisions of the directors' plan. The NSMG combination will not
trigger acceleration of the outstanding directors' plan options.
Number of shares reserved for issuance under the plan
An aggregate of 562,500 shares of VERITAS common stock is reserved for
issuance under the directors' plan. In the event that any outstanding option
under the directors' plan expires or terminates for any reason, the shares of
VERITAS common stock allocable to the unexercised portion of the option shall be
available again for the grant. As of March 31, 1999 options to purchase 237,373
shares were outstanding, 42,750 had been exercised and 282,377 shares were
eligible for future grant. After the NSMG combination the currently outstanding
options will remain outstanding and will be exercisable for an
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VERITAS SEAGATE
SOFTWARE
TELEBACKUP
equivalent number of shares of New VERITAS common stock. In addition, after the
NSMG combination, the shares currently reserved for future issuance under the
directors' plan will represent an equivalent number of shares of New VERITAS
common stock.
Amendment to the plan
On April 15, 1999, the VERITAS board of directors approved an amendment to
the directors' plan to provide that, if the number of outstanding shares of
common stock of VERITAS is changed as a result of a stock dividend, stock split,
reverse stock split, combination or other similar capital change, the VERITAS
board of directors will have discretion to determine whether the number of
shares available under the directors' plan, the maximum number of shares that
can be granted to a director, the number of shares subject to outstanding
options or the other terms of such outstanding options, will be adjusted to
reflect the capital change.
New VERITAS will assume VERITAS' directors' stock option plan.
COMPENSATION OF EXECUTIVE OFFICERS
New VERITAS has not yet paid any compensation to any of its executive
officers and the form and amount of the compensation has not yet been
determined. The board will rely on its compensation committee to recommend the
form and amount of compensation to be paid to New VERITAS' executive officers.
It is anticipated that when the compensation committee meets to determine
compensation, the committee will generally adhere to compensation policies which
reflect the belief that:
- New VERITAS must attract and retain individuals of outstanding ability
and motivate and reward them for sustained performance;
- a significant portion of an executive's compensation should be at risk
based upon that executive's and the Company's performance; and
- levels of compensation should generally be in line with that offered by
comparable corporations.
For information concerning the compensation historically paid to the
executive officers of each of VERITAS, Seagate Software and TeleBackup who will
serve as executive officers or directors of New VERITAS, see "Information with
Respect to VERITAS" on page 238, the Seagate Software annual report on Form 10-K
attached as Appendix U and incorporated by reference in this document and
"Information with Respect to TeleBackup" on page 241.
EMPLOYMENT AGREEMENTS
Seagate Technology and Seagate Software have agreed to encourage the
following employees to enter into employment agreements with New VERITAS:
- Terence R. Cunningham;
- David Hallmen;
- Michael Wentz;
- Michael Colemere;
- Neal Ater; and
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- David Galiotto.
In addition, we anticipate that the following employees of VERITAS will
enter into employment agreements with New VERITAS:
- Mark Leslie;
- Fred van den Bosch;
- Peter J. Levine;
- Kenneth Lonchar;
- Paul A. Sallaberry; and
- Jay A. Jones.
Terms of the agreements
Under the employment agreements, these people will be paid a base salary
and will be entitled to receive a performance bonus as determined by the board
of directors or the compensation committee. All these employment agreements
provide for the for a term of one year, except for Mark Leslie and Terence
Cunningham, which are expected to be for a term of two years. In addition, each
employment agreement provides that at the end of its term, the employee shall
continue on a month to month basis on the terms and conditions in the employment
agreement.
Severance provisions
Generally, if New VERITAS terminates one of these employment agreements as
a result of an involuntary termination described below, then the affected
employee shall be entitled to six months of the employee's base compensation,
plus any unpaid quarterly bonuses, and 50 percent of the employee's target bonus
for the fiscal year. In addition, they will be entitled to the continued vesting
of all stock options and restricted stock held by the employee through the
consulting period described below, and the continued exercisability of all stock
options for three months following the end of the consulting period. The
employee shall also be entitled to continue to receive health, dental and life
insurance coverage and shall be retained as a consultant to New VERITAS as set
forth in the applicable agreement.
The employee shall not be entitled to receive severance benefits if the
employee's employment terminates by reason of employee's voluntary resignation,
New VERITAS terminates employee's employment after the last day of the
employment term or the termination is for cause as described below, except those
under New VERITAS' severance and benefits plans.
"Involuntary termination" means:
- without employee's consent, the reduction of employee's duties, authority
or responsibilities, or the assignment to employee of reduced duties,
authority or responsibilities;
- a reduction in the employee's base salary;
- a reduction in the employee's target bonus opportunity with the result
that employee's overall cash compensation package is significantly
reduced;
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VERITAS SEAGATE
SOFTWARE
TELEBACKUP
- the relocation of employee to a facility or a location more than 30 miles
away, without employee's consent;
- any termination of employee not for cause; and
- any act or set of acts that would, under California case law or statute,
constitute a constructive termination of employee.
The "consulting period" is a period of twelve months after the date of
involuntary termination if the involuntary termination occurs six months after
the effective date of the NSMG combination or nine months after the date of
involuntary termination if the involuntary termination is more than six months
after the effective date of the NSMG combination.
Noncompetition provisions
The employment agreements provide that until the end of the consulting
period, the employee will not be owner, consultant, director, or employee of any
business which has products which compete directly with New VERITAS' products,
or without the authorization of New VERITAS. In addition, until one year after
employee's termination for any reason, employee shall not take away any employee
of New VERITAS or cause an employee to leave.
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INFORMATION WITH RESPECT TO VERITAS
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth all compensation awarded to, earned by or
paid for services rendered to VERITAS in all capacities during 1996, 1997 and
1998 by VERITAS' chief executive officer and VERITAS' four other most highly
compensated executive officers who will serve as executive officers of New
VERITAS. This information includes the dollar value of base salaries,
commissions and bonus awards, the number of shares subject to stock options
granted and certain other compensation, whether paid or deferred. VERITAS does
not grant stock appreciation rights and has no long-term compensation benefits
other than stock options.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
--------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY(US$) BONUS(US$) COMPENSATION(US$) OPTIONS(#)
- --------------------------- ---- ----------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Mark Leslie................. 1998 $300,000.00 $398,765.00 $ 1,200.00 123,750
President, Chief 1997 250,000.00 326,400.00 1,200.00 191,248
Executive Officer 1996 230,000.00 170,800.00 0 168,750
Geoffrey W. Squire.......... 1998 240,212.94 236,867.00 0 41,250
Executive Vice President 1997 169,689.00 208,875.00 18,444.00 0
1996 0 0 0 0
Fred van den Bosch.......... 1998 220,000.08 219,321.00 1,200.00 82,500
Executive Vice 1997 160,000.00 140,598.00 1,200.00 112,498
President of Engineering 1996 145,000.00 78,082.00 0 50,625
Paul A. Sallaberry.......... 1998 300,349.96 99,691.00 1,200.00 37,500
Senior Vice President, 1997 284,170.00 58,485.00 1,200.00 78,748
Worldwide Sales 1996 0 0 0 0
Kenneth Lonchar............. 1998 191,200.08 179,444.00 0 22,500
Chief Financial Officer 1997 114,667.00 133,680.00 0 22,498
Sr. Vice President,
Finance 1996 0 0 0 0
Peter J. Levine............. 1998 150,000.00 179,691.00 1,200.00 37,500
Senior Vice President, 1997 145,000.00 149,270.00 1,200.00 78,749
Strategic Operations 1996 110,000.00 48,380.00 0 47,250
</TABLE>
Portions of bonuses for services rendered in fiscal year 1996, 1997 and
1998 were each paid in the following year. Share data has been restated to give
retroactive effect to a 3-for-2 stock split in the form of a stock dividend
effected on May 20, 1998. Mr. Sallaberry and Mr. Squire joined VERITAS in April
1997 when VERITAS merged with OpenVision Technologies, Inc. The compensation
amounts include sales commissions paid to Mr. Sallaberry by VERITAS in the
amount of $118,965 in 1996 and $170,837 in 1997.
238
<PAGE> 250
VERITAS SEAGATE
SOFTWARE
TELEBACKUP
OPTION GRANTS IN 1998
The following table sets forth further information regarding the individual
grants of stock options pursuant to VERITAS' stock option plans during fiscal
1998 to each of the VERITAS named officers. The table illustrates the
hypothetical gains or "option spreads" that would exist for the options at the
end of the ten-year term of the option based on assumed annualized rates of
compound stock price appreciation of 5% and 10% from the dates the options were
granted to the end of the term. The 5% and 10% assumed rates of annual compound
stock price appreciation are mandated by rules of the Securities and Exchange
Commission and do not represent VERITAS' estimate or projection of future common
stock prices. Actual gains, if any, on option exercises will depend on the
future performance of VERITAS' common stock and overall market conditions. The
potential realizable values shown in this table may never be achieved.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -------------------------
NAME GRANTED FISCAL YEAR (US$/SHR) DATE 5% 10%
---- ---------- ------------- -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mark Leslie............ 123,750 5.4 $39.17 4/14/08 3,048,176 7,724,677
Geoffrey W. Squire..... 41,250 1.8 $39.17 4/14/08 1,016,059 2,574,892
Fred van den Bosch..... 82,500 3.6 $39.17 4/14/08 2,032,117 5,149,785
Kenneth Lonchar........ 22,500 1.0 $39.17 4/14/08 554,214 1,404,487
Paul A. Sallaberry..... 37,500 1.6 $39.17 4/14/08 923,690 2,340,811
Peter J. Levine........ 37,500 1.6 $39.17 4/14/08 923,690 2,340,811
</TABLE>
The exercise price of all stock options was equal to the fair market value
of VERITAS' common stock on the date of grant. Stock options vest over four
years at the rate of 1/48 per month, such vesting to accelerate in the event of
an acquisition or merger of VERITAS. The options were granted for a term of ten
years, subject to earlier termination upon termination of employment. Share and
per share data has been restated to give retroactive effect to a 3-for-2 stock
split in the form of a stock dividend in May 1998.
AGGREGATE OPTION EXERCISES IN 1998 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning the exercise
of stock options during 1998 by each of the VERITAS named officers, including
the aggregate amount of gains on the date of exercise. In addition, the table
includes the number of shares covered by both vested and unvested stock options
held on December 31, 1998 by each of the VERITAS named officers. Also reported
are values for "in the money" stock options that represent the positive spread
between the respective exercise prices of outstanding stock options and the fair
market value of the VERITAS common stock as of
239
<PAGE> 251
December 31, 1998. The fair market value is determined by the closing price of
VERITAS' common stock on December 31, 1998, which was $59.94 per share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
SHARES VALUE UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON REALIZED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
NAME EXERCISE(#) (US$) YEAR-END FISCAL YEAR-END($US)
---- ----------- ---------- -------------------- -------------------------
VESTED UNVESTED VESTED UNVESTED
-------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mark Leslie.......... 29,999 $ 940,623 378,751 337,499 $19,043,997 $12,459,417
Geoffrey W. Squire... 86,400 $1,948,165 106,895 159,355 $ 5,094,057 $ 6,791,675
Fred van den Bosch... 0 $ 0 290,801 181,312 $15,290,591 $ 6,194,667
Kenneth Lonchar...... 13,706 $ 667,551 11,895 41,537 $ 413,934 $ 1,330,341
Paul A. Sallaberry... 44,999 $1,710,374 83,617 138,661 $ 3,634,233 $ 5,306,142
Peter J. Levine...... 17,200 $ 656,804 75,425 112,968 $ 3,333,951 $ 4,138,322
</TABLE>
Share data has been restated to give retroactive effect to a 3-for-2 stock
split in the form of a stock dividend effected in May 1998. The value realized
for option exercises is the aggregate fair market value of VERITAS common stock
on the date of exercise less the exercise price. The valuations shown above for
unexercised in-the-money options are based on the difference between the option
exercise price and the fair market value of the stock on December 31, 1998.
These values have not been, and may never be, realized.
RECENT VERITAS TRANSACTIONS
From January 1, 1998 to the present, there have not been any and there are
currently no proposed transactions in which the amount involved exceeded $60,000
to which VERITAS or any of its subsidiaries was or is to be a party and in which
any executive officer, director, 5% beneficial owner of VERITAS common stock or
member of the immediate family of them had or will have a direct or indirect
material interest. There are no business relationships between VERITAS and any
entity, of which a director of VERITAS is an executive officer or of which a
director of VERITAS owns equity interest in excess of 10%, involving payments
for property or services in excess of five percent of VERITAS consolidated gross
revenues for VERITAS for 1998 except as already reported or as set forth above
under "-- Compensation of executive officers" on page 238 and "The NSMG
Combination -- Interests of persons in the NSMG combination" on page 78.
240
<PAGE> 252
VERITAS
TELEBACKUP
INFORMATION WITH RESPECT TO TELEBACKUP
COMPENSATION OF EXECUTIVE OFFICERS
In the fiscal year ended December 31, 1998, TeleBackup had four "executive
officers" as that term is defined in applicable Canadian securities legislation.
These executive officers were paid aggregate cash compensation by TeleBackup in
the amount of C$534,244 on account of services rendered to TeleBackup for the
fiscal year ended December 31, 1998. Cash compensation in the amount of C$17,500
was paid during this period to the directors of TeleBackup for attending
meetings of the board of directors or any board committee. The incremental cost
to TeleBackup of compensation paid to the executive officers other than the
compensation referred to above and the compensation under the plan described
below does not exceed 10% of the aggregate cash compensation referred to above
for the fiscal year ended December 31, 1998.
STOCK OPTION PLAN
The TeleBackup board approved a stock option plan on December 22, 1995.
Under this plan, options to purchase TeleBackup common shares may, from time to
time, be granted to directors, officers, employees and consultants of TeleBackup
at the discretion of the board. Under the stock option plan, the number of
options granted may not, in the aggregate, exceed 10% of the issued and
outstanding TeleBackup common shares. The options may not be granted at exercise
prices less than those provided for in the stock option plan and, in any event,
not at exercise prices less than those permitted by the applicable rules and
regulations of all regulatory authorities to which TeleBackup is subject. The
expiration date of all options to be granted is to be no more than five years
from the date the option is granted and there are restrictions on when the
options may be exercised. Options granted under the stock option plan are
non-transferable and subject to the applicable rules and regulations of all
regulatory authorities to which TeleBackup is subject. Options are also subject
to early termination in the event of the death of the optionee or the optionee
ceasing to be a director, officer, employee or consultant.
OPTION GRANTS IN 1998
Stock options to acquire a total of 25,000 TeleBackup common shares were
granted to executive officers during the fiscal year ended December 31, 1998.
As of December 31, 1998, TeleBackup had reserved an aggregate of 592,500
TeleBackup common shares under its stock option plan described below for
issuance to directors, officers and employees upon the exercise of options
outstanding as of that date.
241
<PAGE> 253
The following table sets forth information, as of the date of this
document, with respect to outstanding options to acquire common shares of
TeleBackup granted to directors and executive officers:
<TABLE>
<CAPTION>
NUMBER OF
TELEBACKUP EXERCISE PRICE
COMMON PER
SHARES UNDER TELEBACKUP
HELD BY DATE OF GRANT OPTION COMMON SHARE EXPIRATION DATE
------- ----------------- ------------- -------------- -----------------
<S> <C> <C> <C> <C>
Executive Officers March 23, 1998 25,000 C$2.85 March 23, 2003
Executive Officers July 31, 1997 100,000 1.40 July 31, 2002
Directors July 29, 1997 75,000 1.40 July 29, 2002
Directors August 30, 1996 75,000 1.25 August 30, 2001
Executive Officers August 30, 1996 146,500 1.25 August 30, 2001
Executive Officers October 8, 1996 100,000 1.25 October 8, 2001
Executive Officers December 22, 1995 10,000 1.25 December 22, 2000
</TABLE>
OPTIONS EXERCISED IN 1998
Options to acquire 28,500 TeleBackup common shares were exercised during
the fiscal year ended December 31, 1998. The aggregate net value of the
TeleBackup common shares acquired at the date of exercise was C$88,925, the
difference between C$124,550 the market value of the common shares subject to
the options and C$35,625, the exercise price of the options.
COMPENSATION OF DIRECTORS
Each director receives C$500 for each board of directors meeting attended
and is reimbursed by TeleBackup for expenses related to and incurred to attend
meetings.
INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS OF TELEBACKUP
No director or senior officer of TeleBackup, or any associate or affiliate
of any that director or officer, was indebted to TeleBackup or any of
TeleBackup's subsidiaries at any time since the commencement of the fiscal year
ended December 31, 1998, nor has TeleBackup guaranteed or otherwise supported
any indebtedness of any of those parties during that period.
INTERESTS OF INSIDERS OF TELEBACKUP IN MATERIAL TRANSACTIONS
Management of TeleBackup is not aware of any material interest, direct or
indirect, of any insider of TeleBackup, or any associate or affiliate of that
insider, in any transaction since the commencement of the fiscal year ended
December 31, 1998, or any proposed transaction, involving TeleBackup that has
materially affected or will materially affect TeleBackup or any of its
subsidiaries.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the TeleBackup common shares is the
Montreal Trust Company of Canada.
242
<PAGE> 254
VERITAS SEAGATE
SOFTWARE
TELEBACKUP
SECURITY OWNERSHIP OF NEW VERITAS
The following table sets forth information with respect to the expected
beneficial ownership of common stock of New VERITAS after giving effect to the
NSMG combination and the TeleBackup combination by:
- each person or entity expected to be the beneficial owner of more than
5% of the outstanding common stock of New VERITAS;
- each person expected to be a director of New VERITAS;
- the chief executive officer and each of the four most highly compensated
officers of VERITAS who are expected to be the chief executive officer
and officers of New VERITAS, respectively;
- each Seagate Software executive officer proposed to be a director or
executive officer of New VERITAS; and
- all proposed executive officers and directors of New VERITAS as a group.
The table reflects beneficial ownership as of March 31, 1999. 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 subject to community property laws where applicable,
unless we indicate otherwise below. We have included in each person's beneficial
ownership that person's options to purchase New VERITAS 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.
We have assumed that all eligible Seagate Software option holders will
fully participate in the option exchange offer for purposes of calculating the
table. Based on the NSMG exchange ratio and the TeleBackup exchange ratio as of
March 31, 1999, there are expected to be 48,092,431 shares held by former
VERITAS stockholders, 34,606,432 shares held by Seagate Software, its affiliates
and former Network & Storage Management Group optionees and 1,503,682 shares
held by former TeleBackup shareholders.
Unless otherwise noted, each holder has an address of c/o VERITAS Software
Corporation, 1600 Plymouth Street, Mountain View, CA, 94043.
Seagate Software is a majority owned subsidiary of Seagate Technology. Mr.
Luczo, an expected director of New VERITAS, is President, Chief Executive
Officer and a member of the Board of Directors of Seagate Technology and
Chairman of the Board of Directors of Seagate Software. Mr. Kerfoot, an expected
director of New VERITAS, is the Chief Strategic Officer of Seagate Software. As
such, Mr. Luczo and Mr. Kerfoot may be deemed to have an indirect pecuniary
interest within the meaning of Rule 16a-1 under the Exchange Act in an
indeterminate portion of the shares beneficially owned by Seagate Software. Mr.
Luczo and Mr. Kerfoot each disclaim beneficial ownership of these shares for the
purposes of Section 16 of the Exchange Act or otherwise. Seagate Technology may
be deemed to beneficially own the shares held by Seagate Software.
The business address of Mr. Kerfoot, Mr. Cunningham and Seagate Software is
915 Disc Drive, Scotts Valley, CA 95066. The business address of Mr. Luczo and
Seagate Technology is 920 Disc Drive, Scotts Valley, CA 95067.
243
<PAGE> 255
Warburg, Pincus consists of (a) Warburg, Pincus Investors, L.P., a Delaware
limited partnership, or WPI, (b) Warburg, Pincus & Co., a New York general
partnership, or WP, and (c) E.M. Warburg, Pincus & Co., LLC, a New York limited
liability company or EMW LLC, which manages WPI. WP, as the sole general partner
of WPI, has a 20% interest in the profits of WPI. Lionel I. Pincus is the
managing partner of WP and the managing member of EMW LLC and may be deemed to
control both WP and EMW LLC. The members of EMW LLC are substantially the same
as the partners of WP.
Mr. Janeway, a director of VERITAS and an expected director of New VERITAS,
is a managing director and member of EMW LLC and a general partner of WP. As
such, Mr. Janeway may be deemed to have an indirect pecuniary interest within
the meaning of Rule 16a-1 under the Exchange Act in an indeterminate portion of
the shares beneficially owned by Warburg, Pincus. Mr. Janeway disclaims
beneficial ownership of those shares for the purposes of Section 16 of the Act
or otherwise.
On July 22, 1998, WPI distributed 15,000 shares to Mr. Janeway, 13,500
shares to EMW LLC and 3,881 shares to WP. The figure for each recipient includes
those shares and 6,660,650 shares beneficially owned by WPI.
The business address of Mr. Janeway and of each Warburg, Pincus entity is
466 Lexington Avenue, New York, NY 10017.
Janus Capital Corporation, an institutional investment manager, holds
shares, on behalf of various client accounts, and shares voting power and holds
sole dispositive power.
Mr. Leslie is the President, Chief Executive Officer and Chairman of the
Board of VERITAS and is expected to be the Chief Executive Officer and Chairman
of the Board of New VERITAS.
Mr. Squire is Executive Vice President and Vice-Chairman of the Board of
VERITAS and is expected to be the Executive Vice President and Vice-Chairman of
the Board of New VERITAS.
Mr. van den Bosch is Executive Vice President of Engineering and a director
of VERITAS and is expected to be the Executive Vice President of Engineering, as
well as a director of New VERITAS.
Mr. Cunningham is expected to become the President and Chief Operating
Officer of New VERITAS effective upon the closing of the NSMG combination. Mr.
Cunningham is the President and Chief Operating Officer of Seagate Software. As
such, he may be deemed to have an indirect pecuniary interest within the meaning
of Rule 16a-1 under the Exchange Act in an indeterminate portion of the shares
beneficially owned by Seagate Software. Mr. Cunningham disclaims beneficial
ownership of these shares for the purposes of Section 16 of the Exchange Act or
otherwise. Mr. Cunningham will cease to be an officer of Seagate Software upon
the closing of the NSMG combination. Seagate Software and Seagate Technology
disclaim beneficial ownership of any shares of New VERITAS common stock or
options exercisable therefore held by Mr. Cunningham, because neither Seagate
Software or Seagate Technology has now or will have voting or dispositive power
over such shares and options.
As of March 31, 1999, Mr. Cunningham held options to purchase 92,709 shares
of Seagate Software common stock that were immediately exercisable or
exercisable within 60 days. The figure for Mr. Cunningham's options assumes that
Mr. Cunningham converts
244
<PAGE> 256
VERITAS SEAGATE
SOFTWARE
TELEBACKUP
those options at the NSMG exchange ratio of 0.647488 as of March 31, 1999 in the
employee stock option exchange offer.
Mr. Levine is Senior Vice President, Strategic Operations and is expected
to be the Senior Vice President, Strategic Operations of New VERITAS.
Mr. Sallaberry is Senior Vice President of Worldwide Sales and is expected
to be the Senior Vice President of Worldwide Sales of New VERITAS.
Mr. Rizzi and Mr. Brooks are directors of VERITAS and are expected to be
directors of New VERITAS.
Of the shares subject to options held by all proposed executive officers
and directors as a group, 60,028 will be held by persons who are expected to be
directors or executive officers of New VERITAS who are executive officers of
Seagate Software.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
----------------------------------- PERCENT OF
BENEFICIAL OWNER SHARES OPTIONS TOTAL CLASS
---------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Seagate Software, Inc.............. 34,606,432 -- 34,606,432 41.10%
Seagate Technology, Inc............ 34,606,432 -- 34,606,432 41.10
Stephen J. Luczo................... 34,606,432 -- 34,606,432 41.10
Gregory B. Kerfoot................. 34,606,432 -- 34,606,432 41.10
William H. Janeway................. 6,675,650 -- 6,675,650 7.93
E.M. Warburg, Pincus & Co., LLC.... 6,674,150 -- 6,674,150 7.93
Warburg, Pincus & Company.......... 6,664,531 -- 6,664,531 7.91
Warburg, Pincus Investors, L.P..... 6,660,650 -- 6,660,650 7.91
Janus Capital Corporation.......... 5,347,915 -- 5,347,915 6.35
100 Fillmore Street, Suite 300
Denver, CO 80205
Mark Leslie........................ 671,958 439,687 1,111,645 1.32
Geoffrey W. Squire................. 380,000 143,629 523,629 *
Fred van den Bosch................. 83,174 322,012 405,186 *
Peter J. Levine.................... 67,329 96,674 164,003 *
Paul A. Sallaberry................. 29,026 109,382 138,358 *
Joseph D. Rizzi.................... 55,083 64,968 120,051 *
Terence R. Cunningham.............. -- 60,028 60,028 *
Steven Brooks...................... 4,500 43,877 48,377 *
All proposed executive officers and
directors as a group (19
persons)......................... 42,640,068 1,321,482 43,961,550 52.21%
</TABLE>
- -------------------------
* Less than one percent.
245
<PAGE> 257
SECURITY OWNERSHIP OF VERITAS
The following table sets forth information as of March 31, 1999, or as
otherwise specified, with respect to the beneficial ownership of VERITAS common
stock by:
- each stockholder known by VERITAS to be the beneficial owner of more
than 5% of the outstanding shares of VERITAS common stock;
- each director of VERITAS;
- the Chief Executive Officer and each of the four most highly compensated
executive officers of VERITAS named for 1998; and
- all executive officers and directors of VERITAS as a group.
The table reflects beneficial ownership as of March 31, 1999. 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 subject to community property laws where applicable
unless we indicate otherwise below. 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.
On March 31, 1999, there were 48,092,431 shares of VERITAS common stock
outstanding.
Unless otherwise noted, each holder has an address of c/o VERITAS Software
Corporation, 1600 Plymouth Street, Mountain View, CA 94043.
Pilgrim Baxter and Associates, an institutional investment manager that
holds shares on behalf of various client accounts, shares voting power and holds
dispositive power with respect to its shares.
Mr. Pieper is a director of VERITAS.
Mr. Lonchar is the Chief Financial Officer and Senior Vice President of
Finance of VERITAS.
See "Security Ownership of New VERITAS" on page 243 for information about
the other beneficial owners.
246
<PAGE> 258
VERITAS SEAGATE
SOFTWARE
TELEBACKUP
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
--------------------------------- PERCENT OF
BENEFICIAL OWNER SHARES OPTIONS TOTAL CLASS
---------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
William H. Janeway................... 6,675,650 -- 6,675,650 13.88%
E.M. Warburg, Pincus & Co., LLC...... 6,674,150 -- 6,674,150 13.88
Warburg, Pincus & Company............ 6,664,531 -- 6,664,531 13.86
Warburg, Pincus Investors, L.P....... 6,660,650 -- 6,660,650 13.85
Janus Capital Corporation............ 5,347,915 -- 5,347,915 11.12
100 Fillmore Street, Suite 300
Denver, CO 80206
Pilgrim Baxter and Associates........ 2,703,288 -- 2,703,288 5.62
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Mark Leslie.......................... 671,958 439,687 1,111,645 2.29
Geoffrey W. Squire................... 380,000 143,629 523,629 1.09
Fred van den Bosch................... 83,174 322,012 405,186 *
Peter J. Levine...................... 67,329 96,674 164,003 *
Paul A. Sallaberry................... 29,026 109,382 138,358 *
Joseph D. Rizzi...................... 55,083 64,968 120,051 *
Kenneth Lonchar...................... 51,522 16,583 68,105 *
Roel Pieper.......................... -- 64,121 64,121 *
Steven Brooks........................ 4,500 43,877 48,377 *
All current VERITAS executive
officers and directors as a group
(12 persons)....................... 8,034,025 1,346,510 9,380,535 18.97%
</TABLE>
247
<PAGE> 259
SECURITY OWNERSHIP 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, the 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.
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 55,704,764 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.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
COMMON COMMON
EQUIVALENT EQUIVALENT
STOCKHOLDER SHARES SHARES
----------- ---------- ----------
<S> <C> <C>
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 directors and executive officers as a group (7
persons).............................................. 55,452,433 99.5
</TABLE>
- -------------------------
* Less than one percent.
248
<PAGE> 260
VERITAS SEAGATE
SOFTWARE
TELEBACKUP
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.
With respect to the beneficial ownership of the following persons, the
security ownership table above includes exercisable options in the following
amounts:
<TABLE>
<CAPTION>
NAME OPTIONS
---- -------
<S> <C>
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
</TABLE>
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.
249
<PAGE> 261
MARKET PRICES OF THE COMPANIES' STOCK
The following table sets forth the high and low sales prices for the
periods indicated of TeleBackup common shares, traded under the symbol TBP on
the Alberta Stock Exchange, VERITAS common stock, traded under the symbol VRTS
on the Nasdaq National Market, and Seagate Technology common stock, traded under
the symbol SEG on the New York Stock Exchange.
<TABLE>
<CAPTION>
TELEBACKUP VERITAS SEAGATE TECHNOLOGY
------------- ------------------- -------------------
HIGH LOW HIGH LOW HIGH LOW
----- ----- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1996 CALENDAR YEAR
First Quarter........ C$-- C$-- US$12.07 US$ 7.93 US$33.88 US$22.38
Second Quarter....... -- -- 14.74 9.11 32.50 21.13
Third Quarter........ 1.50 1.15 21.11 7.44 29.31 18.06
Fourth Quarter....... 1.25 0.75 25.00 18.22 42.75 25.88
1997 CALENDAR YEAR
First Quarter........ 2.50 1.00 25.33 11.89 56.25 37.38
Second Quarter....... 2.15 1.40 24.06 10.11 54.25 32.50
Third Quarter........ 1.80 1.30 33.67 21.94 45.75 34.44
Fourth Quarter....... 2.60 1.65 35.92 23.00 40.63 18.44
1998 CALENDAR YEAR
First Quarter........ 2.50 1.85 40.17 26.08 26.00 17.75
Second Quarter....... 5.00 2.25 43.67 33.50 29.63 19.44
Third Quarter........ 9.70 3.60 60.25 41.38 27.38 16.13
Fourth Quarter....... 10.15 5.00 65.00 23.75 34.50 19.81
1999 CALENDAR YEAR
First Quarter........ 14.30 10.00 89.50 58.00 44.25 25.63
Second Quarter
(through April 15,
1999).............. 14.95 13.25 90.12 76.00 31.75 26.12
</TABLE>
On August 31, 1998, the last trading day before the announcement of the
proposed TeleBackup combination, the last reported sales price of:
- TeleBackup common shares on the Alberta Stock Exchange was C$5.30; and
- VERITAS common stock on the Nasdaq National Market on August 31, 1998 was
US$44.88.
On October 5, 1998, the last trading day before the announcement of the
proposed NSMG combination, the last reported sales prices per share of:
- VERITAS common stock on the Nasdaq National Market was US$45.38 per
share; and
- Seagate Technology common stock on the New York Stock Exchange was
US$23.00.
On April 15, 1999, the latest practical trading day before the printing of
this document, the last reported sales price per share of:
- TeleBackup common shares on the Alberta Stock Exchange was C$14.80;
- VERITAS common stock on the Nasdaq National Market was US$83.38; and
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- Seagate Technology common stock on the New York Stock Exchange was
US$28.69.
The market price of the VERITAS common stock and the TeleBackup common
shares is highly volatile and the market price of the New VERITAS common stock
after the combinations is expected to continue to be highly volatile. The
trading price of New VERITAS' common stock could be subject to wide fluctuations
in response to quarterly variations in operating and financial results,
announcements of technological innovations, new products, acquisitions or
dispositions, new customer relationships or new strategic relationships by New
VERITAS or its competitors, changes in prices of New VERITAS' or its
competitors' products and services, changes in product mix, or changes in
revenue and revenue growth rates for New VERITAS. Statements or changes in
opinions, ratings, or earnings estimates made by brokerage firms or industry
analysts relating to the markets in which New VERITAS does business, or relating
to New VERITAS specifically could result in an immediate and adverse effect on
the market price of New VERITAS' common stock.
In addition, the stock market has from time to time experienced extreme
prices and volume fluctuations, which have particularly affected the market
price for the securities of many high-technology companies and that often have
been unrelated or disproportionate to the operating performance of these
companies. These fluctuations, as well as general economic, market and political
conditions such as recessions or military conflicts, may adversely affect the
market price of New VERITAS' common stock.
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DESCRIPTION OF NEW VERITAS CAPITAL STOCK
The following summary includes all of the material provisions of New
VERITAS' capital stock. However, you should read the New VERITAS certificate of
incorporation attached as Appendix D and the New VERITAS bylaws attached as
Appendix E.
The authorized capital stock of New VERITAS will consist of 500,000,000
shares of common stock, 10,000,000 shares of preferred stock and one share of
special voting stock.
Based on the shares of VERITAS common stock outstanding on March 31, 1999,
immediately following the NSMG combination and the TeleBackup combination, there
will be outstanding approximately 98,078,705 shares of New VERITAS common stock.
See page 10 for an explanation of how this number is computed.
COMMON STOCK
Dividends
The holders of outstanding shares of New VERITAS common stock are entitled
to receive dividends out of assets legally available at the times and amounts
that the board of directors determines, subject to preferences that apply to any
outstanding preferred stock at the time.
Voting
Each stockholder is entitled to one vote for each share of New VERITAS
common stock held on all matters submitted to a vote of stockholders. New
VERITAS stockholders will not have cumulative voting rights. This means that the
holders of a majority of the shares voted can elect all of the directors in an
election.
No preemptive, conversion or redemption rights
The New VERITAS common stock is not entitled to preemptive rights and is
not subject to conversion or redemption.
Liquidation or dissolution
Upon liquidation, dissolution or winding up of New VERITAS, the assets
legally available for distribution to stockholders are distributable ratably
among the holders of the New VERITAS common stock and any participating New
VERITAS preferred stock after:
- payment of liquidation preferences, if any, on any outstanding New
VERITAS preferred stock; and
- payment of other claims of creditors.
Nonassessable shares
Each share of common stock to be issued in the NSMG combination and upon
exchange of the Exchangeco exchangeable shares will be fully paid and
nonassessable.
SPECIAL VOTING STOCK
A single share of New VERITAS special voting stock will be authorized for
issuance and a single share will be outstanding.
Dividends
The holder of the voting share will not be entitled to receive dividends.
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Voting
The voting share will possess a number of votes equal to the number of
outstanding Exchangeco exchangeable shares not owned by New VERITAS or any
entity controlled by New VERITAS for the election of directors and on all other
matters submitted to a vote of stockholders of New VERITAS, except as otherwise
required by law or the New VERITAS amended and restated certificate of
incorporation. The holders of New VERITAS common stock and the holder of the
voting share will vote together as a single class on all matters, except as
required by law.
No preemptive or conversion rights
The voting share is not entitled to preemptive rights and is not
convertible into other securities.
Liquidation or dissolution
Upon liquidation, dissolution or winding-up of New VERITAS, the holder of
the voting share will not be entitled to receive any assets of New VERITAS
available for distribution to its stockholders.
Cancellation
The voting share will be canceled when the voting share has no votes
attached to it because there are no Exchangeco exchangeable shares outstanding
not owned by New VERITAS or an entity controlled by New VERITAS, and there are
no shares of stock, debt, options or other agreements of TeleBackup that could
give rise to the issuance of any exchangeable shares to any person.
No redemption
Other than the cancellation described above, the voting share is not
subject to any right of redemption.
ANTI-TAKEOVER PROVISIONS
Charter and bylaw provisions
Staggered board. New VERITAS' board of directors will be divided into three
classes as nearly equal in size as possible with staggered three-year terms. The
classification of the board of directors of New VERITAS could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring control of New VERITAS. Actions must be taken at
meetings. Any action required or permitted to be taken by the stockholders of
New VERITAS at an annual meeting or a special meeting of the stockholders may be
taken only if it is properly brought before the meeting and may not be taken by
written action in lieu of a meeting.
Limits on ability to call special meetings. The bylaws also provide that
special meetings of the stockholders may be called only by the chairman of the
board, the chief executive officer or by a majority of the members of the board
of directors.
Indemnification. New VERITAS' amended and restated certificate of
incorporation and its bylaws will provide that New VERITAS will indemnify
officers and directors against losses that they may incur in investigations and
legal proceedings resulting from their services to New VERITAS. These may
include services in connection with takeover defense measures. These provisions
may have the effect of preventing changes in the management of New VERITAS.
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Delaware anti-takeover law
New VERITAS is subject to the provisions of Delaware's anti-takeover law
regulating corporate takeovers. The anti-takeover law prevents certain Delaware
corporations, including those whose securities are listed on the Nasdaq National
Market, from engaging, under certain circumstances, in a "business combination,"
which includes a merger or sale of more than 10% of the corporation's assets
with any "interested stockholder" for three years following the date that such
stockholder became an "interested stockholder." An interested stockholder is a
stockholder who owns 15% or more of the corporation's outstanding voting stock.
A Delaware corporation may "opt out" of the anti-takeover law with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares. New
VERITAS has not "opted out" of the provisions of the anti-takeover law.
Stockholder rights plan
The New VERITAS board of directors intends to declare a dividend of one
preferred share purchase right for each outstanding share of New VERITAS common
stock. The dividend will be payable to stockholders of record on a date to be
specified by the New VERITAS board. In addition, one right shall be issued with
each share of common stock that becomes outstanding between the record date and
the earliest of the distribution date described below, the date the rights are
redeemed and the date the rights expire, or following the distribution date and
prior to the date the rights are redeemed and the date the rights expire. Each
right entitles the registered holder to purchase from New VERITAS one
one-hundredth of a share of Series A junior participating preferred stock, of
New VERITAS, at a price of $300.00 per one one-hundredth of a preferred share.
The description and terms of the rights will be set forth in a rights agreement
between New VERITAS and ChaseMellon Shareholder Services, L.L.C., as rights
agent.
Exercisability and duration of rights
The rights will not be exercisable until the distribution date described
below. The rights will expire ten years from their date of issuance, unless the
expiration date is extended or unless the rights are earlier redeemed or
exchanged by New VERITAS, in each case, as described below.
Triggering of rights and distribution of rights
The rights will be evidenced, with respect to any of the common stock share
certificates outstanding as of the record date, by the common stock share
certificates with a copy of the summary of rights which constitutes an exhibit
to the rights agreement attached to those share certificate. No person or group
shall become an acquiring person if the board determines in good faith that a
person or group who would otherwise be an acquiring person has become one
inadvertently, and that person or group as promptly as practicable takes the
actions as may be necessary so that such person or group would no longer be
considered an acquiring person. The rights will be distributed on the earlier to
occur of:
- 10 days following a public announcement or disclosure that a person or
group of affiliated or associated persons, or an acquiring person, has acquired
beneficial ownership of 15% or more of the outstanding shares of New VERITAS
common stock; or
- 10 business days or later date as may be determined by the board prior to
the time a person or group becomes an acquiring person, following the
announcement of an
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intention to make a tender offer or exchange offer the consummation of which
would result in a person or group becoming an acquiring person. The earlier of
those dates is called the distribution date.
Seagate Technology is not initially an acquiring person
Seagate Technology, Seagate Software and their affiliates will not be an
acquiring person as a result of Seagate Software's acquisition of New VERITAS
common stock under the NSMG combination agreement, unless Seagate Technology,
Seagate Software and/or their affiliates become the beneficial owner of more
than the amount of common stock Seagate Software originally acquired under the
NSMG combination agreement.
Rights will trade only with the shares of common stock until they are
distributed
The rights agreement will provide that, until the distribution date, the
rights will be transferred with and only with the shares of New VERITAS common
stock. Until the distribution date or earlier redemption or expiration of the
rights, new common stock share certificates will contain a notation
incorporating the rights agreement by reference. Until the distribution date or
earlier redemption or expiration of the rights, the surrender for transfer of
any certificates for common stock, even without a notation or a copy of the
summary of rights from the rights agreement being attached will also constitute
the transfer of the rights associated with the common stock represented by the
certificate.
Rights certificates
As soon as practicable following the distribution date, separate
certificates evidencing the rights will be mailed to holders of record of the
shares. At the close of business on the distribution date, separate certificates
alone will evidence the rights. New VERITAS shall issue the appropriate number
of rights in connection with the issuance or sale if shares of common stock are
issued or sold (1) after the distribution date but prior to the redemption or
expiration of the rights in connection with the exercise of stock options or (2)
upon the exercise, conversion or exchange of other securities of New VERITAS
outstanding prior to the distribution date.
Adjustments for stock splits or other transactions
The purchase price payable and the number of preferred shares or other
securities or property issuable upon exercise of the rights will be adjusted
from time to time to prevent dilution:
- in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the preferred shares;
- upon the grant to holders of the preferred shares of certain rights or
warrants to subscribe for or purchase preferred shares at a price, or securities
convertible into preferred shares with a conversion price, less than the then
current market price of the preferred shares;
- upon the distribution to holders of the preferred shares of evidences of
indebtedness or assets excluding regular periodic cash dividends, if any, or
dividends payable in preferred shares or of subscription rights or warrants
other than those referred to above;
- in the event of a stock dividend on the New VERITAS common stock payable
in shares of common stock prior to the distribution date; or
- subdivisions, consolidations or combinations of the shares of common
stock occurring, prior to the distribution date.
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Terms of preferred shares
The preferred shares will have the terms described under "-- Preferred
stock" on the next page.
Because of the nature of the preferred shares' dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a preferred share
purchasable upon exercise of each right should approximate the value of one
share of common stock.
Rights could purchase shares of common stock at a discount
If any person or group becomes an acquiring person, each holder of a right,
other than rights beneficially owned by the acquiring person, will have the
right to receive upon exercise that number of shares of common stock having a
market value of two times the exercise price of the right as set forth in the
rights agreement unless the event causing the person or group to become an
acquiring person is a merger, acquisition or other business combination
described in the next paragraph. If New VERITAS does not have a sufficient
amount of authorized common stock to satisfy the obligation to issue shares of
common stock, New VERITAS must deliver upon payment of the exercise price of a
right an amount of cash or other securities equivalent in value to the shares of
common stock issuable upon exercise of a right.
In the event that any person or group becomes an acquiring person and (1)
New VERITAS merges into or engages in certain other business combination
transactions with an acquiring person, or (2) 50% or more of its consolidated
assets or earning power are sold to an acquiring person, each holder of a right,
will have the right to receive that number of shares of common stock of the
acquiring company which will have a market value of two times the exercise price
of the right. An acquiring person will not be able to exercise any rights it may
own.
At any time after any person becomes an acquiring person and prior to that
person or group acquiring 50% or more of the outstanding shares of common stock,
the board may exchange the rights, other than rights owned by the acquiring
person, at an exchange ratio of one share of common stock, or one one-hundredth
of a preferred share per right.
Adjustments to the purchase price
With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments require an adjustment of at least 1% in
the purchase price. No fractional preferred shares will be issued. However,
fractions which are integral multiples of one one-hundredth of a preferred share
may, at the election of New VERITAS, be evidenced by depositary receipts. In
lieu of fractional shares, an adjustment in cash will be made based on the
market price of the preferred shares on the last trading day prior to the date
of exercise.
The board may redeem the rights
At any time prior to such time as a person or group becomes an acquiring
person, the board of directors may redeem the rights in whole, but not in part.
The redemption price will be $0.001 per right. The redemption of the rights may
be made effective at the time, on the basis and with any conditions as the board
of directors in its sole discretion may establish. After the period for
redemption of the rights has expired, the board may not amend the rights
agreement to extend the period for redemption of the rights. The right to
exercise the rights terminates immediately when they are redeemed and the only
right of the holders of rights after that time will be to receive the redemption
price.
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The board may amend the rights
The terms of the rights may be amended by a resolution of the board of
directors without the consent of the holders of the rights. However, from and
after such time as any person or group becomes an acquiring person, no amendment
may adversely affect the interests of the holders of the rights other than an
acquiring person.
Holders of unexercised rights do not have privileges of a stockholder
Until a right is exercised, the holder will have no rights as a stockholder
of New VERITAS, including, without limitation, the right to vote or to receive
dividends.
Reasons for stockholder rights plan
VERITAS currently has its own stockholder rights plan and therefore wishes
to maintain the plan's protections for New VERITAS. The rights are designed to
protect and maximize the value of the outstanding equity interests in New
VERITAS in the event of an unsolicited attempt by an acquirer to take over New
VERITAS, in a manner or on terms not approved by the board of directors.
Takeover attempts frequently include coercive tactics to deprive a company's
board of directors and its stockholders of any real opportunity to determine the
destiny of the company. The rights will be declared in order to deter these
types of coercive tactics, which, include a gradual accumulation of shares in
the open market of a 15% or greater position to be followed by a merger or a
partial or two-tier tender offer that does not treat all stockholders equally.
These tactics unfairly pressure stockholders, squeeze them out of their
investment without giving them any real choice and deprive them of the full
value of their shares. The rights are not intended to prevent a takeover of New
VERITAS and will not do so. Rather, they are intended to provide the protections
of the VERITAS stockholders rights plan. Because the rights may be redeemed by
New VERITAS, they should not interfere with any merger or business combination
approved by the board of directors.
Issuance of the rights does not in any way weaken the financial strength of
New VERITAS or interfere with its business plans. The issuance of the rights
themselves has no dilutive effect, will not affect reported earnings per share,
should not be taxable to New VERITAS or to its stockholders and will not change
the way in which New VERITAS' shares are presently traded. New VERITAS' board of
directors believes that the rights will represent a sound and reasonable means
of addressing the complex issues of corporate policy created by the current
takeover environment. However, the rights may have the effect of rendering more
difficult or discouraging an acquisition of New VERITAS deemed undesirable by
the board of directors. The rights may cause substantial dilution to a person or
group that attempts to acquire New VERITAS on terms or in a manner not approved
by New VERITAS' board of directors.
PREFERRED STOCK
The board is authorized, subject to any limitations prescribed by Delaware
law, to issue up to 10,000,000 additional shares of preferred stock. This
preferred stock may be issued in one or more series and the board may determine
the number of shares to be included in each series. The board may fix the
powers, preferences and rights of the shares of each series and any
qualifications, limitations or restrictions on any series of preferred stock.
The board was also increase or decrease the number of shares of any series but
not below the number of shares of such series then outstanding. All of these
actions may be taken without vote or action by the stockholders. Of these
shares, 2,000,000 shares will be designated as the preferred shares, described
above, with the rights described below, and will be reserved for issuance under
the rights agreement discussed above.
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Terms of preferred shares subject to the stockholder rights plan
Dividends. Each preferred share will be entitled to a quarterly dividend
payment of 100 times the dividend declared per share of common stock.
Voting. Each preferred share will have 100 votes, voting together with the
shares of common stock. In the event of any merger, consolidation or other
transaction in which shares of common stock are exchanged, each preferred share
will be entitled to receive 100 times the amount received per share of common
stock.
Liquidation or dissolution. In the event of liquidation, each preferred
share will be entitled to a $1.00 preference, and after the holders of the
preferred shares will be entitled to an aggregate payment of 100 times the
aggregate payment made per share of common stock.
Redemption. The preferred shares purchasable upon exercise of the rights,
described above, will not be redeemable.
Anti-takeover effect of undesignated preferred stock
With respect to the remaining authorized but undesignated shares of
preferred stock, the board of directors may authorize and issue preferred stock
with voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock. This is because the terms of the
preferred stock could conceivably prohibit consummation of any merger,
reorganization, sale of substantially all of New VERITAS' assets or other
extraordinary corporate transaction without approval of the outstanding shares
of preferred stock. Thus, the issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of New VERITAS.
THE BOARD OF DIRECTORS
Number of directors. The number of directors on the board of directors
shall be fixed exclusively by the board of directors, subject to the rights of
the holders of preferred stock. New VERITAS will initially have ten directors.
Adding directors. Newly created directorships or any vacancies in the board
of directors may be filled only by a majority vote of the directors then in
office or by a sole remaining director, subject to the rights of the holders of
any outstanding preferred stock.
Removal of directors. Any director may be removed from office at any time,
but only for cause and only by the affirmative vote of the holders of at least
two-thirds of the voting power of all outstanding shares entitled to vote
generally in the election of directors.
AMENDMENT OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND THE
BYLAWS OF NEW VERITAS
The amended and restated certificate of incorporation of New VERITAS
provides that either the board of directors or the stockholders may adopt, amend
or repeal the bylaws. Any adoption, amendment or repeal of the bylaws by the
board of directors requires the approval of a majority of the total number of
authorized directors regardless of vacancies, or by the whole board. Any
adoption, amendment or repeal of the bylaws by the stockholders requires the
affirmative vote of at least two-thirds of the affirmative voting power of all
outstanding shares entitled to vote generally, voting as a single class.
Provisions of the amended and restated certificate of incorporation may be
amended or repealed by the stockholders in the manner prescribed by Delaware
law. However, the amendment, adoption, or repeal of any provision inconsistent
with the provisions relating to
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the following require the approval of at least two-thirds of the affirmative
voting power of all outstanding shares entitled to vote generally, voting as a
single class:
- the composition of the board of directors;
- the amendment of bylaws;
- the prohibition of actions of the stockholders written consent; or
- the amendment of the amended and restated certificate of incorporation.
REGISTRATION RIGHTS
Warburg Pincus' registration rights
New VERITAS will assume the obligations of VERITAS under its existing
registration rights agreement with Warburg Pincus. Warburg Pincus has the right,
on up to two occasions, to require VERITAS to register for public resale VERITAS
securities held by it. The securities to be sold must have an aggregate offering
price of at least $5.0 million. VERITAS has the right to delay any registration
for up to 60 days under various circumstances.
In addition, Warburg Pincus has certain "piggyback" registration rights. If
VERITAS proposes to register any of its securities under the Securities Act.
Warburg Pincus may require New VERITAS to include all or a portion of its shares
in the registration. This right does not apply to registrations in connection
with the issuance of debt securities, its employee benefit plans or a merger or
reorganization transaction. This piggyback right is subject to the right of the
managing underwriter, if any, to limit the number of shares to be included by
Warburg Pincus in the registration.
Expiration
These registration rights will expire at the time that all shares of New
VERITAS received by Warburg Pincus in the NSMG combination may be resold in a
three month period under Rule 144 of the Securities Act.
Expenses
All expenses incurred in connection with the above registration, other than
the underwriters' and brokers' discounts and commissions and the fees of counsel
for Warburg Pincus, will be borne by New VERITAS.
Seagate Software registration rights
New VERITAS and Seagate Software will enter into the registration rights
agreement with respect to the shares of New VERITAS common stock to be received
by it in the NSMG combination. See "Agreements Related to the NSMG
Combination -- Registration rights agreement" on page 94.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the New VERITAS common stock is
ChaseMellon Shareholder Services LLC.
LISTING
The New VERITAS common stock will be quoted on Nasdaq under the trading
symbol "VRTS," the symbol currently used for the VERITAS common stock.
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DESCRIPTION OF VERITAS CAPITAL STOCK
In the event that the NSMG combination is not consummated, VERITAS will
implement the TeleBackup combination in lieu of New VERITAS. Accordingly,
TeleBackup shareholders will effectively receive either shares of VERITAS common
stock or Exchangeco exchangeable shares which will be exchangeable for shares of
VERITAS common stock. The capital stock of VERITAS will be identical to that of
New VERITAS described above except as follows:
- The certificate of incorporation and bylaws of VERITAS will differ as
described under "Comparison of Rights of Holders of New VERITAS Common
Stock, Seagate Software Common Stock and VERITAS Common
Stock -- Comparison of rights of stockholders of VERITAS and New VERITAS"
on page 274;
- VERITAS has an existing stockholder rights plan, which is substantially
similar to the time plan described under "-- Anti-takeover provisions" on
page 253; and
- VERITAS will have outstanding approximately 49,596,113 shares of common
stock, based on the number of shares of VERITAS common stock and
TeleBackup common shares on March 31, 1999, and assuming a TeleBackup
exchange ratio of 0.13233, which was the TeleBackup exchange ratio as of
March 31, 1999.
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DESCRIPTION OF EXCHANGECO SHARE CAPITAL
The following description of the Exchangeco share capital assumes that the
NSMG combination and the TeleBackup combination are completed. In the event that
the NSMG combination is not completed, any references to New VERITAS shall be
references to VERITAS.
The following summary includes all of the material provisions of the
Exchangeco share capital. However, you should read the plan of arrangement
attached as Appendix M.
EXCHANGECO SHARE CAPITAL
If the TeleBackup combination is completed, TeleBackup will amalgamate with
Amalco to form New TeleBackup which will be a subsidiary of Exchangeco.
Exchangeco will be an indirect subsidiary of New VERITAS. In addition, New
VERITAS will hold preferred shares of New TeleBackup.
The authorized share capital of Exchangeco will consist of an unlimited
number of common voting shares, an unlimited number of class A non-voting shares
and an unlimited number of exchangeable shares.
COMMON SHARES
After the TeleBackup combination is completed, 1000 Exchangeco common
shares will be outstanding. These shares will be held by a wholly owned
subsidiary of VERITAS.
Dividends
The holders of Exchangeco common shares are entitled to receive such
dividends as may be declared by the Exchangeco board of directors out of funds
legally available therefor and there are no dividends in arrears or default.
Voting
The holders of Exchangeco common shares are entitled to receive notice of
and to attend all meetings of the shareholders of Exchangeco. The holders of
common shares are entitled to one vote for each share held of record on all
matters submitted to a vote of holders of Exchangeco common shares by ballot.
Liquidation or dissolution
Upon any liquidation, dissolution or winding-up of Exchangeco, holders of
common shares are entitled to receive the remaining property and assets of
Exchangeco ratably with the other holders of common shares subject to the prior
rights of the holders of the Exchangeco exchangeable shares and to any other
shares ranking senior to the Exchangeco common shares.
No preemptive, conversion or redemption rights
The Exchangeco common shares are not entitled to any preemptive rights and
are not subject to conversion or redemption.
EXCHANGECO CLASS A NON-VOTING SHARES
After the TeleBackup combination is completed only those Exchangeco class A
non-voting shares acquired by a wholly owned subsidiary of VERITAS under the
plan of arrangement will remain outstanding. The Exchangeco class A non-voting
shares issued to Canadian residents who elected under the plan of arrangement to
receive Exchangeco exchangeable shares will have been cancelled by Exchangeco.
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The rights, privileges, restrictions and conditions of the class A
non-voting shares are identical to those of the Exchangeco common shares except
that, subject to the Business Corporations Act (Alberta), holders of class A
non-voting shares are not entitled to receive notice of, to attend or to vote at
meetings of shareholders of Exchangeco.
EXCHANGEABLE SHARES
Dividends
Each Exchangeco exchangeable share will be entitled to receive a dividend
equivalent to any dividend paid by New VERITAS on a share of New VERITAS common
stock. The declaration date, record date and payment date for dividends on the
exchangeable shares will be the same as that for the corresponding dividends on
the New VERITAS common stock.
The exchangeable shares will be entitled to a preference over the common
shares, the class A non-voting shares and any other shares of Exchangeco ranking
junior to the exchangeable shares with respect to the payment of dividends.
Voting
Except as required by applicable law, the holders of the exchangeable
shares shall not be entitled to receive notice of or attend any meeting of the
Exchangeco shareholders or to vote at any the meeting.
Liquidation or dissolution of Exchangeco
In the event of the liquidation, dissolution or winding-up of Exchangeco,
holders will be entitled to receive for each exchangeable share one share of New
VERITAS common stock, subject to adjustment in the event of New VERITAS stock
splits, consolidations or similar capital changes. The holder will also receive
an amount equivalent to all unpaid dividends on the exchangeable share. See
"-- Voting, support and exchange trust agreement -- Mandatory exchange rights in
the event of an Exchangeco insolvency" on page 266.
The exchangeable shares will be entitled to a preference over the common
shares, the class A non-voting shares and any other shares of TeleBackup ranking
junior to the exchangeable shares with respect to the distribution of
TeleBackup's assets in the event of liquidation, dissolution or winding up of
TeleBackup.
Liquidation or dissolution of New VERITAS
In the event of the liquidation, dissolution or winding-up of New VERITAS,
each outstanding exchangeable share not held by New VERITAS shall be
automatically exchanged for one share of New VERITAS common stock, subject to
adjustment in the event of New VERITAS stock splits, consolidation or similar
capital changes. Holders of exchangeable shares would also receive cash in an
amount equal to all unpaid dividends on the exchangeable shares.
Restrictions on Exchangeco
Without the approval of the holders of the exchangeable shares, Exchangeco
will not:
(1) pay any dividends on the common shares, class A non-voting shares or
any other shares ranking junior to the exchangeable shares, other than stock
dividends payable in common shares or any other shares ranking junior to the
exchangeable shares;
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(2) redeem or purchase or make any capital distribution in respect of
common shares, class A non-voting shares or any other shares ranking junior to
the exchangeable shares;
(3) redeem or purchase any other shares ranking junior to the exchangeable
shares with respect to the payment of dividends or on any liquidation
distribution; or
(4) issue any shares other than:
- exchangeable shares;
- common shares;
- class A non-voting shares; or
- any other shares that do not rank superior to or equal with the
exchangeable shares.
The restrictions in (1) through (3) above will not apply if all dividends
and distributions on the outstanding Exchangeco exchangeable shares
corresponding to dividends and distributions declared to date on the New VERITAS
common stock have been declared and paid in full.
Exchange of exchangeable shares for New VERITAS common stock will be
accomplished by a retraction procedure
At any time a holder of exchangeable shares can exchange these shares for
shares of New VERITAS common stock. This exchange is accomplished by the holder
requesting that Exchangeco redeem any or all of the exchangeable shares held by
it. The retraction price per exchangeable share will be satisfied by issuing one
share of New VERITAS common stock. This number will be adjusted to reflect New
VERITAS stock splits, consolidations or other similar capital changes. The
holder will also receive an amount equal to all unpaid dividends on the
exchangeable share. The stock together with the amount shall be delivered to the
holder on the fifth business day after the receipt of the request.
Redemption of exchangeable shares
Mandatory redemption. On the seventh anniversary of the effective date of
the arrangement, Exchangeco will redeem all of the outstanding exchangeable
shares.
Optional redemption. The Exchangeco board can also, at its option, select a
later date and Exchangeco will redeem all of the outstanding exchangeable
shares. In addition, if there are fewer than 50,000 exchangeable shares
outstanding before the seventh anniversary, the Exchangeco board can select an
earlier date to redeem all the outstanding exchangeable shares.
Redemption price. The exchangeable shares will be redeemed for an equal
number of shares of New VERITAS common stock. This number will be adjusted to
reflect New VERITAS stock splits, consolidations or similar capital changes. The
holder will also receive an amount equal to all declared and unpaid dividends.
Notice required for optional redemption. Exchangeco shall, at least 120
days prior to the date for the optional redemption, provide the registered
holders of the exchangeable shares with written notice of the proposed
redemption of the exchangeable shares by Exchangeco.
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Amendment of exchangeable shares and consents or other approvals
The rights, privileges, restrictions and conditions of the exchangeable
shares may be changed only with the approval of the holders. Any approval or
consent to be given by the holders of the exchangeable shares must be given in
accordance with applicable law and subject to the following minimum
requirements:
- the approval or consent must be evidenced by a resolution passed by not
less than two-thirds of the votes cast at a meeting of the holders of
exchangeable shares;
- the meeting must have been appropriately called;
- holders of at least 50% of the then outstanding exchangeable shares are
present or represented by proxy; and
- the approval must also be given by the affirmative vote of holders of
more than two-thirds of the exchangeable shares represented in person or
by proxy at the meeting, excluding exchangeable shares owned by New
VERITAS or any of New VERITAS' subsidiaries.
Effect of adjourned meeting on approval process
In the event that no quorum is present at a meeting within one-half hour
after the time appointed for the meeting, then it will be adjourned to a place
and time, not less than seven days later, as may be determined at the original
meeting. The holders of exchangeable shares present or represented by proxy at
the adjourned meeting will then constitute a quorum and may transact the
business for which the meeting was originally called. At the adjourned meeting,
a resolution passed by two-thirds of the votes cast will constitute the approval
or consent of the holders of the exchangeable shares.
Reciprocal changes in respect of New VERITAS common stock
Under the trust agreement, New VERITAS has agreed that it will not make
certain changes in respect of its capital stock without the prior approval of
Exchangeco and the holders of exchangeable shares unless the economic equivalent
of that change is issued or distributed simultaneously to holders of the
exchangeable shares or an economic equivalent change is made to the rights of
holders of the exchangeable shares.
VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT
The following summary includes all of the material provisions of the
voting, support and exchange trust agreement. However, you should read the trust
agreement attached as Appendix I.
This agreement imposes certain restrictions and obligations on New VERITAS
with respect to its capital stock.
Support provisions
Covenants of New VERITAS. Under this trust agreement, New VERITAS will
agree that, among other things:
- it will not declare or pay dividends on the New VERITAS common stock
unless Exchangeco is able to and simultaneously pays an equivalent
dividend on the exchangeable shares;
- it will advise Exchangeco in advance of the declaration of any dividend
on the New VERITAS common stock and ensure that the declaration date,
record date and payment date for dividends on the exchangeable shares
are the same as that for the New VERITAS common stock;
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- it will not vote for or otherwise take any action or omit to take any
action causing the liquidation, dissolution or winding-up of Exchangeco;
and
- it will take all actions necessary to ensure that Exchangeco is able to
pay to the holders of the exchangeable shares the equivalent number of
shares of New VERITAS common stock in the event of:
-- a liquidation, dissolution or winding-up of Exchangeco;
-- a retraction request by a holder of exchangeable shares; or
-- a redemption of exchangeable shares by Exchangeco.
New VERITAS may not take certain actions. The trust agreement also provides
that, without the prior approval of Exchangeco and the holders of the
exchangeable shares, New VERITAS will not:
- distribute additional shares of New VERITAS common stock or rights to
subscribe for stock;
- distribute other property or assets to all or substantially all holders
of shares of New VERITAS common stock;
- change the New VERITAS common stock; or
- effect any tender offer, share exchange offer, issuer bid, take-over bid
or similar transaction affecting the New VERITAS common stock,
unless the same or an economically equivalent distribution on or change to the
exchangeable shares is made simultaneously.
The Exchangeco board of directors determines in good faith and in its sole
discretion whether any corresponding distribution on or change to the
exchangeable shares is the same as or economically equivalent to any proposed
distribution on or change to the New VERITAS common stock.
New VERITAS must continue to own a majority of Exchangeco. New VERITAS has
agreed that it will remain the beneficial owner of more than 50% of all issued
and outstanding voting securities of Exchangeco other than the exchangeable
shares so long as there remain outstanding any exchangeable shares owned by any
person other than New VERITAS or any New VERITAS subsidiary.
Amendments to the agreement. The trust agreement may not be amended without
the approval of the holders of the exchangeable shares with the exception of:
- making necessary amendments;
- curing ambiguities or clerical errors; or
- administrative changes for the purpose of adding covenants for the
protection of the holders of the exchangeable shares.
However, in the case of making necessary amendments, curing ambiguities or
curing clerical errors, the boards of directors of each of New VERITAS and
Exchangeco must be of the opinion that the amendments are not prejudicial to the
interests of the holders of the exchangeable shares.
Voting of exchangeable shares held by New VERITAS. New VERITAS has agreed
not to exercise any voting rights for exchangeable shares owned by it or any
entity controlled by it on any matter considered at meetings of holders of
exchangeable shares.
Voting rights
New VERITAS will issue the voting share to the trustee for the benefit of
holders of the exchangeable shares other than New VERITAS and its subsidiaries.
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Voting by the trustee. Each holder of an exchangeable share on the record
date for any meeting at which New VERITAS stockholders are entitled to vote will
be entitled to instruct the trustee to exercise one of the votes attached to the
voting share for each exchangeable share the holder owns. The trustee will
exercise each vote attached to the voting share only as directed by the relevant
holder. In the absence of instructions from a holder of shares as to voting, the
trustee will not exercise a vote for those shares. A holder may, upon
instructing the trustee, obtain a proxy from the trustee entitling the holder to
vote directly at the relevant meeting the votes attached to the voting share to
which the holder is entitled.
Notices and other information for New VERITAS stockholders will be sent by
the trustee. The trustee will send to the holders of the exchangeable shares the
notice of each meeting at which the New VERITAS stockholders are entitled to
vote, together with the related meeting materials and a statement as to the
manner in which the holder may instruct the trustee to exercise the votes
attached to the voting share. The trustee will also send to the holders copies
of all information statements, interim and annual financial statements, reports
and other materials sent by New VERITAS to the New VERITAS stockholders. To the
extent such materials are provided to the trustee by New VERITAS, the trustee
will also send to the holders all materials sent by third parties to New VERITAS
stockholders, including dissident proxy circulars and tender and exchange offer
circulars. All materials will be sent to holders of exchangeable shares at the
same time or as soon as possible after the materials are first sent to New
VERITAS stockholders.
Expiration of rights. All rights of a holder of exchangeable shares to
exercise votes attached to the voting share will cease upon the exchange of the
holder's exchangeable shares for shares of New VERITAS common stock.
Mandatory exchange rights in the event of an Exchangeco insolvency
Exchange right. If Exchangeco becomes insolvent, a holder of exchangeable
shares will be entitled to instruct the trustee to exercise an optional exchange
right with respect to any or all of the exchangeable shares held by the holder.
New VERITAS would then be required to purchase that holder's exchangeable shares
in exchange for shares of New VERITAS common stock.
Notice of insolvency. Immediately upon the occurrence of the insolvency of
Exchangeco or any event which may cause Exchangeco to become insolvent,
Exchangeco and New VERITAS will give written notice to the trustee. As soon as
practicable after receiving notice, the trustee will then notify each holder of
exchangeable shares of the event or potential event and will advise the holder
of its rights with respect to the exchange right.
Exchange rate. The exchange rate for each exchangeable share exchanged will
be satisfied by issuance for each exchangeable share of one share of New VERITAS
common stock. This number will be adjusted to reflect New VERITAS stock splits,
consolidations or similar capital changes. Holders will also receive cash in an
amount equal to all dividends declared and unpaid on the exchangeable share.
Automatic exchange right on liquidation or similar events of New VERITAS
In the event of a liquidation or similar event with respect to New VERITAS,
New VERITAS will be required to exchange each outstanding exchangeable share for
one share of New VERITAS common stock. This amount will be adjusted to reflect
New VERITAS stock splits, consolidations or similar capital changes. Holders of
exchangeable shares will also receive cash in an amount equal to all declared
and unpaid dividends on the exchangeable share.
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Delivery of New VERITAS common stock
New VERITAS will ensure that all shares of New VERITAS common stock to be
delivered by it under the trust agreement or on the exercise of the exchange
rights under the agreement are duly registered, qualified or approved under
applicable Canadian and United States securities laws so that the shares may be
freely traded by the holders. However, holders who are "control persons" of New
VERITAS for purposes of Canadian law or "affiliates" of New VERITAS for purposes
of United States law would remain subject to any restrictions based on their
status as an affiliate or a control person.
In addition, New VERITAS will take all actions necessary to cause the
shares of New VERITAS common stock to be listed or quoted for trading on all
stock exchanges or quotation systems on which outstanding shares of New VERITAS
common stock are then listed or quoted for trading.
CALL RIGHTS
Following is a description of the material provisions of the call rights.
However, you should read the full texts of the voting, support and exchange
trust agreement attached as Appendix I and the plan of arrangement and the
Exchangeco exchangeable share rights attached as Appendix M.
In the circumstances described below, New VERITAS will have the right to
purchase exchangeable shares from holders for a purchase price per share equal
to one share of New VERITAS common stock. This number will be adjusted to
reflect New VERITAS stock splits, consolidations or similar capital changes.
Holders will also receive an amount equal to all declared and unpaid dividends
on the exchangeable shares.
Different Canadian federal income tax consequences to a holder of
exchangeable shares may arise depending upon whether the call rights are
exercised by New VERITAS or whether the relevant exchangeable shares are
redeemed by Exchangeco. See "The Telebackup Combination -- Income tax
considerations to TeleBackup shareholders" on page 116.
Retraction call right
New VERITAS' call right. A holder requesting Exchangeco to redeem the
exchangeable shares will be subject to an overriding retraction call right in
favor of New VERITAS to purchase all of the exchangeable shares that the holder
has requested Exchangeco to redeem.
Redemption price. In each case, the purchase price per share shall be equal
to one share of New VERITAS common stock. This number will be adjusted to
reflect New VERITAS stock splits, consolidations or similar capital change.
Holders will also receive an amount equal to all declared and unpaid dividends
on such exchangeable shares.
How New VERITAS may exercise its right. At the time of a request for
redemption by a holder of exchangeable shares, Exchangeco will immediately
notify New VERITAS. New VERITAS must then advise Exchangeco within two business
days as to whether New VERITAS will exercise its retraction call right.
Holders may revoke their retraction request. A holder may revoke his or her
retraction request at any time prior to the close of business on the business
day preceding the retraction date, in which case the holder's exchangeable
shares will neither be purchased by New VERITAS nor redeemed by Exchangeco.
What happens if the holder does not revoke its retraction request. If the
holder does not revoke his or her retraction request, on the retraction date,
each exchangeable share
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that the holder has requested Exchangeco to redeem will be purchased by New
VERITAS or redeemed by Exchangeco.
Liquidation call right
New VERITAS' call right. New VERITAS will have an overriding liquidation
call right, in the event of a proposed insolvency event of Exchangeco, to
purchase all of the exchangeable shares then outstanding. Upon the exercise by
New VERITAS of the liquidation call right, the holders thereof will be obligated
to sell their exchangeable shares to New VERITAS.
Redemption price. The purchase price shall be one share of New VERITAS
common stock for each exchangeable share. This number will be adjusted to
reflect New VERITAS stock splits, consolidations or similar capital change.
Holders will also receive cash in an amount equal to all dividends declared and
unpaid on each Exchangeco exchangeable share to be purchased.
Effective date of the purchase. The purchase by New VERITAS of all of the
outstanding exchangeable shares upon the exercise of the liquidation call right
will occur on the effective date of the voluntary or involuntary liquidation,
dissolution or winding-up of Exchangeco.
Redemption call right
New VERITAS' right to call. New VERITAS will have an overriding redemption
call right, notwithstanding the proposed redemption of the exchangeable shares
by Exchangeco, to purchase on an optional redemption date all of the
exchangeable shares outstanding. Upon the exercise by New VERITAS of the
redemption call right, the holders will be obligated to sell their exchangeable
shares to New VERITAS.
Redemption price. The purchase price shall be one share of New VERITAS
common stock for each exchangeable share. This number will be adjusted to
reflect of New VERITAS stock splits, consolidations or similar capital changes.
Holders will also receive an amount equal to all dividends declared and unpaid
on each Exchangeco exchangeable share to be purchased.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Exchangeco will be The Montreal Trust
Company of Canada.
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COMPARISON OF RIGHTS OF HOLDERS OF NEW VERITAS COMMON STOCK, SEAGATE SOFTWARE
COMMON STOCK AND VERITAS COMMON STOCK
After the NSMG combination and the exchange offer, Seagate Software and the
holders of options to purchase Seagate Software common stock will become
stockholders or option holders of New VERITAS. VERITAS stockholders will become
stockholders of New VERITAS. Because New VERITAS and Seagate Software are
Delaware corporations, stockholders of New VERITAS' will continue to have rights
governed by the Delaware General Corporation Law. The rights of New VERITAS
stockholders will be governed by the amended and restated certificate of
incorporation and bylaws of New VERITAS, which differ in material respects from
the certificate of incorporation and bylaws of Seagate Software.
The following discussion summarizes material differences between the
amended and restated certificate of incorporation and bylaws of New VERITAS, on
the one hand, and the certificate of incorporation and bylaws of Seagate
Software on the other. This discussion is only a summary and is not a complete
description of the differences. See the amended and restated certificate of
incorporation and bylaws of New VERITAS attached as Appendices D and E and the
certificate of incorporation and bylaws of Seagate Software and the relevant
provisions of Delaware law.
COMPARISON OF RIGHTS OF STOCKHOLDERS OF SEAGATE SOFTWARE AND NEW VERITAS
Annual meetings of stockholders
Both the Seagate Software bylaws and New VERITAS bylaws require that an
annual meeting of stockholders be held each year at a time designated by the
board of directors.
The Seagate Software bylaws require that in the absence of such a
designation, the annual meeting of stockholders be held each year on the last
Tuesday in October at 10:00 a.m.
Special meetings of stockholders
The Seagate Software bylaws provide that special meetings of the
stockholders may be called by the board of directors, the chairman of the board,
the president or by one or more stockholders holding not less than a majority of
the votes at that meeting.
The New VERITAS bylaws provide that special meetings of the stockholders
may be called only by a majority of the members of the board of directors, the
chairman of the board or the chief executive officer.
The Seagate Software bylaws require that special meetings called by any
person other than the board of directors, the chairman of the board or the
president be held not more than 60 nor less than 35 days after the written
request to call the special meeting was delivered to each member of the board of
directors.
The New VERITAS bylaws require that special meetings called by any person
other than by a majority of the members of the board of directors be held not
more than 120 nor less than 35 days after the written request to call the
special meeting was delivered to each member of the board of directors.
Action by written consent in lieu of a stockholder's meeting
Seagate Software stockholders have the ability to take action by written
consent of the holders of a majority of the outstanding shares of Seagate
Software common stock.
New VERITAS' stockholders may not act by written consent.
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Voting by written ballot
The Seagate Software bylaws do not contain any provision requiring written
ballots.
Voting at meetings of New VERITAS stockholders need not be by written
ballot unless such is demanded at the meeting before voting begins by
stockholders holding at least one percent of the votes entitled to vote at such
meeting, or by such stockholder's proxy.
Record date for determining stockholders
The Seagate Software board of directors may fix a record date which shall
not be more than 60 nor less than ten days before the date of the meeting, nor
more than 60 days before any other action. If the board does not fix a record
date, the record date for:
- determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day before the day
on which notice is given, or, if notice is waived, at the close of
business on the day before the day on which the meeting is held;
- determining stockholders entitled to express consent to corporate action
in writing and without a meeting, when no prior action by the board of
directors is necessary, shall be the day on which the first written
consent is expressed; and
- determining stockholders for any other purpose shall be at the close of
business on the day on which the board of directors adopts the resolution
relating thereto.
The New VERITAS board of directors may fix a record date which shall not be
more than 60 days nor less than ten days before the date of the meeting, nor
more than 60 days prior to any other action.
Inspectors of elections
The Seagate Software bylaws do not contain any provision requiring
inspectors of elections.
The New VERITAS bylaws provide that one or more inspectors of election may
be appointed. Inspectors shall:
- ascertain the number of shares outstanding and the voting power of each
share;
- determine the shares represented at a meeting and the validity of proxies
and ballots;
- count all votes and ballots;
- determine and retain for a reasonable period of time a record of the
disposition of any challenges made to any determination by the
inspectors; and
- certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots.
Notice of board nominations and other stockholder business -- annual
meetings
The Seagate Software bylaws do not provide specific restrictions on the
rights of stockholders to raise business at a stockholder meeting.
Nominations of persons for election to the New VERITAS board of directors
and the proposal of business to be considered at an annual meeting of
stockholders must be made (1) by the board of directors or (2) if by a
stockholder, by advance written notice given to New VERITAS between 60 and 90
days prior to the first anniversary of the preceding year's annual meeting of
stockholders. However, if the date of the annual meeting at which nomination or
business is proposed by a stockholder is more than 30 days before or more than
60 days after the anniversary, then the notice may be given by the stockholder
no
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SOFTWARE
earlier than the 90th day before the meeting and not later than the later of 60
days prior to the meeting or the tenth day following the first public
announcement of the meeting. These notice provisions are subject to exceptions
with respect to electing directors to fill board seats resulting from increases
in the size of the board not publicly announced at least 70 days prior to the
annual meeting. In addition, other information regarding the business proposed
for discussion must be included in the stockholder's notice to New VERITAS.
Notice of board nominations and other stockholder business -- special
meetings
The Seagate Software bylaws do not provide specific restrictions on the
rights of stockholders to raise business at special meetings of stockholders.
At special meetings of New VERITAS stockholders, the only business that can
be conducted will be the items of business set forth in the notice of the
special meeting. The bylaws also provide that nominations of candidates for
directors at a special meeting at which directors are to be elected shall be
made either by the board of directors or by a stockholder meeting certain
qualifications. In addition, the stockholder must give New VERITAS advance
written notice of the nominations no earlier than 90 days prior to the special
meeting and no later than the later of (1) 60 days before the special meeting,
or (2) the tenth after the first public announcement of the meeting and of the
nominees proposed by the board to be elected at the meeting.
Annual statement to stockholders
The Seagate Software board of directors must present at each annual
meeting, and at any special meeting of the stockholders when called for by vote
of the stockholders, a full and clear statement of the business and condition of
the corporation. However, this requirement is waived so long as the shares of
Seagate Software are held by fewer than 100 holders of record.
New VERITAS has no similar provision in its bylaws.
Number of directors
The initial number of Seagate Software directors is fixed at five. Changes
in the number of directors permitted by an amendment to the certificate of
incorporation or the bylaws adopted by the vote or written consent of the
holders of a majority of the outstanding stock and entitled to vote or by
resolution of a majority of the board of directors.
The New VERITAS bylaws fix the initial number of directors at ten, with
changes in the number of directors permitted exclusively by the majority vote of
the total number of authorized directors, whether or not there exist any
vacancies in previously authorized directorships.
Classification of directors
Seagate Software has one class of directors with one year terms.
New VERITAS will have three classes of directors elected for staggered
three-year terms.
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Removal of directors
Any Seagate Software director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares
entitled to vote at an election of directors.
Any New VERITAS director or the entire board of directors may be removed,
but only for cause and only by the vote of the holders of at least two-thirds of
the voting power of all of the outstanding shares of New VERITAS entitled to
vote at an election of directors, voting together as a single class.
Board of directors vacancies
Vacancies on the Seagate Software board of directors, including newly
created directorships, may be filled by the vote of a majority of directors then
in office or by a sole remaining director. If, at the time of filling the
vacancy or newly created directorship, the directors then in office constitute
less than a majority of the whole board, a stockholder holding at least ten
percent of the total number of shares at the time outstanding having the right
to vote may order an election to be held or replace the directors chosen by the
directors then in office.
Vacancies on the New VERITAS board may be filled by a majority of directors
then in office or by a sole remaining director.
Notice of special meetings of the board
Special meetings of the Seagate Software board of directors to be called at
any time by the chairman of the board, the president, any vice president, the
secretary or any two directors. Notice must be delivered personally, by
telephone or by telegram to be given at least forty-eight hours before the time
for the holding of the meeting.
New VERITAS bylaws require notice delivered by these communication methods
or similar ones to be given at least twenty-four hours before the meeting. Both
companies' bylaws require four days' notice by mail.
Indemnification and insurance
Both the Seagate Software bylaws and the New VERITAS bylaws provide that
directors and officers shall, and other people may, be indemnified to the
fullest extent authorized by Delaware law. In addition, the Seagate Software
bylaws provide that employees and agents of Seagate Software shall be
indemnified to the full extent permitted by Delaware law. The Seagate Software
bylaws and certificate of incorporation do not expressly establish a procedure
for processing indemnification requests but do expressly authorize insurance for
directors, officers, employees or agents of Seagate Software.
New VERITAS must pay all expenses incurred by a director or officer in
defending any proceeding within the scope of the indemnification provisions as
those expenses are incurred in advance of its final disposition, subject to
conditions.
The Seagate Software bylaws do not contain a comparable provision regarding
the advancement of expenses.
Interested directors
The Seagate Software bylaws do not contain a provision regarding interested
directors.
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SOFTWARE
In order for a transaction between New VERITAS and an interested director
not to be void or voidable solely for this reason, there must be full disclosure
of material facts as to the interested director's relationship or interest to
the transaction. In addition:
- there must be approval by a majority of the disinterested directors, even
though the disinterested directors are less than a quorum;
- the transaction must be specifically approved in good faith by vote of
the stockholders; or
- the transaction must be fair as to New VERITAS as of the time it is
authorized, approved or ratified by the board of directors, a board
committee, or the stockholders.
Approval of loans to officers
Loans to officers or other employees of Seagate Software are permitted
whenever, in the judgment of the directors, the loan or assistance may be
reasonably expected to benefit Seagate Software.
The New VERITAS bylaws contain no similar provision.
Dividends
Holders of preferred shares of Seagate Software shall be entitled to
receive:
- non-cumulative dividends when, as and if declared by the board of
directors;
- cumulative dividends on the date that is the end of the first fiscal year
in which Seagate Software recognizes net income after taxes; and
- in the event any dividend shall be paid to the holders of common stock
the dividend shall be distributed among the holders of the common stock
and the preferred shares in proportion to the shares of common stock then
held by them and the shares of common stock which they then have the
right to acquire upon the conversion of the preferred shares held by
them.
Holders of New VERITAS common stock shall be entitled to receive dividends
when, as and if declared by the board of directors, and the holders of special
voting stock shall not be entitled to receive any dividends.
Liquidation
Holders of Seagate Software preferred shares shall be entitled to receive
an amount prior and in preference to any distribution of assets of Seagate
Software to the holders of common stock. After payment has been made, the
remaining assets and funds of Seagate Software shall be distributed among the
holders of common stock and the preferred shares in proportion to the shares of
common stock then held by them and the shares of common stock which they then
have the right to acquire upon the conversion of the preferred shares held by
them.
Holders of New VERITAS common stock shall be entitled to receive, pro rata,
all of the remaining assets of New VERITAS available for distribution to its
stockholders and the holders of special voting stock shall not be entitled to
receive any such assets.
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Custodian
The Seagate Software bylaws provide for the appointment of a custodian and
if Seagate Software is insolvent, to be receivers, of and for Seagate Software
when:
- the stockholders fail to elect directors whose terms have expired or
would have expired upon qualification of their successors;
- the business of Seagate Software is suffering or is threatened with
irreparable injury because the directors are divided in respect to the
management of Seagate Software such that the required vote for action by
the Board cannot be obtained and stockholders are unable to terminate
this division; or
- Seagate Software has abandoned it business and has failed within a
reasonable time to take steps to dissolve, liquidate or distribute its
assets.
New VERITAS' amended and restated certificate of incorporation and bylaws
have no similar provisions.
COMPARISON OF RIGHTS OF STOCKHOLDERS OF VERITAS AND NEW VERITAS
Special meetings of stockholders
Special meetings of VERITAS stockholders may be called by any stockholder.
The meeting must be held not more than 120 nor less than 35 days after the
written request to call the meeting was delivered to each member of the board of
directors.
The New VERITAS bylaws have no such time limit.
Number of directors
The initial number of directors of VERITAS was one, with changes in the
number directors permitted by resolution of the board of directors. VERITAS
currently has seven directors.
The initial number of New VERITAS directors is ten, with changes in the
number of directors permitted exclusively by the board of directors by a
resolution adopted by a majority vote of the whole board, which is the total
number of authorized directors, whether or not there exist any vacancies in
previously authorized directorships.
Classification of directors
The term of a VERITAS director is limited to one year. VERITAS does not
have a classified board of directors.
New VERITAS has three classes of directors elected for staggered three-year
terms.
Removal of directors
Any VERITAS director or the entire board of directors may be removed, with
or without cause, by the holders of a majority of the shares entitled to vote at
an election of directors.
Any New VERITAS director or the entire board of directors may be removed,
but only for cause and only by the vote of the holders of at least two-thirds of
the voting power of all of the outstanding shares of New VERITAS entitled to
vote at an election of directors, voting together as a single class.
Board of directors vacancies
Vacancies on the VERITAS board of directors, including newly created
directorships, may be filled by the stockholders, by a majority of directors
then in office or by a sole remaining director.
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Vacancies on the New VERITAS board of directors, including newly created
directorships, may be filled by the vote of a majority of directors in office.
Amendment of bylaws
VERITAS directors may amend the bylaws. In addition, a majority of the
outstanding voting stock of VERITAS may amend the bylaws.
A majority of the whole board of New VERITAS must approve any amendment of
the bylaws. In addition, the New VERITAS stockholders have the power to amend
the bylaws. However, in addition to any vote of the holders of any class or
series of stock of New VERITAS required by the certificate of incorporation, the
holders of at least two-thirds of the voting power of all the outstanding shares
of New VERITAS entitled to vote, voting together as a single class, shall be
required to amend the bylaws.
COMPARISON OF RIGHTS OF HOLDERS OF TELEBACKUP
COMMON SHARES AND EXCHANGECO EXCHANGEABLE SHARES
After the TeleBackup combination, holders of TeleBackup common shares will
have their TeleBackup common shares exchanged for Exchangeco class A non-voting
shares. Holders of Exchangeco class A non-voting shares who are Canadian
residents will receive a fraction of an Exchangeco exchangeable share in
exchange for each of their Exchangeco class A non-voting shares if they elect to
make that exchange. Each Exchangeco exchangeable share will be exchangeable for
one share of New VERITAS common stock if the NSMG combination is completed, and
otherwise for one share of VERITAS common stock.
The Exchangeco class A non-voting shares held by persons who are not
Canadian residents, and by Canadian residents who do not properly elect to
exchange the shares for Exchangeco exchangeable shares, will be acquired by
VERITAS. If the NSMG combination has occurred, each of those Exchangeco class A
non-voting shares will be immediately exchanged for a fraction of a share of New
VERITAS common stock equal to the TeleBackup exchange ratio. If the NSMG
combination has not occurred, each of those Exchangeco class A non-voting shares
will be immediately exchanged for a fraction of a share of VERITAS common stock
equal to the TeleBackup exchange ratio.
While Exchangeco is an Alberta company, the Exchangeco exchangeable shares
will mirror the shares of New VERITAS if the NSMG combination is completed or
the shares of VERITAS if the NSMG combination is not completed. Holders of
Exchangeco exchangeable shares will not be able to vote on matters concerning
Exchangeco, but will instead be able to vote on matters concerning New VERITAS
through a trustee. It is therefore important for shareholders of TeleBackup to
be aware of the differences between the rights they had as TeleBackup
shareholders and their rights as shareholders of Exchangeco or New VERITAS.
Following is a discussion of the differences between Delaware law and
Alberta law followed by a comparison of the specific rights of the shareholders
of TeleBackup, VERITAS and New VERITAS based on the differences between their
charter documents.
DIFFERENCES BETWEEN DELAWARE LAW AND ALBERTA LAW
Both New VERITAS and VERITAS are corporations organized under Delaware law
while TeleBackup and Exchangeco are Alberta corporations. The rights and
privileges of shareholders of an Alberta corporation differ in material respects
from those of stockholders of a Delaware corporation in part because of
differences between Alberta and Delaware law.
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Action by written consent in lieu of a stockholder's meeting
Alberta law. Shareholder action without a meeting may only be taken by
written resolution signed by all shareholders who would be entitled to vote at a
meeting.
Delaware law. Any action required to be taken or which may be taken at an
annual or special meeting of stockholders may be taken without a meeting if a
consent in writing is signed by the holders of outstanding stock having not less
than the minimum number of votes necessary to authorize the action at a meeting
at which all shares entitled to vote were present and voted unless otherwise
provided in the certificate of incorporation.
Vote required for extraordinary transactions
Alberta law. Extraordinary corporate actions must be approved by a special
resolution of the shareholders. These actions include:
- certain amalgamations;
- continuances;
- sales, leases or exchanges of all or substantially all the property of a
corporation other than in the ordinary course of business;
- liquidations, dissolutions; and
- arrangements.
A special resolution is a resolution passed at a meeting by two-thirds of the
votes cast by the shareholders entitled to vote on the resolution. In certain
cases, a special resolution to approve an extraordinary corporate action is also
required to be approved separately by the holders of a class or series of
shares.
Delaware law. The affirmative vote of a majority of the outstanding stock
entitled to vote is required to authorize any merger, consolidation, dissolution
or sale of substantially all of the assets of a corporation. However, unless
required by its certificate of incorporation:
- no authorizing stockholder vote is required of a corporation surviving a
merger if (1) such corporation's certificate of incorporation is not
amended by the merger, (2) each share of stock of such corporation will
be an identical share of the surviving corporation after the merger, and
(3) the number of shares to be issued in the merger does not exceed 20%
of such corporation's outstanding common stock immediately prior to the
merger; and
- no authorizing stockholder vote is required of a corporation to authorize
a merger with or into a single direct or indirect wholly-owned subsidiary
of the corporation.
Stockholder approval is also not required under the Delaware law for mergers or
consolidations in which a parent corporation merges or consolidates with a 90%
owned subsidiary.
Rights of dissent
Alberta law. Shareholders of an Alberta corporation are entitled to
exercise rights of dissent in some matters and to be paid the fair value of
their shares. Alberta law does not distinguish for this purpose between shares
listed or unlisted on a stock exchange. These matters include:
- any amalgamation with an unaffiliated corporation;
- an amendment to the corporation's articles to add, change or remove any
provisions restricting or constraining the issue or transfer of shares;
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- an amendment to the corporation's articles to add, change or remove any
restriction upon the business that the corporation may carry on;
- a continuance under the laws of another jurisdiction;
- a sale, lease or exchange of all or substantially all the property of the
corporation other than in the ordinary course of business;
- a court order permitting a shareholder to dissent in connection with an
application to the court for an order approving an arrangement proposed
by the corporation; or
- amendments to the articles of a corporation which require a separate
class or series vote, provided that these rights may be removed or
restricted by a court order in certain cases.
Under Alberta law, a shareholder may also seek an oppression remedy for any act
or omission of a corporation which is oppressive, unfairly prejudicial to, or
that unfairly disregards a shareholder's interest.
Delaware law. Holders of shares of any class or series may have the right
to dissent from a merger or consolidation by demanding payment in cash for their
shares equal to the fair value of the shares, as determined by agreement with
the corporation or by an independent appraiser appointed by a court action.
Delaware law grants dissenters' appraisal rights only in the case of mergers or
consolidations and not in the case of a sale or transfer of assets or a purchase
of assets for stock regardless of the number of shares being issued.
No appraisal rights are available for shares of any class or series listed
on a national securities exchange or the Nasdaq National Market or held of
record by more than 2,000 stockholders, unless the agreement of merger or
consolidation converts the shares into anything other than:
- stock of the surviving corporation;
- stock of another corporation which is either listed on a national
securities exchange or the Nasdaq National Market or held of record by
more than 2,000 stockholders;
- cash in lieu of fractional shares; or
- some combination of the above.
Oppression remedy
Alberta law. A court may make any order to rectify the matters complained
of, if:
- any act or omission of the corporation or an affiliate effects a result;
- the business or affairs of the corporation or an affiliate are, or have
been carried on or conducted in a manner; or
- the powers of the directors of the corporation or an affiliate are or
have been exercised in a manner,
that is oppressive or unfairly prejudicial to or that unfairly disregards the
interest of any security holder, creditor, director or officer of the
corporation.
Because of the breadth of the conduct which can be complained of and the
scope of the court's remedial powers, the oppression remedy is very flexible and
is sometimes relied upon to safeguard the interests of shareholders and other
complainants with a substantial interest in the corporation. Under Alberta law,
it is not necessary to prove that the directors of a corporation acted in bad
faith in order to seek an oppression remedy. Furthermore, the court may order
the corporation to pay the complainant's interim costs
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including legal fees and disbursements. Although the complainant may be held
accountable for such interim costs on final disposition of the complaint, the
complainant is not required to give security for costs.
Delaware law. Delaware law does not provide for a similar remedy.
Derivative actions
Alberta law. A complainant may apply to bring an action on behalf of a
corporation or any subsidiary, or to intervene in an existing action to which
any corporation is a party. No action may be taken unless the complainant has
given reasonable notice to the directors of the corporation or its subsidiary of
the complainant's intention to apply to the court and the court is satisfied
that:
- the directors of the corporation will not take the requested action;
- the complainant is acting in good faith; and
- it appears to be in the interests of the corporation that the action be
taken.
The court in a derivative action may make any order it thinks fit.
Additionally, under Alberta law, a court may order a corporation or its
subsidiary to pay the complainant's interim costs, including legal fees and
disbursements. Although the complainant may be held accountable for the interim
costs on final disposition of the complaint, it is not required to give security
for costs.
Delaware law. Derivative actions may be brought by a stockholder on behalf
of, and for the benefit of, the corporation. A stockholder must aver in the
complaint that he or she was a stockholder of the corporation at the time of the
transaction in question. A stockholder may not sue derivatively unless first
making demand on the corporation that it bring suit and the demand has been
refused, unless it is shown that a demand would have been futile.
Director qualifications
Alberta law. A majority of the directors generally must be resident
Canadians. A corporation whose securities are publicly traded must have no fewer
than three directors, at least two of whom are not officers or employees of the
corporation or any of its affiliates.
Delaware law. Delaware law does not have comparable requirements.
Fiduciary duties of directors
Directors of corporations governed by Alberta law have fiduciary
obligations to the corporation. Directors of corporations incorporated or
organized under Delaware law have fiduciary obligations to the corporation and
its shareholders. Pursuant to these fiduciary obligations, the directors must
act in accordance with duties of "care" and/or "loyalty."
Alberta law. Directors are required to act honestly and in good faith with
a view to the best interests of the corporation, and to exercise the care,
diligence and skill that a reasonably prudent person would exercise in
comparable circumstances.
Delaware law. The duty of care requires that the directors act in an
informed and deliberative manner and to inform themselves, prior to making a
business decision, of all material information reasonably available to them. The
duty of loyalty is the duty to act in good faith in a manner which the directors
reasonably believe to be in the best interests of the stockholders. It requires
that there be no conflict between duty and self-interest.
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Indemnification of officers and directors
Alberta law. A corporation may indemnify a director or officer, a former
director or officer or a person who acted at the corporation's request as a
director or officer of an entity of which the corporation was a shareholder or
creditor. This indemnification may be against all costs, charges and expenses,
including an amount paid to settle an action or satisfy a judgment, reasonably
incurred in respect of any civil, criminal or administrative action or
proceeding to which he or she is made a party by reason of being or having been
a director or officer of the corporation, if:
- he or she acted honestly and in good faith with a view to the best
interests of such corporation; and
- in the case of a criminal or administrative action or proceeding that is
enforced by a monetary penalty, he or she had reasonable grounds for
believing that his or her conduct was lawful.
A corporation may, with the approval of a court, also indemnify these people in
an action by or on behalf of the corporation, so long as they meet the
conditions above. Alberta law does not expressly provide for advance payment of
expenses.
Delaware law. A corporation may indemnify its present and former directors,
officers, employees and agents against all reasonable expenses and, except in
actions initiated by or in the right of the corporation, against all judgments,
fines and amounts paid in settlement in actions brought against them.
Indemnification is available only if the individual acted in good faith and in a
manner which he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The corporation
shall indemnify an indemnitee to the extent that the indemnitee is successful on
the merits or otherwise in the defense of any claim, issue or matter associated
with an action.
An indemnitee's expenses may be paid prior to the final disposition of an
action if the indemnitee undertakes to repay any amount advanced if it is later
determined that the indemnitee is not entitled to indemnification in the action
for which the expenses were advanced.
Director liability
Alberta law. Alberta law does not permit any limitation of a director's
liability.
Delaware law. The charter of a corporation may limit or eliminate the
liability of directors to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, if the liability does not
arise from proscribed conduct, including acts or omissions not in good faith or
which involve intentional misconduct or breach of the duty of loyalty.
Anti-takeover provisions and interested stockholder transactions
Alberta law. Policies of Canadian securities regulatory authorities, in
particular Policy 9.1 of the Ontario Securities Commission contain requirements
for related party transactions. A related party transaction means, generally,
any transaction by which an issuer, directly or indirectly:
- acquires or transfers an asset;
- acquires or issues treasury securities; or
- assumes or transfers a liability from or to a related party in a
transaction or any combination of transactions. Related party is defined
in Policy 9.1 to include
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directors, senior officers and holders of at least 10% of the voting
securities of the issuer.
Policy 9.1 requires more detailed disclosure in the proxy material sent to
security holders in connection with a related party transaction, and in some
cases the preparation of a formal valuation of the transaction and any non-cash
consideration offered and the inclusion of a summary of the valuation in the
proxy material. Policy 9.1 also requires in some cases that the minority
shareholders of the issuer separately approve the transaction, by either a
simple majority or two-thirds of the votes cast, depending on the circumstances.
Delaware law. Business combinations are generally prohibited between the
corporation and an interested stockholder within three years of the stockholder
becoming an interested stockholder. See "Description of New VERITAS Capital
Stock -- Anti-takeover provisions -- Delaware anti-takeover law" on page 254.
Amendment to governing documents
Alberta law. Any amendment to the articles generally requires approval by
special resolution, which is a resolution passed by a majority of not less than
two-thirds of the shareholders entitled to vote on the resolution. If a
particular class or series of shares are affected by an amendment, a special
resolution of that class or series is also required.
Unless the articles or bylaws otherwise provide, the directors may, by
resolution, make, amend or repeal any bylaws that regulate the business or
affairs of a corporation. Any of these changes are effective immediately when
made by the directors. However, any of these changes made by directors must be
approved by an ordinary resolution of the shareholders at the next shareholders
meeting in order to continue to be effective. An ordinary resolution is a
resolution passed by a majority of the votes cast by shareholders entitled to
vote on the resolution.
Delaware law. A vote of the corporation's board of directors followed by
the affirmative vote of a majority of the outstanding stock entitled to vote is
required for any amendment to the certificate of incorporation, unless a greater
level of approval is required by the certificate of incorporation. If an
amendment would have the effect of altering the powers, preferences or special
rights of a particular class or series of stock, the class or series shall be
given the power to vote as a class even without any specifically enumerated
power in the certificate of incorporation.
Delaware law also states that the power to adopt, amend or repeal the
bylaws of a corporation shall be in the stockholders entitled to vote, provided
that the corporation in its certificate of incorporation may confer this power
on the corporation's board of directors.
COMPARISON OF RIGHTS OF SHAREHOLDERS OF TELEBACKUP, VERITAS AND NEW VERITAS
UNDER THE COMPANIES' CHARTER DOCUMENTS
The rights and privileges of shareholders of TeleBackup differ in material
respects from stockholders of VERITAS and New VERITAS in part because of
differences between the TeleBackup and Exchangeco articles of incorporation and
bylaws and the New VERITAS amended and restated certificate of incorporation or
the VERITAS restated certificate of incorporation and bylaws. See "Description
of New VERITAS Capital Stock" on page 252 and "Description of Exchangeco Share
Capital" on page 261. While a description of TeleBackup share capital has not
been provided, the description of Exchangeco share capital is substantially
similar to the share capital of your TeleBackup common shares.
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TELEBACKUP
Classes of stock
The TeleBackup articles of incorporation currently provide for only one
class of shares designated as common shares.
The VERITAS certificate of incorporation and the New VERITAS certificate of
incorporation each provide for three classes of stock: common stock, preferred
stock and special voting stock.
Special meetings of stockholders
Special meetings of the TeleBackup shareholders may be called only by the
board of directors or the president. Alberta law provides that holders of not
less than 5% of the common shares which carry a right to vote may requisition
the directors to hold a meeting, which meeting shall be called within 21 days,
failing which the shareholders may call a meeting.
Special meetings of the stockholders of VERITAS and New VERITAS may be
called by a majority of the members of the board of directors, the chairman of
the board or the chief executive officer.
Action by written consent in lieu of a stockholder's meeting
TeleBackup shareholders have the ability to take action by written consent
of all the shareholders without their meeting together.
Stockholders of New VERITAS and VERITAS do not have this right.
Notice of meetings of stockholders
Written notice of all VERITAS and New VERITAS stockholder meetings be given
not less than ten nor more than 60 days before the date of the meeting to each
stockholder entitled to vote.
The TeleBackup bylaws have no such timing parameters. However, Alberta
corporate law requires that written notice of all shareholder meetings be given
not less than 21 days nor more than 50 days before the date of the meeting, to
each shareholder entitled to vote.
Adjournments
A TeleBackup stockholder meeting shall be adjourned if within a half an
hour of the time for the commencement of the meeting a quorum is not present. If
a quorum is not present at the reconvened meeting, the members present, if at
least two, shall be a quorum for all purposes.
The New VERITAS bylaws and VERITAS bylaws do not contain this provision.
Quorum for stockholder meetings
Holders of a majority of the shares of VERITAS or New VERITAS stock
entitled to vote at a stockholders' meeting, present in person or by proxy,
shall constitute a quorum for the transaction of business, except if otherwise
required by applicable law.
A quorum is present at a TeleBackup shareholders' meeting, irrespective of
the number of persons actually present at the meeting, if the holder or holders
of not less than five percent of the shares entitled to vote at the meeting are
present in person or represented by proxy.
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Record date for determining stockholders
The record date for determining TeleBackup shareholders entitled to vote at
a meeting is established by Alberta law. Where a record date is fixed, the date
shall generally be not more than 60 days nor less than 35 days before the
shareholders meeting.
If no record date is fixed by the VERITAS or New VERITAS board of
directors, then the record date shall be as provided by applicable law. The
record date shall not be more than 60 nor less than ten days before the date of
the stockholders' meeting, nor more than 60 days prior to any other action.
Voting by written ballot
Voting at meetings of VERITAS or New VERITAS stockholders need not be by
written ballot unless it is demanded at the meeting before voting begins. This
demand may be made by a stockholder or stockholders holding at least one percent
of the votes entitled to vote at the meeting, or by the stockholder's proxy.
Unless a ballot is demanded at a TeleBackup meeting as provided in the
Alberta law, voting need not be done by written ballot.
Inspectors of elections
The New VERITAS bylaws and the VERITAS bylaws provide for the appointment
of one or more inspectors of election to act at meetings of stockholders and
make a written report.
The TeleBackup bylaws provide for the appointment of a secretary for the
meeting and one or more scrutineers if desired.
Notice of board nominations and other stockholder business --
annual meetings
Nominations of persons for election to the TeleBackup board may be made
either by the board, or by any shareholder holding not less than five percent of
the shares entitled to vote at the meeting at which directors are to be elected.
Nominations of persons for election to the VERITAS or New VERITAS board and
the proposal of business to be considered at an annual meeting of stockholders
must be made:
- pursuant to notice by New VERITAS or VERITAS of the meeting;
- by the board; or
- if by a stockholder, by advance written notice given to New VERITAS
or VERITAS, between 60 and 90 days prior to the first anniversary of
the preceding year's annual meeting of stockholders.
However, if the date of the annual meeting at which the nomination or business
is proposed by a stockholder is more than 30 days before or more than 60 days
after the anniversary, then notice may be given by the stockholder no earlier
than the 90th day prior to the meeting and not later than the later of 60 days
prior to the meeting or the 10th day following the first public announcement of
such meeting. These notice provisions are subject to exceptions when electing
directors to fill board seats resulting from increases in the size of the board
not publicly announced at least 70 days prior to the annual meeting. In
addition, information regarding a board nominee or the business proposed for
discussion must be included in the stockholder's notice to New VERITAS or
VERITAS.
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Notice of board nominations and other stockholder business --
special meetings
At special meetings of VERITAS or New VERITAS stockholders, the only
business that can be conducted will be the items of business set forth in the
notice of the special meeting. The bylaws also provide that nominations of
persons for election to the board at a special meeting at which directors are to
be elected shall be made:
- by the board; or
- if the board has determined that directors will be elected at the
meeting, by a qualified stockholder of record meeting who gives New
VERITAS and VERITAS, advance written notice of the nominations no earlier
than 90 days prior to the special meeting and no later than the later of
60 days before the special meeting, or the 10th day after the first
public announcement of the meeting and of the nominees proposed by the
board to be elected at the meeting.
There are no specific provisions in the TeleBackup bylaws for notice of
board nominations and other shareholder business.
Number of directors
The TeleBackup articles of incorporation provide for a variable number of
directors of no less than three and no more than seven. The TeleBackup bylaws
provide that the number of directors at any given time may be fixed by an
ordinary resolution of shareholders. At least half of the directors shall be
resident Canadians.
The New VERITAS fix the initial number of directors at ten, with changes in
the number of directors permitted exclusively by the board of directors by
resolution adopted by a majority vote of the whole board. Whole board means the
total number of authorized directors whether or not there exist any vacancies in
previously authorized directorships.
The VERITAS bylaws fix the initial number of directors at one, with changes
in the number of directors permitted by resolution of the board of directors.
Classification of directors
New VERITAS has and, if the amendment to the VERITAS certificate of
incorporation and bylaws is approved, VERITAS will have three classes of
directors elected for staggered three-year terms.
If the proposal to implement a classified board for VERITAS is not
approved, the VERITAS bylaws will limit the term of a director to one year and
will not classify the VERITAS board of directors.
The TeleBackup bylaws provide that all qualified retiring directors shall
be eligible for re-election. Under Alberta law, unless the articles of
incorporation so provide, directors are elected for a term expiring not later
than the close of the next annual meeting of shareholders. The articles of
TeleBackup make no such provision.
Election of directors
Following the close of nominations, the chairman of the TeleBackup meeting
shall name all candidates for the position of director who have been nominated
and shall state how many positions are available to be filled. If there are more
candidates than available positions, the number of positions may be varied by
resolution; provided that the number of positions is within the range permitted
by the articles of incorporation. The election of directors shall be conducted
by proposal and passing or defeat of a separate resolution in respect to each
nominated candidate, in an order determined by the chairman. Where all
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available positions for directors are filled before all candidates have been
considered, those candidates who remain will be deemed to have been defeated.
The New VERITAS bylaws and VERITAS bylaws do not contain this procedure for
election of directors.
Appointment of directors
The TeleBackup directors may appoint additional directors between annual
general meetings. However, the number of additional directors shall not at any
time exceed one-third the number of directors who held office at the expiration
of the last annual meeting, and in making such appointment the directors shall
not exceed the maximum number of directors provided for in the articles of
incorporation.
The New VERITAS bylaws and VERITAS bylaws contain no similar provision.
Alternate directors
Subject to a resolution of the board of directors to the contrary, a
TeleBackup director may appoint any other person who is not another director as
his alternate and may revoke the appointment at any time. A director who
appoints an alternate director shall be liable for the acts and omissions of his
appointed alternate when the alternate is so acting.
The New VERITAS bylaws and VERITAS bylaws do not contain this provision.
Meeting after election of directors
The TeleBackup bylaws require a meeting of directors to be held immediately
following each annual meeting at which directors are elected and no notice of
the meeting is required.
The New VERITAS bylaws and VERITAS bylaws have no requirement for these
meetings.
Removal of directors
Any VERITAS director or the entire board of directors may be removed, with
or without cause, by the holders of a majority of the shares entitled to vote at
an election of directors.
Any New VERITAS director or the entire board of directors may be removed,
but only for cause and only by the vote of the holders of at least two-thirds of
the voting power of all of the outstanding shares of New VERITAS entitled to
vote at an election of directors, voting together as a single class. This
difference reflects the rules under Delaware law for corporations without a
classified board of directors and corporations with a classified board of
directors.
The TeleBackup bylaws do not have a provision in respect to removal of
directors, however Alberta law provides that shareholders may by ordinary
resolution at a special meeting remove any director or directors from office.
Board of directors vacancies
Vacancies on the VERITAS board of directors, including newly created
directorships, may be filled by the vote of a majority of directors in office.
Vacancies on the New VERITAS board may be filled by the stockholders, by a
majority of directors in office or by a sole remaining director.
A quorum of directors may fill a vacancy on the TeleBackup board of
directors.
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Notice of special meetings of the board
Notice to be given at least 48 hours before the time of the holding of the
meeting of the TeleBackup board of directors.
Notice must be given at least 24 hours before the VERITAS or New VERITAS
board meeting if given by telephone, hand delivery, telegram, or similar
communication method and at least four days before the meeting if the notice is
mailed.
The New VERITAS and VERITAS bylaws require special meetings called by any
person other than by a majority of the members of the board of directors to be
held not more than 120 nor less than 35 days after the written request to call
such special meeting was delivered to each member of the board of directors.
Quorum
A majority of the total number of authorized directors of VERITAS and New
VERITAS directors shall constitute a quorum.
The TeleBackup directors may declare the quorum necessary for the
transaction of business and where they have not so declared, then one-half,
rounded down, of the directors shall be a quorum.
Borrowing power of directors
The TeleBackup board's powers include the power to borrow money upon credit
of TeleBackup, enter into secured or unsecured forms of indebtedness or
guarantee of TeleBackup, or create a security interest in any real or personal
property of TeleBackup without authorization of the shareholders.
The New VERITAS bylaws and the VERITAS bylaws do not contain this
provision.
Indemnification and insurance
The New VERITAS bylaws and VERITAS bylaws require the company 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 conditions.
The TeleBackup bylaws do not expressly establish a procedure for processing
indemnification requests, however, TeleBackup has entered into indemnity
agreements with its directors and officers which contain comparable provisions.
In addition, the TeleBackup bylaws expressly authorize insurance for directors
and officers of TeleBackup.
Amendment of bylaws
The holders of at least two-thirds of the voting power of all the
outstanding shares of New VERITAS entitled to vote, voting together as a single
class, are required to amend the bylaws.
New VERITAS' and VERITAS' certificates of incorporation and bylaws
authorize the directors to amend the bylaws. In addition, the bylaws authorize
stockholders holding a majority of the outstanding voting stock to amend the
bylaws.
Under Alberta law, the directors may, by resolution make, amend or repeal
any bylaws that regulate the business or affairs of TeleBackup. Any changes are
effective immediately when made by the directors. However, any change made by
directors must be approved by an ordinary resolution of the shareholders at the
next meeting of shareholders in order to continue to be effective.
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ADDITIONAL PROPOSALS TO BE VOTED UPON
BY VERITAS STOCKHOLDERS
At the VERITAS special meeting of stockholders, you will be asked to
consider the following proposals in addition to Proposal 1: Approval and
adoption of the NSMG combination:
(2) In connection with the proposed TeleBackup combination, amendments to
the VERITAS certificate of incorporation creating a new class of stock
called special voting stock and authorizing one share of special voting
stock.
(3) Amendments to the VERITAS certificate of incorporation increasing the
number of authorized shares of common stock of VERITAS from 75,000,000
to 500,000,000.
(4) Amendments to the VERITAS Software Corporation 1993 Employee Stock
Purchase Plan to increase the number of shares reserved for issuance
thereunder from 2,250,000 to 4,000,000, to provide for an automatic
annual increase in an amount equal to 1% of the outstanding shares of
VERITAS common stock in the number of shares available for issuance
under the plan, and to add an additional offering period if the NSMG
combination is consummated before August 16, 1999.
(5) Amendments to the VERITAS Software Corporation 1993 Equity Incentive
Plan increasing the number of shares reserved for issuance under the
plan from 9,225,000 to 16,000,000.
(6) Amendments to the VERITAS Software Corporation 1993 Equity Incentive
Plan providing for an automatic annual increase in an amount equal to
4.5% of the outstanding shares of VERITAS common stock in the number of
shares reserved for issuance under the plan.
PROPOSAL 2: CREATING A NEW CLASS OF STOCK CALLED SPECIAL VOTING STOCK IN THE
VERITAS CERTIFICATE OF INCORPORATION
You are being asked to approve an amendment to the VERITAS certificate of
incorporation to create a new class of stock called special voting stock and to
authorize the issuance of one share of special voting stock in order to
implement the exchangeable share structure for the TeleBackup combination. The
proposed amended and restated certificate of incorporation of VERITAS is
attached to this document as Appendix P.
Vote required
This amendment to the VERITAS certificate of incorporation requires the
affirmative vote of a majority of the shares of common stock outstanding.
Reasons for the amendment of the certificate of incorporation
The proposed amendment is a condition to the closing of the TeleBackup
combination. The VERITAS board of directors has considered the TeleBackup
combination, including the proposed amendments to the certificate of
incorporation of VERITAS, and has determined that consummating the TeleBackup
combination and amending the certificate of incorporation is in the best
interest of VERITAS.
Establishment of One Share of Special Voting Stock
As described under "Agreements Related to the TeleBackup
Combination -- Voting, support and exchange trust agreement" on page 144, the
voting share will be issued to the
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trustee under the trust agreement to be executed by New VERITAS in connection
with the TeleBackup combination. The Trustee will hold the voting share for the
benefit of the holders of the Exchangeco exchangeable shares issued in the
TeleBackup combination. The voting share will carry a number of votes,
exercisable at any New VERITAS stockholders meeting, equal to the number of
outstanding Exchangeco exchangeable shares. The creation of the voting share
permits the holders of Exchangeco exchangeable shares to vote such shares on any
matter submitted for approval to the New VERITAS stockholders.
THE VERITAS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
AMENDMENT OF THE CERTIFICATE OF INCORPORATION CREATING THE SPECIAL VOTING STOCK.
PROPOSAL 3: INCREASING THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK OF
VERITAS
You are being asked to increase the number of authorized shares of common
stock of VERITAS from 75,000,000 to 500,000,000. The articles of incorporation
of VERITAS currently authorize VERITAS to issue up to 75,000,000 shares of
common stock and 10,000,000 shares of preferred stock. The Board has no
immediate plans to issue a significant number of additional shares of common
stock. However, a larger number of authorized shares of common stock will
provide VERITAS certainty and flexibility to undertake various types of
transactions, including stock splits, financings, acquisitions, increases in the
shares reserved for issuance pursuant to stock incentive plans, or other
corporate transactions not yet determined. Therefore, the VERITAS board is
proposing to increase the number of shares of common stock reserved for future
issuance to 500,000,000.
Reasons for the increase
In order for the board to be able to respond to future circumstances with
necessary certainty and flexibility, VERITAS must have a sufficient number of
authorized shares to cover any stock dividends or other transactions. For
example, the number of shares currently authorized would not be sufficient to
approve a two-for-one stock split in the form of a 100% stock dividend without
first obtaining stockholder approval. Under the proposed certificate of
incorporation, the additional shares of common stock would be available for
issuance without further stockholder action, unless stockholder action is
otherwise required by Delaware law or the rules of the Nasdaq National Market.
VERITAS is not currently contemplating any stock split or stock dividend or for
any stock split or dividend to occur in the future. Furthermore, the increase in
the authorized number of shares of common stock will provide VERITAS with
additional flexibility with regard to any future acquisitions. If the proposals
to increase the number of shares reserved for issuance under the equity
incentive plan and the stock purchase plan are approved, VERITAS will also need
additional shares of common stock to issue when additional stock options or
stock purchase rights are exercised. In the future, VERITAS may also seek to
issue securities in connection with strategic business relationships, which
could be impractical to complete if VERITAS would be required to seek
stockholder approval.
Vote required
The affirmative vote of the holders of a majority of the shares of VERITAS'
common stock present or represented and voting at the VERITAS meeting will be
required to approve this proposal.
THE VERITAS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
AMENDMENT OF THE CERTIFICATE OF INCORPORATION INCREASING THE AUTHORIZED NUMBER
OF SHARES OF VERITAS COMMON STOCK TO 500,000,000.
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PROPOSAL 4: AMENDMENTS TO THE VERITAS SOFTWARE CORPORATION 1993 EMPLOYEE STOCK
PURCHASE PLAN
You are being asked to approve amendments to the VERITAS 1993 Employee
Stock Purchase Plan to:
- increase the number of shares reserved for issuance from 2,250,000 shares
to 4,000,000;
- provide for an automatic annual increase in an amount equal to 1% of the
outstanding shares of VERITAS common stock in the number of shares
reserved for issuance under the VERITAS purchase plan; and
- add an additional offering period if the NSMG combination is consummated
before August 16, 1999.
The purpose of these amendments is to secure sufficient additional shares
under the purchase plan so that VERITAS, or if the NSMG combination is
consummated, New VERITAS is able to maintain a competitive equity compensation
program and to ensure that employees of New VERITAS have an opportunity to
participate in the purchase plan immediately after the NSMG combination.
The purchase plan was adopted by the VERITAS board and approved by VERITAS'
stockholders in October 1993 to provide eligible VERITAS employees with a
convenient means to acquire equity in VERITAS through payroll deductions and to
provide an incentive for continued employment. In July 1994, the VERITAS board
amended the purchase plan to provide for rolling twenty-four month offering
periods, each comprised of four six-month purchase periods. In April 1996, the
VERITAS board amended the purchase plan to increase the number of shares
issuable thereunder from 375,000 to 675,000. VERITAS stockholders approved this
amendment in May 1996. In January 1997, the VERITAS board amended the purchase
plan to increase the number of shares issuable from 675,000 to 1,000,000.
VERITAS' stockholders approved this amendment in April 1997. Since that time,
there have been two three-for-two stock splits of the VERITAS common stock.
DESCRIPTION OF THE VERITAS PURCHASE PLAN, AS AMENDED
The following is a summary description of the principal provisions of the
purchase plan, as amended. We encourage you to read the full text of the
purchase plan attached to this document as Appendix R.
Stock subject to the purchase plan
There are 4,000,000 shares of VERITAS common stock reserved under the
purchase plan. In addition, on each January 1, the aggregate number of shares of
VERITAS common stock reserved for issuance shall be increased automatically by a
number of shares equal to 1% of the total outstanding shares of VERITAS as of
the immediately preceding December 31. However, in no event shall this increase
exceed 2,000,000 shares per year. As of March 31, 1999, 1,057,813 shares had
been issued and there were 1,192,187 shares available for issuance.
Administration
The purchase plan is administered by the compensatory committee. The
interpretation or construction by the compensatory committee of any provisions
of the purchase plan or of any option to purchase shares thereunder will be
final and binding on all participating employees and on VERITAS.
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VERITAS
Eligibility
All employees of VERITAS, or any parent or subsidiary of VERITAS, are
eligible to participate in the purchase plan except the following:
- employees who are not employed by VERITAS on the fifth business day prior
to the beginning of an offering period described below. However,
employees who are employed by VERITAS on the date the NSMG combination is
consummated will be eligible to participate in the additional offering
period described below;
- employees who are customarily employed for fewer than 20 hours per week;
- employees who are customarily employed for fewer than five months in a
calendar year; or
- employees who own stock or hold options to purchase or who, as a result
of participation in the purchase plan, would own stock or hold options to
purchase stock possessing 5% or more of the total combined voting power
or value of all classes of stock of VERITAS.
As of March 31, 1999, there were approximately 625 persons participating in
the purchase plan.
The purchase plan provides for consecutive twenty-four month "offering
periods" during which eligible employees can participate. Except for the
additional offering period described below, each offering period is comprised of
four six-month "purchase periods." The additional offering period will consist
of no fewer than three purchase periods, any of which may be greater or less
than six months as determined by the compensatory committee. The first business
day of each offering period is the "offering date." Offering periods under the
purchase plan commence on each August 16 and February 16 and end on the second
August 15 and February 15. In addition, if the NSMG combination is consummated
before August 16, 1999, there shall be an additional offering period commencing
on June 1, 1999 and ending on February 15, 2001. A participating employee cannot
participate simultaneously in more than one offering period. The VERITAS board
has the power to change the duration of offering periods without stockholder
approval if the change is announced at least 15 days prior to the scheduled
beginning of the first offering period to be affected.
Participating employees will participate in the purchase plan during each
pay period through payroll deductions. A participating employee sets the rate of
the payroll deductions, which may not be less than 2% nor more than 10% of the
employee's W-2 compensation, not to exceed $25,000 per calendar year or such
lower limit as set by the compensation committee. VERITAS may suspend your
payroll deductions as necessary to enforce this limit. You will be notified
before VERITAS suspends your payroll deductions.
Participating employees may elect to participate in any offering period by
enrolling as provided under the terms of the purchase plan. Once enrolled, a
participating employee will automatically participate in each succeeding
offering period unless the participating employee withdraws from the offering
period or the purchase plan is terminated. After the rate of payroll deductions
for an offering period has been set by a participating employee, that rate
continues to be effective for the remainder of the offering period, and for all
subsequent offering periods in which the participating employee is automatically
enrolled, unless otherwise changed by the participating employee. The
participating employee may increase or lower the rate of payroll deductions for
any subsequent offering period, but may only lower the rate of payroll
deductions during an offering period. Not more than one change may be made
during a single purchase period.
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Purchase price
The purchase price of shares that may be acquired in any offering period
under the purchase plan shall be 85% of the lesser of (1) the fair market value
of the shares on the offering date, or (2) the fair market value of the shares
on the last day of the applicable purchase period in an offering period. The
fair market value of a share of VERITAS common stock is the average of the high
and low prices of VERITAS common stock on the applicable date as quoted on the
Nasdaq National Market and reported in The Wall Street Journal.
Number of shares that can be purchased
The number of whole shares a participating employee will be able to
purchase in any purchase period will be determined by dividing the total amount
of compensation withheld from the participating employee during the purchase
period by the purchase price for each share determined as described above. The
purchase will take place automatically on the last day of the purchase period.
Withdrawal
A participating employee may withdraw from any offering period. No further
payroll deductions for the purchase of shares will be made for the succeeding
offering period unless the participating employee enrolls in the new offering
period in the same manner as for initial participation in the purchase plan.
Federal income tax information
THE FOLLOWING INFORMATION IS A GENERAL SUMMARY AS OF THE DATE OF THIS
DOCUMENT OF THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO VERITAS AND
PARTICIPATING EMPLOYEES UNDER THE PURCHASE PLAN. THE FEDERAL TAX LAWS MAY CHANGE
AND THE FEDERAL STATE AND LOCAL TAX CONSEQUENCES FOR EACH PARTICIPATING EMPLOYEE
WILL DEPEND UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPATING
EMPLOYEE IS ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR REGARDING
THE TAX CONSEQUENCES OF PARTICIPATION IN THE PURCHASE PLAN.
The purchase plan is intended to qualify as an "employee stock purchase
plan" within the meaning of Section 423 of the Internal Revenue Code.
Tax treatment of the participating employee
Participating employees will not recognize income for federal income tax
purposes either upon enrollment in the purchase plan or upon the purchase of
shares. All tax consequences are deferred until a participating employee sells
the shares, disposes of the shares by gift or dies.
If shares are held for more than one year after the date of purchase and
more than two years from the beginning of the applicable offering period, or if
the participating employee dies while owning the shares, the participating
employee realizes ordinary income on a sale or a disposition to the extent of
the lesser of:
- 15% of the fair market value of the shares at the beginning of the
offering period; or
- the actual gain or the amount by which the market value of the shares on
the date of sale, gift or death exceeds the purchase price.
All additional gain upon the sale of shares is treated as long-term capital
gain. If the shares are sold and the sale price is less than the purchase price,
there is no ordinary
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income and the participating employee has a long-term capital loss for the
difference between the sale price and the purchase price.
In the event that the participating employee sells or otherwise disposes of
the shares within the one or two year holding period described above, the
participating employee realizes ordinary income at the time of sale or other
disposition. The disposition is taxable to the extent that the fair market value
of the shares at the date of purchase is greater than the purchase price. This
excess will constitute ordinary income although not currently subject to
withholding, in the year of the sale or other disposition even if no gain is
realized on the sale or if a gratuitous transfer is made. The difference, if
any, between the proceeds of sale and the fair market value of the shares at the
date of purchase is a capital gain or loss. Capital gains continue to be offset
by capital losses and up to $3,000 of capital losses may be offset annually
against ordinary income.
Tax treatment of VERITAS
VERITAS will be entitled to a deduction in connection with the disposition
of shares acquired under the purchase plan only to the extent that the
participating employee recognizes ordinary income on a disqualifying disposition
of the shares. VERITAS will treat any transfer of record ownership of shares as
a disposition, unless notified to the contrary. In order to enable VERITAS to
learn of disqualifying dispositions and ascertain the amount of the deductions
to which it is entitled, participating employees will be required to notify
VERITAS in writing of the date and terms of any disposition of shares purchased
under the purchase plan.
ERISA
The purchase plan is not subject to any of the provisions of ERISA.
THE VERITAS BOARD RECOMMENDS VOTING "FOR" THE PROPOSED AMENDMENTS TO THE
VERITAS SOFTWARE CORPORATION 1993 EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL 5: AMENDMENT 1 TO THE VERITAS SOFTWARE CORPORATION 1993 EQUITY
INCENTIVE PLAN
You are being asked to approve the amendment of the VERITAS Software
Corporation 1993 Equity Incentive Plan to increase the number of shares of
VERITAS common stock reserved for issuance thereunder from 9,225,000 to
16,000,000. The purpose of this amendment is to secure sufficient additional
shares under the VERITAS equity incentive plan so that VERITAS, or if the NSMG
combination is completed, New VERITAS is able to maintain a competitive equity
compensation program.
The granting of options under the VERITAS equity incentive plan plays an
important role in VERITAS' efforts to attract and retain employees of
outstanding ability. The VERITAS board believes that this increase to the
reserve of shares with respect to which equity awards may be granted is needed
to ensure that VERITAS, or New VERITAS following the consummation of the NSMG
combination can continue to meet its goals.
For a summary of the principal provisions of the VERITAS equity incentive
plan see "-- Description of the VERITAS Software Corporation 1993 Equity
Incentive Plan" on the next page.
THE VERITAS BOARD RECOMMENDS VOTING "FOR" THE PROPOSED AMENDMENT TO THE
VERITAS SOFTWARE CORPORATION 1993 EQUITY INCENTIVE PLAN.
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PROPOSAL 6: AMENDMENT 2 TO THE VERITAS SOFTWARE CORPORATION 1993 EQUITY
INCENTIVE PLAN
You are being asked to approve the amendment of the VERITAS equity
incentive plan to provide for an automatic annual increase in an amount equal to
4.5% of the aggregate VERITAS shares of common stock outstanding. The purpose of
this amendment is to secure sufficient additional shares for issuance under the
VERITAS equity incentive plan so that VERITAS, or New VERITAS if the NSMG
combination is consummated, is able to maintain a competitive equity
compensation program.
The granting of options under the VERITAS equity incentive plan plays an
important role in VERITAS' efforts to attract and retain employees of
outstanding ability. The VERITAS board believes that this increase to the
reserve of shares with respect to which equity awards may be granted is needed
to ensure that VERITAS, or New VERITAS following the consummation of the NSMG
combination, can continue to meet its goals.
For a summary of the principal provisions of the VERITAS equity incentive
plan see "-- Description of the VERITAS Software Corporation 1993 Equity
Incentive Plan" below.
THE VERITAS BOARD RECOMMENDS VOTING "FOR" THE PROPOSED AMENDMENT TO THE
VERITAS SOFTWARE CORPORATION 1993 EQUITY INCENTIVE PLAN.
DESCRIPTION OF THE VERITAS SOFTWARE CORPORATION 1993 EQUITY INCENTIVE PLAN
The following is a summary description of the VERITAS equity incentive
plan. This summary is qualified in its entirety by reference to the full text of
the VERITAS equity incentive plan attached to this document as Appendix Q.
The equity incentive plan history
The equity incentive plan was adopted in October 1993 to offer eligible
persons an opportunity to participate in VERITAS' future performance through
awards of stock options, restricted stock and stock bonuses. From April 1994,
through April 1997, the VERITAS board and stockholders approved increases in the
number of shares reserved for issuance under the plan from 698,658 to 4,100,000
shares and incorporated other technical changes. Since that time, VERITAS has
effected two stock splits both of which were three-for-two stock splits in the
form of stock dividends, which increased the number of shares reserved for
issuance under the plan from 4,100,000 to 9,225,000.
Stock subject to the VERITAS equity incentive plan
An aggregate of 16,000,000 shares of authorized but unissued VERITAS common
stock is reserved for issuance under the plan. Any shares issuable upon exercise
of options granted under VERITAS's prior stock option plans that expire or
become unexercisable for any reason without having been exercised in full are
also available for issuance under the plan.
In addition, on each January 1, the aggregate number of shares of VERITAS'
common stock reserved for issuance under the plan shall be increased
automatically by a number of shares equal to 4.5% of the total outstanding
shares of VERITAS as of the immediately preceding December 31. However, such an
increase shall in no event exceed 8,000,000 shares per year, assuming the
stockholders approve of the amendment under Proposal No. 5.
If any option granted pursuant to the plan expires or terminates for any
reason without being exercised in whole or in part or any award terminates
without being issued, the shares released from such option or award will again
become available for grant and
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purchase under option plan. As of March 31, 1999, options to purchase 6,518,450
shares were outstanding, options to purchase 1,898,616 shares had been
exercised, and 807,934 shares were eligible for future grants of awards under
the plan.
Over the term of the plan through March 31, 1999, the following executive
officers have been granted options to purchase the following aggregate number of
shares under the plan:
- Mark Leslie, President and Chief Executive Officer -- 821,248 shares;
- Fred van den Bosch, Executive Vice President of Engineering -- 452,618
shares;
- Peter Levine, Senior Vice President, Strategic Operations -- 230,999
shares;
- Paul Sallaberry, Senior Vice President, Worldwide Sales -- 116,248
shares;
- Jay Jones, Senior Vice President, Chief Administrative Officer and
Secretary -- 51,747 shares;
- Kenneth Lonchar, Senior Vice President, Finance and Chief Financial
Officer -- 44,998 shares; and
- Geoffrey Squire, Executive Vice President -- 41,250 shares.
Administration
The plan is administered by the compensation committee. This committee
currently consists of Joseph D. Rizzi and Roel Pieper, each of whom is a
"non-employee director," as that term is defined under the Securities Exchange
Act, and an "outside director" within the meaning of section 162(m) of the
Internal Revenue Code. The committee determines the persons who are to receive
awards and the terms and conditions of the awards, including the number of
shares subject to each award. The committee also has the authority to construe
and interpret any of the provisions of the plan and any awards granted. The
interpretation by the committee of any of the provisions of the plan or any
equity award granted under the plan will be final and conclusive.
Eligibility
Employees, officers, directors, independent contractors, consultants and
advisors of VERITAS and of any subsidiaries and affiliates of VERITAS whom the
committee determines has the potential to contribute to the future success of
VERITAS are eligible to receive any of the different types of awards under the
plan. "Named executive officers" described above are each eligible to receive an
aggregate of up to a maximum of 675,000 shares at any time during the term of
the plan. As of March 31, 1999, approximately 1,145 persons were eligible to
receive awards under the plan.
Stock options
The plan permits the granting of options that are intended to qualify as
incentive stock options or as non-qualified stock options. Incentive stock
options may be granted only to employees of VERITAS. The option exercise price
for each incentive stock option must be no less than 100% of the fair market
value of a share at the time the option is granted. Fair market value is the
last reported sales price of a share of VERITAS common stock on Nasdaq on the
date of grant, or if there is no such reported sales price on the date, the
average of the closing bid and asked prices. The option exercise price for each
non-qualified stock option must be no less than 85% of the fair market value of
a share at the time of grant. In the case of a 10% stockholder, the exercise
price for an incentive stock option or non-qualified stock option must be no
less than 110% of the fair market value. Options are exercisable within the
times and upon the events determined by the committee and are described in the
participant's option agreement.
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An option holder may pay the exercise price of a stock option by any of the
following means, unless otherwise stated in the participant's option agreement:
- in cash or by check;
- by surrender of shares of stock owned by the participant;
- where permitted by applicable law and approved by the committee, in its
sole discretion, by tender of a full recourse promissory note;
- by cancellation of indebtedness of VERITAS to the participant;
- by waiver of compensation due to or accrued by the participant for
services rendered;
- by tender of property;
- by a "same-day sale" commitment from the participant and a NASD broker;
- by a "margin" commitment from the participant and a NASD broker; or
- by any combination of the above, if approved by the committee.
Restricted stock awards
The committee may grant restricted stock awards to purchase stock either in
addition to, or in tandem with, other awards under the plan. The committee
determines the terms, conditions and restrictions of these awards. The purchase
price for awards must be no less than 85% of the fair market value of a share on
the date of the award. The purchase price must be 100% of the fair market value
in the case of an award is a 10% stockholder, and can be paid for with the types
of consideration described under "-- Stock options" on the previous page, except
that same-day sale or margin commitments are not permitted.
Stock bonus awards
The committee may grant stock bonus awards either in addition to, or in
tandem with, other awards under the plan. The committee determines the terms,
conditions and restrictions as the committee may determine.
Mergers, consolidations, change of control
In the event of a merger, consolidation, liquidation, sale of substantially
all its assets or any other similar corporate transaction, the successor
corporation may assume, replace or substitute equivalent awards in exchange for
those granted under the plan. In the event that the successor corporation does
not assume or substitute the awards, the awards, including outstanding options,
shall expire at the time and upon the conditions as the committee determines. In
addition, the vesting of certain options to officers under the plan will
accelerate upon a transaction as to an additional 1/48th of the total option
shares for each month of employment the officer completed with VERITAS from the
date of the option grant to the date of the corporate transaction. If certain
events occur, the vesting of the options shall accelerate for an additional 24
months. The NSMG combination will not trigger acceleration of any of these
outstanding officer options.
Amendment of the option plan
The VERITAS board may at any time terminate or amend the plan, including
amending the form of award agreement. However, no amendment which requires
stockholder approval under section 422 of the Internal Revenue Code will be made
unless stockholder approval is secured.
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Term of the option plan
Equity awards may be granted under the plan until September 30, 2003.
Federal income tax information
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS DOCUMENT OF THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO VERITAS AND PARTICIPANTS UNDER
THE PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES FOR EACH PARTICIPANT WILL DEPEND UPON HIS OR HER INDIVIDUAL
CIRCUMSTANCES. EACH PARTICIPANT IS ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED
TAX ADVISOR REGARDING THE TAX CONSEQUENCES FOR PARTICIPATION IN THE PLAN.
Incentive stock options
The participant will recognize no income upon grant of an incentive stock
option and incur no tax on his or her exercise unless the participant is subject
to the alternative minimum tax. If the participant holds shares which were
issued on the exercise of an incentive stock option for more than one year after
the date the option was exercised and for more than two years after the date the
option was granted, the participant generally will realize long-term capital
gain or loss rather than ordinary income or loss when the shares are sold. This
gain or loss will be equal to the difference between the amount realized upon
the sale and the amount paid for the shares.
If the participant disposes of these shares within the holding periods set
forth above a disqualifying disposition occurs. The gain realized upon the
disqualifying disposition, up to the difference between the fair market value of
the shares on the date of exercise or, if less, the amount realized on a sale of
such shares and the option exercise price, will be treated as ordinary income.
Any additional gain will be long-term or short-term capital gain, depending upon
the amount of time the shares were held by the participant.
Alternative minimum tax
The difference between the exercise price and the fair market value of the
shares on the date of exercise is an adjustment to income for purposes of the
alternative minimum tax. The alternative minimum tax, which is imposed to the
extent it exceeds the taxpayer's regular tax, is 26% of the portion of an
individual taxpayer's alternative minimum taxable income that would otherwise be
taxable as ordinary income. In the case of alternative minimum taxable income in
excess of $175,000 the tax is 28%. A maximum 20% alternative minimum tax rate
applies to the portion of alternative minimum taxable income that would
otherwise be taxable as net capital gain. Alternative minimum taxable income is
determined by adjusting regular taxable income for certain items, increasing
that income by certain tax preference items and reducing this amount by the
applicable exemption amount which is $45,000 in the case of a joint return,
subject to reduction under certain circumstances. If a disqualifying disposition
of the shares occurs in the same calendar year as exercise of the incentive
stock option, there is no alternative minimum tax adjustment with respect to
those shares. Also, upon a sale of incentive stock option Shares that is not a
disqualifying disposition, alternative minimum taxable income is reduced in the
year of sale by the excess of the fair market value of the incentive stock
option shares at exercise over the amount paid for the shares.
Nonqualified stock options
The participant will not recognize any taxable income at the time a
nonqualified stock option is granted. However, upon exercise of a nonqualified
stock option the participant must include in income as compensation an amount
equal to the difference between the
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fair market value of the nonqualified stock option shares purchased on the date
of exercise and the participant's purchase price. The included amount must be
treated as ordinary income by the participant and may be subject to income tax
withholding by VERITAS, either by payment in cash or withholding out of the
participant's salary. The required flat federal withholding rate is currently
28%. Upon resale of the shares by the participant, any subsequent appreciation
or depreciation in the value of the shares will be treated as capital gain or
loss. The capital gain or loss will be a long-term or short-term capital gain,
depending upon the amount of time the shares were held by the participants.
Restricted stock and stock bonus awards
Restricted stock and stock bonus awards will generally be subject to tax at
the time of receipt of shares of VERITAS common stock or cash, unless there are
restrictions that enable the participant to defer tax. At the time that tax is
incurred, the tax treatment will be similar to that discussed above for
nonqualified stock options.
Tax treatment of VERITAS
VERITAS generally will be entitled to a deduction in connection with the
exercise of the nonqualified stock option by a participant or upon the receipt
of restricted stock or stock bonuses by a participant to the extent that the
participant recognized ordinary income and VERITAS properly reports the income
received by the participant in connection with the award withholds tax. VERITAS
will be entitled to a deduction in connection with the disposition of incentive
stock option shares only to the extent that the participant recognizes ordinary
income on a disqualifying disposition of the incentive stock option shares and
VERITAS properly reports the income received by the participant in connection
with the award.
ERISA
The VERITAS equity incentive plan is not subject to any of the provisions
of ERISA.
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SEAGATE
SOFTWARE
ADDITIONAL PROPOSALS TO BE VOTED UPON BY
SEAGATE SOFTWARE STOCKHOLDERS
At the Seagate Software meeting, you will be asked to consider the
following proposals in addition to Proposal 1: Approval and adoption of the NSMG
combination:
(2) Election of directors to serve for the ensuing year or until their
successors are elected.
(3) Amendments to the Seagate Software certificate of incorporation to:
- eliminate the cumulative dividend payable to the holders of
Series A preferred stock;
- revise the liquidation provisions therein so that they will not
apply to the transactions contemplated by the NSMG combination
agreement;
- increase the number of Seagate Software shares of common stock
authorized for issuance thereunder by 204,400,000 shares to an
aggregate of 300,000,000 shares; and
- clarify that shares of common stock issued or issuable to
directors and employees of, and consultants to, Seagate
Software's parent company or subsidiaries are not additional
shares of common stock for purposes of the dilutive issuance
provisions.
(4) Amendments to the Seagate plan to increase the number of shares of
common stock authorized for grant and issuance thereunder by 4,000,000
shares to an aggregate of 16,600,000 shares and approval of the
material terms of such plan including, but not limited to, share
limitations for purposes of Section 162(m) of the Internal Revenue Code
of 1986.
(5) Ratification of the appointment of Ernst & Young LLP as independent
auditors of Seagate Software for the fiscal year ending July 2, 1999.
(6) Transaction of such other business as may properly come before the
Seagate Software meeting, including any motion to adjourn to a later
date to permit further solicitation of proxies if necessary to
establish a quorum or to obtain additional votes in favor of the
transactions contemplated by the NSMG combination agreement, or before
any postponements or adjournments thereof.
PROPOSAL 2: ELECTION OF DIRECTORS
General
You will elect a board of five directors at the Seagate Software meeting.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the five nominees named below, all of whom, except Gregory B. Kerfoot,
are presently directors of Seagate Software. In the event that any nominee is
unable or declines to serve as a director at the time of the Seagate Software
meeting, the proxies will be voted for any nominee who shall be designated by
the present board of directors to fill the vacancy. In the event that additional
persons are nominated for election as directors, the proxy holders intend to
vote all proxies received by them in such a manner in accordance with cumulative
voting as will assure the election of as many of the nominees listed below as
possible, and, in such event, the specific nominees to be voted for will be
determined by the proxy holders. Seagate Software is not aware of any nominee
who will be unable or will decline to serve as a director. The term of office
for each person elected as a director
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will continue until the next Seagate Software annual meeting of stockholders or
until his successor has been elected and qualified.
Vote required to elect directors
The five nominees receiving the highest number of votes will be elected to
the board of directors if at least fifty percent of the outstanding capital
stock is present and voting at the meeting. We will count votes withheld from
all directors for the purposes of determining the presence or absence of a
quorum for the transaction of business, but the votes withheld have no other
effect under Delaware law.
Nominees
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
BOARD MEMBER
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- ------------
<S> <C> <C> <C>
Stephen J. Luczo 42 President, Chief Executive Officer and a 1996
director of Seagate Technology and
Chairman of the Board of Seagate Software
Gary B. Filler 57 Co-Chairman of the Board of Directors of 1996
Seagate Technology and Financial
Consultant
Lawrence Perlman 60 Co-Chairman of the Board of Directors of 1996
Seagate Technology and Chief Executive
Officer of Ceridian Corporation
Donald L. Waite 65 Executive Vice President, Chief 1996
Administrative Officer and Assistant
Secretary of Seagate Technology
Gregory B. Kerfoot 39 Chief Strategic Officer of Seagate --
Software
</TABLE>
There is no family relationship between any director or executive officer
of Seagate Software.
Mr. Luczo currently serves as chairman of the board of directors of Seagate
Software and as chief executive officer, president and a director of Seagate
Technology. Prior to becoming Seagate Software's chairman in July 1997, Mr.
Luczo served as Seagate Software's chief operating officer between March 1995
and July 1997. Mr. Luczo joined Seagate Technology in October 1993 as senior
vice president, corporate development and was promoted to executive vice
president, corporate development in March 1995, where he served until September
1997. He was promoted to president and chief operating officer of Seagate
Technology in September 1997, and served in the latter capacity until August
1998. In July 1998, Mr. Luczo was promoted to chief executive officer and
appointed to Seagate Technology's board of directors. Before joining Seagate
Technology in 1993, Mr. Luczo was senior managing director and co-head of the
Bear Stearns and Co. Global Technology Group from February 1992 to October 1993.
Mr. Luczo also serves on the boards of directors of Gadzooks Microsystems, Inc.
and Dragon Systems, Inc. In the event the NSMG combination is approved, Mr.
Luczo will also become a member of the board of directors of New VERITAS.
Mr. Filler currently serves as a director of Seagate Software and as
co-chairman of the board of directors of Seagate Technology. Mr. Filler has held
various positions on Seagate Technology's board of directors, including vice
chairman from October 1990 until September 1991, chairman from September 1991
until October 1992, and co-chairman since July 1998. Mr. Filler has been a
financial consultant since September 1996. He was
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SEAGATE
SOFTWARE
senior vice president and chief financial officer of Diamond Multimedia Systems,
Inc., a multimedia and graphics company, from January 1995 to September 1996.
From June 1994 to January 1995, Mr. Filler was a business consultant and private
investor. From February 1994 until June 1994, he served as executive vice
president and chief financial officer of ASK Group, Inc., a computer systems
company. Mr. Filler also serves on the board of directors of Sento Corporation.
Mr. Perlman currently serves as a director of Seagate Software and as
co-chairman of the board of directors of Seagate Technology. He was appointed
chairman of the board of directors of Ceridian Corporation, formerly Control
Data Corporation, a technology-based services company, in November 1992. Mr.
Perlman previously held several executive positions at Ceridian Corporation,
including president and chief executive officer of Imprimis Technology
Incorporated, a subsidiary of Control Data Corporation. He was a regent of the
University of Minnesota from 1992 to 1995. Mr. Perlman also serves on the boards
of directors of Computer Network Technology Corporation, AMDOCS Limited, and
Valspar Corporation.
Mr. Waite currently serves as a director of Seagate Software and as
executive vice president, chief administrative officer and assistant secretary
of Seagate Technology. Since joining Seagate Technology in 1983, Mr. Waite has
served in various roles, including chief financial officer from 1983 to February
1998. He has served as executive vice president and chief administrative officer
since March 1995 and as assistant secretary since July 1998. Mr. Waite also
serves on the boards of directors of California Micro Devices and CVC Holdings,
Inc.
Mr. Kerfoot currently serves as Seagate Software's chief strategic officer
and as executive vice president and general manager of the Information
Management Group. He joined Crystal in September 1988 as the director of
research and development and chief architect of Crystal Reports. In May 1994 he
joined Seagate Technology in connection with its acquisition of Crystal and
continued as Crystal's director of research and development until May 1996, when
he was named president of the Information Management Group. Later in 1996, he
was named executive vice president and general manager of Seagate Software IMG.
Since July 1997, Mr. Kerfoot has served as chief strategic officer for Seagate
Software as well as executive vice president and general manager of the
Information Management Group.
Board meetings and committees
The Seagate Software board of directors held two meetings during fiscal
1998. No director attended fewer than 100% of the meetings of the board of
directors and audit committee, and no fewer than 78% of the meetings of the
compensation committee, upon which such director served. The Seagate Software
board of directors does not have a nominating committee or other committee
performing a similar function. The Seagate Software board of directors nominates
candidates to stand for annual election to the board and to fill vacancies as
they may occur.
The audit committee, which consists of directors Gary Filler and Donald
Waite, met one time during fiscal 1998. The audit committee reviews and approves
the scope of the audit performed by Seagate Software's independent auditors as
well as Seagate Software's accounting principles and internal accounting
controls. In fiscal 1998, the Seagate Software board of directors as a whole
recommended engagement of Seagate Software's independent auditors.
The compensation committee, which in fiscal 1998 consisted of Stephen
Luczo, Lawrence Perlman and former director Alan F. Shugart, reviews and
approves stock option
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grants to employees and consultants of Seagate Software. This committee met nine
times in fiscal 1998.
Compensation committee interlocks and insider participation
In fiscal 1998, the compensation committee consisted of Mr. Luczo and Mr.
Perlman and former director Mr. Shugart. During fiscal 1998, there were no
transactions requiring disclosure this section.
PROPOSAL 3: AMENDMENT OF SEAGATE SOFTWARE CERTIFICATE OF INCORPORATION
At the Seagate Software meeting, you are being asked to approve the
amendment and restatement of the Seagate Software certificate of incorporation:
- to eliminate the cumulative dividend payable to the Series A preferred
stock
- to revise the liquidation provisions of Section 2 of the existing
certificate of incorporation so that they will not apply to the
transactions contemplated by the NSMG combination agreement
- to increase the number of shares of authorized common stock therein to
300,000,000 shares and
- to clarify that shares of common stock issued or issuable to directors
and officers of, and consultants to, Seagate Software's parent company or
subsidiaries are not additional shares of common stock for purposes of
the dilutive issuance provisions.
Vote required
The amendments of the Seagate Software certificate of incorporation
requires the affirmative vote of (1) a majority of the shares of preferred stock
outstanding, voting as a separate class, and (2) a majority of the shares of
common stock and preferred stock, voting on an as converted basis, voting
together as a single class.
Reasons for the amendment of the certificate of incorporation
Our board of directors has considered the proposed amendments to the
certificate of incorporation and has determined that each such change is in the
best interest of Seagate Software and its stockholders.
The elimination of the cumulative dividend will reduce the cash
requirements and/or eliminate the creation of a liability for accrued but unpaid
dividends. Seagate Software currently funds its operations and growth with a
line of credit from Seagate Technology and intends to return future earnings in
order to reduce its reliance on Seagate Technology for liquidity.
The proposed amendment to the certificate of incorporation which will
permit the NSMG combination without triggering the liquidation provision is
intended to permit Seagate Software to continue its Information Management Group
operations as an ongoing business.
Elimination of cumulative dividend
The existing Seagate Software certificate of incorporation provides that
holders of Seagate Software's Series A preferred stock are entitled to receive a
cumulative annual cash dividend of $0.45 per share. The cumulative dividend
begins to accrue on the last day of the first fiscal year in which Seagate
Software reports net income after taxes determined in accordance with generally
accepted accounting principals and set forth in its audited financial statements
for such fiscal year. To date, the cumulative dividend has not begun to accrue,
but there can be no assurance that the cumulative dividend will not accrue in
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SEAGATE
SOFTWARE
future periods. The cumulative dividend is payable only when, as and if
determined by the Seagate Software board of directors. However, if Seagate
Software fails to pay the cumulative dividend, generally accepted accounting
principles require Seagate Software to accrue the annual amount due for the
cumulative dividend on Seagate Software's consolidated balance sheet as a
liability.
Our board of directors believes that the best interests of Seagate Software
and its stockholders are served by eliminating the requirement in the
certificate of incorporation for the cumulative dividend. Third party lenders
may be reluctant to extend credit to Seagate Software because Seagate Software's
available net income might be accrued as a liability to pay the cumulative
dividend rather than be used to repay indebtedness or to invest in the continued
growth of Seagate Software's business.
Although Seagate Software would not be required to pay the cumulative
dividend annually, the amount due for the cumulative dividend would be required
to be accrued as liability on Seagate Software's balance sheet, regardless of
whether net income was equal to or greater than the cumulative dividend. Based
on the number of shares of Series A preferred stock outstanding as of July 3,
1998, the last day of Seagate Software's most recently completed fiscal year,
the aggregate amount of the cumulative dividend would have been $21.3 million.
In the event that Seagate Software were to provide liquidity to its
existing stockholders through a public offering of its common stock, the amounts
required to be accrued for the cumulative dividend would be forfeited upon the
automatic conversion of the Series A preferred stock into common stock.
Therefore, the historical financial statements of Seagate Software may confuse
investors and would potentially hinder Seagate Software's efforts to complete a
public offering.
Amendment of liquidation event provisions
Our board of directors has considered the amendment of the liquidation
provisions of the Seagate Software certificate of incorporation to reflect that
the NSMG combination will not result in a liquidation event and has determined
that such action is in the best interest of Seagate Software and its
stockholders. Our certificate of incorporation provides that the sale or other
transfer of all or substantially all of the assets of Seagate Software is a
liquidation event. A liquidation would require the payment of an amount equal to
$7.50 per share and $1.00 per share to each outstanding share of Series A
preferred stock and special voting preferred stock, respectively, plus all
accrued but unpaid dividends, if any.
The NSMG combination may be considered a sale of substantially all of the
assets of Seagate Software as it will result in the sale of the Network &
Storage Management Group. The Network & Storage Management Group business
represented approximately 60% of Seagate Software's total assets as of July 3,
1998. Although the New VERITAS common stock to be received and the other assets
of Seagate Software as of the consummation of the NSMG combination are expected
to exceed the liquidation preference of the Series A preferred stock, Seagate
Software will continue to operate its Information Management Group business
after the closing of the NSMG combination. As a result, our board of directors
believes that a liquidation of Seagate Software would be inappropriate, because
Seagate Software intends to use its assets to continue to grow its Information
Management Group business. Therefore, our board of directors recommends that
stockholders vote to amend the Seagate Software certificate of incorporation to
reflect that the NSMG combination will not result in a liquidation.
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Increase in number of authorized shares of common stock
In connection with the amendment of the Seagate Software certificate of
incorporation, our board of directors has approved an increase in the number of
authorized shares of common stock to 300,000,000 shares. Approval of the
amendment to the Seagate Software certificate of incorporation will constitute
approval of the increase in the number of authorized shares of common stock. The
authorized but unissued shares of Seagate Software common stock would be
available for issuance from time to time for such purposes and for such
consideration as our board of directors determines to be appropriate without
further action by the stockholders, except for those instances where applicable
law or stock exchange rules require stockholder approval.
The Seagate Software certificate of incorporation currently provides that
Seagate Software may issue up to 95,600,000 shares of common stock and
73,000,000 shares of preferred stock. Currently, 54,633,333 shares of preferred
stock are designated as Series A preferred stock and one share is designated as
special voting stock. The Series A preferred stock is convertible at the option
of the holder into shares of common stock. The current conversion ratio is one
to one, and 54,633,333 shares of common stock are reserved for issuance upon the
conversion of the Series A preferred stock. In addition, 12,600,000 shares of
Seagate Software's common stock are reserved for issuance under the Seagate
plan. Thus, assuming that Seagate Software reserved shares of common stock for
the possible conversion of all authorized preferred stock, only approximately
10,000,000 shares of common stock would remain available for issuance.
Our board of directors believes that it is in the best interest of Seagate
Software and its stockholders to increase the number of authorized shares of
common stock in order to have additional authorized but unissued shares
available without the expense and delay of a special meeting of stockholders.
Our board of directors believes the availability of such shares will provide
Seagate Software with the flexibility to issue common stock for proper corporate
purposes that may be identified in the future. For example, shares of common
stock may be issued if our board of directors determines it is necessary or
appropriate to permit a future stock dividend or stock split, to raise
additional capital, to acquire another corporation or another corporation's
business or assets or to establish a strategic relationship with a corporate
partner. Our board of directors does not intend to authorize the issuance of any
such shares except on terms the board deems to be in the best interest of
Seagate Software.
If the proposal to amend the Seagate Software certificate of incorporation
is approved by the Seagate Software stockholders, our board of directors does
not intend to solicit further stockholder approval before issuing any additional
shares of common stock, except as may be required by applicable law or stock
exchange rules. The increase in the number of authorized shares of Seagate
Software common stock will not have any immediate effect on the rights of
existing stockholders. To the extent that the additional authorized shares are
issued in the future, they will decrease the existing stockholders' percentage
of equity ownership of Seagate Software, and, depending on the price at which
such additional shares are issued, could be dilutive to existing stockholders.
Existing Seagate Software stockholders have no statutory preemptive rights with
respect to issuances of common stock.
Amendment of dilutive issuances provisions
Our board of directors has approved an amendment to the certificate of
incorporation to clarify that shares of common stock issued or issuable to
directors and employees of, and consultants to Seagate Software's parent company
or subsidiaries are not additional
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SEAGATE
SOFTWARE
shares of common stock for purposes of the dilutive issuance provisions that
would result in an adjustment to the conversion price of Series A preferred
stock. This change will clarify that stock issued or issuable to directors,
employees and consultants to the parent company and subsidiaries are not
considered such additional shares. Our board of directors believes that the
issuance of stock options to employees, directors and consultants of Seagate
Software's parent or subsidiaries has similar benefits to Seagate Software as
issuance of options to its own employees, directors and consultants. Our board
of directors does not believe it was the intent of the holders of preferred
stock to induce Seagate Software to hire employees from its parent or
subsidiaries in order to properly incent those persons. The purpose of the
proposed amendment is to eliminate any inadvertant, resulting adjustment to the
conversion price of Series A preferred stock from the issuance of options to
employees, directors or consultants of Seagate Technology or Seagate Software's
subsidiaries.
Anti-takeover implications of Delaware law and existing charter documents
The increase in the authorized number of shares of Seagate Software common
stock and the subsequent issuance of such shares could have the effect of
delaying or preventing a change in control of Seagate Software without further
action by the stockholders. Shares of authorized but unissued common stock
could, within the limits imposed by applicable law, be issued in one or more
transactions that would make a change in control of Seagate Software more
difficult and, therefore, less likely. Any such issuance of additional stock
could have the effect of diluting the earnings per share or book value per share
of outstanding shares of common stock. Additional shares could be used to dilute
the stock ownership or voting rights of a person seeking to obtain control of
Seagate Software.
In recent years, a number of states have adopted special laws designed to
make certain kinds of unfriendly corporate takeovers, or other transactions
involving a corporation and one or more of its significant stockholders, more
difficult. Under Section 203 of the Delaware General Corporation Law, certain
business combinations with interested stockholders of Delaware corporations are
subject to a three year moratorium unless specified conditions are met.
Section 203 only applies to certain publicly held corporations that have a
class of voting stock that is:
- listed on a national securities exchange;
- quoted on an interdealer quotation system of a registered national
securities association; or
- held of record by more than 2,000 stockholders.
Because no classes of its voting stock meet any of the criteria set forth
in the preceding sentence, Section 203 does not currently apply to Seagate
Software. Seagate Software may be subject to Section 203 in the future if one of
the foregoing conditions were to occur.
Delaware, like many other states, permits a corporation to adopt a number
of other measures through amendment of the certificate of incorporation or
bylaws or otherwise, designed to reduce a corporation's vulnerability to
unsolicited takeover attempts. The Seagate Software certificate of incorporation
permits cumulative voting, and such method of voting may make it more difficult
to remove any given board member. Other measures permitted under Delaware law
that Seagate Software does not intend to implement include the establishment of
a staggered board of directors, elimination of the ability of 10% or more
stockholders to call special meetings of the stockholders and elimination of
actions
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by written consent of the stockholders. In addition, Delaware law permits a
corporation to adopt such measures as shareholder rights plans designed to
reduce a corporation's vulnerability to unsolicited takeover attempts. Our board
of directors has no present intention to adopt a shareholder rights plan.
Our board of directors has no present intention to amend the certificate of
incorporation or bylaws to include additional provisions other than those now
present in its certificate of incorporation and bylaws that might deter an
unsolicited takeover attempt. However, in the discharge of its fiduciary
obligations to its stockholders, our board of directors will continue to
evaluate Seagate Software's vulnerability to potential unsolicited bids to
acquire Seagate Software on unfavorable terms and to consider strategies to
enhance the board's ability to negotiate with an unsolicited bidder.
THE SEAGATE SOFTWARE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR"
THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION.
PROPOSAL 4: AMENDMENT OF THE SEAGATE PLAN AND APPROVAL OF THE MATERIAL TERMS OF
THE SEAGATE PLAN
At the Seagate Software meeting, you are being asked to approve an
amendment of Seagate plan to increase the number of shares of common stock
reserved for issuance thereunder by 4,000,000 shares. The adoption of the
Seagate plan and the reservation of 12,600,000 shares for issuance thereunder
were approved by our board of directors and by Seagate Software's sole
stockholder on April 21 and June 28, 1996, respectively. Our board of directors
approved the amendment of the Seagate plan to increase the number of shares
reserved for issuance thereunder by 4,000,000 shares in April 1999. As of March
31, 1999, options to purchase an aggregate of 11,136,215 shares of Seagate
Software's common stock were outstanding, with a weighted average exercise price
of $9.25 per share, and 454,854 shares were available for future grant,
exclusive of the 4,000,000 shares for which approval is sought hereunder. In
addition, as of March 31, 1998, 1,008,931 shares had been purchased pursuant to
exercise of stock options under the Seagate plan.
The Seagate plan authorizes our board of directors to grant stock options
to eligible employees and consultants of Seagate Technology, Seagate Software
and subsidiaries of Seagate Software. The Seagate plan is structured to allow
the board of directors broad discretion in creating equity incentives in order
to assist Seagate Technology, Seagate Software and its subsidiaries in
attracting, retaining and motivating the best available personnel for the
successful conduct of Seagate Software's business. The Seagate plan was created
as a separate plan from the stock and option plans of its parent, Seagate
Technology, in order to enable Seagate Software to incent its employees to
improve performance of Seagate Software's business. Seagate Software has a
longstanding practice of linking key employee compensation to corporate
performance, because our board of directors believes that this increases
employee motivation to improve stockholder value. Seagate Software has,
therefore, consistently included equity incentives as a significant component of
compensation for a broad range of employees of Seagate Software, and its
subsidiaries and those employees, directors and consultants of Seagate
Technology who contribute to the success of Seagate Software. This practice has
enabled Seagate Software and its subsidiaries to attract and retain the talent
that their businesses continue to require.
Our board of directors believes that the remaining shares available for
grant under the Seagate plan are insufficient to accomplish the purposes of the
Seagate plan described above, regardless of whether the Network & Storage
Management Group business is contributed to New VERITAS. Seagate Software
anticipates there will be a need to hire additional technical or management
employees during the remainder of fiscal 1999 and
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SEAGATE
SOFTWARE
fiscal 2000, and it will be necessary to offer equity incentives to attract and
motivate these individuals, particularly in the competitive job market in
Silicon Valley. In addition, in order to retain the services of valuable
employees as Seagate Software matures and its employee base grows larger, it
will be necessary to grant additional options to current employees as older
options become fully vested.
Vote required
The affirmative vote of a majority of the shares of Seagate Software's
common stock and Series A preferred stock, voting together as a single class,
present and voting at the Seagate Software meeting will be required to approve
the amendment of the Seagate plan.
Purpose
The purposes of the Seagate plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to employees and consultants of Seagate Software and to
promote the success of Seagate Software's business.
Terms of the Seagate plan
The essential terms of the Seagate plan are summarized as follows:
Administration
The Seagate plan may be administered by our board of directors or one of
its committees. The Seagate plan is administered currently by the compensation
committee. Our board of directors or the compensation committee is referred to
in this description as the administrator. The administrator determines the terms
of options granted including, but not limited to, the exercise price, the number
of shares subject to the option and the exercisability thereof. The
administrator determines all questions of interpretation, and its decisions are
final and binding upon all participants. Members of the our board of directors
or the compensation committee, as the case may be, receive no additional
compensation for their services in connection with the administration of the
Seagate plan.
Eligibility
The Seagate plan provides that the administrator may grant either incentive
or nonstatutory stock options to employees, including officers and employee
directors, of Seagate Software, any of its designated subsidiaries or Seagate
Technology. In addition, the Seagate plan provides that the administrator may
grant nonqualified stock options to consultants of Seagate Software, any of its
designated subsidiaries or Seagate Technology. The administrator selects the
optionees and determine the number of shares to be subject to each option. In
making such determination, the administrator takes into account the duties and
responsibilities of the optionee, the value of the optionee's services, the
optionee's present and potential contribution to the success of Seagate Software
and other relevant factors. The Seagate plan provides for a limit of $100,000 on
the aggregate fair market value of shares subject to all incentive options that
become exercisable for the first time in any one calendar year.
Terms of options
Each option is evidenced by a stock option agreement between Seagate
Software and the person to whom such option is granted and is subject to the
following additional terms and conditions:
(1) Exercise of the option: The administrator determines when options
granted under the Seagate plan may be exercised. An option is exercised
when the optionee gives written notice of exercise to Seagate Software,
specifying the number of
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shares of Seagate Software common stock to be purchased and tendering
payment to Seagate Software of the purchase price. Payment for shares
issued upon exercise of an option may consist of cash, check,
promissory note, delivery of already-owned shares of Seagate Software's
common stock (subject to certain conditions), delivery of an exercise
notice with other required documentation to effect an exercise of the
option and delivery of the sale or loan proceeds required to pay the
exercise price, cancellation of a portion of the shares subject to the
option with a fair market value equal to the aggregate exercise price
of the shares as to which the option shall be exercised, or any
combination of the foregoing methods. Options may be exercised at any
time on or following the date the options are first exercisable or,
subject to repurchase rights, exercised early pursuant to a restricted
stock purchase agreement at the sole discretion of the administrator.
An option may not be exercised for a fraction of a share.
(2) Option price: The exercise price of all incentive stock options and
nonstatutory stock options under the Seagate plan is determined by the
administrator but, in the case of incentive stock options, in no event
will it be less than the fair market value of Seagate Software's common
stock on the date the option is granted, or in the case of nonstatutory
stock options, less than 85% of the fair market value of Seagate
Software's common stock on the date the option is granted. In the case
of an option granted to a person who at the time of grant owns stock
representing more than 10% of the voting power of all classes of stock
of Seagate Software, the exercise price must be not less than 110% of
the fair market value on the date of grant. In the absence of an
established market for the common stock, the fair market value shall be
determined in good faith by the administrator.
(3) Termination of employment: The Seagate plan provides that if the
optionee's employment or consulting relationship by Seagate Software,
any of its subsidiaries or Seagate Technology is terminated for any
reason, other than death or disability, options may be exercised within
thirty days, or such other period of time not exceeding three months as
determined by the administrator, after such termination and may be
exercised only to the extent the options were exercisable on the date
of termination.
(4) Death: If an optionee should die while an employee or a consultant of
Seagate Software, any of its subsidiaries or Seagate Technology, the
options may be exercised at any time within twelve months after the
date of death but only to the extent that the options were exercisable
on the date of death and in no event later than the expiration of the
term of such option.
(5) Disability: If an optionee's employment or consulting relationship is
terminated due to a disability, the options may be exercised at any
time within twelve months from the date of such termination, but only
to the extent that the options were exercisable on the date of
termination of employment and in no event later than the expiration of
the term of the option.
(6) Termination of options: The administrator determines the term of
options granted under the Seagate plan, provided that options may not
expire later than ten years from the date of grant. However, incentive
stock options granted to a person who at the time the option is granted
owns more than 10% of the voting power of all classes of stock of
Seagate Software, one of its subsidiaries or Seagate Technology, may
not have a term of more than five years.
306
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SEAGATE
SOFTWARE
(7) Nontransferability of options: An option is nontransferable by the
optionee, other than by will or the laws of descent and distribution
and is exercisable, during the lifetime of the optionee, only by the
optionee.
Adjustment upon changes in capitalization
In the event any change such as a stock split or dividend is made in
Seagate Software's capitalization which results in an increase or decrease in
the number of outstanding shares of Seagate Software common stock without
receipt of consideration by Seagate Software, an appropriate adjustment will be
made in the option price and in the number of shares subject to each option. In
the event of the proposed dissolution or liquidation of Seagate Software, the
administrator shall notify the optionee at least fifteen days prior to such
proposed action. To the extent it has not been previously exercised, an option
will terminate immediately prior to the consummation of such proposed action. In
the event of a merger of Seagate Software with or into another corporation or
sale of substantially all of the assets of Seagate Software, all outstanding
options may be assumed or an equivalent option substituted by the successor
corporation.
Performance-based compensation limitations
In any fiscal year of Seagate Software, the administrator may not grant any
employee options to purchase more than 5,000,000 shares of Seagate Software
common stock, except that in connection with an employee's initial employment,
he or she may be granted options to purchase up to an additional 3,000,000
shares. The foregoing limitation, which will be adjusted proportionately in
connection with any change in Seagate Software's capitalization, is intended to
satisfy the requirements applicable to options intended to qualify as
performance-based compensation within the meaning of section 162(m) of the
Internal Revenue Code of 1986.
Amendment and termination
Our board of directors may amend the Seagate plan at any time or from time
to time or may terminate it without approval of our stockholders; provided,
however, that stockholder approval is required for any amendment which increases
the number of shares which may be issued under the Seagate plan or as necessary
to remain in compliance with Rule 16b-3 of the Securities Exchange Act or
Section 422 of the Internal Revenue Code of 1986. However, no action by our
board of directors or stockholders may alter or impair any option previously
granted under the Seagate plan without the consent of the optionee. In any
event, the Seagate plan will terminate in April 2006.
Tax information
Options granted under the Seagate plan may be either incentive stock
options or nonstatutory options.
A person who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (1)
the fair market value of the shares at the date of the option exercise or (2)
the sale price of the shares. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also an officer,
director or 10% stockholder of Seagate Software. Generally, Seagate Software
will be entitled to a deduction in the same amount as the ordinary income
307
<PAGE> 319
recognized by the optionee. Any gain or loss recognized on such a premature
disposition of the shares in excess of the amount treated as ordinary income
will be characterized as long-term or short-term capital gain or loss, depending
on the holding period.
All other options that do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time he or she is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize ordinary income generally measured as the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by an
optionee who is also an employee of Seagate Software will be subject to tax
withholding by Seagate Software. Upon resale of such shares by the optionee, any
difference between the sales price and the optionee's purchase price to the
extent not recognized as taxable income as described above will be treated as
long-term or short-term capital gain or loss depending on the holding period.
Generally, Seagate Software will be entitled to a tax deduction in the same
amount as the ordinary income recognized by the optionee with respect to shares
acquired upon exercise of a nonstatutory option.
This discussion is only a summary of the effect of federal income taxation
upon the optionee and Seagate Software with respect to the grant and exercise of
options under the Seagate plan. This discussion does not purport to be complete,
and does not discuss the tax consequences of the optionee's death or the income
tax laws of any municipality, state or foreign country in which an optionee may
reside.
Participation in the Seagate plan
The grant of options under the Seagate plan to executive officers,
including the officers named in the Summary Compensation Table in the Seagate
Software Form 10-K included as Appendix U to this document is subject to the
discretion of the Administrator. As of the date of this document, there has been
no determination by the Administrator with respect to future awards under the
Seagate plan. Accordingly, future awards are not determinable. The table of
option grants under "Executive Compensation -- Option Grants in 1998" in the
Seagate Software Form 10-K/A included as Appendix U provides information with
respect to the grant of options to the Seagate Named Executive Officers during
fiscal 1998. Information regarding options granted to directors of Seagate
Software pursuant to the Seagate plan during fiscal 1998 is set forth under the
heading "Executive Compensation -- Director Compensation." During fiscal 1998,
all current executive officers of Seagate Software as a group and all other
individuals as a group received options to purchase 1,377,500 shares and
6,216,907 shares, respectively, pursuant to the Seagate plan. As of the Seagate
Software record date, approximately 2,100 employees were eligible to participate
in the Seagate plan.
THE SEAGATE SOFTWARE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR"
THE APPROVAL OF THE AMENDMENT OF THE SEAGATE PLAN.
PROPOSAL 5: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Our board of directors has selected Ernst & Young LLP, independent
auditors, to audit the consolidated financial statements of Seagate Software for
the fiscal year ending July 2, 1999 and recommends that stockholders vote for
ratification of such appointment. Notwithstanding the selection, our board of
directors in its discretion may direct the appointment of new independent
auditors at any time during the year, if our board of directors feels that such
a change would be in the best interests of Seagate Software and its
stockholders. In the event of a negative vote on ratification, our board of
directors will reconsider its selection.
308
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SEAGATE
SOFTWARE
TELEBACKUP
VERITAS
Ernst & Young LLP has audited Seagate Software's financial statements
annually since 1995. Representatives of Ernst & Young LLP are expected to be
present at the Seagate Software meeting with the opportunity to make a statement
if they desire to do so and are expected to be available to respond to
appropriate questions.
THE SEAGATE SOFTWARE'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS.
LEGAL MATTERS
Certain legal matters in connection with the TeleBackup combination will be
passed upon by Parlee McLaws, Calgary, Alberta, and by Kleinberg, Kaplan, Wolff
& Cohen, P.C., New York, New York, on behalf of TeleBackup, and by Fenwick &
West LLP, Palo Alto, California, and Osler, Hoskin & Harcourt, Calgary, Alberta,
on behalf of VERITAS and New VERITAS.
Certain legal matters in connection with the NSMG combination will be
passed upon by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California on behalf of Seagate Technology and Seagate Software, and by
Fenwick & West LLP, Palo Alto, California, on behalf of VERITAS and New VERITAS.
EXPERTS
The consolidated financial statements of VERITAS appearing in VERITAS'
annual report on Form 10-K for the year ended December 31, 1998 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
included in that annual report and incorporated in this document by reference.
Those consolidated financial statements are incorporated in this document by
reference in reliance upon that report given upon the authority of such firm as
experts in accounting and auditing.
The combined financial statements of the Network & Storage Management Group
at July 3, 1998 and June 27, 1997, and for each of the three years in the period
ended July 3, 1998 have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report appearing elsewhere in this document, and are
included in reliance upon that report given upon the authority of the firm as
experts in accounting and auditing.
The consolidated financial statements of Seagate Software included in
Seagate Software's annual report on 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 included in that annual report and incorporated in this document by
reference. Those consolidated financial statements are incorporated in this
document by reference in reliance upon that report given upon the authority of
the firm as experts in accounting and auditing.
The financial statements of TeleBackup at December 31, 1997 and 1998 and
for the years in the three year period ended December 31, 1998 have been
included in this document in reliance upon the report of KPMG LLP, independent
chartered accountants, appearing elsewhere in this document, and upon the
authority of that firm as experts in accounting and auditing.
Representatives of KPMG LLP are expected to be present at the TeleBackup
meeting, will have the opportunity to make a statement at the TeleBackup meeting
if they desire to do so and are expected to be available to respond to
appropriate questions.
Representatives of Ernst & Young LLP are expected to be present at the
VERITAS meeting and the Seagate Software meeting and will have the opportunity
to make a statement at the VERITAS meeting and the Seagate Software meeting if
they desire to do so and are expected to be available to respond to appropriate
questions.
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TABLE OF CONTENTS
<TABLE>
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SUMMARY TABLE OF CONTENTS............. i
FREQUENTLY ASKED QUESTIONS............ ii
SUMMARY............................... 1
RISK FACTORS.......................... 22
Risks relating to the NSMG and
TeleBackup combinations.......... 22
Risks relating to New VERITAS after
the NSMG and TeleBackup
combinations..................... 25
NOTICE REGARDING FORWARD-LOOKING
STATEMENTS IN THIS DOCUMENT......... 33
WHERE YOU CAN FIND MORE INFORMATION... 34
WE ARE INCORPORATING OUR SEC FILINGS
IN THIS DOCUMENT BY REFERENCE....... 35
THE VERITAS MEETING................... 36
When and where the meeting will be
held............................. 36
What will be voted upon............. 36
Only stockholders on April 20, 1999
will be entitled to vote......... 37
Votes required to approve the
proposals........................ 37
Shares held by directors, executive
officers and their affiliates.... 37
Votes needed for a quorum........... 37
Effect of abstentions and broker
non-votes........................ 37
VERITAS will pay the expenses of
proxy solicitation............... 38
How proxies will be voted........... 38
How you can revoke your proxy....... 38
You do not have dissenters' or
appraisal rights................. 38
You must act by a specified date to
present a stockholder proposal at
the next VERITAS annual
meeting.......................... 38
THE TELEBACKUP MEETING................ 40
When and where the meeting will be
held............................. 40
What will be voted upon............. 40
Shareholders entitled to vote....... 40
Vote required to approve the
resolution....................... 40
Shares held by directors, executive
officers and their affiliates.... 40
Votes needed for a quorum........... 41
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Effect of failure to vote........... 41
Advice to beneficial holders of
securities....................... 41
General proxy instructions.......... 42
TeleBackup will pay the expenses of
proxy solicitation............... 42
How proxies will be voted........... 42
How you can revoke your proxy....... 43
Rights of dissent................... 43
Principal holders of TeleBackup
voting shares.................... 43
THE SEAGATE SOFTWARE MEETING.......... 44
When and where the meeting will be
held............................. 44
What will be voted upon............. 44
Only stockholders on March 31, 1999
will be entitled to vote......... 45
Vote required to approve the
proposals........................ 45
You may cumulate your votes for
directors........................ 45
Seagate Technology has agreed to
vote for the NSMG combination.... 46
Shares held by directors, executive
officers and their affiliates.... 46
Votes needed for a quorum........... 46
Effect of abstentions and broker
non-votes........................ 46
Adjourning the meeting.............. 46
Seagate Software will pay the
expenses of proxy solicitation... 47
How proxies will be voted........... 47
How you can revoke your proxy....... 47
You do not have dissenters' or
appraisal rights for the NSMG
combination...................... 47
You must act by a specified date to
present a stockholder proposal at
the next Seagate Software annual
meeting.......................... 48
THE NSMG COMBINATION.................. 49
Background of the NSMG
combination...................... 49
Reasons for the NSMG combination.... 52
Opinions of financial advisors...... 59
Structure of the NSMG combination... 72
Restrictions on resale of New
VERITAS common stock............. 73
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Resale of shares issued under the
VERITAS option plans............. 74
Nasdaq listing...................... 74
Material United States federal
income tax considerations of the
NSMG combination................. 74
Accounting treatment................ 76
Governmental and regulatory
approvals........................ 77
No dissenters' or appraisal
rights........................... 78
Interests of persons in the NSMG
combination...................... 78
THE NSMG COMBINATION AGREEMENT........ 80
Closing............................. 80
What VERITAS security holders will
receive.......................... 80
VERITAS stockholders will not need
to surrender share
certificates..................... 80
What Seagate Software will receive
for contributing the Network &
Storage Management Group to New
VERITAS.......................... 81
Stock option and benefit plans and
related securities............... 81
Treatment of Seagate Software stock
held by certain Seagate Software
officers and employees........... 82
Conditions to the NSMG
combination...................... 82
Representations and warranties...... 83
Covenants........................... 83
Restrictions on soliciting
alternative proposals............ 85
Indemnification..................... 87
Termination of the NSMG combination
agreement........................ 88
Termination fees.................... 89
Expenses of the NSMG combination.... 89
No survival of representations and
warranties....................... 89
Amendment and waiver of the NSMG
combination agreement............ 90
AGREEMENTS RELATED TO THE NSMG
COMBINATION......................... 90
Voting agreements................... 90
Stockholder agreement............... 91
Registration rights agreement....... 94
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Cross-license and original equipment
manufacturer agreement........... 94
Development and license agreement... 97
Employment agreements............... 99
Transition services agreement....... 99
THE EMPLOYEE STOCK OPTION EXCHANGE
OFFER............................... 100
Terms of the employee stock option
exchange offer................... 100
Procedure for exchanging Seagate
Software options................. 100
Consequences of failure to exchange
Seagate Software options......... 101
What Seagate Software option holders
will receive in this exchange
offer............................ 101
Resales of option shares............ 103
No guarantee of employment.......... 103
Acceptance of Seagate Software
options for exchange and delivery
of New VERITAS options........... 103
Option terms........................ 104
Cancellation of Seagate Software
options.......................... 104
Withdrawal rights................... 104
Return of options................... 104
Seagate Software is acting as
exchange agent................... 105
Fees and expenses................... 105
Transfer taxes...................... 105
Dissenters' rights.................. 105
Tax consequences to holders of
Seagate Software options......... 105
THE TELEBACKUP COMBINATION............ 106
Background of the TeleBackup
combination...................... 106
Reasons for the TeleBackup
combination...................... 108
Opinion of financial advisor........ 110
Structure of the TeleBackup
combination...................... 113
Resale of TeleBackup exchangeable
shares and New VERITAS common
stock............................ 114
Stock exchange listings............. 115
Income tax considerations to
TeleBackup shareholders.......... 115
</TABLE>
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Accounting treatment................ 126
Procedures for exchange of share
certificates by TeleBackup
shareholders..................... 126
Governmental and regulatory
matters.......................... 127
Ongoing Canadian reporting
obligations...................... 127
Rights of dissent................... 127
Interests of persons in the
TeleBackup combination........... 130
THE TELEBACKUP COMBINATION AGREEMENT.. 131
What TeleBackup security holders
will receive..................... 131
Closing date for the TeleBackup
combination...................... 133
TeleBackup combination mechanics.... 134
Conditions to the TeleBackup
combination...................... 134
Representations and warranties...... 136
Covenants........................... 136
Restrictions on soliciting
alternative proposals............ 137
Indemnification by TeleBackup
affiliates....................... 137
Termination of TeleBackup
combination agreement............ 138
Termination fees.................... 139
Expenses............................ 140
Survival of representations and
warranties....................... 140
Amendment and waiver of the
TeleBackup combination
agreement........................ 140
AGREEMENTS RELATED TO THE TELEBACKUP
COMBINATION......................... 141
Voting agreements................... 141
Agreements with TeleBackup
affiliates....................... 142
Escrow agreement.................... 143
Employment agreements............... 143
Noncompetition agreements........... 144
Voting, support and exchange trust
agreement........................ 144
NEW VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL
STATEMENTS.......................... 146
Notes to New VERITAS unaudited pro
forma combined condensed
financial statements............. 150
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SEAGATE SOFTWARE UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS...... 160
Notes to Seagate Software unaudited
pro forma condensed financial
statements....................... 165
NETWORK & STORAGE MANAGEMENT GROUP
SELECTED HISTORICAL COMBINED
FINANCIAL DATA...................... 174
THE NETWORK & STORAGE MANAGEMENT GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 175
Overview............................ 175
Business combinations............... 176
Results of operations............... 183
Restatement of financial
statements....................... 183
Six months ended January 2, 1998
versus six months ended January
1, 1999.......................... 184
Fiscal year ended June 27, 1997
versus fiscal year ended July 3,
1998............................. 188
Fiscal year ended June 28, 1996
versus fiscal year ended June 27,
1997............................. 191
Balance sheet discussion............ 197
Liquidity and capital resources..... 198
New accounting pronouncements....... 199
Year 2000 readiness................. 200
EXCHANGE RATE OF CANADIAN AND U.S.
DOLLARS............................. 203
TELEBACKUP SELECTED HISTORICAL
FINANCIAL DATA...................... 204
TELEBACKUP MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............... 205
Overview............................ 205
Results of operations............... 207
Years ended December 31, 1997 and
1998............................. 207
Years ended December 31, 1996 and
1997............................. 209
Liquidity and capital resources..... 210
Year 2000 readiness................. 211
BUSINESS OF NEW VERITAS............... 216
BUSINESS OF THE NETWORK & STORAGE
MANAGEMENT GROUP.................... 217
The Network & Storage Management
Group's relationship with Seagate
Software and Seagate
Technology....................... 217
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The Network & Storage Management
Group's products................. 218
Research and development............ 220
Sales and marketing................. 220
Technical support and maintenance... 221
Competition......................... 221
Patents and intellectual property
rights........................... 222
Properties.......................... 223
Legal proceedings................... 223
Employees........................... 224
BUSINESS OF TELEBACKUP................ 225
Overview............................ 225
Products............................ 225
Marketing and distribution.......... 226
Research and development............ 226
Competition......................... 227
Intellectual property............... 228
Employees........................... 229
Facilities.......................... 229
Legal proceedings................... 229
MANAGEMENT OF NEW VERITAS............. 230
Executive officers and directors.... 230
Committees of the board of
directors........................ 233
Compensation of directors........... 233
Compensation of executive
officers......................... 235
Employment agreements............... 235
INFORMATION WITH RESPECT TO VERITAS... 238
Compensation of executive
officers......................... 238
Option grants in 1998............... 239
Aggregate option exercises in 1998
and fiscal year-end option
values........................... 239
Recent VERITAS transactions......... 240
INFORMATION WITH RESPECT TO
TELEBACKUP.......................... 241
Compensation of executive
officers......................... 241
Stock option plan................... 241
Option grants in 1998............... 241
Options exercised in 1998........... 242
Compensation of directors........... 242
Indebtedness of directors and senior
officers of TeleBackup........... 242
Interests of insiders of TeleBackup
in material transactions......... 242
Transfer agent and registrar........ 242
SECURITY OWNERSHIP OF NEW VERITAS..... 243
</TABLE>
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SECURITY OWNERSHIP OF VERITAS......... 246
SECURITY OWNERSHIP OF SEAGATE
SOFTWARE............................ 248
MARKET PRICES OF THE COMPANIES'
STOCK............................... 250
DESCRIPTION OF NEW VERITAS CAPITAL
STOCK............................... 252
Common stock........................ 252
Special voting stock................ 252
Anti-takeover provisions............ 253
Preferred stock..................... 257
The board of directors.............. 258
Amendment of the amended and
restated certificate of
incorporation and the bylaws of
New VERITAS...................... 258
Registration rights................. 259
Transfer agent and registrar........ 259
Listing............................. 259
Description of VERITAS capital
stock............................ 260
DESCRIPTION OF EXCHANGECO SHARE
CAPITAL............................. 261
Exchangeco share capital............ 261
Common shares....................... 261
Exchangeco Class A Non-Voting
Shares........................... 261
Exchangeable shares................. 262
Voting, support and exchange trust
agreement........................ 264
Call rights......................... 267
Transfer agent and registrar........ 268
COMPARISON OF RIGHTS OF HOLDERS OF NEW
VERITAS COMMON STOCK, SEAGATE
SOFTWARE COMMON STOCK AND VERITAS
COMMON STOCK........................ 269
Comparison of rights of stockholders
of Seagate Software and
New VERITAS...................... 269
Comparison of rights of stockholders
of VERITAS and New VERITAS....... 274
COMPARISON OF RIGHTS OF HOLDERS OF
TELEBACKUP COMMON SHARES AND
EXCHANGECO EXCHANGEABLE SHARES...... 275
Differences between Delaware law and
Alberta law...................... 275
COMPARISON OF RIGHTS OF SHAREHOLDERS
OF TELEBACKUP, VERITAS AND NEW
VERITAS UNDER THE COMPANIES' CHARTER
DOCUMENTS........................... 280
ADDITIONAL PROPOSALS TO BE VOTED UPON
BY VERITAS STOCKHOLDERS............. 286
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Proposal 2: Creating a new class
of stock called special voting
stock in the VERITAS
certificate of incorporation... 286
Proposal 3: Increasing the number
of shares of authorized common
stock of VERITAS............... 287
Proposal 4: Amendments to the
VERITAS Software Corporation
1993 Employee Stock Purchase
Plan........................... 288
Description of the VERITAS
purchase plan, as amended...... 288
Proposal 5: Amendment 1 to the
VERITAS Software Corporation
1993 Equity Incentive Plan..... 291
Proposal 6: Amendment 2 to the
VERITAS Software Corporation
1993 Equity Incentive Plan..... 292
Description of the VERITAS
Software Corporation 1993
Equity Incentive Plan.......... 292
ADDITIONAL PROPOSALS TO BE VOTED UPON
BY SEAGATE SOFTWARE STOCKHOLDERS.... 297
Proposal 2: Election of
directors...................... 297
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Proposal 3: Amendment of Seagate
Software certificate of
incorporation.................. 300
Proposal 4: Amendment of the
Seagate plan and approval of
the material terms of the
Seagate plan................... 304
Proposal 5: Ratification of
appointment of independent
auditors....................... 308
LEGAL MATTERS......................... 309
EXPERTS............................... 309
TABLE OF CONTENTS..................... 310
TABLE OF APPENDICES................... 315
Index to Financial Statements of
TeleBackup Systems Inc. ............ F-i
Financial Statements of
TeleBackup Systems Inc. ............ F-1
Index to Combined Financial Statements
of Network & Storage Management
Group, A Division of Seagate
Software............................ F-13
Combined Financial Statements of
Network & Storage Management Group.. F-14
</TABLE>
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TABLE OF APPENDICES
<TABLE>
<S> <C> <C>
A -- NSMG Combination Agreement
B -- Opinion of Donaldson Lufkin & Jenrette
Securities Corporation
C -- Opinion of Morgan Stanley & Co.
Incorporated
D -- Form of Certificate of Incorporation of
New VERITAS
E -- Form of Bylaws of New VERITAS
F -- Seagate Software Notice of Election
G -- TeleBackup Combination Agreement
H -- Opinion of the OpMan Group
I -- Form of Voting, Support and Exchange
Trust Agreement
J -- Amended Interim Order
K -- Amended Notice of Petition
L -- Section 184 of the Business
Corporations Act (Alberta)
M -- Plan of Arrangement including
Exchangeable Share Provisions and
Series A Preferred Share Provisions
N -- Approval of Management Information
Circular/Joint Proxy
Statement/Prospectus by TeleBackup
Board of Directors
O -- Arrangement Resolution
P -- Form of Amended and Restated
Certificate of Incorporation of VERITAS
Q -- Form of VERITAS 1993 Equity Incentive
Plan, as amended
R -- Form of VERITAS 1993 Employee Stock
Purchase Plan, as amended
S -- Seagate Software Third Amended and
Restated Certificate of Incorporation
T -- Seagate Software 1996 Stock Option
Plan, as amended
U -- Seagate Software Annual Report on Form
10-K/A for the fiscal year ended July
3, 1998
V -- Seagate Software Quarterly Reports on
Form 10-Q/A for the quarters ended
October 2, 1998 and January 1, 1999
W -- Tax Opinion of Parlee McLaws and Osler,
Hoskin and Harcourt
X -- TeleBackup Election Form
</TABLE>
TABLE OF CONTENTS
315
<PAGE> 327
INDEX TO FINANCIAL STATEMENTS OF
TELEBACKUP SYSTEMS INC.
<TABLE>
<S> <C>
Auditors' Report to the Directors........................... F-1
Balance Sheets.............................................. F-2
Statement of Operations and Deficit......................... F-3
Statement of Changes in Financial Position.................. F-4
Notes to Financial Statements............................... F-5
</TABLE>
F-i
<PAGE> 328
AUDITORS' REPORT TO THE DIRECTORS
We have audited the balance sheets of Telebackup Systems Inc. as at
December 31, 1997 and 1998 and the statements of operations and deficit and
changes in financial position for each of the years in the three year period
ended December 31, 1998. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1997 and 1998
and the results of its operations and the changes in its financial position for
each of the years in the three year period ended December 31, 1998 in accordance
with generally accepted accounting principles in Canada.
Generally accepted accounting principles in Canada differ in some respects
from those applicable in the United States (note 13).
Chartered Accountants
Calgary, Canada
February 5, 1999
F-1
<PAGE> 329
TELEBACKUP SYSTEMS INC.
BALANCE SHEETS
(AMOUNTS IN CANADIAN DOLLARS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and temporary investments............................ $ 1,236,453 $ 6,151,624
Restricted cash (note 2).................................. 124,123 --
Accounts receivable....................................... 332,597 656,197
Investment tax credit receivable.......................... 50,000 --
Inventory................................................. 83,994 --
Prepaid expenses.......................................... 8,278 30,515
----------- -----------
1,835,445 6,838,336
Capital assets (note 3)..................................... 1,003,132 860,925
Debt issuance costs (net of amortization $17,641)........... 431,590 --
----------- -----------
$ 3,270,167 $ 7,699,261
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.......................................... $ 111,574 $ 262,815
Accrued liabilities....................................... 31,174 46,936
Deferred revenue.......................................... -- 2,710,805
Current portion of long-term debt (note 4)................ 124,800 124,800
----------- -----------
267,548 3,145,356
Long-term debt (note 4)..................................... 3,004,260 302,260
Shareholders' equity (deficiency):
Share capital (note 5).................................... 2,982,155 8,885,247
Warrants.................................................. 80,000 --
Deficit................................................... (3,063,796) (4,633,602)
----------- -----------
(1,641) 4,251,645
Combination agreement (note 12).............................
Commitments (note 7)........................................
Canadian and United States accounting policy differences
(note 13).................................................
----------- -----------
$ 3,270,167 $ 7,699,261
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 330
TELEBACKUP SYSTEMS INC.
STATEMENTS OF OPERATIONS AND DEFICIT
(AMOUNTS IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Product sales..................................... $ 233,353 $ 347,235 $ 1,384,411
Maintenance and support........................... 18,531 23,112 200,000
Custom software development....................... -- 115,700 1,838,565
----------- ----------- -----------
251,884 486,047 3,422,976
Cost of sales:
Product sales..................................... 106,058 123,930 311,369
Maintenance, support and custom software
development.................................... 43,359 61,444 512,347
----------- ----------- -----------
149,417 185,374 823,716
Gross profit........................................ 102,467 300,673 2,599,260
Expenses:
General and administrative........................ 496,753 808,256 1,180,981
Selling and marketing............................. 306,870 495,538 1,090,763
Marketing and royalty agreement................... 100,000 100,000 200,000
Research and development.......................... 302,650 576,475 1,045,717
Interest and bank charges, net.................... 13,514 81,937 97,754
Depreciation and amortization..................... 24,117 108,073 553,851
----------- ----------- -----------
1,243,904 2,170,279 4,169,066
----------- ----------- -----------
Net loss............................................ (1,141,437) (1,869,606) (1,569,806)
Deficit, beginning of year.......................... (52,753) (1,194,190) (3,063,796)
----------- ----------- -----------
Deficit, end of year................................ $(1,194,190) $(3,063,796) $(4,633,602)
=========== =========== ===========
Net loss per share.................................. $ (0.18) $ (0.25) $ (0.17)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 331
TELEBACKUP SYSTEMS INC.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
(AMOUNTS IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash provided by (used in):
Operations:
Net loss.......................................... $(1,141,437) $(1,869,606) $(1,569,806)
Items not involving cash:
Depreciation and amortization.................. 24,117 108,073 553,851
Software development costs..................... 37,673 -- --
Changes in non-cash working capital:
Accounts receivable............................ 918 (328,141) (323,600)
Investment tax credit receivable............... (30,000) -- 50,000
Inventory...................................... (121,623) 37,629 83,994
Prepaid expenses............................... 12,218 (4,436) (22,237)
Accounts payable............................... 19,420 21,418 151,241
Accrued liabilities............................ 32,349 (5,175) 15,762
Deferred revenue............................... -- -- 2,710,805
Due from shareholder........................... 31,600 -- --
----------- ----------- -----------
(1,134,765) (2,040,238) 1,650,010
Investing:
Net additions to capital assets................... (183,636) (887,589) (350,580)
Financing:
Issue of share capital, net....................... 1,856,401 953,446 6,273,618
Warrants.......................................... -- 80,000 --
Increase (decrease) in long-term debt, net........ 350,000 2,824,360 150,360
Debt issuance costs............................... -- (449,231) --
Conversion of debentures.......................... -- (45,300) (2,932,360)
Issue of promissory notes......................... -- 150,000 --
Repayment of promissory notes..................... -- (150,000) --
----------- ----------- -----------
2,206,401 3,363,275 3,491,618
----------- ----------- -----------
Increase in cash and temporary investments.......... 888,000 435,448 4,791,048
Cash and temporary investments, beginning of year... 37,128 925,128 1,360,576
----------- ----------- -----------
Cash and temporary investments, end of year......... $ 925,128 $ 1,360,576 $ 6,151,624
=========== =========== ===========
</TABLE>
Cash and temporary investments are defined to include restricted cash.
See accompanying notes to financial statements.
F-4
<PAGE> 332
TELEBACKUP SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(AMOUNTS IN CANADIAN DOLLARS)
CORPORATE PROFILE
The Company develops and markets computer software designed to allow data
backup via a modem or network.
These financial statements are prepared in accordance with accounting
principles generally accepted in Canada.
1. SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue recognition:
In the third quarter of 1998, the Company adopted the American Institute of
Certified Public Accountants Statement of Position (SOP) 97-2 with respect to
software revenue recognition. Pursuant to SOP 97-2, four specific criteria must
be met prior to recognizing revenue for a single-element arrangement or for
amounts allocated to individual elements in a multiple-element arrangement.
These four criteria are (a) persuasive evidence of an arrangement exists; (b)
delivery has occurred; (c) the vendor's fee is fixed or determinable; and (d)
collectibility is probable. This change in revenue recognition has been applied
on a retroactive basis which did not affect revenue for the years ended December
31, 1997 and 1996.
The Company sells its software and any related hardware by way of a direct
sale or on a revenue sharing basis.
The Company previously recognized direct sales revenues from software
licenses and hardware upon delivery and installation of the software and
hardware products. Sales made on a revenue sharing basis may have required the
purchaser to make an initial payment, as well as additional payments based upon
a percentage of the future revenues generated by the purchaser. The initial
payment was recorded as revenue at the time of delivery and installation of the
software and hardware products. Future revenue sharing payments were recorded as
revenue if and when earned.
(b) Capital assets:
Capital assets are recorded at cost. Depreciation is provided using the
following methods and rates:
<TABLE>
<CAPTION>
ASSETS METHOD RATE
------ ------ ----
<S> <C> <C>
Computer equipment......................................... Declining balance 30%
Furniture and fixtures..................................... Declining balance 30%
World rights............................................... Straight-line 20%
Software technology........................................ Straight-line 50%
Royalty reduction.......................................... Straight-line 50%
</TABLE>
(c) Debt issuance costs:
Debt issuance costs are amortized to income over the term of the related
debt financing.
(d) Software research and development costs:
Research costs are expensed as incurred. Costs related to internal
development of software are expensed as incurred unless criteria for deferral
and subsequent amortization are met. Specifically, internal software development
costs are deferred once technological feasibility for a product is established.
As at December 31, 1997 and 1998, the Company has not deferred internal software
development costs, as completed development has coincided with technological
feasibility.
F-5
<PAGE> 333
TELEBACKUP SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(AMOUNTS IN CANADIAN DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Investment tax credits:
Scientific Research and Experimental Development ("SRED") investment tax
credits are accrued when qualifying expenditures are made and there is
reasonable assurance that the credits will be realized. The Company accounts for
investment tax credits using the cost reduction method.
(f) Inventory:
Inventory, consisting primarily of turnkey computer systems assembled for
demonstration purposes and ultimate sale, is recorded at the lesser of cost
determined on a first-in first-out basis and market value.
(g) Per share data:
Basic earnings per share is calculated using the weighted average number of
common shares outstanding during the year. Fully diluted per share data has not
been disclosed as the effect of the exercise of share options is not dilutive.
2. RESTRICTED CASH
Restricted cash consists of cash held in trust in connection with the
payment of interest on certain debt.
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
DECEMBER 31, 1997 COST DEPRECIATION VALUE
----------------- ---------- ------------ -----------
<S> <C> <C> <C>
Computer equipment............................. $ 312,560 $ 73,630 $ 238,930
Furniture and fixtures......................... 16,101 4,399 11,702
World rights................................... 50,000 12,500 37,500
Software technology............................ 300,000 25,000 275,000
Royalty reduction.............................. 440,000 -- 440,000
---------- -------- ----------
$1,118,661 $115,529 $1,003,132
========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
DECEMBER 31, 1998 COST DEPRECIATION VALUE
----------------- ---------- ------------ -----------
<S> <C> <C> <C>
Computer equipment............................. $ 629,185 $174,305 $ 454,880
Furniture and fixtures......................... 50,056 11,736 38,320
World rights................................... 50,000 22,500 27,500
Software technology............................ 300,000 179,775 120,225
Royalty reduction.............................. 440,000 220,000 220,000
---------- -------- ----------
$1,469,241 $608,316 $ 860,925
========== ======== ==========
</TABLE>
In October 1997, the Company entered into an agreement to license, on a
permanent, unlimited and fully paid basis, a third party's patented data
reduction process technology. In exchange for the license, the Company had
agreed to issue 200,000 Common Shares at $1.50 per share, the market value of
the shares.
In November 1997, the Company renegotiated its royalty commitment whereby
the royalty was converted from a 10% royalty to a $200,000 fixed annual royalty
with a $2 million buyout option. The
F-6
<PAGE> 334
TELEBACKUP SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(AMOUNTS IN CANADIAN DOLLARS)
3. CAPITAL ASSETS (CONTINUED):
Company had agreed to issue 200,000 Common Shares at $2.20 per share, the market
value of the shares, in exchange for the new royalty agreement.
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Debentures.................................................. $2,705,060 $ --
Operating line of credit.................................... 500,000 427,060
---------- ---------
3,205,060 427,060
Less:
Current portion of operating line......................... (124,800) (124,800)
Unamortized allocation to warrants of debenture
proceeds............................................... (76,000) --
---------- ---------
$3,004,260 $ 302,260
========== =========
</TABLE>
(a) Debentures:
On September 30, 1997, the Company sold 27,500 Units, each consisting of a
$100 principal amount debenture and warrants to purchase 33 Common shares of the
Company. The debentures are unsecured, redeemable, convertible and due September
30, 2002 with interest at 6% payable semi-annually. The debentures are
convertible at $1.50 per share. In conjunction with the debenture offering, the
Company granted to the Agent, an option to purchase up to 2,751 Units at $100
per unit. During 1998, the Agent purchased all 2,751 Units and was issued
debentures and warrants in accordance with the terms of the Units.
The Debentures were redeemable by the Company:
(i) anytime after September 30, 1999 following a period of twenty
consecutive trading days during which the weighted average market price of
the Common Shares equals or exceeds $3.00; or
(ii) anytime following any period of twenty consecutive trading days
during the weighted average market price of the Common Shares equals or
exceeds $6.00.
During 1997 $45,300 of debentures were converted into 30,198 common shares.
In 1998, an additional $275,100 of debentures were issued to the Agent, and
$2,932,360 of debentures were converted into 1,979,054 common shares and $11,800
of debentures where redeemed for cash. Unamortized debt issuance costs related
to the convertible debentures were charged to share capital upon conversion of
the related debentures.
(b) Credit facilities:
At December 31, 1998 the Company has drawn $427,060 (1997 -- $500,000) on
its operating line of credit due on demand. Borrowings bear interest at the
bank's prime rate plus 3%. Notwithstanding the demand feature of the facility,
it is classified as long-term as monthly payments of $10,420 plus interest are
required to maturity on June 30, 2002. The operating line is renewable annually,
however no principal payments were required prior to January 31, 1998 providing
that certain conditions were satisfied. Annual principal repayments are
approximately $124,800 (1997 -- $124,800) plus accrued interest.
In addition, the Company has a revolving line of credit authorized to a
limit of $150,000 which bears interest at the bank's prime rate plus 2%.
Both credit facilities are secured by a general security agreement and an
assignment of life insurance on an officer of the Company.
F-7
<PAGE> 335
TELEBACKUP SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(AMOUNTS IN CANADIAN DOLLARS)
4. LONG-TERM DEBT (CONTINUED):
(c) Interest expense:
Interest on long-term debt amounted to $13,126, $73,912 and $168,410 for
the years ended December 31, 1996, 1997 and 1998, respectively.
5. SHARE CAPITAL
(a) Authorized:
Unlimited number of Common shares.
(b) Issued and to be issued:
<TABLE>
<CAPTION>
NUMBER AMOUNT
---------- ----------
<S> <C> <C>
December 31, 1995........................................... 2,737,500 $ 172,308
Share split 2:1 basis....................................... 2,737,500 --
Issued for cash, net of issue costs of $338,599............. 1,600,000 1,661,401
Issued pursuant to private placement for cash............... 195,000 195,000
---------- ----------
December 31, 1996........................................... 7,270,000 2,028,709
Issued on exercise of stock options......................... 173,000 216,250
Issued on conversion of debenture........................... 30,198 45,300
To be issued, net of issue costs of $48,104 (note 3)........ 400,000 691,896
---------- ----------
December 31, 1997........................................... 7,873,198 2,982,155
Issued on exercise of stock options......................... 312,000 417,990
Issued on conversion of debentures, net of costs of
$406,526.................................................. 1,979,054 2,561,834
Issued on exercise of warrants, net of costs of $140,211.... 994,493 2,843,268
Allocation to warrants of debenture proceeds................ -- 80,000
---------- ----------
December 31, 1998........................................... 11,158,745 $8,885,247
========== ==========
</TABLE>
The 400,000 common shares which were to be issued at December 31, 1997,
were subject to relevant regulatory approval, which was received during 1998.
On January 31, 1996, the shareholders of the Company approved a two for one
Common share split which became effective February 16, 1996.
(c) Stock options and warrants:
At December 31, the Company had issued options to employees and directors
which will allow for the purchase of 755,000, 839,500 and 592,000 common shares
for the years 1996, 1997 and 1998, respectively, at prices $1.25, $1.25 to $2.20
and $1.25 to $2.85 per share for the years 1996, 1997 and 1998, respectively.
These options expire on various dates during 2001 and 2002.
The Company issued 907,698 warrants in conjunction with the convertible
debentures. Each warrant entitled the holder to purchase one additional Common
Share at a price of $3.00 on or before September 30, 1999. The Company had the
right upon 30 days written notice to redeem the warrants for $0.001 at any time
following a period of 20 consecutive trading days during which the weighted
average market price of the Company's common shares equaled or exceeded $4.00
per share. At December 31, 1998, 903,710 warrants had been exercised, and 3,988
warrants had been redeemed for aggregate consideration of $3.99.
F-8
<PAGE> 336
TELEBACKUP SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(AMOUNTS IN CANADIAN DOLLARS)
6. INCOME TAXES
Income tax expense differs from the amount which would be computed by
applying the federal and provincial combined statutory income tax rate to income
before income taxes. The reasons for the difference are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Income tax rate................................. 44.6% 44.6% 44.6%
Computed expected tax recovery.................. $(509,081) $(833,844) $(700,133)
Unrecognized benefit of tax losses.............. 509,081 833,844 700,133
--------- --------- ---------
$ -- $ -- $ --
========= ========= =========
</TABLE>
The Company has available deductions for income tax purposes of
approximately $4,000,000 at December 31, 1998 (1997 -- $2,400,000) consisting of
SRED expenditures and operating losses. The operating losses begin expiring in
2002. The Company also estimates that it has available SRED investment tax
credits to reduce future income tax payable of approximately $175,000 at
December 31, 1998 (1997 -- $100,000).
The Company earned refundable SRED investment tax credits prior to becoming
a public company. These credits are shown as current assets, and along with the
credits above, are subject to technical and financial audit by Revenue Canada.
At December 31, 1998, the refundable credits had been received.
7. COMMITMENTS
(a) On December 29, 1994, the Company entered into an agreement which
allowed the Company utilization of certain technology rights in exchange for a
royalty commitment. On November 19, 1997, the royalty commitment was
renegotiated, whereby the royalty was converted from a percentage-based royalty
to a flat-fee royalty with a buy-out option, which provides the Company the
right to call the buy-out option at any time (note 3)
(b) The Company is committed to minimum rentals under premises leases of
approximately $341,600 per year to 2002 and $231,600 per year to 2004.
8. RELATED PARTIES
(a) During the years ended December 31, 1996, 1997 and 1998, the Company
purchased computer equipment totalling $278,975, $42,820 and nil, respectively,
from a shareholder.
(b) During the year ended December 31, 1997, interest of $15,000 was paid
to two directors of the Company on account of $150,000 in promissory notes which
were issued and repaid.
(c) The Company leases office space from a shareholder for $3,600 per
month.
9. FINANCIAL INSTRUMENTS AND MAJOR CUSTOMERS
The carrying value of cash and temporary investments, accounts receivable
and accounts payable approximate their fair values due to the short maturity of
these instruments. The fair value of the debentures
F-9
<PAGE> 337
TELEBACKUP SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(AMOUNTS IN CANADIAN DOLLARS)
9. FINANCIAL INSTRUMENTS AND MAJOR CUSTOMERS (CONTINUED)
was approximately $2,141,000 at December 31, 1997. The fair value of the
Company's operating line approximates its carrying value due to its variable
interest rate.
During 1998, two customers of the Company individually represented 49% and
48% respectively, of the Company's revenues. In 1997, five customers of the
Company individually represented 24%, 21%, 20%, 17% and 10%, respectively, of
the Company's revenues. During 1996, three customers of the Company individually
represented 42%, 35%, and 20%, respectively, of the Company's revenues.
10. SEGMENT INFORMATION
The Company's method for determining what information to report about
operating segments is based on the way that management organizes the operating
segments within the Company for making operating decisions and assessing
financial performance.
The Company's chief operating decision maker is considered to be the
Company's President and CEO. The President and CEO reviews financial information
presented on a consolidated basis for purposes of making operating decisions and
assessing financial performance. The financial information reviewed by the
President and CEO is identical to the information presented in the accompanying
Statements of Operations. Therefore, the Company operates in a single operating
segment: developing and marketing computer software designed to allow data
backup via a modem or network. The Company does not have significant
international operations.
11. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
12. COMBINATION AGREEMENT
On September 1, 1998 the Company signed a Combination Agreement (the
"Agreement") with VERITAS Software Corporation (VERITAS). Consummation of the
Agreement is subject to a number of conditions, including regulatory clearances
in Canada and the United States, judicial clearance in Canada and formal
approval by the shareholders of both companies.
Under the terms of the Agreement, at the effective time the Company will
issue to its shareholders, exchangeable shares which are exchangeable into
common shares of VERITAS. The number of exchangeable shares to be issued to the
Company's shareholders will be based on a sliding scale which is tied to an
average of the VERITAS common share price for the 10 days prior to the closing
of the transaction. In general terms, the total number of exchangeable shares to
be issued shall equal (a) in the event that the average price is between
U.S.$33.81 per share and U.S.$41.32 per share, 1,710,000 common shares of
VERITAS (b) in the event that the average price is less than $33.81 per share,
the number of common shares of VERITAS determined by dividing $57,808,000 (U.S.)
by such average price, provided however, that, in such case, in no
F-10
<PAGE> 338
TELEBACKUP SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(AMOUNTS IN CANADIAN DOLLARS)
12. COMBINATION AGREEMENT (CONTINUED)
event shall the total exceed 1,900,000 common shares of VERITAS, (c) in the
event that the average price is more than $41.32 per common share, the number of
common shares of VERITAS determined by dividing $70,654,000 (U.S.) by such
average price, provided however, that, in such case, in no event shall the total
be less than 1,555,000 common shares of VERITAS.
In the event that the Company's shareholders do not approve the terms of
the Agreement, the Company shall pay to VERITAS a fee of U.S. $3 million and
grant a worldwide, perpetual, royalty-free and fully-paid license to certain
Company software. Also, should the Company be acquired within 12 months after
the termination of the Agreement as described above a further U.S. $10 million
amount becomes payable to VERITAS.
In the event that the VERITAS shareholders do not approve the terms of the
Agreement, VERITAS shall pay the Company a fee of U.S. $2 million and upon such
payment, shall have a worldwide, perpetual, royalty-free and fully-paid license
to use, modify, create derivative works of, copy and distribute certain Company
software.
13. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
STATES
The Company's financial statements have been prepared in accordance with
accounting principles generally accepted ("GAAP") in Canada which, in the case
of the Company, conform in all material respects with those in the United
States, except as outlined below:
(a) Statement of Operations:
The application of U.S. GAAP would have the effect of including in
compensation expense the value of common share purchase options granted to
certain officers and employees by the Company's founding shareholders, as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss as reported........................ $(1,141,437) $(1,869,606) $(1,569,806)
Increase in compensation expense............ -- -- 132,000
----------- ----------- -----------
Net loss, U.S. GAAP......................... $(1,141,437) $(1,869,606) $(1,701,806)
=========== =========== ===========
Net loss per share U.S. GAAP................ $ (0.18) $ (0.25) $ (0.18)
=========== =========== ===========
</TABLE>
The Company retroactively adopted SOP 97-2 (see note 1(a)) for Canadian
GAAP purposes in the third quarter of 1998. For US GAAP purposes SOP 97-2
requires prospective adoption beginning in the Company's first quarter of 1998.
In the case of the Company's 1996 and 1997 revenue as recorded in accordance
with Canadian GAAP, the application of SOP 97-2 would not have had any effect.
As a result the Company's revenues as recorded in the Statement of Operations
are the same under both Canadian an US GAAP.
(b) Balance Sheet:
The application of U.S. GAAP would have the following effect on the Balance
Sheet as at December 31, 1997 from reclassifying shares issued which required
regulatory approval from shareholders' deficit to liabilities. At December 31,
1998 the application of U.S. GAAP would not have an effect on assets or on the
Balance Sheet captions presented below.
F-11
<PAGE> 339
TELEBACKUP SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(AMOUNTS IN CANADIAN DOLLARS)
13. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
STATES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------
INCREASE
AS REPORTED (DECREASE) U.S. GAAP
----------- ---------- ----------
<S> <C> <C> <C>
Liabilities.................................... $3,271,808 $ 740,000 $4,011,808
Shareholders' deficiency....................... (1,641) (740,000) (741,641)
</TABLE>
In addition, under Canadian GAAP, at December 31, 1998 the Company
classified $302,260 (1997 -- $375,200) of a demand loan as a long-term liability
because that portion of the scheduled installment payments are due beyond one
year. Under U.S. GAAP, the entire note would be considered a current liability.
(c) Statement of Changes in Financial Position:
The application of U.S. GAAP would have the effect of eliminating non-cash
items and excluding restricted cash from the definition of cash as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- --------- -----------
<S> <C> <C> <C>
Investing:
Net additions of capital assets acquired with
shares............................................. $-- $ 740,000 $ --
Restricted cash....................................... -- (124,123) 124,123
Financing:
Issue of shares for non-cash consideration and
non-cash charges................................... -- (785,300) (2,561,834)
Conversion of debentures.............................. -- 45,300 2,932,360
Debt issue costs...................................... -- -- (370,526)
== ========= ===========
</TABLE>
The Statement of Changes in Financial Position major categories would be
presented under U.S. GAAP as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- ----------
<S> <C> <C> <C>
Operating activities............................. $(1,134,765) $(2,040,238) $1,650,010
Investing activities............................. (183,636) (271,712) (226,457)
Financing activities............................. 2,206,401 2,623,275 3,491,618
=========== =========== ==========
888,000 311,325 4,915,171
Cash position at beginning of year............... 37,128 925,128 1,236,453
----------- ----------- ----------
Cash position at end of year..................... $ 925,128 $ 1,236,453 $6,151,624
=========== =========== ==========
</TABLE>
(d) Comprehensive income (loss):
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for reporting and disclosure of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set of
general purpose financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997 and requires reclassification of financial
statements for earlier periods to be provided for comparative purposes. The
Company adopted SFAS No. 130 on January 1, 1998, however, no incremental
disclosures are required as the Company does not have any elements of
comprehensive income (loss) except for the net loss reported in the Statements
of Operations.
F-12
<PAGE> 340
INDEX TO COMBINED FINANCIAL STATEMENTS
OF NETWORK & STORAGE MANAGEMENT GROUP,
A DIVISION OF SEAGATE SOFTWARE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Combined Balance Sheets..................................... F-14
Combined Statements of Operations........................... F-15
Combined Statements of Cash Flows........................... F-16
Combined Statements of Group Equity......................... F-17
Notes to Combined Financial Statements...................... F-18
Report of Ernst & Young LLP, Independent Auditors........... F-44
</TABLE>
F-13
<PAGE> 341
NETWORK & STORAGE MANAGEMENT GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 27, JULY 3, JANUARY 1,
1997 1998 1999
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash.................................................... $ 921 $ 4,879 $ --
Accounts receivable, net................................ 14,387 15,982 23,706
Inventories............................................. 2,907 711 679
Loan receivable from Seagate Technology and
affiliates............................................ -- -- 21,011
Other current assets.................................... 2,589 480 4,205
--------- --------- ---------
Total current assets.......................... 20,804 22,052 49,601
Equipment and leasehold improvements, net............... 17,066 11,338 11,455
Goodwill and other intangibles, net..................... 56,217 41,331 34,891
--------- --------- ---------
Total assets.................................. $ 94,087 $ 74,721 $ 95,947
========= ========= =========
LIABILITIES
Loan payable to Seagate Technology and affiliates....... $ 25,616 $ 10,636 $ --
Accounts payable........................................ 5,674 3,782 4,530
Accrued employee compensation........................... 8,304 8,011 10,886
Accrued expenses........................................ 9,785 7,143 9,122
Accrued income taxes.................................... -- 1,290 12,704
Deferred revenue........................................ 3,573 3,880 5,790
--------- --------- ---------
Total current liabilities..................... 52,952 34,742 43,032
Deferred income taxes................................... 6,233 1,691 1,021
Other liabilities....................................... 301 255 240
--------- --------- ---------
Total liabilities............................. 59,486 36,688 44,293
Commitments and contingencies...........................
GROUP EQUITY
Contributed capital..................................... 258,010 258,586 258,884
Accumulated deficit..................................... (223,409) (220,553) (207,230)
--------- --------- ---------
Total group equity............................ 34,601 38,033 51,654
--------- --------- ---------
Total liabilities and group equity............ $ 94,087 $ 74,721 $ 95,947
========= ========= =========
</TABLE>
See notes to combined financial statements.
F-14
<PAGE> 342
NETWORK & STORAGE MANAGEMENT GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SIX MONTHS ENDED
------------------------------ -----------------------
JUNE 28, JUNE 27, JULY 3, JANUARY 2, JANUARY 1,
1996 1997 1998 1998 1999
-------- -------- -------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Licensing.............................. $102,869 $130,661 $160,192 $76,258 $97,671
Licensing from Seagate Technology...... 9,374 4,920 5,048 2,383 3,802
Maintenance, support and other......... 4,499 5,921 9,806 4,672 5,927
-------- -------- -------- ------- -------
Total revenues................. 116,742 141,502 175,046 83,313 107,400
Cost of revenues:
Licensing.............................. 13,211 11,834 13,714 7,134 5,025
Licensing from Seagate Technology...... 3,999 1,834 411 307 272
Maintenance, support and other......... 194 789 2,067 883 1,733
Amortization of developed
technologies........................ 9,941 17,655 7,143 4,738 1,580
-------- -------- -------- ------- -------
Total cost of revenues......... 27,345 32,112 23,335 13,062 8,610
-------- -------- -------- ------- -------
Gross profit............................. 89,397 109,390 151,711 70,251 98,790
Operating expenses:
Sales and marketing.................... 55,875 68,238 68,314 33,384 40,975
Research and development............... 32,543 33,565 31,677 15,903 17,903
General and administrative............. 20,031 26,021 22,254 11,579 10,446
In-process research and development.... 61,066 -- 6,800 -- --
Amortization of goodwill and other
intangibles......................... 13,035 20,250 13,236 8,008 5,152
Restructuring costs.................... 9,502 2,524 -- -- --
-------- -------- -------- ------- -------
Total operating expenses....... 192,052 150,598 142,281 68,874 74,476
-------- -------- -------- ------- -------
Income (loss) from operations............ (102,655) (41,208) 9,430 1,377 24,314
Interest expense......................... (1,013) (2,733) (768) (602) (74)
Other, net............................... 308 155 55 (65) 303
-------- -------- -------- ------- -------
Interest and other, net.................. (705) (2,578) (713) (667) 229
-------- -------- -------- ------- -------
Income (loss) before income taxes........ (103,360) (43,786) 8,717 710 24,543
Benefit from (provision for) income
taxes.................................. 8,764 10,586 (5,861) (1,960) (11,220)
-------- -------- -------- ------- -------
Net income (loss)........................ $(94,596) $(33,200) $ 2,856 $(1,250) $13,323
======== ======== ======== ======= =======
</TABLE>
See notes to combined financial statements.
F-15
<PAGE> 343
NETWORK & STORAGE MANAGEMENT GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SIX MONTHS ENDED
--------------------------------- -----------------------
JUNE 28, JUNE 27, JULY 3, JANUARY 2, JANUARY 1,
1996 1997 1998 1998 1999
--------- --------- --------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................... $ (94,596) $ (33,200) $ 2,856 $ (1,250) $ 13,323
Adjustments to reconcile net income
(loss) to net cash from operating
activities:
Depreciation and amortization... 24,274 32,642 28,018 15,670 9,248
Deferred income taxes........... (1,700) (7,505) (4,542) (2,796) (670)
Write-off of in-process research
and development............... 61,066 -- 6,800 -- --
Write-off or write-down of
goodwill and intangibles...... 2,157 13,106 1,900 1,900 --
Write-offs due to restructure... 4,427 1,494 -- -- --
Other........................... 400 -- -- -- --
Changes in operating assets and
liabilities:
Accounts receivable........... (8,420) 7,432 (1,360) 1,393 (7,724)
Inventories................... 117 (1,588) 2,206 997 32
Other current assets.......... 848 (419) 2,118 356 (3,725)
Accounts payable.............. 2,636 (1,581) (2,218) (1,285) 748
Accrued employee
compensation............... 1,211 1,738 (371) 998 2,875
Accrued expenses.............. 5,899 -- (2,671) 1,605 1,979
Accrued income taxes.......... (950) 3,486 1,866 3,991 11,712
Deferred revenue.............. 88 (81) 232 73 1,910
Other liabilities............. (3,130) (399) (46) (31) (15)
--------- --------- --------- -------- --------
Net cash provided by (used in)
operating activities.......... (5,673) 15,125 34,788 21,621 29,693
INVESTING ACTIVITIES
Acquisitions of businesses, net of
cash acquired...................... (31,102) -- (10,000) -- --
Acquisition of equipment and
leasehold improvements, net........ (9,380) (12,625) (3,530) (1,956) (2,635)
Acquisition of intangibles........... -- -- (2,320) -- (290)
Other, net........................... 4 -- -- -- --
--------- --------- --------- -------- --------
Net cash used in investing
activities.................... (40,478) (12,625) (15,850) (1,956) (2,925)
FINANCING ACTIVITIES
Funding by Seagate Technology for
acquisitions of businesses......... 27,143 -- -- -- --
Borrowings from Seagate Technology... 131,287 144,427 160,347 67,199 67,904
Repayments to Seagate Technology..... (113,665) (150,398) (175,327) (86,000) (99,551)
--------- --------- --------- -------- --------
Net cash provided by (used in)
financing activities.......... 44,765 (5,971) (14,980) (18,801) (31,647)
Effect of exchange rate changes on
cash............................... (2) -- -- -- --
--------- --------- --------- -------- --------
Increase (decrease) in cash..... (1,388) (3,471) 3,958 864 (4,879)
Elimination of Arcada's net cash
activity for the duplicated
six months ended December 30,
1995.......................... 1,768 -- -- -- --
Cash at the beginning of the
period............................. 4,012 4,392 921 921 4,879
--------- --------- --------- -------- --------
Cash at the end of the period........ $ 4,392 $ 921 $ 4,879 $ 1,785 $ --
========= ========= ========= ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest............. $ 32 $ 156 $ -- $ -- $ --
Cash paid for income taxes......... 1,694 304 1,814 $ 64 $ 376
</TABLE>
See notes to combined financial statements.
F-16
<PAGE> 344
NETWORK & STORAGE MANAGEMENT GROUP
COMBINED STATEMENTS OF GROUP EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
FOR THE SIX MONTHS ENDED JANUARY 1, 1999, OTHER
AND FOR THE YEARS ENDED JULY 3, 1998, JUNE 27, CONTRIBUTED COMPREHENSIVE ACCUMULATED
1997 AND JUNE 28, 1996, CAPITAL INCOME DEFICIT TOTAL
- ---------------------------------------------- ----------- ------------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1995.................... $140,610 $ 2 $ (95,693) $ 44,919
Acquisition by Seagate Technology of OnDemand
Software, Inc. and minority interest of
Arcada Holdings, Inc...................... 98,249 -- -- 98,249
Acquisition by Seagate Technology of Calypso
Software Systems, Inc..................... 13,799 -- -- 13,799
Income tax benefit from Seagate Technology
stock option exercises.................... 1,866 -- -- 1,866
Foreign currency translation adjustment..... -- (2) -- (2)
Net loss.................................... -- -- (94,596) (94,596)
Elimination of Arcada Holdings, Inc. activity
for the duplicated six months ended December
30, 1995.................................. -- -- 80 80
-------- --- --------- --------
BALANCE AT JUNE 28, 1996.................... 254,524 -- (190,209) 64,315
Income tax benefit from Seagate Technology
stock option exercises.................... 3,486 -- -- 3,486
Net loss.................................... -- -- (33,200) (33,200)
-------- --- --------- --------
BALANCE AT JUNE 27, 1997.................... 258,010 -- (223,409) 34,601
Income tax benefit from Seagate Technology
stock option exercises.................... 576 -- -- 576
Net income.................................. -- -- 2,856 2,856
-------- --- --------- --------
BALANCE AT JULY 3, 1998..................... 258,586 -- (220,553) 38,033
Income tax benefit from Seagate Technology
stock option exercises (unaudited)........ 298 -- -- 298
Net income (unaudited)...................... -- -- 13,323 13,323
-------- --- --------- --------
BALANCE AT JANUARY 1, 1999 (UNAUDITED)...... $258,884 $-- $(207,230) $ 51,654
======== === ========= ========
</TABLE>
See notes to combined financial statements.
F-17
<PAGE> 345
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business. The Network & Storage Management Group ("NSMG" or
the "Network & Storage Management Group") develops and markets software products
and provides related services enabling information technology ("IT")
professionals to manage distributed network resources and to secure and protect
enterprise data. The Network & Storage Management Group operates in a single
industry segment, and its products offer features such as system backup,
disaster recovery, migration, replication, automated client protection, storage
resource management, scheduling, event correlation and desktop management.
The Network & Storage Management Group is an operating division of Seagate
Software, Inc. ("Seagate Software"), which is a majority-owned and consolidated
subsidiary of Seagate Technology, Inc. ("Seagate Technology"), a data technology
company that provides products for storing, managing and accessing digital
information on computer systems. Seagate Software is headquartered in Scotts
Valley, California and has 19 offices and operations in 7 countries worldwide.
Restatement of Financial Statements. The Network & Storage Management Group
had previously allocated a portion of goodwill to developed technology and
evaluated the impairment of goodwill based on the revenues from the related
software. Using this method, the Network & Storage Management Group recorded
write-downs and write-offs of goodwill in fiscal 1997 in the amount of
$10,259,000. The Network & Storage Management Group has re-evaluated its
methodology and determined that goodwill should not be allocated to developed
technology under Accounting Principles Board Opinion 17, "Intangible Assets." As
a result, the Network & Storage Management Group has made adjustments to
decrease the amounts of goodwill previously written-down and written-off from
$10,259,000 to $6,173,000 in fiscal 1997. The additional goodwill of $4,086,000
is being amortized over the remaining estimated useful lives of approximately 5
years.
The effect of this adjustment on previously reported combined financial
statements as of and for the years ended July 3, 1998 and June 27, 1997 is as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
AS REPORTED AS RESTATED
--------------------- ---------------------
AS OF AND FOR AS OF AND FOR
THE YEARS ENDED THE YEARS ENDED
--------------------- ---------------------
JUNE 27, JULY 3, JUNE 27, JULY 3,
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Amortization of goodwill................. $ 23,987 $ 12,456 $ 20,250 $ 13,236
Income (loss) from operations............ (44,945) 10,210 (41,208) 9,430
Net income (loss)........................ (36,937) 3,636 (33,200) 2,856
Goodwill and other intangible assets,
net.................................... 52,480 38,374 56,217 41,331
Accumulated deficit...................... (227,146) (223,510) (223,409) (220,553)
</TABLE>
The effect of this adjustment on previously reported combined financial
statements as of and for the six months ended January 1, 1999 and January 2,
1998 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
AS REPORTED AS RESTATED
----------------------- -----------------------
AS OF AND FOR AS OF AND FOR
THE SIX MONTHS ENDED THE SIX MONTHS ENDED
----------------------- -----------------------
JANUARY 2, JANUARY 1, JANUARY 2, JANUARY 1,
1998 1999 1998 1999
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Amortization of goodwill................. $ 7,618 $ 4,762 $ 8,008 $ 5,152
Income (loss) from operations............ 1,767 24,704 1,377 24,314
Net income (loss)........................ (860) 13,713 (1,250) 13,323
Goodwill and other intangible assets,
net.................................... 40,124 32,324 43,471 34,891
Accumulated deficit...................... (228,006) (209,797) (224,659) (207,230)
</TABLE>
F-18
<PAGE> 346
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Basis of presentation. These financial statements have been prepared using
the historical basis of accounting and are presented as if the Network & Storage
Management Group had existed as an entity separate from Seagate Software and
Seagate Technology during the periods presented. These financial statements
include the historical assets, liabilities, revenues and expenses that are
directly related to the Network & Storage Management Group's operations. For
certain assets and liabilities of Seagate Software that are not specifically
identifiable with the Network & Storage Management Group, estimates have been
used to allocate such assets and liabilities to the Network & Storage Management
Group by applying methodologies management believes are appropriate.
The unaudited quarterly consolidated financial statements presented have
been prepared on a basis consistent with the audited consolidated financial
statements, pursuant to the rules and regulations of the Securities and Exchange
Commission.
The statements of operations include all revenues and costs attributable to
the Network & Storage Management Group, including allocations of certain
corporate administration, finance, and management costs. Such costs were
proportionately allocated to the Network & Storage Management Group based on
detailed inquiries and estimates of time incurred by Seagate Software's
corporate marketing and general and administrative departmental managers. In
addition, certain of Seagate Software's operations are shared locations
involving activities that pertain to the Network & Storage Management Group as
well as to other businesses of Seagate Software. Costs incurred in shared
locations are allocated based on specific identification, or where specific
identification is not possible, such costs are allocated between the Network &
Storage Management Group and other businesses of Seagate Software using
methodologies that management believes are reasonable. Transactions and balances
between entities and locations within the Network & Storage Management Group
have been eliminated.
From August 1994 to June 1996, Seagate Technology acquired seven software
companies that were engaged in developing and marketing network and/or storage
management software products. In addition, in February 1996, Seagate Technology
merged with Conner Peripherals, Inc. ("Conner") in a transaction accounted for
as a pooling-of-interests. In connection with the merger, Seagate Technology
purchased the outstanding minority interests in Conner's storage management
software operations under Arcada Holdings, Inc. ("Arcada"). Also, in June 1998,
the Network & Storage Management Group acquired Eastman Software for $10,000,000
in cash. The amount of capital contributed by Seagate Technology for
acquisitions is determined by the amounts paid for such acquisitions by Seagate
Technology on behalf of the Network & Storage Management Group. The accompanying
financial statements present the combined results of operations of the acquired
companies from the dates of acquisition.
The Network & Storage Management Group operates and reports financial
results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June
30. Accordingly, fiscal 1996 ended on June 28, 1996, fiscal 1997 ended on June
27, 1997, and fiscal 1998 ended on July 3, 1998. Fiscal years 1996 and 1997 were
comprised of 52 weeks, and fiscal 1998 was comprised of 53 weeks. Fiscal 1999
will be a 52-week year and will end on July 2, 1999. All references to years in
the notes to combined financial statements represent fiscal years unless
otherwise noted.
Arcada, which was acquired by the Network & Storage Management Group
pursuant to Seagate Technology's merger with Conner, had a fiscal year that
ended on the Saturday closest to December 31. Accordingly, Arcada's statement of
operations for the year ended December 30, 1995 has been combined with the
Network & Storage Management Group's statement of operations for the year ended
June 30, 1995. In order to conform Arcada's fiscal year end to the Network &
Storage Management Group's fiscal year end, the Network & Storage Management
Group's combined statement of operations for the year ended June 28, 1996
includes six months (July 1, 1995 through December 30, 1995) for Arcada which
are also included in the Network & Storage Management Group's combined statement
of operations for the year ended June 30, 1995.
F-19
<PAGE> 347
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Economic dependence on Seagate Technology. The Network & Storage Management
Group incurred net losses of $94,596,000 and $33,200,000 during 1996 and 1997,
respectively, and had a working capital deficit of $12,690,000 at July 3, 1998.
On July 4, 1998, Seagate Software and Seagate Technology renewed the Revolving
Loan Agreement on substantially the same terms and conditions as the prior
agreement that was dated June 28, 1996. Under the Revolving Loan Agreement,
Seagate Technology finances certain of Seagate Software's working capital needs.
The Revolving Loan Agreement provides for maximum outstanding borrowings of up
to $60,000,000 and is renewable every two years. Outstanding borrowings by the
Network & Storage Management Group from Seagate Technology and affiliates were
$25,616,000 and $10,636,000 at June 27, 1997 and July 3, 1998, respectively and
a net receivable of $21,011,000 (unaudited) at January 1, 1999. Borrowings from
Seagate Technology consist primarily of amounts used to fund the Network &
Storage Management Group's operating activities. A net receivable position
existed as of January 1, 1999 primarily due to an increase in loan repayments to
Seagate Technology resulting from an increase in cash generated from operations.
The loan balance is offset and presented on the balance sheet as a net
receivable or net payable in accordance with the terms of the loan agreement.
Beginning in fiscal 1999, the Network & Storage Management Group will pay
interest at the LIBOR rate plus 2% per annum on such borrowings; the Network &
Storage Management Group previously paid interest at 6%. Interest expense as
presented in the statement of operations primarily relates to interest incurred
under the Revolving Loan Agreement.
The Network & Storage Management Group and Seagate Software are
economically dependent on Seagate Technology and believe that to the extent
future cash flows from operations and borrowings under the existing loan
agreement with Seagate Technology are not sufficient to fund the Network &
Storage Management Group's working capital deficit and planned activities during
the next 12 months, that additional funding will be available at a reasonable
cost from Seagate Technology.
Accounting estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ materially from
those estimates.
Concentration of credit risk. Financial instruments that potentially
subject the Network & Storage Management Group to significant concentrations of
credit risk consist primarily of cash and accounts receivable. The Network &
Storage Management Group places its cash and cash equivalents in high credit
quality financial institutions. Accounts receivable are derived from revenues
earned from customers primarily located in North America. The Network & Storage
Management Group performs ongoing credit evaluations of its customers and
generally does not require collateral. The Network & Storage Management Group
maintains reserves for potential credit losses and historically such losses have
been immaterial. Revenue from one third-party customer, Ingram Micro, accounted
for 17%, 22% and 27% of the Network & Storage Management Group's total revenues
in 1996, 1997 and 1998, 29% (unaudited) and 30% (unaudited) in the six months
ended January 2, 1998 and January 1, 1999, respectively. Revenue from another
third-party customer, Tech Data, accounted for 12% of the Network & Storage
Management Group's total revenues in 1998.
Foreign currency translation. The U.S. dollar is the functional currency
for all of the Network & Storage Management Group's foreign operations. Gains
and losses on the remeasurement into U.S. dollars of amounts denominated in
foreign currencies are included in net income.
Earnings per share. The Network & Storage Management Group is a division of
Seagate Software and has no formal capital structure. Accordingly, earnings per
share information is not presented.
Cash management. Seagate Technology uses a centralized cash management
function for all of its domestic operations, including domestic operations of
the Network & Storage Management Group.
F-20
<PAGE> 348
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Cash and cash equivalents. The Network & Storage Management Group considers
all highly liquid investments with an original maturity of 90 days or less at
the time of purchase to be cash equivalents. The Network & Storage Management
Group typically uses available cash in excess of amounts required for operating
activities to pay amounts due under the Revolving Loan Agreement. Accordingly,
the Network & Storage Management Group has not had significant cash equivalents
to date.
Inventories. Inventories are stated at the lower of cost (first in, first
out method) or market, and consist primarily of materials used in software
products, related supplies and packaging materials.
Equipment and leasehold improvements. Equipment and leasehold improvements
are stated at cost. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets, which range from two to five years.
Assets under capital leases and leasehold improvements are amortized using the
straight-line method over the shorter of the estimated useful lives of the
assets or the remaining lease term.
Goodwill and other intangible assets. Goodwill represents the excess of the
purchase price of acquired companies over the estimated fair values of tangible
and intangible net assets acquired. Goodwill is amortized on a straight-line
basis over five to seven years. The carrying values of long-term assets and
intangibles other than developed technology ("other intangibles") are reviewed
if facts and circumstances suggest that they may be impaired. If this review
indicates that carrying values of long-term assets and other intangibles and
associated goodwill will not be recoverable based on projected undiscounted
future cash flows, carrying values are reduced to estimated fair values by first
reducing goodwill and second by reducing long-term assets and other intangibles.
Other intangible assets consist of trademarks, assembled workforces,
distribution networks, developed technology, customer bases, and covenants not
to compete related to acquisitions accounted for by the purchase method. See
Note on Business Combinations and Acquisitions. Amortization of purchased
intangibles, other than acquired developed technology, is provided on the
straight-line basis over the respective useful lives of the assets ranging from
36 to 60 months for trademarks, 24 to 48 months for assembled workforces and
distribution networks, 12 to 36 months for customer bases and 18 to 24 months
for covenants not to compete. In-process research and development without
alternative future use is expensed when acquired.
Developed technology and capitalized software development costs. The
Network & Storage Management Group applies Statement of Financial Accounting
Standards No. 86 ("SFAS 86"), "Accounting for the Costs of Computer Software to
Be Sold, Leased, or Otherwise Marketed", to software technologies developed
internally, acquired in business acquisitions, and purchased.
Internal development costs are included in research and development and are
expensed as incurred. SFAS 86 requires the capitalization of certain internal
development costs once technological feasibility is established, which based on
the Network & Storage Management Group's development process generally occurs
upon the completion of a working model. As the time period between the
completion of a working model and the general availability of software has been
short, capitalization of internal development costs has not been material to
date. Capitalized costs are amortized based on the greater of the straight-line
basis over the estimated product life (generally 30 to 48 months) or the ratio
of current revenues to the total of current and anticipated future revenues.
Purchased developed technology, including developed technology acquired in
business acquisitions, is amortized based on the greater of the straight-line
basis over the estimated useful life (30 to 48 months) or the ratio of current
revenues to the total of current and anticipated future revenues. The
recoverability of the carrying value of purchased developed technology and
associated goodwill is reviewed periodically. The carrying value of developed
technology is compared to the estimated future gross revenues from that product
reduced by the estimated future costs of completing and disposing of that
product, including the costs of performing maintenance and customer support (net
undiscounted cash flows) and to the extent that the
F-21
<PAGE> 349
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
carrying value exceeds the undiscounted cash flows the difference is written
off. If the developed technology was acquired in a business combination the
carrying value of any related goodwill is also compared to the estimated net
discounted cash flows less the carrying value of the developed technology and if
the carrying value of the goodwill exceeds the net undiscounted cash flows the
difference is written off.
Fair value disclosures. The Network & Storage Management Group maintains
its cash principally with major banks in interest- and non-interest-bearing bank
accounts. There are no realized or unrealized gains or losses and fair value
approximates carrying value for all cash balances.
Pushdown and carveout accounting. Seagate Technology has provided
substantial services to Seagate Software, including general management,
treasury, tax, financial reporting, benefits administration, insurance,
information technology, legal, accounts payable and receivable and credit
functions. Seagate Technology has charged Seagate Software for these services
through corporate expense allocations, and such expenses in turn have been
reallocated by Seagate Software to the Network & Storage Management Group and to
the other businesses of Seagate Software. The amount of corporate expense
allocations is dependent upon the total amount of allocable costs incurred by
Seagate Technology on behalf of Seagate Software and the Network & Storage
Management Group less amounts charged as a specific cost or expense rather than
by allocation. Included in the Network & Storage Management Group's general and
administrative expenses are Seagate Technology allocation charges of $1,771,000,
$1,462,000 and $730,000 for 1996, 1997 and 1998, respectively and $322,000
(unaudited) and $268,000 (unaudited) for the six months ended January 2, 1998
and January 1, 1999, respectively. Included in sales and marketing expenses are
Seagate Technology allocation charges of $14,000, $12,000 and $462,000 for 1996,
1997 and 1998, respectively and $6,000 (unaudited) and $0 (unaudited) for the
six months ended January 2, 1998 and January 1, 1999, respectively. The increase
in sales and marketing expenses in 1998 was due to proportional cost allocations
from Seagate Technology's corporate branding program, which consisted of
television and newspaper advertisements.
The Network & Storage Management Group's employees participated in Seagate
Technology's profit sharing plan through the first quarter of fiscal 1998 and in
Seagate Technology's management bonus plan during 1997. The Network & Storage
Management Group has since adopted its own bonus plan. Compensation expenses
recorded by the Network & Storage Management Group under Seagate Technology's
plans totaled $700,000, $2,664,000 and $0 for 1996, 1997 and 1998, respectively.
The employees of the Network & Storage Management Group also participate in
Seagate Technology Employee Stock Purchase Plan (the "Purchase Plan"). The
Purchase Plan permits eligible employees who have completed thirty days of
employment prior to the inception of the offering period to purchase common
stock of Seagate Technology through payroll deductions at the lower of 85% of
the fair market value of the common stock at the beginning or at the end of each
six-month offering period. Under the plan, approximately 34,500, 71,200 and
75,700 shares of common stock of Seagate Technology were issued to the Network &
Storage Management Group's employees in 1996, 1997 and 1998, respectively.
The U.S. employees of the Network & Storage Management Group also
participate in the Seagate Technology tax-deferred savings plan, the Seagate
Technology, Inc. Savings and Investment Plan (the "401(k) plan"). The 401(k)
plan is designed to provide qualified employees with an accumulation of funds at
retirement. Qualified employees may elect to make contributions to the 401(k)
plan on a monthly basis. The Network & Storage Management Group may make annual
contributions to the 401(k) plan at the discretion of the Board of Directors.
Network & Storage Management Group contributions were immaterial in fiscal years
1996 and 1997 and were $560,000 in fiscal year 1998.
Revenue recognition. During fiscal 1998 and prior, the Network & Storage
Management Group recognized revenue in accordance with the American Institute of
Certified Public Accountants Statement of Position 91-1, "Software Revenue
Recognition". The Network & Storage Management Group's total revenues are
derived from license revenues for its various software products as well as
maintenance, support,
F-22
<PAGE> 350
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
training and consulting. Revenues for maintenance, support services, training
and consulting are recognized separately from software licenses. License
revenues are recognized upon delivery of the product if no significant vendor
obligations remain and collection of the resulting receivable is probable.
Allowances for estimated future returns are provided upon shipment. Maintenance
and support revenues consist of ongoing support and product updates and are
recognized ratably over the term of the contract, which is typically twelve
months. Revenues from training and consulting are recognized when the services
are performed.
Revenues from resellers, including VARs, OEMs, distributors and Seagate
Technology, are primarily recognized at the time of product delivery to the
reseller. The Company's policy is to defer such revenues if resale contingencies
exist. Factors considered in the determination of whether such contingencies
exist include, but are not limited to, payment terms, collectibility and past
history with the customer.
Product returns are reserved for in accordance with SFAS 48. Such returns
are estimated based on historical return rates. The Company considers other
factors such as fixed and determinable fees, resale contingencies, arms length
contract terms and the ability to reasonably estimate returns to ensure
compliance with SFAS 48. Additionally, the Network and Storage Management Group
continually reviews its estimated product return provisions to ensure that they
are reasonable in relation to actual product returns, which are quantified based
on approved return authorization forms received prior to fiscal cutoff dates.
Historically, the Network and Storage Management Group's estimated product
return rates have not varied materially from actual product return rates.
In October 1997 and March 1998, the American Institute of Certified Public
Accountants issued Statements of Position 97-2, "Software Revenue Recognition"
("SOP 97-2") and 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition" ("SOP 98-4"). SOP 97-2 and SOP 98-4 provide
guidance on recognizing revenue on software transactions and supersede SOP 91-1.
The Network & Storage Management Group has assessed the impact of the
requirements of SOP 97-2 and SOP 98-4 and has changed certain of its policies
and procedures. The Network & Storage Management Group's adoption of SOP 97-2
and SOP 98-4 for transactions entered into after July 3, 1998 did not have a
significant impact on revenues or results of operations for the first six months
of fiscal 1999.
Advertising expense. The cost of advertising is expensed as incurred. The
Network & Storage Management Group does not incur any direct response
advertising costs. Advertising costs totaled $13,914,000, $18,571,000 and
$12,358,000 in 1996, 1997 and 1998, respectively.
Accounts receivable. Accounts receivable are summarized below, in
thousands:
<TABLE>
<CAPTION>
JUNE 27, JULY 3, JANUARY 1,
1997 1998 1999
-------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable......................... $15,340 $16,780 $24,324
Less allowance for non-collection........... (953) (798) (618)
------- ------- -------
$14,387 $15,982 $23,706
======= ======= =======
</TABLE>
Inventory. The write-downs of inventory to the lower of cost or market were
$800,000, $531,000 and $3,674,000 in 1996, 1997 and 1998, respectively. The
write-down in fiscal 1998 was a result of consolidating Seagate Software's
fulfillment warehouses and changing their strategy to have fulfillment
activities handled by an outsourcing partner. As a result of this consolidation
excess and obsolete components and finished goods were written down. The
write-down in fiscal 1997 and 1996 related to excess and obsolete components and
finished goods inventory.
F-23
<PAGE> 351
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Equipment and leasehold improvements. Equipment and leasehold improvements
consisted of the following, in thousands:
<TABLE>
<CAPTION>
JUNE 27, JULY 3, JANUARY 1,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment................................. $ 24,063 $ 21,366 $ 23,636
Leasehold improvements.................... 5,274 5,783 6,881
-------- -------- --------
29,337 27,149 30,517
Less accumulated depreciation and
amortization............................ (12,271) (15,811) (19,062)
-------- -------- --------
$ 17,066 $ 11,338 $ 11,455
======== ======== ========
</TABLE>
Depreciation is recognized on the straight-line basis over the respective
useful lives of the assets, ranging from two to five years for equipment and the
life of the lease for building and leasehold improvements. Depreciation expense
was $3,455,000, $7,393,000 and $9,111,000 in 1996, 1997 and 1998, respectively.
Goodwill and other intangibles. Goodwill and other intangibles consisted of
the following, in thousands:
<TABLE>
<CAPTION>
JUNE 27, JULY 3, JANUARY 1,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill.................................. $ 50,286 $ 49,039 $ 49,039
Developed technology...................... 28,486 28,449 28,739
Trademarks................................ 3,653 3,653 3,653
Assembled workforce....................... 4,638 2,568 2,568
Distribution network...................... 2,925 2,925 2,925
Other intangibles......................... 8,604 9,743 9,743
-------- -------- --------
98,592 96,377 96,667
Accumulated amortization.................. (42,375) (55,046) (61,776)
-------- -------- --------
Goodwill and other intangibles............ $ 56,217 $ 41,331 $ 34,891
======== ======== ========
</TABLE>
Amortization of developed technologies is included in costs of revenues. In
1996, 1997 and 1998 amortization expense for goodwill and other intangibles
includes write-offs and write-downs to the estimated fair value of $2,157,000,
$6,173,000 and $1,900,000, respectively. In 1997 the amortization of acquired
developed technologies included in cost of revenues includes write-downs and
write-offs to net realizable value of $6,918,000.
Periodically, the Network & Storage Management Group reviews the carrying
value of its intangibles other than developed technology to ascertain if there
has been any impairment. In 1996, the former owner of Frye Computer Systems,
Inc. (a 1995 acquisition) and its original founder, Mr. Frye, left the Network &
Storage Management Group. With his departure, the Network & Storage Management
Group decided to release Mr. Frye from the remaining period of his covenant not
to compete and to not use the Frye name trademark in future products. As a
result, the remaining carrying value of the covenant not to compete and
trademark and associated goodwill totalling $2,157,000 were written off.
The Network & Storage Management Group also periodically reviews the net
realizable value of developed technology under the guidance of SFAS No. 86. The
Network & Storage Management Group compares the estimated undiscounted future
cash flows on a product by product basis to the unamortized cost of developed
technology. Unamortized costs in excess of the estimated undiscounted cash flows
are written off. The impairment write-offs for developed technology recorded in
1997 were caused by a number of factors including the Network & Storage
Management Group's decision to stop selling products or technologies such as
DOS, new acquisitions, or new product designs. The Network & Storage Management
Group is not currently generating revenue from any products for which the
related developed technology has been impaired.
F-24
<PAGE> 352
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
In addition, the Network & Storage Management Group assesses the impairment
of goodwill not within the scope of SFAS 121 under Accounting Principles Board
Opinion No. 17, "Intangible Assets" (APB 17). During 1997, the Network & Storage
Management Group wrote-off and wrote-down goodwill amounting to $6,173,000. The
write-offs and write-downs related to the decision to abandon and stop selling
all current and future products acquired from Frye Computer Systems, Inc., the
decision to abandon and stop selling virtually all current and future products
acquired in the acquisition of Palindrome Corporation, and the decision to close
down and sell Calypso Software Systems, Inc.
The Network & Storage Management Group has capitalized the assembled
workforce in most of its acquisitions. When the Network & Storage Management
Group reviews the carrying value of its intangibles, if there remains less than
5% of the original workforce the related intangible is deemed impaired. In 1998,
the Network & Storage Management Group wrote off the workforces and associated
goodwill for three previous acquisitions, Network Computing, Inc., Netlabs,
Inc., and Creative Interaction Technologies, Inc. because less than 5% of the
original workforce remained.
The following table provides quantitative information about the write-offs
and write-downs of goodwill and other intangibles, in thousands:
<TABLE>
<CAPTION>
1996 1997 1998
--------------------- --------------------- ---------------------
DEVELOPED
INTANGIBLE GOODWILL TECHNOLOGY GOODWILL INTANGIBLE GOODWILL
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
COVENANT NOT TO COMPETE
Frye Computer Systems, Inc. ......... $1,188 $744
TRADEMARK
Frye Computer Systems, Inc. ......... 225
DEVELOPED TECHNOLOGY
Netlabs, Inc. ....................... $ 780
Palindrome Corporation............... 2,740 $ 2,930
Calypso Software Systems, Inc. ...... 1,627 2,573
Creative Interaction Technologies,
Inc. ............................. 1,176
Frye Computer Systems, Inc. ......... 463 670
Network Computing, Inc. ............. 132
ASSEMBLED WORKFORCE
Network Computing, Inc. ............. $120 $ 155
Netlabs, Inc. ....................... 431 1,045
Creative Interaction Technologies,
Inc. ............................. 82 67
------ ---- ------ ------- ---- ------
Total........................ $1,413 $744 $6,918 $ 6,173 $633 $1,267
====== ==== ====== ======= ==== ======
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
The Network & Storage Management Group intends to adopt Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), and No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131") during fiscal 1999. Both standards will require
additional disclosure, but will not have a material effect on the Network &
Storage Management Group's financial position or results of operations. SFAS 130
establishes standards for the reporting and display of comprehensive income,
including net income and items that are currently reported directly as a
component of stockholders' equity such as changes in foreign currency
translation adjustments and changes in the fair value of available-for-sale
financial instruments. SFAS 131 changes the way companies report segment
information and requires segments to be determined based on how management
measures performance and makes decisions about allocating resources. The Network
& Storage Management Group
F-25
<PAGE> 353
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
has not provided the disclosures related to SFAS 130 for the six month period
ended January 1, 1999 as these amounts are immaterial.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance on capitalization of the costs incurred for computer software developed
or obtained for internal use. It also provides guidance for determining whether
computer software is internal-use software and on accounting for the proceeds of
computer software originally developed or obtained for internal use and then
subsequently sold to the public. The Network & Storage Management Group has not
yet determined the impact, if any, of adopting this statement. The disclosures
prescribed by SOP 98-1 will be effective for the Network & Storage Management
Group's combined financial statements for the fiscal year ending June 30, 2000.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that derivatives
be recognized in the balance sheet at fair value and specifies the accounting
for changes in fair value. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999, and will be effective for the
Network & Storage Management Group's fiscal year 2000. The Network & Storage
Management Group generally does not use derivative financial instruments.
BUSINESS COMBINATIONS AND ACQUISITIONS
The Network & Storage Management Group has a history of acquisitions and
during the three most recent fiscal years acquired Arcada Holdings, Inc.,
Calypso Software Systems, Inc., OnDemand Software, Inc. and Sytron Corporation
in 1996, made no acquisitions in 1997, and acquired Eastman Software Storage
Management Group, Inc. in 1998.
In accordance with the provisions of APB Opinion 16, all identifiable
assets, including identifiable intangible assets, were assigned a portion of the
cost of the acquired enterprise (purchase price) on the basis of their
respective fair values. This included the portion of the purchase price properly
attributed to incomplete research and development projects that should be
expensed according to the requirements of Interpretation 4 of SFAS No. 2.
Valuation of acquired intangible assets. To determine the value of
developed technologies, the expected future cash flows of existing product and
core technologies were evaluated, taking into account risks related to the
characteristics and applications of each product, existing and future markets
and assessments of the life cycle stage of each product. Based on this analysis,
the existing technologies that had reached technological feasibility were
capitalized.
To determine the value of in-process research and development, the Network
& Storage Management Group considered, among other factors, the state of
development of each project, the time and cost needed to complete each project,
expected income, associated risks which included the inherent difficulties and
uncertainties in completing each project and thereby achieving technological
feasibility and risks related to the viability of and potential changes to
future target markets. This analysis resulted in amounts assigned to in-process
research and development for projects that had not yet reached technological
feasibility and which did not have alternative future uses. The Income Approach,
which includes analysis of markets, cash flows, and risks associated with
achieving such cash flows, was the primary technique utilized in valuing each
in-process research and development project. The underlying in-process projects
acquired were the most significant and uncertain assumptions utilized in the
valuation analysis of in-process research & development projects.
To determine the value of developed technologies, the expected future cash
flows of existing product technologies were evaluated, taking into account risks
related to the characteristics and applications of each
F-26
<PAGE> 354
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
product, existing and future markets and assessments of the life cycle stage of
each product. Based on this analysis, the existing technologies that had reached
technological feasibility were capitalized.
To determine the value of the distribution networks and customer bases, the
Network & Storage Management Group considered, among other factors, the size of
the current and potential future customer bases, the quality of existing
relationships with customers, the historical costs to develop customer
relationships, the expected income and associated risks. Associated risks
included the inherent difficulties and uncertainties in transitioning the
business relationships from the acquired entity to the Network & Storage
Management Group and risks related to the viability of and potential changes to
future target markets.
To determine the value of trademarks, the Network & Storage Management
Group considered, among other factors, the assumption that in lieu of ownership
of a trademark, the Network & Storage Management Group would be willing to pay a
royalty in order to exploit the related benefits of such trademark.
To determine the value of assembled workforces, the Network & Storage
Management Group considered, among other factors, the costs to replace existing
employees including search costs, interview costs and training costs.
Goodwill is determined based on the residual difference between the amount
paid and the values assigned to identified tangible and intangible assets. If
the values assigned to identified tangible and intangible assets exceed the
amounts paid, including the effect of deferred taxes, the values assigned to
long-term assets were reduced proportionally.
Acquisition of Sytron Corporation. In July 1995, Arcada Software, Inc., a
majority-owned subsidiary of Arcada, acquired the assets and liabilities of
Sytron Corporation, a company that developed, produced and marketed software
products for data storage management. The purchase price of approximately
$5,017,000 was paid in cash. Arcada accounted for the acquisition using the
purchase method, and the results of operations of Sytron are only included in
the Network & Storage Management Group's operations since the acquisition was
completed. The following is a summary of the purchase price allocation, in
thousands:
<TABLE>
<S> <C>
Current assets and other tangible assets.... $ 848
Liabilities assumed......................... (508)
Developed technology........................ 1,487
In-process research and development......... 2,817
Goodwill.................................... 373
------
$5,017
======
</TABLE>
Acquisition of minority interest of Arcada Holdings, Inc. The combination
of Seagate Software with Arcada Holdings, Inc. ("Arcada"), a company which
developed, marketed and supported data protection and storage management
software products that operated across multiple desktop and client/server
environments, was accounted for as a pooling-of-interests and, accordingly, all
prior periods presented in the accompanying combined financial statements
include the accounts and operations of Arcada. Arcada's results of operations
for the duplicated six months ended December 30, 1995 were as follows, in
thousands:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 30, 1995
-----------------
<S> <C>
Net revenues......................... $37,700
Operating expenses................... 29,320
Other income......................... 588
Net loss............................. (80)
</TABLE>
F-27
<PAGE> 355
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
In connection with the pooling-of-interests, the Network & Storage
Management Group acquired the then outstanding minority interest of Arcada. The
minority interest was approximately 31% on a fully diluted basis. The
acquisition of the minority interest was accounted for as a purchase and in
connection with the acquisition, Seagate Technology issued 2,553,000 shares of
common stock with a fair market value of approximately $52,009,000 and 1,817,000
options to purchase common stock with a fair market value of approximately
$33,065,000 (aggregate fair value of $85,074,000). The value of the shares of
Seagate Technology common stock issued to shareholders of Arcada was determined
based on the average market price of Seagate Technology's common stock five days
before and five days after October 3, 1995, the date that the terms of the
acquisition were agreed to. The options were issued to employees of Arcada and
Conner, Arcada's parent, in exchange for options of Arcada. The options have a
term of 10 years and vest 1/16 per quarter over 4 years. The value of the
options were based on the intrinsic value of the options, which approximates the
fair value. The following is a summary of the purchase price allocation for the
acquisition of the minority interest, in thousands:
<TABLE>
<S> <C>
Assembled workforce........................ $ 1,355
Distribution network....................... 94
Corporate accounts......................... 375
Strategic alliances........................ 1,437
OEM agreements............................. 3,217
Value added resellers...................... 2,030
Trademarks................................. 2,811
Developed technology....................... 4,623
In-process research and development........ 43,949
Deferred tax liability..................... (6,254)
Goodwill................................... 31,437
-------
$85,074
=======
</TABLE>
Intangible assets were identified through (i) analysis of the acquisition
agreement, (ii) consideration of the Network & Storage Management Group's
intentions for future use of the acquired assets, and (iii) analysis of data
available concerning Arcada's products, technologies, markets, historical
financial performance, estimates of future performance and the assumptions
underlying those estimates. The economic and competitive environment in which
the Network & Storage Management Group and Arcada operate was also considered in
the valuation analysis.
Specifically, purchased research and development ("purchased R&D") was
identified and valued through extensive interviews and discussions with the
Network & Storage Management Group and Arcada management and the analysis of
data provided by Arcada concerning Arcada's developmental products their
respective stage of development, the time and resources needed to complete them,
their expected income generating ability, target markets and associated risks.
The Income Approach, which includes an analysis of the markets, cash flows, and
risks associated with achieving such cash flows, was the primary technique
utilized in valuing each purchased R&D project. A portion of the purchase price
was allocated to the developmental projects based on the appraised fair values
of such projects.
DISCUSSION OF IN-PROCESS RESEARCH & DEVELOPMENT ONE TIME WRITE-OFF
OVERVIEW
As of the acquisition date, Arcada had spent a significant amount of money
on research and development related to the re-development efforts to add
features and utilities to the Desktop, NetWare and Windows NT products such as
disk grooming, hierarchical storage management, upgraded graphical user
interfaces, file and server replication, and server mirroring in order to
continue to meet increasingly complex user needs.
F-28
<PAGE> 356
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
In accordance with SFAS 86, paragraph 38 ("Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed"), "the cost of
software purchased to be integrated with another product or process will be
capitalized only if technological feasibility was established for the software
component and if all research and development activities for the other
components of the product or process were completed at the time of the
purchase." Although Seagate purchased existing products from Arcada, since the
majority of the original underlying code and base technology for the NetWare and
Windows NT product families was completed in the 1990 time frame, the
technologies, as of the date of valuation, were undergoing significant re-
development.
ASSUMPTIONS
Revenue
Future revenue estimates were generated for the following product families:
(i) Desktop, (ii) NetWare, and (iii) Windows NT. Aggregate revenue for Arcada
products was estimated to be approximately $94 million for the ten and one-half
months ending December 31, 1996. Revenues were estimated to increase to
approximately $161 million and $234 million for calendar years 1997 and 1998
when most of the in-process projects were expected to be complete and shipping.
Thereafter, revenue was estimated to increase at rates ranging from 35% to 40%
for calendar years 1999 through 2002. Revenue estimates were based on (i)
aggregate revenue growth rates for the business as a whole, (ii) individual
product revenues, (iii) growth rates for the storage management software market,
(iv) the aggregate size of the storage management software market, (v)
anticipated product development and introduction schedules, (vi) product sales
cycles, and (vii) the estimated life of a product's underlying technology. The
estimated product development cycle for the new products ranged from 12 to 18
months.
Operating expenses
Operating expenses used in the valuation analysis of Arcada included (i)
cost of goods sold, (ii) general and administrative expense, (iii) selling and
marketing expense, and (iv) research and development expense. In developing
future expense estimates, an evaluation of both Seagate Software and Arcada's
overall business model, specific product results, including both historical and
expected direct expense levels (as appropriate), and an assessment of general
industry metrics was conducted.
Cost of goods sold. Cost of goods sold, expressed as a percentage of
revenue, for the developed and in-process technologies ranged from approximately
5% to 30% (30% for Desktop, 10% for NetWare, and 5% for Windows NT). The Network
& Storage Management Group's cost of goods sold was 23% for fiscal 1996, 23% for
fiscal 1997, and 13% for fiscal 1998.
General and administrative ("G&A") expense. G&A expense, expressed as a
percentage of revenue, for the developed and in-process technologies ranged from
12% in calendar 1996 to 8% in calendar 1998 and beyond.
Selling and marketing ("S&M") expense. S&M expense, expressed as a
percentage of revenue, for the developed and in-process technologies was
estimated to be 30% throughout the estimation period.
Research and development ("R&D") expense. R&D expense consists of the costs
associated with activities undertaken to correct errors or keep products updated
with current information (also referred to as "maintenance" R&D). Maintenance
R&D includes all activities undertaken after a product is available for general
release to customers to correct errors or keep the product updated with current
information. These activities include routine changes and additions. The
maintenance R&D expense was estimated to be 5% of revenue for the developed
technologies and 3% of revenue for the in-process technologies throughout the
estimation period.
F-29
<PAGE> 357
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
In addition, as of the date of acquisition, the Network & Storage
Management Group management anticipated the costs to complete the Desktop,
NetWare, and Windows NT technologies at approximately $6.8 million, $4.5
million, and $7.5 million, respectively. Since the acquisition date, all
projects originally acquired from Arcada were commercially released prior to the
end of the fourth quarter of fiscal 1997.
Effective tax rate
The effective tax rate utilized in the analysis of developed and in-process
technologies was 38%, which reflects Seagate's combined federal and state
statutory income tax rates, exclusive of non-recurring charges at the time of
the acquisition and estimated for future years.
Discount rate
The discount rates selected for Arcada's developed and in-process
technologies were 15% and 17.5% respectively. In the selection of the
appropriate discount rates, consideration was given to (i) the Weighted Average
Cost of Capital (approximately 13% to 15% at the date of acquisition) of its
parent, Seagate Technology, Inc. and (ii) the Weighted Average Return on Assets
(approximately 18%). The discount rate utilized for the in-process technology
was determined to be higher than Seagate's WACC due to the fact that the
technology had not yet reached technological feasibility as of the date of
valuation. In utilizing a discount rate greater than Seagate's WACC, management
has reflected the risk premium associated with achieving the forecasted cash
flows associated with these projects.
Acquisition of OnDemand Software, Inc. In March 1996, the Network & Storage
Management Group acquired all of the outstanding shares and stock options of
OnDemand Software, Inc. ("OnDemand"), a company engaged in developing, producing
and marketing WinINSTALL, a product which automates installation, upgrades and
uninstalls of network applications throughout the enterprise. The purchase price
of approximately $13,425,000 was paid in cash. The Network & Storage Management
Group accounted for the acquisition using the purchase method, and the results
of operations of OnDemand are only included in the Network & Storage Management
Group's operations since the date the acquisition was completed. The following
is a summary of the purchase price allocation, in thousands:
<TABLE>
<S> <C>
Current assets and other tangible
assets................................ $ 832
Liabilities assumed...................... (227)
Assembled workforce...................... 270
Developed technology..................... 2,000
Covenant not to compete.................. 50
In-process research and development...... 8,900
Goodwill................................. 1,600
-------
$13,425
=======
</TABLE>
OnDemand develops and markets electronic software distribution products
involved in network management in the client/server environment. OnDemand's
flagship product is WinINSTALL. As of the date of acquisition, OnDemand was in
the process of developing the next generation of WinINSTALL Version 6.0. A
significant feature of Version 6.0 (not available by any competitive product)
was a rollback with clone capability, which would allow the user to selectively
return a PC to a previous state upon installation failure or upon user demand.
In order for WinINSTALL Version 6.0 to become a commercially viable product,
OnDemand, as of the valuation date, had undergone or was in the process of
undergoing significant development efforts, including (i) developing rollback
facilities, including clone capability, (ii) expanding global editor to be
included in the WinINSTALL registry file, (iii) improving WinINSTALL Remote to
ease package generation and distribution, (iv) adding a feature that would allow
optional electronic mail
F-30
<PAGE> 358
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
notification on installation failure and on installation refusals due to
reaching license limitations, and (v) expanding copy options and interactive
install displays, adding substitution variables, and allowing version control of
backup files.
As of the date of acquisition, Company management anticipated the costs to
complete WinINSTALL Version 6.0 at approximately $920,000. Since the acquisition
date, the acquired in-process research and development from OnDemand has been
completed and the related products have been released prior to the end of fiscal
1997.
Acquisition of Calypso Software Systems, Inc. In May 1996, the Network &
Storage Management Group acquired all of the outstanding shares of Calypso
Software Systems, Inc. ("Calypso"), a company engaged in developing, producing
and marketing software for managing systems and applications in complex,
distributed client/server computer networks. The purchase price of approximately
$13,865,000 was paid in cash. The Network & Storage Management Group accounted
for the acquisition using the purchase method, and the results of operations of
Calypso are only included in the Network & Storage Management Group's operations
since the date the acquisition was completed. The following is a summary of the
purchase price allocation, in thousands:
<TABLE>
<S> <C>
Current assets and other tangible
assets................................ $ 1,209
Liabilities assumed...................... (245)
Assembled workforce...................... 400
Developed technology..................... 3,600
Customer base............................ 540
In-process research and development...... 5,400
Goodwill................................. 2,961
-------
$13,865
=======
</TABLE>
Calypso is a software developer in the enterprise network/system management
market. Calypso provides software which is designed to enable companies to
automate the management of their distributed applications. At the date of
acquisition, Calypso had two main products: Maestro Vision ("Maestro") and
Atrium Extendible Management System ("EMS") for Spectrum. Both existing
products, as of the acquisition date, were planned to be phased out over the
following 24 months. Calypso, at the acquisition date, was in the process of
developing the next generation Atrium EMS product that can be sold stand-alone.
Both Maestro and Atrium EMS for Spectrum were originally designed for use only
on certain system platforms, Cabletron and Spectrum, respectively. However,
Atrium EMS (stand-alone) would allow systems managers on any system platform to
distribute software; monitor CPU, memory, and operating system administration;
manage applications, file systems, and print services; and perform UNIX and NT
system administration.
As of the date of acquisition, Calypso had undergone or was in the process
of undergoing the re-write of code in C+, adding navigator capabilities,
developing web server and browser interoperability, developing CORBA
interoperability, and developing Network OLE/COM interoperability for Atrium EMS
(stand-alone). The estimated cost to complete, at the date of acquisition, was
approximately $750,000. These in process research and development projects were
successfully completed prior to a restructuring of operations in the third
quarter of fiscal 1997. As a result of this restructuring and a change in the
Company's strategic direction, in the first quarter of fiscal 1998 the Company
disposed of all the developed and in process technologies originally acquired
from Calypso.
Acquisition of Eastman Software Storage Management Group, Inc. In June
1998, the Network & Storage Management Group acquired all of the outstanding
capital stock of Eastman Software Storage Management Group, Inc. ("Eastman"), a
company engaged in developing, producing and marketing hierarchical storage
management products for the Windows NT platform. The purchase price of approxi-
F-31
<PAGE> 359
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
mately $10,000,000 was paid in cash. Approximately $6,800,000 of the total
purchase price represented the value of in-process technology that had not yet
reached technological feasibility, had no alternative future uses and was
charged to the Network & Storage Management Group's operations in the quarter
ended July 3, 1998. The Network & Storage Management Group accounted for the
acquisition using the purchase method, and the results of operations of Eastman
are only included in the Network & Storage Management Group's operations since
the date the acquisition was completed. Pro forma financial information is not
presented as such amounts are not material. The following is a summary of the
purchase price allocation, in thousands:
<TABLE>
<S> <C>
Current assets and other tangible assets... $ 535
Liabilities assumed........................ (508)
Assembled workforce........................ 340
Developed technology....................... 500
In-process research and development........ 6,800
Microsoft agreement........................ 1,500
Goodwill................................... 833
-------
$10,000
=======
</TABLE>
OVERVIEW
Eastman Software Storage Management Group's two primary products are
OPEN/stor for Windows NT and AvailHSM for NetWare. By integrating Eastman's
product line, the Network & Storage Management Group will be able to convert
their Storage Migrator product into a stand-alone HSM application for Windows NT
environments. As of the date of acquisition the Network & Storage Management
Group abandoned the AvailHSM product and technology due to dated features and
functionality; the valuation analysis did not include a fair value for the
AvailHSM product.
As for OPEN/stor at the date of acquisition the Network & Storage
Management Group planned to phase out the product over the following 12 to 15
months. NSMG's purpose for the acquisition was for the next generation
technologies that were underway at Eastman referenced by project names Sakkara
and Phoenix. These projects were complete re-writes of Eastman's prior
generation technology that would allow the product to be sold stand-alone upon
completion.
In accordance with SFAS 86, paragraph 38 ("Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed"), "the cost of
software purchased to be integrated with another product or process will be
capitalized only if technological feasibility was established for the software
component and if all research and development activities for the other
components of the product or process were completed at the time of the
purchase." Although the Network & Storage Management Group purchased existing
products from Eastman, the existing products did not operate on a stand-alone
basis. Therefore, as mentioned above, all of the original underlying code and
base technology for the next generation products were in the process of being
completely re-written as date of valuation.
ASSUMPTIONS
Revenue
Future revenue estimates were generated for the following technologies: (i)
OPEN/stor, (ii) Sakkara, and (iii) Phoenix. Aggregate revenue for existing
Eastman products was estimated to be approximately $167,000 for the one month
ending June 30, 1998. Revenues were estimated to increase to approximately $3.9
million and $7.1 million for fiscal years 1999 and 2000 when most of the
in-process projects were expected to be complete and shipping. Thereafter,
revenue was estimated to increase at rates ranging from 20% to 30% for fiscal
years 2001 through 2006. Revenue estimates were based on (i) aggregate revenue
F-32
<PAGE> 360
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
growth rates for the business as a whole, (ii) individual product revenues,
(iii) growth rates for the storage management software market, (iv) the
aggregate size of the storage management software market, (v) anticipated
product development and introduction schedules, (vi) product sales, cycles, and
(vii) the estimated life of a product's underlying technology.
Operating expenses
Operating expenses used in the valuation analysis of Eastman included (i)
cost of goods sold, (ii) general and administrative expense, (iii) selling and
marketing expense, and (iv) research and development expense. In developing
future expense estimates, an evaluation of both the Network & Storage Management
Group's and Eastman's overall business model, specific product results,
including both historical and expected direct expense levels (as appropriate),
and an assessment of general industry metrics was conducted.
Cost of goods sold. Cost of goods sold expressed as a percentage of revenue
for the developed and in-process technologies was estimated to be approximately
5% throughout the estimation period. The Network & Storage Management Group's
cost of goods sold was 23% for fiscal 1996 and 23% for fiscal 1997.
General and administrative ("G&A") expenses. G&A expense, expressed as a
percentage of revenue, for the developed and in-process technologies was
estimated to be approximately 10% throughout the estimation period.
Selling and marketing ("S&M") expense. S&M expense, expressed as a
percentage of revenue, for the developed and in-process technologies was
estimated to be 27% throughout the estimation period.
Research and development ("R&D") expense. R&D expense consists of the costs
associated with activities undertaken to correct errors or keep products updated
with current information (also referred to as "maintenance" R&D). Maintenance
R&D includes all activities undertaken after a product is available for general
release to customers to correct errors or keep the product updated with current
information. These activities include routine changes and additions. The
maintenance R&D expense was estimated to be 5% of revenue for the developed and
in-process technologies throughout the estimation period.
In addition, as of the date of acquisition, the Network & Storage
Management Group's management anticipated the costs to complete the in-process
technologies at approximately $1.8 million.
EFFECTIVE TAX RATE
The effective tax rate utilized in the analysis of developed and in-process
technologies was 38%, which reflects Seagate Software's combined federal and
state statutory income tax rates, exclusive of non-recurring charges at the time
of the acquisition and estimated for future years.
DISCOUNT RATE
The discount rates selected for Eastman's developed and in-process
technologies were 15% and 20%, respectively. In the selection of the appropriate
discount rates, consideration was given to (i) the Weighted Average Cost of
Capital (approximately 15% at the date of acquisition) and (ii) the Weighted
Average Return on Assets (approximately 18%). The discount rate utilized for the
in-process technology was determined to be higher than Seagate Software's WACC
due to the fact that the technology had not yet reached technological
feasibility as of the date of valuation. In utilizing a discount rate greater
than Seagate Software's WACC, management has reflected the risk premium
associated with achieving the forecasted cash flows associated with these
projects.
F-33
<PAGE> 361
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
STOCK OPTION PLANS
The Seagate Software option plan provides for the issuance of either
incentive or nonstatutory stock options to employees and consultants of Seagate
Software and Seagate Technology. Seagate Software has reserved a total of
12,600,000 shares under the Plan. Options granted under Seagate Software's Plan
are granted at fair market value, expire ten years from the date of the grant
and vest over four years; 20% at the end of years one and two and 30% at the end
of years three and four.
The following table summarizes information about Seagate Software options
outstanding as of July 3, 1998 for employees of the Network & Storage Management
Group. Certain of Seagate Software's operations are shared locations involving
activities that pertain to the Network & Storage Management Group as well as to
other businesses of Seagate Software. Options outstanding for employees in
shared locations have been allocated based on specific identification for each
employee.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------- EXERCISABLE OPTIONS
WEIGHTED --------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES SHARES LIFE (IN YEARS) PRICE OF SHARES PRICE
- -------------- --------- --------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$ 4.00 1,293,677 7.9 $ 4.00 495,911 $4.00
$ 6.00 1,875,278 9.0 6.00 132,420 6.00
$ 7.50 - 11.00 879,597 9.6 8.86 4,780 8.08
$12.75 1,467,378 10.0 12.75 -- --
--------- -------
Total 5,515,930 9.1 7.78 633,111 4.45
========= =======
</TABLE>
Pro forma information. In October 1995, the Financial Accounting Standards
Board released Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 provides an alternative to
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" ("APBO 25") and requires additional disclosures. Seagate Software and
the Network & Storage Management Group have elected to follow APBO 25 in
accounting for stock options granted. Under APBO 25, Seagate Software and the
Network & Storage Management Group generally have not recognized compensation
expense with respect to such options.
Pro forma information regarding net income and earnings per share is
required by SFAS 123 for stock options granted after June 30, 1995, as if the
Network & Storage Management Group had accounted for Seagate Software stock
options under the fair value method of SFAS 123. The fair value of Seagate
Software options granted to Network & Storage Management Group employees was
estimated using a Black-Scholes option valuation model. The Black-Scholes option
valuation model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. In
addition, the Black-Scholes model requires the input of highly subjective
assumptions, including the expected stock price volatility. Because the Seagate
Software stock options granted to the Network & Storage Management Group's
employees have characteristics significantly different from those of
exchange-traded options (and are not fully transferable) and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the Black-Scholes model does not necessarily provide a
reliable single measure of the fair value of its stock options granted to
employees.
F-34
<PAGE> 362
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The fair value of Seagate Software stock options granted to the Network &
Storage Management Group's employees was estimated assuming no expected
dividends and the following weighted average assumptions:
<TABLE>
<CAPTION>
SEAGATE SOFTWARE SEAGATE TECHNOLOGY
INCENTIVE EMPLOYEE STOCK
STOCK OPTION PURCHASE
PLAN SHARES PLAN SHARES
-------------------- --------------------
1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected life (in years)......................... 3.65 3.65 3.67 .50 .50 .56
Risk-free interest rate.......................... 5.6% 6.2% 5.7% 5.4% 5.4% 5.5%
Volatility....................................... .55 .55 .55 .46 .46 .63
</TABLE>
The weighted average exercise price and weighted average fair value of
Seagate Software stock options granted to Network & Storage Management Group
employees in 1998 under Seagate Software's Plan were $9.04 and $4.20 per share,
respectively. The weighted average purchase price and weighted average fair
value of shares granted to Network & Storage Management Group employees in 1998
under Seagate Technology Employee Stock Purchase Plan (the "Purchase Plan") were
$26.99 and $12.03, respectively.
For purposes of pro forma disclosures, the estimated fair value of options
granted to the Network & Storage Management Group's employees is amortized over
the options' vesting period for Seagate Software stock options and over the
six-month purchase period for stock purchases under the Purchase Plan. For
purposes of the determination of pro forma net loss, pro forma expense relating
to stock options under FAS 123 was allocated based on Network & Storage
Management Group headcount as a percentage of total Seagate Software headcount.
The pro forma net loss was $94,846,000, $35,406,000 and $844,000 in 1996, 1997
and 1998, respectively. Because the Network & Storage Management Group does not
have a formal capital structure, pro forma net loss per share is not presented.
The effects on pro forma disclosures of applying SFAS 123 are not likely to
be representative of the effects on pro forma disclosures of future years.
Because SFAS 123 is applicable only to options granted subsequent to June 30,
1995, and Seagate Software did not commence granting stock options for the
purchase of Seagate Software common stock until June 1996, the pro forma effect
will not be fully reflected until 2000.
INCOME TAXES
The Network & Storage Management Group is included in the consolidated
federal and certain combined and consolidated foreign and state income tax
returns of Seagate Technology. Seagate Technology and Seagate Software have
entered into a tax sharing agreement (the "Tax Allocation Agreement") pursuant
to which the Network & Storage Management Group computes hypothetical tax
returns (with certain modifications) as if the Network & Storage Management
Group was not joined in consolidated or combined returns with Seagate
Technology. The Network & Storage Management Group must pay Seagate Technology
the positive amount of any such hypothetical taxes. If the hypothetical tax
returns show entitlement to refunds, including any refunds attributable to a
carryback, then Seagate Technology will pay the Network & Storage Management
Group the amount of such refunds. At the end of fiscal 1996 and 1997, there were
no intercompany tax-related balances outstanding between the Network & Storage
Management Group and Seagate Technology. At the end of fiscal 1998, a $6,958,000
intercompany tax-related balance was due from the Network & Storage Management
Group to Seagate Technology.
F-35
<PAGE> 363
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The (benefit from) provision for income taxes consisted of the following,
in thousands:
<TABLE>
<CAPTION>
JUNE 28, JUNE 27, JULY 3,
1996 1997 1998
-------- -------- -------
<S> <C> <C> <C>
Current tax expense
Federal.................................... $(6,035) $ (2,991) $ 8,282
State...................................... (1,171) (563) 908
Foreign.................................... 228 473 1,213
------- -------- -------
Total current tax expense.......... (6,978) (3,081) 10,403
Deferred tax expense
Federal.................................... (1,506) (6,330) (3,831)
State...................................... (280) (1,175) (711)
------- -------- -------
Total deferred tax expense......... (1,786) (7,505) (4,542)
------- -------- -------
(Benefit from) provision for income taxes.... $(8,764) $(10,586) $ 5,861
======= ======== =======
</TABLE>
The (benefit from) provision for income taxes has been computed on a
separate return basis subject to the following modifications as required by the
Tax Allocation Agreement: (i) profitable members of the consolidated return
group are prohibited from applying tax net operating loss carryforwards and tax
credit carryforwards to reduce their separately computed tax liabilities to the
extent that current year tax losses or tax credits of other members are
available to reduce a profitable member's separate tax liability; and (ii)
members must reimburse other members to the extent they use another member's tax
attributes to reduce their separately computed tax liabilities. Pursuant to the
terms of the Tax Allocation Agreement, the tax benefits of certain of the
Network & Storage Management Group's fiscal 1996 and 1997 tax losses and credits
are recognized in the year such losses and credits are utilized by Seagate
Technology in its tax returns.
The pro forma information assuming a tax provision based on a separate
filing basis is as follows, in thousands:
<TABLE>
<CAPTION>
YEAR ENDED
JULY 3, 1998
------------
<S> <C>
Income before provision for income
taxes.................................. $8,717
Provision for income taxes............... 3,064
------
Net income............................... $5,653
======
</TABLE>
The income tax benefits related to the exercise of employee stock options
reduced amounts due to or increased amounts due from Seagate Technology pursuant
to the Tax Allocation Agreement and were credited to additional paid-in capital.
Such amounts approximated $1,866,000, $3,486,000 and $576,000 in 1996, 1997 and
1998, respectively.
F-36
<PAGE> 364
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Network & Storage Management Group's deferred tax assets and
liabilities were as follows, in thousands:
<TABLE>
<CAPTION>
JUNE 27, JULY 3,
1997 1998
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS
Reserves and accruals not currently deductible.............. $ 5,001 $ 5,526
Depreciation................................................ 819 (980)
Acquisition-related items................................... 8,445 8,534
Domestic and foreign net operating loss carryforwards....... 12,779 12,788
Tax credit carryforwards.................................... 1,155 1,155
Other....................................................... 1,170 1,535
-------- --------
Total deferred tax assets......................... 29,369 28,558
Valuation allowance......................................... (29,369) (28,558)
-------- --------
Net deferred tax assets........................... -- --
======== ========
DEFERRED TAX LIABILITIES
Acquisition-related items................................... (6,233) (1,691)
-------- --------
Total deferred tax liabilities.................... (6,233) (1,691)
-------- --------
Net deferred tax liabilities...................... $ (6,233) $ (1,691)
======== ========
</TABLE>
A valuation allowance has been provided for the deferred tax assets as of
the end of fiscal 1997 and 1998. Realization of the deferred tax assets is
dependent on future earnings, the timing and amount of which are uncertain. In
addition, the net operating loss and tax credit carryforwards of acquired
subsidiaries are subject to further limitations on utilization due to the
"change in ownership" provisions of Internal Revenue Code Section 382 and the
"separate return limitation year" rules of the federal consolidated return
regulations. Approximately $5,416,000 of the valuation allowance as of July 3,
1998, is attributable to deferred tax assets that when realized will reduce
unamortized goodwill or other intangible assets of the acquired subsidiaries.
The valuation allowance increased by $12,197,000 and $2,942,000 in 1996 and
1997, respectively and decreased by $811,000 in 1998.
As of July 3, 1998, the Network & Storage Management Group has domestic and
foreign net operating loss carryforwards of approximately $36,538,000 expiring
in 2003 through 2010, if not used to offset future taxable income. In addition,
the Network & Storage Management Group, as of July 3, 1998, has research and
development tax credit carryforwards of approximately $1,155,000 expiring in
2005 through 2011, if not used to offset future tax liabilities.
F-37
<PAGE> 365
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The reconciliation between the (benefit from) provision for income taxes at
the U.S. statutory rate and the effective rate is summarized as follows, in
thousands:
<TABLE>
<CAPTION>
JUNE 28, JUNE 27, JULY 3,
1996 1997 1998
-------- -------- -------
<S> <C> <C> <C>
(Benefit) provision at U.S. statutory rate........... $(36,176) $(15,325) $ 3,051
State income taxes (benefit), net.................... (761) (563) 909
Foreign taxes in excess of the U.S. statutory rate... 18 75 153
In-process research and development.................. 15,382 -- --
Goodwill and other acquisition-related items......... 2,833 4,307 2,894
Valuation allowance.................................. 9,936 1,395 (811)
Other................................................ 4 (475) (335)
-------- -------- -------
$ (8,764) $(10,586) $ 5,861
======== ======== =======
</TABLE>
Cumulative undistributed earnings of certain foreign operations of the
Network & Storage Management Group, of $2,276,000 are considered to be
permanently invested in non-U.S. operations. No income tax has been provided on
these amounts. Additional state and federal taxes that would have to be provided
if these earnings were repatriated to the U.S. cannot be determined at this
time.
COMMITMENTS
Leases. The Network & Storage Management Group leases certain property,
facilities and equipment under non-cancelable lease agreements. Facility leases
expire at various dates through 2008 and contain various provisions for rental
adjustments. The leases require the Network & Storage Management Group to pay
property taxes, insurance and normal maintenance costs. The Network & Storage
Management Group also occupies certain facilities owned by Seagate Technology.
Future minimum payments for operating leases were as follows at July 3, 1998, in
thousands:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1999....................................... $ 5,137
2000....................................... 4,605
2001....................................... 2,995
2002....................................... 2,603
2003....................................... 2,471
After 2003................................. 34,287
-------
$52,098
=======
</TABLE>
Total rent expense for all facility and equipment operating leases was
approximately $2,743,000, $4,094,000 and $4,781,000 for 1996, 1997 and 1998,
respectively.
F-38
<PAGE> 366
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
LEGAL PROCEEDINGS
The Network & Storage Management Group business is engaged in various legal
actions arising in the ordinary course of business and believes that the
ultimate outcome of these actions will not have a material adverse effect on the
Network & Storage Management Group business' financial position, liquidity or
results of operations.
RESTRUCTURING COSTS
Restructuring charges were $9.5 million in fiscal 1996 and $2.5 million in
fiscal 1997. The 1996 restructuring charges pertain to the acquisition of Arcada
Holdings, Inc. in February 1996. As a result of the acquisition, the Network &
Storage Management Group business had obtained duplicate technologies and
product lines in data protection and storage management software as those assets
acquired in the Palindrome Corporation ("Palindrome") acquisition in fiscal
1995. The Network & Storage Management Group determined that it would be
beneficial to consolidate the world-wide sales, marketing, research and
development, technical support and other operations and administrative functions
of its network and storage management business. A restructuring plan was
approved by the Seagate Software Board of Directors in March 1996 and the plan
resulted in facility closures and staff reductions of 43 at the Arcada
facilities in Westboro, Massachusetts, the United Kingdom and France, as well as
staff reductions of 69 at the former Palindrome facility in Naperville,
Illinois. In addition, because Arcada had a better industry reputation and
superior products to those of Palindrome, the Network & Storage Management
Group's plan and strategy going forward was to focus on the technologies and
products acquired from Arcada. The revenue and net operating loss relating to
products acquired from Palindrome for fiscal 1996 was $15.9 million and $2.1
million, respectively. For fiscal 1997, the revenue and net operating loss
relating to products acquired from Palindrome was $3.3 million and $3.7 million,
respectively.
The non-cash restructuring charges included amounts for abandonment of the
Palindrome trademarks, impairment of the capitalized workforce intangible assets
pertaining to the acquisition of Palindrome because of the planned layoff of
personnel, write-off of a duplicate trade show booth, and write-off of obsolete
Palindrome marketing materials. Cash restructuring charges included amounts for
severance and benefits to terminated Palindrome employees, costs for facilities
lease termination, other contract cancellation fees, and merger related costs
incurred by Arcada in the acquisition of the Arcada minority pooling of
interests by Seagate Technology.
The fiscal 1997 restructuring charges netted to $2.5 million, comprised of
a $3.4 million restructuring charge that included the closure of the Network &
Storage Management Group's facility located in Cupertino, California. This
facility closure resulted in cash charges for severance and benefits for 69
employee terminations and non-cash charges for excess facilities and the write
down of equipment. In addition, the $3.4 million included amounts related to the
decision, after concluding a sale was no longer viable, to no longer pursue the
technologies acquired in the fiscal 1996 acquisition of Calypso Software
Systems, Inc. and to shut down its operations. This decision resulted in cash
charges for severance and benefits for 35 employee terminations and non-cash
charges for the write off of certain remaining intangible assets of Calypso. The
revenue and net operating loss relating to products acquired from Calypso for
fiscal 1996 was $444,000 and $53,000, respectively. For fiscal 1997, the revenue
and net operating loss relating to products acquired from Calypso was $640,000
and $47,000, respectively.
The restructuring charges recorded in fiscal 1997 were reduced by $957,000
for the reversal of amounts pertaining to the fiscal 1996 restructuring charges
as a result of a higher than planned number of voluntary employee terminations
without severance benefits prior to the facility shutdown and completion of
other aspects of the restructuring plan at less than the originally estimated
cost, net of an increase in the accrual for facilities lease payments due to
changes in estimates of the costs to terminate leases after facilities closure.
F-39
<PAGE> 367
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
A summary of Network & Storage Management Group business restructuring
activities is provided below (in thousands):
<TABLE>
<CAPTION>
SEVERANCE CONTRACT LEGAL AND
AND EMPLOYEE CANCELLATION ACCOUNTING OTHER
BENEFITS FACILITIES EQUIPMENT INVENTORY INTANGIBLES FEES FEES EXPENSES
------------ ---------- --------- --------- ----------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 restructuring
charges............... $1,554 $1,571 $ 1,018 $ 300 $ 4,312 $67 $ 525 $ 155
Cash charges............ (518) -- -- -- -- -- (568) --
Non-cash charges........ -- (121) (116) -- (4,052) -- -- (138)
------ ------ ------- ----- ------- --- ----- -----
Reserve balances, June
28, 1996.............. 1,036 1,450 902 300 260 67 (43) 17
1997 restructuring
charges............... 770 505 728 -- 1,378 -- -- 100
Cash charges............ (975) (915) -- -- -- -- -- --
Non-cash charges........ -- (72) (44) -- (1,378) -- -- --
Adjustments and
reclassifications..... (351) 267 (172) (300) (260) (67) 43 (117)
------ ------ ------- ----- ------- --- ----- -----
Reserve balances, June
27, 1997.............. 480 1,235 1,414 -- -- -- -- --
Cash charges............ (373) (519) (9) -- -- -- -- --
Non-cash charges........ -- -- (1,045) -- -- -- -- --
Adjustments and
reclassifications..... (107) 467 (360) -- -- -- -- --
------ ------ ------- ----- ------- --- ----- -----
Reserve balances, July
3, 1998............... -- 1,183 -- -- -- -- -- --
Cash charges
(unaudited)........... -- (251) -- -- -- -- -- --
------ ------ ------- ----- ------- --- ----- -----
Reserve balances,
January 1, 1999
(unaudited)........... $ -- $ 932 $ -- $ -- $ -- $-- $ -- $ --
====== ====== ======= ===== ======= === ===== =====
<CAPTION>
TOTAL
-------
<S> <C>
1996 restructuring
charges............... $ 9,502
Cash charges............ (1,086)
Non-cash charges........ (4,427)
-------
Reserve balances, June
28, 1996.............. 3,989
1997 restructuring
charges............... 3,481
Cash charges............ (1,890)
Non-cash charges........ (1,494)
Adjustments and
reclassifications..... (957)
-------
Reserve balances, June
27, 1997.............. 3,129
Cash charges............ (901)
Non-cash charges........ (1,045)
Adjustments and
reclassifications..... --
-------
Reserve balances, July
3, 1998............... 1,183
Cash charges
(unaudited)........... (251)
-------
Reserve balances,
January 1, 1999
(unaudited)........... $ 932
=======
</TABLE>
The Network & Storage Management Group's remaining restructuring reserves
at October 2, 1998 pertain to continuing lease payments on facilities that were
closed and abandoned as a result of the Palindrome restructuring. The Network &
Storage Management Group has been unable to sublease these facilities and
anticipates that the remaining restructuring reserves will be utilized over the
period through lease termination in fiscal 2002.
The fiscal 1996 restructuring reserve of $9,502,000 was for the following
specific items:
Severance and employee benefits ($1,554,000) -- Severance and employee
benefits included amounts for consolidation of operations and termination of
employees at the Arcada facilities in Westboro, Massachusetts, the United
Kingdom and France, as well as at the former Palindrome facility in Naperville,
Illinois.
Excess facilities ($1,571,000) -- This accrual was designed to provide for
rent termination costs and rent expense for facilities located in Naperville,
Westboro, the United Kingdom and France that are to be closed as a result of the
restructuring actions.
Equipment ($1,018,000) -- This amount is a reserve for equipment at the
Naperville, Westboro, the United Kingdom and France facilities. It consists of
computer equipment, furniture and fixtures and software at these facilities that
will not be used after the locations are closed. All the equipment provided for
in this reserve has been abandoned.
Inventory ($300,000) -- This consists of obsolete packaging material that
will no longer be used and OEM inventory of $80,000 that will no longer be sold.
F-40
<PAGE> 368
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Intangibles ($4,312,000) -- This write-off consists of Palindrome
intangible assets of $3,534,000, $390,000 of developed technology related to
Atlas and $388,000 of goodwill related to the Sytron acquisition. The Palindrome
intangible assets were further broken down into trademark of $1,000,000,
workforce of $1,188,000, distribution network of $69,000 and goodwill of
$1,277,000. The Company decided to pursue the Arcada brand name and trade mark
and abandon the Palindrome trademark. As a result, Network & Storage Management
Group business determined that it would lay off substantially all employees (121
employees) of Palindrome located at the Naperville facility. At the time of
original purchase, Network & Storage Management Group business proportionally
allocated goodwill to long-lived intangible assets based upon the original
purchase price. The amounts of goodwill included in the restructuring reserve
relate to the remaining unamortized goodwill associated with the intangible
assets written off.
Contract cancellation ($67,000) -- This $67,000 item is a canceled contract
for outsourced Technical Support with a vendor used by Palindrome.
Legal/Accounting fees ($525,000) -- This $525,000 represents an estimate of
the legal and accounting fees that were to be incurred by Arcada from the
acquisition of Arcada stock by Seagate Technology.
Other ($155,000) -- This represents a trade show booth valued at $100,000
that is redundant and $55,000 for obsolete marketing materials.
The above assets were not impaired in a prior period because their
impairment arose specifically from the restructuring actions taken as a result
of the acquisition of the minority interest in Arcada in the third quarter of
fiscal 1996. Prior to the acquisition, Palindrome products were marketed and
sold as part of the Seagate Software portfolio.
In fiscal 1997, Seagate Software recorded an additional restructuring
reserve of $3,481,000 that resulted primarily from the plan to shutdown
Manchester operations and the decision to try to sell the Calypso technology and
a separate decision to consolidate NSMG operations which resulted in the
shutdown of the Company's facility in Cupertino, California.
Severance and employee benefits ($770,000) -- Severance and employee
benefits included amounts for the shutdown and termination of employees at the
Cupertino, California facility due to a consolidation of operations and the
shutdown and termination of employees at the Calypso facility in Manchester, New
Hampshire due to a decision to no longer pursue the Calypso products and
technologies.
Excess facilities ($505,000) -- This accrual was designed to provide for
rent termination costs and rent expense for facilities closures in Manchester,
New Hampshire and Cupertino, California.
Equipment ($728,000) -- This reserve is for equipment in the Manchester and
Cupertino facilities that would not be used after the shutdowns. It consisted of
largely of computer equipment but also included amounts for furniture and
fixtures and software. All the equipment provided for in this reserve has been
abandoned.
Intangibles ($1,378,000) -- This asset consisted of Calypso related
intangibles first capitalized upon the acquisition of Calypso in fiscal 1996.
The amounts written down included Net Developed Technology of $1,086,000 and
Assembled Workforce of $292,000. These assets were written off based on
management's plan to sell Calypso and its products and technologies.
Other ($100,000) -- This represents miscellaneous additional costs related
to the Manchester (Calypso) shutdown.
The above assets were not impaired in a period prior to recording the
restructuring reserves because their impairment arose specifically from the
business decision and plan in the fourth quarter of fiscal 1997 to close the
Manchester (Calypso) facility and abandon that technology and the additional
decision to consolidate operations of the company and close the Cupertino
facility.
F-41
<PAGE> 369
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
EXPORT SALES
Export sales were $32,468,000, $40,748,000 and $57,752,000 in 1996, 1997
and 1998, respectively.
LEGAL PROCEEDINGS (UNAUDITED)
On December 22, 1998, a former employee commenced an action in the Superior
Court of Santa Cruz County against Seagate Software, Inc. claiming promissory
fraud and fraudulent inducement to enter a contract, breach of a contract,
constructive wrongful discharge and related claims, seeking monetary and
injunctive relief. Specifically, the former employee alleges that a Seagate
Software officer agreed to sell claimant a division of the Network & Storage
Management Group business. No specific damage amount has yet been claimed.
Seagate Software believes this complaint has no merit and intends
vigorously to defend this action. However, if an unfavorable outcome were to
arise, there can be no assurance that such outcome would not have a material
adverse effect on Seagate Software's liquidity, financial position, or results
of operations.
In addition to the above the Network & Storage Management Group business is
engaged in legal actions arising in the ordinary course of business and believes
that the ultimate outcome of these actions will not have a material adverse
effect on the Network & Storage Management Group business' financial position,
liquidity or results of operations.
SUBSEQUENT EVENT (UNAUDITED)
The Network & Storage Management Group, its parent company, Seagate
Software, Inc. and Seagate Software's parent company, Seagate Technology, Inc.
("STI") announced on October 5, 1998 that they had entered into an Agreement and
Plan of Reorganization (the "Plan") as of such date with Veritas Holding
Corporation ("New VERITAS") and Veritas Software Corporation ("VERITAS").
VERITAS provides end-to-end storage management software solutions. The Plan
provides for the contribution by Seagate Software, STI and certain of their
respective subsidiaries to New VERITAS of (a) the outstanding stock of the
Network & Storage Management Group and certain other subsidiaries of Seagate
Software and (b) those assets used primarily in the network storage management
business of Seagate Software (the "NSMG Business"), in consideration for the
issuance of shares of Common Stock of New VERITAS to Seagate Software and the
offer by New VERITAS to grant options to purchase Common Stock of New VERITAS to
certain of Seagate Software's employees who become employees of New VERITAS or
its subsidiaries. As part of the Plan, New VERITAS will also assume certain
liabilities of the NSMG Business. The Plan is structured to qualify as a
tax-free exchange. The merger will be accounted for as a non-monetary
transaction using the fair value of the assets exchanged.
Upon consummation of the merger, New VERITAS shall issue shares of Common
Stock to Seagate Software equal to approximately 40% of the fully diluted Common
Stock equivalent equity interests in New VERITAS (assuming conversion of all
convertible securities, including the VERITAS convertible debentures, and
exercise of all assumed options and warrants) less that number of shares of New
VERITAS Common Stock issuable upon exercise of New VERITAS options issued to the
Network & Storage Management Group employees who surrender their outstanding
options to purchase shares of Seagate Software's Common Stock. Upon consummation
of the merger, the former security holders of VERITAS will be issued New VERITAS
securities representing approximately 60% of the fully diluted Common Stock
equivalent equity interests in New VERITAS.
The merger is subject to a number of conditions, including but not limited
to the effectiveness of a Registration Statement on Form S-4 to be filed by New
VERITAS with the Securities and Exchange Commission, approval by the
stockholders of VERITAS and Seagate Software, the expiration or termination of
the waiting period (and any extension thereof) under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and other customary closing
conditions.
F-42
<PAGE> 370
NETWORK & STORAGE MANAGEMENT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The Network & Storage Management Group comprised approximately 54% of
Seagate Software consolidated assets, 60% of Seagate Software consolidated
revenues, and contributed $2.9 million in profit to the total consolidated net
loss of $9.3 million at and for the fiscal year ended 1998 (65% of Seagate
Software consolidated assets, 64% of Seagate Software consolidated revenues, and
119% of Seagate Software consolidated net income at and for the second fiscal
quarter of 1999). If the exchange with VERITAS is consummated along the lines
currently contemplated, it will result in a substantial reduction in ongoing
Seagate Software consolidated revenues and will result in net losses in periods
subsequent to the exchange resulting from the amortization of intangible assets
and goodwill.
F-43
<PAGE> 371
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Seagate Software, Inc.
We have audited the accompanying combined balance sheets of Network &
Storage Management Group, a division of Seagate Software, Inc., as of July 3,
1998 and June 27, 1997, and the related combined statements of operations, group
equity and cash flows for each of the three years in the period ended July 3,
1998. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Network &
Storage Management Group at 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 generally accepted accounting
principles.
As discussed more fully in the Summary of Significant Accounting Policies
footnote, the Network & Storage Management Group has modified the methods used
to assess impairment of goodwill and, accordingly, has restated the consolidated
financial statements for the fiscal years ended July 3, 1998 and June 27, 1997
to reflect this change.
/s/ ERNST & YOUNG LLP
San Jose, California
September 21, 1998,
except for the second paragraph of the Summary
of Significant Accounting Policies footnote, as to
which the date is
April 8, 1999
F-44
<PAGE> 372
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDICES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 373
TABLE OF APPENDICES
<TABLE>
<S> <C> <C>
A -- NSMG Combination Agreement
B -- Opinion of Donaldson Lufkin & Jenrette
Securities Corporation
C -- Opinion of Morgan Stanley & Co.
Incorporated
D -- Form of Certificate of Incorporation of
New VERITAS
E -- Form of Bylaws of New VERITAS
F -- Seagate Software Notice of Election
G -- TeleBackup Combination Agreement
H -- Opinion of the OpMan Group
I -- Form of Voting, Support and Exchange
Trust Agreement
J -- Amended Interim Order
K -- Amended Notice of Petition
L -- Section 184 of the Business
Corporations Act (Alberta)
M -- Plan of Arrangement including
Exchangeable Share Provisions and
Series A Preferred Share Provisions
N -- Approval of Management Information
Circular/Joint Proxy
Statement/Prospectus by TeleBackup
Board of Directors
O -- Arrangement Resolution
P -- Form of Amended and Restated
Certificate of Incorporation of VERITAS
Q -- Form of VERITAS 1993 Equity Incentive
Plan, as amended
R -- Form of VERITAS 1993 Employee Stock
Purchase Plan, as amended
S -- Seagate Software Third Amended and
Restated Certificate of Incorporation
T -- Seagate Software 1996 Stock Option
Plan, as amended
U -- Seagate Software Annual Report on Form
10-K/A for the fiscal year ended July
3, 1998
V -- Seagate Software Quarterly Reports on
Form 10-Q/A for the quarters ended
October 2, 1998 and January 1, 1999
W -- Tax Opinion of Parlee McLaws and Osler,
Hoskin and Harcourt
X -- TeleBackup Election Form
</TABLE>
<PAGE> 374
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
<PAGE> 375
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. PLAN OF REORGANIZATION.................................. 7
1.1 The Organization of Newco and Merger Sub......... 7
1.2 The Merger....................................... 7
1.3 Seagate Transaction.............................. 8
1.4 Contribution and Transfer of Contributed Stock
and Assets............................................ 10
1.5 Dissenter's Rights............................... 12
1.6 Newco Plans...................................... 12
1.7 Registration..................................... 12
1.8 Effects of the VERITAS Merger.................... 13
1.9 Tax Free Reorganization.......................... 13
1.10 Tax-Free Section 351 Transaction................. 13
1.11 Hart-Scott-Rodino Filings........................ 13
1.12 Adoption of Newco Rights Agreement............... 14
1.13 Board of Directors and Officers of Newco; Newco
Certificate of Incorporation and Bylaws.......... 14
1.14 Registration on Form S-4......................... 15
2. REPRESENTATIONS AND WARRANTIES OF SSI AND STI........... 15
2.1 Organization; Good Standing; Qualification and
Power................................................. 15
2.2 Capital Structure................................ 15
2.3 Authority........................................ 16
2.4 SEC Documents.................................... 17
2.5 Disclosure; Information Supplied................. 19
2.6 Compliance with Applicable Laws.................. 19
2.7 Litigation....................................... 20
2.8 ERISA and Other Compliance....................... 21
2.9 Absence of Certain Changes or Events............. 23
2.10 Full Force and Effect............................ 24
2.11 Agreements....................................... 24
2.12 No Defaults...................................... 25
2.13 Certain Agreements............................... 25
2.14 Taxes............................................ 26
2.15 Intellectual Property............................ 26
2.16 Fees and Expenses................................ 28
2.17 Insurance........................................ 28
2.18 Ownership of Property............................ 28
2.19 Environmental Matters............................ 29
2.20 Interested Party Transactions.................... 29
2.21 Fairness Opinion................................. 29
2.22 Title to and Condition and Sufficiency of Group
Assets................................................ 29
2.23 No Restrictive Agreements........................ 30
2.24 Supplier and Customer Relationships.............. 30
2.25 Product and Inventory Status..................... 30
</TABLE>
A-1
<PAGE> 376
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3. REPRESENTATIONS AND WARRANTIES OF VERITAS AND NEWCO..... 31
3.1 Organization; Good Standing; Qualification and
Power................................................. 31
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....................... 35
3.9 Absence of Certain Changes or Events............. 37
3.10 Full Force and Effect............................ 39
3.11 Agreements....................................... 39
3.12 No Defaults...................................... 40
3.13 Certain Agreements............................... 40
3.14 Taxes............................................ 40
3.15 Intellectual Property............................ 41
3.16 Fees and Expenses................................ 43
3.17 Insurance........................................ 43
3.18 Ownership of Property............................ 43
3.19 Environmental Matters............................ 43
3.20 Interested Party Transactions.................... 43
3.21 Fairness Opinion................................. 44
3.22 Title to and Condition and Sufficiency of VERITAS
Assets................................................ 44
3.23 No Restrictive Agreements........................ 44
3.24 Supplier and Customer Relationships.............. 44
3.25 Product and Inventory Status..................... 45
3.26 Tax Representations.............................. 45
4. STI AND SSI COVENANTS................................... 45
4.1 Advice of Changes................................ 45
4.2 Maintenance of Business.......................... 45
4.3 Conduct of Business.............................. 46
4.4 SSI Corporate Approvals.......................... 47
4.5 Letter of SSI's Accountants...................... 47
4.6 Prospectus/Proxy Statement....................... 47
4.7 Regulatory Approvals............................. 48
4.8 Necessary Consents............................... 48
4.9 Access to Information............................ 48
4.10 Satisfaction of Conditions Precedent............. 49
4.11 No Other Negotiations............................ 49
4.12 Books and Records................................ 50
4.13 Transitional Support............................. 50
4.14 Development Agreement and Cross-License
Agreement............................................. 50
4.15 Settlement of Intercompany Accounts.............. 50
4.16 Modification of Joint Contributed Agreements..... 50
4.17 Key Employee Agreements.......................... 51
4.18 Stockholder and Registration Rights Agreement.... 51
4.19 Seagate IP Rights................................ 51
</TABLE>
A-2
<PAGE> 377
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
4.20 Directors' and Officers' Liability Insurance..... 51
4.21 Closing Group Account............................ 52
5. VERITAS AND NEWCO COVENANTS............................. 52
5.1 Advice of Changes................................ 52
5.2 Maintenance of Business.......................... 52
5.3 Conduct of Business.............................. 52
5.4 Stockholder Approval............................. 53
5.5 Letter of VERITAS' Accountants................... 53
5.6 Prospectus/Proxy Statement....................... 54
5.7 State Securities Law Compliance.................. 54
5.8 Regulatory Approvals............................. 55
5.9 Necessary Consents............................... 55
5.10 Access to Information............................ 55
5.11 Books and Records................................ 55
5.12 Transitional Support............................. 56
5.13 Development Agreement and Cross-License
Agreement............................................. 56
5.14 Satisfaction of Conditions Precedent............. 56
5.15 Voting Agreement................................. 56
5.16 VERITAS Employee Plans and Benefit
Arrangements.......................................... 56
5.17 Indemnification and Insurance -- VERITAS......... 57
5.18 Indemnification and Insurance -- Employees....... 58
5.19 Stockholder and Registration Rights Agreement.... 60
5.20 No Other VERITAS Negotiations.................... 60
6. CLOSING MATTERS......................................... 61
6.1 Closing.......................................... 61
6.2 Conversion of VERITAS Common Stock............... 61
6.3 Cancellation of SSI Options and Issuance of Newco
Options............................................... 61
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SSI AND STI...... 62
7.1 Accuracy of Representations and Warranties....... 62
7.2 Covenants........................................ 62
7.3 Compliance with Law.............................. 62
7.4 Consents......................................... 62
7.5 Form S-4......................................... 62
7.6 Opinion of VERITAS and Newco's Counsel........... 62
7.7 VERITAS Stockholder Approval..................... 62
7.8 No Legal Action.................................. 62
7.9 Tax Opinion...................................... 63
7.10 Election of The Contributing Companies Designees
to the Board of Directors of Newco............... 63
7.11 Nasdaq Listing................................... 63
7.12 Incorporation of New Delaware Company............ 63
7.13 HSR Act.......................................... 63
7.14 No Order......................................... 63
7.15 Ancillary Agreements............................. 63
7.16 Stockholder Approval............................. 63
7.17 Delivery of Newco Shares......................... 63
</TABLE>
A-3
<PAGE> 378
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF VERITAS AND
NEWCO................................................... 64
8.1 Accuracy of Representations and Warranties....... 64
8.2 Covenants........................................ 64
8.3 Compliance with Law.............................. 64
8.4 Consents......................................... 64
8.5 Form S-4......................................... 64
8.6 Opinion of Counsel to STI and SSI................ 64
8.7 VERITAS Stockholder Approval..................... 64
8.8 SSI Corporate Approvals.......................... 64
8.9 No Legal Action.................................. 64
8.10 Tax Opinion...................................... 65
8.11 HSR Act.......................................... 65
8.12 No Order......................................... 65
8.13 Ancillary Agreements............................. 65
8.14 Sufficiency of Assets............................ 65
8.15 Intellectual Property Assignments................ 65
8.16 Modification of Joint Contributed Agreements..... 65
9. TERMINATION OF AGREEMENT................................ 66
9.1 Termination...................................... 66
9.2 Notice of Termination............................ 67
9.3 No Liability..................................... 67
9.4 Breakup Fee...................................... 67
10. SURVIVAL OF REPRESENTATIONS............................. 68
10.1 No Survival of Representations................... 68
11. INDEMNIFICATION......................................... 68
11.1 Indemnification by SSI and STI................... 68
11.2 Time Limitations on Indemnification.............. 69
11.3 No Limitation on Other Rights.................... 69
12. EMPLOYEE MATTERS........................................ 69
12.1 Right to Offer Employment........................ 69
12.2 Termination of Employment........................ 70
12.3 Cooperation...................................... 71
12.4 Employees Who own SSI Capital Stock.............. 71
13. TAX MATTERS............................................. 71
13.1 Transaction Taxes; Representation; Transaction
Tax Indemnity......................................... 71
13.2 No Limitation.................................... 72
13.3 Treatment of Indemnity Payments.................. 72
13.4 Indemnity for Taxes.............................. 72
13.5 Other Tax Matters................................ 73
13.6 Seagate Transaction Items........................ 76
14. MISCELLANEOUS........................................... 77
14.1 Governing Law.................................... 77
14.2 Assignment; Binding Upon Successors and
Assigns............................................... 77
14.3 Severability..................................... 78
14.4 Counterparts..................................... 78
</TABLE>
A-4
<PAGE> 379
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
14.5 Other Remedies................................... 78
14.6 Amendment and Waivers............................ 78
14.7 Expenses......................................... 78
14.8 Attorneys' Fees.................................. 78
14.9 Notices.......................................... 79
14.10 Construction of Agreement........................ 79
14.11 No Joint Venture................................. 79
14.12 Further Assurances............................... 80
14.13 Absence of Third Party Beneficiary Rights........ 80
14.14 Public Announcement.............................. 80
14.15 Certain Defined Terms............................ 80
14.16 Entire Agreement................................. 91
</TABLE>
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
A-5
<PAGE> 380
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
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(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.
(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
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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) Cancellation 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.
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 who elect to cancel their SSI Options and who receive
Newco Options in response to Newco's option offer made pursuant hereto (all such
cancelled 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
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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 5th 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 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 (20th) business day after the Closing and the tenth (10th) 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
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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:
(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
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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
(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
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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 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 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
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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 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
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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.
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.
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(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 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
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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 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
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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, 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
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statement and 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
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
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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.
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
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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 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.
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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.
(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
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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.
(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.
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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 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
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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 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;
(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
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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
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
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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 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
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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 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
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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 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 ).
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2.19 Environmental Matters.
(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.
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
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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 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
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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 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
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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 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.
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(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.
(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.
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(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 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
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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, 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.
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
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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 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).
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(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.
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
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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;
(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 with, or charge of unfair labor practice by, any
member of the VERITAS Group (other than routine individual grievances), any
activity or
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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 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);
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(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);
(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 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
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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).
(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
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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 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
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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.
(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
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"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 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.
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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.
(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 and preserve the Group
Business and relationships with
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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;
(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;
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(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
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
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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.
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
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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.
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
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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, 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
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Agreement, one with Newco (or the relevant Contributed Company) and one with the
Contributing Company or 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 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
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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
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
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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 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
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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 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
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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 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
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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 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 June 1, 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.
(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
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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 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
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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).
(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
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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
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.
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(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 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
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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 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.
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
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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.
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.
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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, 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.
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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.
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.
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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 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
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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.
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;
(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
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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 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.
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(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
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
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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
(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,
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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.
(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
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Contributed Company Group who was previously employed in the Group Business
(collectively, the "FORMER EMPLOYEES") and their 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 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
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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 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
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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 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
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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 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
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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 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.
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(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.
(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.
sec. 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. sec.sec. 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.
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(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).
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
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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 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
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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):
<TABLE>
<S> <C>
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
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
</TABLE>
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
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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.
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.
"CHANGE IN VERITAS BOARD RECOMMENDATION" is defined in Section 9.1(i).
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"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.
"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).
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"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. sec. 9601 et seq., as amended
("CERCLA").
"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
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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.
"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).
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"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 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 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
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regulated by the Toxic Substances Control Act, 15 U.S.C. sec. 2601 et seq., (d)
any material or substances designated as "hazardous substances" pursuant to (1)
Section 311 of the Clean Water Act, 33 U.S.C. sec. 1251 et seq., or (2) Section
101 of the Comprehensive Environmental Response, Compensation, and Liability
Act, 42 U.S.C. sec. 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. sec. 2601 et seq., and
(f) any "hazardous waste" pursuant to Section 1004 of the Resource Conservation
and Recovery Act, 42 U.S.C. sec. 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).
"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
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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).
"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
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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.
"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.
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"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.
"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.
"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,
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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.
"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.
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"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).
"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
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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 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).
"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
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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]
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IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Agreement and Plan of Reorganization as of the date first above
written.
<TABLE>
<S> <C>
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
</TABLE>
[SIGNATURE PAGE TO AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION]
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APPENDIX B
October 5, 1998
Board of Directors
VERITAS Software Corporation
1600 Plymouth Street
Mountain View, CA 94043
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to VERITAS Software Corporation (the "Company") of the Exchange Ratio (as
defined below) pursuant to the terms of the Agreement and Plan of
Reorganization, dated as of October 5, 1998 (the "Agreement"), by and among
VERITAS Holding Corporation ("Newco"), the Company, Seagate Technology, Inc.
("STI"), Seagate Software, Inc. ("SSI"), and Seagate Software Network & Storage
Management Group, Inc., pursuant to which a newly formed, wholly owned
subsidiary of Newco ("Merger Sub") will be merged with and into the Company with
the Company being the surviving corporation (the "Merger"). Simultaneous with
the Merger, SSI and STI and certain of their subsidiaries will contribute all of
the Contributed Stock of the Contributed Companies (each as defined in the
Agreement) and the Contributed Assets (as defined in the Agreement) to Newco
(the "Seagate Transaction").
Pursuant to the Agreement, each share of common stock of the Company will
be converted into the right to receive one share of Newco Common Stock ("Newco
Common Stock") (the "Exchange Ratio"). Such Newco Common Stock together with
Newco's assumption of all outstanding options, warrants, convertible debentures
and other rights to purchase shares of capital stock of the Company will
represent in the aggregate, a 60% fully diluted equity interest in Newco (the
"VERITAS Percentage Interest"); provided, however, that in no event shall the
VERITAS Percentage Interest represent less than 60% of the equity ownership of
Newco with all Company options and warrants being computed using the treasury
stock method and the convertible debentures being computed on an as converted
basis. In exchange for the Contributed Stock and the Contributed Assets, Newco
will issue Newco Common Stock to SSI and offer to issue options to purchase
Newco Common Stock to the Optionees (as defined in the Agreement), which will
represent in the aggregate a fully diluted equity interest in Newco equal to the
difference between 100% and the VERITAS Percentage Interest.
In arriving at our opinion, we have reviewed the Agreement. We also have
reviewed financial and other information that was publicly available or
furnished to us by the Company, STI and SSI including information provided
during discussions with their respective managements and, at the direction of
the Company, certain publicly available research analyst projections for the
Company (the "Company Projections") for the period beginning January 1, 1998 and
ending December 31, 1999. Included in the information provided during
discussions with the respective managements were certain financial projections
of the Group Business (as defined in the Agreement) for the period beginning
January 1, 1998 and ending December 31, 1999 prepared by the management of the
Company. In addition, we have compared certain financial and securities data of
the Company and certain financial data of the Group Business with various other
companies whose securities are traded in public markets, reviewed prices paid in
certain other business combinations and conducted such other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion.
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Board of Directors
VERITAS Software Corporation
Page 2 October 5, 1998
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company, STI and SSI or
their respective representatives, or that was otherwise reviewed by us. In
particular, we have relied upon the estimates of the management of the Company
and SSI of the operating synergies achievable as a result of the Merger. With
respect to the financial projections of the Group Business supplied to us by the
Company, we have assumed that they have been reasonably prepared on the basis
reflecting the best currently available estimates and judgments of the
management of the Company as to the future operating and financial performance
of the Group Business. With respect to the Company Projections we have assumed
that it is the Company management's view that they are reasonable and in all
material respects representative of the Company's prospects. We have also
assumed that Newco's ownership of the Contributed Assets and the Contributed
Companies, together with the rights provided to Newco pursuant to the Ancillary
Agreements (as defined in the Agreement), will provide Newco with sufficient
rights to conduct the business currently conducted, or proposed to be conducted,
by the Group Business. We have not assumed any responsibility for making any
independent evaluation of any assets or liabilities or for making any
independent verification of any of the information reviewed by us. We have
relied as to certain legal matters on advice of counsel to the Company. As
provided in the Agreement, we have assumed that the Merger and the Seagate
Transaction will be implemented on a tax-free basis under Sections 368 and 351
of the Internal Revenue Code.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which the Company's common stock or the Newco Common Stock will
actually trade at any time. Our opinion does not address the relative merits of
the Merger and the Seagate Transaction to those of the other business strategies
being considered by the Company's Board of Directors, nor does it address the
Board's decision to proceed with the Merger and the Seagate Transaction. Our
opinion does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation, as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company in the past and has been compensated
for such services. In addition, in the ordinary course of our business we trade
the securities of the Company and STI for our own account and for the accounts
of customers, and, accordingly, may at any time hold a long or short position in
such securities. Steven Brooks, a Managing Director at DLJ, is a member of the
Board of Directors of the Company.
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Board of Directors
VERITAS Software Corporation
Page 3 October 5, 1998
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair to the Company from a financial
point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ JAMES M. NEISSA
----------------------------------------
James M. Neissa
Managing Director
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APPENDIX C
Morgan Stanley & Co. Incorporated
2725 Sand Hill Road
Building C -- Suite 200
Menlo Park, California 94025
October 5, 1998
Board of Directors
Seagate Software, Inc.
915 Disc Drive
Scotts Valley, CA 95066
Members of the Board:
We understand that Seagate Technology, Inc. ("Seagate"), Seagate Software,
Inc. ("Seagate Software"), Seagate Software Network and Storage Management
Group, Inc. ("NSMG"), a wholly-owned subsidiary of Seagate Software, VERITAS
Software Corporation ("VERITAS") and VERITAS Holding Corporation ("Newco"), have
entered into an Agreement and Plan of Reorganization, dated as of October 5,
1998 (the "Agreement"), which provides, among other things, for the merger of a
newly formed, wholly-owned subsidiary of Newco ("Merger Sub") with and into
VERITAS and for the contribution by Seagate, Seagate Software and certain of
their affiliates to Newco of all the outstanding capital stock of NSMG and
certain other subsidiaries and assets relating to the NSMG business
(collectively, the "Contributed Assets") (together, the "Merger"). Pursuant to
the Merger, Newco will issue to Seagate Software a certain number of shares of
common stock, $0.001 par value, of Newco (the "Newco Common Stock")(the "Seagate
Consideration"), and certain options to purchase Common Stock of Seagate
Software held by NSMG employees will be canceled in return for options to
purchase Newco Common Stock ("Newco Options"). We further understand that
pursuant to the Merger that each issued and outstanding share of common stock,
par value $0.001 per share, of VERITAS (the "VERITAS Common Stock") will be
converted into one share of Newco Common Stock and that Newco will assume all
outstanding options, warrants, convertible debentures and other rights to
purchase shares of capital stock of VERITAS (together with the VERITAS Common
Stock, the "VERITAS Consideration"). The Newco Common Stock and Newco Options
will represent approximately 40% of the fully diluted equity interest in Newco.
The terms and conditions of the Merger are more fully set forth in the
Agreement.
You have asked for our opinion as to whether the Seagate Consideration to
be received by Seagate Software pursuant to the Agreement is fair from a
financial point of view to Seagate Software.
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Board of Directors
October 5, 1998
Page 2
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Seagate Software and VERITAS, respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning Seagate Software and NSMG and
VERITAS prepared by the managements of Seagate Software and VERITAS,
respectively;
(iii) discussed the past and current operations and financial
condition and the prospects of Seagate Software and NSMG, including
information relating to certain strategic, financial and operational
benefits anticipated from the Merger, with senior executives of Seagate
Software;
(iv) discussed the past and current operations and financial condition
and the prospects of VERITAS, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of VERITAS;
(v) reviewed the pro forma impact of the Merger on the earnings per
share of VERITAS and Newco;
(vi) reviewed the reported prices and trading activity for VERITAS
Common Stock;
(vii) compared the financial performance of Seagate Software, NSMG and
VERITAS and the prices and trading activity of VERITAS Common Stock with
that of certain other publicly-traded companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(ix) reviewed and discussed with the senior managements of Seagate
Software and VERITAS their strategic rationales for the Merger and certain
alternatives to the Merger;
(x) participated in discussions and negotiations among representatives
of Seagate Software and VERITAS and their financial and legal advisors;
(xi) reviewed the Agreement and certain related agreements; and
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Board of Directors
October 5, 1998
Page 3
(xii) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the internal financial statements and other
financial and operating data and discussions relating to strategic, financial
and operational benefits anticipated from the Merger provided by Seagate
Software and VERITAS, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
prospects of Seagate Software and NSMG and VERITAS, respectively. We have relied
upon the assessment by the managements of Seagate Software and VERITAS of their
ability to retain key employees of Seagate Software, NSMG and VERITAS. We have
also relied upon, without independent verification, the assessment by the
managements of Seagate Software and VERITAS of the strategic and other benefits
expected to result from the Merger. We have relied upon, without independent
verification, the assessment by the managements of Seagate Software and VERITAS
of Seagate Software's, NSMG's and VERITAS' technologies and products, the timing
and risks associated with the integration of NSMG with Newco and the validity
of, and risks associated with, Seagate Software's, NSMG's and VERITAS' existing
and future products and technologies. We have not made any independent valuation
or appraisal of the assets or liabilities or technology of Seagate Software,
NSMG or VERITAS, nor have we been furnished with any such appraisals. In
addition, we have assumed that the Merger will be accounted in accordance with
U.S. Generally Accepted Accounting Principles and the Merger will be treated as
a tax-free reorganization and/or exchange pursuant to the Internal Revenue Code
of 1986 and will be consummated in accordance with the terms set forth in the
Agreement. Our opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
We have acted as financial advisor to the Board of Directors of Seagate
Software in connection with this transaction and will receive a fee for our
services. In the past, Morgan Stanley & Co. Incorporated ("Morgan Stanley") and
its affiliates have provided financial advisory services for Seagate and have
received fees for the rendering of these services. In the ordinary course of our
business we may actively trade the securities of Seagate and VERITAS for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Seagate Software and may not be used for any other purpose without
our prior written consent, except that this opinion may be included in its
entirety in any filing made by Seagate Software with the Securities and Exchange
Commission in respect of the transaction. In addition, this opinion does not in
any manner address the prices at which the VERITAS Common Stock will actually
trade at any time.
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Board of Directors
October 5, 1998
Page 4
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Seagate Consideration to be received by Seagate Software
pursuant to the Agreement is fair from a financial point of view to Seagate
Software.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ CHARLES R. CORY
----------------------------------------
Charles R. Cory
Managing Director
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APPENDIX D
FORM OF
RESTATED CERTIFICATE OF INCORPORATION
OF
VERITAS HOLDING CORPORATION
ARTICLE I
The name of the Corporation is VERITAS Holding Corporation.
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is 15 E. North Street, City of Dover, County of Kent. The name of its
registered agent at that address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
4.1 Classes of Stock. The total number of shares of all classes of stock
which the Corporation has authority to issue is five hundred ten million and one
(510,000,001) shares, consisting of three classes: five hundred million
(500,000,000) shares of Common Stock, $0.001 par value per share, ten million
(10,000,000) shares of Preferred Stock, $0.001 par value per share, and one (1)
share of Special Voting Stock, $1.00 par value.
4.2 Preferred Stock Series Determination. The Board of Directors is
authorized, subject to any limitations prescribed by the law of the State of
Delaware, to provide for the issuance of the shares of Preferred Stock in one or
more series, and, by filing a certificate of designation pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, to fix the designation,
powers, preferences and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof, and to increase or decrease
the number of shares of any such series (but not below the number of shares of
such series then outstanding). The number of authorized shares of Preferred
Stock may be increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a majority of the
stock of the Corporation entitled to vote, unless a vote of any other holders is
required pursuant to a certificate or certificates establishing a series of
Preferred Stock.
4.3 Rights, Privileges and Restrictions. The rights, privileges and
restrictions of the Common Stock and the Special Voting Stock shall be set forth
in this Article IV.
4.4 Voting Rights.
4.4.1 General. Except as otherwise required by law or this Restated
Certificate of Incorporation, (i) each holder of record of Common Stock shall
have one vote in respect of each share of stock held by the holder on the books
of the Corporation, and
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(ii) the holder of record of the share of Special Voting Stock shall have a
number of votes equal to the number of shares of Common Stock that may be
issuable upon the exchange of the Exchangeable Non-Voting Shares ("Exchangeable
Shares") of TeleBackup Exchangeco Inc., an Alberta corporation, outstanding from
time to time which are not owned by the Corporation, any of its subsidiaries or
any person directly or indirectly controlled by or under common control of the
Corporation, in each case for the election of directors and on all matters
submitted to a vote of stockholders of the Corporation. For the purpose hereof,
"control" (including the correlative meanings, the terms "controlled by" and
"under common control of") as applied to any person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that person through the ownership of voting
securities, by contract or otherwise.
4.4.2 Common Stock and Special Voting Stock Identical in Voting. In
respect of all matters concerning the voting of shares, the Common Stock and the
Special Voting Stock shall vote as a single class and such voting rights shall
be identical in all respects.
4.5 Liquidation. In the event of any liquidation, dissolution or winding
up of the Corporation, the holders of Common Stock shall be entitled to receive,
pro rata, all of the remaining assets of the Corporation available for
distribution to its stockholders and the holders of Special Voting Stock shall
not be entitled to receive any such assets.
4.6 Dividends. The holders of shares of Common Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of the assets
of the Corporation which are by law available therefor, dividends payable either
in cash, in property or in shares of capital stock and the holders of Special
Voting Stock shall not be entitled to receive any such dividends.
4.7 Special Voting Stock.
4.7.1 Pursuant to the terms of that certain Amended and Restated
Combination Agreement, dated as of April 12, 1999, by and among the Corporation,
VERITAS Software Corporation and TeleBackup Systems Inc., an Alberta
corporation, one share of Special Voting Stock is being issued to the trustee
(the "Trustee") under the Voting, Support and Exchange Trust Agreement, to be
entered into in or about May, 1999 by and between the Corporation, VERITAS
Software Corporation, TeleBackup Exchangeco Inc. and the Trustee.
4.7.2 The holder of the share of Special Voting Stock is entitled to
exercise the voting rights attendant thereto in such manner as such holder
desires.
4.7.3 At such time as the Special Voting Stock has no votes attached to
it because there are no Exchangeable Shares of TeleBackup Exchangeco Inc.
outstanding which are not owned by the Corporation, any of its subsidiaries or
any person directly or indirectly controlled by or under common control of the
Corporation, and there are no shares of stock, debt, options or other agreements
of TeleBackup Exchangeco Inc. which could give rise to the issuance of any
Exchangeable Shares of TeleBackup Exchangeco Inc. to any person (other than the
Corporation, any of its subsidiaries or any person directly or indirectly
controlled by or under common control of the Corporation), the Special Voting
Stock shall be canceled.
ARTICLE V
5.1 Subject to the rights of the holders of any series of Preferred Stock
then outstanding to elect additional directors under specified circumstances,
the number of directors shall be fixed from time to time exclusively by the
Board of Directors of the
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Corporation pursuant to a resolution adopted by a majority vote of the Whole
Board. For the purposes of this Restated Certificate of Incorporation, the term
"Whole Board" shall mean the total number of authorized directors whether or not
there exist any vacancies in previously authorized directorships. The directors
shall be divided into three classes, A, B and C, as nearly equal in number as
reasonably possible, with the term of office of the first class (Class A) to
expire at the first annual meeting of stockholders, the term of office of the
second class (Class B) to expire at the annual meeting of stockholders one year
thereafter and the term of office of the third class (Class C) to expire at the
annual meeting of stockholders two years thereafter with each director to hold
office until his or her successor shall have been duly elected and qualified. At
each annual meeting of stockholders following such initial classification and
election, directors elected to succeed those directors whose terms expire shall
be elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election with each director to hold office until his
or her successor shall have been duly elected and qualified.
5.2 Subject to the rights of holders of any series of Preferred Stock
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office, though less than a quorum, or by a sole remaining director; and
directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have been
chosen expires. In the event of any increase or decrease in the authorized
number of directors, (i) each director then serving as such shall nevertheless
continue as a director of the class of which he or she is a member until the
expiration of such director's current term or his or her prior death,
retirement, removal or resignation and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall, if reasonably
possible, be apportioned by the Board of Directors among the three classes of
directors so as to ensure that no one class has more than one director more than
any other class. To the extent reasonably possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation and newly eliminated directorships shall be subtracted from those
classes whose terms of office are to expire at the earliest dates following such
allocation, unless otherwise provided for from time to time by resolution
adopted by a majority of the directors then in office, although less than a
quorum. In the event of a vacancy in the Board of Directors, the remaining
directors, except as otherwise provided or limited by law or this Restated
Certificate of Incorporation, may exercise the powers of the full Board of
Directors until the vacancy is filled.
5.3 Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided by the
Bylaws of the Corporation.
5.4 Subject to the rights of holders of any series of Preferred Stock then
outstanding, any director, or the entire Board of Directors, may be removed from
office at any time, but only for cause and only by the affirmative vote of the
holders of at least two-thirds of the affirmative voting power of all of the
then outstanding shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class.
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<PAGE> 478
ARTICLE VI
The Board of Directors of the Corporation shall have the power to adopt,
amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal
of the Bylaws of the Corporation by the Board of Directors shall require the
approval of a majority of the Whole Board. The stockholders shall also have
power to adopt, amend or repeal the Bylaws of the Corporation; provided,
however, that, in addition to any vote of the holders of any class or series of
stock of the Corporation required by law or by this Restated Certificate of
Incorporation, the affirmative vote of the holders of at least two-thirds of the
voting power of all of the then outstanding shares of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to adopt, amend or repeal any provision of the Bylaws
of the Corporation.
ARTICLE VII
Election of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
ARTICLE VIII
To the fullest extent permitted by law, no director of the Corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VIII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VIII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
ARTICLE IX
Actions shall be taken by the Corporation's stockholders only at annual or
special meetings of stockholders, and the Corporation's stockholders shall not
be able to act by written consent.
ARTICLE X
The Corporation reserves the right to amend or repeal any provision
contained in this Restated Certificate of Incorporation in the manner prescribed
by the laws of the State of Delaware and all rights conferred upon stockholders
are granted subject to this reservation; provided, however, that in addition to
the vote of the holders of any class or series of stock of the Corporation
required by law or by this Restated Certificate of Incorporation, the
affirmative vote of the holders of at least two-thirds of the voting power of
all of the then outstanding shares of the Corporation entitled to vote generally
in the election of directors, voting together as a single class, shall be
required to amend or repeal, or adopt any provision inconsistent with Articles
FIFTH, SIXTH, NINTH and this Article TENTH of this Restated Certificate of
Incorporation.
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APPENDIX E
FORM OF
BYLAWS
OF
VERITAS HOLDING CORPORATION
(A DELAWARE CORPORATION)
<PAGE> 480
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I -- STOCKHOLDERS................................... 3
Section 1.1: Annual Meetings............................. 3
Section 1.2: Special Meetings............................ 3
Section 1.3: Notice of Meetings.......................... 3
Section 1.4: Adjournments................................ 3
Section 1.5: Quorum...................................... 3
Section 1.6: Organization................................ 3
Section 1.7: Voting; Proxies............................. 4
Section 1.8: Fixing Date for Determination of
Stockholders of Record...................... 4
Section 1.9: List of Stockholders Entitled to Vote....... 4
Section 1.10: Inspectors of Elections..................... 5
Section 1.11: Notice of Stockholder Business;
Nominations............................................ 6
ARTICLE II -- BOARD OF DIRECTORS............................ 8
Section 2.1: Number; Qualifications...................... 8
Section 2.2: Election; Resignation; Removal; Vacancies... 8
Section 2.3: Regular Meetings............................ 9
Section 2.4: Special Meetings............................ 9
Section 2.5: Telephonic Meetings Permitted............... 9
Section 2.6: Quorum; Vote Required for Action............ 9
Section 2.7: Organization................................ 9
Section 2.8: Written Action by Directors................. 9
Section 2.9: Powers...................................... 9
Section 2.10: Compensation of Directors................... 9
ARTICLE III -- COMMITTEES................................... 10
Section 3.1: Committees.................................. 10
Section 3.2: Committee Rules............................. 10
ARTICLE IV -- OFFICERS...................................... 10
Section 4.1: Generally................................... 10
Section 4.2: Chief Executive Officer..................... 11
Section 4.3: Chairman of the Board....................... 11
Section 4.4: President................................... 11
Section 4.5: Vice President.............................. 11
Section 4.6: Chief Financial Officer..................... 11
Section 4.7: Treasurer................................... 12
Section 4.8: Secretary................................... 12
Section 4.9: Delegation of Authority..................... 12
Section 4.10: Removal..................................... 12
ARTICLE V -- STOCK.......................................... 12
Section 5.1: Certificates................................ 12
Section 5.2: Lost, Stolen or Destroyed Stock
Certificates; Issuance of New Certificate... 12
Section 5.3: Other Regulations........................... 12
</TABLE>
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TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE VI -- INDEMNIFICATION............................... 13
Section 6.1: Indemnification of Officers and Directors... 13
Section 6.2: Advance of Expenses......................... 13
Section 6.3: Non-Exclusivity of Rights................... 13
Section 6.4: Indemnification Contracts................... 13
Section 6.5: Effect of Amendment......................... 14
ARTICLE VII -- NOTICES...................................... 14
Section 7.1: Notice...................................... 14
Section 7.2: Waiver of Notice............................ 14
ARTICLE VIII -- INTERESTED DIRECTORS........................ 14
Section 8.1: Interested Directors; Quorum................ 14
ARTICLE IX -- MISCELLANEOUS................................. 15
Section 9.1: Fiscal Year................................. 15
Section 9.2: Seal........................................ 15
Section 9.3: Form of Records............................. 15
Section 9.4: Reliance Upon Books and Records............. 15
Section 9.5: Certificate of Incorporation Governs........ 15
Section 9.6: Severability................................ 15
ARTICLE X -- AMENDMENT...................................... 16
Section 10.1: Amendments.................................. 16
</TABLE>
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ARTICLE I
STOCKHOLDERS
SECTION 1.1: Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as the Board of Directors shall each year fix.
Any other proper business may be transacted at the annual meeting.
SECTION 1.2: Special Meetings. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board, the
Chief Executive Officer or by a majority of the members of the Board of
Directors. Special meetings may not be called by any other person or persons. If
a special meeting of stockholders is called by any person or persons other than
by a majority of the members of the Board of Directors, then such person or
persons shall call such meeting by delivering a written request to call such
meeting to each member of the Board of Directors, and the Board of Directors
shall then determine the time, date and place of such special meeting, which
shall be held not more than one hundred twenty (120) nor less than thirty-five
(35) days after the written request to call such special meeting was delivered
to each member of the Board of Directors.
SECTION 1.3: Notice of Meetings. Written notice of all meetings of
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable law or the Certificate of
Incorporation of the Corporation, such notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting.
SECTION 1.4: Adjournments. Any meeting of stockholders may adjourn from
time to time to reconvene at the same or another place, and notice need not be
given of any such adjourned meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken; provided, however,
that if the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, then a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting. At the adjourned meeting the Corporation may transact
any business that might have been transacted at the original meeting.
SECTION 1.5: Quorum. At each meeting of stockholders the holders of a
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law. If a quorum shall fail
to attend any meeting, the chairman of the meeting or the holders of a majority
of the shares entitled to vote who are present, in person or by proxy, at the
meeting may adjourn the meeting. Shares of the Corporation's stock belonging to
the Corporation (or to another corporation, if a majority of the shares entitled
to vote in the election of directors of such other corporation are held,
directly or indirectly, by the Corporation), shall neither be entitled to vote
nor be counted for quorum purposes; provided, however, that the foregoing shall
not limit the right of the Corporation or any other corporation to vote any
shares of the Corporation's stock held by it in a fiduciary capacity.
SECTION 1.6: Organization. Meetings of stockholders shall be presided over
by such person as the Board of Directors may designate, or, in the absence of
such a person, the Chief Executive Officer, or, in the absence of such person,
the President of the
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Corporation, or, in the absence of such person, such person as may be chosen by
the holders of a majority of the shares entitled to vote who are present, in
person or by proxy, at the meeting. Such person shall be chairman of the meeting
and, subject to Section 1.10 hereof, shall determine the order of business and
the procedure at the meeting, including such regulation of the manner of voting
and the conduct of discussion as seems to him or her to be in order. The
Secretary of the Corporation shall act as secretary of the meeting, but in his
or her absence the chairman of the meeting may appoint any person to act as
secretary of the meeting.
SECTION 1.7: Voting; Proxies. Unless otherwise provided by law or the
Certificate of Incorporation, and subject to the provisions of Section 1.8 of
these Bylaws, each stockholder shall be entitled to one (1) vote for each share
of stock held by such stockholder. Each stockholder entitled to vote at a
meeting of stockholders may authorize another person or persons to act for such
stockholder by proxy. Such a proxy may be prepared, transmitted and delivered in
any manner permitted by applicable law. Voting at meetings of stockholders need
not be by written ballot unless such is demanded at the meeting before voting
begins by a stockholder or stockholders holding shares representing at least one
percent (1%) of the votes entitled to vote at such meeting, or by such
stockholder's or stockholders' proxy; provided, however, that an election of
directors shall be by written ballot if demand is so made by any stockholder at
the meeting before voting begins. If a vote is to be taken by written ballot,
then each such ballot shall state the name of the stockholder or proxy voting
and such other information as the chairman of the meeting deems appropriate.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. Unless otherwise provided by applicable law, the
Certificate of Incorporation or these Bylaws, every matter other than the
election of directors shall be decided by the affirmative vote of the holders of
a majority of the shares of stock entitled to vote thereon that are present in
person or represented by proxy at the meeting and are voted for or against the
matter.
SECTION 1.8: Fixing Date for Determination of Stockholders of Record.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors and which shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. If no record date is fixed by the Board of
Directors, then the record date shall be as provided by applicable law. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 1.9: List of Stockholders Entitled to Vote. A complete list of
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which
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place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof and
may be inspected by any stockholder who is present at the meeting.
SECTION 1.10: Inspectors of Elections.
(a) Applicability. Unless otherwise provided in the Corporation's
Certificate of Incorporation or required by the Delaware General Corporation
Law, the following provisions of this Section 1.10 shall apply only if and when
the Corporation has a class of voting stock that is: (i) listed on a national
securities exchange; (ii) authorized for quotation on an interdealer quotation
system of a registered national securities association; or (iii) held of record
by more than 2,000 stockholders; in all other cases, observance of the
provisions of this Section 1.10 shall be optional, and at the discretion of the
Corporation.
(b) Appointment. The Corporation shall, in advance of any meeting of
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting.
(c) Inspector's Oath. Each inspector of election, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best of
his ability.
(d) Duties of Inspectors. At a meeting of stockholders, the inspectors
of election shall (i) ascertain the number of shares outstanding and the voting
power of each share, (ii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period of time a record of the disposition
of any challenges made to any determination by the inspectors, and (v) certify
their determination of the number of shares represented at the meeting, and
their count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors.
(e) Opening and Closing of Polls. The date and time of the opening and
the closing of the polls for each matter upon which the stockholders will vote
at a meeting shall be announced by the inspectors at the meeting. No ballot,
proxies or votes, nor any revocations thereof or changes thereto, shall be
accepted by the inspectors after the closing of the polls unless the Court of
Chancery upon application by a stockholder shall determine otherwise.
(f) Determinations. In determining the validity and counting of proxies
and ballots, the inspectors shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section 212(c)(2) of the Delaware
General Corporation Law, ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable information
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks, brokers, their nominees or similar persons which represent more
votes than the holder of a proxy is authorized by the record owner to cast or
more votes than the stockholder holds of record. If the inspectors consider
other reliable information for the limited purpose permitted herein, the
inspectors at the time they make their certification of their determinations
pursuant to this Section 1.11 shall specify the
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precise information considered by them, including the person or persons from
whom they obtained the information, when the information was obtained, the means
by which the information was obtained and the basis for the inspectors' belief
that such information is accurate and reliable.
SECTION 1.11: Notice of Stockholder Business; Nominations.
(a) Annual Meeting of Stockholders.
(i) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders shall be made
at an annual meeting of stockholders (A) pursuant to the Corporation's notice of
such meeting, (B) by or at the direction of the Board of Directors or (C) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of the notice provided for in this Section 1.11, who is entitled to vote
at such meeting and who complies with the notice procedures set forth in this
Section 1.11.
(ii) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (C) of subparagraph
(a)(i) of this Section 1.11, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of business on the ninetieth
(90th) day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is more than thirty (30) days before or more than sixty (60)days after
such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or the close of
business on the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made by the Corporation. Such stockholder's
notice shall set forth: (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected; (b) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(1) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner, and (2) the class and number
of shares of the Corporation that are owned beneficially and held of record by
such stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of
subparagraph (a)(ii) of this Section 1.11 to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the Corporation
is increased and there is no public announcement by the Corporation naming all
of the nominees for director or specifying the size of the increased board of
directors at least seventy (70)days prior to the first
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anniversary of the preceding year's annual meeting (or, if the annual meeting is
held more than thirty (30) days before or sixty (60) days after such anniversary
date, at least seventy (70) days prior to such annual meeting), a stockholder's
notice required by this Section 1.11 shall also be considered timely, but only
with respect to nominees for any new positions created by such increase, if it
shall be delivered to the Secretary of the Corporation at the principal
executive office of the Corporation not later than the close of business on the
tenth (10th) day following the day on which such public announcement is first
made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of such meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of such meeting (i) by or at the direction of the Board of
Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 1.11. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by subparagraph (a)(ii) of this Section 1.11 shall
be delivered to the Secretary of the Corporation at the principal executive
offices of the Corporation not earlier than the ninetieth (90th) day prior to
such special meeting and not later than the close of business on the later of
the sixtieth (60th) day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(c) General.
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.11 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.11. Except as otherwise provided by law or these
Bylaws, the chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth in this Section 1.11 and, if any proposed nomination or business is not in
compliance herewith, to declare that such defective proposal or nomination shall
be disregarded.
(ii) For purposes of this Section 1.11, the term "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section
1.11, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in this Section 1.11 shall be deemed to affect
any rights of stockholders to request
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inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1: Number; Qualifications. The Board of Directors shall consist
of one or more members. The initial number of directors shall be ten (10), and
thereafter shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority vote of the Whole
Board. For the purposes of these Bylaws, the term "Whole Board" shall mean the
total number of authorized directors whether or not there exist any vacancies in
previously authorized directorships. Directors need not be stockholders of the
Corporation.
SECTION 2.2: Election; Classes; Resignation; Removal; Vacancies. The Board
of Directors shall initially consist of the persons elected by the incorporator.
As provided in the Corporation's Certificate of Incorporation, the Board of
Directors shall be divided into three classes, A, B and C, as nearly equal in
number as reasonably possible, with the term of office of the first class (Class
A), which class shall initially consist of three (3) directors, to expire at the
first annual meeting of stockholders; the term of office of the second class
(Class B), which class shall initially consist of four (4) directors, to expire
at the annual meeting of stockholders one year thereafter; and the term of
office of the third class (Class C), which class shall initially consist of
three (3) directors, to expire at the annual meeting of stockholders two years
thereafter with each director to hold office until his or her successor shall
have been duly elected and qualified. Any director may resign at any time upon
written notice to the Corporation. Subject to the rights of holders of any
series of Preferred Stock then outstanding, any director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least two-thirds of the affirmative
voting power of all of the then outstanding shares of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class. Subject to the rights of holders of any series of Preferred Stock
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office, though less than a quorum, or by a sole remaining director; and
directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have been
chosen expires. In the event of any increase or decrease in the authorized
number of directors, (i) each director then serving as such shall nevertheless
continue as a director of the class of which he or she is a member until the
expiration of such director's current term or his or her prior death,
retirement, removal or resignation and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall, if reasonably
possible, be apportioned by the Board of Directors among the three classes of
directors so as to ensure that no one class has more than one director more than
any other class. To the extent reasonably possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation and newly eliminated directorships shall be subtracted from those
classes whose terms of office are to expire at the earliest dates following such
allocation, unless otherwise provided for from time to time by resolution
adopted by a majority of the directors then in office, although less than a
quorum. In the
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event of a vacancy in the Board of Directors, the remaining directors, except as
otherwise provided or limited by law, the Corporation's Certificate of
Incorporation or these Bylaws, may exercise the powers of the full Board of
Directors until the vacancy is filled.
SECTION 2.3: Regular Meetings. Regular meetings of the Board of Directors
may be held at such places, within or without the State of Delaware, and at such
times as the Board of Directors may from time to time determine. Notice of
regular meetings need not be given if the date, times and places thereof are
fixed by resolution of the Board of Directors.
SECTION 2.4: Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the Chief Executive Officer or a
majority of the members of the Board of Directors then in office and may be held
at any time, date or place, within or without the State of Delaware, as the
person or persons calling the meeting shall fix. Notice of the time, date and
place of such meeting shall be given, orally or in writing, by the person or
persons calling the meeting to all directors at least four (4) days before the
meeting if the notice is mailed, or at least twenty-four (24) hours before the
meeting if such notice is given by telephone, hand delivery, telegram, telex,
mailgram, facsimile or similar communication method. Unless otherwise indicated
in the notice, any and all business may be transacted at a special meeting.
SECTION 2.5: Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee of the Board, may participate in a meeting of the
Board or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to
conference telephone or similar communications equipment shall constitute
presence in person at such meeting.
SECTION 2.6: Quorum; Vote Required for Action. At all meetings of the Board
of Directors a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by law, the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
SECTION 2.7: Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, or in his or her absence by the
Chief Executive Office, or in his or her absence by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his or her
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting.
SECTION 2.8: Written Action by Directors. Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board or such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee,
respectively.
SECTION 2.9: Powers. The Board of Directors may, except as otherwise
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
SECTION 2.10: Compensation of Directors. Directors, as such, may receive,
pursuant to a resolution of the Board of Directors, fees and other compensation
for their services as directors, including without limitation their services as
members of committees of the Board of Directors.
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ARTICLE III
COMMITTEES
SECTION 3.1: Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of the committee, the
member or members thereof present at any meeting of such committee who are not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent provided in a resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors as provided in subsection (a) of
Section 151 of the Delaware General Corporation Law, fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation, or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation, or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Sections 251 or 252 of the Delaware
General Corporation Law, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the Corporation; and
unless the resolution of the Board of Directors expressly so provides, no such
committee shall have the power or authority to declare a dividend, authorize the
issuance of stock or adopt a certificate of ownership and merger pursuant to
Section 253 of the Delaware General Corporation Law.
SECTION 3.2: Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
ARTICLE IV
OFFICERS
SECTION 4.1: Generally. The officers of the Corporation shall consist of a
Chief Executive Officer, a President, one or more Vice Presidents, a Secretary,
a Treasurer and such other officers, including a Chairman of the Board of
Directors and/or Chief Financial Officer, as may from time to time be appointed
by the Board of Directors. All officers shall be elected by the Board of
Directors; provided, however, that the Board of Directors may empower the Chief
Executive Officer of the Corporation to appoint officers other than the Chairman
of the Board, the Chief Executive Officer, the President, the Chief Financial
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Officer or the Treasurer. Each officer shall hold office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. Any number of offices may be held by the same person. Any officer may
resign at any time upon written notice to the Corporation. Any vacancy occurring
in any office of the Corporation by death, resignation, removal or otherwise may
be filled by the Board of Directors.
SECTION 4.2: Chief Executive Officer. Subject to the control of the Board
of Directors and such supervisory powers, if any, as may be given by the Board
of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are:
(a) To act as the general manager and, subject to the control of the
Board of Directors, to have general supervision, direction and control of the
business and affairs of the Corporation;
(b) To preside at all meetings of the stockholders;
(c) To call meetings of the stockholders to be held at such times and,
subject to the limitations prescribed by law or by these Bylaws, at such places
as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds, conveyances,
mortgages, guarantees, leases, obligations, bonds, certificates and other papers
and instruments in writing which have been authorized by the Board of Directors
or which, in the judgment of the Chief Executive Officer, should be executed on
behalf of the Corporation; and, subject to the direction of the Board of
Directors, to have general charge of the property of the Corporation and to
supervise and control all officers, agents and employees of the Corporation.
SECTION 4.3: Chairman of the Board. The Chairman of the Board shall have
the power to preside at all meetings of the Board of Directors and shall have
such other powers and duties as provided in these Bylaws and as the Board of
Directors may from time to time prescribe.
SECTION 4.4: President. Subject to the provisions of these Bylaws and to
the direction of the Board of Directors, and subject to the supervisory powers
of the Chief Executive Officer, and subject to such supervisory powers and
authority as may be given by the Board of Directors to the Chairman of the Board
and/or to any other officer, the President shall have responsibility for the
management of the business and affairs of the Corporation and the general
supervision and direction of all of the officers, employees and agents of the
Corporation (other than the Chief Executive Officer), and shall perform all
duties and have all powers that are commonly incident to the office of President
or that are delegated to the President by the Board of Directors or the Chief
Executive Officer. The President may be designated by the Board to perform the
duties and exercise the powers of the Chief Executive Office in the event of the
Chief Executive Officer's absence or disability.
SECTION 4.5: Vice President. Each Vice President shall have all such powers
and duties as are commonly incident to the office of Vice President, or that are
delegated to him or her by the Board of Directors or the Chief Executive
Officer. A Vice President may be designated by the Board to perform the duties
and exercise the powers of the Chief Executive Officer and/or the President in
the event of the Chief Executive Officer's and/or the President's absence or
disability.
SECTION 4.6: Chief Financial Officer. Subject to the direction of the Board
of Directors and the Chief Executive Officer, the Chief Financial Officer shall
perform all
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duties and have all powers that are commonly incident to the office of chief
financial officer.
SECTION 4.7: Treasurer. The Treasurer shall have custody of all monies and
securities of the Corporation. The Treasurer shall make such disbursements of
the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions. The Treasurer shall also perform such
other duties and have such other powers as are commonly incident to the office
of Treasurer, or as the Board of Directors or the Chief Executive Officer may
from time to time prescribe.
SECTION 4.8: Secretary. The Secretary shall issue or cause to be issued all
authorized notices for, and shall keep, or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall perform
such other duties and have such other powers as are commonly incident to the
office of Secretary, or as the Board of Directors or the Chief Executive Officer
may from time to time prescribe.
SECTION 4.9: Delegation of Authority. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.
SECTION 4.10: Removal. Any officer of the Corporation shall serve at the
pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
ARTICLE V
STOCK
SECTION 5.1: Certificates. Every holder of stock shall be entitled to have
a certificate signed by or in the name of the Corporation by the Chairman or
Vice-Chairman of the Board of Directors, or the President or a Vice President,
and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary, of the Corporation, certifying the number of shares owned by such
stockholder in the Corporation. Any or all of the signatures on the certificate
may be a facsimile.
SECTION 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate of stock in the place
of any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or such owner's legal representative, to agree to
indemnify the Corporation and/or to give the Corporation a bond sufficient to
indemnify it, against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
SECTION 5.3: Other Regulations. The issue, transfer, conversion and
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.
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ARTICLE VI
INDEMNIFICATION
SECTION 6.1: Indemnification of Officers and Directors. Each person who was
or is made a party to, or is threatened to be made a party to, or is involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), by reason of the fact that he or she (or a
person of whom he or she is the legal representative) is or was a director or
officer of the Corporation or a Reincorporated Predecessor (as defined below) or
is or was serving at the request of the Corporation or a Reincorporated
Predecessor (as defined below) as a director or officer of another corporation,
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, shall be indemnified and held harmless
by the Corporation to the fullest extent permitted by the Delaware General
Corporation Law, against all expenses, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to
be paid in settlement) reasonably incurred or suffered by such person in
connection therewith, and such indemnification shall continue as to a person who
has ceased to be a director or officer and shall inure to the benefit of his or
her heirs, executors and administrators; provided, however, that the Corporation
shall indemnify any such person seeking indemnity in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
As used herein, the term "Reincorporated Predecessor" means a corporation that
is merged with and into the Corporation in a statutory merger where (a) the
Corporation is the surviving corporation of such merger; or (b) the primary
purpose of such merger is to change the corporate domicile of the Reincorporated
Predecessor to Delaware.
SECTION 6.2: Advance of Expenses. The Corporation shall pay all expenses
(including attorneys' fees) incurred by such a director or officer in defending
any such proceeding as they are incurred in advance of its final disposition;
provided, however, that if the Delaware General Corporation Law then so
requires, the payment of such expenses incurred by such a director or officer in
advance of the final disposition of such proceeding shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Article VI or otherwise; and provided, further, that the Corporation shall
not be required to advance any expenses to a person against whom the Corporation
directly brings a claim, in a proceeding, alleging that such person has breached
his or her duty of loyalty to the Corporation, committed an act or omission not
in good faith or that involves intentional misconduct or a knowing violation of
law, or derived an improper personal benefit from a transaction.
SECTION 6.3: Non-Exclusivity of Rights. The rights conferred on any person
in this Article VI shall not be exclusive of any other right that such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaw, agreement, vote or consent of stockholders or
disinterested directors, or otherwise. Additionally, nothing in this Article VI
shall limit the ability of the Corporation, in its discretion, to indemnify or
advance expenses to persons whom the Corporation is not obligated to indemnify
or advance expenses pursuant to this Article VI.
SECTION 6.4: Indemnification Contracts. The Board of Directors is
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the
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Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing indemnification rights to such person. Such rights may
be greater than those provided in this Article VI.
SECTION 6.5: Effect of Amendment. Any amendment, repeal or modification of
any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.
ARTICLE VII
NOTICES
SECTION 7.1: Notice. Except as otherwise specifically provided herein or
required by law, all notices required to be given pursuant to these Bylaws shall
be in writing and may in every instance be effectively given by hand delivery
(including use of a delivery service), by depositing such notice in the mail,
postage prepaid, or by sending such notice by prepaid telegram, telex, overnight
express courier, mailgram or facsimile. Any such notice shall be addressed to
the person to whom notice is to be given at such person's address as it appears
on the records of the Corporation. The notice shall be deemed given (i) in the
case of hand delivery, when received by the person to whom notice is to be given
or by any person accepting such notice on behalf of such person, (ii) in the
case of delivery by mail, upon deposit in the mail, (iii) in the case of
delivery by overnight express courier, on the first business day after such
notice is dispatched, and (iv) in the case of delivery via telegram, telex,
mailgram, or facsimile, when dispatched.
SECTION 7.2: Waiver of Notice. Whenever notice is required to be given
under any provision of these Bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
INTERESTED DIRECTORS
SECTION 8.1: Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof that authorizes
the contract or transaction, or solely because his, her or their votes are
counted for such purpose, if: (i) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; (ii) the material facts as to his, her or their
relationship
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or interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof,
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1: Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
SECTION 9.2: Seal. The Board of Directors may provide for a corporate seal,
which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.
SECTION 9.3: Form of Records. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of account
and minute books, may be kept on, or be in the form of, magnetic tape,
diskettes, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
SECTION 9.4: Reliance Upon Books and Records. A member of the Board of
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying in
good faith upon records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
SECTION 9.5: Certificate of Incorporation Governs. In the event of any
conflict between the provisions of the Corporation's Certificate of
Incorporation and Bylaws, the provisions of the Certificate of Incorporation
shall govern.
SECTION 9.6: Severability. If any provision of these Bylaws shall be held
to be invalid, illegal, unenforceable or in conflict with the provisions of the
Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws (including without
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Certificate of Incorporation, that are not themselves invalid, illegal,
unenforceable or in conflict with the Certificate of Incorporation) shall remain
in full force and effect.
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ARTICLE X
AMENDMENT
SECTION 10.1: Amendments. The stockholders shall have power to adopt, amend
or repeal these Bylaws; provided, however, that, in addition to any vote of the
holders of any class or series of stock of the Corporation required by law or by
these Bylaws, the affirmative vote of the holders of at least two-thirds of the
voting power of all of the then outstanding shares of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to adopt, amend or repeal any provision of these
Bylaws. To the extent provided in the Corporation's Certificate of
Incorporation, the Board of Directors of the Corporation shall also have the
power to adopt, amend or repeal Bylaws of the Corporation, except insofar as
Bylaws adopted by the stockholders shall otherwise provide. Any adoption,
amendment or repeal of the Bylaws of the Corporation by the Board of Directors
shall require the approval of a majority of the Whole Board.
E-16
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APPENDIX F
NOTICE OF ELECTION
TO EXCHANGE OPTIONS
The terms set forth in this letter are defined in the accompanying exchange
offer materials. Please complete the information requested below for each
outstanding Seagate Software option to be exchanged for a New VERITAS option.
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
MY NAME(S) AND ADDRESS(ES) (PLEASE PROVIDE) MY CONTACT INFORMATION
- --------------------------------------------------------------------------------------------------
OFFICE TELEPHONE:
------------------------------------
HOME TELEPHONE:
------------------------------------
EMAIL ADDRESS:
------------------------------------
TAX ID NUMBER:
- --------------------------------------------------------------------------------------------------
</TABLE>
I hereby elect to surrender Seagate Software stock options, and understand
that the surrendered Seagate Software stock options will be cancelled, in
exchange for new options to purchase shares of New VERITAS common stock pursuant
to the terms set forth in the attached exchange offer materials dated April 22,
1999 in the amounts set forth below:
I ELECT TO EXCHANGE ALL OUTSTANDING
SEAGATE SOFTWARE OPTIONS THAT I AM
ENTITLED TO EXCHANGE FOR NEW VERITAS
OPTIONS:
- ------------------------------------------------
PLEASE CHECK ONE OF THE
FOLLOWING:
YES [ ] NO [ ]
(IF NO, THEN COMPLETE TABLE
BELOW)
<TABLE>
<S> <C> <C> <C>
I ELECT TO EXCHANGE ONLY THE FOLLOWING SEAGATE
SOFTWARE OPTIONS: OPTION # OPTION # OPTION #
- -------------------------------------------------------------------------------------------------
Option Grant Date:
- -------------------------------------------------------------------------------------------------
Number of Unexercised Shares:
- -------------------------------------------------------------------------------------------------
Exercise Price:
- -------------------------------------------------------------------------------------------------
ISO or NSO:
- -------------------------------------------------------------------------------------------------
</TABLE>
I ACKNOWLEDGE RECEIPT OF VERITAS' LETTER DATED APRIL 22, 1999 AND THE ENCLOSURES
REFERENCED THEREIN AND CONTAINED THEREWITH (THE "EXCHANGE OFFER MATERIALS"). BY
SIGNING THIS NOTICE, I AGREE TO BE BOUND BY ALL OF THE TERMS AND CONDITIONS OF
THE EXCHANGE OFFER AS DESCRIBED IN VERITAS' LETTER AND THE EXCHANGE OFFER
MATERIALS.
(Print Your Name)
--------------------------------------
Signature
---------------------------------------------------------------------------
Date Signed
--------------------------------------------
THIS NOTICE OF ELECTION MUST BE POSTMARKED NO LATER THAN , 1999.
F-1
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APPENDIX G
AMENDED AND RESTATED COMBINATION AGREEMENT
AMONG
VERITAS HOLDING CORPORATION
VERITAS SOFTWARE CORPORATION
AND
TELEBACKUP SYSTEMS INC.
APRIL 12, 1999
<PAGE> 498
TABLE OF CONTENTS
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1. DEFINITIONS........................................................ 5
2. THE ARRANGEMENT.................................................... 6
2.1 The Arrangement............................................. 6
2.2 Exchange Ratio.............................................. 7
2.3 Adjustments for Capital Changes............................. 8
2.4 Dissenting Shares........................................... 8
2.5 TSI Options................................................. 8
2.6 Other Effects of the Arrangement............................ 9
2.7 Joint Proxy Statement; Registration Statement............... 9
2.8 Reorganization.............................................. 10
2.9 Escrow Agreement............................................ 10
3. REPRESENTATIONS AND WARRANTIES OF TSI.............................. 11
3.1 Organization; Good Standing; Qualification and Power........ 11
3.2 Capital Structure........................................... 11
3.3 Authority................................................... 12
Securities Regulatory Authority Reports and Financial
3.4 Statements.................................................. 13
3.5 Information Supplied........................................ 13
3.6 Compliance with Applicable Laws............................. 14
3.7 Litigation.................................................. 14
3.8 Employment Matters.......................................... 14
3.9 Collective Agreements....................................... 15
3.10 Pension and Other Benefit Plans............................. 15
3.11 Absence of Undisclosed Liabilities.......................... 17
3.12 Absence of Certain Changes or Events........................ 17
3.13 Agreements.................................................. 18
3.14 No Defaults................................................. 20
3.15 Certain Agreements.......................................... 20
3.16 Taxes....................................................... 20
3.17 Intellectual Property....................................... 21
3.18 Products and Distribution................................... 22
3.19 Fees and Expenses........................................... 22
3.20 Insurance................................................... 22
3.21 Ownership of Property....................................... 22
3.22 Environmental Matters....................................... 23
3.23 Interested Party Transactions............................... 23
3.24 Board Approval.............................................. 24
3.25 Vote Required............................................... 24
3.26 Disclosure.................................................. 24
3.27 Fairness Opinion............................................ 24
3.28 Restrictions on Business Activities......................... 24
3.29 Books and Records........................................... 24
3.30 Government Contracts........................................ 24
4. REPRESENTATIONS AND WARRANTIES OF VERITAS SOFTWARE AND VERITAS
HOLDING............................................................ 25
4.1 Organization and Good Standing.............................. 25
4.2 Power, Authorization and Validity........................... 25
</TABLE>
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4.3 Disclosure.................................................. 25
4.4 No Conflict................................................. 26
4.5 Compliance with Applicable Laws............................. 26
4.6 No Material Adverse Change.................................. 26
4.7 Governmental Consents....................................... 27
4.8 Litigation.................................................. 27
4.9 Intellectual Property....................................... 27
4.10 Information Supplied........................................ 28
4.11 Board Approval.............................................. 28
4.12 Vote Required............................................... 28
4.13 Validity of Shares.......................................... 28
4.14 Representations and Warranties of VERITAS Holding........... 28
5. TSI COVENANTS...................................................... 29
5.1 Advice of Changes........................................... 29
5.2 Maintenance of Business..................................... 29
5.3 Conduct of Business......................................... 29
5.4 Shareholder Approval........................................ 31
5.5 Joint Proxy Statement....................................... 31
5.6 Regulatory Approvals........................................ 32
5.7 Necessary Consents.......................................... 32
5.8 Access to Information....................................... 32
5.9 Satisfaction of Conditions Precedent........................ 32
5.10 No Other Negotiations....................................... 32
5.11 Representations of Shareholders............................. 33
5.12 Employment and Noncompetition Agreements.................... 33
6. VERITAS SOFTWARE AND VERITAS HOLDING COVENANTS..................... 33
6.1 Advice of Changes........................................... 33
6.2 Regulatory Approvals........................................ 34
6.3 Stockholder Approval........................................ 34
6.4 VERITAS Voting Agreements................................... 34
6.5 Joint Proxy Statement....................................... 34
6.6 Listing..................................................... 34
6.7 Access to Information....................................... 35
6.8 Indemnification............................................. 35
6.9 Necessary Consents.......................................... 35
6.10 Satisfaction of Conditions Precedent........................ 35
6.11 Reorganization Procedures................................... 35
7. CLOSING MATTERS.................................................... 36
7.1 The Closing................................................. 36
7.2 Ancillary Documents/Reservation of Shares................... 36
7.3 Exchange of Options......................................... 36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF TSI......................... 36
8.1 Accuracy of Representations and Warranties.................. 36
8.2 Covenants................................................... 37
8.3 Absence of Material Adverse Change.......................... 37
8.4 Compliance with Law......................................... 37
8.5 Government Consents......................................... 37
</TABLE>
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8.6 SEC Filings................................................. 37
8.7 Opinion of VERITAS' Counsel................................. 37
8.8 TSI Shareholder Approval.................................... 37
8.9 VERITAS Stockholder Approval................................ 37
8.10 No Legal Action............................................. 37
8.11 Tax Opinion................................................. 37
8.12 Court Approval.............................................. 38
8.13 ASC, Etc.................................................... 38
8.14 NASDAQ Listing.............................................. 38
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VERITAS HOLDING AND VERITAS
SOFTWARE........................................................... 38
9.1 Accuracy of Representations and Warranties.................. 38
9.2 Covenants................................................... 38
9.3 Absence of Material Adverse Change.......................... 38
9.4 Compliance with Law......................................... 38
9.5 Government Consents......................................... 38
9.6 SEC Filings................................................. 39
9.7 Opinion of TSI's Counsel.................................... 39
9.8 Documents................................................... 39
9.9 VERITAS Stockholder Approval................................ 39
9.10 TSI Shareholder Approval.................................... 39
9.11 Dissenting Shareholders..................................... 39
9.12 No Legal Action............................................. 39
9.13 Affiliate, Voting and Escrow Agreements..................... 39
9.14 Court Approval.............................................. 39
9.15 ASC, Etc.................................................... 39
10. TERMINATION OF AGREEMENT........................................... 40
10.1 Termination................................................. 40
10.2 Notice of Termination....................................... 41
10.3 Effect of Termination....................................... 41
10.4 Termination Fees............................................ 41
11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES,
CONTINUING COVENANTS............................................... 42
11.1 Survival of Representations................................. 42
11.2 TSI Agreement to Indemnify.................................. 43
12. MISCELLANEOUS...................................................... 44
12.1 Governing Law............................................... 44
12.2 Assignment; Binding Upon Successors and Assigns............. 44
12.3 Severability................................................ 44
12.4 Counterparts................................................ 44
12.5 Other Remedies.............................................. 44
12.6 Amendment and Waivers....................................... 44
12.7 Expenses.................................................... 45
12.8 Attorneys' Fees............................................. 45
12.9 Notices..................................................... 45
12.10 Construction of Agreement................................... 46
12.11 No Joint Venture............................................ 46
</TABLE>
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<S> <C> <C>
12.12 Further Assurances.......................................... 46
12.13 Absence of Third Party Beneficiary Rights................... 46
12.14 Public Announcement......................................... 46
12.15 Entire Agreement............................................ 46
</TABLE>
EXHIBITS
Exhibit 1.1..................................................Plan of Arrangement
Exhibit 1.9.....................................................Escrow Agreement
Exhibit 2.9....................................................TSI Balance Sheet
Exhibit 4.4A......................................................TSI Affiliates
Exhibit 4.4B..........................................TSI Principal Shareholders
Exhibit 4.4C................................................TSI Voting Agreement
Exhibit 4.5.............................................TSI Affiliates Agreement
Exhibit 4.13A...........Persons signing Employment and Noncompetition Agreements
Exhibit 4.13B.......................................Form of Employment Agreement
Exhibit 4.13C...................................Form of Noncompetition Agreement
Exhibit 5.4A.......................................VERITAS Affiliates Agreements
Exhibit 5.4B...........................................VERITAS Voting Agreements
Exhibit 6.2(a)..................................................Share Conditions
Exhibit 6.2(b)(i)..............................................Support Agreement
Exhibit 6.2(b)(ii)...........................Voting and Exchange Trust Agreement
Exhibit 6.2(b)(iii)........................Restated Certificate of Incorporation
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<PAGE> 502
AMENDED AND RESTATED COMBINATION AGREEMENT
THIS AMENDED AND RESTATED COMBINATION AGREEMENT (this "AGREEMENT") is
entered into as of April 12, 1999 by and among VERITAS Holding Corporation, a
Delaware corporation ("VERITAS HOLDING"), VERITAS Software Corporation, a
Delaware corporation ("VERITAS SOFTWARE") and TeleBackup Systems Inc., an
Alberta corporation ("TSI"). This Agreement amends and restates that certain
Combination Agreement dated as of September 1, 1998 between VERITAS Software,
VERITAS Holding and TSI (the "ORIGINAL AGREEMENT"), as amended by the Novation,
Assignment and Amendment Agreement dated as of February 27, 1999, entered into
by and among VERITAS Holding, VERITAS and TSI (the "NOVATION AGREEMENT").
RECITALS
A. VERITAS Software and TSI entered into the Original Agreement, pursuant
to which TSI would become a subsidiary of VERITAS, pursuant to the terms of an
arrangement effected under the Business Corporations Act (Alberta).
B. VERITAS Software subsequently entered into that certain Agreement and
Plan of Reorganization dated October 5, 1998 with VERITAS Holding, Seagate
Technology, Inc., Seagate Software, Inc. ("SEAGATE") and Seagate Software
Network & Storage Management Group, Inc., which provides for the merger of a
wholly owned subsidiary of VERITAS Holding with and into VERITAS Software, such
that VERITAS Software will become a subsidiary of VERITAS Holding, and the
acquisition by VERITAS Holding of the Network & Storage Management Group
business of Seagate Software, Inc. (the "NSMG COMBINATION").
C. VERITAS Software, TSI and VERITAS Holding subsequently entered into the
Novation Agreement, which amended the Original Agreement and assigned certain
rights of VERITAS Software under the Original Agreement to VERITAS Holding,
among other things.
D. The parties to the Novation Agreement desire to amend and restate the
Novation Agreement and the Original Agreement in their entirety to restructure
the transaction set forth therein as described herein and in the Plan of
Arrangement attached as Exhibit 1.1 hereto.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions
1.1 Each capitalized term used but not otherwise defined herein shall have
the meaning ascribed to it in the Plan of Arrangement attached as Exhibit 1.1
hereto.
1.2 Subject to the provisions of this Section 1.2, "VERITAS" means VERITAS
Holding. If prior to the Effective Time, the stockholders of VERITAS Software
and Seagate have not approved the NSMG Combination and the closing of the NSMG
Combination has not occurred, all as described in the Joint Proxy Statement (as
defined in Section 2.7 below) relating to the Combination and the NSMG
Combination, VERITAS shall mean VERITAS Software.
1.3 In this Agreement, any reference to any event, change or effect being
"MATERIAL" with respect to any entity or group of entities means any material
event, change or effect related to the condition (financial or otherwise),
properties, assets, liabilities, businesses,
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<PAGE> 503
operations, results of operations or prospects of such entity or group of
entities. In this Agreement, the term "MATERIAL ADVERSE EFFECT" used with
respect to a party means any event, change or effect that is materially adverse
to the condition (financial or otherwise), properties, assets, liabilities,
businesses, operations, results of operations or prospects of such party and its
subsidiaries, taken as a whole; provided that a Material Adverse Effect shall
not include any adverse effect resulting from (i) changes in general economic
conditions or conditions generally affecting the personal computer application
software industry, or (ii) a decline in either party's stock price.
1.4 Unless otherwise specified, all references in this Agreement to
"dollars" or "$" shall mean United States dollars.
2. The Arrangement
2.1 The Arrangement. As promptly as practicable after the execution of
this Agreement, TSI will apply to the Alberta Court of Queen's Bench (the
"COURT") pursuant to section 186 of the Business Corporations Act (Alberta) (the
"ABCA") for an interim order in form and substance satisfactory to VERITAS
Software (such approval not to be unreasonably withheld or delayed) (the
"INTERIM ORDER") providing for, among other things, the calling and holding of a
meeting of the shareholders of TSI (the "TSI SHAREHOLDERS MEETING") for the
purpose of considering and, if deemed advisable, approving the arrangement (the
"ARRANGEMENT") under section 186 of the ABCA and pursuant to the Agreement and
Plan of Arrangement substantially in the form of Exhibit 1.1 hereto (the "PLAN
OF ARRANGEMENT"). If the TSI Shareholders (as hereinafter defined) approve the
Arrangement, thereafter TSI will take the necessary steps to submit the
Arrangement to the Court and apply for a final order of the Court approving the
Arrangement in such fashion as the Court may direct (the "FINAL ORDER"). At the
time (the "EFFECTIVE TIME") and upon the date (the "EFFECTIVE DATE") as defined
in the Plan of Arrangement the following reorganization of capital shall occur
and shall be deemed to occur in the following order without any further act or
formality:
(a) Holders of TeleBackup Common Shares who have duly exercised their
rights of dissent as set forth in the Plan of Arrangement shall be deemed to
have transferred their TeleBackup Common Shares to TeleBackup for cancellation
and such shares shall be cancelled.
(b) The articles of Exchangeco shall be amended as set out in the
Articles of Amendment set forth as Appendix A to the Plan of Arrangement to
remove its private company restrictions.
(c) TeleBackup and Amalco shall be amalgamated pursuant to the
Amalgamation Agreement to form New TeleBackup.
(d) Upon the amalgamation of TeleBackup and Amalco to form New
TeleBackup:
(i) Exchangeco shall issue to holders of TeleBackup Common Shares
(other than those holders of TeleBackup Common Shares who, pursuant to the Plan
of Arrangement, have duly exercised their rights of dissent and whose TeleBackup
Common Shares have been cancelled) one Exchangeco Class A Share for each
TeleBackup Common Share held by such TeleBackup Shareholders; provided, however,
that share certificates evidencing such Exchangeco Class A Shares shall not be
issued;
(ii) New TeleBackup shall issue to Exchangeco the number of New
TeleBackup Common Shares set forth in the Plan of Arrangement;
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(iii) New TeleBackup shall issue to the holders of Amalco Preferred
Shares the number of New TeleBackup Preferred Shares set forth in the Plan of
Arrangement;
(iv) There shall be an amount added to the stated capital account
maintained for the Exchangeco Class A Shares as set forth in the Plan of
Arrangement;
(v) There shall be an amount added to the stated capital account
maintained for the New TeleBackup Common Shares as set forth in the Plan of
Arrangement; and
(vi) There shall be an appropriate amount added to the stated
capital account maintained for the New TeleBackup Preferred Shares as set forth
in the Plan of Arrangement.
(e) The Articles of Exchangeco shall be amended as set out in the
Articles of Amendment set forth as Appendix C to the Plan of Arrangement to
create the Exchangeco Exchangeable Shares.
(f) Exchangeco shall issue to each Eligible Exchangeco Shareholder the
number of Exchangeco Exchangeable Shares equal to the Exchange Ratio for each
Exchangeco Class A Share and the Exchangeco Class A Shares so acquired by
Exchangeco upon the exchange shall be cancelled and restored to the status of
authorized but unissued. There shall be an amount added to the stated capital
account maintained for the Exchangeco Exchangeable Shares as set forth in the
Plan of Arrangement.
(g) Canco shall be granted the right to acquire and shall acquire all of
the issued and outstanding Exchangeco Class A Shares by issuing to the holders
of the outstanding Exchangeco Class A Shares the number of shares of VERITAS
Common Stock equal to the Exchange Ratio for each Exchangeco Class A Share so
acquired.
(h) VERITAS shall be entitled to enforce the exchange right and call
rights set out in Articles 5, 6 and 7 of the Exchangeable Share Provisions and
in exercising such rights VERITAS will be required to purchase Exchangeco
Exchangeable Shares from itself. The holders of Exchangeco Exchangeable Shares
shall be entitled to enforce the exchange, liquidation and retraction rights set
out in Articles 5 and 6 of the Exchangeable Share Provisions.
2.2 Exchange Ratio. For purposes of this Agreement, the "EXCHANGE RATIO"
shall equal (i) the total number of TSI Common Shares outstanding at the
Effective Time plus the total number of TSI Common Shares issuable upon exercise
of all TSI Options (as hereinafter defined) outstanding at the Effective Time,
divided into (ii) the Net Shares (as defined below). For purposes of this
Section 2.1, "NET SHARES" shall equal (A)(x) the Acquisition Shares (as defined
below) times the Average Price (as defined below), minus (y) the Debt Payment
(as defined below) and any unfunded royalty buyout, divided by (B) the Average
Price. The "ACQUISITION SHARES" shall mean (a) in the event that the Average
Price is between $33.81 per share and $41.32 per share, 1,710,000 shares of
VERITAS Common Stock, (b) in the event that the Average Price is less than
$33.81 per share, the number of shares of VERITAS Common Stock determined by
dividing $57,808,000 by such Average Price, provided however, that, in such
case, in no event shall the Acquisition Shares exceed 1,900,000 shares of
VERITAS Common Stock, or (c) in the event that the Average Price is more than
$41.32 per share, the number of shares of VERITAS Common Stock determined by
dividing $70,654,000 by such Average Price, provided however, that, in such
case, in no event shall the Acquisition Shares be less than 1,555,000 shares of
VERITAS Common Stock. The "AVERAGE PRICE" means the average of
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the closing sale prices of one share of VERITAS Software or VERITAS Holding
Common Stock reported in the Wall Street Journal, on the basis of information
provided by the NASDAQ Stock Market for each of the ten trading days ending two
(2) trading days preceding the Closing Date (as defined in Section 7.1 below).
The "DEBT PAYMENT" shall mean that portion of the estimated $2.7 million of
principal and accrued interest owing under that certain convertible debenture
issued by TSI on or about September 30, 1997 which remains outstanding as of the
Effective Time.
2.3 Adjustments for Capital Changes. If, prior to the Effective Time,
VERITAS or TSI recapitalizes through a subdivision of its outstanding shares
into a greater number of shares, or a combination of its outstanding shares into
a lesser number of shares, or reorganizes, reclassifies or otherwise changes its
outstanding shares into the same or a different number of shares of other
classes, or declares a dividend on its outstanding shares payable in shares of
its capital stock or securities convertible into shares of its capital stock,
then the Exchange Ratio will be adjusted appropriately so as to maintain the
relative proportionate interests of the holders of TSI Common Shares and the
holders of the shares of VERITAS Common Stock; provided, however, that no such
change or declaration shall be made by either VERITAS or TSI other than in
accordance with this Agreement; provided further, that there shall be no
adjustment to the Exchange Ratio as a result of the NSMG Combination.
2.4 Dissenting Shares. Holders of TSI Common Shares may exercise rights of
dissent with respect to such shares in connection with the Arrangement pursuant
to and in the manner set forth in section 184 of the ABCA and section 3.1 of the
Plan of Arrangement as modified by the Interim Order (such holders referred to
as "DISSENTING SHAREHOLDERS"). TSI shall give VERITAS (i) prompt notice of any
written demands of a right of dissent, withdrawals of such demands, and any
other instruments served pursuant to the ABCA and received by TSI, and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
such rights. TSI shall not, except with the prior written consent of VERITAS,
which consent shall not be unreasonably withheld, voluntarily make any payment
with respect to any such rights or offer to settle or settle any such rights.
All payments to Dissenting Shareholders shall be the sole responsibility of TSI,
and neither VERITAS Software nor VERITAS Holding will directly or indirectly
provide any funds for the purposes of making payments to Dissenting
Shareholders. In the event that TSI does not have sufficient funds to make
payments to Dissenting Shareholders, TSI will undertake to borrow the funds
necessary to make such payments from sources other than VERITAS Software or
VERITAS Holding or any affiliate of either VERITAS Holding or VERITAS Software.
2.5 TSI Options.
(a) Exchange of TSI Options. At the Effective Time, after the actions
described in Section 2.1, each of the then outstanding options to purchase TSI
Common Shares (collectively, the "TSI OPTIONS") (including all outstanding
options granted under TSI's Directors', Management, Employees' and Consultants'
Stock Option Plan adopted on December 23, 1995 (the "TSI OPTION PLAN")) will, at
the Effective Time, and without any further action on the part of any holder
thereof, be exchanged for an option to purchase that number of shares of VERITAS
Common Stock determined by multiplying the number of TSI Common Shares subject
to such TSI Option at the Effective Time by the Exchange Ratio, at an exercise
price per share of VERITAS Common Stock equal to the exercise price per share of
such TSI Option immediately prior to the Effective Time divided by the Exchange
Ratio. If the foregoing calculation results in an exchanged TSI
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Option being exercisable for a fraction of a share of VERITAS Common Stock, then
the number of shares of VERITAS Common Stock subject to such option will be
rounded down to the nearest whole number of shares and the total exercise price
for the option will be reduced by the exercise price of the fractional share.
The term, exercisability, vesting schedule, status as an "incentive stock
option" under section 422 of the Code, if applicable, and all other terms and
conditions of the TSI Options will otherwise be unchanged. Continuous employment
with TSI will be credited to an optionee of TSI for purposes of determining the
number of shares of VERITAS Common Stock subject to exercise under an exchanged
TSI Option after the Effective Time.
(b) Registration. VERITAS will cause the VERITAS Common Stock issuable
upon exercise of the assumed TSI Options to be registered on Form S-8
promulgated by the Securities and Exchange Commission (the "SEC") as soon as
reasonably practicable after the Effective Time and will use its best efforts to
maintain the effectiveness of such registration statement or registration
statements for so long as such converted TSI Options shall remain outstanding.
With respect to those individuals who subsequent to the Arrangement will be
subject to the reporting requirements under section 16(a) of the Exchange Act
(as defined below), VERITAS shall administer the TSI Option Plan assumed
pursuant to this Section in a manner that complies with Rule 16b-3 promulgated
by the SEC under the Exchange Act. VERITAS shall reserve a sufficient number of
shares of VERITAS Common Stock for issuance upon exercise of the TSI Options
assumed by VERITAS pursuant to this Section.
2.6 Other Effects of the Arrangement. At the Effective Time, (a) the
bylaws of New TeleBackup shall be those set forth in the Amalgamation Agreement,
(b) the directors of New TeleBackup will be as designated in the Amalgamation
Agreement, (c) the officers of New TeleBackup will be as designated in the
Amalgamation Agreement, and (d) the Arrangement will, from and after the
Effective Time, have all of the effects provided by applicable law, including,
without limitation, the ABCA.
2.7 Joint Proxy Statement; Registration Statement. (a) As promptly as
practicable after execution of this Agreement, VERITAS Software, VERITAS Holding
and TSI shall, if so required, prepare and file with the SEC a preliminary joint
management information circular and proxy statement (the "JOINT PROXY
STATEMENT"), together with any other documents required by the Securities Act of
1933, as amended (the "SECURITIES ACT") or the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT"), in connection with the Arrangement. The Joint
Proxy Statement shall constitute, among other things, (i) the management
information circular of TSI with respect to the TSI Shareholders Meeting to
consider the Arrangement and this Agreement, (ii) the proxy statement of VERITAS
with respect to the meeting of stockholders of VERITAS (the "VERITAS
STOCKHOLDERS MEETING") to be held with respect to the approval by VERITAS'
stockholders of the amendment of VERITAS' Certificate of Incorporation to create
a special voting share that will permit the Exchangeco Exchangeable Shares to
vote with the VERITAS Common Stock (the "RESTATED CERTIFICATE OF
INCORPORATION"), (iii) the prospectus of VERITAS with respect to the shares to
be issued in the Combination; and (iv) a part of the Registration Statement on
Form S-4 of VERITAS that registers the shares to be issued in the Combination
under the Securities Act. As promptly as practicable after comments are received
from the SEC thereon and after the furnishing by VERITAS Software, VERITAS
Holding and TSI of all information required to be contained therein, VERITAS and
TSI shall cause the Joint Proxy Statement to be mailed to each company's
shareholders. VERITAS shall file a registration statement on Form S-3 or, in the
event that VERITAS is not eligible to use a registration statement on Form S-3,
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a registration statement on Form S-1 with the SEC under the terms of Rule 415 of
the Securities Act and use its best efforts to maintain the effectiveness of
such registration for 7 years or for such shorter period as such Exchangeco
Exchangeable Shares remain outstanding, and VERITAS and TSI shall use all
reasonable efforts to cause the such registration statement to become effective.
(b) Each party shall promptly furnish to the other party all
information concerning such party and its shareholders as may be reasonably
required in connection with any action contemplated by this Section 2.7. The
Joint Proxy Statement and the registration statement on Form S-3 or Form S-1, as
the case may be, shall comply in all material respects with all applicable
requirements of law. Each of VERITAS Software, VERITAS Holding and TSI will
notify the others promptly of the receipt of any comments from the SEC or its
staff and of any request by the SEC or its staff for amendments or supplements
to the Joint Proxy Statement or the such registration statement or for
additional information, and will supply the other with copies of all
correspondence with the SEC or its staff with respect to the Joint Proxy
Statement or such registration statement. Whenever any event occurs which should
be set forth in an amendment or supplement to the Joint Proxy Statement or such
registration statement, VERITAS Holding, VERITAS Software or TSI, as the case
may be, shall promptly inform the others of such occurrence and cooperate in
filing with the SEC or its staff, and/or mailing to stockholders of VERITAS and
TSI, such amendment or supplement.
2.8 Reorganization. The parties intend to adopt the Arrangement as an
amalgamation to which section 87 of the Income Tax Act (Canada) (the "ITA")
including subsection 87(4) applies by reason of subsection 87(9) of the ITA
followed by a reorganization of capital of TSI under section 86 of the ITA.
2.9 Escrow Agreement. An Escrow Agreement shall be entered into on or
before the Closing Date (as defined in Section 7.1 below) in substantially the
form of Exhibit 1.9 (the "ESCROW AGREEMENT"), among VERITAS Holding, VERITAS
Software, Dr. Byron G. Osing (the "REPRESENTATIVE"), as representative for those
TSI Affiliates (as defined in Section 6.4 below) who are holders of outstanding
TSI Common Shares immediately before the Effective Time who may elect to receive
Exchangeco Exchangeable Shares pursuant to the Plan of Arrangement, and who do
not exercise rights of dissent (the "INDEMNIFYING TSI HOLDERS") and Chase
Manhattan Bank and Trust Company, National Association, as Escrow Agent.
Pursuant to the Escrow Agreement, 10% of the total number of shares of the
Exchangeco Exchangeable Shares which would be issued to such holders pursuant to
the Arrangement assuming all such holders properly elect to receive Exchangeco
Exchangeable Shares shall be withheld from them (the "ESCROW SHARES"). Promptly
after the Closing Date, certificates representing the Escrow Shares thus
withheld shall be deposited in escrow pursuant to the Escrow Agreement. The
Escrow Shares represented by the certificates deposited in escrow as provided
above in this Section will be held pursuant to the Escrow Agreement as
collateral for the indemnification obligations of the Indemnifying TSI Holders
under Section 11.2 below pending their release from escrow pursuant to the
Escrow Agreement.
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3. Representations and Warranties of TSI
Except as set forth in a letter dated as of September 1, 1998 and delivered
by TSI to VERITAS on such date (the "TSI DISCLOSURE LETTER"), TSI hereby
represents and warrants to VERITAS Holding and VERITAS Software that, as of the
date of this Agreement unless dates are specified below in this Section 3, in
which case TSI hereby represents and warrants to VERITAS Holding and VERITAS
Software that, as of such specified dates:
3.1 Organization; Good Standing; Qualification and Power. TSI is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has all requisite corporate power,
authority and capacity to own, lease and operate its properties and to carry on
its business as now being conducted, 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 TSI. Section 2.1 of the TSI Disclosure Letter sets
forth a correct and complete list of each jurisdiction in which TSI is duly
qualified and in good standing to do business. TSI has delivered to VERITAS
Software's counsel complete and correct copies of the certificate or articles of
incorporation (or similar document) and bylaws of TSI in each case as amended to
April 12, 1999. TSI does not have any subsidiaries or any equity interest,
direct or indirect, in any corporation, partnership, joint venture, trust,
co-tenancy or other business undertaking or entity.
3.2 Capital Structure.
(a) Stock and Options. The authorized share capital of TSI consists of
an unlimited number of TSI Common Shares, no par value. At the close of business
on August 31, 1998, 9,657,791 TSI Common Shares were issued and outstanding and
no TSI Common Shares were held by TSI in its treasury. An aggregate of 790,000
TSI Common Shares are reserved and authorized for issuance pursuant to the TSI
Option Plan in respect of which TSI Options granted pursuant to the TSI Option
Plan to purchase a total of 706,000 TSI Common Shares were outstanding as of
August 31, 1998. There are no outstanding TSI Options that have not been granted
under the TSI Option Plan. As of August 31, 1998, TSI Warrants to purchase an
aggregate of 229,341 TSI Common Shares were outstanding. As of the date of this
Agreement, no TSI Warrants are outstanding. All outstanding TSI Common Shares
have been duly authorized, validly issued, are fully paid and non-assessable and
not subject to preemptive rights and have been offered, issued, sold and
delivered by TSI in compliance with all registration, qualification and
prospectus requirements (or applicable exemptions therefrom) of applicable
federal, provincial and state securities laws. TSI has provided to VERITAS
Software's counsel a correct and complete list of each TSI Option and TSI
Warrant outstanding as of September 1, 1998, including the name of the holder of
such TSI Option or TSI Warrant, the grant date of each TSI Option and TSI
Warrant, the number of shares covered by such TSI Option and TSI Warrant, the
per share exercise price of such TSI Option and such TSI Warrant and the vesting
schedule applicable to each such TSI Option and whether the vesting on any such
TSI Option will accelerate as a result of the Arrangement.
(b) No Other Commitments. Except for the TSI Options disclosed in
Section 3.2(a) above and listed in the TSI Disclosure Letter, there are no
options, warrants, calls, rights, commitments, conversion rights or agreements
of any character to which TSI is a party or by which TSI is bound obligating TSI
to issue, deliver or sell, or cause to be issued, delivered or sold, any shares
of capital stock of TSI or securities
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convertible into or exchangeable for shares of capital stock of TSI, or
obligating TSI to grant, extend or enter into any such option, warrant, call,
right, commitment, conversion right or agreement. There are no voting trusts or
other agreements or understandings to which TSI is a party with respect to the
voting of the capital stock of TSI.
(c) Registration Rights. TSI is not under any obligation to register
under the Securities Act or to qualify the distribution of any of its securities
under the laws of any provision of Canada or any other law of its presently
outstanding securities or any securities that may be subsequently issued or to
qualify the distribution of any of its securities.
3.3 Authority.
(a) Corporate Action. TSI has all requisite corporate power, authority,
and capacity to enter into this Agreement and, subject to approval of this
Agreement and the Arrangement by the TSI Shareholders and approval by the Court,
to perform its obligations hereunder and to consummate the Arrangement and the
other transactions contemplated by this Agreement. The execution and delivery of
this Agreement by TSI and, subject to approval of this Agreement and the
Arrangement by the TSI Shareholders and approval by the Court, the consummation
by TSI of the Arrangement and the other transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of TSI. This
Agreement has been duly executed and delivered by TSI and this Agreement is the
valid and binding obligation of TSI, enforceable in accordance with its terms,
except that such enforceability may be subject to (i) bankruptcy, insolvency,
reorganization or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) general equitable principles.
(b) No Conflict. Neither the execution, delivery and performance of this
Agreement or the Plan of Arrangement by TSI, nor the consummation of the
transactions contemplated hereby or thereby by TSI nor compliance with the
provisions hereof or thereof by TSI will (i) conflict with, or result in any
violations of, the articles of incorporation or bylaws of TSI, or (ii) result in
any breach 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 lien, security interest, charge or
encumbrance upon any of the material properties or assets of TSI under, any
term, condition or provision of 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 TSI or its properties
or assets, other than any such breaches, defaults, losses, liens, security
interests, charges or encumbrances which, individually or in the aggregate,
would not have a Material Adverse Effect on TSI, or (iii) except for the
requirement under the ABCA that the Arrangement be approved by the holders of
not less than two-thirds (or such other proportion as may be set out in the
Interim Order) of the outstanding TSI Common Shares who are permitted to, and
who, vote in accordance with the ABCA at the TSI Shareholders Meeting, require
the affirmative vote of the holders of greater than a majority of the issued and
outstanding TSI Common Shares.
(c) Governmental Consents. No consent, approval, order or authorization
of, or registration, declaration or filing with, any court, governmental
department, agency, commission, board, tribunal, crown corporation or other
governmental authority or instrumentality or rule or regulation-making authority
having or purporting to have jurisdiction on behalf of any nation, or province
or state or other subdivision thereof, domestic or foreign (each a "GOVERNMENTAL
ENTITY"), is required to be obtained by TSI in
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connection with the execution and delivery of this Agreement or the Plan of
Arrangement or the consummation of the transactions contemplated hereby or
thereby, except for (i) the filing with the Alberta Securities Commission (the
"ASC") and the Court and the mailing to TSI Shareholders of the Joint Proxy
Statement relating to the TSI Shareholders Meeting, (ii) the furnishing to the
SEC of such reports and information under the Exchange Act and the rules and
regulations promulgated by the SEC thereunder, as may be required in connection
with this Agreement and the transactions contemplated hereby (the "SEC
FILINGS"), (iii) approval of the Court to the Arrangement and the filings of the
Articles of Arrangement and any other required amalgamation, arrangement or
other documents as required by the ABCA, (iv) such filings, authorizations,
orders and approvals as may be required under state "control share acquisition,"
"anti-takeover" or other similar statutes and regulations (collectively, "STATE
TAKEOVER LAWS"), (v) such filings, authorizations, orders and approvals as may
be required under the Securities Act (Alberta) (the "ASA") and other relevant
Canadian securities statutes, any other applicable federal, provincial or state
securities laws and the rules of the National Association of Securities Dealers,
Inc. (the "NASD") or The Alberta Stock Exchange (the "ASE"), and (vi) required
notices and filings under the Investment Canada Act and under the Competition
Act (Canada), unless the failure to obtain such consents, approvals, etc., would
not prevent or delay the consummation of the Arrangement or otherwise prevent
TSI from performing its obligations under this Agreement and would not
reasonably be expected to have a Material Adverse Effect on TSI.
3.4 Securities Regulatory Authority Reports and Financial Statements.
(a) Canadian Compliance. Since December 31, 1996, TSI has filed all
forms, reports and documents with the ASC required to be filed by it pursuant to
the ASA and the regulations promulgated thereunder and the applicable policies
and rules of the ASC (collectively, the "TSI ASC REPORTS"), all of which have
complied in all material respects with all applicable requirements of such
statute, regulations, policies and rules. With respect to the business and
affairs of TSI, none of the TSI ASC Reports, when taken together, at the time
filed or as subsequently amended, 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 made therein, in light of the
circumstances under which they were made, not misleading. TSI has delivered to
VERITAS' outside counsel correct and complete copies of each TSI ASC Report.
(b) Financial Statements. The balance sheets and the statements of
operations, retained earnings and cash flows (including the related notes
thereto) of TSI contained in the TSI ASC Reports (the "FINANCIAL STATEMENTS")
present fairly the financial position and the results of operations and cash
flows of TSI as of the dates or for the periods presented therein in conformity
with Canadian generally accepted accounting principles ("CANADIAN GAAP") applied
on a consistent basis during the periods involved, except as otherwise noted
therein and subject in the case of quarterly financial statements to normal and
recurring year-end audit adjustments.
3.5 Information Supplied. None of the information supplied or to be
supplied by TSI for inclusion or incorporation by reference in the Joint Proxy
Statement will, at the date the Joint Proxy Statement is mailed to the TSI
Shareholders and at the time of the TSI Shareholders Meeting, contain 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 misleading. The Joint Proxy
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Statement will comply as to form in all material respects with the provisions of
the ABCA, the ASA and all other applicable Canadian securities laws and the
rules and regulations promulgated thereunder.
3.6 Compliance with Applicable Laws. Except as disclosed in the TSI ASC
Reports filed prior to the date of this Agreement, the business of TSI 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. Except as disclosed in the TSI ASC Reports filed prior to the date of
this Agreement, TSI has not been notified by any Governmental Entity that any
investigation or review with respect to TSI is pending or threatened, nor has
any Governmental Entity notified TSI of its intention to conduct the same. TSI
has all material permits, licenses and franchises from Governmental Entities
required to conduct its business as now being conducted, and is in material
compliance with all such permits, licenses and franchises, except for those
whose absence would not have a Material Adverse Effect on TSI.
3.7 Litigation. Except as disclosed in the TSI ASC Reports filed prior to
the date of this Agreement, there is no suit, action, litigation, investigation,
arbitration, demand, claim, grievance or proceeding pending or, to the best
knowledge of TSI, threatened against TSI that could, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on TSI; nor
is there any judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against TSI that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on
TSI. TSI has made available to VERITAS correct and complete copies of all
correspondence prepared by TSI's counsel for TSI's auditors in connection with
the last two completed audits of TSI's financial statements and any such
correspondence since the date of the last such audit.
3.8 Employment Matters.
(a) TSI shall deliver to VERITAS prior to Closing a complete list of all
Employees of TSI ("EMPLOYEES"), together with the titles and material terms of
employment, including current wages, salaries or hourly rate of pay of, and
bonus (whether monetary or otherwise) paid or payable to each such Employee, the
date upon which such wage, salary, rate or bonus became effective and the date
upon which each such Employee was first hired by TSI. Except as disclosed, no
Employee is on long-term disability leave, extended absence or receiving
benefits pursuant to the Workers' Compensation Act (Alberta).
(b) Except for those written employment contracts with salaried
Employees identified in the TSI Disclosure Letter, there are no written
contracts of employment entered into with any Employees or any oral contracts of
employment which are not terminable on the giving of reasonable notice in
accordance with applicable law.
(c) Except as set out in the TSI Disclosure Letter, there are no
employment policies or plans, including policies or plans regarding incentive
compensation, stock options, severance pay or other terms or conditions of
employment or terms or conditions upon which Employees may be terminated, which
are binding upon TSI.
(d) TSI has been and is being operated in full compliance with all
applicable laws, by-laws, rules, regulations, orders, ordinances, protocols,
codes, guidelines, policies, notices, directions and judgments or other
requirements of any Governmental Entity relating to employees ("EMPLOYMENT
LAWS"), including employment standards, occupational health and safety, pay
equity and employment equity, except for those Employment
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Laws whose breach thereof would not have a Material Adverse Effect on TSI. To
the best of TSI's knowledge, there have been no complaints under such Employment
Laws against TSI.
(e) Except as disclosed in the TSI Disclosure Letter, TSI has not
received notice of any complaints or threatened complaints, against TSI before
any employment standards branch or tribunal or human rights tribunal. Except as
disclosed in the TSI Disclosure Letter, nothing has occurred which might lead to
a complaint against TSI under any human rights legislation or employment
standards legislation. There are no outstanding decisions or settlements or
pending settlements under the employment standards legislation which place any
obligation upon TSI to do or refrain from doing any act.
(f) All current assessments under the Workers' Compensation Act
(Alberta) in relation to TSI have been paid or accrued and the Company has not
been subject to any special or penalty assessment under such legislation which
has not been paid.
3.9 Collective Agreements.
(a) TSI is not a party, either directly or by operation of law, to any
collective agreement, letters of understanding, letters of intent or other
written communication with any trade union or association which may qualify as a
trade union, which would cover any of its Employees or any dependent contractors
of TSI.
(b) Except as disclosed in the TSI Disclosure Letter, there are no
outstanding labor tribunal proceedings of any kind, including any proceedings
which could result in certification of a trade union as bargaining agent for
Employees or dependent contractors of TSI, and there have not been any such
proceedings within the last two years.
(c) Except as disclosed in the TSI Disclosure Letter, there are no
threatened or apparent union organizing activities involving the Employees or
dependent contractors of TSI.
(d) TSI has no serious labor problems that might materially affect the
value of TSI or lead to an interruption of its operations at any location.
3.10 Pension and Other Benefit Plans.
(a) The TSI Disclosure Letter sets forth a complete list of all
Pension/Benefit Plans. In this Agreement, "PENSION/BENEFIT PLANS" means all
plans, arrangements, agreements, programs, policies or practices, whether oral
or written, formal or informal, funded or unfunded, to which TSI is a party or
is bound by or under which TSI has any liability or contingent liability,
relating to (i) retirement savings or pensions, including, without limitation,
any defined benefit pension plan, defined contribution pension plan, group
registered retirement savings plan, or supplemental pension or retirement plan,
or (ii) any bonus, profit sharing, deferred compensation, incentive
compensation, hospitalization, health, disability, unemployment insurance,
vacation pay, severance pay or other benefit plan with respect to any of its
Employees or former employees, individuals working on contract with it or other
individuals providing services to it of a kind normally provided by employees,
and all statutory plans which TSI is required to comply with, including, without
limitation, the Canada or Quebec Pension Plans or plans administered pursuant to
applicable provincial health tax, workers' compensation and unemployment
insurance legislation.
(b) Current and complete copies of all written Pension/Benefit Plans or,
where oral, written summaries of the material terms thereof, have been provided
or made
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available to VERITAS together with current and complete copies of all documents
relating to the Pension/Benefit Plans, including, without limitation, as
applicable, (i) all documents establishing, creating or amending any
Pension/Benefit Plan, (ii) all trust agreements, funding agreements, insurance
contracts and investment management agreements, (iii) all financial statements
and accounting statements and reports, and investment reports for each of the
last two years and the two most recent actuarial reports, (iv) all reports,
returns, filings and material correspondence with any regulatory authority in
the last two years, and (v) all booklets, summaries or manuals prepared for or
circulated to, and written communications of a general nature to employees
concerning any Pension/Benefit Plan.
(c) Except as disclosed in the TSI Disclosure Letter, each
Pension/Benefit Plan is, and has been, established, registered, qualified,
administered and invested, in compliance with (i) the terms thereof, and (ii)
all applicable laws, by-laws, results, regulations, orders, ordinances,
protocols, codes, guidelines, policies, notices, directions and judgments or
other requirements of any Governmental Entity ("LAWS"), and TSI has not received
any notice from any person or Governmental Entity questioning or challenging
such compliance (other than in respect of any claim related solely to that
person).
(d) All obligations under the Pension/Benefit Plans (whether pursuant to
the terms thereof or applicable Laws) have been satisfied, and there are no
outstanding defaults or violations thereunder by TSI nor does TSI have any
knowledge of any default or violation by any other party to any Pension/Benefit
Plan.
(e) There have been no amendments, modifications or restatements or any
Pension/Benefit Plan made, or any improvements in benefits promised, under the
Pension/ Benefit Plan since December 31, 1996.
(f) All contributions or premiums required to be paid to or in respect
of each Pension/Benefit Plan have been paid in a timely fashion in accordance
with the terms thereof and all applicable Law, and no Taxes, penalties or fees
are owing or eligible under any Pension/Benefit Plan.
(g) There is no proceeding, action, suit or claim (other than routine
claims for benefits) pending or, to the best of TSI's knowledge, threatened
involving any Pension/ Benefit Plan or its assets, and no facts exist which
could reasonably be expected to give rise to any such proceeding, action, suit
or claim (other than routine claims for benefits).
(h) No event has occurred respecting any Pension/Benefit Plan which
would entitle any person or Governmental Entity (without the consent of TSI) to
wind-up or terminate any Pension/Benefit Plan, in whole or in part, or which
could reasonably be expected to adversely affect the tax status thereof.
(i) There are no going concern unfunded actuarial liabilities, past
service unfunded liabilities or insolvency deficiencies respecting any of the
Pension/Benefit Plans.
(j) No material changes have occurred in respect of any Pension/Benefit
Plan since the date of the most recent financial, accounting or actuarial
report, as applicable, issued in connection with any Pension/Benefit Plan, which
could reasonably be expected to adversely affect the relevant report (including
rendering it misleading in any material respect).
(k) TSI has not received, or applied for, any payment of surplus out of
any Pension/Benefit Plan.
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(l) Except as disclosed in the TSI Disclosure Letter, TSI has not taken
any contribution holidays under any Pension/Benefit Plan and TSI was entitled
under the terms of the Pension/Benefit Plans and under applicable Law to take
such contribution holidays.
(m) There have been no improper withdrawals or transfers of assets from
any Pension/Benefit Plan.
(n) All employee data necessary to administer each Pension/Benefit Plan
is in the possession of TSI and is complete, correct and in a form which is
sufficient for the proper administration of the Pension/Benefit Plans, and none
of the Pension/Benefit Plans, other than the pension plans or any group
registered retirement savings plan or supplemental pension or retirement plan,
provide benefits to retired employees or to the beneficiaries or dependents of
retired employees.
(o) None of the Pension/Benefit Plans require or permit a retroactive
increase in premiums or payments, and the level of insurance reserves, if any,
under any insured Pension/Benefit Plan is reasonable and sufficient to provide
for all incurred but unreported claims.
3.11 Absence of Undisclosed Liabilities. At December 31, 1998 (the "TSI
BALANCE SHEET DATE"), (i) TSI had no liabilities or obligations of any nature
(matured or unmatured, fixed or contingent) which were material to TSI, taken as
a whole, and were not provided for in the balance sheet of TSI at the TSI
Balance Sheet Date, a copy of which is attached hereto as Exhibit 2.9 (the "TSI
BALANCE SHEET"); and (ii) all reserves established by TSI and set forth in the
TSI Balance Sheet were reasonably adequate.
3.12 Absence of Certain Changes or Events. Except as disclosed in the TSI
ASC Reports filed prior to April 12, 1999, since the TSI Balance Sheet Date
there has not occurred:
(a) any change in the condition (financial or otherwise), properties,
assets, liabilities, businesses, operations, results of operations or prospects
of TSI that could reasonably be expected to have a Material Adverse Effect on
TSI;
(b) any amendments or changes in the articles of incorporation or bylaws
of TSI;
(c) any damage, destruction or loss, whether covered by insurance or
not, that could reasonably be expected to have a Material Adverse Effect on TSI;
(d) any redemption, repurchase or other acquisition of TSI Common Shares
by TSI (other than the repurchase of unvested shares at cost pursuant to
arrangements with terminated employees or consultants), or any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to TSI Common Shares;
(e) any material increase in or material modification of the
compensation or benefits payable or to become payable by TSI to any of its
directors or employees, except in the ordinary course of business consistent
with past practice;
(f) any material increase in or material modification of any bonus,
pension, insurance or Pension/Benefit Plan (including, but not limited to, the
granting of stock options, restricted stock awards or stock appreciation rights)
made to, for or with any of its employees, other than in the ordinary course of
business consistent with past practice;
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(g) any acquisition or sale of a material amount of property or assets
of TSI, other than in the ordinary course of business consistent with past
practice;
(h) any alteration in any term of any outstanding security of TSI;
(i) (A) other than in the ordinary course of business consistent with
past practice or other nonmaterial amounts, any incurrence, assumption or
guarantee by TSI of any debt for borrowed money; (B) any issuance or sale of any
securities convertible into or exchangeable for debt securities of TSI; or (C)
any issuance or sale of options or other rights to acquire from TSI, directly or
indirectly, debt securities of TSI or any securities convertible into or
exchangeable for any such debt securities;
(j) other than in the ordinary course of business consistent with past
practice or other than in nonmaterial amounts, any creation or assumption by TSI
of any mortgage, pledge, security interest or lien or other encumbrance on any
asset;
(k) other than in the ordinary course of business consistent with past
practice, any making of any loan, advance or capital contribution to or
investment in any person other than (i) travel loans or advances made in the
ordinary course of business of TSI, (ii) other loans and advances in an
aggregate amount which does not exceed $50,000 outstanding at any time and (iii)
purchases on the open market of liquid, publicly traded securities;
(l) any entering into, amendment of, relinquishment, termination or
non-renewal by TSI of any material contract, lease transaction, commitment or
other right or obligation other than in the ordinary course of business;
(m) any transfer or grant of a material right under the TSI Intellectual
Property Rights (as defined in Section 3.17 below), other than those transferred
or granted in the ordinary course of business;
(n) any labor dispute or charge of unfair labor practice (other than
routine individual grievances), any activity or proceeding by a labor union or
representative thereof to organize any employees of TSI or any campaign being
conducted to solicit authorization from employees to be represented by such
labor union; or
(o) any agreement or arrangement made by TSI to take any action which,
if taken prior to the date hereof, would have made any representation or
warranty set forth in this Agreement materially untrue or incorrect as of the
date when made unless otherwise disclosed; and
(p) any material change in the level of inventories.
3.13 Agreements. Section 2.13 of the TSI Disclosure Letter sets forth a
list of any of the following written or oral contracts, agreements and other
instruments to which TSI is a party or otherwise bound, copies of each of which
written contracts, agreements or instruments have been delivered to VERITAS'
counsel:
(a) contract with or commitment to any labor union;
(b) continuing contract for the future purchase, sale or manufacture of
products, material, supplies, equipment or services requiring payment to or from
TSI in an amount in excess of $100,000 per annum (i) which is not terminable on
120 days' or less notice without cost or other liability at or at any time after
the Effective Time, or (ii) in which TSI has granted or received manufacturing
rights, most favored nations pricing provisions or exclusive marketing rights
relating to any product, group of products or territory;
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(c) contract providing for the development of software for, or license
of software to, TSI, or other Intellectual Property Rights used or incorporated
in one or more of the products referred to in Section 2.18 of the TSI Disclosure
Letter (other than software licensed to TSI from a third party as to which TSI
has a fully-paid perpetual license to use and distribute as TSI is currently
doing without any restrictions or requirements as to how the TSI Published
Product (as defined in Section 3.18 below) is marketed, or that is generally
available to the public from such third party at a per copy license fee of less
than $5,000, but including any site or corporate license and each agreement
providing for either the delivery of source code or the escrow of source code
for the benefit of the licensee or any OEM, distribution or other agreement that
requires TSI to perform any ongoing development of software including updates
and error corrections);
(d) joint venture contract or other agreement which has involved or is
reasonably expected to involve a sharing of profits or losses in excess of
$25,000 per annum with any other party;
(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 Canadian GAAP;
(f) lease or other agreement under which TSI is lessee of or holds or
operates any items of tangible personal property or real property owned by any
third party and under which payments to such third party exceed $50,000 per
annum;
(g) agreement or arrangement for the sale of any assets, properties or
rights having a value in excess of $25,000, other than in the ordinary course of
business consistent with past practice;
(h) agreement which restricts TSI from engaging in any aspect of its
business or competing in any line of business in any geographic area or in any
functional area or that requires TSI to distribute or use exclusively a third
party technology or product;
(i) agreement between or among TSI regarding intercompany loans, revenue
or cost sharing, ownership or license of TSI IP Rights (as defined in Section
2.17 below), intercompany royalties or dividends or similar matters;
(j) written dealer, distributor, sales representative, original
equipment manufacturer, value added remarketer or other agreement for the
ongoing distribution of the TSI Products (as defined in Section 3.18);
(k) to the extent not identified in Section 2.8 of the TSI Disclosure
Letter, contract or commitment for the employment of any officer, employee or
consultant or any other type of contract or understanding with any officer,
employee or consultant which is not immediately terminable without cost or other
liability (except for normal severance benefits available to employees generally
as set forth in any Pension/Benefit Plan or applicable Employment Laws and
except for limitations on such termination rights as exist under applicable
Employment Laws);
(l) any other loan or credit agreement, note, bond, mortgage, indenture,
lease or other material agreement which is not otherwise disclosed elsewhere in
the TSI Disclosure Letter, the breach or termination of which would have a
Material Adverse Effect on TSI; and
(m) TSI IP Rights Agreement (as defined in Section 3.17 below) or other
material agreements relating to TSI Products (as defined in Section 3.18 below)
other
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than any TSI IP Rights Agreement or other such material agreement already
identified in response to Section 3.13(c) above or elsewhere in the TSI
Disclosure Letter.
3.14 No Defaults. Except as disclosed in the TSI ASC Reports filed prior
to April 12, 1999, to TSI's knowledge, TSI is not in default under, and there
exists no event, condition or occurrence which, after notice or lapse of time,
or both, would constitute such a default by TSI under, any contract or agreement
to which TSI is a party and which would, if terminated or accelerated due to
such default, have, insofar as can reasonably be foreseen, a Material Adverse
Effect on TSI.
3.15 Certain Agreements. Except as disclosed in Section 2.15 of the TSI
Disclosure Letter, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute, bonus or otherwise) becoming due to any director or employee
of TSI under any Pension/Benefit Plan or otherwise, (ii) materially increase any
benefits otherwise payable under any TSI Pension/ Benefit Plan or (iii) result
in the acceleration of the time of payment or vesting of any such benefits,
including but not limited to the time of exercise of stock options or the lapse
of repurchase rights at the original purchase price on the termination of
employment.
3.16 Taxes. TSI has timely filed, or caused to be filed, all Tax Returns
(as defined below) required to be filed by it (all of which returns were correct
and complete in all material respects) and has paid or withheld, or caused to be
paid or withheld, all Taxes (as defined below) that are due and payable, and TSI
has provided adequate accruals in accordance with Canadian GAAP in its financial
statements for any Taxes that have not been paid, whether or not shown as being
due on any returns. Since the TSI Balance Sheet Date, no material Tax liability
has been assessed, proposed to be assessed, incurred or accrued other than in
the ordinary course of business. TSI has not received any written notification
that any material issues have been raised (and are currently pending) by Revenue
Canada, 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 above, and no waivers of statutes of limitations have been
given or requested with respect to TSI except for any such written notices or
waivers which have not had and could not reasonably be expected to have a
Material Adverse Effect. There are no material proposed (but unassessed)
additional Taxes, none have been asserted and no Tax liens have been filed other
than for Taxes not yet due and payable.
As used in this Agreement, "TAX" and "TAXES" means, with respect to any
entity, (A) all income taxes (including any tax on or based upon net income,
gross income, income as specially defined, earnings, profits or selected items
of income, earnings or profits) and all capital, gross receipts, sales, use, ad
valorem, transfer, franchise, license, withholding, payroll, employment, excise,
severance, utility, compensation, social security, workers' compensation,
unemployment insurance or compensation, stamp, occupation, premium, property or
windfall profits taxes, alternative or add-on minimum taxes, customs duties or
other taxes, fees, assessments or charges of any kind whatsoever, together with
any interest and any penalties or additional amounts imposed by any taxing
authority (domestic or foreign) on such entity, and any interest, penalties,
additional taxes and additions to tax imposed with respect to the foregoing, and
(B) any liability for the payment of any amount of the type described in the
immediately preceding clause (A) as a result of being a "transferee" (within the
meaning of section 6901 of the Code or any other applicable law) of another
entity or a member of an affiliated or combined group. As used in this
Agreement, "TAX RETURNS" means all returns relating to Taxes.
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3.17 Intellectual Property. Except in each case as disclosed in the TSI
ASC Reports filed prior to the date of this Agreement and subject to the matters
disclosed in Section 2.17 of the TSI Disclosure Letter:
(a) TSI owns, or has the right to use, sell or license all material
Intellectual Property Rights (as defined below) necessary or required for the
conduct of its business as presently conducted and as proposed to be conducted
by TSI as of the date hereof (such Intellectual Property Rights being
hereinafter collectively referred to as the "TSI IP RIGHTS") and such rights to
use, sell or license are reasonably sufficient for such conduct of its business;
(b) the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
material breach of any assignment, conveyance or agreement governing any TSI IP
Right significant to a product that accounted for more than 5% of TSI's gross
revenues for the year ended December 31, 1997 and the six months ended June 30,
1998 (the "TSI IP RIGHTS AGREEMENTS"), will not cause the forfeiture or
termination or give rise to a right of forfeiture or termination of any TSI IP
Right or materially impair the right of TSI to use, sell or license any TSI IP
Right or portion thereof (except where such breach, forfeiture or termination
would not have a Material Adverse Effect on TSI);
(c) there are no royalties, honoraria, fees or other payments in excess
of $50,000 payable by TSI to any person by reason of the publication or
distribution of the TSI Published Products (as defined in Section 3.18 below)
other than as set forth in the TSI IP Rights Agreements listed in the TSI
Disclosure Letter;
(d) neither the manufacture, marketing, license, sale or lawful use of
any product currently licensed or sold by TSI or currently under development by
TSI violates any license or agreement between TSI and any third party or
infringes any Intellectual Property Right of any other party; and there is no
pending or, to the best knowledge of TSI, threatened claim or litigation
contesting the validity, ownership or right to use, sell, license or dispose of
any TSI IP Right nor, to the best knowledge of TSI, is there any basis for any
such claim, nor has TSI received any notice asserting that any TSI IP Right or
the proposed use, sale, license or disposition thereof conflicts or will
conflict with the rights of any other party, nor, to the best knowledge of TSI,
is there any basis for any such assertion, except to the extent that such
violation(s), or notice or basis therefor, have not had and could not reasonably
be expected to have a Material Adverse Effect on TSI; and
(e) TSI has taken reasonable and practicable steps designed to safeguard
and maintain the secrecy and confidentiality of, and its proprietary rights in,
all material TSI IP Rights. All officers and employees involved in the
development of products or product documentation and consultants of TSI have
executed and delivered to TSI an agreement regarding the protection of
proprietary information and the assignment to TSI of all Intellectual Property
Rights arising from the services performed for TSI by such persons; and copies
of the forms of all such agreements have been delivered to VERITAS' counsel. No
current or prior officers, employees or consultants of TSI claim an ownership
interest in any TSI IP Rights as a result of having been involved in the
development of such property while employed by or consulting to TSI, or
otherwise.
TSI will deliver, prior to Closing (as defined in Section 7.1 below), a
list of all applications, registrations, filings and other formal actions made
or taken pursuant to United States, Canadian, provincial, federal, state and
foreign laws by TSI to perfect or protect its interest in TSI IP Rights,
including, without limitation, all patents, patent
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applications, trademarks and service marks, trademark and service mark
applications, copyrights and copyright applications and to the knowledge of TSI,
there is no cancellation, termination or expiration of any such registration or
patent that is reasonably foreseeable and is not intended to be renewed or
extended by TSI, except where the failure to renew or extend would not have a
Material Adverse Effect on TSI. To the best of TSI's knowledge, it is not using
any confidential information or trade secrets of any former employer of any past
or present employees.
As used herein, the term "INTELLECTUAL PROPERTY RIGHTS" shall mean all
worldwide industrial and intellectual property rights, including, without
limitation, patents, patent applications, patent rights, trademarks, trademark
applications, trade names, service marks, service mark applications, copyright,
copyright applications, mask works, franchises, licenses, know-how, trade
secrets, customer lists, proprietary processes and formulae, 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 and records.
3.18 Products and Distribution. Section 2.18 of the TSI Disclosure Letter
contains a complete list of all of the top five software products (by title,
determined by aggregate sales receipts by TSI in fiscal 1997 and through June
30, 1998 from such title) published and/or distributed by TSI (the "TSI
PUBLISHED PRODUCTS") and all material products under development or
consideration by TSI or with an estimated public availability date on or prior
to December 31, 1998 (the "TSI PRODUCTS UNDER DEVELOPMENT" and, collectively
with the TSI Published Products, the "TSI PRODUCTS"). The TSI Disclosure Letter
sets forth, for each TSI Product Under Development, the currently estimated
public availability date (which TSI believes to be reasonable).
3.19 Fees and Expenses. Except for the fees and expenses set forth in the
TSI Disclosure Letter payable to the Opman Group, TSI has not 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.
3.20 Insurance. TSI maintains and at all times since January 1, 1997 has
maintained fire and casualty, general liability, product liability and sprinkler
and water damage insurance that TSI believes to be reasonably prudent for its
business. TSI will deliver a list of all such insurance policies presently in
effect, and correct and complete copies of all such policies along with a
history of claims made under such policies, to VERITAS or its counsel prior to
Closing.
3.21 Ownership of Property. Except (a) as disclosed in the TSI ASC Reports
filed prior to the date of this Agreement, (b) for liens for current Taxes not
yet delinquent, (c) for liens imposed by law and incurred in the ordinary course
of business for obligations not yet due to carriers, warehousemen, laborers,
materialmen and the like, or (d) as disclosed in Section 2.21 of the TSI
Disclosure Letter, TSI owns its real and personal property free and clear of all
security interests, mortgages, liens, charges, claims, options and encumbrances.
All real and tangible personal property (other than leasehold interests) of TSI
is generally in good repair and is operational and usable in the operations of
TSI, subject to ordinary wear and tear and subject to technical obsolescence.
TSI is not in violation of any zoning, building or safety ordinance, regulation
or requirement or other law or regulation applicable to the operation of owned
or leased properties (the violation of which would have a Material Adverse
Effect on its business or financial condition), or has received any notice of
violation with which it has not complied, except where such violation would not
have a Material Adverse Effect on TSI.
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3.22 Environmental Matters.
(a) To TSI's knowledge, during the period that TSI has leased or owned
its properties or owned or operated any facilities, there have been no
disposals, releases, emissions, spills, discharges or threatened releases of
Hazardous Materials (as defined below) on, from or under such properties or
facilities in breach of Environmental Laws (as defined below). TSI has no actual
knowledge of any presence, disposals, releases, emissions, spills, discharges or
threatened releases of Hazardous Materials on, from or under any of such
properties or facilities, in breach of Environmental Laws, which may have
occurred prior to TSI having taken possession of any of such properties and
facilities. For the purposes of this Agreement, insofar as properties and
facilities in Canada are concerned, "ENVIRONMENTAL LAWS" shall mean all
applicable laws, by-laws, rules, regulations, orders, ordinances, protocols,
codes, and guidelines relating to the protection of the environment, employee
and public health and safety, industrial hygiene or Hazardous Materials and
"HAZARDOUS MATERIALS" shall mean any pollutant, contaminant, waste of any
nature, hazardous substance, hazardous material, toxic substance, dangerous
substance or dangerous good as defined, judicially interpreted or identified in
any Environmental Law.
(b) To TSI's knowledge, none of the properties, facilities and
operations of TSI are in violation of any Environmental Laws. During the time
that TSI has owned or leased its properties and facilities, neither TSI nor, to
TSI's knowledge, any third party, has used, generated, manufactured, processed,
treated, disposed of, handled or stored on, under or about such properties or
facilities or transported to or from such properties or facilities any Hazardous
Materials.
(c) TSI has never been:
(i) prosecuted for or convicted of any offense under Environmental
Laws;
(ii) found liable in any proceeding to pay any fine or judgment to
any person as a result of the presence, disposal, emission, spill, discharge,
release or threatened release of any Hazardous Material on, from or under any
properties or facilities or the breach of any Environmental Law; or
(iii) identified by a governmental authority as a potentially
responsible person under any Environmental Law in relation to a specific
incident;
and there are no proceedings pending or, to the best of TSI's knowledge,
threatened relating to the foregoing and, to the knowledge of TSI, there is no
basis for any such proceedings.
(d) To the knowledge of TSI there is no (i) urea formaldehyde foam
insulation, (ii) friable asbestos, (iii) radioactive substance, or (iv)
equipment, waste or other material containing polychlorinated biphenyls (PCBs),
in, on or under the properties or facilities owned, operated or leased by TSI.
3.23 Interested Party Transactions. Except as disclosed in Section 2.23 of
the TSI Disclosure Letter or the TSI ASC Reports filed prior to April 12, 1999,
no officer or director of TSI or any "affiliate" or "associate" (as those terms
are defined in Rule 405 promulgated under the Securities Act) of any such person
has had, either directly or indirectly, a material interest in (i) any person or
entity which purchases from or sells, licenses or furnishes to TSI any goods,
property, technology or intellectual or other property rights or services, or
(ii) any contract or agreement to which TSI is a party or by which it may be
bound or affected.
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3.24 Board Approval. The Board of Directors of TSI has, effective as of
the date of this Agreement, (i) unanimously approved this Agreement and the
Arrangement, (ii) determined that the Arrangement is in the best interests of
the shareholders of TSI and is on terms that are fair to such shareholders, and
(iii) recommended that the shareholders of TSI approve this Agreement and the
Arrangement.
3.25 Vote Required. The affirmative vote of not less than two-thirds of
the votes cast by the holders of the outstanding TSI Common Shares who vote in
respect of the resolution to approve this Agreement and the Arrangement (or such
other vote as may be set out in the Interim Order) is the only vote of the
holders of any class or series of shares in TSI's capital stock necessary to
approve this Agreement and the Arrangement.
3.26 Disclosure. No representation or warranty made by TSI in this
Agreement, nor any document, written information, statement, financial
statement, certificate or exhibit prepared and furnished or to be prepared and
furnished by TSI or its representatives pursuant hereto or in connection with
the transactions contemplated hereby, when taken together, contained any untrue
statement of a material fact when made, or omitted to state a material fact
necessary to make the statements or facts contained herein or therein not
misleading in light of the circumstances under which they were furnished.
3.27 Fairness Opinion. TSI's Board of Directors has received a written
opinion from the Opman Group that the Exchange Ratio is fair to TSI's
shareholders from a financial point of view.
3.28 Restrictions on Business Activities. There is no material agreement,
judgment, injunction, order or decree binding upon TSI that has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of TSI, any acquisition of property by TSI or the conduct
of business by TSI as currently conducted.
3.29 Books and Records. The books, records and accounts of TSI (a) have
been maintained in accordance with good business practices on a basis consistent
with prior years, (b) are stated in reasonable detail and accurately and fairly
reflect the transactions and dispositions of the assets of TSI and (c)
accurately and fairly reflect the basis for the TSI Financial Statements. TSI
has devised and maintains a system of internal accounting controls sufficient to
provide reasonable assurances that (a) transactions are executed in accordance
with management's general or specific authorization; and (b) transactions are
recorded as necessary (i) to permit preparation of financial statements in
conformity with Canadian GAAP, US GAAP or any other criteria applicable to such
statements and (ii) to maintain accountability for assets.
3.30 Government Contracts. All representations, certifications and
disclosures made by TSI to any Government Contract Party (as defined below) have
been in all material respects current, complete and accurate at the times they
were made. TSI has no knowledge of, and has no reason to know of, any acts,
omissions or noncompliance with regard to any applicable public contracting
statute, regulation or contract requirement (whether express or incorporated by
reference) relating to any of TSI's contracts with any Government Contract Party
in either case that have led to or could lead to, either before or after the
Closing Date (as defined in Section 7.1 below), (a) any claim or dispute
involving TSI and/or VERITAS as successor in interest to TSI and any Government
Contract Party or (b) any suspension, debarment or contract termination, or
proceeding related thereto. TSI has no knowledge of, and has no reason to know
of, any act or omission that relates to the marketing, licensing or selling to
any Government Contract Party of any of TSI technical data and computer software
and that has led to or could lead
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to, either before or after the Closing Date, any material claim against any of
TSI's rights in and to its technical data and computer software. Except for (i)
Canadian or provincial government incentives for certain nonmaterial employees,
and (ii) research tax credits, all of TSI's development of technical data and
computer software was developed exclusively at private expense. For purposes of
this Agreement, the term "GOVERNMENT CONTRACT PARTY" means any independent or
executive agency, division, subdivision, audit group or procuring office of the
Canadian or United States federal government, including any prime contractor of
the federal government and any higher level subcontractor of a prime contractor
of the federal government, and including any employees or agents thereof, in
each case acting in such capacity.
4. Representations and Warranties of VERITAS Software and VERITAS Holding
Except as set forth in a letter dated as of September 1, 1998 and delivered
by VERITAS Software to TSI on that date (the "VERITAS DISCLOSURE LETTER"),
VERITAS Software hereby represents and warrants to TSI that, as of the date of
this Agreement unless dates are specified below in this Section 4, in which case
VERITAS Software hereby represents and warrants to TSI that, as of such
specified dates:
4.1 Organization and Good Standing. VERITAS Software and each of its
subsidiaries (the "VERITAS SUBSIDIARIES") is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, has all requisite corporate power, authority and capacity to own,
operate and lease its properties and to carry on its business as now conducted,
and is duly qualified and in good standing to do business in each jurisdiction
in which the nature of its business or the ownership and 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 Software.
4.2 Power, Authorization and Validity. VERITAS Software has all requisite
corporate power, authority and capacity to enter into this Agreement, and all
agreements to which VERITAS Software is or will be a party that are required to
be executed pursuant to this Agreement (the "VERITAS ANCILLARY AGREEMENTS") and,
subject to approval by the stockholders of VERITAS Software of the Restated
Certificate of Incorporation and to approval of the Arrangement by the Court, to
perform its obligations hereunder and to consummate the Arrangement and the
other transactions contemplated by this Agreement. The execution and delivery of
this Agreement by VERITAS Software and, subject to approval by the stockholders
of VERITAS Software of the Restated Certificate of Incorporation and to approval
of the Arrangement by the Court, the consummation by VERITAS Software of the
Arrangement and the other transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of VERITAS Software.
This Agreement has been duly executed and delivered by VERITAS Software and this
Agreement is the valid and binding obligation of VERITAS Software, enforceable
in accordance with its terms, except that such enforceability may be subject to
(i) bankruptcy, insolvency, reorganization or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
4.3 Disclosure.
4.3.1 Other than VERITAS Software's annual report on Form 10-K for the
fiscal year ended December 31, 1998, VERITAS Software has delivered to TSI a
disclosure package consisting of correct and complete copies of (i) each report
(including Forms 10-K and 10-Q), schedule, registration statement and definitive
proxy statement
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filed by VERITAS Software with the SEC after December 31, 1996, and (ii) the
Offering Circular, dated October 10, 1997 of VERITAS Software in connection with
the sale of certain 5 1/4% Convertible Subordinated Notes, which constitute all
of the documents (other than preliminary materials) that VERITAS Software has
filed or was required to file with the SEC since December 31, 1996
(collectively, the "VERITAS DISCLOSURE PACKAGE").
4.3.2 As of their respective filing dates, all documents filed by
VERITAS Software with the SEC and included in the VERITAS Disclosure Package
complied in all material respects with the requirements of the 1933 Act or the
1934 Act, as the case may be. The VERITAS Disclosure Package, this Agreement,
the exhibits and schedules hereto, and any certificates or documents to be
delivered to TSI pursuant to this Agreement, when taken together, do not with
respect to the business and affairs of VERITAS Software contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements contained herein and therein, in light of the
circumstances under which such statements were made, not misleading in any
material respect.
4.4 No Conflict. Neither the execution, delivery and performance of this
Agreement or the Plan of Arrangement by VERITAS Software, nor the consummation
of the transactions contemplated hereby or thereby by VERITAS Software nor
compliance with the provisions hereof or thereof by VERITAS Software will (i)
conflict with, or result in any violations of the certificate of incorporation
or bylaws of VERITAS Software, or (ii) result in any breach 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 lien, security interest, charge or encumbrance upon any of the
material properties or assets of VERITAS Software under, any term, condition or
provision of 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 Software or their respective
properties or assets, other than any such breaches, defaults, losses, liens,
security interests, charges or encumbrances which, individually or in the
aggregate, would not have a Material Adverse Effect on VERITAS Software, or
(iii) require the affirmative vote of the holders of greater than a majority of
the issued and outstanding shares of VERITAS Software Common Stock.
4.5 Compliance with Applicable Laws. Except as disclosed in the VERITAS
Disclosure Package, the business of VERITAS Software 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
Software. Except as disclosed in the VERITAS Disclosure Package, VERITAS
Software has not been notified by any Governmental Entity that any investigation
or review with respect to VERITAS Software is pending or threatened, nor has any
Governmental Entity notified VERITAS Software of its intention to conduct the
same. VERITAS Software has all material permits, licenses and franchises from
Governmental Entities required to conduct its business as now being conducted,
and is in material compliance with all such permits, licenses and franchises,
except for those whose absence would not have a Material Adverse Effect on
VERITAS Software.
4.6 No Material Adverse Change. Since the date of VERITAS Software's
Report on Form 10-Q for its fiscal quarter ended September 30, 1998, there has
been no material adverse change in the business, operations or financial
condition of VERITAS Software and its subsidiaries, taken as a whole.
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4.7 Governmental Consents. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required to be obtained by VERITAS Software or any of the VERITAS Subsidiaries
in connection with the execution and delivery of this Agreement or the Plan of
Arrangement or the consummation of the transactions contemplated hereby or
thereby, except for (i) the filing with the SEC of the Form S-3 and the Joint
Proxy Statement relating to the VERITAS Software Stockholders Meeting, and such
reports and information under the Exchange Act and the rules and regulations
promulgated by the SEC thereunder, as may be required in connection with this
Agreement and the transactions contemplated hereby, (ii) the filing of the
Articles of Arrangement and any other required amalgamation, arrangement or
other documents as required by the ABCA and appropriate documents with the
relevant authorities of states in which VERITAS Software is qualified to do
business, (iii) such filings, authorizations, orders and approvals as may be
required under State Takeover Laws, (iv) such filings, authorizations, orders
and approvals as may be required under foreign laws, state securities laws and
the Bylaws of the NASD; and (v) such filings and notifications as may be
necessary under the Investment Canada Act and under the Competition Act
(Canada); unless the failure to obtain such consents, approvals, etc., would not
prevent or delay the consummation of the Arrangement or otherwise prevent
VERITAS Software from performing its obligations under this Agreement and would
not reasonably be expected to have a Material Adverse Effect on VERITAS
Software.
4.8 Litigation. There is no suit, action, litigation, investigation,
arbitration, demand, claim, grievance or proceeding pending or, to the best
knowledge of VERITAS Software, threatened against VERITAS Software that could,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on VERITAS Software; nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against VERITAS Software that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on VERITAS Software.
4.9 Intellectual Property. Except with respect to the Intellectual
Property Rights to be transferred by Seagate and Seagate Technology, Inc. in the
NSMG Combination, VERITAS Software owns, or has the right to use, sell or
license all material Intellectual Property Rights necessary or required for the
conduct of its business as presently conducted and as proposed to be conducted
by VERITAS Software as of the date hereof (such Intellectual Property Rights,
excluding those to be transferred in the NSMG Combination, being hereinafter
collectively referred to as the "VERITAS IP RIGHTS") and such rights to use,
sell or license are reasonably sufficient for such conduct of its business.
Neither the manufacture, marketing, license, sale or lawful use of any product
currently licensed or sold by VERITAS Software or currently under development by
VERITAS Software violates any license or agreement between VERITAS Software and
any third party or infringes any Intellectual Property Right of any other party;
and there is no pending or, to the best knowledge of VERITAS Software,
threatened claim or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any VERITAS IP Right nor, to the best knowledge
of VERITAS Software, is there any basis for any such claim, nor has VERITAS
Software received any notice asserting 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, to the best knowledge of VERITAS Software, is
there any basis for any such assertion, except to the extent that such
violation(s), or notice or basis therefor, have not had and could not reasonably
be expected to have a Material Adverse Effect on VERITAS Software.
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4.10 Information Supplied. None of the information supplied or to be
supplied by VERITAS Software for inclusion or incorporation by reference in the
Joint Proxy Statement (and the Form S-3) will, at the date the Joint Proxy
Statement is mailed to the stockholders of VERITAS Software and at the time of
the VERITAS Stockholders Meeting (and at the time the Form S-3 is declared
effective), contain 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
misleading. The Joint Proxy Statement will comply as to form in all material
respects with the provisions of the Securities Act and the Exchange Act and the
rules and regulations promulgated by the SEC thereunder.
4.11 Board Approval. The Board of Directors of VERITAS Software has,
effective as of the date hereof, unanimously (i) approved this Agreement, the
Arrangement the Restated Certificate of Incorporation, (ii) determined that the
Arrangement is in the best interests of the stockholders of VERITAS Software and
is on terms that are fair to such stockholders and (iii) recommended that the
stockholders of VERITAS Software approve the Restated Certificate of
Incorporation.
4.12 Vote Required. The affirmative vote of a majority of the votes that
holders of the outstanding shares of VERITAS Software Common Stock are entitled
to cast is the only vote of the holders of any class or series of VERITAS
Software' capital stock necessary to approve the Restated Certificate of
Incorporation.
4.13 Validity of Shares. The shares of VERITAS Software Common Stock to be
issued pursuant to the Arrangement will, when issued, (a) be duly authorized,
validly issued, fully paid and nonassessable and free of liens and encumbrances
created by, through or under VERITAS Software, and (b) will be free and clear of
any liens and encumbrances and restrictions on transferability except for those
imposed by Rule 145 promulgated under the 1933 Act, and under any Affiliate
Agreement to be executed pursuant to this Agreement.
4.14 Representations and Warranties of VERITAS Holding. VERITAS Holding
hereby represents and warrants to TSI, as of the date of this Agreement, as to
the representations and warranties in Sections 4.1, 4.2 (except as it relates to
approval by the stockholders of VERITAS Software of the Restated Certificate of
Incorporation), 4.4, 4.5, 4.7, 4.8, 4.9, 4.10 (except that the references to the
stockholders of VERITAS Software and the VERITAS Software Stockholders Meeting
shall remain as references to VERITAS Software), 4.11 (except for clause (iii))
and 4.13 as if such sections referred to VERITAS Holding; provided, however,
that this Section 4.14 shall cease to survive from and after the Effective Time
if immediately prior to the Effective Time the closing of the NSMG Combination
has not occurred.
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5. TSI Covenants
5.1 Advice of Changes. During the period from the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, TSI will promptly advise VERITAS Software and VERITAS
Holding in writing (a) of any event occurring subsequent to the date of this
Agreement that would render any representation or warranty of TSI contained in
this Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect, (b) of any Material Adverse Effect
on TSI, and (c) of any breach by TSI of any covenant or agreement contained in
this Agreement. To ensure compliance with this Section 5.1, TSI shall deliver to
VERITAS Software and VERITAS Holding as soon as practicable after the end of
each monthly and quarterly accounting period ending after the date of this
Agreement and before the earlier of the Effective Time or the termination of
this Agreement in accordance with its terms, (i) within thirty days after the
end of each monthly accounting period, an unaudited statement of worldwide
revenues for TSI and an unaudited balance sheet, statement of operations and
statement of cash flows for TSI and (ii) within forty-five days after the end of
each quarterly accounting period, an unaudited balance sheet, statement of
operations and statement of cash flows for TSI, all of which financial
statements shall be prepared in the ordinary course of business, in accordance
with TSI's books and records and Canadian GAAP and shall fairly present the
financial position of TSI as of their respective dates and the results of TSI's
operations for the periods then ended.
5.2 Maintenance of Business. During the period from the date of this
Agreement until the earlier of the Effective Time or the termination of this
Agreement in accordance with its terms, TSI will use its diligent commercial
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 the date hereof. If TSI becomes aware of any material
deterioration in the relationship with any material customer, supplier or key
employee, TSI will promptly bring such information to the attention of VERITAS
Software and VERITAS Holding in writing and, if requested by VERITAS Software or
VERITAS Holding, TSI will exert its best commercial efforts to restore the
relationship.
5.3 Conduct of Business. During the period from the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, TSI will continue to conduct its business and
maintain its business relationships in the ordinary and usual course and will
not (other than as contemplated in Section 2 of this Agreement), without the
prior consent of VERITAS Software and VERITAS Holding, which will not be
unreasonably withheld:
(a) borrow any money except for amounts that are not in the aggregate
material to the financial condition of TSI;
(b) enter into any material transaction not in the ordinary course of
its business;
(c) encumber or permit to be encumbered any of its assets except in the
ordinary course of its business consistent with past practice;
(d) dispose of any material portion of its assets except in the ordinary
course of business consistent with past practice;
(e) enter into (except as disclosed in the TSI Disclosure Letter) any
material lease or contract for the purchase or sale or license of any property,
real or personal, except in the ordinary course of business consistent with past
practice;
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(f) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained to the date of
this Agreement, subject only to ordinary wear and tear;
(g) pay (or make any oral or written commitments or representations to
pay) any bonus, increased salary or special remuneration to any officer,
employee or consultant (except for normal salary increases consistent with past
practices not to exceed 10% per year and except pursuant to existing
arrangements previously disclosed to VERITAS Software or VERITAS Holding) or
enter into or vary the terms of any employment, consulting or severance
agreement with any such person, pay any severance or termination pay (other than
payments made in accordance with plans or agreements existing on the date hereof
and disclosed in the TSI Disclosure Letter or pursuant to Employment Laws),
grant any stock option (except for normal grants to newly hired employees,
consultants and directors and "evergreen" or incentive grants to existing
employees, consultants and directors pursuant to TSI Option Plan consistent with
past practice) or issue any restricted stock, or enter into or modify any
agreement or plan or increase benefits of the type described in Sections 3.8 and
3.10;
(h) change accounting methods;
(i) 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 the repurchase of unvested shares at cost pursuant
to arrangements with terminated employees or consultants in the ordinary course
of business consistent with TSI's past practice);
(j) amend or terminate any material contract, agreement or license to
which it is a party except for those amendments or terminations in the ordinary
course of its business, consistent with past practice, which are not material in
amount or effect;
(k) lend any amount to any person or entity, other than (i) advances for
travel and expenses which are incurred in the ordinary course of business
consistent with past practice and documented by receipts for the claimed
amounts, (ii) any loans pursuant to any Pension/Benefit Plan, (iii) loans to
employees of TSI not exceeding $10,000 in any individual case or $50,000 in the
aggregate, which loans shall not be made for the purpose of exercising TSI
Options, or (iv) other loans and advances not exceeding $10,000 in any
individual case or $50,000 in the aggregate;
(l) guarantee or act as a surety for any obligation except for
obligations in amounts that are not material in the aggregate;
(m) waive or release any right or claim except for the waiver or release
of non-material claims in the ordinary course of business, consistent with past
practice or the waiver or release of rights or claims set forth in the TSI
Disclosure Letter;
(n) issue or sell any shares of its capital stock of any class or series
(except upon the exercise of a bona fide option or warrant currently outstanding
or permitted to be granted under Section 5.3(g)), or any other of its
securities, or issue or create any warrants, obligations, subscriptions, options
(except as expressly permitted under Section 5.3(g)), convertible securities or
other commitments to issue shares of capital stock, or accelerate the vesting of
any outstanding option or other security (except for such acceleration as may be
triggered as a result of the transactions contemplated hereunder which
acceleration has been disclosed in the TSI Disclosure Letter);
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(o) split or combine the outstanding shares of its capital stock of any
class or series or enter into any recapitalization or agreement affecting the
number or rights of outstanding shares of its capital stock of any class or
series or affecting any other of its securities;
(p) subject to Section 10.1(h), merge, consolidate or reorganize with,
or acquire any entity, or enter into any agreement to do any of the foregoing;
(q) amend its articles of incorporation or bylaws except as contemplated
by this Agreement;
(r) license any TSI IP Rights except in the ordinary course of business
consistent with past practice;
(s) grant any exclusive rights with respect to any TSI IP Rights or any
TSI Product to any person;
(t) enter into any agreement or other arrangement with a term that
exceeds twelve months (other than standard end-user licenses in the ordinary
course of business) or enter into any agreement or other arrangement with an
original equipment manufacturer;
(u) agree to any audit assessments by any Tax authority in excess of
$50,000 in the aggregate;
(v) change any insurance coverage or issue any certificates of insurance
except in the ordinary course of business consistent with past practice; or
(x) agree to do, or enter into negotiations with respect to, any of the
things described in the preceding clauses in this Section 5.3.
5.4 Shareholder Approval. TSI will call the TSI Shareholders Meeting to be
held within 60 days after the SEC has indicated that it has no further comments
on the Joint Proxy Statement to submit this Agreement, the Arrangement and
related matters for the consideration and approval of the TSI Shareholders. Such
approval will be recommended by TSI's Board of Directors and management, subject
to the fiduciary obligations of its directors and officers. Such meeting will be
called, held and conducted, and any proxies will be solicited, in compliance
with applicable law. Concurrently with the execution of this Agreement, those
persons listed on Exhibit 5.4A (collectively, the "TSI AFFILIATES") will have
executed and delivered to VERITAS the TSI Affiliate Agreements in the form of
Exhibit 5.4B (the "TSI AFFILIATE AGREEMENTS"), and the persons listed on Exhibit
5.4C (collectively, the "TSI PRINCIPAL SHAREHOLDERS"), will have executed the
TSI Voting Agreements in the form of Exhibit 5.4D (the "TSI VOTING AGREEMENTS")
agreeing among other things to vote in favor of the Arrangement. TSI will not be
deemed to be in breach of its covenants if it is unable to deliver to VERITAS,
on the date of this Agreement, TSI Voting Agreements signed by the TSI Principal
Shareholders. For purposes of this Agreement, an "AFFILIATE" shall have the
meaning referred to in Rule 145 under the Securities Act.
5.5 Joint Proxy Statement. TSI will mail the Joint Proxy Statement to its
shareholders in a timely manner for the purpose of considering and voting upon
the Arrangement at the TSI Shareholders Meeting. TSI will promptly provide all
information relating to its business or operations necessary for inclusion in
the Joint Proxy Statement to satisfy all requirements of applicable U. S. and
Canadian state, provincial and federal corporate and securities laws. TSI shall
be solely responsible for any statement, information or omission in the Joint
Proxy Statement relating to it or its Affiliates based
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upon written information furnished by it. TSI will not provide to its
shareholders or publish any material concerning it or its Affiliates that
violates applicable Canadian law, the Securities Act or the Exchange Act with
respect to the transactions contemplated hereby.
5.6 Regulatory Approvals. TSI will promptly 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 Entity which may be reasonably required, or which VERITAS Software
or VERITAS Holding may reasonably request, in connection with the consummation
of the transactions contemplated by this Agreement. TSI will use its best
commercial efforts to promptly obtain all such authorizations, approvals and
consents. Without limiting the generality of the foregoing, as promptly as
practicable after the date of this Agreement, TSI shall have made such filings
as are necessary to be filed by TSI under the Investment Canada Act and the
Competition Act (Canada).
5.7 Necessary Consents. During the term of this Agreement, TSI will use
its best efforts to obtain such written consents and take such other actions as
may be necessary or appropriate in addition to those set forth in Section 5.6 to
allow the consummation of the transactions contemplated hereby and to allow TSI
to carry on its business after the Effective Time.
5.8 Access to Information. TSI will allow VERITAS Software, VERITAS
Holding and their agents reasonable access to the files, books, records and
offices of TSI, including, without limitation, any and all information relating
to TSI's Taxes, commitments, contracts, leases, licenses and real, personal and
intangible property and financial condition. TSI will cause its accountants to
cooperate with VERITAS Software, VERITAS Holding and their agents in making
available to VERITAS Software and VERITAS Holding 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.
5.9 Satisfaction of Conditions Precedent. During the term of this
Agreement, TSI will use its best efforts to satisfy or cause to be satisfied all
the conditions precedent that are set forth in Section 9, and TSI will use its
best efforts to cause the Arrangement and the other transactions contemplated by
this Agreement to be consummated.
5.10 No Other Negotiations. (a) From and after the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, TSI shall not, and shall use its best efforts to see
that its directors do not, and shall not permit its officers, employees,
representatives, investment bankers, agents and affiliates to, directly or
indirectly, (i) solicit, initiate or engage in discussions or negotiations with
any person, encourage submission of any inquiries, proposals or offers by, or
take any other action intended or designed to facilitate the efforts of any
person, other than VERITAS Software or VERITAS Holding, relating to the possible
acquisition of TSI (whether by way of Arrangement, amalgamation, take-over bid,
tender offer, purchase of capital stock, purchase of assets or otherwise) or any
material portion of its capital stock or assets (with any such efforts by any
such person, including a firm proposal to make such an acquisition, to be
referred to as an "ACQUISITION PROPOSAL"), (ii) provide non-public information
with respect to TSI, or afford any access to the properties, books or records of
TSI, to any person, other than VERITAS Software, or VERITAS Holding, relating to
a possible Acquisition Proposal by any person other than VERITAS Software or
VERITAS Holding, (iii) make or authorize any statement, recommendation or
solicitation in support of any possible Acquisition Proposal by any person,
other than by
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VERITAS Software or VERITAS Holding, or (iv) enter into an agreement with any
person, other than VERITAS Software or VERITAS Holding, providing for a possible
Acquisition Proposal. TSI, and its respective directors, officers, employees,
representatives, investment bankers, agents and affiliates, shall immediately
cease any and all existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing.
(b) Notwithstanding the foregoing, prior to the approval of this
Agreement and the Arrangement by the TSI Shareholders at the TSI Shareholders
Meeting, nothing contained in this Agreement shall prevent the Board of
Directors of TSI (or its agents pursuant to its instructions) from (i) engaging
in discussions or negotiations with (but not soliciting or initiating such
discussions or negotiations or encouraging inquiries from) a party concerning an
unsolicited Acquisition Proposal, (ii) providing non-public information with
respect to TSI that has previously been provided to VERITAS Software or VERITAS
Holding, or (iii) making any statement or recommendation in support of any
Acquisition Proposal, in each case if the TSI Board of Directors first
determines in good faith, based on the advice of outside legal counsel, that
such action is required or advisable by reason of the fiduciary duties of the
members of the Board to TSI's shareholders under applicable law; provided that
in each such event TSI first notifies VERITAS Software and VERITAS Holding of
such determination by the TSI Board of Directors and provides VERITAS Software
and VERITAS Holding with a true and complete copy of any Acquisition Proposal or
other written communication concerning a possible Acquisition Proposal received
from such third party and of all documents containing or referring to non-public
information of TSI that are supplied to such third party. Except to the extent
expressly referenced in this Section 5.10, nothing in such Section however,
shall relieve TSI from complying with the other terms of this Agreement. If TSI
receives any unsolicited offer or proposal to enter negotiations relating to an
Acquisition Proposal, TSI shall immediately notify VERITAS Software and VERITAS
Holding thereof, including information as to the identity of the party making
any such offer or proposal and the specific terms of such offer or proposal, as
the case may be. TSI shall be responsible for any breach of this Section by any
of its directors, officers, employees, representatives, investment bankers,
agents and affiliates while acting within the scope of their respective
authorities.
5.11 Representations of Shareholders. TSI will use its best efforts to
cause the TSI Principal Shareholders to cooperate with counsel to TSI to assist
them in providing the tax opinions called for by Section 8.11.
5.12 Employment and Noncompetition Agreements. Concurrently with the
execution of this Agreement, the persons listed on Exhibit 5.12A (the
"OFFEREES") will have entered into one year Employment Agreements in the form
attached hereto as Exhibit 5.12B (the "EMPLOYMENT AGREEMENTS") and a two year
Noncompetition Agreement in the form attached hereto as Exhibit 5.12C (the
"NONCOMPETITION AGREEMENTS"), to take effect at the Closing.
6. Veritas Software and Veritas Holding Covenants
During the period from the Agreement Date until the earlier to occur of (i)
the Effective Time, or (ii) the termination of this Agreement in accordance with
Section 10, VERITAS Holding and VERITAS Software covenant and agree as follows:
6.1 Advice of Changes. VERITAS Software and VERITAS Holding will promptly
advise TSI in writing (a) of any event occurring subsequent to the date of this
Agreement
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that would render any representation or warranty of VERITAS Holding or VERITAS
Software contained in this Agreement, if made on or as of the date of such event
or the Closing Date, to be untrue or inaccurate in any material respect, (b) of
any Material Adverse Effect on VERITAS, and (c) of any breach by VERITAS
Software or VERITAS Holding of any covenant or agreement contained in this
Agreement.
6.2 Regulatory Approvals. VERITAS Software and VERITAS Holding will
promptly 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 Entity, or in order to
comply with any Canadian law, which may be reasonably required, or which TSI may
reasonably request, in connection with the consummation of the transactions
contemplated by this Agreement. VERITAS Software and VERITAS Holding will use
their best commercial efforts to promptly obtain all such authorizations,
approvals and consents. Without limiting the generality of the foregoing, as
promptly as practicable after the execution of this Agreement, VERITAS Software
and VERITAS Holding shall make such filings as are necessary under the
Investment Canada Act and the Competition Act (Canada).
6.3 Stockholder Approval. VERITAS Software will call the VERITAS Software
Stockholders Meeting to be held within 60 days after the SEC has indicated that
it has no further comments on the Joint Proxy Statement to submit the Restated
Certificate of Incorporation for the consideration and approval of the VERITAS
Software Stockholders. Such approval will be recommended by VERITAS Software's
Board of Directors and management, subject to the fiduciary obligations of its
directors and officers. Such meeting will be called, held and conducted, and any
proxies will be solicited, in compliance with applicable law.
6.4 VERITAS Voting Agreements. VERITAS Software's Affiliates will
concurrently sign and deliver to TSI the VERITAS Voting Agreements in the form
of Exhibit 6.4A (the "VERITAS VOTING AGREEMENTS") agreeing to vote in favor of
the Restated Certificate of Incorporation.
6.5 Joint Proxy Statement. VERITAS Software will mail the Joint Proxy
Statement to its stockholders in a timely manner for the purpose of considering
and voting at the VERITAS Software Stockholders Meeting upon the Restated
Certificate of Incorporation. VERITAS Software and VERITAS Holding will promptly
provide all information relating to their businesses or operations necessary for
inclusion in the Joint Proxy Statement to satisfy all requirements of applicable
U. S. and Canadian state, provincial and federal corporate and securities laws.
Each of VERITAS Software and VERITAS Holding shall be solely responsible for any
statement, information or omission in the Joint Proxy Statement relating to it
or its affiliates based upon written information furnished by it. VERITAS
Software will not provide to its stockholders or publish any material concerning
it or its Affiliates that violates applicable Canadian Law, the Securities Act
or the Exchange Act with respect to the transactions contemplated hereby.
6.6 Listing. VERITAS will cause the shares of VERITAS Common Stock to be
issued from time to time upon exchange of the Exchangeco, and upon exercise of
the VERITAS options for which TSI Options have been exchanged pursuant to
Section 2.5(a) hereof, to be listed upon the Closing on the NASDAQ Stock Market.
VERITAS will cause the Exchangeco Class A Shares and the Exchangeco Exchangeable
Shares to be listed upon the Closing on the ASE.
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6.7 Access to Information. VERITAS Software and VERITAS Holding will allow
TSI and its agents reasonable opportunity to examine such additional documents
from VERITAS Software and VERITAS Holding and to ask questions of, and receive
full answers from VERITAS Software's, VERITAS Holding's officers and accountants
concerning, among other things, VERITAS Software or VERITAS Holding, their
financial condition, their management, their prior activities and any other
information which the TSI considers relevant or appropriate in connection with
entering into this Agreement.
6.8 Indemnification. VERITAS Software and VERITAS Holding agree that all
rights to indemnification or exculpation now existing in favor of the employees,
agents, directors or officers (the "INDEMNIFIED PARTIES") of TSI as provided in
its articles of incorporation or bylaws, or in any agreement between an
Indemnified Party and TSI in effect on September 1, 1998, a copy of which has
been provided to VERITAS Software's counsel prior to the date of the execution
of this Agreement (an "INDEMNIFICATION AGREEMENT"), shall survive the
Arrangement and shall continue in full force and effect in accordance with their
respective terms, provided that such indemnification provisions shall not be
applicable to any claims made by VERITAS Software or VERITAS Holding against, or
any obligations of, the Indemnifying TSI Holders under Section 11 below.
6.9 Necessary Consents. During the term of this Agreement, VERITAS
Software and VERITAS Holding will use their best efforts to obtain such written
consents and take such other actions as may be necessary or appropriate in
addition to those set forth in Section 6.2 to allow the consummation of the
transactions contemplated hereby.
6.10 Satisfaction of Conditions Precedent. During the term of this
Agreement, VERITAS Software and VERITAS Holding will use their best efforts to
satisfy or cause to be satisfied all the conditions precedent that are set forth
in Section 8. VERITAS Software and VERITAS Holding will use their best efforts
to cause the Arrangement and the other transactions contemplated by this
Agreement to be consummated.
6.11 Reorganization Procedures.
(a) Following the Effective Date, VERITAS will cause TSI to continue the
historic business of TSI or to use a significant portion of TSI's historic
business assets in a business.
(b) Neither VERITAS Software nor VERITAS Holding presently has any plan
or intention to liquidate TSI, to merge TSI with or into another corporation, or
to sell or otherwise dispose of any of the stock of TSI (whether acquired
pursuant to the Arrangement or pursuant to the exchange of any shares of TSI
stock for shares of VERITAS stock).
(c) Neither VERITAS Software nor VERITAS Holding presently has any plan
or intention to cause TSI to issue additional shares of TSI stock to any persons
other than VERITAS Holding.
(d) Neither VERITAS Software nor VERITAS Holding presently has any plan
or intention to reacquire any of its voting common stock issued pursuant to the
Plan of Arrangement or upon exchange of the Exchangeco Exchangeable Shares. For
purposes of this representation, it should be noted that VERITAS may from time
to time repurchase some of its issued and outstanding common stock in open
market repurchase transactions.
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7. Closing Matters
7.1 The Closing. Subject to the termination of this Agreement as provided
in Article 9 below, the Closing of the transactions contemplated by this
Agreement (the "CLOSING") will take place at the offices of Fenwick & West LLP,
Two Palo Alto Square, Palo Alto, California 94306 on a date (the "CLOSING DATE")
and at a time to be mutually agreed upon by the parties, which date shall be 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 TSI and VERITAS. Concurrently with the Closing, the Plan
of Arrangement will be filed with the Alberta Registries of the Province of
Alberta.
7.2 Ancillary Documents/Reservation of Shares. (a) Provided all other
conditions of this Agreement have been satisfied or waived, TSI shall, on the
Closing Date, file with the Registrar the articles of amendment and articles of
amalgamation contemplated in Article 2 of the Plan of Arrangement.
(b) On the Effective Date:
(i) VERITAS Software and VERITAS Holding and a Canadian trust
company to be selected by VERITAS, which shall be satisfactory to TSI, acting
reasonably, shall have executed and delivered a Voting, Support and Exchange
Trust Agreement substantially in the form attached as Exhibit 7.2(b)(i) hereto
(the "VOTING AND EXCHANGE TRUST AGREEMENT"), together with such other terms and
conditions as may be agreed to by the parties hereto acting reasonably; and
(ii) VERITAS shall file with the Secretary of State of Delaware a
Restated Certificate of Incorporation which shall be in substantially the form
set forth in Exhibit 7.2(b)(ii) hereto.
(c) On or before the Effective Date, VERITAS will reserve for issuance
such number of shares of VERITAS Common Stock as shall be necessary to give
effect to the exchanges and assumptions of options contemplated hereby and by
the Plan of Arrangement and the Voting and Exchange Trust Agreement.
7.3 Exchange of Options. Promptly after the Effective Time, VERITAS will
notify in writing each holder of a TSI Option of the exchange of such TSI Option
for a VERITAS option, the number of shares of VERITAS Common Stock that are then
subject to such TSI Option, and the exercise price of such TSI Option, as
determined pursuant to Section 2.5.
8. Conditions Precedent to Obligations of TSI
The obligations of TSI 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 TSI, but only in a writing signed by TSI):
8.1 Accuracy of Representations and Warranties. The representations and
warranties of VERITAS Software and VERITAS Holding set forth in Section 4 (as
qualified by the VERITAS Disclosure Letter) shall be true and accurate in all
material respects on and as of the Closing Date with the same force and effect
as if they had been made at the Closing except to the extent the failure of such
representations and warranties to be true and accurate in such respects has not
had and could not reasonably be expected to have a Material Adverse Effect on
VERITAS, and TSI shall receive a certificate to such effect executed by VERITAS'
Chief Executive Officer or Chief Financial Officer.
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8.2 Covenants. Each of VERITAS Software and VERITAS Holding shall have
performed and complied in all material respects with all of its covenants
required to be performed by it under this Agreement and the Plan of Arrangement
on or before the Closing, and TSI shall receive a certificate from each of
VERITAS Software and VERITAS Holding to such effect signed by the respective
Chief Executive Officer or Chief Financial Officer.
8.3 Absence of Material Adverse Change. There shall not have been any
event or change that has a Material Adverse Effect on VERITAS.
8.4 Compliance with Law. There shall be no order, decree or ruling by any
Governmental Entity or threat thereof, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Arrangement, which would
prohibit or render illegal the transactions contemplated by this Agreement.
8.5 Government Consents. There shall have been obtained on or before the
Closing such material permits or authorizations, and there shall have been taken
such other action, as may be required to consummate the Arrangement by any
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, including but not limited to requirements under applicable
federal, provincial and state securities laws and the compliance with the
Investment Canada Act.
8.6 SEC Filings. The registration statement relating to the registration
of the shares of VERITAS Common Stock issuable to the TSI Shareholders upon
exchange of their Exchangeco Exchangeable Shares shall have been declared
effective under the Securities Act and shall not be the subject of any
stop-order or proceedings seeking a stop-order, and the Joint Proxy Statement
shall on the Closing not be subject to any similar proceedings commenced or
threatened by the SEC, the ASC or any other securities regulatory authority.
8.7 Opinion of VERITAS' Counsel. TSI shall have received from Fenwick &
West LLP and from Osler, Hoskin & Harcourt, counsel to VERITAS Software,
opinions in customary form in connection with transactions such as the
Arrangement that are reasonably satisfactory to TSI and its counsel.
8.8 TSI Shareholder Approval. The principal terms of this Agreement and
the Arrangement shall have been approved and adopted by the TSI Shareholders in
accordance with applicable law and TSI's articles of incorporation and bylaws.
8.9 VERITAS Stockholder Approval. The Restated Certificate of
Incorporation shall have been approved by the VERITAS Software stockholders in
accordance with the rules of the NASD, and with applicable law and VERITAS
Software's certificate of incorporation and bylaws.
8.10 No Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Arrangement shall have been issued by any Canadian or U.S. federal,
provincial or state court and remain in effect, nor shall any proceeding seeking
any of the foregoing be pending.
8.11 Tax Opinion. TSI shall have received an opinion of Parlee McLaws,
counsel for TSI, in form and substance satisfactory to TSI, to the effect that
the Arrangement will qualify as an amalgamation to which section 87 of the ITA,
including subsection 87(4) of the ITA, applies by reason of subsection 87(9) of
the ITA followed by a reorganization of capital of TSI under Section 86 of the
ITA.
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8.12 Court Approval. The Court shall have issued its final order approving
the Arrangement in form and substance satisfactory to VERITAS and TSI (such
approvals not to be unreasonably withheld or delayed by VERITAS or TSI) and
reflecting the terms hereof.
8.13 ASC, Etc. All necessary orders shall have been obtained from the ASC
and other relevant Canadian securities regulatory authorities in connection with
the Arrangement. VERITAS Software, VERITAS Holding and TSI shall each have filed
all notices and information (if any) required under Part IX of the Competition
Act (Canada) and the applicable waiting periods and any extensions thereof shall
have expired or the parties shall have received an Advance Ruling Certificate
pursuant to section 102 of the Competition Act (Canada) setting out that the
Director under such Act is satisfied he would not have sufficient grounds on
which to apply for an order in respect of the Arrangement. The Arrangement shall
have received the allowance or approval or deemed allowance or approval by the
responsible Minister under the Investment Canada Act in respect of the
Arrangement, to the extent such allowance or approval is required, on terms and
conditions satisfactory to the parties.
8.14 NASDAQ Listing. VERITAS shall have filed an Application for Listing
of Additional Shares with the NASDAQ Stock Market pursuant to Section 6.6 hereof
and the NASDAQ Stock Market shall have approved such Application.
9. Conditions Precedent to Obligations of VERITAS Holding and VERITAS Software
The obligations of each of VERITAS Software and VERITAS Holding 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
Software and VERITAS Holding, but only in a writing signed by VERITAS Software
and VERITAS Holding):
9.1 Accuracy of Representations and Warranties. The representations and
warranties of TSI set forth in Article 2 (as qualified by the TSI Disclosure
Letter) shall be true and accurate in all material respects on and as of the
Closing Date with the same force and effect as if they had been made at the
Closing except to the extent the failure of such representations and warranties
to be true and accurate in such respects has not had and could not reasonably be
expected to have a Material Adverse Effect on TSI, and VERITAS shall receive a
certificate to such effect executed by TSI's Chief Executive Officer and Chief
Financial Officer.
9.2 Covenants. TSI shall have performed and complied in all material
respects with all of its covenants required to be performed by it under this
Agreement or the Plan of Arrangement on or before the Closing, and VERITAS shall
receive a certificate to such effect signed by TSI's Chief Executive Officer and
Chief Financial Officer.
9.3 Absence of Material Adverse Change. There shall not have been any
event or change that has a Material Adverse Effect on TSI.
9.4 Compliance with Law. There shall be no order, decree or ruling by any
Governmental Entity or threat thereof, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Arrangement, which would
prohibit or render illegal the transactions contemplated by this Agreement.
9.5 Government Consents. There shall have been obtained on or before the
Closing such material permits or authorizations, and there shall have been taken
such other action, as may be required to consummate the Arrangement by any
regulatory authority having
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jurisdiction over the parties and the actions herein proposed to be taken,
including but not limited to requirements under applicable federal and state
securities laws.
9.6 SEC Filings. The registration statement on Form S-3, or Form S-1, as
the case may be, relating to the registration of the shares of Common Stock
issuable to the TSI Shareholders upon exchange of their Exchangeco Exchangeable
Shares shall have been declared effective under the Securities Act and shall not
be the subject of any stop order or proceedings seeking a stop-order and the
Joint Proxy Statement shall on the Closing not be subject to any similar
proceedings commenced or threatened by the SEC, the ASC or any other securities
regulatory authority.
9.7 Opinion of TSI's Counsel. VERITAS shall have received from Parlee
McLaws and from U.S. counsel to TSI, opinions in customary form in connection
with transactions such as the Arrangement that are reasonably satisfactory to
VERITAS and its counsel.
9.8 Documents. VERITAS shall have received all written consents,
assignments, waivers, authorizations or other certificates necessary to provide
for the continuation in full force and effect of any and all material contracts
and leases of TSI and for TSI to consummate the transactions contemplated
hereby, except when the failure to receive such consents, or other certificates
would not have a Material Adverse Effect on TSI.
9.9 VERITAS Stockholder Approval. The Restated Certificate of
Incorporation shall have been approved by the VERITAS Software stockholders in
accordance with the rules of the NASD and applicable law and VERITAS Software's
certificate of incorporation and bylaws.
9.10 TSI Shareholder Approval. The principal terms of this Agreement and
the Arrangement shall have been approved and adopted by the TSI shareholders in
accordance with applicable law and TSI's articles of incorporation and bylaws.
9.11 Dissenting Shareholders. TSI shall not have received on or prior to
the Effective Time notice from the holders of more than 8% of the TSI Common
Shares of their intention to exercise their rights of dissent under section 184
of the ABCA.
9.12 No Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Arrangement shall have been issued by any U.S. or Canadian federal,
provincial or state court and remain in effect, nor shall any proceeding seeking
any of the foregoing be pending.
9.13 Affiliate, Voting and Escrow Agreements. VERITAS shall have received
executed originals of all of the TSI Affiliate Agreements, TSI Voting Agreements
and the Escrow Agreement.
9.14 Court Approval. The Court shall have issued its final order approving
the Arrangement in form and substance satisfactory to VERITAS and TSI (such
approvals not to be unreasonably withheld or delayed by VERITAS or TSI) and
reflecting the terms hereof.
9.15 ASC, Etc. All necessary orders shall have been obtained from the ASC
and other relevant Canadian securities regulatory authorities in connection with
the Arrangement. VERITAS Software, VERITAS Holding and TSI shall each have filed
all notices and information (if any) required under Part IX of the Competition
Act (Canada) and the applicable waiting periods and any extensions thereof shall
have expired or the parties shall have received an Advance Ruling Certificate
pursuant to section 102 of the Competition Act (Canada) setting out that the
Director under such Act is satisfied he would not have sufficient grounds on
which to apply for an order in respect of the
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Arrangement. The Arrangement shall have received the allowance or approval or
deemed allowance or approval by the responsible Minister under the Investment
Canada Act in respect of the Arrangement, to the extent such allowance or
approval is required, on terms and conditions satisfactory to the parties.
10. Termination of Agreement
10.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the Arrangement by the
stockholders of TSI or approval of the Restated Certificate of Incorporation by
VERITAS Software's stockholders:
(a) by mutual agreement of TSI and VERITAS Software and VERITAS Holding;
(b) by TSI, if there has been a breach by VERITAS Software or VERITAS
Holding of any representation, warranty, covenant or agreement set forth in this
Agreement on the part of VERITAS Software or VERITAS Holding, respectively, or
if any representation of VERITAS Software or VERITAS Holding shall have become
untrue, in either case which has or can reasonably be expected to have a
Material Adverse Effect on VERITAS and which VERITAS fails to cure within 15
business days after written notice thereof from TSI (except that no cure period
shall be provided for a breach by VERITAS Software or VERITAS Holding which by
its nature cannot be cured);
(c) by VERITAS Software or VERITAS Holding, if there has been a breach
by TSI of any representation, warranty, covenant or agreement set forth in this
Agreement on the part of TSI, or if any representation of TSI shall have become
untrue, in either case which has or can reasonably be expected to have a
Material Adverse Effect on TSI and which TSI fails to cure within 15 business
days after written notice thereof from VERITAS Software or VERITAS Holding
(except that no cure period shall be provided for a breach by TSI which by its
nature cannot be cured);
(d) by any party (provided that such party is not then in breach of this
Agreement) if the TSI Shareholders do not approve the Arrangement at the TSI
Shareholders Meeting or the stockholders of VERITAS Software do not approve the
Restated Certificate of Incorporation at the VERITAS Software Stockholders
Meeting;
(e) by any party, if all the conditions for Closing the Arrangement
shall not have been satisfied or waived on or before 5:00 p.m., Calgary time, on
June 1, 1999, other than as a result of a breach of this Agreement by the
terminating party, or in the case of termination by TSI, a breach by any of the
TSI Principal Shareholders of the TSI Affiliate Agreements or Voting Agreements
referred to in Section 5.4;
(f) by any party, if a permanent injunction or other order by any U.S.
or Canadian federal, provincial or state court shall have been issued and shall
have become final and nonappealable which would (i) make illegal or otherwise
restrain or prohibit the consummation of the Arrangement, (ii) prohibit VERITAS
Software's or VERITAS Holding's ownership or operation of all or any material
portion of the business or assets of TSI or (iii) compel VERITAS Software or
VERITAS Holding to dispose of or hold separate all or any material portion of
the business or assets of TSI;
(g) by VERITAS Holding or VERITAS Software, if the TSI Board of
Directors shall have exercised its right, pursuant to Section 5.10(b) to engage
in discussions or negotiations with or furnish information to a third party in
connection with an Acquisition Proposal, or shall have made any recommendation
to the shareholders of TSI against the
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Arrangement or in support of an Acquisition Proposal (an "ACQUISITION PROPOSAL
TERMINATION"); or
(h) by VERITAS Software, VERITAS Holding or TSI, if the TSI Board of
Directors determines in good faith, based on the advice of outside legal
counsel, that it is required or advisable by reason of its fiduciary duties to
recommend to the TSI Shareholders that they vote against the Arrangement and
approve instead an Acquisition Proposal that the TSI Board of Directors has
determined in good faith, based on the advice of its outside financial advisors,
is financially more favorable to the TSI Shareholders than the Arrangement and
is the subject of a firm written offer from a third party that is capable of
consummating such Acquisition Proposal (a "SUPERIOR PROPOSAL TERMINATION").
10.2 Notice of Termination. Any termination of this Agreement under
Section 10.1 above will be effective by the delivery of written notice by the
terminating party to the other party hereto.
10.3 Effect of Termination. In the case of any termination of this
Agreement as provided in this Section 10, this Agreement shall be of no further
force and effect (except as provided in Section 10.4 and Section 12) and nothing
herein shall relieve any party from liability for any breach of this Agreement.
No termination of this Agreement shall affect the obligations contained in the
separate Nondisclosure Agreement between TSI and VERITAS Software (the
"NONDISCLOSURE AGREEMENT").
10.4 Termination Fees.
(a) If TSI has not delivered TSI Voting Agreements at the date of the
Agreement executed by the TSI Principal Shareholders and this Agreement is
terminated (A) by any party pursuant to Section 10.1(d) as a result of the
failure of the TSI Shareholders to approve the Arrangement, (B) by VERITAS
Holding or VERITAS Software pursuant to an Acquisition Proposal Termination
under Section 10.1(g) or (C) by TSI pursuant to a Superior Proposal Termination
under Section 10.1(h), then TSI shall pay to VERITAS Software (by wire transfer
or cashier's check) a fee of $3 million within thirty days of the delivery of
the notice of termination pursuant to Section 10.2. In addition, in the event of
such termination, the parties hereby agree that the provisions of Section
15.4(b) of that certain Source Distribution License Agreement dated June 1, 1998
entered into between the parties (the "LICENSE AGREEMENT") shall take effect
with respect to the license rights granted to VERITAS Software under the License
Agreement. If this Agreement is terminated as described above, and TSI enters
into an agreement regarding an Acquisition Proposal or consummates an
Acquisition Proposal within twelve months after the date of termination of this
Agreement, TSI shall, within thirty days after the consummation of any such
Acquisition Proposal, pay to VERITAS Software the additional sum of $10 million.
VERITAS Software shall not be entitled to receive any payment under this Section
10.4(a) if, at the time of delivery of the applicable notice of termination
pursuant to Section 10.2, VERITAS Software is in breach of this Agreement or
VERITAS Software's stockholders have not approved the Restated Certificate of
Incorporation.
(b) If this Agreement is terminated by either party pursuant to Section
10.1(d) as a result of the failure of VERITAS Software stockholders to approve
the Restated Certificate of Incorporation, then VERITAS Software shall pay to
TSI (by wire transfer or cashier's check) a fee of $2 million within thirty days
of the delivery of the notice of termination pursuant to Section 10.2. Such
amount shall be credited by TSI as pre-paid
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royalties of VERITAS Software pursuant to the License Agreement, and, upon such
payment, the provisions of Section 15.4(b) of the License Agreement shall take
effect with respect to the license rights granted to VERITAS Software under the
License Agreement. TSI shall not be entitled to receive any payment under this
Section 10.4(b) if, at the time of delivery of the applicable notice of
termination pursuant to Section 10.2, TSI is in breach of this Agreement or
TSI's shareholders have disapproved the Arrangement.
(c) The parties' obligations to pay the termination fees set forth in
Section 10.4 are in lieu of any damages or any other payment which such party
might otherwise be obligated to pay the other party as a result of any
termination for which payment is due under Section 10.4. VERITAS Software,
VERITAS Holding and TSI agree that, in view of the nature of the issues likely
to arise in the event of such a termination, it would be impracticable or
extremely difficult to fix the actual damages resulting from such termination
and proving actual damages, causation and foreseeability in the case of such
termination would be costly, inconvenient and difficult. In requiring a party to
pay a termination fee as set forth herein, it is the intent of the parties to
provide, as of the date of this Agreement, for a liquidated amount of damages to
be paid by such party to other party. Such liquidated amount shall be deemed
full and adequate damages for such termination and is not intended by any party
to be a penalty. If any party fails to pay promptly the amount due by it
pursuant to this Section 10.4, and, in order to obtain such payment, the party
owed such payment commences a suit which results in a judgment against the other
party for the fee set forth in this Section 10.4, the party owing the payment
will pay to the party owed the payment its costs and expenses (including
reasonable attorneys' fees and expenses on a full indemnity basis) in connection
with such suit, together with interest on the amount of the fee at the prime
rate of Citibank in effect on the date such payment is made.
11.Survival of Representations, Indemnification and Remedies, Continuing
Covenants
11.1 Survival of Representations.
11.1.1 Representations of TSI. All representations, warranties and
covenants of TSI contained in this Agreement will remain operative and in full
force and effect after the Closing, regardless of any investigation made by or
on behalf of the parties to this Agreement; provided, however, that
(a) no claim for violations of representations and warranties
contained in Section 3.4(b) shall be made unless VERITAS Software or VERITAS
Holding gives written notice to TSI of such claim no later than the date of
issuance of VERITAS' press release regarding its audited financial results for
the fiscal year ending December 31, 1999 or January 31, 2000, whichever is the
later; and
(b) no claim for violations of all other representations,
warranties and covenants shall be made unless VERITAS Software or VERITAS
Holding gives written notice to TSI of such claim on or prior to first
anniversary of the Closing Date.
The applicable date after which claims are barred under Section
11.1.1(a) or (b) shall be referred to as the "APPLICABLE EXPIRATION DATE."
Except for the obligations of TSI under Sections 10 and 12, the
representations, warranties and covenants of TSI contained in this Agreement
will terminate as of the termination of this Agreement in accordance with its
terms. Any judgment or settlement of a claim against TSI for a breach of its
obligations hereunder brought after the Effective Time will be settled solely in
Escrow Shares, valued at the closing sale price of one share
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of VERITAS Common Stock on the Closing Date, except as provided in Section
11.2.3 below.
11.1.2 Representations of VERITAS. Except for VERITAS Software's or
VERITAS Holding's obligations pursuant to Articles 2, 10, 12 and Sections 6.8,
6.11, 7.3 and 7.4, VERITAS Software's and VERITAS Holding's representations,
warranties and covenants contained in this Agreement will terminate as of the
termination of this Agreement in accordance with its terms or, if the Closing
occurs, such representations, warranties and covenants will terminate upon the
Closing.
11.2 TSI Agreement to Indemnify.
11.2.1 General Indemnification by Indemnifying TSI Holders. Subject to
the limitations set forth in this Section 11.2, the Indemnifying TSI Holders
will indemnify and hold harmless VERITAS Software and VERITAS Holding and their
respective officers, directors, agents and employees, and each person, if any,
who controls or may control VERITAS Software or VERITAS Holding within the
meaning of the Securities Act (hereinafter in this Section 11.2 referred to
individually as an "INDEMNIFIED PERSON" and collectively as "INDEMNIFIED
PERSONS") from and against any and all claims, demands, actions, causes of
action, losses, costs, damages, liabilities and expenses including, without
limitation, reasonable legal fees (collectively, "DAMAGES") arising out of any
misrepresentation or breach of or default in connection with any of the
representations, warranties or covenants given or made by TSI in this Agreement,
provided, however, that the Indemnifying TSI Holders shall not indemnify the
Indemnified Persons for any loss of profits, special, punitive or consequential
Damages ("CONSEQUENTIAL DAMAGES") other than Consequential Damages arising in
connection with any misrepresentation or breach of or default in connection with
Section 3.17 of this Agreement.
11.2.2 Limitations. Except as provided under Section 11.2.3, this
Section 11.2 sets forth the sole and exclusive remedies of the Indemnified
Persons for misrepresentation or breach of or default in connection with any of
the representations, warranties or covenants given by or on behalf of TSI or by
one of the TSI Shareholders pursuant hereto. The Indemnifying TSI Holders shall
not incur liability under Section 11.2.1 beyond the Escrow Shares and the
Indemnified Persons shall exercise their remedies only with respect to the
Escrow Shares and any other assets deposited in escrow pursuant to the Escrow
Agreement. The Indemnifying TSI Holders shall settle any claims for
indemnification by returning to VERITAS Exchangeco Exchangeable Shares valued at
the closing sale price of one share of VERITAS Common Stock on the Closing Date.
The indemnification provided for in Section 10.2.1 will not apply unless and
until the aggregate Damages for which one or more Indemnified Persons seeks
indemnification under Section 10.2 exceeds $200,000, in which event the
indemnification provided for in Section 10.2 will include all Damages and shall
be recoverable as provided in the Escrow Agreement net of any recoveries under
insurance policies, indemnities or other similar recoveries.
11.2.3 Exceptions to Limitations. None of the provisions of this
Section 11 or of the Escrow Agreement shall in any manner limit the liability or
indemnification obligations of the Indemnifying TSI Holders with respect to (i)
claims of intentional misrepresentation or fraud, and (ii) any criminal matters.
11.2.4 Survival of Claims. Notwithstanding anything to the contrary,
if, prior to the expiration of a particular representation or warranty, an
Indemnified Person makes a claim for indemnification under either this Agreement
or the Escrow Agreement with respect to a misrepresentation or breach of such
representation or warranty, then the
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Indemnified Person's rights to indemnification under this Section 11.2 for such
claim shall survive any expiration of such representation or warranty.
11.2.5 Indemnification Procedures. The Representative of the
Indemnifying TSI Holders for purposes of the Escrow Agreement and the
indemnifications provisions of this Section 11.2, is duly authorized to be such
Representative and may bind the Indemnifying TSI Holders. Promptly after the
receipt by VERITAS Software or VERITAS Holding of notice or discovery of any
claim, damage, legal action or proceeding (a "CLAIM") giving rise to
indemnification rights under this Agreement, VERITAS Software or VERITAS Holding
will give the Representative and the Escrow Agent written notice of such Claim
in accordance with the Escrow Agreement. VERITAS Software or VERITAS Holding may
assert a Claim at any time prior to the Applicable Expiration Date.
12. Miscellaneous
12.1 Governing Law. The internal laws of the State of Delaware
(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 to the extent mandatorily
governed by the laws of Alberta.
12.2 Assignment; Binding Upon Successors and Assigns. No party hereto may
assign any of its rights or obligations hereunder without the prior written
consent of the other party hereto. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns.
12.3 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.
12.4 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.
12.5 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.
12.6 Amendment and Waivers. Any term or provision of this Agreement may be
amended, and 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 to be bound thereby. The waiver by a 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.
The Agreement may be amended by the parties hereto at any time before or after
approval of the TSI Shareholders or the VERITAS Software Stockholders, but,
after such approval, no amendment will be made
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which by applicable law requires the further approval of the TSI Shareholders or
the VERITAS Software Stockholders without obtaining such further approval.
12.7 Expenses. All fees and expenses incurred in connection with this
Agreement, the Arrangement and the other transactions contemplated hereby will
be paid by the party incurring such fees or expenses, whether or not the
Arrangement is consummated.
12.8 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.
12.9 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):
<TABLE>
<S> <C>
If to TSI to: TeleBackup Systems Inc.
200,119-14th Street N.W.
Calgary, Alberta, Canada T2N 1Z6
Attention: Chief Executive Officer
Telecopier: 403-270-2555
With a copy to: Parlee McLaws
3400 Petro-Canada Centre
150 -- 6th Avenue S.W.
Calgary, Alberta, Canada T2P 3Y7
Attention: Bruce A. Lawrence
Telecopier: 403-294-7052
If to VERITAS Software or VERITAS Software Corporation
VERITAS Holding to: 1600 Plymouth Street
Mountain View, California 94043
U.S.A.
Attention: General Counsel
Telecopier: 650-525-2525
With a copy to: Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
U.S.A.
Attention: Jacqueline A. Daunt
Telecopier: 415-857-0361
</TABLE>
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
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the business day following dispatch, and (d) in the case of mailing, on the
tenth business day following such mailing.
12.10 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.
12.11 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. 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.
12.12 Further Assurances. Each party agrees to cooperate fully with the
other party and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
the 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.
12.13 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder or partner of any party or any other person or
entity unless specifically provided otherwise herein, and, except as so
provided, all provisions hereof will be personal solely between the parties to
this Agreement. Anything contained herein to the contrary notwithstanding, (a)
the holders of TSI Options are intended beneficiaries of Section 2.4; (b) the
officers and directors of TSI are intended beneficiaries of Section 6.8; and (c)
the TSI Shareholders are intended beneficiaries of the provisions of Section 2.6
with respect to VERITAS' filing of the registration statement on Form S-3 or
Form S-1 and of Section 6.6.
12.14 Public Announcement. VERITAS Software, VERITAS Holding or TSI may
issue such press releases, and make such other disclosures regarding the
Arrangement, as it determines (after consultation with legal counsel) are
required under applicable securities laws or by the NASD or the ASE rules.
12.15 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 the Original Agreement and the Novation
Agreement and 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.
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IN WITNESS WHEREOF, the parties hereto have executed this Combination
Agreement as of the date first above written.
VERITAS HOLDING CORPORATION TELEBACKUP SYSTEMS INC.
By: /s/ MARK LESLIE By: /s/ DR. BYRON OSING
- ------------------------------------------- ------------------------------------
Chief Executive Officer Chief Executive Officer
VERITAS SOFTWARE CORPORATION
By: /s/ MARK LESLIE
- -------------------------------------------
Chief Executive Officer
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APPENDIX H
August 31, 1998
The Board of Directors
TeleBackup Systems Inc. (TSI)
#400, 609 -- 14st. N.W.
Calgary, AB., Canada, T2N 2A1
Dear Members of the Board,
We understand that TeleBackup Systems Inc. ("TSI") and Veritas Software
Corporation ("Veritas") are entering into a binding Combination Agreement as of
September 2, 1998, pursuant to which holders of TSI Common Stock will receive
securities of Veritas ("the Exchangeable Shares") in exchange for their TSI
Common Stock. The stock exchange ratio (the "Exchange Ratio") inherent to the
Transaction will be in the range of approximately 0.133 to 0.162 Veritas
Exchangeable shares for each share of TSI Common Stock, depending on the
weighted aggregate trading price of Veritas Common Stock for a 10 day trading
period just prior to the closing date of the Transaction. If the price of
Veritas Common Stock exceeds $41.32, the minimum number of shares, 1.555
million, will be exchanged, and thus the ratio would be 0.133. Conversely, if
the Veritas Common Stock price should drop to below $33.81 on the aggregate,
then a maximum of 1.9 million shares would be exchanged, for a ratio of 0.162.
Should the Veritas Common Stock price be within a collar range of $33.81 to
$41.32, then 1.71 million shares would be exchanged for a ratio of 0.146. All
dollar values are in U.S. denominations for the purpose of this correspondence.
Generally, each Exchangeable Share may, at the option of the holder, be
exchanged for one share of Veritas Common Stock for up to 7 years, and will not
be subject to capital gains taxation until such time as the holder chooses to
sell the Veritas Common Stock in the marketplace. The proposed transaction ("the
Transaction") is intended to be a tax-free reorganization within the meaning of
U.S. tax codes, and is to be accounted for as a pooling of interests. The terms
and conditions of the Transaction are to be more fully detailed in the
Combination Agreement.
You have requested the opinion of the Opman Group, in its capacity as a
Merchant Banker and M & A specialist, as to whether the Exchange Ratio is fair,
from a financial point of view, to the current Shareholders of TSI.
The Opman Group specializes in mergers and acquisitions of information
technology ("IT") organizations, as well as financing, OEM/distribution deal
brokering, and operations management consulting. In this capacity, we are
regularly engaged in valuing such organizations, and have been involved in
numerous IT mergers and acquisitions. We are currently acting as an
OEM/distribution deal broker to TSI, as well as a financial advisor to the Board
of Directors of TSI, and as such, will receive a fee from the combined
organization upon the successful conclusion of the transaction.
In rendering our opinion, we have, among other things:
(1) Reviewed the financial and business terms of the Combination
Agreement;
(2) Reviewed the audited and unaudited financial statements and condition
of both organizations for the past several years, including annual and
quarterly reports;
(3) Reviewed and analyzed the historical financial and operational data of
both organizations;
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(4) Participated in discussions with Veritas Management concerning
operations, business strategy, financial performance, and future
prospects for Veritas;
(5) Discussed with Veritas and TSI management its view of the strategic
rationale for the Transaction;
(6) Reviewed the historical closing prices and trading activity for
Veritas Common Stock;
(7) Compared certain aspects of the financial performance of Veritas and
the price of Veritas Common stock with other public companies we
deemed comparable;
(8) Analyzed available information, both public and private, concerning
other mergers and acquisitions we believe to be comparable in whole or
in part to the Transaction;
(9) Reviewed certain internal historical financial and operating data
concerning TSI prepared by TSI management;
(10) Reviewed the historical closing prices and trading activity of the TSI
Common Stock;
(11) Compared certain aspects of the financial performance of TSI and the
price of TSI Common Stock with other public companies we deemed
comparable;
(12) Analyzed the anticipated effect of the Transaction on the future
financial performance of the consolidated entity. In particular, we
developed an independent "accretion -- decretion" financial
performance model relative to the dilutive impact of the Transaction
on the Veritas capitalization structure, in relation to expected gains
in revenue and earnings directly related to the Transaction.
(13) Directly participated in negotiations and discussions related to the
Transaction among TSI and Veritas, and their respective financial and
legal advisors.
In rendering our opinion, we have relied, without independent verification,
on the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained in
the Combination Agreement) that was publicly available, or was furnished to us
by TSI or Veritas. With respect to the financial projections examined by us, we
have assumed that the same were reasonably prepared and reflected the best
available estimates and good faith judgements of the management of Veritas as to
the future performance of Veritas. We have neither made nor obtained an
independent appraisal or valuation of any of Veritas' assets.
Based upon and subject to the foregoing, we are of the opinion that the
Exchange Ratio is fair, from a financial point of view, to the shareholders of
TSI.
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This opinion speaks only as of the date hereof, and may be relied upon only
by the Board of Directors of TSI, and no other person. The Opman Group hereby
consents to references to and the inclusion of this opinion in its entirety in
the information circular to be disseminated to the shareholders of TSI and
Veritas in connection with the Transaction.
Sincerely,
/s/ MICHAEL MAHONEY
Mike Mahoney
President
The Opman Group
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APPENDIX I
VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT
AGREEMENT made the day of , 1999,
BETWEEN:
VERITAS HOLDING CORPORATION, a corporation existing under the laws of the
State of Delaware ("VERITAS"),
-- and --
VERITAS SOFTWARE CORPORATION, a corporation existing under the laws of the
State of Delaware ("VERITAS Software"),
-- and --
TELEBACKUP EXCHANGECO INC., a corporation existing under the laws of the
Province of Alberta (the "Corporation"),
-- and --
MONTREAL TRUST COMPANY OF CANADA, a trust company existing under the laws
of Canada (the "Trustee").
WHEREAS, pursuant to an amended and restated combination agreement dated
April 12, 1999 among VERITAS, VERITAS Software, TeleBackup Systems Inc. and the
Corporation (the "Combination Agreement"), the parties agreed that on the
Effective Date (as defined in the Combination Agreement), VERITAS, VERITAS
Software, the Corporation and a Canadian trust company would execute and deliver
a Voting, Support and Exchange Trust Agreement substantially in the form set
forth as an Exhibit to the Combination Agreement;
AND WHEREAS, pursuant to an arrangement (the "Arrangement") effected
pursuant to the Business Corporations Act (Alberta),
(a) TeleBackup Systems Inc. ("TeleBackup") was amalgamated with a numbered
corporation existing under the laws of the Province of Alberta
("Amalco") (the "Amalgamation");
(b) holders of TeleBackup common shares received Class A non-voting shares
of the Corporation ("Corporation Class A Shares") pursuant to the
Amalgamation;
(c) holders of Corporation Class A Shares who were resident in Canada and
who properly elected in accordance with the terms and conditions set
out in the Plan of Arrangement relating to the Arrangement received
[INSERT THE EXCHANGE RATIO] of an Exchangeable Share of the Corporation
(the "Exchangeable Shares") for each Corporation Class A share held by
them.
AND WHEREAS the Parent is to grant to and in favour of Non-Affiliated
Holders (as hereinafter defined) from time to time of Exchangeable Shares the
right, in the circumstances set forth herein, to require the Parent to purchase
from each Non-Affiliated Holder all or any part of the Exchangeable Shares held
by the Non-Affiliated Holder;
AND WHEREAS the parties desire to make appropriate provision and to
establish a procedure whereby voting rights in the Parent shall be exercisable
by Non-Affiliated Holders from time to time of Exchangeable Shares by and
through the Trustee, which will hold legal title to the Voting Share (as
hereinafter defined) to which voting rights attach
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for the benefit of Non-Affiliated Holders and whereby the rights to require the
Parent to purchase Exchangeable Shares from the Non-Affiliated Holders shall be
exercisable by Non-Affiliated Holders from time to time of Exchangeable Shares
by and through the Trustee, which will hold legal title to such rights for the
benefit of Non-Affiliated Holders;
AND WHEREAS the parties desire to make appropriate provision and to
establish a procedure whereby the Parent will take certain actions and make
certain payments and deliveries necessary to ensure that the Corporation will be
able to make certain payments and to deliver or cause to be delivered shares of
Parent Common Stock (as hereinafter defined) in satisfaction of the obligations
of the Corporation under the Exchangeable Share Provisions (as hereinafter
defined) and this trust agreement;
AND WHEREAS these recitals and any statements of fact in this trust
agreement are made by VERITAS Software, VERITAS and the Corporation and not by
the Trustee;
NOW THEREFORE, in consideration of the respective covenants and agreements
provided in this trust agreement and for other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged), the parties
agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this trust agreement, unless something in the subject matter or content
is inconsistent therewith:
"Applicable Laws" has the meaning set out in Section 6.6 hereof;
"Arrangement" has the meaning set out in the recitals hereto;
"Article 4 Subsidiary" means a Subsidiary of the Parent that, under
Section 160 of the Delaware Revised Statutes or any successor provision
thereto, is precluded from voting any shares of Parent Common Stock held by
it;
"Automatic Exchange Right" means the automatic exchange of shares of
Parent Common Stock for Exchangeable Shares pursuant to Section 5.3 of the
Exchangeable Share Provisions;
"Board of Directors" means the board of directors of the Corporation;
"Business Day" means any day other than a Saturday, a Sunday or a day
when banks are not open for business in either or both of Mountain View,
California and Calgary, Alberta;
"Canadian Dollar Equivalent" means in respect of an amount expressed
in a foreign currency (the "Foreign Currency Amount") at any date the
product obtained by multiplying (a) the Foreign Currency Amount by (b) the
official noon spot exchange rate on such date for such foreign currency as
reported by the Bank of Canada or, in the event such spot exchange rate is
not available, such exchange rate on such date for such foreign currency as
may be deemed by the Board of Directors to be appropriate for such purpose;
"Code" means the United States Internal Revenue Code of 1986, as
amended;
"Combination Agreement" has the meaning set out in the recitals
hereto;
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"Corporation Class A Common Shares" has the meaning set out in the
recitals hereto;
"Current Market Price" means, in respect of a share of Parent Common
Stock on any date, the Canadian Dollar Equivalent of the average closing
sales price of a share of Parent Common Stock during a period of 10
consecutive trading days ending on the second trading day before such date
quoted on the NASDAQ National Market or, if the shares of Parent Common
Stock are not then quoted on the NASDAQ National Market, on such other
stock exchange or automated quotation system on which the shares of Parent
Common Stock are listed or quoted, as the case may be, as may be selected
by the Board of Directors for such purpose; provided, however, that if, in
the opinion of the Board of Directors the public distribution or trading
activity of shares of Parent Common Stock during such period is inadequate
to create a market that reflects the fair market value of a share of Parent
Common Stock, then the Current Market Price of a share of Parent Common
Stock shall be determined by the Board of Directors based upon the advice
of such qualified independent financial advisors as the Board of Directors
may deem to be appropriate, and provided further than any such selection,
opinion or determination by the Board of Directors shall be conclusive and
binding;
"Dividend Amount" has the meaning set out in Section 1.1 of the
Exchangeable Share Provisions;
"Effective Date" has the meaning set out in Section 1.1 of the Plan of
Arrangement;
"Exchange Right" has the meaning set out in Section 5.1 hereof;
"Exchangeable Share Provisions" means the rights, privileges,
restrictions and conditions attaching to the Exchangeable Shares;
"Exchangeable Shares" has the meaning set out in the recitals hereto;
"Insolvency Event" means the institution by the Corporation of any
proceeding to be adjudicated a bankrupt or insolvent or to be dissolved or
wound up, or the consent of the Corporation to the institution of
bankruptcy, insolvency, dissolution or winding-up proceedings against it,
or the filing of a petition, answer or consent seeking dissolution or
winding up under any bankruptcy, insolvency or analogous laws, including
without limitation the Companies Creditors' Arrangement Act (Canada) and
the Bankruptcy and Insolvency Act (Canada), and the failure by the
Corporation to contest in good faith any such proceedings commenced in
respect of the Corporation within 15 days of becoming aware thereof, or the
consent by the Corporation to the filing of any such petition or to the
appointment of a receiver, or the making by the Corporation of a general
assignment for the benefit of creditors, or the admission in writing by the
Corporation of its inability to pay its debts generally as they become due,
or the Corporation not being permitted, pursuant to solvency requirements
or other provisions of applicable law, to redeem any Retracted Shares
pursuant to Section 6.1 of the Exchangeable Share Provisions;
"Liquidation Amount" has the meaning set out in Section 5.1(a) of the
Exchangeable Share Provisions;
"Liquidation Call Right" has the meaning set out in Section 5.2(a) of
the Exchangeable Share Provisions;
"List" has the meaning set out in Section 4.6 hereof;
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"Management Information Circular/Joint Proxy Statement/Prospectus"
means the Management Information Circular/Joint Proxy Statement/Prospectus
dated on or about April 19, 1999 of VERITAS Software, Seagate and
TeleBackup;
"NSMG Combination" has the meaning ascribed to such term in the
Management Information Circular/Joint Proxy Statement/Prospectus;
"Non-Affiliated Holder Votes" has the meaning set out in Section 4.2
hereof;
"Non-Affiliated Holders", when used in Article 3 or Article 4 or
otherwise with respect to the right to vote or direct the votes to be cast
by the holder of the Voting Shares, means the registered holders of
Exchangeable Shares other than the Parent and its Article 4 Subsidiaries
and, for all other purposes, means the registered holders of Exchangeable
Shares other than the Parent and its Subsidiaries;
"Offer" has the meaning set out in Section 6.8 hereof;
"Officer's Certificate" means with respect to the Parent or the
Corporation, as the case may be, a certificate signed by any one of the
Chairman of the Board, the Vice-Chairman of the board, the President, any
Vice-President or any other senior officer of the Parent or the
Corporation, as the case may be;
"Optional Redemption Date" has the meaning set out in Section 1.1 in
the Exchangeable Share Provisions;
"Parent" means, subject to Section 1.2, VERITAS;
"Parent Board of Directors" means the board of directors of the
Parent;
"Parent Common Stock" means the shares of Common Stock of the Parent,
par value US$0.001 per share, having voting rights of one vote per share,
and any other securities into which such shares may be changed or for which
such shares may be exchanged (whether or not the Parent shall be the issuer
of such other securities) or any other consideration which may be received
by the holders of such shares, pursuant to a recapitalization,
reconstruction, reorganization or reclassification of, or amalgamation,
merger, liquidation or similar transaction, affecting such shares;
"Parent Consent" has the meaning set out in Section 4.2 hereof;
"Parent Meeting" has the meaning set out in Section 4.2 hereof;
"Parent Successor" has the meaning set out in Section 11.1 hereof;
"Plan of Arrangement" means the plan of arrangement relating to the
arrangement of the Corporation providing for the Arrangement;
"Redemption Call Right" has the meaning set out in Section 7.2(a) of
the Exchangeable Share Provisions;
"Redemption Price" has the meaning set out in Section 7.1(a) of the
Exchangeable Share Provisions;
"Retracted Shares" has the meaning set out in Section 5.7 hereof;
"Retraction Call Right" has the meaning set out in Section 6.2(a) of
the Exchangeable Share Provisions;
"Retraction Price" has the meaning set out in Section 6.1(a) of the
Exchangeable Share Provisions;
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"Seagate" means Seagate Software Inc., a corporation existing under
the laws of the State of Delaware;
"Subsidiary" of the Parent means any corporation more than 50% of the
outstanding stock of which, by vote or by value, is owned, directly or
indirectly, by the Parent, by one or more other Subsidiaries of the Parent,
or by the Parent and one or more other Subsidiaries of the Parent;
"Transfer Agent" has the meaning set out in Section 1.1 of the
Exchangeable Share Provisions;
"Trust" means the trust created by this trust agreement;
"Trust Estate" means the Voting Share, any other securities, the
Exchange Right and any money or other right or asset that may be held by
the Trustee from time to time pursuant to this trust agreement;
"Trustee" means Montreal Trust Company of Canada, and subject to the
provisions of Article 10 hereof, includes any successor trustee or
permitted assigns;
"Voting Rights" means the voting rights attached to the Voting Share;
and
"Voting Share" means the one share of Special Voting Stock of the
Parent, par value US$0.001, issued by the Parent to and deposited with the
Trustee, which entitles the holder of record to a number of votes at
meetings of holders of Parent Common Stock equal to the number of
Exchangeable Shares outstanding from time to time that are held by
Non-Affiliated Holders.
1.2 Redefinition of Parent
If, prior to the Effective Time, the stockholders of VERITAS Software and
Seagate have not approved the NSMG Combination and the NSMG Combination has not
been effected, all as described in the Management Information Circular/Joint
Proxy Statement/ Prospectus, "Parent" for the purposes of this Agreement shall
mean VERITAS Software and the rights and obligations of VERITAS hereunder shall
be assigned to and shall be assumed by VERITAS Software.
1.3 Interpretation Not Affected by Headings, etc.
The division of this trust agreement into articles and sections and the
insertion of headings are for reference purposes only and shall not affect the
interpretation of this trust agreement. Unless otherwise indicated, any
reference in this trust agreement to an article or Section refers to the
specified article or Section of this trust agreement.
1.4 Number, Gender and Persons
In this trust agreement, unless the context otherwise requires, words
importing the singular number include the plural and vice versa, words importing
any gender include all genders and words importing persons include individuals,
corporations, partnerships, companies, associations, trusts, unincorporated
organizations, governmental bodies and other legal or business entities of any
kind.
1.5 Date for Any Action
If any date on which any action is required to be taken under this trust
agreement is not a Business Day, such action shall be required to be taken on
the next succeeding Business Day.
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1.6 Payments
All payments to be made hereunder will be made without interest and less
any tax required by law to be deducted and withheld.
ARTICLE 2
TRUST
2.1 Establishment of Trust
One of the purposes of this trust agreement is to create the Trust for the
benefit of the Non-Affiliated Holders, as herein provided. The Trustee will hold
the Voting Share in order to enable the Trustee to exercise the Voting Rights
and will hold the Exchange Right in order to enable the Trustee to exercise such
right and will hold the other rights granted in or resulting from the Trustee
being a party to this trust agreement in order to enable the Trustee to exercise
or enforce such rights, in each case as trustee for and on behalf of the
Non-Affiliated Holders as provided in this trust agreement.
ARTICLE 3
VOTING SHARE
3.1 Issue and Ownership of the Voting Share
Simultaneously with the execution and delivery of this trust agreement, the
Parent will issue to and deposit with the Trustee the Voting Share to be
hereafter held of record by the Trustee as trustee for and on behalf of, and for
the use and benefit of, the Non-Affiliated Holders, in accordance with the
provisions of this trust agreement. The Parent hereby acknowledges receipt from
the Trustee as trustee for and on behalf of the Non-Affiliated Holders of good
and valuable consideration (and the adequacy thereof) for the issuance of the
Voting Share by the Parent to the Trustee. During the term of the Trust and
subject to the terms and conditions of this trust agreement, the Trustee shall
possess and be vested with full legal ownership of the Voting Share and shall be
entitled to exercise all of the rights and powers of an owner with respect to
the Voting Share, provided that the Trustee shall:
(a) hold the Voting Share and the legal title thereto as trustee
solely for the use and benefit of the Non-Affiliated Holders in accordance
with the provisions of this trust agreement; and
(b) except as specifically authorized by this trust agreement, have no
power or authority to sell, transfer, vote or otherwise deal in or with the
Voting Share and the Voting Share shall not be used or disposed of by the
Trustee for any purpose other than the purposes for which the Trust is
created pursuant to this trust agreement.
3.2 Legended Share Certificates
The Corporation will cause each certificate representing Exchangeable
Shares to bear an appropriate legend notifying the Non-Affiliated Holders of
their right to instruct the Trustee with respect to the exercise of the Voting
Rights with respect to the Exchangeable Shares held by a Non-Affiliated Holder.
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3.3 Safekeeping of Certificate
The certificate representing the Voting Share shall at all times be held in
safe keeping by the Trustee or its agent.
ARTICLE 4
EXERCISE OF VOTING RIGHTS
4.1 Voting Rights
The Trustee, as the holder of record of the Voting Share, shall be entitled
to all of the Voting Rights, including the right to consent to or to vote in
person or by proxy the Voting Share, on any matter, question or proposition
whatsoever that may come before the stockholders of the Parent at a Parent
Meeting or in connection with a Parent Consent. The Voting Rights shall be and
remain vested in and exercised by the Trustee. Subject to Section 7.15 hereof,
the Trustee shall exercise the Voting Rights only on the basis of instructions
received pursuant to this Article 4 from Non-Affiliated Holders entitled to
instruct the Trustee as to the voting thereof at the time at which the Parent
Consent is sought or the Parent Meeting is held. To the extent that no
instructions are received from a Non-Affiliated Holder with respect to the
Voting Rights to which such Non-Affiliated Holder is entitled, the Trustee shall
not exercise or permit the exercise of the Voting Rights relating to such
Non-Affiliated Holder's Exchangeable Shares.
4.2 Number of Votes
With respect to all meetings of stockholders of the Parent at which holders
of shares of Parent Common Stock are entitled to vote (a "Parent Meeting") and
with respect to all written consents sought from the holders of shares of Parent
Common Stock (a "Parent Consent"), each Non-Affiliated Holder shall be entitled
to instruct the Trustee to cast and exercise, in the manner instructed, subject
to adjustments that may arise as a result of the provisions hereof including
Section 6.7, one vote for each Exchangeable Share owned of record by such
Non-Affiliated Holder on the record date established by the Parent or by
applicable law for such Parent Meeting or Parent Consent, as the case may be
(the "Non-Affiliated Holder Votes") in respect of each matter, question or
proposition to be voted on at such Parent Meeting or to be consented to in
connection with such Parent Consent.
4.3 Mailings to Shareholders
With respect to each Parent Meeting and Parent Consent, the Trustee will
mail or cause to be mailed (or otherwise communicate in the same manner that the
Parent utilizes in communications to holders of Parent Common Stock, subject to
the Trustee being advised in writing of such method and its ability to provide
this method of communication) to each of the Non-Affiliated Holders named in the
List on the same day as the initial mailing or notice (or other communication)
with respect thereto is given by the Parent to its stockholders:
(a) a copy of such notice, together with any proxy or information
statement and related materials to be provided to stockholders of the
Parent;
(b) a statement that such Non-Affiliated Holder is entitled, subject
to the provisions of Section 4.7 hereof, to instruct the Trustee as to the
exercise of the Non-Affiliated Holder Votes with respect to such Parent
Meeting or Parent Consent, as the case may be, or, pursuant and subject to
Section 4.7 hereof to attend such Parent Meeting and to exercise personally
the Non-Affiliated Holder Votes thereat;
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(c) a statement as to the manner in which such instructions may be
given to the Trustee, including an express indication that instructions may
be given to the Trustee to give:
(i) a proxy to such Non-Affiliated Holder or its designee to
exercise personally such holder's Non-Affiliated Holder Votes; or
(ii) a proxy to a designated agent or other representative of the
management of the Parent to exercise such Non-Affiliated Holder Votes;
(d) a statement that if no such instructions are received from the
Non-Affiliated Holder, the Non-Affiliated Holder Votes to which such
Non-Affiliated Holder is entitled will not be exercised;
(e) a form of direction whereby the Non-Affiliated Holder may so
direct and instruct the Trustee as contemplated herein; and
(f) a statement of (i) the time and date by which such instructions
must be received by the Trustee in order to be binding upon it, which in
the case of a Parent Meeting shall not be earlier than the close of
business on the second Business Day prior to such meeting, and (ii) the
method for revoking or amending such instructions.
The materials referred to above are to be provided by the Parent to the
Trustee, but shall be subject to review and comment by the Trustee. For the
purpose of determining Non-Affiliated Holder Votes to which a Non-Affiliated
Holder is entitled in respect of any such Parent Meeting or Parent Consent, the
number of Exchangeable Shares owned of record by the Non-Affiliated Holder shall
be determined at the close of business on the record date established by the
Parent or by applicable law for purposes of determining stockholders entitled to
vote at such Parent Meeting or to give written consent in connection with such
Parent Consent. The Parent will notify the Trustee in writing of any decision of
the Parent Board of Directors with respect to the calling of any such Parent
Meeting or the seeking of any such Parent Consent and shall provide all
necessary information and materials to the Trustee in each case promptly and in
any event in sufficient time to enable the Trustee to perform its obligations
contemplated by this Section 4.3.
4.4 Copies of Stockholder Information
The Parent will deliver to the Trustee copies of all proxy materials
(including notices of Parent Meetings but excluding proxies to vote shares of
Parent Common Stock), information statements, reports (including without
limitation all interim and annual financial statements) and other written
communications that are to be distributed from time to time to holders of Parent
Common Stock in sufficient quantities and in sufficient time so as to enable the
Trustee to send those materials to each Non-Affiliated Holder at the same time
as such materials are first sent to holders of Parent Common Stock. The Trustee
will mail or otherwise send to each Non-Affiliated Holder, at the expense of
Parent, copies of all such materials (and all materials specifically directed to
the Non-Affiliated Holders or to the Trustee for the benefit of the
Non-Affiliated Holders by the Parent) received by the Trustee from the Parent at
the same time as such materials are first sent to holders of Parent Common
Stock. The Trustee will make copies of all such materials available for
inspection by any Non-Affiliated Holder at the Trustee's principal office in the
city of Calgary.
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4.5 Other Materials
Immediately after receipt by the Parent or any stockholder of the Parent of
any material sent or given generally to the holders of Parent Common Stock by or
on behalf of a third party, including without limitation, dissident proxy and
information circulars (and related information and material) and tender and
exchange offer circulars (and related information and material), the Parent
shall use reasonable efforts to obtain and deliver to the Trustee copies thereof
in sufficient quantities so as to enable the Trustee to forward such material
(unless the same has been provided directly to Non-Affiliated Holders by such
third party) to each Non-Affiliated Holder as soon as practicable thereafter. As
soon as practicable after receipt thereof, the Trustee will mail or otherwise
send to each Non-Affiliated Holder, at the expense of the Parent, copies of all
such materials received by the Trustee from the Parent. The Trustee will also
make copies of all such materials available for inspection by any Non-Affiliated
Holder at the Trustee's principal office in the city of Calgary.
4.6 List of Persons Entitled to Vote
The Corporation shall, (a) prior to each annual, general and/or special
Parent Meeting or the seeking of any Parent Consent and (b) forthwith upon each
request made at any time by the Trustee in writing, prepare or cause to be
prepared a list (a "List") of the names and addresses of the Non-Affiliated
Holders arranged in alphabetical order and showing the number of Exchangeable
Shares held of record by each such Non-Affiliated Holder, in each case at the
close of business on the date specified by the Trustee in such request or, in
the case of a List prepared in connection with a Parent Meeting or a Parent
Consent, at the close of business on the record date established by the Parent
or pursuant to applicable law for determining the holders of Parent Common Stock
entitled to receive notice of and/or to vote at such Parent Meeting or to give
consent in connection with such Parent Consent. Each such List shall be
delivered to the Trustee promptly after receipt by the Corporation of such
request or the record date for such meeting or seeking of consent, as the case
may be, and, in any event, within sufficient time as to enable the Trustee to
perform its obligations under this trust agreement. The Parent agrees to give
the Corporation written notice (with a copy to the Trustee) of the calling of
any Parent Meeting or the seeking of any Parent Consent, together with the
record dates therefor, sufficiently prior to the date of the calling of such
meeting or seeking of such consent so as to enable the Corporation to perform
its obligations under this Section 4.6.
4.7 Entitlement to Direct Votes
Any Non-Affiliated Holder named in a List prepared in connection with any
Parent Meeting or any Parent Consent will be entitled (a) to instruct the
Trustee in the manner described in Section 4.3 hereof with respect to the
exercise of the Non-Affiliated Holder Votes to which such Non-Affiliated Holder
is entitled or (b) to attend such meeting and personally to exercise thereat (or
to exercise with respect to any written consent), as the proxy of the Trustee,
the Non-Affiliated Holder Votes to which such Non-Affiliated Holder is entitled
except, in each case, to the extent that such Non-Affiliated Holder has
transferred the ownership of any Exchangeable Shares in respect of which such
Non-Affiliated Holder is entitled to Non-Affiliated Holder Votes after the close
of business on the record date for such meeting or seeking of consent.
4.8 Voting by Trustee, and Attendance of Trustee Representative, at Meeting
In connection with each Parent Meeting and Parent Consent, the Trustee
shall exercise, either in person or by proxy, in accordance with the
instructions received from a
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Non-Affiliated Holder pursuant to Section 4.3 hereof, the Non-Affiliated Holder
Votes as to which such Non-Affiliated Holder is entitled to direct the vote (or
any lesser number thereof as may be set forth in the instructions); provided,
however, that such written instructions are received by the Trustee from the
Non-Affiliated Holder prior to the time and date fixed by it for receipt of such
instructions in the notice given by the Trustee to the Non-Affiliated Holder
pursuant to Section 4.3 hereof.
The Trustee shall cause such representatives as are empowered by it to sign
and deliver, on behalf of the Trustee, proxies for Voting Rights enabling a
Non-Affiliated Holder to attend each Parent Meeting. Upon submission by a
Non-Affiliated Holder (or its designee) of identification satisfactory to the
Trustee's representatives, and at the Non-Affiliated Holder's request, such
representatives shall sign and deliver to such Non-Affiliated Holder (or its
designee) a proxy to exercise personally the Non-Affiliated Holder Votes as to
which such Non-Affiliated Holder is otherwise entitled hereunder to direct the
vote, if such Non-Affiliated Holder either (i) has not previously given the
Trustee instructions pursuant to Section 4.3 hereof in respect of such meeting,
or (ii) submits to the Trustee's representatives written revocation of any such
previous instructions. At such meeting, the Non-Affiliated Holder exercising
such Non-Affiliated Holder Votes shall have the same rights as the Trustee to
speak at the meeting in respect of any matter, question or proposition, to vote
by way of ballot at the meeting in respect of any matter, question or
proposition and to vote at such meeting by way of a show of hands in respect of
any matter, question or proposition.
4.9 Distribution of Written Materials
Any written materials to be distributed by the Trustee to the
Non-Affiliated Holders pursuant to this trust agreement shall be delivered or
sent by mail (or otherwise communicated in the same manner as the Parent
utilizes in communications to holders of Parent Common Stock, subject to the
Trustee being advised in writing of such method of communication and its ability
to provide same) to each Non-Affiliated Holder at its address as shown on the
books of the Corporation. The Corporation shall provide or cause to be provided
to the Trustee for this purpose, on a timely basis and without charge or other
expense:
(a) current Lists of the Non-Affiliated Holders; and
(b) upon the request of the Trustee, mailing labels to enable the
Trustee to carry out its duties under this trust agreement.
The materials referred to above are to be provided by the Parent to the
Trustee, but shall be subject to review and comment by the Trustee.
4.10 Termination of Voting Rights
All the rights of a Non-Affiliated Holder with respect to the
Non-Affiliated Holder Votes exercisable in respect of the Exchangeable Shares
held by such Non-Affiliated Holder, including the right to instruct the Trustee
as to the voting of or to vote personally such Non-Affiliated Holder Votes,
shall be deemed to be surrendered by the Non-Affiliated Holder to the Parent and
such Non-Affiliated Holder Votes and the Voting Rights represented thereby shall
cease immediately upon the delivery by such Non-Affiliated Holder to the Trustee
of the certificates representing such Exchangeable Shares in connection with the
exercise by the Non-Affiliated Holder of the Exchange Right or the occurrence of
the automatic exchange of Exchangeable Shares for shares of Parent Common Stock,
as specified in Article 5 hereof, or upon the redemption of Exchangeable
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Shares pursuant to Article 6 or Article 7 of the Exchangeable Share Provisions,
or upon the effective date of the liquidation, dissolution or winding-up of the
Corporation pursuant to Article 5 of the Exchangeable Share Provisions, or upon
the purchase of Exchangeable Shares from the holder thereof by the Parent
pursuant to the exercise by the Parent of the Retraction Call Right, the
Redemption Call Right or the Liquidation Call Right (unless in any case the
Corporation or the Parent shall not have delivered the requisite shares of
Parent Common Stock and cheque, if any, deliverable in exchange therefor to the
Transfer Agent or the Trustee for delivery to the Non-Affiliated Holders).
ARTICLE 5
EXCHANGE RIGHT AND PARENT SUPPORT
5.1 Grant and Ownership of the Exchange Right
The Parent hereby grants to the Trustee as trustee for and on behalf of,
and for the use and benefit of, the Non-Affiliated Holders the right (the
"Exchange Right"), upon the occurrence and during the continuance of an
Insolvency Event, to require the Parent to purchase from each or any
Non-Affiliated Holder all or any part of the Exchangeable Shares held by the
Non-Affiliated Holder, all in accordance with the provisions of this trust
agreement. The Parent hereby acknowledges receipt from the Trustee, as trustee
for and on behalf of the Non-Affiliated Holders, of good and valuable
consideration (and the adequacy thereof) for the grant of the Exchange Right by
the Parent to the Trustee. During the term of the Trust and subject to the terms
and conditions of this trust agreement, the Trustee shall possess and be vested
with full legal ownership of the Exchange Right and shall be entitled to
exercise all of the rights and powers of an owner with respect to the Exchange
Right, provided that the Trustee shall:
(a) hold the Exchange Right and the legal title thereto as trustee
solely for the use and benefit of the Non-Affiliated Holders in accordance
with the provisions of this trust agreement; and
(b) except as specifically authorized by this trust agreement, have no
power or authority to exercise or otherwise deal in or with the Exchange
Right, and the Trustee shall not exercise such right for any purpose other
than the purposes for which this Trust is created pursuant to this trust
agreement.
5.2 Legended Share Certificates
The Corporation will cause each certificate representing Exchangeable
Shares to bear an appropriate legend notifying the Non-Affiliated Holders of
their right to instruct the Trustee with respect to the exercise of the Exchange
Right in respect of the Exchangeable Shares held by a Non-Affiliated Holder.
5.3 General Exercise of Exchange Right
The Exchange Right shall be and remain vested in and exercisable by the
Trustee. Subject to Section 7.15 hereof, the Trustee shall exercise the Exchange
Right only on the basis of instructions received pursuant to this Article 5 from
Non-Affiliated Holders entitled to instruct the Trustee as to the exercise
thereof. To the extent that no instructions are received from a Non-Affiliated
Holder with respect to the Exchange Right, the Trustee shall not exercise or
permit the exercise of the Exchange Right.
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5.4 Purchase Price
The purchase price payable by the Parent for each Exchangeable Share to be
purchased by the Parent under the Exchange Right shall be an amount per share
equal to (a) the Current Market Price of a share of Parent Common Stock on the
last Business Day prior to the day of closing of the purchase and sale of such
Exchangeable Share under the Exchange Right, which shall be satisfied in full by
causing to be delivered to such holder one share of Parent Common Stock, plus
(b) the Dividend Amount, if any. The purchase price for each such Exchangeable
Share so purchased may be satisfied only by the Parent delivering or causing to
be delivered to the Trustee, on behalf of the relevant Non-Affiliated Holder,
one share of Parent Common Stock and a cheque for the balance, if any, of the
purchase price.
5.5 Exercise Instructions
Subject to the terms and conditions herein set forth, a Non-Affiliated
Holder shall be entitled, upon the occurrence and during the continuance of an
Insolvency Event, to instruct the Trustee to exercise the Exchange Right with
respect to all or any part of the Exchangeable Shares registered in the name of
such Non-Affiliated Holder on the books of the Corporation. To cause the
exercise of the Exchange Right by the Trustee, the Non-Affiliated Holder shall
deliver to the Trustee, in person or by certified or registered mail, at its
principal office in Calgary, Alberta or at such other places in Canada as the
Trustee may from time to time designate by written notice to the Non-Affiliated
Holders, the certificates representing the Exchangeable Shares which such
Non-Affiliated Holder desires the Parent to purchase, duly endorsed in blank,
and accompanied by such other documents and instruments as may be required to
effect a transfer of Exchangeable Shares under the Business Corporations Act
(Alberta) and such additional documents and instruments as the Trustee or the
Corporation may reasonably require together with (a) a duly completed form of
notice of exercise of the Exchange Right, contained on the reverse of or
attached to the Exchangeable Share certificates, stating (i) that the
Non-Affiliated Holder thereby instructs the Trustee to exercise the Exchange
Right so as to require the Parent to purchase from the Non-Affiliated Holder the
number of Exchangeable Shares specified therein, (ii) that such Non-Affiliated
Holder has good title to and owns all such Exchangeable Shares to be acquired by
the Parent free and clear of all liens, claims and encumbrances, (iii) the names
in which the certificates representing Parent Common Stock issuable in
connection with the exercise of the Exchange Right and the cheques with respect
to the balance of the purchase price, if any, are to be issued and (iv) the
names and addresses of the persons to whom such new certificates should be
delivered and (b) payment (or evidence satisfactory to the Trustee, the
Corporation and the Parent of payment) of the taxes (if any) payable as
contemplated by Section 5.8 of this trust agreement. If only a portion of the
Exchangeable Shares represented by any certificate delivered to the Trustee are
to be purchased by the Parent under the Exchange Right, a new certificate for
the balance of such Exchangeable Shares shall be issued to the holder at the
expense of the Corporation.
5.6 Delivery of Parent Common Stock; Effect of Exercise
Promptly after receipt of the certificates representing the Exchangeable
Shares that a Non-Affiliated Holder desires the Parent to purchase under the
Exchange Right (together with such documents and instruments of transfer and a
duly completed form of notice of exercise of the Exchange Right and payment of
taxes payable as contemplated by Section 5.8, if any, or evidence thereof), duly
endorsed for transfer to the Parent, the Trustee shall notify the Parent and the
Corporation of its receipt of the same, which notice
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to the Parent and the Corporation shall constitute exercise of the Exchange
Right by the Trustee on behalf of the holder of such Exchangeable Shares, and
the Parent shall immediately thereafter deliver or cause to be delivered to the
Trustee, for delivery to the Non-Affiliated Holder of such Exchangeable Shares
(or to such other persons, if any, properly designated by such Non-Affiliated
Holder), a certificate for the number of shares of Parent Common Stock
deliverable in connection with such exercise of the Exchange Right (which shares
shall be duly issued as fully paid and non-assessable and shall be free and
clear of any lien, claim or encumbrance, security interest or adverse claim) and
a cheque for the balance, if any, of the purchase price therefor; provided,
however, that no such delivery shall be made unless and until the Non-Affiliated
Holder requesting the same shall have paid (or provided evidence satisfactory to
the Trustee, the Corporation and the Parent of the payment of) the taxes (if
any) payable as contemplated by Section 5.8 of this trust agreement. Immediately
upon the giving of notice by the Trustee to the Parent and the Corporation of
the exercise of the Exchange Right, as provided in this Section 5.6, the Closing
of the transaction of purchase and sale contemplated by the Exchange Right shall
be deemed to have occurred, and the Non-Affiliated Holder of such Exchangeable
Shares shall be deemed to have transferred to the Parent all of its right, title
and interest in and to such Exchangeable Shares and the related interest in the
Trust Estate and shall not be entitled to exercise any of the rights of a holder
in respect thereof, other than the right to receive its proportionate part of
the total purchase price therefor, unless the requisite number of shares of
Parent Common Stock (together with a cheque for the balance, if any, of the
total purchase price therefor) is not delivered by the Parent to the Trustee,
for delivery to such Non-Affiliated Holder (or to such other persons, if any,
properly designated by such Non-Affiliated Holder), within three Business Days
of the date of the giving of such notice by the Trustee, in which case the
rights of the Non-Affiliated Holder shall remain unaffected until such shares of
Parent Common Stock are so delivered by the Parent and any such cheque is so
delivered and paid. Concurrently with the closing of the transaction of purchase
and sale contemplated by the Exchange Right, such Non-Affiliated Holder shall be
considered and deemed for all purposes to be the holder of the shares of Parent
Common Stock delivered to it pursuant to the Exchange Right.
5.7 Exercise of Exchange Right Subsequent to Retraction
In the event that a Non-Affiliated Holder has exercised its right under
Article 6 of the Exchangeable Share Provisions to require the Corporation to
redeem any or all of the Exchangeable Shares held by the Non-Affiliated Holder
(the "Retracted Shares") and is notified by the Corporation pursuant to Section
6.1(d) of the Exchangeable Share Provisions that the Corporation will not be
permitted as a result of solvency requirements of applicable law to redeem all
such Retracted Shares, subject to receipt by the Trustee of written notice to
that effect from the Corporation and provided that the Parent shall not have
exercised its Retraction Call Right with respect to the Retracted Shares and
that the Non-Affiliated Holder shall not have revoked the retraction request
delivered by the Non-Affiliated Holder to the Corporation pursuant to Section
6.1 of the Exchangeable Share Provisions, the retraction request will constitute
and will be deemed to constitute notice from the Non-Affiliated Holder to the
Trustee instructing the Trustee to exercise the Exchange Right with respect to
those Retracted Shares that the Corporation is unable to redeem. In any such
event, the Corporation hereby agrees with the Trustee and in favour of the
Non-Affiliated Holder immediately to notify the Trustee of such prohibition
against the Corporation redeeming all of the Retracted Shares and immediately to
forward or cause to be forwarded to the Trustee all relevant materials delivered
by the Non-Affiliated
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Holder to the Corporation or to the Transfer Agent (including without limitation
a copy of the retraction request delivered pursuant to Section 6.1(a) of the
Exchangeable Share Provisions) in connection with such proposed redemption of
the Retracted Shares and the Trustee will thereupon exercise the Exchange Right
with respect to the Retracted Shares that the Corporation is not permitted to
redeem and will require the Parent to purchase such shares in accordance with
the provisions of this Article 5.
5.8 Stamp or Other Transfer Taxes
Upon any sale of Exchangeable Shares to the Parent pursuant to the Exchange
Right, the share certificate or certificates representing Parent Common Stock to
be delivered in connection with the payment of the total purchase price therefor
shall be issued in the name of the Non-Affiliated Holder of the Exchangeable
Shares so sold or in such names as such Non-Affiliated Holder may otherwise
direct in writing without charge to the holder of the Exchangeable Shares so
sold, provided, however, that such Non-Affiliated Holder shall (a) pay (and
neither the Parent, the Corporation nor the Trustee shall be required to pay)
any documentary, stamp, transfer or other similar taxes that may be payable in
respect of any transfer involved in the issuance or delivery of such shares to a
person other than such Non-Affiliated Holder or (b) have established to the
satisfaction of the Trustee, the Parent and the Corporation that such taxes are
not payable or have been paid.
5.9 Notice of Insolvency Event
Immediately upon the occurrence of an Insolvency Event or any event that
with the giving of notice or the passage of time or both would be an Insolvency
Event, the Corporation and the Parent shall give written notice thereof to the
Trustee. As soon as practicable after receiving notice from the Corporation or
the Parent or from any other person of the occurrence of an Insolvency Event,
the Trustee will mail to each Non-Affiliated Holder, at the expense of the
Parent, a notice of such Insolvency Event in the form provided by the Parent,
which notice shall contain a brief statement of the right of the Non-Affiliated
Holders with respect to the Exchange Right under this Article 5.
5.10 Call Rights
The Liquidation Call Right, the Redemption Call Right, the Retraction Call
Right and the Automatic Exchange Right are hereby agreed, acknowledged and
confirmed, and it is agreed and acknowledged that such rights are granted in
part in consideration of the obligations of the Parent under this trust
agreement.
ARTICLE 6
COVENANTS, REPRESENTATIONS AND WARRANTIES
6.1 Covenants of Parent Regarding Exchangeable Shares
So long as any Exchangeable Shares are outstanding, the Parent will:
(a) not declare or pay any dividend on Parent Common Stock unless (i)
the Corporation will have sufficient money or other assets or authorized
but unissued securities available to enable the due declaration and the due
and punctual payment in accordance with applicable law, of an equivalent
dividend on the Exchangeable Shares and (ii) the Corporation shall
simultaneously declare or pay, as the case may be, an equivalent dividend
on the Exchangeable Shares;
(b) advise the Corporation sufficiently in advance of the declaration
by the Parent of any dividend on Parent Common Stock and take all such
other actions as
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are necessary, in cooperation with the Corporation, to ensure that the
respective declaration date, record date and payment date for a dividend on
the Exchangeable Shares shall be the same as the declaration date, record
date and payment date for the corresponding dividend on Parent Common Stock
and that such dividend on the Exchangeable Shares shall correspond with any
requirements of the stock exchange on which the Exchangeable Shares are
listed;
(c) ensure that the record date for determining shareholders entitled
to receive any dividend declared on Parent Common Stock is not less than 10
Business Days after the declaration date for such dividend or such shorter
period within which applicable law may be complied with;
(d) take all such actions and do all such things as are necessary or
desirable to enable and permit the Corporation, in accordance with
applicable law, to pay and otherwise perform its obligations with respect
to the satisfaction of the Liquidation Amount in respect of each issued and
outstanding Exchangeable Share upon the liquidation, dissolution or winding
up of the Corporation, including without limitation all such actions and
all such things as are necessary or desirable to enable and permit the
Corporation to cause to be delivered shares of Parent Common Stock to the
holders of Exchangeable Shares in accordance with the provisions of Article
5 of the Exchangeable Share Provisions;
(e) take all such actions and do all such things as are necessary or
desirable to enable and permit the Corporation, in accordance with
applicable law, to pay and otherwise perform its obligations with respect
to the satisfaction of the Retraction Price and the Redemption Price,
including without limitation all such actions and all such things as are
necessary or desirable to enable and permit the Corporation to cause to be
delivered shares of Parent Common Stock to the holders of Exchangeable
Shares, upon the retraction or redemption of the Exchangeable Shares in
accordance with the provisions of Article 6 or Article 7 of the
Exchangeable Share Provisions, as the case may be;
(f) use its best efforts to enable the Corporation to maintain the
listing of the Exchangeable Shares on the Alberta Stock Exchange or another
stock exchange in Canada prescribed under the Income Tax Act (Canada); and
(g) not exercise its vote as a shareholder to initiate the voluntary
liquidation, dissolution or winding up of the Corporation nor take any
action or omit to take any action that is designed to result in the
liquidation, dissolution or winding up of the Corporation.
6.2 Segregation of Funds
The Parent will cause the Corporation to deposit a sufficient amount of
funds in a separate account and segregate a sufficient amount of such other
assets as is necessary to enable the Corporation to pay or otherwise satisfy the
applicable dividends, Liquidation Amount, Retraction Price or Redemption Price,
in each case for the benefit of Non-Affiliated Holders from time to time of the
Exchangeable Shares, and to use such funds and other assets so segregated
exclusively for the payment of dividends and the payment or other satisfaction
of the Liquidation Amount, the Retraction Price or the Redemption Price, as
applicable.
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6.3 Certain Representations
The Parent hereby represents, warrants and covenants that:
(a) it has irrevocably reserved for issuance and will at all times
keep available, free from pre-emptive and other rights, out of its
authorized and unissued capital stock such number of shares of Parent
Common Stock (or other shares or securities into which Parent Common Stock
may be reclassified or changed as contemplated by Section 6.7 hereof) (i)
as is equal to the sum of (x) the number of Exchangeable Shares issued and
outstanding from time to time and (y) the number of Exchangeable Shares
issuable upon the exercise of all rights to acquire Exchangeable Shares
outstanding from time to time and (ii) as are now and may hereafter be
required to enable and permit each of the Corporation and the Parent to
meet its obligations hereunder, under the Exchangeable Share Provisions and
under any other security or commitment pursuant to which the Corporation or
the Parent may now or hereafter be required to issue and/or deliver shares
of Parent Common Stock; and (b) it is not as of the Effective Date, and has
not been at any time within the last year prior to the Effective Date, a
"United States real property holding corporation" within the meaning of
Section 897 of the Internal Revenue Code of 1986, as amended.
6.4 Notification of Certain Events
In order to assist the Parent to comply with its obligations hereunder, the
Corporation will give the Parent notice of each of the following events at the
time set forth below:
(a) in the event of any determination by the Board of Directors to
institute voluntary liquidation, dissolution or winding-up proceedings with
respect to the Corporation or to effect any other distribution of the
assets of the Corporation among its shareholders for the purpose of winding
up its affairs, at least 60 days prior to the proposed effective date of
such liquidation, dissolution, winding up or other distribution;
(b) immediately, upon the earlier of (i) receipt by the Corporation of
notice of, and (ii) the Corporation otherwise becoming aware of, any
threatened or instituted claim, suit, petition or other proceedings with
respect to the involuntary liquidation, dissolution or winding up of the
Corporation or to effect any other distribution of the assets of the
Corporation among its shareholders for the purpose of winding up its
affairs;
(c) immediately, upon receipt by the Corporation of a Retraction
Request (as defined in the Exchangeable Share Provisions);
(d) at least 130 days prior to any Optional Redemption Date determined
by the Board of Directors in accordance with the Exchangeable Share
Provisions; and
(e) as soon as practicable upon the issuance by the Corporation of any
Exchangeable Shares or rights to acquire Exchangeable Shares.
6.5 Delivery of Shares of Parent Common Stock
Upon notice of any event that requires the Corporation to cause to be
delivered shares of Parent Common Stock to any holder of Exchangeable Shares,
the Parent shall, in any reasonable manner deemed appropriate by it, provide
such shares or cause such shares to be provided to the Corporation, which shall
forthwith deliver the requisite shares of Parent Common Stock to or to the order
of the former holder of the surrendered Exchangeable
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Shares, as the Corporation shall direct. All such shares of Parent Common Stock
shall be duly issued as fully paid, non-assessable, free of pre-emptive rights
and shall be free and clear of any lien, claim, encumbrance, security interest
or adverse claim.
6.6 Qualification of Shares of Parent Common Stock
The Parent covenants that if any shares of Parent Common Stock (or other
shares or securities into which Parent Common Stock may be reclassified or
changed as contemplated by Section 6.7 hereof) to be issued and delivered
hereunder, including for greater certainty, pursuant to the Plan of Arrangement,
the Exchangeable Share Provisions or the Exchange Right, require registration or
qualification with, or approval of, or the filing of any document including any
prospectus or similar document or the taking of any proceeding with, or the
obtaining of any order, ruling or consent from any governmental or regulatory
authority under any Canadian or United States federal, provincial or state law
or regulation or pursuant to the rules and regulations of any regulatory
authority or the fulfillment of any other legal requirement (collectively, the
"Applicable Laws") before such shares (or other shares or securities into which
Parent Common Stock may be reclassified or changed as contemplated by Section
6.7 hereof) may be issued and delivered by the Parent to the initial holder
thereof or in order that such shares may be freely traded thereafter (other than
any restrictions on transfer by reason of a holder being a "control person" of
the Parent for purposes of Canadian federal or provincial securities law or an
"affiliate" of the Parent or, prior to the Effective Date, of the Corporation
for purposes of United States federal or state securities law), the Parent will
in good faith expeditiously take all such actions and do all such things as are
necessary to cause such shares of Parent Common Stock (or other shares or
securities into which Parent Common Stock may be reclassified or changed as
contemplated by Section 6.7 hereof) to be and remain duly registered, qualified
or approved. The Parent represents and warrants that it has in good faith taken
all actions and done all things as are necessary under Applicable Laws as they
exist on the date hereof to cause the shares of Parent Common Stock (or other
shares or securities into which Parent Common Stock may be reclassified or
changed as contemplated by Section 6.7 hereof) to be issued and delivered
hereunder, including for greater certainty, pursuant to the Plan of Arrangement,
the Exchangeable Share Provisions or the Exchange Right, to be freely tradeable
thereafter (other than restrictions on transfer by reason of a holder being a
"control person" of the Parent for the purposes of Canadian federal and
provincial securities law or an "affiliate" of the Parent or, prior to the
Effective Date, of the Corporation for the purposes of United States federal or
state securities law). The Parent will in good faith expeditiously take all such
actions and do all such things as are necessary to cause all shares of Parent
Common Stock (or other shares or securities into which Parent Common Stock may
be reclassified or changed as contemplated by Section 6.7 hereof) to be
delivered hereunder, including for greater certainty, pursuant to the Plan of
Arrangement, the Exchangeable Share Provisions or the Exchange Right, to be
listed, quoted or posted for trading on all stock exchanges and quotation
systems on which such shares are listed, quoted or posted for trading at such
time. The Parent will in good faith expeditiously take all such action and do
all such things as are necessary to cause all Exchangeable Shares to be listed
and posted for trading on a stock exchange in Canada prescribed under the Income
Tax Act (Canada). Without limiting any other obligations set forth herein with
respect to the qualification of shares of Parent Common Stock, until the later
of:
(a) the seventh year anniversary of the effective date of the
registration statement on Form S-3 covering the exchange of Exchangeable
Shares for shares of Parent Common Stock (the "Form S-3"); or
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(b) such time as no Exchangeable Shares remain outstanding,
The Parent shall use its best efforts to:
(i) maintain the effectiveness of the Form S-3;
(ii) keep the prospectus contained in the Form S-3 (the "Prospectus")
current on a continuous basis;
(iii) maintain the listing, on the NASDAQ National Market, of the
shares of Parent Common Stock covered by the Form S-3 (the "S-3 Shares");
and
(iv) take such other steps as shall be necessary to keep the S-3
Shares freely tradeable to the public.
6.7 Economic Equivalence
(1) The Parent will not, without the prior approval of the Corporation and
the prior approval of the holders of the Exchangeable Shares given in accordance
with Section 9.2 of the Exchangeable Share Provisions:
(a) issue or distribute shares of Parent Common Stock (or securities
exchangeable for or convertible into or carrying rights to acquire shares
of Parent Common Stock) to the holders of all or substantially all of the
then outstanding Parent Common Stock by way of stock dividend or other
distribution, other than an issue of shares of Parent Common Stock (or
securities exchangeable for or convertible into or carrying rights to
acquire shares of Parent Common Stock) to holders of shares of Parent
Common Stock who exercise an option to receive dividends in Parent Common
Stock (or securities exchangeable for or convertible into or carrying
rights to acquire shares of Parent Common Stock) in lieu of receiving cash
dividends;
(b) issue or distribute rights, options or warrants to the holders of
all or substantially all of the then outstanding shares of Parent Common
Stock entitling them to subscribe for or to purchase shares of Parent
Common Stock (or securities exchangeable for or convertible into or
carrying rights to acquire shares of Parent Common Stock); or
(c) issue or distribute to the holders of all or substantially all of
the then outstanding shares of Parent Common Stock (i) shares or securities
of the Parent of any class other than Parent Common Stock (other than
shares convertible into or exchangeable for or carrying rights to acquire
shares of Parent Common Stock), (ii) rights, options or warrants other than
those referred to in Section 6.7(l)(b) above, (iii) evidences of
indebtedness of the Parent or (iv) assets of the Parent,
unless (x) the Corporation is permitted under applicable law to
simultaneously issue or distribute the economic equivalent on a per share
basis of such rights, options, securities, shares, evidences of
indebtedness or other assets to holders of the Exchangeable Shares or
simultaneously make the same or an economically equivalent change to, or in
the rights of holders of, the Exchangeable Shares (including, without
limitation, a change to the number of shares of Parent common stock for
which the Exchangeable Shares are exchangeable) and (y) the Corporation
shall simultaneously issue or distribute such rights, options, securities,
shares, evidences of indebtedness or other assets to holders of the
Exchangeable Shares or the same or an economically equivalent change is
made to, or in the rights of the holders of, the Exchangeable Shares.
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(2) The Parent will not without the prior approval of the Corporation and
the prior approval of the holders of the Exchangeable Shares given in accordance
with Section 9.2 of the Exchangeable Share Provisions:
(a) subdivide, redivide or change the then outstanding shares of
Parent Common Stock into a greater number of shares of Parent Common Stock;
or
(b) reduce, combine or consolidate or change the then outstanding
shares of Parent Common Stock into a lesser number of shares of Parent
Common Stock; or
(c) reclassify or otherwise change the shares of Parent Common Stock
or effect an amalgamation, merger, reorganization or other transaction
affecting the shares of Parent Common Stock;
unless (x) the Corporation is permitted under applicable law to
simultaneously make the same or an economically equivalent change to, or in
the rights of holders of, the Exchangeable Shares (including, without
limitation, a change to the number of shares of Parent common stock for
which the Exchangeable Shares are exchangeable) and (y) the same or an
economically equivalent change is made to, or in the rights of the holders
of, the Exchangeable Shares.
(3) The Parent will ensure that the record date for any event referred to
in Section 6.7(l) or 6.7(2) above, or (if no record date is applicable for such
event) the effective date for any such event, is not less than 20 Business Days
after the date on which such event is declared or announced by the Parent (with
simultaneous notice thereof to be given by the Parent to the Corporation).
(4) The Board of Directors shall determine, in good faith and in its sole
discretion (with the assistance of such reputable and qualified independent
financial advisors and/or other experts as the board may require), economic
equivalence for the purposes of any event referred to in Section 6.7(l) or
6.7(2) and each such determination shall be conclusive and binding on the
Parent. In making each such determination, the following factors shall, without
excluding other factors determined by the board to be relevant, be considered by
the Board of Directors:
(a) in the case of any stock dividend or other distribution payable in
shares of Parent Common Stock, the number of such shares issued in
proportion to the number of shares of Parent Common Stock previously
outstanding;
(b) in the case of the issuance or distribution of any rights, options
or warrants to subscribe for or purchase shares of Parent Common Stock (or
securities exchangeable for or convertible into or carrying rights to
acquire shares of Parent Common Stock), the relationship between the
exercise price of each such right, option or warrant and the current market
value (as determined by the Board of Directors in the manner above
contemplated) of a share of Parent Common Stock;
(c) in the case of the issuance or distribution of any other form of
property (including without limitation any shares or securities of the
Parent of any class other than Parent Common Stock, any rights, options or
warrants other than those referred to in Section 6.7(4)(b) above, any
evidences of indebtedness of the Parent or any assets of the Parent), the
relationship between the fair market value (as determined by the Board of
Directors in the manner above contemplated) of such property to be issued
or distributed with respect to each outstanding share of Parent Common
Stock and the current market value (as determined by the Board of Directors
in the manner above contemplated) of a share of Parent Common Stock;
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<PAGE> 567
(d) in the case of any subdivision, redivision or change of the then
outstanding shares of Parent Common Stock into a greater number of shares
of Parent Common Stock or the reduction, combination or consolidation or
change of the then outstanding shares of Parent Common Stock into a lesser
number of shares of Parent Common Stock or any amalgamation, merger,
reorganization or other transaction affecting Parent Common Stock, the
effect thereof upon the then outstanding shares of Parent Common Stock; and
(e) in all such cases, the general taxation consequences of the
relevant event to holders of Exchangeable Shares to the extent that such
consequences may differ from the taxation consequences to holders of shares
of Parent Common Stock as a result of differences between taxation laws of
Canada and the United States (except for any differing consequences arising
as a result of differing marginal taxation rates and without regard to the
individual circumstances of holders of Exchangeable Shares).
For purposes of the foregoing determinations, the current market value of
any security listed and traded or quoted on a securities exchange shall be the
weighted average of the daily trading prices of such security during a period of
not less than 10 consecutive trading days ending on the second trading day
before the date of determination on the principal securities exchange on which
such securities are listed and traded or quoted; provided, however, that, if in
the opinion of the Board of Directors, the public distribution or trading
activity of such securities during such period does not create a market that
reflects the fair market value of such securities, then the current market value
thereof shall be determined by the Board of Directors, in good faith and in its
sole discretion (with the assistance of such reputable and qualified independent
financial advisors and/or other experts as the board may require), and provided
further that any such determination by the Board of Directors shall be
conclusive and binding on the Parent.
6.8 Tender Offers, etc.
In the event that a tender offer, share exchange offer, issuer bid,
take-over bid or similar transaction with respect to Parent Common Stock (each,
an "Offer") is proposed by the Parent or is proposed to the Parent or its
shareholders and is recommended by the Parent Board of Directors, or is
otherwise effected or to be effected with the consent or approval of the Parent
Board of Directors, the Parent will use reasonable efforts (to the extent, in
the case of an offer by a third party, within its control) expeditiously and in
good faith to take all such actions and do all such things as are necessary or
desirable to enable and permit holders of Exchangeable Shares to participate in
such Offer to the same extent and on an economically equivalent basis as the
holders of shares of Parent Common Stock, without discrimination. Without
limiting the generality of the foregoing, the Parent will use reasonable efforts
expeditiously and in good faith to ensure that holders of Exchangeable Shares
may participate in all such Offers without being required to retract
Exchangeable Shares as against the Corporation (or, if so required, to ensure
that any such retraction shall be effective only upon, and shall be conditional
upon, the closing of the Offer and only to the extent necessary to tender or
deposit to the Offer).
6.9 Ownership of Outstanding Shares
Without the prior approval of the Corporation and the prior approval of the
Non-Affiliated Holders given in accordance with Section 9.2 of the Exchangeable
Share Provisions, the Parent covenants and agrees that, as long as any
outstanding Exchangeable Shares are owned by any person or entity other than the
Parent or any of its Subsidiaries, the Parent will be and remain the direct or
indirect beneficial owner of more than 50% of
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all issued and outstanding securities of the Corporation carrying or otherwise
entitled to voting rights in any circumstances, other than the Exchangeable
Shares.
6.10 Parent Not to Vote Exchangeable Shares
The Parent covenants and agrees that it will appoint and cause to be
appointed proxyholders with respect to all Exchangeable Shares held by the
Parent and its Subsidiaries for the sole purpose of attending each meeting of
holders of Exchangeable Shares in order to be counted as part of the quorum for
each such meeting. The Parent further covenants and agrees that it will not, and
will cause its Subsidiaries not to, exercise any voting rights or rights of
dissent that may be exercisable by holders of Exchangeable Shares from time to
time pursuant to the Exchangeable Share Provisions or pursuant to the provisions
of the Business Corporations Act (Alberta) (or any successor or other corporate
statute by which the Corporation may in the future be governed) with respect to
any Exchangeable Shares held by it or by its direct or indirect Subsidiaries in
respect of any matter considered at any meeting of holders of Exchangeable
Shares.
6.11 Due Performance
On and after the Effective Date of the Plan of Arrangement, the Parent
shall duly and timely perform all of its obligations provided for in the Plan of
Arrangement, including any obligations that may arise upon the exercise of
rights by any holder of Exchangeable Shares or by the Parent or under the
Exchangeable Share Provisions.
6.12 Issue of Additional Shares
During the term of this trust agreement, the Parent will not issue any
shares of Parent Special Voting Stock in addition to the Voting Share.
ARTICLE 7
CONCERNING THE TRUSTEE
7.1 Powers and Duties of the Trustee
The rights, powers and authorities of the Trustee under this trust
agreement, in its capacity as trustee and agent of the trust, shall include:
(a) receiving and depositing of the Voting Share from the Parent as
trustee and agent for and on behalf of the Non-Affiliated Holders in
accordance with the provisions of this trust agreement;
(b) granting proxies and distributing materials to Non-Affiliated
Holders as provided in this trust agreement;
(c) voting the Non-Affiliated Holder Votes in accordance with the
provisions of this trust agreement;
(d) receiving the grant of the Exchange Right and the Automatic
Exchange Right from the Parent as trustee and agent for and on behalf of
the Non-Affiliated Holders in accordance with the provisions of this trust
agreement;
(e) exercising the Exchange Right in accordance with the provisions of
this trust agreement, and in connection therewith, receiving from
Non-Affiliated Holders Exchangeable Shares and other requisite documents
and distributing to such Non-Affiliated Holders the shares of Parent Common
Stock and cheques, if any, to which such Non-Affiliated Holders are
entitled upon the exercise of the Exchange Right;
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<PAGE> 569
(f) holding title to the Trust Estate;
(g) investing any money forming, from time to time, a part of the
Trust Estate as provided in this trust agreement;
(h) taking action at the direction of a Non-Affiliated Holder to
enforce the obligations of the Corporation and/or the Parent under this
trust agreement and/or under the Plan of Arrangement, including the
Exchangeable Share Provisions; and
(i) taking such other actions and doing such other things as are
specifically provided in this trust agreement.
In the exercise of such rights, powers and authorities the Trustee shall
have (and is granted) such incidental and additional rights, powers and
authority not in conflict with any of the provisions of this trust agreement as
the Trustee, acting in good faith and in the reasonable exercise of its
discretion, may deem necessary, appropriate or desirable to effect the purpose
of the Trust. Any exercise of such discretionary rights, powers and authorities
by the Trustee shall be final, conclusive and binding upon all persons. For
greater certainty, the Trustee shall have only those duties as are set out
specifically in this trust agreement. The Trustee in exercising its rights,
powers, duties and authorities hereunder shall act honestly and in good faith
with a view to the best interests of the Non-Affiliated Holders and shall
exercise the care, diligence and skill that a reasonably prudent trustee would
exercise in comparable circumstances. The Trustee shall not be bound to give any
notice or do or take any act, action or proceeding by virtue of the powers
conferred on it hereby unless and until it shall be specifically required to do
so under the terms hereof; nor shall the Trustee be required to take any notice
of, or to do or to take any act, action or proceeding as a result of any default
or breach of any provision hereunder, unless and until notified in writing of
such default or breach, which notice shall distinctly specify the default or
breach desired to be brought to the attention of the Trustee and in the absence
of such notice the Trustee may for all purposes of this trust agreement
conclusively assume that no default or breach has been made in the observance or
performance of any of the representations, warranties, covenants, agreements or
conditions contained herein.
7.2 No Conflict of Interest
The Trustee represents to the Corporation and the Parent that at the date
of execution and delivery of this trust agreement there exists no material
conflict of interest in the role of the Trustee as a fiduciary hereunder and the
role of the Trustee in any other capacity. The Trustee shall, within 90 days
after it becomes aware that such a material conflict of interest exists, either
eliminate such material conflict of interest or resign in the manner and with
the effect specified in Article 10 hereof. If, notwithstanding the foregoing
provisions of this Section 7.2, the Trustee has such a material conflict of
interest, the validity and enforceability of this trust agreement shall not be
affected in any manner whatsoever by reason only of the existence of such
material conflict of interest. If the Trustee contravenes the foregoing
provisions of this Section 7.2, any interested party may apply to the Court of
Queen's Bench of Alberta for an order that the Trustee be replaced as trustee
hereunder.
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7.3 Dealings with Transfer Agents, Registrars, etc.
The Corporation and the Parent irrevocably authorize the Trustee, from time
to time, to:
(a) consult, communicate and otherwise deal with the respective
registrars and transfer agents, and with any such subsequent registrar or
transfer agent, of the Exchangeable Shares and Parent Common Stock; and
(b) requisition, from time to time, from any such registrar or
transfer agent any information readily available from the records
maintained by it which the Trustee may reasonably require for the discharge
of its duties and responsibilities under this trust agreement. The Parent
covenants that it will supply the Trustee, or the Transfer Agent, as the
case may be, in a timely manner, with duly executed share certificates for
the purpose of completing the exercise from time to time of all rights to
acquire Parent Common Stock hereunder, under the Plan of Arrangement, under
the Exchangeable Share Provisions and under any other security or
commitment given to the Non-Affiliated Holders pursuant thereto, in each
case pursuant to the provisions hereof, of the Plan of Arrangement or of
the Exchangeable Share Provisions or otherwise.
7.4 Books and Records
The Trustee shall keep available for inspection by the Parent and the
Corporation, at the Trustee's principal office in Calgary, Alberta, correct and
complete books and records of account relating to the Trustee's actions under
this trust agreement, including without limitation all information relating to
mailings and instructions to and from Non-Affiliated Holders and all
transactions pursuant to the Voting Rights and the Exchange Right for the term
of this Agreement. On or before January 31, 2000, and on or before January 31 in
every year thereafter, so long as the Voting Share is on deposit with the
Trustee, the Trustee shall transmit to the Parent and the Corporation a brief
report, dated as of the immediately preceding December 31, with respect to:
(a) the property and funds comprising the Trust Estate as of that
date;
(b) the number of exercises of the Exchange Right, if any, and the
aggregate number of Exchangeable Shares received by the Trustee on behalf
of Non-Affiliated Holders in consideration of the issue and delivery by the
Parent of shares of Parent Common Stock in connection with the Exchange
Right, during the calendar year ended on such date; and
(c) all other actions taken by the Trustee in the performance of its
duties under this trust agreement which it had not previously reported.
7.5 Income Tax Returns and Reports
The Trustee shall, to the extent necessary, prepare and file on behalf of
the Trust appropriate United States and Canadian income tax returns and any
other returns or reports as may be required by applicable law or pursuant to the
rules and regulations of any securities exchange or other trading system through
which the Exchangeable Shares are traded and, in connection therewith, may
obtain the advice and assistance of such experts as the Trustee may consider
necessary or advisable. If requested by the Trustee, the Parent shall retain
such experts as may be required for the purposes of providing such advice and
assistance.
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7.6 Indemnification Prior to Certain Actions by Trustee
The Trustee shall exercise any or all of the rights, duties, powers or
authorities vested in it by this trust agreement at the request, order or
direction of any Non-Affiliated Holder upon such Non-Affiliated Holder
furnishing to the Trustee reasonable funding, security and indemnity against the
costs, expenses and liabilities that may be incurred by the Trustee therein or
thereby, provided that no Non-Affiliated Holder shall be obligated to furnish to
the Trustee any such funding, security or indemnity in connection with the
exercise by the Trustee of any of its rights, duties, powers and authorities
with respect to the Voting Share pursuant to Article 4 hereof and with respect
to the Exchange Right pursuant to Article 5 hereof, subject to the provisions of
Section 7.15 hereof. None of the provisions contained in this trust agreement
shall require the Trustee to expend or risk its own funds or otherwise incur
financial liability in the exercise of any of its rights, powers, duties or
authorities unless funded, given funds, security and indemnified as aforesaid.
7.7 Actions by Non-Affiliated Holders
No Non-Affiliated Holder shall have the right to institute any action, suit
or proceeding or to exercise any other remedy authorized by this trust agreement
for the purpose of enforcing any of its rights or for the execution of any trust
or power hereunder unless the Non-Affiliated Holder has requested the Trustee to
take or institute such action, suit or proceeding and furnished the Trustee with
the funding, security and indemnity referred to in Section 7.6 hereof and the
Trustee shall have failed to act within a reasonable time thereafter. In such
case, but not otherwise, the Non-Affiliated Holder shall be entitled to take
proceedings in any court of competent jurisdiction such as the Trustee might
have taken; it being understood and intended that no one or more Non-Affiliated
Holders shall have any right in any manner whatsoever to affect, disturb or
prejudice the rights hereby created by any such action, or to enforce any right
hereunder or under the Voting Rights or the Exchange Right except subject to the
conditions and in the manner herein provided, and that all powers and trusts
hereunder shall be exercised and all proceedings at law shall be instituted, had
and maintained by the Trustee, except only as herein provided, and in any event
for the equal benefit of all Non-Affiliated Holders.
7.8 Reliance upon Declarations
The Trustee shall not be considered to be in contravention of any of its
rights, powers, duties and authorities hereunder if, when required, it acts and
relies in good faith upon lists, mailing labels, notices, statutory
declarations, certificates, opinions, reports or other papers or documents
furnished pursuant to the provisions hereof or required by the Trustee to be
furnished to it in the exercise of its rights, powers, duties and authorities
hereunder and such lists, mailing labels, notices, statutory declarations,
certificates, opinions, reports or other papers or documents comply with the
provisions of Section 7.9 hereof, if applicable, and with any other applicable
provisions of this trust agreement.
7.9 Evidence and Authority to Trustee
The Corporation and/or the Parent shall furnish to the Trustee evidence of
compliance with the conditions provided for in this trust agreement relating to
any action or step required or permitted to be taken by the Corporation and/or
the Parent or the Trustee under this trust agreement or as a result of any
obligation imposed under this trust agreement, including, without limitation, in
respect of the Voting Rights or the Exchange
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<PAGE> 572
Right and the taking of any other action to be taken by the Trustee at the
request of or on the application of the Corporation and/or the Parent forthwith
if and when:
(a) such evidence is required by any other Section of this trust
agreement to be furnished to the Trustee in accordance with the terms of
this Section 7.9; or
(b) the Trustee, in the exercise of its rights, powers, duties and
authorities under this trust agreement, gives the Corporation and/or the
Parent written notice requiring it to furnish such evidence in relation to
any particular action or obligation specified in such notice.
Such evidence shall consist of an Officer's Certificate of the Corporation
and/or the Parent or a statutory declaration or a certificate made by persons
entitled to sign an Officer's Certificate stating that any such condition has
been complied with in accordance with the terms of this trust agreement.
Whenever such evidence relates to a matter other than the Voting Rights or the
Exchange Right and except as otherwise specifically provided herein, such
evidence may consist of a report or opinion of any solicitor, auditor,
accountant, appraiser, valuer, engineer or other expert or any other person
whose qualifications give authority to a statement made by such person, provided
that if such report or opinion is furnished by a director, officer or employee
of the Corporation and/or the Parent it shall be in the form of an Officer's
Certificate or a statutory declaration. Each statutory declaration, certificate,
opinion or report furnished to the Trustee as evidence of compliance with a
condition provided for in this trust agreement shall include a statement by the
person giving the evidence:
(a) declaring that such person has read and understands the provisions
of this trust agreement relating to the condition in question;
(b) describing the nature and scope of the examination or
investigation upon which such person based the statutory declaration,
certificate, statement or opinion; and
(c) declaring that such person has made such examination or
investigation as such person believes is necessary to enable such person to
make the statements or give the opinions contained or expressed therein.
7.10 Experts, Advisers and Agents
The Trustee may:
(a) in relation to these presents act and rely on the opinion or
advice of or information obtained from or prepared by any solicitor,
auditor, accountant, appraiser, valuer, engineer or other expert, whether
retained by the Trustee or by the Corporation and/or the Parent or
otherwise, and may employ such assistants as may be necessary to the proper
determination and discharge of its powers and duties and determination of
its rights hereunder and may pay proper and reasonable compensation for all
such legal and other advice or assistance as aforesaid; and
(b) employ such agents and other assistants as it may reasonably
require for the proper determination and discharge of its powers and duties
hereunder, and may pay reasonable remuneration for all services performed
for it (and shall be entitled to receive reasonable remuneration for all
services performed by it) in the discharge of the trusts hereof and
compensation for all disbursements, costs and expenses made or incurred by
it in the determination and discharge of its duties hereunder and in the
management of the Trust.
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7.11 Investment of Money Held by Trustee; Deposit of Securities
(a) Unless otherwise provided in this trust agreement, any money held by or
on behalf of the Trustee which under the terms of this trust agreement may or
ought to be invested or which may be on deposit with the Trustee or which may be
in the hands of the Trustee may be invested and reinvested in the name or under
the control of the Trustee in securities in which, under the laws of the
Province of Alberta, trustees are authorized to invest trust money, provided
that such securities are stated to mature within two years after their purchase
by the Trustee, and the Trustee shall so invest such money on the written
direction of the Corporation.
(b) Any securities, documents of title or other instruments that may at any
time be held by the Trustee subject to the trusts hereof may be placed in the
deposit vaults of the Trustee or of any Canadian chartered bank listed in
Schedule I of the Bank Act (Canada) or deposited for safekeeping with any such
bank.
Pending the investment of any money as provided in this Section 7.11, such
money may be deposited in the name of the Trustee in any chartered bank in
Canada or, with the consent of the Corporation, in the deposit department of the
Trustee or any other loan or trust company authorized to accept deposits under
the laws of Canada or any province thereof at the rate of interest then current
on similar deposits.
7.12 Trustee Not Required to Give Security
The Trustee shall not be required to give any bond or security in respect
of the execution of the trusts, rights, duties, powers and authorities of this
trust agreement or otherwise in respect of the premises.
7.13 Trustee Not Bound to Act on Corporation's Request
Except as in this trust agreement otherwise specifically provided, the
Trustee shall not be bound to act in accordance with any direction or request of
the Corporation and/or the Parent or of the directors thereof until a duly
authenticated copy of the instrument or resolution containing such direction or
request shall have been delivered to the Trustee, and the Trustee shall be
empowered to act and rely upon any such copy purporting to be authenticated and
believed by the Trustee to be genuine.
7.14 Authority to Carry on Business
The Trustee represents to the Corporation and the Parent that at the date
of execution and delivery by it of this trust agreement it is authorized to
carry on the business of a trust company in the Province of Alberta but if,
notwithstanding the provisions of this Section 7.14, it ceases to be so
authorized to carry on business, the validity and enforceability of this trust
agreement and the Voting Rights, the Exchange Right and the other rights granted
in or resulting from the Trustee being a party to this trust agreement shall not
be affected in any manner whatsoever by reason only of such event but the
Trustee shall, within 90 days after ceasing to be authorized to carry on the
business of a trust company in the Province of Alberta, either become so
authorized or resign in the manner and with the effect specified in Article 10
hereof.
7.15 Conflicting Claims
If conflicting claims or demands are made or asserted with respect to any
interest of any Non-Affiliated Holder in any Exchangeable Shares, including any
disagreement between the heirs, representatives, successors or assigns
succeeding to all or any part of the interest of any Non-Affiliated Holder in
any Exchangeable Shares resulting in conflicting
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claims or demands being made in connection with such interest, then the Trustee
shall be entitled, at its sole discretion, to refuse to recognize or to comply
with any such claim or demand. In so refusing, the Trustee may elect not to
exercise any Voting Rights, the Exchange Right or other rights subject to such
conflicting claims or demands and, in so doing, the Trustee shall not be or
become liable to any person on account of such election or its failure or
refusal to comply with any such conflicting claims or demands. The Trustee shall
be entitled to continue to refrain from acting and to refuse to act until:
(a) the rights of all adverse claimants with respect to the Voting
Rights, Exchange Right or other rights subject to such conflicting claims
or demands have been adjudicated by a final judgment of a court of
competent jurisdiction; or
(b) all differences with respect to the Voting Rights, Exchange Right
or other rights subject to such conflicting claims or demands have been
conclusively settled by a valid written agreement binding on all such
adverse claimants, and the Trustee shall have been furnished with an
executed copy of such agreement.
If the Trustee elects to recognize any claim or comply with any demand made by
any such adverse claimant, it may in its discretion require such claimant to
furnish such surety bond or other security satisfactory to the Trustee as it
shall deem appropriate fully to indemnify it as between all conflicting claims
or demands.
7.16 Acceptance of Trust
The Trustee hereby accepts the Trust created and provided for by and in
this trust agreement and agrees to perform the same upon the terms and
conditions herein set forth and to hold all rights, privileges and benefits
conferred hereby and by law in trust for and as agent on behalf of the various
persons who shall from time to time be Non-Affiliated Holders, subject to all
the terms and conditions herein set forth.
ARTICLE 8
COMPENSATION
8.1 Fees and Expenses of the Trustee
The Parent and the Corporation jointly and severally agree to pay to the
Trustee reasonable compensation for all of the services rendered by it under
this trust agreement and will reimburse the Trustee for all reasonable expenses
(including but not limited to taxes, compensation paid to experts, agents and
advisors and travel expenses) and disbursements, including the cost and expense
of any suit or litigation of any character and any proceedings before any
governmental agency reasonably incurred by the Trustee in connection with its
rights and duties under this trust agreement; provided that the Parent and the
Corporation shall have no obligation to reimburse the Trustee for any expenses
or disbursements paid, incurred or suffered by the Trustee in any suit or
litigation in which the Trustee is determined to have acted in bad faith or with
negligence or wilful misconduct.
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ARTICLE 9
INDEMNIFICATION AND LIMITATION OF LIABILITY
9.1 Indemnification of the Trustee
The Parent and the Corporation jointly and severally agree to indemnify and
hold harmless the Trustee and each of its directors, officers, employees and
agents appointed and acting in accordance with this trust agreement
(collectively, the "Indemnified Parties") against all claims, losses, damages,
costs, penalties, fines and reasonable expenses (including reasonable expenses
of the Trustee's legal counsel) which, without fraud, negligence, wilful
misconduct or bad faith on the part of such Indemnified Party, may be paid,
incurred or suffered by the Indemnified Party by reason of or as a result of the
Trustee's acceptance or administration of the Trust, its compliance with its
duties set forth in this trust agreement, or any written or oral instructions
delivered to the Trustee by the Parent or the Corporation pursuant hereto. In no
case shall the Parent or the Corporation be liable under this indemnity for any
claim against any of the Indemnified Parties if such claim is incurred or
suffered by reason of or as a result of the fraud, negligence, wilful misconduct
or bad faith of an Indemnified Party and unless the Parent and the Corporation
shall be notified by the Trustee of the written assertion of a claim or of any
action commenced against the Indemnified Parties, promptly after any of the
Indemnified Parties shall have received any such written assertion of a claim or
shall have been served with a summons or other first legal process giving
information as to the nature and basis of the claim. Subject to (ii), below, the
Parent and the Corporation shall be entitled to participate at their own expense
in the defense and, if the Parent or the Corporation so elect at any time after
receipt of such notice, any of them may assume the defense of any suit brought
to enforce any such claim. The Trustee shall have the right to employ separate
counsel in any such suit and participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of the Trustee unless: (i) the
employment of such counsel has been authorized by the Parent or the Corporation,
such authorization not to be unreasonably withheld; or (ii) the named parties to
any such suit include both the Trustee and the Parent or the Corporation and the
Trustee shall have been advised by counsel acceptable to the Parent or the
Corporation that there may be one or more legal defenses available to the
Trustee that are different from or in addition to those available to the Parent
or the Corporation and that an actual or potential conflict of interest exists
(in which case the Parent and the Corporation shall not have the right to assume
the defense of such suit on behalf of the Trustee but shall be liable to pay the
reasonable fees and expenses of counsel for the Trustee). Such indemnification
shall survive the resignation or removal of the Trustee and the termination of
this trust agreement.
9.2 Limitation of Liability
The Trustee shall not be held liable for any loss which may occur by reason
of depreciation of the value of any part of the Trust Estate or any loss
incurred on any investment of funds pursuant to this trust agreement, except to
the extent that such loss is attributable to the fraud, negligence, wilful
misconduct or bad faith on the part of the Trustee.
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ARTICLE 10
CHANGE OF TRUSTEE
10.1 Resignation
The Trustee, or any trustee hereafter appointed, may at any time resign by
giving written notice of such resignation to the Parent and the Corporation
specifying the date on which it desires to resign, provided that such notice
shall never be given less than 60 days before such desired resignation date
unless the Parent and the Corporation otherwise agree and provided further that
such resignation shall not take effect until the date of the appointment of a
successor trustee and the acceptance of such appointment by the successor
trustee. Upon receiving such notice of resignation, the Parent and the
Corporation shall promptly appoint a successor trustee by written instrument in
duplicate, one copy of which shall be delivered to the resigning trustee and one
copy to the successor trustee. Failing acceptance by a successor trustee, a
successor trustee may be appointed by an order of the Court of Queen's Bench of
Alberta upon application of one or more of the parties hereto.
10.2 Removal
The Trustee, or any trustee hereafter appointed, may be removed (i) without
cause, at any time on 60 days' prior notice (ii) with cause on such notice as
the Parent and the Corporation may determine by written instrument executed by
the Parent and the Corporation, in duplicate, one copy of which shall be
delivered to the trustee so removed and one copy to the successor trustee.
10.3 Successor Trustee
Any successor trustee appointed as provided under this trust agreement
shall execute, acknowledge and deliver to the Parent and the Corporation and to
its predecessor trustee an instrument accepting such appointment. Thereupon the
resignation or removal of the predecessor trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, duties and obligations of its
predecessor under this trust agreement, with like effect as if originally named
as trustee in this trust agreement. However, on the written request of the
Parent and the Corporation or of the successor trustee, the trustee ceasing to
act shall, upon payment of any amounts then due it pursuant to the provisions of
this trust agreement, execute and deliver an instrument transferring to such
successor trustee all the rights and powers of the trustee so ceasing to act.
Upon the request of any such successor trustee, the Parent and the Corporation
and such predecessor trustee shall execute any and all instruments in writing
for more fully and certainly vesting in and confirming to such successor trustee
all such rights and powers.
10.4 Notice of Successor Trustee
Upon acceptance of appointment by a successor trustee as provided herein,
the Parent and the Corporation shall cause to be mailed notice of the succession
of such trustee hereunder to each Non-Affiliated Holder specified in a List. If
the Parent or the Corporation shall fail to cause such notice to be mailed
within 10 days after acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
Parent and the Corporation.
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ARTICLE 11
PARENT SUCCESSORS
11.1 Certain Requirements in Respect of Combination, etc.
The Parent shall not enter into any transaction (whether by way of
reconstruction, reorganization, consolidation, merger, transfer, sale, lease or
otherwise) whereby all or substantially all of its undertaking, property and
assets would become the property of any other person or, in the case of a
merger, of the continuing corporation resulting therefrom unless, but may do so
if:
(a) such other person or continuing corporation (the "Parent
Successor"), by operation of law, becomes, without more, bound by the terms
and provisions of this trust agreement or, if not so bound, executes, prior
to or contemporaneously with the consummation of such transaction a trust
agreement supplemental hereto and such other instruments (if any) as are
satisfactory to the Trustee and in the opinion of legal counsel to the
Trustee are necessary or advisable to evidence the assumption by the Parent
Successor of liability for all money payable and property deliverable
hereunder and the covenant of such Parent Successor to pay and deliver or
cause to be delivered the same and its agreement to observe and perform all
the covenants and obligations of the Parent under this trust agreement; and
(b) such transaction shall, to the satisfaction of the Trustee and in
the opinion of legal counsel to the Trustee, be upon such terms as
substantially to preserve and not to impair in any material respect any of
the rights, duties, powers and authorities of the Trustee or of the
Non-Affiliated Holders hereunder.
11.2 Vesting of Powers in Successor
Whenever the conditions of Section 11.1 hereof have been duly observed and
performed, if required by Section 11.1 hereof, the Trustee, the Parent Successor
and the Corporation shall execute and deliver the supplemental trust agreement
provided for in Article 12 hereof and thereupon the Parent Successor shall
possess and from time to time may exercise each and every right and power of the
Parent under this trust agreement in the name of the Parent or otherwise and any
act or proceeding by any provision of this trust agreement required to be done
or performed by the Parent Board of Directors or any officers of the Parent may
be done and performed with like force and effect by the directors or officers of
such Parent Successor.
11.3 Wholly-Owned Subsidiaries
Nothing herein shall be construed as preventing the amalgamation or merger
of any wholly-owned Subsidiary of the Parent with or into the Parent or the
winding up, liquidation or dissolution of any wholly-owned Subsidiary of the
Parent provided that all of the assets of such Subsidiary are transferred to the
Parent or another wholly-owned Subsidiary of the Parent, and any such
transactions are expressly permitted by this Article 11.
I-30
<PAGE> 578
ARTICLE 12
AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS
12.1 Amendments, Modifications, etc.
This trust agreement may not be amended or modified except by an agreement
in writing executed by the Corporation, the Parent and the Trustee and approved
by the Non-Affiliated Holders in accordance with Section 9.2 of the Exchangeable
Share Provisions.
12.2 Ministerial Amendments
Notwithstanding the provisions of Section 12.1 hereof, the parties to this
trust agreement may in writing, at any time and from time to time, without the
approval of the Non-Affiliated Holders, amend or modify this trust agreement for
the purposes of:
(a) adding to the covenants of any or all of the parties hereto for
the protection of the Non-Affiliated Holders hereunder;
(b) making such amendments or modifications not inconsistent with this
trust agreement as may be necessary or desirable with respect to matters or
questions which, in the opinion of the Board of Directors and the Parent
Board of Directors and in the opinion of the Trustee and its counsel,
having in mind the best interests of the Non-Affiliated Holders as a whole,
it may be expedient to make, provided that such boards of directors and the
Trustee and its counsel shall be of the opinion that such amendments and
modifications will not be prejudicial to the interests of the Non-
Affiliated Holders as a whole; or
(c) making such changes or corrections which, on the advice of counsel
to the Corporation, the Parent and the Trustee, are required for the
purpose of curing or correcting any ambiguity or defect or inconsistent
provision or clerical omission or mistake or manifest error, provided that
the Trustee and its counsel and the Board of Directors and the Parent Board
of Directors shall be of the opinion that such changes or corrections will
not be prejudicial to the interests of the Non-Affiliated Holders as a
whole.
12.3 Meeting to Consider Amendments
The Corporation, at the request of the Parent, shall call a meeting or
meetings of the Non-Affiliated Holders for the purpose of considering any
proposed amendment or modification requiring approval pursuant hereto. Any such
meeting or meetings shall be called and held in accordance with the by-laws of
the Corporation, the Exchangeable Share Provisions and all applicable laws.
12.4 Changes in Capital of Parent and the Corporation
At all times after the occurrence of any event effected pursuant to Section
6.7 or Section 6.8 of this trust agreement, as a result of which either Parent
Common Stock or the Exchangeable Shares or both are in any way changed, this
trust agreement shall forthwith be amended and modified as necessary in order
that it shall apply with full force and effect, mutatis mutandis, to all new
securities into which Parent Common Stock or the Exchangeable Shares or both are
so changed and the parties hereto shall execute and deliver a supplemental trust
agreement giving effect to and evidencing such necessary amendments and
modifications.
I-31
<PAGE> 579
12.5 Execution of Supplemental Trust Agreements
No amendment to or modification or waiver of any of the provisions of this
trust agreement otherwise permitted hereunder shall be effective unless made in
writing and signed by all of the parties hereto. From time to time the
Corporation (when authorized by a resolution of its Board of Directors), the
Parent (when authorized by a resolution of the Parent Board of Directors) and
the Trustee may, subject to the provisions of these presents, and they shall,
when so directed by these presents, execute and deliver by their proper
officers, trust agreements or other instruments supplemental hereto, which
thereafter shall form part hereof, for any one or more of the following
purposes:
(a) evidencing the succession of Parent Successors to the Parent and
the covenants of and obligations assumed by each such Parent Successor in
accordance with the provisions of Article 11 and the successor of any
successor trustee in accordance with the provisions of Article 10;
(b) making any additions to, deletions from or alterations of the
provisions of this trust agreement or the Voting Rights or the Exchange
Right which, in the opinion of the Trustee and its counsel, will not be
prejudicial to the interests of the Non-Affiliated Holders as a whole or
are in the opinion of counsel to the Trustee necessary or advisable in
order to incorporate, reflect or comply with any legislation the provisions
of which apply to the Parent, the Corporation, the Trustee or this trust
agreement; and
(c) for any other purposes not inconsistent with the provisions of
this trust agreement, including without limitation to make or evidence any
amendment or modification to this trust agreement as contemplated hereby,
provided that, in the opinion of the Trustee and its counsel, the rights of
the Trustee and the Non-Affiliated Holders as a whole will not be
prejudiced thereby.
ARTICLE 13
TERMINATION
13.1 Term
The Trust created by this trust agreement shall continue until the earliest
to occur of the following events:
(a) no outstanding Exchangeable Shares are held by any Non-Affiliated
Holder;
(b) each of the Corporation and the Parent elects in writing to
terminate the Trust and such termination is approved by the Non-Affiliated
Holders of the Exchangeable Shares in accordance with Section 9.2 of the
Exchangeable Share Provisions; and
(c) 21 years after the death of the last survivor of the descendants
of Her Majesty Queen Elizabeth II of the United Kingdom of Great Britain
and Northern Ireland living on the date of the creation of the Trust.
13.2 Survival of Agreement
This trust agreement shall survive any termination of the Trust and shall
continue until there are no Exchangeable Shares outstanding held by any
Non-Affiliated Holder; provided, however, that the provisions of Articles 8 and
9 hereof and the representation
I-32
<PAGE> 580
contained in Section 6.3(b) hereof shall survive any such termination of this
trust agreement.
ARTICLE 14
GENERAL
14.1 Severability
If any provision of this trust agreement is held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the remainder of this
trust agreement shall not in any way be affected or impaired thereby and this
trust agreement shall be carried out as nearly as possible in accordance with
its original terms and conditions.
14.2 Enurement
This trust agreement shall be binding upon and enure to the benefit of the
parties hereto and their respective successors and permitted assigns and to the
benefit of the Non-Affiliated Holders, and with respect to the representations
contained in Section 6.3(b), all shareholders of the Corporation who receive
Parent Common Stock through holding Exchangeable Shares.
14.3 Notices to Parties
All notices and other communications between the parties hereunder shall be
in writing and shall be deemed to have been given if delivered personally or by
confirmed telecopy to the parties at the following addresses (or at such other
address for such party as shall be specified in like notice):
(a) if to the Parent, VERITAS and/or VERITAS Software at:
VERITAS Holding Corporation/VERITAS Software Corporation
1600 Plymouth Street
Mountain View, California 94043
Attention: General Counsel
Telecopy: (650) 526-2525
(b) if to the Corporation at:
TeleBackup Exchangeco Inc.
200, 119-14 St. N.W.
Calgary, Alberta T2N 1Z6
Attention: President
Telecopy: (403) 270-2555
(c) if to the Trustee at:
Montreal Trust Company of Canada
710, 530-8th Ave. S.W.
Calgary, AB T2P 3S8
Attention: Manager
Corporate Trust Department
Telecopy: (403) 267-6598
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of receipt thereof unless
such day is not a Business Day in
I-33
<PAGE> 581
which case it shall be deemed to have been given and received upon the
immediately following Business Day.
14.4 Notice of Non-Affiliated Holders
Any and all notices to be given and any documents to be sent to any
Non-Affiliated Holders may be given or sent to the address of such holder shown
on the register of holders of Exchangeable Shares in any manner permitted by the
Business Corporations Act (Alberta) from time to time in force in respect of
notices to shareholders and shall be deemed to be received (if given or sent in
such manner) at the time specified in such Act, the provisions of which Act
shall apply mutatis mutandis to notices or documents as aforesaid sent to such
holders.
14.5 Risk of Payments by Post
Whenever payments are to be made or documents are to be sent to any Non-
Affiliated Holder by the Trustee or by the Corporation, the Parent or by such
Non-Affiliated Holder to the Trustee or to the Parent or the Corporation, the
making of such payment or sending of such document sent through the post shall
be at the risk of the Corporation, in the case of payments made or documents
sent by the Trustee or the Corporation or the Parent and the Non-Affiliated
Holder, in the case of payments made or documents sent by the Non-Affiliated
Holder.
14.6 Counterparts
This trust agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which taken together shall constitute one and
the same instrument.
14.7 Jurisdiction
This trust agreement shall be construed and enforced in accordance with the
laws of the Province of Alberta and the laws of Canada applicable therein.
14.8 Attornment
The Parent agrees that any action or proceeding arising out of or relating
to this trust agreement may be instituted in the courts of Alberta, waives any
objection which it may have now or hereafter to the venue of any such action or
proceeding, irrevocably submits to the jurisdiction of the said courts in any
such action or proceeding, agrees to be bound by any judgment of the said courts
and agrees not to seek, and hereby waives, any review of the merits of any such
judgment by the courts of any other jurisdiction and hereby appoints the
Corporation at its registered office in the Province of Alberta as its attorney
for service of process.
I-34
<PAGE> 582
IN WITNESS WHEREOF, the parties hereto have caused this trust agreement to
be duly executed as of the date first above written.
VERITAS HOLDING CORPORATION
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
VERITAS SOFTWARE CORPORATION
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
I-35
<PAGE> 583
TELEBACKUP EXCHANGECO INC.
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
MONTREAL TRUST COMPANY OF CANADA
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
I-36
<PAGE> 584
APPENDIX J
Action No. 9901-06495
IN THE COURT OF QUEEN'S BENCH OF ALBERTA
JUDICIAL DISTRICT OF CALGARY
IN THE MATTER OF Section 186 of the Business Corporations Act, S.A.
1981, c. B-15;
AND IN THE MATTER OF a proposed arrangement involving TeleBackup
Systems Inc., its shareholders and VERITAS Holding Corporation,
VERITAS Software Corporation and certain affiliates of VERITAS
Software Corporation
<TABLE>
<S> <C>
BEFORE THE HONOURABLE AT THE COURT HOUSE, CALGARY,
CHIEF JUSTICE W.K. MOORE ALBERTA, ON THURSDAY, THE
IN CHAMBERS 20TH DAY OF APRIL, 1999
</TABLE>
AMENDED INTERIM ORDER
UPON THE APPLICATION by Petition of TeleBackup Systems Inc. ("TeleBackup");
AND UPON reading the Petition of TeleBackup (the "Petition") and the
Affidavit of Dr. Byron Osing, Chief Executive Officer and President of
TeleBackup (the "Osing Affidavit"), and the documents referred to therein;
AND UPON being advised that the Executive Director of the Alberta
Securities Commission (the "Executive Director") has been given notice of this
application as required under Section 186(8) of the Business Corporations Act,
S.A. 1981, c. B-15 (the "ABCA") and that the Executive Director does not intend
to appear or make submissions with respect to this application;
AND WHEREAS an Interim Order was granted in this matter on April 8, 1999;
AND UPON HEARING counsel for the Petitioners and counsel for VERITAS
Software Corporation ("VERITAS");
IT IS HEREBY ORDERED AS FOLLOWS:
1. The capitalized terms used herein and not defined shall have the
meanings ascribed to them in the Combination Agreement included as Appendix "G"
contained in the Management Information Circular/Joint Proxy
Statement/Prospectus (the "Proxy Circular") attached as Exhibit "A" to the Osing
Affidavit and in the draft Plan of Arrangement of TeleBackup, VERITAS and
VERITAS Holding Corporation attached as Exhibit "D" to the Osing Affidavit,
filed.
2. TeleBackup shall hold and conduct a special meeting (the "Special
Meeting") of the holders of the issued and outstanding TeleBackup Common Shares,
to consider, and if deemed advisable, to pass, with or without variation, a
special resolution (the "Arrangement Resolution") to approve a proposed plan of
arrangement (the "Arrangement") involving TeleBackup, the shareholders of
TeleBackup and VERITAS, VERITAS Holding Corporation and certain affiliates of
VERITAS, copies of which resolution and
J-1
<PAGE> 585
Plan of Arrangement in substantially their final forms are attached as Exhibits
"C" and "D" to the Osing Affidavit.
3. The Special Meeting shall be called, held and conducted in accordance
with the ABCA and the Articles and By-laws of TeleBackup, subject to what may be
provided hereafter.
4. TeleBackup shall provide a notice of the Special Meeting (the "Notice of
the Special Meeting"), a notice of the Petition (the "Notice of Petition") and
the Proxy Circular in respect of the Special Meeting, in substantially the form
contained in Exhibit "A" to the Osing Affidavit with such amendments as counsel
for TeleBackup may advise are necessary or desirable, provided that such
amendments are not inconsistent with the terms of this Order, to the registered
shareholders of TeleBackup, and to the directors and auditors of TeleBackup and
to the Executive Director, by mailing the same by prepaid ordinary mail to such
persons in accordance with the ABCA at least 21 days prior to the date of the
Special Meeting, excluding the date of mailing and excluding the date of the
Special Meeting and further, in compliance with such requirements as are imposed
by National Policy No. 41 of the Canadian Securities Administrators.
5. The mailing of the Notice of the Special Meeting and the Notice of
Petition referred to in paragraph 4 above in accordance with the provisions of
this Order, shall constitute good and sufficient service of the Notice of the
Special Meeting, Notice of the Petition and the hearing in respect of the
Petition upon all persons who are entitled to receive such notice pursuant to
this Order and no other form of service need be made and no other material need
be served on such persons in respect of these proceedings, and service of the
Osing Affidavit is dispensed with except as to service on the Executive
Director.
6. The accidental omission to give notice of the Special Meeting, or the
non-receipt of such notice by one or more persons specified in paragraphs 4 and
9 hereof, shall not invalidate any resolution passed or proceedings taken at the
Special Meeting.
7. The Arrangement Resolution will be effective if passed, without or
without variation, by at least two thirds of the votes cast on such resolution
by the holders of TeleBackup Common Shares entitled to vote at the Special
Meeting, present in person or by proxy, at the Special Meeting.
8. In all other respects, the terms, restrictions, and conditions of the
by-laws and the articles of TeleBackup shall apply in respect of the Special
Meeting.
CONDUCT OF THE SPECIAL MEETING
9. The only persons entitled to notice of the Special Meeting shall be the
registered holders of TeleBackup Common Shares, the directors and auditors of
TeleBackup and the Executive Director, and the only persons entitled to be
represented and to vote at the Special Meeting, either in person or by proxy,
shall be the registered holders of the TeleBackup Common Shares, as at April 19,
1999, and such date shall be the record date for the determination of
shareholders entitled to receive notice of the Special Meeting and, subject to
the provisions of the ABCA and the by-laws of TeleBackup with respect to persons
who become registered holders of TeleBackup Common Shares, after that date and
who comply with such provisions, to vote at the Special Meeting.
J-2
<PAGE> 586
RIGHT TO DISSENT
10. Each registered holder of TeleBackup Common Shares shall have rights of
dissent in connection with the Arrangement Resolution respecting the Arrangement
in accordance with the provisions of Section 184 of the Act, as modified by the
Plan of Arrangement and this Order, and to be paid the fair value of such
holder's shares as provided by the Plan of Arrangement, provided that such
holder provides to TeleBackup a written objection (an "Objection Notice") to the
Arrangement Resolution at or before the Special Meeting, delivered and received
by TeleBackup, Attention: Secretary, 200, 119 - 14th Street N.W., Calgary,
Alberta, T2N 1Z6, or by the Chairperson of the Special Meeting at or before the
Special Meeting and the dissenting shareholder shall not have voted in favour of
the Arrangement Resolution and only if such Objection Notice is not properly
withdrawn prior to 12:01 a.m. (Calgary time) on the Effective Date, and such
holder otherwise complies with the requirements of Section 184 of the ABCA, as
modified by the Plan of Arrangement and this Order.
NOTICE OF INTENTION TO APPEAR
11. Any shareholder of TeleBackup or any other interested party desiring to
support or oppose the Petition may appear at the time of the hearing on the
application for the approval of the Arrangement in person or by counsel
appointed for that purpose, provided that such shareholder or other interest
party files with this Court and serves upon counsel for TeleBackup on or before
May 14, 1999, a Notice of Intention to Appear, together with any evidence or
materials which are to be presented to the Court, setting out the address for
service in respect of such shareholder or other interested party and indicating
whether such shareholder or other interested party intends to support or oppose
the application or make submissions. Service of such Notice of Intention to
Appear shall be effected by delivery at the address set forth below:
PARLEE McLAWS
BARRISTERS & SOLICITORS
3400, 150 -- 6th Avenue S.W.
CALGARY, ALBERTA
T2P 3Y7
Attention: Bruce A. Lawrence
Counsel for TeleBackup Systems Inc.
APPLICATION FOR FINAL ORDER
12. Upon approval of the Arrangement Resolution by the shareholders of
TeleBackup at the Special Meeting in the manner set forth in this Order,
TeleBackup may apply before this Honourable Court for approval of the
Arrangement, which application shall be held before the presiding Justice in
Chambers, at the Court House, the City of Calgary, in the Province of Alberta,
on the 27th day of May, 1999 at 1:15 p.m. (Calgary time) or so soon thereafter
as counsel may be heard.
13. In the event that the application for the approval of the Arrangement
is adjourned, only those persons who have filed and served a Notice of Intention
to Appear shall be served with notice of the adjournment date.
14. Service of the Petition and the Osing Affidavit upon the Executive
Director is deemed good and sufficient.
J-3
<PAGE> 587
15. The Interim Order dated April 8, 1999 in relation to this matter is
amended and replaced by this Order.
16. TeleBackup shall be entitled at any time to seek leave to vary this
Order.
/s/ W.K. MOORE
--------------------------------------
C.J.C.Q.B.A.
ENTERED this 21st day of
April, 1999.
/s/ JAMES MCLAUGHLIN
- --------------------------------------
Clerk of the Court of
Queen's Bench of Alberta
J-4
<PAGE> 588
Action No. 9901-06495
---------------------------------------------------------------------
IN THE COURT OF QUEEN'S BENCH OF ALBERTA
JUDICIAL DISTRICT OF CALGARY
---------------------------------------------------------------------
IN THE MATTER OF Section 186 of the Business Corporations Act, S.A.
1981, c. B-15;
AND IN THE MATTER OF a proposed arrangement involving TeleBackup
Systems Inc. and its shareholders and VERITAS Holding Corporation,
VERITAS Software Corporation and certain affiliates of VERITAS
Software Corporation
------------------------
AMENDED INTERIM ORDER
------------------------
PARLEE McLAWS
BARRISTERS & SOLICITORS
3400 PETRO-CANADA CENTRE
150 -- 6TH AVENUE S.W.
CALGARY, ALBERTA
T2P 3Y7
Bruce A. Lawrence
Phone: (403) 294-7032
Fax: (403) 294-7052
File No: 51586-7
J-5
<PAGE> 589
APPENDIX K
ACTION NO. 9901-06495
IN THE COURT OF QUEEN'S BENCH OF ALBERTA
JUDICIAL DISTRICT OF CALGARY
IN THE MATTER OF SECTION 186 OF THE
BUSINESS CORPORATIONS ACT, S.A. 1981, c. B-15, AS AMENDED
AND IN THE MATTER OF A PROPOSED ARRANGEMENT INVOLVING TELEBACKUP SYSTEMS
INC., ITS SHAREHOLDERS AND VERITAS HOLDING CORPORATION, VERITAS SOFTWARE
CORPORATION AND CERTAIN AFFILIATES OF VERITAS SOFTWARE CORPORATION
AMENDED NOTICE OF PETITION
NOTICE IS HEREBY GIVEN that a petition (the "Petition") has been filed with
the Court of Queen's Bench of Alberta, Judicial District of Calgary, (the
"Court") by TeleBackup Systems Inc. ("TeleBackup") with respect to a proposed
arrangement (the "Arrangement") under Section 186 of the Business Corporations
Act, S.A. 1981, c. B-15, as amended (the "ABCA"), involving TeleBackup, its
shareholders and VERITAS Holding Corporation, VERITAS Software Corporation and
certain affiliates of VERITAS Software Corporation, which Arrangement is
described in greater detail in the Management Information Circular/Joint Proxy
Statement/Prospectus, accompanying this Notice of Petition and to be dated on or
about April 19, 1999. At the hearing of the Petition, TeleBackup intends to
seek:
(a) a declaration that the terms and conditions of the Arrangement are fair to
the persons affected;
(b) an order approving the Arrangement pursuant to the provisions of Section 186
of the ABCA; and
(c) such other and further orders, declarations and directions as the Court may
deem just.
AND NOTICE IS FURTHER GIVEN that the said Petition is directed to be heard
before the Honourable Chief Justice W.K. Moore at the Court House, 611 - 4th
Street S.W., Calgary, Alberta, Canada, on the 27th day of May, 1999 at 1:15 p.m.
(Calgary time) or as soon thereafter as counsel may be heard. ANY SHAREHOLDER OF
TELEBACKUP OR OTHER INTERESTED PARTY DESIRING TO SUPPORT OR OPPOSE THE PETITION
MAY APPEAR AT THE TIME OF THE HEARING IN PERSON OR BY COUNSEL FOR THAT PURPOSE
PROVIDED SUCH SHAREHOLDER OR OTHER INTERESTED PARTY FILES WITH THE COURT AND
SERVES UPON TELEBACKUP, ON OR BEFORE MAY 14, 1999, A NOTICE OF INTENTION TO
APPEAR SETTING OUT SUCH SHAREHOLDER'S OR INTERESTED PARTY'S ADDRESS FOR SERVICE
BY ORDINARY MAIL AND INDICATING WHETHER SUCH SHAREHOLDER OR INTERESTED PARTY
INTENDS TO SUPPORT OR OPPOSE THE PETITION OR MAKE SUBMISSIONS, TOGETHER WITH ANY
EVIDENCE OR MATERIALS WHICH ARE TO BE PRESENTED TO THE COURT. Service on
TeleBackup is to be effected by delivery to the solicitors for TeleBackup at the
address set forth below.
AND NOTICE IS FURTHER GIVEN that the Final Order will constitute the basis
for an exemption from certain requirements of the Securities Act of 1933, as
amended, of the United States of America with respect to certain of the
securities issued pursuant to the Arrangement.
AND NOTICE IS FURTHER GIVEN that, at the hearing and subject to the
foregoing, shareholders of TeleBackup and any other interested persons will be
entitled to
K-1
<PAGE> 590
make representations as to, and the Court will be requested to consider, the
fairness of the terms and conditions of the Arrangement to such shareholders. If
you do not attend, either in person or by counsel, at that time, the Court may
approve or refuse to approve the Arrangement as presented, or may approve it
subject to such terms and conditions as the Court may deem fit, without any
further notice.
AND NOTICE IS FURTHER GIVEN that the Court, by an Amended Interim Order
dated April 20, 1999, has given directions as to the calling and holding of a
special meeting of the shareholders of TeleBackup for the purpose of such
shareholders voting upon a special resolution to approve the Arrangement and, in
particular, has directed that certain shareholders shall have the right to
dissent under the provisions of Section 184 of the ABCA upon compliance with the
terms of, and as modified by the Interim Order.
AND NOTICE IS FURTHER GIVEN that a copy of the said Petition and other
documents in the proceedings will be furnished to any shareholder of TeleBackup
or other interested party requesting the same by the undermentioned solicitors
for TeleBackup upon written request delivered to such solicitors as follows:
Parlee McLaws
Barristers and Solicitors
3400 Petro-Canada Centre
150 - 6th Avenue S.W.
Calgary, Alberta
T2P 3Y7
Attention: Bruce A. Lawrence
DATED at the City of Calgary, in the Province of Alberta, this 20th day of
April, 1999.
By Order of the Board of Directors of TeleBackup Systems Inc. and By Order of
the Court of Queen's Bench of Alberta
LOGO
Dr. Byron Osing
President
/s/ JAMES MCLAUGHLIN
--------------------------------------
Clerk of the Court
K-2
<PAGE> 591
Action No. 9901-06495
---------------------------------------------------------------------
IN THE COURT OF QUEEN'S BENCH OF ALBERTA
JUDICIAL DISTRICT OF CALGARY
---------------------------------------------------------------------
IN THE MATTER OF Section 186 of the Business Corporations Act, S.A.
1981, c. B-15;
AND IN THE MATTER OF a proposed arrangement involving TeleBackup
Systems Inc. and its shareholders and VERITAS Holding Corporation,
VERITAS Software Corporation and certain affiliates of VERITAS
Software Corporation
------------------------
AMENDED NOTICE OF PETITION
------------------------
PARLEE McLAWS
BARRISTERS & SOLICITORS
3400 PETRO-CANADA CENTRE
150 -- 6TH AVENUE S.W.
CALGARY, ALBERTA
T2P 3Y7
Bruce A. Lawrence
Phone: (403) 294-7032
Fax: (403) 294-7052
File No: 51586-7
K-3
<PAGE> 592
APPENDIX L
PURSUANT TO THE INTERIM ORDER, TELEBACKUP SHAREHOLDERS HAVE THE RIGHT TO
DISSENT IN RESPECT OF THE PLAN OF ARRANGEMENT. SUCH RIGHT OF DISSENT IS
DESCRIBED IN THE TEXT OF THE DISCLOSURE DOCUMENT. THE FULL TEXT OF SECTION 184
OF THE BUSINESS CORPORATIONS ACT (ALBERTA) IS SET FORTH BELOW. NOTE THAT CERTAIN
PROVISIONS OF SECTION 184 HAVE BEEN MODIFIED BY THE INTERIM ORDER ATTACHED TO
THE DISCLOSURE DOCUMENT AS APPENDIX J. IN PARTICULAR, THE WRITTEN OBJECTION
REQUIRED TO BE PROVIDED BY A DISSENTING SHAREHOLDER TO TELEBACKUP MUST BE
RECEIVED BY THE SECRETARY OF TELEBACKUP AT THE HEAD OFFICE OF TELEBACKUP BEFORE
THE MEETING OR BY THE CHAIRMAN OF THE MEETING AT OR PRIOR TO THE MEETING IN
ORDER TO BE EFFECTIVE AND THE SHAREHOLDER SHALL NOT HAVE VOTED, IN PERSON OR BY
PROXY, IN FAVOR OF THE SPECIAL RESOLUTION APPROVING THE PLAN OF ARRANGEMENT.
SECTION 184 OF THE BUSINESS CORPORATIONS ACT (ALBERTA)
184(1) Subject to sections 185 and 234, a holder of shares of any class of a
corporation may dissent if the corporation resolves to
(a) amend its articles under section 167 or 168 to add, change or
remove any provisions restricting or constraining the issue or transfer of
shares of that class,
(b) amend its articles under section 167 to add, change or remove any
restrictions on the business or businesses that the corporation may carry
on,
(c) amalgamate with another corporation, otherwise than under section
178 or 180.1,
(d) be continued under the laws of another jurisdiction under section
182, or
(e) sell, lease or exchange all or substantially all its property
under section 183.
(2) A holder of shares of any class or series of shares entitled to vote
under section 170, other than section 170(1)(a), may dissent if the corporation
resolves to amend its articles in a manner described in that section.
(3) In addition to any other right he may have, but subject to subsection
(20), a shareholder entitled to dissent under this section and who complies with
this section is entitled to be paid by the corporation the fair value of the
shares held by him in respect of which he dissents, determined as of the close
of business on the last business day before the day on which the resolution from
which he dissents was adopted.
(4) A dissenting shareholder may only claim under this section with respect
to all the shares of a class held by him or on behalf of any one beneficial
owner and registered in the name of the dissenting shareholder.
(5) A dissenting shareholder shall send to the corporation a written
objection to a resolution referred to in subsection (1) or (2)
(a) at or before any meeting of shareholders at which the resolution
is to be voted on, or
(b) if the corporation did not send notice to the shareholder of the
purpose of the meeting or of his right to dissent, within a reasonable time
after he learns that the resolution was adopted and of his right to
dissent.
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(6) An application may be made to the Court by originating notice after the
adoption of a resolution referred to in subsection (1) or (2),
(a) by the corporation, or
(b) by a shareholder if he has sent an objection to the corporation
under subsection (5), to fix the fair value in accordance with subsection
(3) of the shares of a shareholder who dissents under this section.
(7) If an application is made under subsection (6), the corporation shall,
unless the Court otherwise orders, send to each dissenting shareholder a written
offer to pay him an amount considered by the directors to be the fair value of
the shares.
(8) Unless the Court otherwise orders, an offer referred to in subsection
(7) shall be sent to each dissenting shareholder
(a) at least 10 days before the date on which the application is
returnable, if the corporation is the applicant, or
(b) within 10 days after the corporation is served with a copy of the
originating notice, if a shareholder is the applicant.
(9) Every offer made under subsection (7) shall
(a) be made on the same terms, and
(b) contain or be accompanied by a statement showing how the fair
value was determined.
(10) A dissenting shareholder may make an agreement with the corporation
for the purchase of his shares by the corporation, in the amount of the
corporation's offer under subsection (7) or otherwise, at any time before the
Court pronounces an order fixing the fair value of the shares.
(11) A dissenting shareholder
(a) is not required to give security for costs in respect of an
application under subsection (6), and
(b) except in special circumstances shall not be required to pay the
costs of the application or appraisal.
(12) In connection with an application under subsection (6), the Court may
give directions for
(a) joining as parties all dissenting shareholders whose shares have
not been purchased by the corporation and for the representation of
dissenting shareholders who, in the opinion of the Court, are in need of
representation,
(b) the trial of issues and interlocutory matters, including pleadings
and examinations for discovery,
(c) the payment to the shareholder of all or part of the sum offered
by the corporation for the shares,
(d) the deposit of the share certificates with the Court or with the
corporation or its transfer agent,
(e) the appointment and payment of independent appraisers, and the
procedures to be followed by them,
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(f) the service of documents, and
(g) the burden of proof on the parties.
(13) On an application under subsection (6), the Court shall make an order
(a) fixing the fair value of the shares in accordance with subsection
(3) of all dissenting shareholders who are parties to the application,
(b) giving judgment in that amount against the corporation and in
favour of each of those dissenting shareholders, and
(c) fixing the time within which the corporation must pay that amount
to a shareholder.
(14) On
(a) the action approved by the resolution from which the shareholder
dissents becoming effective,
(b) the making of an agreement under subsection (10) between the
corporation and the dissenting shareholder as to the payment to be made by
the corporation for his shares, whether by the acceptance of the
corporation's offer under subsection (7) or otherwise, or
(c) the pronouncement of an order under subsection (13),
whichever first occurs, the shareholder ceases to have any rights as a
shareholder other than the right to be paid the fair value of his shares in the
amount agreed to between the corporation and the shareholder or in the amount of
the judgment, as the case may be.
(15) Subsection (14)(a) does not apply to a shareholder referred to in
subsection (5)(b).
(16) Until one of the events mentioned in subsection (14) occurs,
(a) the shareholder may withdraw his dissent, or
(b) the corporation may rescind the resolution,
and in either event proceedings under this section shall be discontinued.
(17) The Court may in its discretion allow a reasonable rate of interest on
the amount payable to each dissenting shareholder, from the date on which the
shareholder ceases to have any rights as a shareholder by reason of subsection
(14) until the date of payment.
(18) If subsection (20) applies, the corporation shall, within 10 days
after
(a) the pronouncement of an order under subsection (13), or
(b) the making of an agreement between the shareholder and the
corporation as to the payment to be made for his shares,
notify each dissenting shareholder that it is unable lawfully to pay dissenting
shareholders for their shares.
(19) Notwithstanding that a judgment has been given in favour of a
dissenting shareholder under subsection (13)(b), if subsection (20) applies, the
dissenting shareholder, by written notice delivered to the corporation within 30
days after receiving the notice under subsection (18), may withdraw his notice
of objection, in which case the
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corporation is deemed to consent to the withdrawal and the shareholder is
reinstated to his full rights as a shareholder, failing which he retains a
status as a claimant against the corporation, to be paid as soon as the
corporation is lawfully able to do so or, in a liquidation, to be ranked
subordinate to the rights of creditors of the corporation but in priority to its
shareholders.
(20) A corporation shall not make a payment to a dissenting shareholder
under this section if there are reasonable grounds for believing that
(a) the corporation is or would after the payment be unable to pay its
liabilities as they become due, or
(b) the realizable value of the corporation's assets would thereby be
less than the aggregate of its liabilities.
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APPENDIX M
PLAN OF ARRANGEMENT
PLAN OF ARRANGEMENT UNDER SECTION 186
OF THE BUSINESS CORPORATIONS ACT (ALBERTA)
ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Plan of Arrangement unless something in the subject matter or
context is inconsistent therewith:
"ABCA" means the Business Corporations Act (Alberta), as amended;
"Amalco" means a corporation to be incorporated under the ABCA and which
will be an indirect wholly owned subsidiary of VERITAS;
"Amalco Common Shares" means Common Voting Shares in the authorized capital
of Amalco;
"Amalco Preferred Shares" means Preferred Non-Voting Shares in the
authorized capital of Amalco;
"Amalgamation" means the amalgamation between TeleBackup and Amalco
provided for in Section 2.4 hereof;
"Amalgamation Agreement" means the agreement attached hereto as Appendix B,
setting forth the terms and conditions of the Amalgamation;
"Arrangement" means the arrangement under section 186 of the ABCA on the
terms and subject to the conditions set out in this Plan of Arrangement, subject
to any amendments thereto made in accordance with Section 5.1 or made at the
direction of the Court in the Final Order;
"Business Day" means any day other than a Saturday, a Sunday or a day when
banks are not open for business in either or both of Mountain View, California
and Calgary, Alberta;
"Canco" means TeleBackup Holdings, Inc., a corporation existing under the
laws of the State of Delaware and a wholly owned subsidiary of VERITAS Software
Corporation;
"Code" means the United States Internal Revenue Code of 1986, as amended;
"Combination Agreement" means the Amended and Restated Combination
Agreement between VERITAS Software Corporation, VERITAS Holding Corporation and
TeleBackup dated April 12, 1999;
"Court" means the Court of Queen's Bench in Alberta;
"Current Market Price" has the meaning set out in Section 1.1 of the
Exchangeable Share Provisions;
"Depositary" means Montreal Trust Company of Canada at its Corporate Trust
Department, Suite 600, 530-8th Ave. S.W., Calgary, Alberta T2P 3S8;
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"Dissent Procedures" mean the procedures referred to in Section 3.1;
"Effective Date" means the date shown on the Certificate of Amendment
issued under the ABCA giving effect to the amendment of the Articles of
Exchangeco pursuant to Section 2;
"Effective Time" means 12:01 a.m. (Calgary time) on the Effective Date;
"Election Form" means the form distributed to holders of TeleBackup Common
Shares with the Management Information Circular/Proxy Statement/Prospectus
pursuant to which each such holder who is resident in Canada may elect to
receive Exchangeco Exchangeable Shares in exchange for the Exchangeco Class A
Shares received by such holder in connection with the Amalgamation;
"Eligible Exchangeco Shareholder" means each holder of Exchangeco Class A
Shares (other than VERITAS and its Subsidiaries) who is resident in Canada and
who has elected to receive Exchangeco Exchangeable Shares in exchange for all of
the Exchangeco Class A Shares held by such holder by having delivered to the
Secretary of TeleBackup on or before 4:30 p.m. of the Business Day before the
TeleBackup Meeting a properly completed and executed Election Form in the manner
and subject to the conditions set out in the Management Information
Circular/Proxy Statement/Prospectus and in the Election Form;
"Exchange Ratio" has the meaning ascribed to that term in the Combination
Agreement;
"Exchangeable Share Provisions" means the rights, privileges, restrictions
and conditions attaching to the Exchangeco Exchangeable Shares, which are set
forth in Appendix C hereto;
"Exchangeco" means TeleBackup Exchangeco Inc., a corporation incorporated
under the ABCA and an indirectly wholly owned subsidiary of VERITAS;
"Exchangeco Class A Shares" means Class A Non-Voting Shares in the
authorized capital of Exchangeco;
"Exchangeco Common Shares" means Common Voting Shares in the authorized
capital of Exchangeco;
"Exchangeco Exchangeable Shares" means the Exchangeable Shares in the
authorized capital of Exchangeco following the amendment of the Articles of
Exchangeco pursuant to Section 2.7;
"Final Order" means the final order of the Court approving the Arrangement
as such order may be amended by the Court at any time prior to the Effective
Time;
"Management Information Circular/Proxy Statement/Prospectus" means the
Management Information Circular/Joint Proxy Statement/Prospectus of TeleBackup,
VERITAS Software Corporation and Seagate Software, Inc. dated on or about April
19, 1999;
"NSMG Combination" has the meaning ascribed to such term in the Management
Information Circular/Joint Proxy Statement/Prospectus;
"New TeleBackup" means New TeleBackup Systems Inc., a corporation
amalgamated under the ABCA pursuant to the Arrangement;
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"New TeleBackup Common Shares" means Common Voting Shares in the capital of
New TeleBackup;
"New TeleBackup Preferred Shares" means Preferred Non-Voting Shares in the
capital of New TeleBackup;
"Record Date" means the record date established for the TeleBackup Meeting;
"Registrar" means the Registrar as defined under the ABCA;
"Seagate" means Seagate Software, Inc., a corporation existing under the
laws of the State of Delaware;
"Subsidiary" means, when used with reference to VERITAS, any corporation
more than 50% of the outstanding stock of which, by vote or by value, is owned,
directly or indirectly, by VERITAS, by one or more other Subsidiaries of
VERITAS, or by VERITAS and one or more other Subsidiaries of VERITAS;
"Tax Act" means the Income Tax Act (Canada);
"TeleBackup" means TeleBackup Systems Inc., a corporation incorporated
under the laws of the Province of Alberta;
"TeleBackup Common Shares" means the Common Shares in the authorized
capital of TeleBackup;
"TeleBackup Meeting" means the special meeting of the shareholders of the
Corporation to be held to consider the Arrangement;
"TeleBackup Options" means each of the options to purchase TeleBackup
Common Shares outstanding at the Effective Time (including all outstanding
options granted under TeleBackup Option Plan);
"TeleBackup Option Plan" means TeleBackup's Directors', Management's,
Employees' and Consultant's Stock Option Plan adopted on December 23, 1995;
"TeleBackup Shareholders" means holders of TeleBackup Common Shares;
"Transfer Agent" has the meaning set out in Section 1.1 of the Exchangeable
Share Provisions;
"VERITAS" means, subject to Section 1.2 hereof, VERITAS Holding
Corporation, a corporation existing under the laws of the State of Delaware; and
"VERITAS Common Stock" means the shares of Common Stock of VERITAS, par
value US$0.001 per share, having voting rights of one vote per share, and any
other securities into which such shares may be changed or for which such shares
may be exchanged (whether or not VERITAS shall be the issuer of such other
securities) or any other consideration which may be received by the holders of
such shares pursuant to a recapitalization, reconstruction, reorganization or
reclassification of, or an amalgamation, merger, liquidation or similar
transaction affecting, such shares.
1.2 Redefinition of VERITAS
If, prior to the Effective Time, the stockholders of VERITAS Software
Corporation and Seagate have not approved the NSMG Combination and the NSMG
Combination has not been effected, all as described in the Management
Information Circular/Joint Proxy Statement/Prospectus, "VERITAS" for the
purposes hereof shall mean VERITAS Software Corporation.
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1.3 Sections and Headings
The division of this Plan of Arrangement into articles and sections and the
insertion of headings are for reference purposes only and shall not affect the
interpretation of this Plan of Arrangement. Unless otherwise indicated, any
reference in this Plan of Arrangement to an article, section or Appendix refers
to the specified article or section of or Appendix to this Plan of Arrangement.
1.4 Number, Gender and Persons
In this Plan of Arrangement, unless the context otherwise requires, words
importing the singular number include the plural and vice versa, words importing
any gender include all genders and words importing persons include individuals,
corporations, partnerships, companies, associations, trusts, unincorporated
organisations, governmental bodies and other legal or business entities of any
kind.
ARTICLE 2
ARRANGEMENT
2.1 Binding Effect
This Plan will become effective and be binding on and after the Effective
Time on (i) TeleBackup, (ii) Exchangeco, (iii) Amalco, (iv) VERITAS and its
Subsidiaries, (v) all holders of TeleBackup Common Shares, (vi) all holders of
Exchangeco Common Shares, (vii) all holders of Exchangeco Exchangeable Shares;
(viii) all holders of Exchangeco Class A Shares; (ix) all holders of Amalco
Common Shares; and (x) all holders of Amalco Preferred Shares.
2.2 Events Sequential
At the Effective Time, each of the provisions of this Article 2 shall occur
and be deemed to occur in the order set out below, without any further act or
formality.
2.3 Cancellation of Dissenters' Shares
Holders of TeleBackup Common Shares who have duly exercised their rights of
dissent as set forth in Article 3 shall be deemed to have transferred their
TeleBackup Common Shares to TeleBackup for cancellation and such shares shall be
cancelled.
2.4 Amendment of the Articles of Exchangeco to Remove Private Company
Restrictions
The articles of Exchangeco shall be amended as set out in the Articles of
Amendment annexed as Appendix A hereto.
2.5 Amalgamation of TeleBackup and Amalco
TeleBackup and Amalco shall be amalgamated pursuant to the Amalgamation
Agreement to form New TeleBackup.
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2.6 Share Issuances Upon Amalgamation
Upon the amalgamation of TeleBackup and Amalco to form New TeleBackup:
(a) Exchangeco shall issue to holders of TeleBackup Common Shares
(other than those holders of TeleBackup Common Shares who have duly
exercised their rights of dissent pursuant to Article 3 hereof and whose
TeleBackup Common Shares have been cancelled pursuant to Section 2.3
hereof) one Exchangeco Class A Share for each TeleBackup Common Share held
by such TeleBackup Shareholders; provided, however, that share certificates
evidencing such Exchangeco Class A Shares shall not be issued;
(b) New TeleBackup shall issue to Exchangeco the number of New
TeleBackup Common Shares equal to the sum of the number of Exchangeco Class
A Shares issued pursuant to subsection 2.5(a) hereof plus that number of
New TeleBackup Common Shares equal to $1000 divided by the closing price of
TeleBackup Common Shares on the last trading day on which such shares trade
prior to the Effective Date, such number of New TeleBackup Common Shares to
be rounded down to the nearest whole number;
(c) New TeleBackup shall issue 3,000 New TeleBackup Preferred Shares
to the holders of the Amalco Preferred Shares;
(d) The amount added to the stated capital account maintained for the
Exchangeco Class A Shares with respect to the Exchangeco Class A Shares
issued pursuant to subsection 2.6(a) shall be equal to the paid-up capital,
for purposes of the Tax Act, of the TeleBackup Common Shares held by
TeleBackup Shareholders other than Exchangeco, less the paid-up capital,
for purposes of the Tax Act, of the TeleBackup Common Shares in respect of
which a right of dissent is exercised;
(e) The amount added to the stated capital account maintained for the
New TeleBackup Common Shares with respect to the New TeleBackup Common
Shares issued pursuant to subsection 2.6(b) shall be equal to the paid up
capital, for purposes of the Tax Act, of the TeleBackup Common Shares
(other than TeleBackup Common Shares in respect of which rights of dissent
have been exercised pursuant to Article 3 hereof and which have been
cancelled pursuant to Section 2.3 hereof); and
(f) The amount added to the stated capital account maintained for the
New TeleBackup Preferred Shares with respect to the New TeleBackup
Preferred Shares issued pursuant to subsection 2.6(c) shall be equal to the
paid-up capital, for purposes of the Tax Act, of the Amalco Preferred
Shares.
2.7 Amendment of the Articles of Exchangeco to Create Exchangeco Exchangeable
Shares
The Articles of Exchangeco shall be amended as set forth in the Articles of
Amendment as Appendix C hereto.
2.8 Issuance of Exchangeco Exchangeable Shares
Exchangeco shall issue to each Eligible Exchangeco Shareholder the number
of Exchangeco Exchangeable Shares equal to the Exchange Ratio for each
Exchangeco Class A Share and the Exchangeco Class A Shares so acquired by
Exchangeco upon the exchange shall be cancelled and restored to the status of
authorized but unissued.
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The amount added to the stated capital account maintained for the
Exchangeco Exchangeable Shares with respect to the Exchangeco Exchangeable
Shares issued pursuant to this Section 2.8 shall be equal to the paid-up
capital, for purposes of the Tax Act, of the Exchangeco Class A Shares exchanged
for the Exchangeco Exchangeable Shares less the amount paid in respect of
fractional shares and the fair market value, if any, of the rights, if any,
granted to the holders of the Exchangeco Exchangeable Shares under the Voting,
Support and Exchange Trust Agreement and an amount equal to the paid-up capital,
for purposes of the Tax Act, of the Exchangeco Class A Shares cancelled shall be
deducted from the stated capital account maintained for the Exchangeco Class A
Shares.
2.9 Acquisition of Remaining Exchangeco Class A Shares by VERITAS Software
Corporation
Canco shall be granted the right to acquire and shall acquire all of the
issued and outstanding Exchangeco Class A Shares by issuing to the holders of
the outstanding Exchangeco Class A Shares the number of shares of VERITAS Common
Stock equal to the Exchange Ratio for each Exchangeco Class A Share so acquired.
2.10 Exchange and Call Rights
VERITAS shall be entitled to enforce the exchange right and call rights set
out in Articles 5, 6 and 7 of the Exchangeable Share Provisions and in
exercising such rights VERITAS will be required to purchase Exchangeco
Exchangeable Shares from itself. The holders of Exchangeco Exchangeable Shares
shall be entitled to enforce the exchange, liquidation and retraction rights set
out in Articles 5 and 6 of the Exchangeable Share Provisions.
2.11 Exchange of TeleBackup Options
At the Effective Time, after the actions described in Sections 2.1 through
2.10, each of the then outstanding TeleBackup Options will be exchanged for an
option to purchase that number of shares of VERITAS Common Stock determined by
multiplying the number of TeleBackup Common Shares subject to such TeleBackup
Option at the Effective Time by the Exchange Ratio, at an exercise price per
share of VERITAS Common Stock equal to the exercise price per share of such
TeleBackup Option immediately prior to the Effective Time divided by the
Exchange Ratio. If the foregoing calculation results in an exchanged TeleBackup
Option being exercisable for a fraction of a share of VERITAS Common Stock, then
the number of shares of VERITAS Common Stock subject to such option will be
rounded down to the nearest whole number of shares and the total exercise price
for the option will be reduced by the exercise price of the fractional share.
The term, exercisability, vesting schedule, status as an "incentive stock
option" under section 422 of the Code, if applicable, and all other terms and
conditions of the TeleBackup Options will otherwise be unchanged. Continuous
employment with TeleBackup will be credited to an optionee of TeleBackup for
purposes of determining the number of shares of VERITAS Common Stock subject to
exercise under an exchanged TeleBackup Option after the Effective Time.
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ARTICLE 3
RIGHTS OF DISSENT
3.1 Rights of Dissent
(a) Holders of TeleBackup Common Shares may exercise rights of dissent with
respect to such shares in connection with the Arrangement pursuant to and in the
manner set forth in section 184 of the ABCA except that, notwithstanding the
provisions of section 184 of the ABCA, holders who duly exercise such rights of
dissent and who:
(i) are ultimately entitled to be paid fair value for their TeleBackup
Common Shares shall (A) be deemed to have transferred their TeleBackup
Common Shares to the Corporation for cancellation and such shares shall be
cancelled at the Effective Time and (B) not be entitled to any other
payment or consideration including any payment that would be payable under
the Arrangement had such holders not exercised their right of dissent; or
(ii) are ultimately not entitled, for any reason, to be paid fair
value for their TeleBackup Common Shares shall be deemed to have
participated in the Arrangement on the same basis as any non-dissenting
holder of TeleBackup Common Shares, excluding receiving Exchangeco
Exchangeable Shares pursuant to Section 2.8.
In no case shall the Corporation be required to recognize such holders as
holders of TeleBackup Common Shares after the Effective Time, and the names
of such holders of TeleBackup Common Shares shall be deleted from the
register of holders of TeleBackup Common Shares at the Effective Time.
(b) Holders of TeleBackup Common Shares who are ultimately entitled to be
paid fair value for their TeleBackup Common Shares in accordance with Section
3.1(a)(i) shall be paid by the Corporation with money provided by the
Corporation.
ARTICLE 4
CERTIFICATES AND FRACTIONAL SHARES
4.1 Issuance of Certificates
As soon as practicable after the Effective Date:
(a) Exchangeco shall deposit with the Depositary, for the benefit of
the holders of Exchangeco Class A Shares exchanged pursuant to Section 2.8,
certificates representing the Exchangeco Exchangeable Shares issued in
exchange for their outstanding Exchangeco Class A Shares; and
(b) Canco shall deposit with the Depositary, for the benefit of the
holders of Exchangeco Class A Shares exchanged, pursuant to Section 2.9,
certificates representing the shares of VERITAS Common Stock exchanged for
their outstanding Exchangeco Class A Shares.
Upon surrender to the Depositary for cancellation of a certificate which
immediately prior to the Effective Time represented outstanding TeleBackup
Common Shares and which, after the Effective Time, represent Exchangeco Class A
Shares received in connection with the Amalgamation pursuant to Section 2.6 that
were exchanged for Exchangeco Exchangeable Shares pursuant to Section 2.8 or
shares of VERITAS Common Stock, pursuant to Section 2.9 as the case may be,
together with such other
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documents and instruments as would have been required to effect the transfer of
the shares formerly represented by such certificate under the ABCA and such
additional documents and instruments as the Depositary and Exchangeco may
reasonably require, the holder of such surrendered certificate shall be entitled
to receive in exchange therefor, and the Depositary shall deliver to such
holder, (a) in the case of an exchange pursuant to Section 2.8, a certificate
representing that number (rounded down to the nearest whole number) of
Exchangeco Exchangeable Shares that such holder has the right to receive and a
cheque for (i) any dividends or distributions with respect thereto then payable
pursuant to Section 4.2 and (ii) any cash in lieu of a fractional Exchangeco
Exchangeable Share payable pursuant to Section 4.3, and any certificate so
surrendered shall forthwith be cancelled and the Exchangeco Class A Shares so
cancelled shall be returned to the status of authorized but unissued; (b) in the
case of an exchange pursuant to Section 2.9, a certificate representing that
number (rounded down to the nearest whole number) of shares of VERITAS Common
Stock that such holder has a right to receive and a cheque for (i) any dividends
or distributions with respect thereto then payable pursuant to Section 4.2 and
(ii) any case in lieu of a fractional share of VERITAS Common Stock payable
pursuant to Section 4.3, and any certificate so surrendered shall forthwith be
cancelled and the Exchangeco Class A Shares so cancelled shall be returned to
the status of authorized but unissued. In the event of a transfer of ownership
of Exchangeco Class A Shares that is not registered in the transfer records of
the Corporation, a certificate representing the proper number of Exchangeco
Exchangeable Shares or shares of VERITAS Common Stock, as the case may be, may
be issued to the transferee if the certificate representing such Exchangeco
Class A Shares is presented to the Depositary accompanied by all documents
required by the Depositary and the Corporation to evidence and effect such
transfer. Until surrendered as contemplated by this Section 4.1, each
certificate which immediately prior to the Effective Time represented
outstanding TeleBackup Common Shares that were exchanged for Exchangeco
Exchangeable Shares or shares of VERITAS Common Stock, as the case may be, shall
be deemed at any time after the Effective Time to represent only the right to
receive, upon such surrender, the certificate representing Exchangeco
Exchangeable Shares or shares of VERITAS Common Stock, as the case may be, as
contemplated by this Section 4.1 and, at the time or times set forth in Section
4.2, a cheque for (i) any dividends or distributions with a record date after
the Effective Time theretofore paid or payable with respect to Exchangeco
Exchangeable Shares or shares of VERITAS Common Stock, as the case may be, as
contemplated by Section 4.2 and payable with respect to Exchangeco Exchangeable
Shares or shares of VERITAS Common Stock, as the case may be, as contemplated by
Section 4.2 and (ii) a cash payment in lieu of any fractional Exchangeco
Exchangeable Share or fractional share of VERITAS Common Stock, as the case may
be, as contemplated by Section 4.3.
4.2 Distributions with Respect to Unsurrendered Certificates
No dividends or other distributions declared or made after the Effective
Time with respect to Exchangeco Exchangeable Shares or shares of VERITAS Common
Stock with a record date after the Effective Time shall be paid to the holder of
any unsurrendered certificate that, immediately prior to the Effective Time,
represented outstanding TeleBackup Common Shares and no cash payment in lieu of
any fractional share shall be paid to any such holder pursuant to Section 4.3,
unless and until such certificate shall be surrendered in accordance with
Section 4.1. Subject to applicable law at the time of such surrender of any such
certificate (or, in the case of clause (iii) below, at the appropriate payment
date), there shall be paid to the registered holder of a certificate
representing
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whole Exchangeco Exchangeable Shares or shares of VERITAS Common Stock (i) the
amount of any cash payable in lieu of a fractional Exchangeco Exchangeable Share
or fractional share of VERITAS Common Stock, as the case may be, to which such
holder is entitled pursuant to Section 4.3, (ii) the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole Exchangeco Exchangeable Shares or shares of VERITAS
Common Stock, as the case may be, and (iii) the amount of dividends or other
distributions with a record date after the Effective Time but prior to surrender
and a payment date subsequent to surrender payable with respect to such whole
Exchangeco Exchangeable Shares or shares of VERITAS Common Stock, as the case
may be.
4.3 No Fractional Shares
No certificates or scrip representing fractional Exchangeco Exchangeable
Shares or fractional shares of VERITAS Common Stock shall be issued upon the
surrender of certificates for exchange pursuant to Section 4.1 and no dividend,
stock split or other change in the capital structure of Exchangeco or VERITAS
shall relate to any such fractional security and such fractional interests shall
not entitle the owner thereof to vote or to exercise any rights as a security
holder of Exchangeco or VERITAS. In lieu of any such fractional securities, each
person entitled to a fractional interest in a Exchangeco Exchangeable Share or a
share of VERITAS Common Stock will receive an amount of cash (rounded to the
nearest whole cent) equal to the product obtained when such fraction is
multiplied by the Current Market Price on the Effective Date, such amount to be
provided to the Depositary by the Corporation upon request.
4.4 Lost Certificates
If any certificate which immediately prior to the Effective Time
represented outstanding TeleBackup Common Shares that were exchanged pursuant to
Section 2.8 or Section 2.9 has been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming such certificate to be lost,
stolen or destroyed, the Depositary will issue in exchange for such lost, stolen
or destroyed certificate, a certificate representing Exchangeco Exchangeable
Shares or shares of VERITAS Common Stock, as the case may be, (and a cheque for
any dividends or distributions with respect thereto pursuant to Section 4.2 and
any cash for a fractional share pursuant to Section 4.3) deliverable in respect
thereof. When authorizing such payment in exchange for any lost, stolen or
destroyed certificate, the person to whom a certificate representing Exchangeco
Exchangeable Shares or shares of VERITAS Common Stock, as the case may be, is to
be issued shall, as a condition precedent to the issuance thereof, give a bond
satisfactory to Exchangeco and the Depositary in such sum as Exchangeco may
direct or otherwise indemnify Exchangeco, New TeleBackup, VERITAS Software
Corporation, VERITAS Holding Corporation and the Depositary in a manner
satisfactory to them against any claim that may be made against Exchangeco, New
TeleBackup, VERITAS Software Corporation, VERITAS Holding Corporation or the
Depositary with respect to the certificate alleged to have been lost, stolen or
destroyed.
4.5 Extinguishment of Rights
Notwithstanding any of the other provisions hereof, any certificate which
immediately prior to the Effective Time represented outstanding TeleBackup
Common Shares that were exchanged pursuant to Section 2.8 or Section 2.9 and has
not been surrendered with all other instruments required by Section 4.1 on or
prior to the sixth anniversary of the
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Effective Date shall cease to represent a claim against, or interest of any kind
or nature in, Exchangeco, New TeleBackup, VERITAS or any of its Subsidiaries. On
such date, the Exchangeco Exchangeable Shares or shares of VERITAS Common Stock
to which the former registered holder of such certificate was ultimately
entitled shall be deemed to have been surrendered to Exchangeco together with
all entitlements to dividends, distributions and cash for fractional interests
thereon held for such former registered holder for no consideration.
ARTICLE 5
AMENDMENT
5.1 Plan of Arrangement Amendment
(a) TeleBackup reserves the right to amend, modify and/or supplement this
Plan of Arrangement at any time and from time to time provided that any such
amendment, modification, or supplement must be contained in a written document
that is (i) agreed to by VERITAS, (ii) filed with the Court and, if made
following the TeleBackup Meeting, approved by the Court and (iii) communicated
to holders of TeleBackup Common Shares in the manner required by the Court (if
so required).
(b) Any amendment, modification or supplement to this Plan of Arrangement
may be proposed by the Corporation at any time prior to or at the TeleBackup
Meeting (provided that VERITAS shall have consented thereto) with or without any
other prior notice or communication, and, if so proposed and accepted by the
persons voting at the TeleBackup Meeting (other than as may be required under
the Court's interim order), shall become part of this Plan of Arrangement for
all purposes.
(c) Any amendment, modification or supplement to this Plan of Arrangement
that is approved by the Court following the TeleBackup Meeting shall be
effective only (i) if it is consented to by TeleBackup, (ii) if it is agreed to
by VERITAS and (iii), if required by the Court, it is approved as required by
the holders of TeleBackup Common Shares.
M-10
<PAGE> 606
APPENDIX A
ARTICLES OF AMENDMENT OF EXCHANGECO
(REMOVAL OF PRIVATE COMPANY RESTRICTIONS)
BUSINESS CORPORATIONS ACT
(SECTION 27 OR 171)
<TABLE>
<S> <C>
ALBERTA
REGISTRIES ARTICLES OF AMENDMENT
- ----------------------------------------------------------------------------------
1. NAME OF CORPORATION: 2. CORPORATE ACCESS NUMBER:
TELEBACKUP EXCHANGECO INC.
- ----------------------------------------------------------------------------------
</TABLE>
3. ITEM NO. 6 OF THE ARTICLES OF THE ABOVE NAMED CORPORATION ARE AMENDED IN
ACCORDANCE WITH SECTION 167(1)(m) OF THE BUSINESS CORPORATIONS ACT.
The Articles of the Corporation are amended by deleting in its entirety
Schedule B and inserting in its place the attached Schedule B.
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
DATE SIGNATURE TITLE
May , 1999
- -----------------------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY FILED
REG 3054 (95/11) FORM 4)
</TABLE>
M-A-1
<PAGE> 607
SCHEDULE B
Other provisions, if any:
(1) The directors may appoint from time to time one or more directors
within the limits provided in the Business Corporations Act (Alberta).
(2) Meetings of the shareholders may be held at any place within Canada.
M-A-2
<PAGE> 608
APPENDIX B
AMALGAMATION AGREEMENT
THIS AGREEMENT OF AMALGAMATION is made this day of May, 1999
AMONG:
TELEBACKUP SYSTEMS INC., a corporation, incorporated under the laws of
the Province of Alberta
(herein called "TeleBackup")
OF THE FIRST PART
- and -
[AMALCO], a corporation, incorporated under the laws of the Province of
Alberta
(herein called "Amalco")
OF THE SECOND PART
- and -
TELEBACKUP EXCHANGECO INC., a corporation, incorporated under the laws of
the Province of Alberta
(herein called "Exchangeco")
OF THE THIRD PART
WHEREAS:
A. TeleBackup, Amalco and Exchangeco have effected an arrangement (the
"Arrangement") under Section 186 of the Business Corporations Act
(Alberta) being Chapter B-15 of the Statutes of Alberta, 1981 (the
"Act") pursuant to a Plan of Arrangement (the "Plan") which was
approved by an order of the Court of Queen's Bench of Alberta on
--, 1999;
B. Pursuant to this Plan, TeleBackup and Amalco (herein sometimes
referred to jointly as the "Amalgamating Corporations" and any one
of which may hereinafter be referred to as an "Amalgamating
Corporation"), each being a valid and subsisting corporation in
good standing under the Act have agreed to amalgamate upon the
terms and conditions and in accordance with the mode of carrying
the amalgamation into effect, as set out in the Plan and in this
Agreement;
C. TeleBackup was incorporated under the laws of Alberta on the 5th
day of May, 1995;
D. TeleBackup is authorized to issue an unlimited number of common
shares (the "TeleBackup Common Shares"), of which -- TeleBackup
Common Shares are presently issued and outstanding as fully paid
and non-assessable;
E. Amalco was incorporated under the laws of the Province of Alberta
on the -- day of May, 1999 and is a wholly owned subsidiary of
Exchangeco;
M-B-1
<PAGE> 609
F. Amalco is authorized to issue an unlimited number of Common Voting
Shares and an unlimited number of Preferred Non-Voting Shares, of
which 1,000 Common Voting Shares and 3,000 Preferred Non-Voting
Shares are presently issued and outstanding as fully paid and
non-assessable:
G. Exchangeco was incorporated under the laws of the Province of
Alberta on the -- day of April, 1999;
H. Exchangeco is authorized to issue an unlimited number of Common
Voting Shares and an unlimited number of Class A Non-Voting Shares
(the "Exchangeco Class A Shares") of which 1,000 Exchangeco Class A
Shares are presently issued and outstanding as fully paid and
non-assessable;
I. Each of the Amalgamating Corporations and Exchangeco has made full
disclosure to the other of all their respective assets and
liabilities;
J. Each of the Amalgamating Corporations and Exchangeco has effected
a Plan of Arrangement (the "Arrangement") under Section 186 of the
Act pursuant to which the Amalgamating Corporations will
amalgamate;
NOW THEREFORE THIS AGREEMENT WITNESSETH that for and in consideration of
the mutual promises herein contained and other good and valuable consideration,
the parties agree each with the other as follows:
1. The Amalgamating Corporations shall amalgamate and continue as one
corporation (herein sometimes referred to as the "Amalgamated
Corporation") under the provisions of the Act upon the terms and
conditions, and in accordance with the mode of carrying the amalgamation
into effect, as hereinafter set out;
2. The name of the Amalgamated Corporation shall be "New TeleBackup Systems
Inc.";
3. The Registered Office of the Amalgamated Corporation shall be 1900,
333 - 7th Avenue S.W., Calgary, Alberta, Canada, T2P 2Z1;
4. The Amalgamated Corporation shall be authorized to issue an unlimited
number of Common Voting Shares (the "New TeleBackup Common Shares") and
an unlimited number of Preferred Non-Voting Shares (the "New TeleBackup
Preferred Shares"), of which --New TeleBackup Common Shares and 3,000
New TeleBackup Preferred Shares shall be issued and outstanding on the
basis hereinafter set out;
5. There shall be no restrictions on the business the Amalgamated
Corporation may carry on or on the powers the Amalgamated Corporation
may exercise;
6. The right to transfer shares of the Amalgamated Corporation shall be
restricted in that no shares shall be transferred without the approval
of the Board of Directors;
7. The number of shareholders of the Amalgamated Corporation exclusive of
persons who are in its employment and exclusive of persons who, having
been formerly in the employment of the Amalgamated Corporation, were,
while in that employment, and have continued after the termination of
that employment to be shareholders of the Amalgamated Corporation, is
limited to not more than fifty, two or more persons who are the joint
registered owners of one or more shares being counted as one
shareholder;
M-B-2
<PAGE> 610
8. Any invitation to the public to subscribe for any securities of the
Amalgamated Corporation shall be prohibited;
9. Upon the amalgamation of the Amalgamating Corporations and their
continuance as one corporation becoming effective:
(1) the Amalgamating Corporations property shall continue to be the
property of the Amalgamated Corporation;
(2) the Amalgamated Corporation shall continue to be liable for the
Amalgamating Corporations obligations;
(3) an existing cause of action, claim or liability to prosecution
relating to one or both of the Amalgamating Corporations shall be
unaffected;
(4) a civil, criminal or administrative action or proceeding pending by
or against one or both of the Amalgamating Corporations may be
continued to be prosecuted by or against the Amalgamated
Corporation;
(5) a conviction against, or ruling, order or judgment in favour of or
against, one or both of the Amalgamating Corporations may be
enforced by or against the Amalgamated Corporation; and
(6) the Amalgamated Corporation's articles of amalgamation shall be
deemed to be its articles of incorporation and the Amalgamated
Corporation's certificate of amalgamation shall be deemed to be its
certificate of incorporation;
10. The names, occupations and places of residence of the first directors
and officers of the Amalgamated Corporation shall be:
<TABLE>
<CAPTION>
NAME AND OCCUPATION ADDRESS OFFICE HELD
<S> <C> <C>
Byron Osing 200, 119 - 14th Street Director,
N.W. President and Secretary
Calgary, AB
T2N 1Z6
Jay A. Jones 1600 Plymouth Street Director
Mountain View, Ca
94043
</TABLE>
11. The foregoing first directors shall hold office until the first
meeting of shareholders of the Amalgamated Corporation, or until their
successors are elected or appointed. Subject to the provisions of the
Act and any unanimous shareholder agreement, the Board of Directors
shall manage the business and affairs of the Amalgamated Corporation;
12. The Articles of Amalgamation of the Amalgamated Corporation shall be
those currently in force with respect to Amalco, a copy of which is
attached hereto as Schedule "A";
13. Until repealed, amended, altered or added to, so far as applicable,
the by-laws of Amalco at the time the amalgamation becomes effective
shall be the by-laws of the Amalgamated Corporation, a copy of which
is attached hereto as Schedule "B";
M-B-3
<PAGE> 611
14. The manner of converting the authorized and issued capital of each of
the Amalgamating Corporations into that of the Amalgamated Corporation
shall be as follows:
(1) the Amalgamated Corporation shall issue to the registered holders of
Amalco Common Voting Shares that number of New TeleBackup Common
Shares equal to $1000 divided by the closing price of TeleBackup
Common Shares on the last trading day on which such shares trade
prior to the Effective Date, such number of New TeleBackup Common
Shares to be rounded down to the nearest whole number;
(2) the Amalgamated Corporation shall issue to the registered holders of
Amalco Preferred Non-Voting Shares one New TeleBackup Preferred
Share for each Amalco Preferred Non-Voting Share held by them;
(3) Exchangeco shall issue to the registered holders of TeleBackup
Common Shares who have not exercised any rights of dissent pursuant
to the Plan one Exchangeco Class A Share for each TeleBackup Common
Share held by such TeleBackup Shareholders; and
(4) the Amalgamated Corporation shall issue to Exchangeco one New
TeleBackup Common Share for each Exchangeco Class A Share issued by
Exchangeco pursuant to Section 14(c) of this Agreement;
15. Prior to the amalgamation and subsequent to the date of this Agreement,
none of the Amalgamating Corporations, unless this Agreement fails to
obtain confirmation by the shareholders of one or more of the
Amalgamating Corporations, shall:
(a) issue any unissued shares of its capital stock, redeem or reduce any
shares of its capital stock now outstanding or otherwise alter its
existing capital structure; or
(b) declare any dividends or make any other distribution in respect of
any shares of its outstanding capital stock;
16. The Arrangement has been considered and ratified by the holders of the
Amalgamating Corporations and TeleBackup's shares at general meetings
called for this purpose or by resolutions in writing signed by all
shareholders entitled to vote on that resolution, as the case may be;
and
17. To the extent that there is any conflict or inconsistency between the
terms of this Agreement and the Plan the terms of the Plan shall
prevail and the terms of this Agreement shall be amended accordingly.
IN WITNESS WHEREOF the Parties hereto have executed this Agreement as of
the day and year first written above.
M-B-4
<PAGE> 612
<TABLE>
<S> <C>
SIGNED, SEALED AND DELIVERED
in the presence of: TELEBACKUP SYSTEMS INC.
Per:
[AMALCO]
Per:
TELEBACKUP EXCHANGECO INC.
Per:
</TABLE>
M-B-5
<PAGE> 613
APPENDIX C
ARTICLES OF AMENDMENT OF EXCHANGECO
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS
ATTACHING TO THE EXCHANGEABLE SHARES
BUSINESS CORPORATIONS ACT
(SECTION 27 OR 171)
ALBERTA
REGISTRIES ARTICLES OF AMENDMENT
<TABLE>
<S> <C>
- ---------------------------------------
- ----------------------------------------------------------------------------------
1. NAME OF CORPORATION:
TELEBACKUP EXCHANGECO INC.
- ----------------------------------------------------------------------------------
</TABLE>
3. ITEM NO. 2 OF THE ARTICLES OF THE ABOVE NAMED CORPORATION ARE AMENDED IN
ACCORDANCE WITH SECTION 167(1)(d) OF THE BUSINESS CORPORATIONS ACT.
The Articles of the Corporation are amended by creating a new class of
shares known as Exchangeable Shares, the rights, privileges, restrictions and
conditions of which are attached as Schedule A.
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
DATE SIGNATURE TITLE
May , 1999
- -------------------------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY FILED
REG. 3054 (95/11) FORM 4
</TABLE>
M-C-1
<PAGE> 614
SCHEDULE A
ARTICLE 1
INTERPRETATION
1.1 Definitions:
In these Exchangeable Share Provisions, unless something in the subject
matter or context is inconsistent therewith:
"ABCA" means the Business Corporations Act (Alberta), as amended;
"Automatic Exchange Right" has the meaning set out in Section 5.3(b);
"Board of Directors" means the board of directors of the Corporation;
"Business Day" means any day other than a Saturday, a Sunday or a day when
banks are not open for business in either or both of Mountain View, California
and Calgary, Alberta;
"Canadian Dollar Equivalent" means in respect of an amount expressed in a
foreign currency (the "Foreign Currency Amount") at any date the product
obtained by multiplying (a) the Foreign Currency Amount by (b) the official noon
spot exchange rate on such date for such foreign currency as reported by the
Bank of Canada or, in the event such spot exchange rate is not available, such
exchange rate on such date for such foreign currency as may be deemed by the
Board of Directors to be appropriate for such purpose;
"Class A Shares" means the Class A Voting Shares in the capital of the
Corporation;
"Code" means the United States Internal Revenue Code of 1986, as amended;
"Combination Agreement" means the amended and restated combination
agreement among VERITAS Software Corporation, VERITAS Holding Corporation and
the Corporation dated April 12, 1999, providing for, among other things, the
Arrangement;
"Common Shares" means the Common Voting Shares in the capital of the
Corporation;
"Corporation" means TeleBackup Exchangeco Inc. a corporation incorporated
under the ABCA;
"Current Market Price" means, in respect of a share of VERITAS Common Stock
on any date, the Canadian Dollar Equivalent of the average closing sales price
of a share of VERITAS Common Stock during a period of 10 consecutive trading
days ending on the second trading day before such date quoted on the NASDAQ
National Market, or, if the shares of VERITAS Common Stock are not then quoted
on the NASDAQ National Market, on such other stock exchange or automated
quotation system on which the shares of VERITAS Common Stock are listed or
quoted, as the case may be, as may be selected by the Board of Directors for
such purpose; provided, however, that if, in the opinion of the Board of
Directors the public distribution or trading activity of shares of VERITAS
Common Stock during such period is inadequate to create a market that reflects
the fair market value of a share of VERITAS Common Stock, then the Current
Market Price of a share of VERITAS Common Stock shall be determined by the Board
of Directors based upon the advice of such qualified independent financial
advisors as the Board of Directors may deem to be appropriate, and provided
further than any such selection, opinion or determination by the Board of
Directors shall be conclusive and binding;
M-C-2
<PAGE> 615
"Dividend Amount" means an amount equal to the full amount of all dividends
and distributions declared and unpaid on each Exchangeable Share and all
dividends and distributions declared on a share of VERITAS Common Stock that
have not been declared on each Exchangeable Share in accordance with Section
3.1, in each case with a record date prior to the effective date of the exchange
of such Exchangeable Share for a share of VERITAS Common Stock hereunder;
"Effective Time" means the Effective Time as defined in the Plan of
Arrangement;
"Exchangeable Share Provisions" means the rights, privileges, restrictions
and conditions attaching to the Exchangeable Shares, which are set forth in
these articles of amendment;
"Exchangeable Shares" means the exchangeable shares in the capital of the
Corporation to which are attached the Exchangeable Share Provisions;
"Liquidation Amount" has the meaning set out in Section 5.1(a);
"Liquidation Call Purchase Price" has the meaning set out in Section
5.2(a);
"Liquidation Call Right" has the meaning set out in Section 5.2(a);
"Liquidation Date" has the meaning set out in Section 5.1(a);
"Management Information Circular/Joint Proxy Statement/Prospectus" means
the Management Information Circular/Joint Proxy Statement/Prospectus dated on or
about April 19, 1999 of VERITAS Software Corporation, Seagate and TeleBackup
Systems Inc.;
"NSMG Combination" has the meaning ascribed to such term in the Management
Information Circular/Joint Proxy Statement/Prospectus;
"Officer's Certificate" means with respect to VERITAS or the Corporation,
as the case may be, a certificate signed by any one of the Chairman of the
Board, the Vice-Chairman of the Board, the President, any Vice-President or any
other senior officer of the Parent or the Corporation, as the case may be;
"Optional Redemption Date" means a date, if any, established by the Board
of Directors for the redemption of Exchangeable Shares pursuant to Section 7.1
hereof, provided that such date shall not be earlier than the seventh
anniversary date of the Effective Date unless there are fewer than 50,000
Exchangeable Shares outstanding (other than Exchangeable Shares held by VERITAS
and its Subsidiaries and as such number of shares may be adjusted as deemed
appropriate by the Board of Directors to give effect to any subdivision,
combination or consolidation of or stock dividend on the Exchangeable Shares,
any issue or distribution of rights to acquire Exchangeable Shares or securities
exchangeable for or convertible into Exchangeable Shares, any issue or
distribution of other securities or rights or evidences of indebtedness or
assets, or any other capital reorganization or other transaction affecting the
Exchangeable Shares);
"Plan of Arrangement" means the plan of arrangement relating to the
arrangement of TeleBackup Systems Inc. under Section 186 of the ABCA
contemplated by the Combination Agreement;
"Redemption Call Purchase Price" has the meaning set out in Section 7.2(a);
"Redemption Call Right" has the meaning set out in Section 7.2(a);
"Redemption Price" has the meaning set out in Section 7.1(a);
"Retracted Shares" has the meaning set out in Section 6.1(a);
M-C-3
<PAGE> 616
"Retraction Call Purchase Price" has the meaning set out in Section 6.2(a);
"Retraction Call Right" has the meaning set out in Section 6.2(a);
"Retraction Date" has the meaning set out in Section 6.1(a);
"Retraction Price" has the meaning set out in Section 6.1(a);
"Retraction Request" has the meaning set out in Section 6.1(a);
"Seagate" means Seagate Software Inc., a corporation existing under the
laws of the State of Delaware;
"Subsidiary" means, when used with reference to VERITAS, any corporation
more than 50% of the outstanding stock of which, by vote or by value, is owned,
directly or indirectly, by VERITAS, by one or more other Subsidiaries of
VERITAS, or by VERITAS and one or more other Subsidiaries of VERITAS;
"Transfer Agent" means Montreal Trust Company of Canada, a corporation
existing under the laws of Canada, or such other person as may from time to time
be the registrar and transfer agent for the Exchangeable Shares;
"Trustee" means Montreal Trust Company of Canada, a corporation existing
under the laws of Canada, and any successor trustee appointed under the Voting,
Support and Exchange Trust Agreement;
"Trust Estate" has the meaning set out in Section 1.1 of the Voting,
Support and Exchange Trust Agreement;
"VERITAS" means, subject to Section 1.2, VERITAS Holding Corporation, a
corporation existing under the laws of the State of Delaware, and any successor
corporation;
"VERITAS Call Notice" has the meaning set out in Section 6.2(b);
"VERITAS Common Stock" means the shares of Common Stock of VERITAS, par
value US$0.001 per share, having voting rights of one vote per share, and any
other securities into which such shares may be changed or for which such shares
may be exchanged (whether or not VERITAS shall be the issuer of such other
securities) or any other consideration which may be received by the holders of
such shares pursuant to a recapitalization, reconstruction, reorganization or
reclassification of, or an amalgamation, merger, liquidation or similar
transaction affecting, such shares;
"VERITAS Dividend Declaration Date" means the date on which the board of
directors of VERITAS declares any dividend on the shares of VERITAS Common
Stock;
"VERITAS Liquidation Event" has the meaning set out in Section 5.3(a);
"VERITAS Liquidation Event Effective Date" has the meaning set out in
Section 5.3(a); and
"Voting, Support and Exchange Trust Agreement" means the Voting, Support
and Exchange Trust Agreement between the Corporation, VERITAS, VERITAS Holding
Corporation and the Trustee, made as of the date that the Plan of Arrangement
becomes effective.
M-C-4
<PAGE> 617
1.2 Redefinition of VERITAS
If, prior to the Effective Time, the stockholders of VERITAS Software
Corporation and Seagate have not approved the NSMG Combination and the NSMG
Combination has not been effected, all as described in the Management
Information Circular/Joint Proxy Statement/Prospectus, "VERITAS" for the
purposes hereof shall mean VERITAS Software Corporation.
1.3 Payments
All payments to be made hereunder shall be made without interest and less
any tax required by law to be deducted and withheld.
ARTICLE 2
RANKING OF EXCHANGEABLE SHARES
2.1 Ranking
The Exchangeable Shares shall be entitled to a preference over the Common
Shares, the Class A Shares and any other shares ranking junior to the
Exchangeable Shares with respect to the payment of dividends as and to the
extent provided in Article 3 and with respect to the distribution of assets in
the event of the liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, or any other distribution of the assets of the
Corporation among its shareholders for the purpose of winding up it affairs as
and to the extent provided in Article 5.
ARTICLE 3
DIVIDENDS
3.1 Dividends
A holder of an Exchangeable Share shall be entitled to receive and the
Board of Directors shall, subject to applicable law, on each VERITAS Dividend
Declaration Date, declare a dividend on each Exchangeable Share (a) in the case
of a cash dividend or distribution declared on the shares of VERITAS Common
Stock, in an amount in cash for each Exchangeable Share as is equal to the
Canadian Dollar Equivalent on the VERITAS Dividend Declaration Date of the cash
dividend or distribution declared on each share of VERITAS Common Stock, (b) in
the case of a stock dividend or distribution declared on the shares of VERITAS
Common Stock to be paid in shares of VERITAS Common Stock, in such number of
Exchangeable Shares for each Exchangeable Share as is equal to the number of
shares of VERITAS Common Stock to be paid on each share of VERITAS Common Stock
or (c) in the case of a dividend or distribution declared on the shares of
VERITAS Common Stock to be paid in property other than cash or shares of VERITAS
Common Stock, in such type and amount of property for each Exchangeable Share as
is the same as or economically equivalent to (to be determined by the Board of
Directors as contemplated by Section 6.7 of the Voting, Support and Exchange
Trust Agreement) the type and amount of property declared as a dividend or
distribution on each shares of VERITAS Common Stock. Such dividends shall be
paid out of the assets of the Corporation properly applicable to the payment of
dividends, or out of authorized but unissued shares or other securities of the
Corporation.
M-C-5
<PAGE> 618
3.2 Payment of Dividends
Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation shall be issued in respect of any cash dividends or
distributions contemplated by Section 3.1(a) hereof and the sending of such a
cheque to each holder of an Exchangeable Share shall satisfy the cash dividend
represented thereby unless the cheque is not paid on presentation. Certificates
registered in the name of the registered holder of Exchangeable Shares shall be
issued or transferred in respect of any stock dividends or other distribution of
Exchangeable Shares contemplated by Section 3.1(b) hereof and the sending of
such a certificate to each holder of an Exchangeable Share shall satisfy the
stock dividend or other distribution of Exchangeable Shares represented thereby.
Such other type and amount of property in respect of any dividends or
distributions contemplated by Section 3.1(c) hereof shall be issued, distributed
or transferred by the Corporation in such manner as it shall determine and the
issuance, distribution or transfer thereof by the Corporation to each holder of
an Exchangeable Share shall satisfy the dividend or distribution represented
thereby. No holder of an Exchangeable Share shall be entitled to recover by
action or other legal process against the Corporation any dividend that is
represented by a cheque that has not been duly presented to the Corporation's
bankers for payment or that otherwise remains unclaimed for a period of six
years from the date on which such dividend or distribution was payable.
3.3 Record and Payment Dates
The record date for the determination of the holders of Exchangeable Shares
entitled to receive payment of, and the payment date for, any dividend or
distribution declared on the Exchangeable Shares under Section 3.1 hereof shall
be the same as the record date and payment date, respectively, for the
corresponding dividend or distribution declared on the shares of VERITAS Common
Stock.
3.4 Partial Payment
If on any payment date for any dividends or distributions declared on the
Exchangeable Shares under Section 3.1 hereof the dividends or distributions are
not paid in full on all of the Exchangeable Shares then outstanding, any such
dividends or distributions that remain unpaid shall be paid on a subsequent date
or dates determined by the Board of Directors on which the Corporation shall
have sufficient money or other assets properly applicable to the payment of such
dividends or distributions.
ARTICLE 4
CERTAIN RESTRICTIONS
4.1 Certain Restrictions
(a) Except as provided in Section 4.2(b), so long as any of the
Exchangeable Shares are outstanding, the Corporation shall not at any time
without, but may at any time with, the approval of the holders of the
Exchangeable Shares given as specified in Section 9.2 hereof:
(i) pay any dividends on the Common Shares, Class A Shares or any
other shares ranking junior to the Exchangeable Shares, other than stock
dividends payable in Common Shares, Class A Shares or any such other shares
ranking junior to the Exchangeable Shares, as the case may be;
M-C-6
<PAGE> 619
(ii) redeem or purchase or make any capital distribution in respect of
Common Shares, Class A Shares or any other shares ranking junior to the
Exchangeable Shares;
(iii) redeem or purchase any other shares of the Corporation ranking
junior to the Exchangeable Shares with respect to the payment of dividends
or on any liquidation distribution ; or
(iv) issue any shares other than (A) Exchangeable Shares, (B) Common
Shares, (C) Class A Shares and (D) any other shares not ranking superior to
or equal with the Exchangeable Shares.
(b) The restrictions in Sections 4.1(a)(i), 4.1(a)(ii) and 4.1(a)(iii)
shall not apply if all dividends and distributions on the outstanding
Exchangeable Shares corresponding to dividends and distributions declared to
date on the VERITAS Common Stock shall have been declared on the Exchangeable
Shares and paid in full.
ARTICLE 5
LIQUIDATION
5.1 Participation Upon Liquidation, Dissolution or Winding Up of the
Corporation
(a) Subject to applicable law and the due exercise by VERITAS of a
Liquidation Call Right, in the event of the liquidation, dissolution or winding
up of the Corporation or any other distribution of the assets of the Corporation
among its shareholders for the purpose of winding up its affairs, a holder of
Exchangeable Shares shall be entitled to receive from the assets of the
Corporation in respect of each Exchangeable Share held by such holder on the
effective date of such liquidation, dissolution or winding up (the "Liquidation
Date"), before any distribution of any part of the assets of the Corporation
among the holders of the Common Shares, Class A Shares or any other shares
ranking junior to the Exchangeable Shares, an amount per share equal to (a) the
Current Market Price of a share of VERITAS Common Stock on the last Business Day
prior to the Liquidation Date, which shall be satisfied in full by the
Corporation causing to be delivered to such holder one share of VERITAS Common
Stock, plus (b) the Dividend Amount, if any (collectively, the "Liquidation
Amount").
(b) In the case of a distribution on Exchangeable Shares under this Section
5.1, on or promptly after the Liquidation Date, the Corporation shall cause to
be delivered to the holders of the Exchangeable Shares the Liquidation Amount
for each such Exchangeable Share upon presentation and surrender of the
certificates representing such Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the ABCA and such additional documents and instruments
as the Transfer Agent and the Corporation may reasonably require, at the
registered office of the Corporation or at any office of the Transfer Agent as
may be specified by the Corporation by notice to the holders of the Exchangeable
Shares. Payment of the aggregate Liquidation Amount for such Exchangeable Shares
shall be made by delivery to each holder, at the address of the holder recorded
in the securities register of the Corporation for the Exchangeable Shares or by
holding for pick up by the holder at the registered office of the Corporation or
at any office of the Transfer Agent as may be specified by the Corporation by
notice to the holders of Exchangeable Shares, of certificates representing the
aggregate number of shares of VERITAS Common Stock deliverable by the
Corporation to such holder (which shares shall be duly issued as fully
M-C-7
<PAGE> 620
paid and non-assessable and shall be free and clear of any lien, claim,
encumbrance, security interest or adverse claim) and a cheque of the Corporation
payable at par at any branch of the bankers of the Corporation in payment of the
remaining portion, if any, of the aggregate Liquidation Amount payable to such
holder. On or before the Liquidation Date, the Corporation shall deposit or
cause to be deposited the total Liquidation Amount in respect of the
Exchangeable Shares in a custodial account with any chartered bank or trust
company in Canada named in such notice. Upon such deposit being made, the rights
of the holders of Exchangeable Shares as such shall be limited to receiving
their proportionate part of the total Liquidation Amount for such Exchangeable
Shares so deposited, against presentation and surrender of the said certificates
held by them, respectively, in accordance with the foregoing provisions and any
interest allowed on such deposit shall belong to the Corporation. Upon such
payment or deposit of the total Liquidation Amount, the holders of the
Exchangeable Shares shall thereafter be considered and deemed for all purposes
to be the holders of the shares of VERITAS Common Stock delivered or deliverable
to them.
(c) After the Corporation has satisfied its obligations to pay the holders
of the Exchangeable Shares the total Liquidation Amount pursuant to this Section
5.1, such holders shall not be entitled to share in any further distribution of
the assets of the Corporation.
5.2 Liquidation Call Rights
(a) VERITAS shall have the overriding right (a "Liquidation Call Right"),
in the event of and notwithstanding the proposed liquidation, dissolution or
winding up of the Corporation pursuant to Section 5.1 hereof, to purchase from
all but not less than all of the holders of Exchangeable Shares on the
Liquidation Date (other than VERITAS) all but not less than all of the
Exchangeable Shares held by each such holder on payment by VERITAS of an amount
per share equal to the Liquidation Amount (the "Liquidation Call Purchase
Price"). In the event of the exercise of a Liquidation Call Right, each holder
of Exchangeable Shares (other than VERITAS) shall be obligated to sell all the
Exchangeable Shares held by such holder to VERITAS on the Liquidation Date on
payment by VERITAS to the holder of the Liquidation Call Purchase Price for each
such share.
(b) For the purpose of completing a purchase of the Exchangeable Shares
pursuant to the exercise of a Liquidation Call Right, VERITAS shall deposit with
the Transfer Agent, on or before the Liquidation Date, certificates representing
the total number of shares of VERITAS Common Stock deliverable by VERITAS (which
shares shall be duly issued as fully paid and non-assessable and shall be free
and clear of any lien, claim, encumbrance, security interest or adverse claim)
in payment of the total Liquidation Call Purchase Price and a cheque in the
amount of the remaining portion, if any, of the total Liquidation Call Purchase
Price and any interest allowed on such deposit shall belong to VERITAS. Provided
that the total Liquidation Call Purchase Price has been so deposited with the
Transfer Agent, on and after the Liquidation Date the rights of each holder of
Exchangeable Shares (other than VERITAS) will be limited to receiving such
holder's proportionate part of the total Liquidation Call Purchase Price payable
by VERITAS, upon presentation and surrender by the holder of Exchangeable Shares
of certificates representing the Exchangeable Shares held by such holder in
accordance with the following provisions and such holder shall on and after the
Liquidation Date be considered and deemed for all purposes to be the holder of
the shares of VERITAS Common Stock delivered or deliverable to such holder. Upon
surrender to the Transfer Agent of a
M-C-8
<PAGE> 621
certificate representing Exchangeable Shares, together with such other documents
and instruments as may be required to effect a transfer of Exchangeable Shares
under the ABCA and such additional documents and instruments as the Transfer
Agent and the Corporation may reasonably require, the holder of such surrendered
certificate shall be entitled to receive in exchange therefor, and the Transfer
Agent on behalf of VERITAS shall deliver to such holder, a certificate
representing the shares of VERITAS Common Stock to which such holder is entitled
and a cheque in payment of the remaining portion, if any, of the holder's
proportionate part of the total Liquidation Call Purchase Price. If VERITAS does
not exercise its Liquidation Call Right in the manner described above, on the
Liquidation Date the holders of Exchangeable Shares shall be entitled to receive
in exchange therefor the liquidation price otherwise payable by the Corporation
in connection with the liquidation, dissolution or winding up of the Corporation
pursuant to Section 5.1 hereof.
5.3 Automatic Exchange on Liquidation of VERITAS
(a) VERITAS shall give the Transfer Agent written notice of each of the
following events (each a "VERITAS Liquidation Event") at the time set forth
below:
(i) in the event of any determination by the board of directors of
VERITAS to institute voluntary liquidation, dissolution or winding-up
proceedings with respect to VERITAS or to effect any other distribution of
assets of VERITAS among its stockholders for the purpose of winding up its
affairs, at least 60 days prior to the proposed effective date of such
liquidation, dissolution, winding up or other distribution; and
(ii) immediately, upon the earlier of (i) receipt by VERITAS of notice
of and (ii) VERITAS otherwise becoming aware of any threatened or
instituted claim, suit, petition or other proceedings with respect to the
involuntary liquidation, dissolution or winding up of VERITAS or to effect
any other distribution of assets of VERITAS among its stockholders for the
purpose of winding up its affairs.
(b) Immediately following receipt by the Transfer Agent from VERITAS of
notice of any VERITAS Liquidation Event contemplated by Section 5.3(a)(i) or
5.3(a)(ii), the Transfer Agent shall give written notice thereof to the holders
of Exchangeable Shares. Such written notice shall be provided by VERITAS to the
Transfer Agent and shall include a brief description of the automatic exchange
of Exchangeable Shares for shares of VERITAS Common Stock provided for in
Section 5.3(d) below (the "Automatic Exchange Right").
(c) In order that the holders of Exchangeable Shares (other than VERITAS)
will be able to participate on a pro rata basis with the holders of VERITAS
Common Stock in the distribution of assets of VERITAS in connection with a
VERITAS Liquidation Event, on the fifth Business Day prior to the effective date
(the "VERITAS Liquidation Event Effective Date") of a VERITAS Liquidation Event
all of the then outstanding Exchangeable Shares (other than Exchangeable Shares
held by VERITAS) shall be automatically exchanged for shares of VERITAS Common
Stock. To effect such automatic exchange, VERITAS shall purchase each
Exchangeable Share outstanding on the fifth Business Day prior to the VERITAS
Liquidation Event Effective Date and held by a holder of Exchangeable Shares
(other than VERITAS), and each such holder shall sell the Exchangeable Shares
held by it at such time, for a purchase price per share equal to (a) the Current
Market Price of a share of VERITAS Common Stock on the fifth Business Day prior
to the VERITAS Liquidation Event Effective Date, which shall be
M-C-9
<PAGE> 622
satisfied in full by VERITAS delivering to such holder one share of VERITAS
Common Stock, plus (b) the Dividend Amount, if any.
(d) On the fifth Business Day prior to the VERITAS Liquidation Event
Effective Date, the closing of the transaction of purchase and sale contemplated
by the automatic exchange of Exchangeable Shares for VERITAS Common Stock shall
be deemed to have occurred, and each holder of Exchangeable Shares (other than
VERITAS) shall be deemed to have transferred to VERITAS all of such holder's
right, title and interest in and to such Exchangeable Shares and shall cease to
be a holder of such Exchangeable Shares and VERITAS shall deliver or cause to be
delivered to the Transfer Agent, for delivery to such holders, the certificates
for the number of shares of VERITAS Common Stock deliverable upon the automatic
exchange of Exchangeable Shares for VERITAS Common Stock (which shares shall be
duly issued as fully paid and non-assessable and shall be free and clear of any
lien, claim or encumbrance, security interest or adverse claim) and a cheque for
the balance, if any, of the total purchase price for such Exchangeable Shares
and any interest on such deposit shall belong to VERITAS. Concurrently with each
such holder ceasing to be a holder of Exchangeable Shares, such holder shall be
considered and deemed for all purposes to be the holder of the shares of VERITAS
Common Stock delivered to it, or the Transfer Agent on its behalf, pursuant to
the automatic exchange of Exchangeable Shares for VERITAS Common Stock and the
certificates held by such holder previously representing the Exchangeable Shares
exchanged by such holder with VERITAS pursuant to automatic exchange shall
thereafter be deemed to represent the shares of VERITAS Common Stock delivered
to such holder by VERITAS pursuant to such automatic exchange. Upon the request
of any such former holder of Exchangeable Shares and the surrender by such
holder of Exchangeable Share certificates deemed to represent shares of VERITAS
Common Stock, duly endorsed in blank and accompanied by such instruments of
transfer as VERITAS may reasonably require, the Transfer Agent shall deliver or
cause to be delivered to such holder certificates representing the shares of
VERITAS Common Stock of which such holder is the holder and a cheque in payment
of the remaining portion, if any, of the purchase price.
ARTICLE 6
RETRACTION AT OPTION OF HOLDER
6.1 Retraction at Option of Holder
(a) Subject to applicable law and the due exercise by VERITAS of a
Retraction Call Right, a holder of Exchangeable Shares shall be entitled at any
time to require the Corporation to redeem, on the fifth Business Day after the
date on which the Retraction Request (as hereinafter defined) is received by the
Corporation (the "Retraction Date"), any or all of the Exchangeable Shares
registered in the name of such holder for an amount per share equal to (a) the
Current Market Price of a share of VERITAS Common Stock on the last Business Day
prior to the Retraction Date, which shall be satisfied in full by the
Corporation causing to be delivered to such holder one share of VERITAS Common
Stock for each Exchangeable Share presented and surrendered by the holder, plus
(b) the Dividend Amount, if any (collectively, the "Retraction Price"). To
effect a redemption under this Section 6.1, the holder must present and
surrender at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation by notice to the holders
of Exchangeable Shares the certificate representing the Exchangeable Shares that
the holder desires to have the Corporation redeem, together with
M-C-10
<PAGE> 623
such other documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the ABCA and such additional documents and instruments
as the Transfer Agent and the Corporation may reasonably require, together with
a duly executed statement (the "Retraction Request") in the form of Schedule A
hereto or in such other form as may be acceptable to the Corporation specifying
that the holder desires to have all or any number specified therein of the
Exchangeable Shares represented by such certificate (the "Retracted Shares")
redeemed by the Corporation.
(b) In the case of a redemption of Exchangeable Shares under this Section
6.1, upon receipt by the Corporation or the Transfer Agent in the manner
specified in Section 6.1(a) hereof of a certificate representing the number of
Exchangeable Shares which the holder desires to have the Corporation redeem,
together with a Retraction Request, and provided that the Retraction Request is
not revoked by the holder in the manner specified in Section 6.1(e), the
Corporation shall redeem the Retracted Shares effective at the close of business
on the Retraction Date. On the Retraction Date, the Corporation shall deliver or
cause the Transfer Agent to deliver to the relevant holder, at the address of
the holder recorded in the securities register of the Corporation for the
Exchangeable Shares or at the address specified in the holder's Retraction
Request or by holding for pick up by the holder at the registered office of the
Corporation or at any office of the Transfer Agent as may be specified by the
Corporation by notice to the holder of Exchangeable Shares, a certificate
representing the number of shares of VERITAS Common Stock to which such holder
is entitled (which shares shall be duly issued as fully paid and non-assessable
and shall be free and clear of any lien, claim, encumbrance, security interest
or adverse claim) registered in the name of the holder or in such other name as
the holder may request in payment of the Retraction Price and a cheque of the
Corporation payable at par at any branch of the bankers of the Corporation in
payment of the remaining portion, if any, of the aggregate Retraction Price to
which such holder is entitled. The delivery of such certificate and cheque on
behalf of the Corporation by the Transfer Agent shall be deemed to be payment of
and shall satisfy and discharge all liability for the Retraction Price to the
extent that the same is represented by such share certificate and cheque, unless
such cheque is not paid on due presentation. If only a part of the Exchangeable
Shares represented by any certificate is redeemed, a new certificate for the
balance of such Exchangeable Shares shall be issued to the holder at the expense
of the Corporation.
(c) After the close of business on the Retraction Date, the holder of the
Retracted Shares shall cease to be a holder of such Retracted Shares and shall
not be entitled to exercise any of the rights of a holder in respect thereof,
other than the right to receive its proportionate part of the aggregate
Retraction Price for such Retracted Shares, unless upon presentation and
surrender of certificates in accordance with the foregoing provisions, payment
of the aggregate Retraction Price payable to such holder shall not be made, in
which case the rights of such holder shall remain unaffected until such
aggregate Retraction Price has been paid in the manner hereinbefore provided.
After the close of business on the Retraction Date, provided that presentation
and surrender of certificates and payment of such aggregate Retraction Price has
been made in accordance with the foregoing provisions, the holder of the
Retracted Shares so redeemed by the Corporation shall thereafter be considered
and deemed for all purposes to be a holder of the shares of VERITAS Common Stock
delivered to such holder.
(d) Notwithstanding any other provision of this Section 6.1, the
Corporation shall not be obligated to redeem Retracted Shares specified by a
holder in a Retraction Request to the extent that such redemption of Retracted
Shares would be contrary to solvency requirements or other provisions of
applicable law. If the Corporation believes that on any
M-C-11
<PAGE> 624
Retraction Date it would not be permitted by any of such provisions to redeem
the Retracted Shares tendered for redemption on such date, and VERITAS shall
have exercised its Retraction Call Right with respect to the Retracted Shares,
the Corporation shall only be obligated to redeem Retracted Shares specified by
a holder in a Retraction Request to the extent of the maximum number that may be
so redeemed (rounded down to a whole number of shares) as would not be contrary
to such provisions and shall notify the holder at least two Business Days prior
to the Retraction Date as to the number of Retracted Shares which will not be
redeemed by the Corporation. In any case in which the redemption by the
Corporation of Retracted Shares would be contrary to solvency requirements or
other provisions of applicable law and more than one holder has delivered a
Retraction Request, the Corporation shall redeem Retracted Shares in accordance
with Section 6.1(b) on a pro rata basis and shall issue to each such holder of
Retracted Shares a new certificate, at the expense of the Corporation,
representing the Retracted Shares not redeemed by the Corporation pursuant to
Section 6.1(b) hereof. If the Retraction Request is not revoked by the holder in
the manner specified in Section 6.1(e) and VERITAS shall not have exercised its
Retraction Call Right in respect of any such Retracted Shares, an Insolvency
Event (as defined in the Voting, Support and Exchange Trust Agreement) shall, to
the extent it has not theretofore occurred, be deemed thereupon to have occurred
and the holder of any such Retracted Shares not redeemed by the Corporation
pursuant to this Section 6.1(b) as a result of solvency requirements or other
provisions of applicable law shall be deemed by giving the Retraction Request to
have exercised its Exchange Right (as defined in the Voting, Support and
Exchange Trust Agreement) so as to require VERITAS to purchase the unredeemed
Retracted Shares from such holder on the Retraction Date or as soon as
practicable thereafter on payment by VERITAS to such holder of the Purchase
Price for each such Retracted Share, all as more specifically provided in the
Voting, Support and Exchange Trust Agreement.
(e) A holder of Retracted Shares may, by notice in writing given by the
holder to the Corporation before the close of business on the Business Day
immediately preceding the Retraction Date, withdraw its Retraction Request in
which event such Retraction Request shall be null and void.
6.2 Retraction Call Rights
(a) In the event that a holder of Exchangeable Shares delivers a Retraction
Request pursuant to Section 6.1 and subject to the limitations set forth in
Section 6.2(b), VERITAS shall have the overriding right (a "Retraction Call
Right"), notwithstanding the proposed redemption of the Exchangeable Shares by
the Corporation pursuant to Section 6.1 hereof, to purchase from such holder on
the Retraction Date all but not less than all of the Retracted Shares held by
such holder on payment by VERITAS of an amount per share equal to the Retraction
Price (the "Retraction Call Purchase Price"). In the event of the exercise of a
Retraction Call Right, a holder of Exchangeable Shares who has delivered a
Retraction Request shall be obligated to sell all the Retracted Shares to
VERITAS on the Retraction Date on payment by VERITAS of the Retraction Call
Purchase Price for each such share.
(b) Upon receipt by the Corporation of a Retraction Request, the
Corporation shall immediately notify VERITAS thereof. In order to exercise its
Retraction Call Right, VERITAS must notify the Corporation in writing of its
determination to do so (a "VERITAS Call Notice") within two Business Days of
notification to VERITAS by the Corporation of the receipt by the Corporation of
the Retraction Request. If VERITAS so notifies the Corporation within such two
Business Day period, the Corporation shall notify
M-C-12
<PAGE> 625
the holder as soon as possible thereafter as to the exercise of a Retraction
Call Right. If VERITAS delivers a VERITAS Call Notice within such two Business
Day period and duly exercises its Retraction Call Right in accordance with this
Section 6.2, the obligation of the Corporation to redeem the Retracted Shares
shall terminate and, provided that the Retraction Request is not revoked by the
holder in the manner specified in Section 6.1(e), VERITAS shall purchase from
such holder and such holder shall sell to VERITAS on the Retraction Date the
Retracted Shares for the Retraction Call Purchase Price. For the purposes of
completing a purchase pursuant to a Retraction Call Right, VERITAS shall deposit
with the Transfer Agent, on or before the Retraction Date, certificates
representing the number of shares of VERITAS Common Stock to which such holder
is entitled and a cheque in the amount of the remaining portion, if any, of the
aggregate Retraction Call Purchase Price to which such holder is entitled.
Provided that the aggregate Retraction Call Purchase Price has been so deposited
with the Transfer Agent, the closing of the purchase and sale of the Retracted
Shares pursuant to the Retraction Call Right shall be deemed to have occurred as
at the close of business on the Retraction Date and, for greater certainty, no
redemption by the Corporation of such Retracted Share shall take place on the
Retraction Date. In the event than VERITAS does not deliver a VERITAS Call
Notice within such two Business Day period, and provided that the Retraction
Request is not revoked by the holder in the manner specified in Section 6.1(e),
the Corporation shall redeem the Retracted Shares on the Retraction Date and in
the manner otherwise contemplated in Section 6.1.
(c) For the purpose of completing a purchase of Exchangeable Shares
pursuant to the exercise of a Retraction Call Right, VERITAS shall deliver or
cause the Transfer Agent to deliver to the relevant holder, at the address of
the holder recorded in the securities register of the Corporation for the
Exchangeable Shares or at the address specified in the holder's Retraction
Request or by holding for pick up by the holder at the registered office of the
Corporation or any office of the Transfer Agency as may be specified by the
Corporation by notice to the holders of Exchangeable Shares, a certificate
representing the number of shares of VERITAS Common Stock to which such holder
is entitled (which shares shall be duly issued as fully paid and non-assessable
and shall be free and clear of any lien, claim, encumbrance, security interest
or adverse claim) registered in the name of the holder or in such other name as
the holder may request in payment of the Retraction Call Purchase Price and a
cheque of VERITAS payable at par and in Canadian dollars at any branch of the
bankers of VERITAS or of the Corporation in Canada in payment of the remaining
portion, if any, of such aggregate Retraction Call Purchase Price. The delivery
of such certificate and cheque on behalf of VERITAS by the Transfer Agent shall
be deemed to be payment of and shall satisfy and discharge all liability for the
Retraction Call Purchase Price to the extent that the same is represented by
such share certificate and cheque, unless such cheque is not paid on due
presentation.
(d) On and after the close of business on the Retraction Date, the holder
of the Retracted Shares shall not be entitled to exercise any of the rights of a
holder in respect thereof, other than the right to receive its proportionate
part of the total Retraction Call Purchase Price unless upon presentation and
surrender of certificates in accordance with the foregoing provisions, payment
of the aggregate Retraction Call Purchase Price payable to such holder shall not
be made, in which case the rights of such holder shall remain unaffected until
such aggregate Retraction Call Purchase Price has been paid in the manner
hereinbefore provided. On and after the close of business on the Retraction
Date, provided that presentation and surrender of certificates and payment of
such aggregate Retraction Call Purchase Price has been made in accordance with
the foregoing provisions,
M-C-13
<PAGE> 626
the holder of the Retracted Shares so purchased by VERITAS shall thereafter be
considered and deemed for all purposes to be a holder of the shares of VERITAS
Common Stock delivered to such holder.
ARTICLE 7
REDEMPTION BY THE CORPORATION
7.1 Redemption by the Corporation
(a) Subject to applicable law and the due exercise by VERITAS of a
Redemption Call Right, the Corporation shall on any Optional Redemption Date
redeem all of the then outstanding Exchangeable Shares for an amount per share
equal to (a) the Current Market Price of a share of VERITAS Common Stock on the
last Business Day prior to such Optional Redemption Date, which shall be
satisfied in full by the Corporation causing to be delivered to each holder of
Exchangeable Shares one share of VERITAS Common Stock for each Exchangeable
Share held by such holder, plus (b) the Dividend Amount, if any (collectively,
the "Redemption Price"). If VERITAS exercises a Redemption Call Right and all of
the then outstanding Exchangeable Shares (other than the Exchangeable Shares
held by VERITAS) are purchased pursuant to Section 7.2, the remaining
outstanding Exchangeable Shares continue to be redeemable by the Corporation on
a subsequent Optional Redemption Date pursuant to the provisions of this Section
7.1.
(b) In case of a redemption of Exchangeable Shares under this Section 7.1,
the Corporation shall, at least 120 days before any Optional Redemption Date,
send or cause to be sent to each holder of Exchangeable Shares a notice in
writing of the redemption by the Corporation or the purchase by VERITAS under
its Redemption Call Right, as the case may be, of the Exchangeable Shares held
by such holder. Such notice shall set out the formula for determining the
Redemption Price or the Redemption Call Purchase Price, as the case may be, such
Optional Redemption Date and, if applicable, particulars of the Redemption Call
Right.
(c) On or after any Optional Redemption Date and subject to the exercise by
VERITAS of a Redemption Call Right, the Corporation shall cause to be delivered
to the holders of the Exchangeable Shares to be redeemed the Redemption Price
for each such Exchangeable Share upon presentation and surrender at the
registered office of the Corporation or at any office of the Transfer Agent as
may be specified by the Corporation in such notice of the certificates
representing such Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares under
the ABCA and such additional documents and instruments as the Transfer Agent and
the Corporation may reasonable require. Payment of the aggregate Redemption
Price for Exchangeable Shares held by a holder shall be made by delivery to such
holder, at the address of such holder recorded in the securities register of the
Corporation or by holding for pick up by the holder at the registered office of
the Corporation or at any office of the Transfer Agent as may be specified by
the Corporation in such notice, of a certificate representing the aggregate
number of shares of VERITAS Common Stock deliverable by the Corporation to such
holder (which shares shall be duly issued as fully paid and non-assessable and
shall be free and clear of any lien, claim, encumbrance, security interest or
adverse claim) and a cheque of the Corporation payable at par at any branch of
the bankers of the Corporation in respect of the remaining portion, if any, of
such aggregate Redemption Price. On and after any Optional Redemption Date, the
holders of the Exchangeable Shares called for redemption shall not be entitled
to
M-C-14
<PAGE> 627
exercise any of the rights of holders in respect thereof, other than the right
to receive their proportionate part of the total Redemption Price, unless
payment of the aggregate Redemption Price deliverable to a holder for
Exchangeable Shares shall not be made upon presentation and surrender of share
certificates in accordance with the foregoing provisions, in which case the
rights of the holder shall remain unaffected until the aggregate Redemption
Price deliverable to such holder has been paid in the manner hereinbefore
provided. The Corporation shall have the right at any time after the sending of
notice of its intention to redeem the Exchangeable Shares as aforesaid to
deposit or cause to be deposited the total Redemption Price of the Exchangeable
Shares so called for redemption, or of such of the said Exchangeable Shares
represented by certificates that have not at the date of such deposit been
surrendered by the holders thereof in connection with such redemption, in a
custodial account with any chartered bank or trust company in Canada named in
such notice and any interest allowed on such deposit shall belong to the
Corporation. Provided that such total Redemption Price has been so deposited
prior to any Optional Redemption Date, on and after such Optional Redemption
Date, the Exchangeable Shares shall be redeemed and the rights of the holders
thereof after such Optional Redemption Date shall be limited to receiving their
proportionate part of the total Redemption Price for such Exchangeable Shares so
deposited, against presentation and surrender of the said certificates held by
them, respectively, in accordance with the foregoing provisions. Upon such
payment or deposit of the total Redemption Price, the holders of the
Exchangeable Shares shall thereafter be considered and deemed for all purposes
to be holders of the shares of VERITAS Common Stock delivered to them.
7.2 Redemption Call Rights
(a) VERITAS shall have the overriding right (a "Redemption Call Right"),
notwithstanding the proposed redemption of the Exchangeable Shares by the
Corporation pursuant to Section 7.1 hereof, to purchase from all but not less
than all of the holders of Exchangeable Shares (other than VERITAS) on the last
Business Day prior to the Optional Redemption Date in respect of which the
Redemption Call Right is exercised all but not less than all of the Exchangeable
Shares held by each such holder on payment by VERITAS of an amount per share
equal to the Redemption Price (the "Redemption Call Purchase Price"). In the
event of the exercise of a Redemption Call Right, each holder of Exchangeable
Shares (other than VERITAS) shall be obligated to sell all the Exchangeable
Shares held by such holder to VERITAS on the last Business Day prior to such
Optional Redemption Date on payment by VERITAS to such holder of the Redemption
Call Purchase Price for each such share.
(b) For the purposes of completing a purchase of the Exchangeable Shares
pursuant to the exercise of a Redemption Call Right, VERITAS shall deposit with
the Transfer Agent, on or before the last Business Day prior to the Optional
Redemption Date, certificates representing the total number of shares of VERITAS
Common Stock deliverable by VERITAS (which shares shall be duly issued as fully
paid and non-assessable and shall be free and clear of any lien, claim,
encumbrance, security interest or adverse claim) in payment of the total
Redemption Call Purchase Price and a cheque in the amount of the remaining
portion, if any, of the total Redemption Call Purchase Price and any interest
allowed on such deposit shall belong to VERITAS. Provided that the total
Redemption Call Purchase Price has been so deposited with the Transfer Agent, on
and after the last Business Day prior to such Optional Redemption Date the
rights of each holder of Exchangeable Shares (other than VERITAS) will be
limited to receiving such holder's proportionate part of the total Redemption
Call Purchase Price payable by
M-C-15
<PAGE> 628
VERITAS upon presentation and surrender by such holder of certificates
representing the Exchangeable Shares held by such holder in accordance with the
following provisions and such holder shall on and after the last Business Day
prior to such Optional Redemption Date be considered and deemed for all purposes
to be the holder of the shares of VERITAS Common Stock delivered or deliverable
to such holder. Upon surrender to the Transfer Agent of a certificate
representing Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares under
the ABCA and such additional documents and instruments as the Transfer Agent and
the Corporation may reasonably require, the holder of such surrendered
certificate shall be entitled to receive in exchange therefor, and the Transfer
Agent on behalf of VERITAS shall deliver to such holder, a certificate
representing the shares of VERITAS Common Stock to which such holder is entitled
and a cheque in payment of the remaining portion, if any, of the holder's
proportionate part of the total Redemption Call Purchase Price. If VERITAS does
not exercise the Redemption Call Right in the manner described above, on the
Optional Redemption Date a holder of Exchangeable Shares shall be entitled to
receive in exchange therefor the redemption price otherwise payable by the
Corporation in connection with the redemption of the Exchangeable Shares
pursuant to Section 7.1 hereof.
ARTICLE 8
VOTING RIGHTS
8.1 Except as required by applicable law and the provisions of Article 9 and
Sections 4.1, 10.1 and 11.2, the holders of the Exchangeable Shares shall not be
entitled as such to receive notice of or to attend any meeting of the
shareholders of the Corporation or to vote at any such meeting. The holders of
the Exchangeable Shares shall, however, be entitled to notice of meetings of the
shareholders called for the purpose of authorizing the dissolution of the
Corporation or the sale, lease or exchange of all or substantially all the
property of the Corporation other than in the ordinary course of business of the
Corporation.
ARTICLE 9
AMENDMENT AND APPROVAL
9.1 The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed only with the approval
of the holders of the Exchangeable Shares given as hereinafter specified.
9.2 Any approval given by the holders of the Exchangeable Shares to add to,
change or remove any right, privilege, restriction or condition attaching to the
Exchangeable Shares or any other matter requiring the approval or consent of the
holders of the Exchangeable Shares shall be deemed to have been sufficiently
given if it shall have been given in accordance with applicable law subject to a
minimum requirement that such approval be evidenced by resolution passed by not
less than two-thirds of the votes cast on such resolution at a meeting of
holders of Exchangeable Shares duly called and held at which the holders of at
least 50% of the outstanding Exchangeable Shares at that time are present or
represented by proxy; provided that such approval must be given also by the
affirmative vote of holders of more than two-thirds of the Exchangeable Shares
represented in person or by proxy at the meeting excluding Exchangeable Shares
beneficially owned by VERITAS or any of its Subsidiaries. If at any such meeting
the holders of at least 50% of
M-C-16
<PAGE> 629
the outstanding Exchangeable Shares at that time are not present or represented
by proxy within one-half hour after the time appointed for such meeting then the
meeting shall be adjourned to such date not less than 7 days thereafter and to
such time and place as may be designated by the chairman of such meeting. At
such adjourned meeting the holders of Exchangeable Shares present or represented
by proxy thereat may transact the business for which the meeting was originally
called and a resolution passed thereat by the affirmative vote of not less than
two-thirds of the votes cast on such resolution at such meeting shall constitute
the approval or consent of the holders of the Exchangeable Shares.
ARTICLE 10
RECIPROCAL CHANGES ETC.
IN RESPECT OF VERITAS COMMON STOCK
10.1
(a) Each holder of an Exchangeable Share acknowledges that the Voting,
Support and Exchange Trust Agreement provides, in part, that VERITAS will not,
except as provided in the Voting, Support and Exchange Trust Agreement, without
the prior approval of the Corporation and the prior approval of the holders of
the Exchangeable Shares given in accordance with Section 9.2 hereof:
(i) issue or distribute shares of VERITAS Common Stock (or securities
exchangeable for or convertible into or carrying rights to acquire VERITAS
Common Stock) to the holders of all or substantially all of the then
outstanding shares of VERITAS Common Stock by way of stock dividend or
other distribution, other than an issue of shares of VERITAS Common Stock
(or securities exchangeable for or convertible into or carrying rights to
acquire VERITAS Common Stock) to holders of shares of VERITAS Common Stock
who exercise an option to receive dividends in shares of VERITAS Common
Stock (or securities exchangeable for or convertible into or carrying
rights to acquire shares of VERITAS Common Stock) in lieu of receiving cash
dividends; or
(ii) issue or distribute rights, options or warrants to the holders of
all or substantially all of the then outstanding shares of VERITAS Common
Stock entitling them to subscribe for or to purchase shares of VERITAS
Common Stock (or securities exchangeable for or convertible into or
carrying rights to acquire VERITAS Common Stock); or
(iii) issue or distribute to the holders of all or substantially all
of the then outstanding shares of VERITAS Common Stock (A) shares or
securities of VERITAS of any class other than VERITAS Common Stock (other
than shares convertible into or exchangeable for or carrying rights to
acquires shares of VERITAS Common Stock); (B) rights, options or warrants
other than those referred to in Section 10.1(a)(ii) above; (C) evidences of
indebtedness of VERITAS or (D) assets of VERITAS;
unless the economic equivalent on a per share basis of such rights,
options, securities, shares, evidences of indebtedness or other assets is
issued or distributed simultaneously to holders of the Exchangeable Shares.
(b) Each holder of an Exchangeable Share acknowledges that the Voting,
Support and Exchange Trust Agreement further provides, in part, that VERITAS
will not, except as provided in the Voting, Support and Exchange Trust
Agreement, without the prior
M-C-17
<PAGE> 630
approval of the Corporation and the prior approval of the holders of the
Exchangeable Shares given in accordance with Section 9.2 hereof;
(i) subdivide, redivide or change the then outstanding shares of
VERITAS Common Stock into a greater number of shares of VERITAS Common
Stock; or
(ii) reduce, combine or consolidate or change the then outstanding
shares of VERITAS Common Stock into a lesser number of shares of VERITAS
Common Stock; or
(iii) reclassify or otherwise change the shares of VERITAS Common
Stock or effect an amalgamation, merger, reorganization or other
transaction affecting the VERITAS Common Stock;
unless the same or an economically equivalent change shall simultaneously
be made to, or in the rights of the holders of, the Exchangeable Shares.
The Voting, Support and Exchange Trust Agreement further provides, in part,
that the aforesaid provisions of the Voting, Support and Exchange Trust
Agreement shall not be changed without the approval of the holders of the
Exchangeable Shares given in accordance with Section 9.2 hereof.
ARTICLE 11
ACTIONS BY THE CORPORATION UNDER THE VOTING,
SUPPORT AND EXCHANGE TRUST AGREEMENT
11.1 The Corporation shall take all such actions and do all such things as
shall be necessary or advisable to perform and comply with and to ensure
performance and compliance by VERITAS with all provisions of the Voting, Support
and Exchange Trust Agreement applicable to the Corporation and VERITAS,
respectively, in accordance with the terms thereof including, without
limitation, taking all such actions and doing all such things as shall be
necessary or advisable to enforce to the fullest extent possible for the direct
benefit of the Corporation all rights and benefits in favour of the Corporation
under or pursuant to such agreement.
11.2 The Corporation shall not agree to or otherwise give effect to any
amendment to, or waiver or forgiveness of its rights or obligations under, the
Voting, Support and Exchange Trust Agreement without the approval of the holders
of the Exchangeable Shares given in accordance with Section 9.2 hereof other
than such amendments, waivers and/or forgiveness as may be necessary or
advisable for the purposes of:
(a) adding to the covenants of the other party or parties to such agreement
for the protection of the Corporation (provided such covenants do not prejudice
the interests of the holders of the Exchangeable Shares) or the holders of
Exchangeable Shares;
(b) making such provisions or modifications not inconsistent with such
agreement as may be necessary or desirable with respect to matters or questions
arising thereunder which, in the opinion of the Board of Directors, it may be
expedient to make, provided that the Board of Directors shall be of the opinion,
after consultation with counsel, that such provisions and modifications will not
be prejudicial to the interests of the holders of the Exchangeable Shares; or
(c) making such changes in or corrections to such agreement which, on the
advice of counsel to the Corporation, are required for the purpose of curing or
correcting any ambiguity or defect or inconsistent provision or clerical
omission or mistake or manifest
M-C-18
<PAGE> 631
error contained therein, provided that the Board of Directors shall be of the
opinion, after consultation with counsel, that such changes or corrections will
not be prejudicial to the interests of the holders of the Exchangeable Shares.
ARTICLE 12
LEGEND
12.1 The certificates evidencing the Exchangeable Shares shall contain or have
affixed thereto a legend, in form and on terms approved by the Board of
Directors, with respect to the provisions of the Plan of Arrangement and the
Voting, Support and Exchange Trust Agreement (including the provisions with
respect to the call rights, voting rights and exchange rights thereunder).
ARTICLE 13
NOTICES
13.1 Subject to applicable law, any notice, request or other communication to
be given to the Corporation by a holder of Exchangeable Shares shall be in
wiring and shall be valid and effective if given by mail (postage prepaid) or by
telecopy or by delivery to the registered office of the Corporation and
addressed to the attention of the President. Any such notice, request or other
communication, if given by mail, telecopy or delivery, shall only be deemed to
have been given and received upon actual receipt thereof by the Corporation.
13.2 Any presentation and surrender by a holder of Exchangeable Shares to the
Corporation or the Transfer Agent of certificates representing Exchangeable
Shares in connection with the liquidation, dissolution or winding up of the
Corporation or the retraction or redemption of Exchangeable Shares shall be made
by registered mail (postage prepaid) or by delivery to the registered office of
the Corporation or to such office of the Transfer Agent as may be specified by
the Corporation, in each case addressed to the attention of the President of the
Corporation. Any such presentation and surrender of certificates shall only be
deemed to have been made and to be effective upon actual receipt thereof by the
Corporation or the Transfer Agent, as the case may be. Any such presentation and
surrender of certificates made by registered mail shall be at the sole risk of
the holder mailing the same.
13.3 Subject to applicable law, any notice, request or other communication to
be given to a holder of Exchangeable Shares by or on behalf of the Corporation
shall be in writing and shall be valid and effective if given by mail (postage
prepaid) or by delivery to the address of the holder recorded in the securities
register of the Corporation or, in the event of the address of any such holder
not being so recorded, then at the last known address of such holder. Any such
notice, request or other communication, if given by mail, shall be deemed to
have been given and received on the fifth Business Day following the date of
mailing and, if given by delivery, shall be deemed to have been given and
received on the date of delivery. Accidental failure or omission to give any
notice, request or other communication to one or more holders of Exchangeable
Shares, or any defect in such notice, shall not invalidate or otherwise alter or
affect any action or proceeding to be taken by the Corporation pursuant thereto.
M-C-19
<PAGE> 632
SCHEDULE A
NOTICE OF RETRACTION
To: The Corporation and VERITAS
c/o Montreal Trust Company of Canada
600, 530 - 8th Avenue SW
Calgary, Alberta T2P 3S8
Fax: 403-267-6529
This notice is given pursuant to Article 6 of the provisions (the "Share
Provisions") attaching to the exchangeable share(s) represented by this
certificate and all capitalized words and expressions used in this notice that
are defined in the Share Provisions have the meanings ascribed to such words and
expressions in such Share Provisions.
The undersigned hereby notifies the Corporation that, subject to the
Retraction Call Right referred to below, the undersigned desires to have the
Corporation redeem on the Retraction Date (being the fifth Business Day after
the date upon which this notice is received by the Corporation) in accordance
with Article 6 of the Share Provisions:
All Exchangeable Shares represented by this certificate; or
Exchangeable Share(s) only.
The undersigned acknowledges the Retraction Call Right of VERITAS to
purchase all but not less than all the Retracted Shares from the undersigned and
that this notice shall be deemed to be a revocable offer by the undersigned to
sell the Retracted Shares to VERITAS in accordance with the Retraction Call
Right on the Retraction Date for the Retraction Price and on the other terms and
conditions set out in Section 6.3 of the Share Provisions. If VERITAS does not
determine to exercise its Retraction Call Right, the Corporation will notify the
undesigned of such fact as soon as possible. This notice of retraction, and
offer to sell the Retracted Shares to VERITAS, may be revoked and withdrawn by
the undersigned by notice in writing given to the Corporation at any time before
the close of business on the Business Day immediately preceding the Retraction
Date.
The undersigned acknowledges that if, as a result of solvency requirements
or other provisions of applicable law, the Corporation is unable to redeem all
Retracted Shares an Insolvency Event (as defined in the Voting, Support and
Exchange Trust Agreement) shall, to the extent it shall not theretofore have
occurred, be deemed thereupon to have occurred, and the undersigned will be
deemed to have exercised the Exchange Right (as defined in the Voting, Support
and Exchange Trust Agreement) so as to require VERITAS to purchase the
unredeemed Retracted Shares.
M-C-20
<PAGE> 633
The undersigned hereby represents and warrants to the Corporation and
VERITAS that the undersigned has good title to, and owns, the share(s)
represented by this certificate to be acquired by the Corporation or VERITAS, as
the case may be, free and clear of all liens, claims and encumbrances.
<TABLE>
<S> <C> <C>
----------------------------- ----------------------------- -----------------------------
Date Signature of Shareholder Guarantee of Signature
</TABLE>
[ ] Please check box if the securities and any cheque(s) resulting from the
retraction or purchase of the Retracted Shares are to be held for pick-up
by the shareholder at the principal transfer office of Transfer Agent in
Calgary, Alberta, failing which the securities and any cheque will be
mailed to the last address of the shareholder as it appears on the
register.
Note: This panel must be completed and this certificate, together with any
additional documents as the Transfer Agent and the Corporation may
require, must be deposited with the Transfer Agent at its principal
office in Calgary, Alberta. The securities and any cheque resulting from
the retraction or purchase of the Retracted Shares will be issued and
registered in, and made payable to, respectively, the name of the
shareholder as it appears on the register of the Corporation and
securities and cheque resulting from such retraction or purchase will be
delivered to such shareholder as indicated above, unless the form
appearing immediately below is duly completed, all exigible transfer
taxes are paid and the signature of the registered holder is guaranteed
by a Canadian chartered bank or trust company, member of a recognized
stock exchange in Canada or a member of the Securities Transfer
Association Medallion (STAMP) Program.
<TABLE>
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------
Name of Person in Whose Name Address Signature of Signature Date
Securities and Cheque are to be Registered Holder Guaranteed by
Registered, Issued or Delivered
(Please Print)
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
Note: If the notice of retraction is for less than all of the share(s)
represented by this certificate, a certificate representing the remaining
shares of the Corporation will be issued and registered in the name of
the shareholder as it appears on the register of the Corporation, unless
the Share Transfer Power on the share certificate is duly completed in
respect of such shares.
U.S. Residents/Citizens must provide their Taxpayer Identification Number Here:
M-C-21
<PAGE> 634
APPENDIX N
APPROVAL OF MANAGEMENT INFORMATION
CIRCULAR/JOINT PROXY STATEMENT/PROSPECTUS
BY TELEBACKUP SYSTEMS INC.
The contents of this Management Information Circular/Joint Proxy Statement/
Prospectus and the sending thereof to the shareholders of TeleBackup have been
approved by the TeleBackup Board of Directors.
As it relates to TeleBackup, the foregoing contains no untrue statement of
a material fact and does not omit to state a material fact that is required to
be stated or that is necessary to make a statement not misleading in the light
of the circumstances in which it was made. VERITAS Software Corporation, VERITAS
Holding Corporation, Seagate Software, Inc. and Seagate Technology, Inc. have
separately provided the information contained in this Management Information
Circular/Joint Proxy Statement/Prospectus with respect to their respective
businesses including the information incorporated by reference, and their
respective financial statements and financial information. TeleBackup assumes no
responsibility for the accuracy or completeness of such information, nor for any
omission on the part of VERITAS Software Corporation, VERITAS Holding
Corporation, Seagate Software, Inc. or Seagate Technology, Inc. to disclose
facts or events which affect the accuracy of any such information.
Dated at Calgary, Alberta, this 22nd day of April, 1999.
TeleBackup Systems Inc.:
LOGO
Dr. Byron Osing
Chief Executive Officer
LOGO
Lynn Thurlow
Chief Financial Officer
N-1
<PAGE> 635
APPENDIX O
BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. The Plan of Arrangement (the "Arrangement") under Section 186 of the
Business Corporations Act (Alberta) (the "Act") in the form set forth in
Appendix "M" to the Management Information Circular/Joint Proxy
Statement/Prospectus of TeleBackup Systems Inc. ("TeleBackup") dated on or about
April 19, 1999, involving TeleBackup and its shareholders, and VERITAS Holding
Corporation ("VERITAS"), VERITAS Software Corporation ("VERITAS Software") and
certain affiliates of VERITAS Software is hereby authorized, approved and agreed
to;
2. The Amended and Restated Combination Agreement (the "Combination
Agreement") dated April 12, 1999 between TeleBackup, VERITAS and VERITAS
Software, with such amendments or variations thereto made in accordance with the
terms of the Arrangement as may be approved by the persons referred to in
paragraph 4 hereof, such approval to be evidenced conclusively by their
execution and delivery of any such amendments or variations, is hereby
confirmed, ratified and approved;
3. Notwithstanding the approval by the shareholders of the Special
Resolution, TeleBackup, subject to the provisions of the Combination Agreement
and without further notice to or approval of the shareholders of TeleBackup, may
amend the Arrangement or may decide not to proceed with the Arrangement at any
time prior to the Arrangement becoming effective pursuant to the provisions of
the Act; and
4. Any one or more of the officers or directors of TeleBackup be and is
hereby authorized for and on behalf of TeleBackup (whether under its corporate
seal or otherwise) to execute and deliver Articles of Arrangement and all other
documents and instruments and to take all such other actions as such officer or
director may deem necessary or desirable to implement this Resolution and the
matters authorized hereby, including the transactions required by the
Arrangement, such determination to be conclusively evidenced by the execution
and delivery of such documents and other instruments or the taking of any such
actions.
O-1
<PAGE> 636
APPENDIX P
FORM OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
VERITAS SOFTWARE CORPORATION
ARTICLE I
The name of the Corporation is VERITAS Software Corporation.
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is 15 E. North Street, City of Dover, County of Kent. The name of its
registered agent at that address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
4.1 Classes of Stock. The total number of shares of all classes of stock
which the Corporation has authority to issue is five hundred ten million and one
(510,000,001) shares, consisting of three classes: five hundred million
(500,000,000) shares of Common Stock, $0.001 par value per share, ten million
(10,000,000) shares of Preferred Stock, $0.001 par value per share, and one (1)
share of Special Voting Stock, $1.00 par value.
4.2 Preferred Stock Series Determination. The Board of Directors is
authorized, subject to any limitations prescribed by the law of the State of
Delaware, to provide for the issuance of the shares of Preferred Stock in one or
more series, and, by filing a certificate of designation pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, to fix the designation,
powers, preferences and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof, and to increase or decrease
the number of shares of any such series (but not below the number of shares of
such series then outstanding). The number of authorized shares of Preferred
Stock may be increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a majority of the
stock of the Corporation entitled to vote, unless a vote of any other holders is
required pursuant to a certificate or certificates establishing a series of
Preferred Stock.
4.3 Rights, Privileges and Restrictions. The rights, privileges and
restrictions of the Common Stock and the Special Voting Stock shall be set forth
in this Articles IV.
4.4 Voting Rights.
4.4.1 General. Except as otherwise required by law of this Restated
Certificate of Incorporation, (i) each holder of record of Common Stock shall
have one vote in respect of each share of stock held by the holder on the books
of the Corporation, and
P-1
<PAGE> 637
(ii) the holder of record of the share of Special Voting Stock shall have a
number of votes equal to the number of shares of Common Stock that may be
issuable upon the exchange of the Exchangeable Non-Voting Shares ("Exchangeable
Shares") of TeleBackup Exchangeco Inc., an Alberta corporation, outstanding from
time to time which are not owned by the Corporation, any of its subsidiaries or
any person directly or indirectly controlled by or under common control of the
Corporation, in each case for the election of directors and on all matters
submitted to a vote of stockholders of the Corporation. For the purpose hereof,
"control" (including the correlative meanings, the terms "controlled by" and
"under common control of") as applied to any person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that person through the ownership of voting
securities, by contract or otherwise.
4.4.2 Common Stock and Special Voting Stock Identical in Voting. In
respect of all matters concerning the voting of shares, the Common Stock and the
Special Voting Stock shall vote as a single class and such voting rights shall
be identical in all respects.
4.5 Liquidation. In the event of any liquidation, dissolution or winding
up of the Corporation, the holders of Common Stock shall be entitled to receive,
pro rata, all of the remaining assets of the Corporation available for
distribution to its stockholders and the holders of Special Voting Stock shall
not be entitled to receive any such assets,
4.6 Dividends. The holders of shares of Common Stock shall be entitled to
receive, when, as and of declared by the Board of Directors, out of the assets
of the Corporation which are by law available therefor, dividends payable either
in cash, in property or in shares of capital stock and the holders of Special
Voting Stock shall not be entitled to receive any such dividends.
4.7 Special Voting Stock.
4.7.1 Pursuant to the terms of that certain Amended and Restated
Combination Agreement, dated as of April 12, 1999, by and among the Corporation,
VERITAS Holding Corporation and TeleBackup Systems Inc., an Alberta corporation,
one share of Special Voting Stock is being issued to the trustee (the "Trustee")
under the Voting, Support and Exchange Trust Agreement, to be entered into in or
about May, 1999 by and between the Corporation, VERITAS Holding Corporation,
TeleBackup Exchangeco Inc. and the Trustee.
4.7.2 The holder of the share of Special Voting Stock is entitled to
exercise the voting rights attendant thereto in such manner as such holder
desires.
4.7.3 At such time as the Special Voting Stock has no votes attached to
it because there are no Exchangeable Shares of TeleBackup Exchangeco Inc.
outstanding which are not owned by the Corporation, any of its subsidiaries or
any person directly or indirectly controlled by or under common control of the
Corporation, and there are no shares of stock, debt, options or other agreements
of TeleBackup Exchangeco Inc. which could give rise to the issuance of any
Exchangeable Shares of TeleBackup Exchangeco Inc. to any person (other than the
Corporation, any of its subsidiaries or any person directly or indirectly
controlled by or under common control of the Corporation), the Special Voting
Stock shall be canceled.
ARTICLE V
5.1 Subject to the rights of the holders of any series of Preferred Stock
then outstanding to elect additional directors under specified circumstances,
the number of
P-2
<PAGE> 638
directors shall be fixed from time to time exclusively by the Board of Directors
of the Corporation pursuant to a resolution adopted by a majority vote of the
Whole Board. For the purposes of this Restated Certificate of Incorporation, the
term "Whole Board" shall mean the total number of authorized directors whether
or not there exist any vacancies in previously authorized directorships.
5.2 Subject to the rights of holders of any series of Preferred Stock
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled in any manner permitted under the law of the
State of Delaware; and directors so chosen shall hold office for a term expiring
at the annual meeting of stockholders at which the term of office of the class
to which they have been chosen expires. In the event of a vacancy in the Board
of Directors, the remaining directors, except as otherwise provided or limited
by law or this Restated Certificate of Incorporation, may exercise the powers of
the full Board of Directors until the vacancy is filled.
ARTICLE VI
The Board of Directors of the Corporation shall have the power to adopt,
amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal
of the Bylaws of the Corporation by the Board of Directors shall require the
approval of a majority of the Whole Board. The stockholders shall also have
power to adopt, amend or repeal the Bylaws of the Corporation.
ARTICLE VII
Election of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
ARTICLE VIII
To the fullest extent permitted by law, no director of the Corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VIII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VIII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
ARTICLE IX
Actions shall be taken by the Corporation's stockholders only at annual or
special meetings of stockholders, and the Corporation's stockholders shall not
be able to act by written consent.
P-3
<PAGE> 639
ARTICLE X
The Corporation reserves the right to amend or repeal any provision
contained in this Restated Certificate of Incorporation in the manner prescribed
by the laws of the State of Delaware and all rights conferred upon stockholders
are granted subject to this reservation.
P-4
<PAGE> 640
APPENDIX Q
FORM OF
VERITAS SOFTWARE CORPORATION
1993 EQUITY INCENTIVE PLAN
AS ADOPTED OCTOBER 1, 1993, AMENDED APRIL 22, 1994, APRIL 20, 1995,
JANUARY 12, 1997 AND AS AMENDED ON , 1999
1. Purpose. The purpose of the Plan is to provide incentives to attract,
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent, Subsidiaries and
Affiliates, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 24.
2. Shares Subject to the plan.
2.1 Number of Shares Available. Subject to Sections 2.2 and 18, the
total number of Shares reserved and available for grant and issuance pursuant to
the Plan shall be 20,000,000 Shares. In addition, on each January 1, the
aggregate number of shares of the Company's Common Stock reserved for issuance
under this Plan shall be increased automatically by a number of shares equal to
four and one-half percent (4 1/2%) of the total outstanding shares of the
Company as of the immediately preceding December 31; provided, however, that
such increase shall in no event exceed 8,000,000 shares per year. Any Shares
issuable upon exercise of options granted pursuant to the Company's 1991
Executive Stock Option Plan, and the Company's 1985 Stock Option Plan (the
"Prior Plans") that expire or become unexercisable for any reason without having
been exercised in full, shall no longer be available for distribution under the
Prior Plans, but shall be available for distribution under this Plan. Subject to
Sections 2.2 and 18, Shares shall again be available for grant and issuance in
connection with future Awards under the Plan that: (a) are subject to issuance
upon exercise of an Option but cease to be subject to such Option for any reason
other than exercise of such Option, (b) are subject to an Award granted
hereunder but are forfeited or are repurchased by the Company at the original
issue price, or (c) are subject to an Award that otherwise terminates without
Shares being issued. The total number of Shares issued under the Plan upon
exercise of ISOs will in no event exceed 50,000,000 Shares (adjusted in
proportion to any adjustment under Section 2.2 below) over the term of the Plan.
2.2 Adjustment of Shares. In the event that the number of outstanding
Shares is changed by a stock dividend, recapitalization, stock split, reverse
stock split, subdivision, combination, reclassification or similar change in the
capital structure of the Company without consideration, then (a) the number of
Shares reserved for issuance under the Plan, (b) the Exercise Prices of and
number of Shares subject to outstanding Options, and (c) the number of Shares
subject to other outstanding Awards shall be proportionately adjusted, subject
to any required action by the Board or the shareholders of the Company and
compliance with applicable securities laws; provided, however, that fractions of
a Share shall not be issued but shall either be paid in cash at Fair Market
Value or shall be rounded up to the nearest Share, as determined by the
Committee; and provided, further, that the Exercise Price of any Option may not
be decreased to below the par value of the Shares.
3. Eligibility. ISOs (as defined in Section 5 below) may be granted only to
employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees,
Q-1
<PAGE> 641
officers, directors, consultants, independent contractors and advisers of the
Company or any Parent, Subsidiary or Affiliate of the Company; provided such
consultants, contractors and advisers render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. "Named Executive Officers" (as that term is defined in Item
402(a)(3) of Regulation S-K promulgated under the Exchange Act) shall each be
eligible to receive up to an aggregate maximum of 300,000 Shares at any time
during the term of this Plan pursuant to the grant of Awards hereunder, not to
exceed 300,000 Shares during any one twelve (12) month period. A person may be
granted more than one Award under the Plan.
4. Administration.
4.1 Committee Authority. The Plan shall be administered by the
Committee or the Board acting as the Committee. Subject to the general purposes,
terms and conditions of the Plan, and to the direction of the Board, the
Committee shall have full power to implement and carry out the Plan. The
Committee shall have the authority to:
(a) construe and interpret the Plan, any Award Agreement and any
other agreement or document executed pursuant to the Plan;
(b) prescribe, amend and rescind rules and regulations relating to
the Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject
to Awards;
(f) determine whether Awards will be granted singly, in
combination, in tandem, in replacement of, or as alternatives to, other Awards
under the Plan or any other incentive or compensation plan of the Company or any
Parent, Subsidiary or Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in the Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of the Plan.
4.2 Committee Discretion. Any determination made by the Committee with
respect to any Award shall be made in its sole discretion at the time of grant
of the Award or, unless in contravention of any express term of the Plan or
Award, at any later time, and such determination shall be final and binding on
the Company and all persons having an interest in any Award under the Plan. The
Committee may delegate to one or more officers of the Company the authority to
grant an Award under the Plan to Participants who are not Insiders of the
Company.
4.3 Compliance With Code Section 162m. If two or more members of the
Board are Outside Directors, the Committee shall be comprised of at least two
members of the Board, all of whom are Outside Directors.
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5. Options. The Committee may grant Options to eligible persons and shall
determine whether such Options shall be Incentive Stock Options within the
meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under the Plan shall be
evidenced by an Award Agreement which shall expressly identify the Option as an
ISO or NQSO ("Stock Option Agreement"), and be in such form and contain such
provisions (which need not be the same for each Participant) as the Committee
shall from time to time approve, and which shall comply with and be subject to
the terms and conditions of the Plan.
5.2 Date of Grant. The date of grant of an Option shall be the date on
which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
the Plan will be delivered to the Participant within a reasonable time after the
granting of the Option.
5.3 Exercise Period. Options shall be exercisable within the times or
upon the events determined by the Committee as set forth in the Stock Option
Agreement; provided, however, that no Option shall be exercisable after the
expiration of one hundred twenty (120) months from the date the Option is
granted, and provided further that no Option granted to a person who directly or
by attribution owns more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary of the
Company ("Ten Percent Shareholder") shall be exercisable after the expiration of
five (5) years from the date the Option is granted. The Committee also may
provide for the exercise of Options to become exercisable at one time or from
time to time, periodically or otherwise, in such number or percentage as the
Committee determines.
5.4 Exercise Price. The Exercise Price shall be determined by the
Committee when the Option is granted and may be not less than 85% of the Fair
Market Value of the Shares on the date of grant; provided that (i) the Exercise
Price of an ISO shall be not less than 100% of the Fair Market Value of the
Shares on the date of grant and (ii) the Exercise Price of any Option granted to
a Ten Percent Shareholder shall not be less than 110% of the Fair Market Value
of the Shares on the date of grant. Payment for the Shares purchased may be made
in accordance with Section 8 of the Plan.
5.5 Method of Exercise. Options may be exercised only by delivery to
the Company of a written stock option exercise agreement (the "Exercise
Agreement") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares, if any, and such representations and
agreements regarding Participant's investment intent and access to information,
if any, as may be required or desirable by the Company to comply with applicable
securities laws, together with payment in full of the Exercise Price for the
number of Shares being purchased.
5.6 Termination. Notwithstanding the exercise periods set forth in the
Stock Option Agreement, exercise of an Option shall always be subject to the
following:
(a) If the Participant is Terminated for any reason except death or
Disability, then Participant may exercise such Participant's Options only to the
extent that such Options would have been exercisable upon the Termination Date
no later than ninety
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(90) days after the Termination Date (or such shorter time period as may be
specified in the Stock Option Agreement), but in any event, no later than the
expiration date of the Options.
(b) If the Participant is terminated because of death or Disability
(or the participant dies within three months of such termination), then
Participant's Options may be exercised only to the extent that such Options
would have been exercisable by Participant on the Termination Date and must be
exercised by Participant (or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the Termination Date (or such
shorter time period as may be specified in the Stock Option Agreement), but in
any event no later than the expiration date of the Options.
5.7 Limitations on Exercise. The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value (determined as
of the date of grant) of Shares with respect to which ISOs are exercisable for
the first time by a Participant during any calendar year (under the Plan or
under any other incentive stock option plan of the Company or any Affiliate,
Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair
Market Value of Shares on the date of grant with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year exceeds
$100,000, the Options for the first $100,000 worth of Shares to become
exercisable in such calendar year shall be ISOs and the Options for the amount
in excess of $100,000 that become exercisable in that calendar year shall be
NQSOs. In the event that the Code or the regulations promulgated thereunder are
amended after the Effective Date of the Plan to provide for a different limit on
the Fair Market Value of Shares permitted to be subject to ISOs, such different
limit shall be automatically incorporated herein and shall apply to any Options
granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of Participant, impair any of Participant's rights under any
Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered shall be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 of the Plan for Options
granted on the date the action is taken to reduce the Exercise Price; provided,
further, that the Exercise Price shall not be reduced below the par value of the
Shares, if any.
5.10 No Disqualification. Notwithstanding any other provision in the
Plan, no term of the Plan relating to ISOs shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. Restricted Stock. A Restricted Stock Award is an offer by the Company to
sell to an eligible person Shares that are subject to restrictions. The
Committee shall determine to whom an offer will be made, the number of Shares
the person may purchase, the price to
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be paid (the "Purchase Price"), the restrictions to which the Shares shall be
subject, and all other terms and conditions of the Restricted Stock Award,
subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a Restricted
Stock Award made pursuant to the Plan shall be evidenced by an Award Agreement
("Restricted Stock Purchase Agreement") that shall be in such form (which need
not be the same for each Participant) as the Committee shall from time to time
approve, and shall comply with and be subject to the terms and conditions of the
Plan. The offer of Restricted Stock shall be accepted by the Participant's
execution and delivery of the Restricted Stock Purchase Agreement and full
payment for the Shares to the Company within thirty (30) days from the date the
Restricted Stock Purchase Agreement is delivered to the person. If such person
does not execute and deliver the Restricted Stock Purchase Agreement along with
full payment for the Shares to the Company within thirty (30) days, then the
offer shall terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
Restricted Stock Award shall be determined by the Committee and shall be at
least 85% of the Fair Market Value of the Shares when the Restricted Stock Award
is granted, except in the case of a sale to a Ten Percent Shareholder, in which
case the Purchase Price shall be 100% of the Fair Market Value. Payment of the
Purchase Price may be made in accordance with Section 8 of the Plan.
6.3 Restrictions. Restricted Stock Awards shall be subject to such
restrictions as the Committee may impose. The Committee may provide for the
lapse of such restrictions in installments and may accelerate or waive such
restrictions, in whole or part, based on length of service, performance or such
other factors or criteria as the Committee may determine.
7. Stock Bonuses.
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares (which
may consist of Restricted Stock) for services rendered to the Company or any
Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may be awarded for
past services already rendered to the Company, or any Parent, Subsidiary or
Affiliate of the Company pursuant to an Award Agreement (the "Stock Bonus
Agreement") that shall be in such form (which need not be the same for each
Participant) as the Committee shall from time to time approve, and shall comply
with and be subject to the terms and conditions of the Plan. A Stock Bonus may
be awarded upon satisfaction of such performance goals as are set out in advance
in Participant's individual Award Agreement (the "Performance Stock Bonus
Agreement") that shall be in such form (which need not be the same for each
Participant) as the Committee shall from time to time approve, and shall comply
with and be subject to the terms and conditions of the Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent, Subsidiary or Affiliate
and/or individual performance factors or upon such other criteria as the
Committee may determine.
7.2 Terms of Stock Bonuses. The Committee shall determine the number of
Shares to be awarded to the Participant and whether such Shares shall be
Restricted Stock. If the Stock Bonus is being earned upon the satisfaction of
performance goals pursuant to a Performance Stock Bonus Agreement, then the
Committee shall determine: (a) the nature, length and starting date of any
period during which performance is to be measured (the "Performance Period") for
each Stock Bonus; (b) the performance goals and criteria to be used to measure
the performance, if any; (c) the number of Shares that
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<PAGE> 645
may be awarded to the Participant; and (d) the extent to which such Stock
Bonuses have been earned. Performance Periods may overlap and Participants may
participate simultaneously with respect to Stock Bonuses that are subject to
different Performance Periods and different performance goals and other
criteria. The number of Shares may be fixed or may vary in accordance with such
performance goals and criteria as may be determined by the Committee. The
Committee may adjust the performance goals applicable to the Stock Bonuses to
take into account changes in law and accounting or tax rules and to make such
adjustments as the Committee deems necessary or appropriate to reflect the
impact of extraordinary or unusual items, events or circumstances to avoid
windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be paid
currently or on a deferred basis with such interest or dividend equivalent, if
any, as the Committee may determine. Payment may be made in the form of cash,
whole Shares, including Restricted Stock, or a combination thereof, either in a
lump sum payment or in installments, all as the Committee shall determine.
7.4 Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
shall be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Stock Bonus only to the extent earned as of the date of Termination in
accordance with the Performance Stock Bonus Agreement, unless the Committee
shall determine otherwise.
8. Payment for Share Purchases.
8.1 Payment. Payment for Shares purchased pursuant to the Plan may be
made in cash (by check) or, where expressly approved for the Participant by the
Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of Shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for within the
meaning of SEC Rule 144 (and, if such shares were purchased from the Company by
use of a promissory note, such note has been fully paid with respect to such
Shares); or (2) were obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms
as may be approved by the Committee and bearing interest at a rate sufficient to
avoid imputation of income under Sections 483 and 1274 of the Code; provided,
however, that Participants who are not employees of the Company shall not be
entitled to purchase Shares with a promissory note unless the note is adequately
secured by collateral other than the Shares; provided, further, that the portion
of the Purchase Price equal to the par value of the Shares, if any, must be paid
in cash;
(d) by waiver of compensation due or accrued to Participant for
services rendered;
(e) by tender of property;
(f) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from Participant and
a broker-dealer that is a member of the National Association of Securities
Dealers (a "NASD Dealer") whereby Participant irrevocably elects to exercise the
Option and to sell
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a portion of the Shares so purchased to pay for the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of such Shares to forward the
Exercise Price directly to the Company; or
(2) through a "margin" commitment from Participant and a NASD
Dealer whereby Participant irrevocably elects to exercise the Option and to
pledge the Shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company;
or
(g) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay for
Shares purchased under the Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.
9. Withholding Taxes.
9.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under the Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under the Plan, payments
in satisfaction of Awards are to be made in cash, such payment shall be net of
an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws, a Participant
incurs tax liability in connection with the exercise or vesting of any Award
that is subject to tax withholding and the Participant is obligated to pay the
Company the amount required to be withheld, the Committee may allow the
Participant to satisfy the minimum withholding tax obligation by electing to
have the Company withhold from the Shares to be issued that number of Shares
having a Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date"). All elections by a Participant to have Shares withheld for
this purpose shall be made in writing in a form acceptable to the Committee and
shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made the election shall be irrevocable as to the
particular Shares as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of
the Committee.
10. Privileges of Stock Ownership.
10.1 Voting and Dividends. No Participant shall have any of the rights
of a shareholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant shall
be a shareholder and have all the rights of a shareholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a
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stock dividend, stock split or any other change in the corporate or capital
structure of the Company shall be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant shall have no right to
retain such dividends or distributions with respect to Shares that are
repurchased at the Participant's original Purchase Price pursuant to Section 12.
10.2 Financial Statements. The Company shall provide financial
statements to each Participant prior to such Participant's purchase of Shares
under the Plan, and to each Participant annually during the period such
Participant has Options outstanding; provided, however, the Company shall not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. Transferability. Awards granted under the Plan, and any interest
therein, shall not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as consistent with the specific
Plan and Award Agreement provisions relating thereto. During the lifetime of the
Participant an Award shall be exercisable only by the Participant, and any
elections with respect to an Award, may be made only by the Participant.
12. Restrictions on Shares. At the discretion of the Committee, the Company
may reserve to itself and/or its assignee(s) in the Award Agreement (a) a right
of first refusal to purchase all Shares that a Participant (or a subsequent
transferee) may propose to transfer to a third party, and/or (b) a right to
repurchase a portion of or all Shares held by a Participant following such
Participant's Termination at any time within ninety (90) days after the later of
Participant's Termination Date and the date Participant purchases Shares under
the Plan, for cash or cancellation of purchase money indebtedness, at: (A) with
respect to Shares that are "Vested" (as defined in the Award Agreement), the
higher of: (l) Participant's original Purchase Price, or (2) the Fair Market
Value of such Shares on Participant's Termination Date, provided, such right of
repurchase terminates when the Company's securities become publicly traded; or
(B) with respect to Shares that are not "Vested" (as defined in the Award
Agreement), at the Participant's original Purchase Price, provided, that the
right to repurchase at the original Purchase Price lapses at the rate of at
least 20% per year over 5 years from the date the Shares were purchased, and if
the right to repurchase is assignable, the assignee must pay the Company, upon
assignment of the right to repurchase, cash equal to the excess of the Fair
Market Value of the Shares over the original Purchase Price.
13. Certificates. All certificates for Shares or other securities delivered
under the Plan shall be subject to such stock transfer orders, legends and other
restrictions as the Committee may deem necessary or advisable, including
restrictions under any applicable federal, state or foreign securities law, or
any rules, regulations and other requirements of the SEC or any stock exchange
or automated quotation system upon which the Shares may be listed.
14. Escrow; Pledge of Shares. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates, together with stock powers or other instruments of transfer
approved by the Committee, appropriately endorsed in blank, with the Company or
an agent designated by the Company to hold in escrow until such restrictions
have lapsed or terminated, and the Committee may cause a legend or legends
referencing such restrictions to be placed on the certificates. Any Participant
who is permitted to execute a promissory note as partial or full consideration
for the
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purchase of Shares under the Plan shall be required to pledge and deposit with
the Company all or part of the Shares so purchased as collateral to secure the
payment of Participant's obligation to the Company under the promissory note;
provided, however, that the Committee may require or accept other or additional
forms of collateral to secure the payment of such obligation and, in any event,
the Company shall have full recourse against the Participant under the
promissory note notwithstanding any pledge of the Participant's Shares or other
collateral. In connection with any pledge of the Shares, Participant shall be
required to execute and deliver a written pledge agreement in such form as the
Committee shall from time to time approve. The Shares purchased with the
promissory note may be released from the pledge on a prorata basis as the
promissory note is paid.
15. Exchange and Buyout of Awards. The Committee may, at any time or from
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant shall agree.
16. Securities Law and Other Regulatory Compliance. An Award shall not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed, as they are in effect on the date of grant of the
Award and also on the date of exercise or other issuance. Notwithstanding any
other provision in the Plan, the Company shall have no obligation to issue or
deliver certificates for Shares under the Plan prior to (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable, and/or (b) completion of any registration or other qualification
of such shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company shall be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
shall have no liability for any inability or failure to do so.
17. No Obligation to Employ. Nothing in the Plan or any Award granted under
the Plan shall confer or be deemed to confer on any Participant any right to
continue in the employ of, or other relationship with, the Company or any
Parent, Subsidiary or Affiliate of the Company or limit in any way the right of
the Company or any Parent, Subsidiary or Affiliate of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. Corporate Transactions.
18.1 Assumption or Replacement of Awards by Successor. In the event of
(a) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the shareholders of
the Company and the Awards granted under the Plan are assumed or replaced by the
successor corporation, which assumption shall be binding on all Participants),
(b) a dissolution or liquidation of the Company, (c) the sale of substantially
all of the assets of the Company, or (d) any other transaction which qualifies
as a "corporate transaction" under Section 424(a) of the Code wherein the
shareholders of the Company give up all of their equity interest in the Company
(except
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<PAGE> 649
for the acquisition, sale or transfer of all or substantially all of the
outstanding shares of the Company), any or all outstanding Awards may be assumed
or replaced by the successor corporation, which assumption or replacement shall
be binding on all Participants. In the alternative, the successor corporation
may substitute equivalent Awards or provide substantially similar consideration
to Participants as was provided to shareholders (after taking into account the
existing provisions of the Awards). The successor corporation may also issue, in
place of outstanding Shares of the Company held by the Participant,
substantially similar shares or other property subject repurchase restrictions
no less favorable to the Participant.
18.2 Expiration of Options. In the event such successor corporation, if
any, refuses to assume or substitute the Options, as provided above, pursuant to
a transaction described in Subsection 18.1(a) above, such Options shall expire
on such transaction at such time and on such conditions as the Board shall
determine. In the event such successor corporation, if any, refuses to assume or
substitute the Options as provided above, pursuant to a transaction described in
Subsections 18.1(b), (c) or (d) above, or there is no successor corporation, and
if the Company ceases to exist as a separate corporate entity, then,
notwithstanding any contrary terms in the Award Agreement, the Options shall
expire on a date at least twenty (20) days after the Board gives written notice
to Participants specifying the terms and conditions of such termination.
18.3 Other Treatment of Awards. Subject to any greater rights granted
to Participants under the foregoing provisions of this Section 18, in the event
of the occurrence of any transaction described in Section 18.1, any outstanding
Awards shall be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
18.4 Assumption of Awards by the Company. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Award under the Plan in substitution of
such other company's award, or (b) assuming such award as if it had been granted
under the Plan if the terms of such assumed award could be applied to an Award
granted under the Plan. Such substitution or assumption shall be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under the Plan if the other company had applied the rules of
the Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award shall remain unchanged
(except that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
18.5 Acceleration of Officer Options. The Committee in its sole
discretion may grant Options to certain officers under which the vesting will
accelerate upon the occurrence of a transaction described in Subsections
18.1(a), 18.1(b), 18.1(c) or 18.1(d) above in which there is a successor
corporation, as to an additional 1/48th of the Shares subject to such Options
for each month of employment the officer completed with the Company from the
date of the grant to the date of transaction. In addition, the vesting of such
Options shall accelerate for an additional twenty four months at the rate of
1/48th of the Shares subject to such option; provided that: (i) if requested to
do so, the officer remains employed with the successor for a period of six
months following the date of such
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transaction or (ii) the officer is not requested to remain with the successor
following the date of such transaction.
19. Adoption and Shareholder Approval. The Plan shall become effective on
the date that it is adopted by the Board (the "Effective Date"). The Plan shall
be approved by the shareholders of the Company (excluding Shares issued pursuant
to this Plan), consistent with applicable laws, within twelve months before or
after the Effective Date. Upon the Effective Date, the Board may grant Awards
pursuant to the Plan; provided, however, that: (a) no Option may be exercised
prior to initial shareholder approval of the Plan; (b) no Option granted
pursuant to an increase in the number of Shares approved by the Board shall be
exercised prior to the time such increase has been approved by the shareholders
of the Company; and (c) in the event that shareholder approval is not obtained
within the time period provided herein, all Awards granted hereunder shall be
cancelled, any Shares issued pursuant to any Award shall be cancelled and any
purchase of Shares hereunder shall be rescinded.
20. Term of Plan. The Plan will terminate ten (10) years from the Effective
Date or, if earlier, the date of shareholder approval.
21. Amendment or Termination of Plan. The Board may at any time terminate
or amend the Plan in any respect, including without limitation amendment of any
form of Award Agreement or instrument to be executed pursuant to the Plan;
provided, however, that the Board shall not, without the approval of the
shareholders of the Company, amend the Plan in any manner that requires such
shareholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans.
22. Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board, the submission of the Plan to the shareholders of the Company for
approval, nor any provision of the Plan shall be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under the Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. Governing Law. The Plan and all agreements, documents and instruments
entered into pursuant to the Plan shall be governed by and construed in
accordance with the internal laws of the State of California, excluding that
body of law pertaining to conflict of laws.
24. Definitions. As used in the Plan, the following terms shall have the
following meanings:
"Affiliate" means any corporation that directly, or indirectly through
one or more intermediaries, controls or is controlled by, or is under common
control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
"Award" means any award under the Plan, including any Option, Restricted
Stock or Stock Bonus.
"Award Agreement" means, with respect to each Award, the signed written
agreement between the Company and the Participant setting forth the terms and
conditions of the Award.
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"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee appointed by the Board to administer the
Plan, or if no committee is appointed, the Board.
"Company" means VERITAS Software Corporation, a corporation organized
under the laws of the State of California, any successor corporation thereto and
any corporation that assumes the Plan.
"Disability" means a disability, whether temporary or permanent, partial
or total, within the meaning of Section 22(e)(3) of the Code, as determined by
the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Price" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its last reported sale price on the Nasdaq National Market or, if no
such reported sale takes place on such date, the average of the closing bid and
asked prices;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, the last reported sale price or, if no such
reported sale takes place on such date, the average of the closing bid and asked
prices on the principal national securities exchange on which the Common Stock
is listed or admitted to trading;
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on such
date, as reported by The Wall Street Journal, for the over-the-counter market;
or
(d) if none of the foregoing is applicable, by the Board of
Directors of the Company in good faith.
"Insider" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"Option" means an award of an option to purchase Shares pursuant to
Section 5.
"Outside Director" means any director who is not (i) a current employee
of the Company or any Parent, Subsidiary or Affiliate of the Company; (ii) a
former employee of the Company or any Parent, Subsidiary or Affiliate of the
Company who is receiving compensation for prior services (other than benefits
under a tax-qualified pension plan); (iii) a current or former officer of the
Company or any Parent, Subsidiary or Affiliate of the Company; or (iv) currently
receiving compensation for personal services in any capacity, other than as a
director, from the Company or any Parent, Subsidiary or Affiliate of the
Company; provided, however, that at such time as the term "Outside Director", as
used in Section 162(m) is defined in regulations promulgated under Section
162(m) of the Code, "Outside Director" shall have the meaning set forth in such
regulations, as amended from time to time and as interpreted by the Internal
Revenue Service.
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"Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if at the time of the granting of
an Award under the Plan, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
"Participant" means a person who receives an Award under the Plan.
"Plan" means this VERITAS Software Corporation 1993 Equity Incentive
Plan, as amended from time to time.
"Restricted Stock Award" means an award of Shares pursuant to Section 6.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means shares of the Company's Common Stock reserved for
issuance under the Plan, as adjusted pursuant to Sections 2 and 15, and any
successor security.
"Stock Bonus" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 7.
"Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Award, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
"Termination" or "Terminated" means, for purposes of the Plan with
respect to a Participant, that the Participant has ceased to provide services as
an employee, director, consultant, independent contractor or adviser, to the
Company or a Parent, Subsidiary or Affiliate of the Company, except in the case
of sick leave, military leave, or any other leave of absence approved by the
Committee, provided, that such leave is for a period of not more than ninety
(90) days, or reinstatement upon the expiration of such leave is guaranteed by
contract or statute. The Committee shall have sole discretion to determine
whether a Participant has ceased to provide services and the effective date on
which the Participant ceased to provide services (the "Termination Date").
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APPENDIX R
FORM OF
VERITAS SOFTWARE CORPORATION
1993 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON OCTOBER 1, 1993,
AMENDED JULY 20, 1994, AMENDED APRIL 17, 1996,
AMENDED JANUARY 12, 1997 AND AMENDED , 1999
1. Establishment of Plan
VERITAS Software Corporation, a corporation organized under the laws of the
State of California, any successor corporation thereto and any corporation that
assumes the Plan (the "Company") proposes to grant options for purchase of the
Company's Common Stock (references to Common Stock herein includes any successor
security thereto) to eligible employees of the Company and its Subsidiaries (as
hereinafter defined) pursuant to this Employee Stock Purchase Plan (this
"Plan"). For purposes of this Plan, "Parent Corporation" and "Subsidiary"
(collectively, "Subsidiaries") shall have the same meanings as "parent
corporation" and "subsidiary corporation" in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). The
Company intends the Plan to qualify as an "employee stock purchase plan" under
Section 423 of the Code (including any amendments to or replacements of such
section), and the Plan shall be so construed. Any term not expressly defined in
the Plan but defined for purposes of Section 423 of the Code shall have the same
definition herein. A total of 2,250,000 shares of the Company's Common Stock is
reserved for issuance under the Plan. In addition, on each January 1, the
aggregate number of shares of the Company's Common Stock reserved for issuance
under this Plan shall be increased automatically by a number of shares equal to
one percent (1%) of the total outstanding shares of the Company as of the
immediately preceding December 31; provided, however, that such increase shall
in no event exceed 2,000,000 shares per year. Such numbers shall be subject to
adjustments effected in accordance with Section 14 of the Plan.
2. Purposes
The purpose of the Plan is to provide employees of the Company and
Subsidiaries designated by the Board of Directors of the Company (the "Board")
as eligible to participate in the Plan with a convenient means of acquiring an
equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Subsidiaries, and to provide an incentive for continued employment.
3. Administration
This Plan may be administered by the Board or a committee appointed by the
Board (the "Committee"). As used in this Plan, references to the "Committee"
shall mean either such committee or the Board if no committee has been
established. Subject to the provisions of the Plan and the limitations of
Section 423 of the Code or any successor provision in the Code, all questions of
interpretation or application of the Plan shall be determined by the Board and
its decisions shall be final and binding upon all participants. Members of the
Board shall receive no compensation for their services in connection with the
administration of the Plan, other than standard fees as established from time to
time by the Board for services rendered by Board members serving on Board
committees. All expenses incurred in connection with the administration of the
Plan shall be paid by the Company.
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4. Eligibility
Any employee of the Company or the Subsidiaries is eligible to participate
in an Offering Period (as hereinafter defined) under the Plan except the
following:
(a) employees who are not employed by the Company or Subsidiaries on the
fifteenth (15th) day of the month before the beginning of such Offering Period;
provided, however that employees who are employed by the Company or Subsidiaries
on the date the NSMG Combination (as hereinafter defined) is consummated and
satisfy all other eligibility requirements will be eligible to participate in
the Additional Offering Period (as hereinafter defined):
(b) employees who are customarily employed for less than 20 hours per
week;
(c) employees who are customarily employed for less than 5 months in a
calendar year;
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own stock or
hold options to purchase stock or who, as a result of being granted an option
under the Plan with respect to such Offering Period, would own stock or hold
options to purchase stock possessing 5 percent or more of the total combined
voting power or value of all classes of stock of the Company or any of its
Subsidiaries.
5. Offering Dates
The Offering Periods of the Plan (the "Offering Period") shall be of twenty
four (24) months duration commencing on August 16 and February 16 of each year
and ending on the second February 15 and August 15, respectively, thereafter;
provided, however, that if the merger with VERITAS Holding Corporation (the
"NSMG Combination") is consummated on or after February 16, 1999 and before
August 16, 1999, an additional Offering Period (the "Additional Offering
Period") shall commence on the date the NSMG Combination is consummated and
shall end on February 15, 2001. Except for the Additional Offering Period, each
Offering Period shall consist of four (4) six-month purchase periods
(individually, a "Purchase Period") during which payroll deductions of the
participants are accumulated under this Plan. The Additional Offering Period
shall consist of no fewer than three Purchase Periods, any of which may be
greater or less than six months as determined by the Committee. The first
business day of each Offering Period is referred to as the "Offering Date". The
last business day of each Purchase Period is referred to as the "Purchase Date".
The Board shall have the power to change the duration of Offering Periods or
Purchase Periods with respect to future offerings without shareholder approval
if such change is announced at least fifteen (15) days prior to the scheduled
beginning of the first Offering Period or Purchase Period to be affected. Any
Offering Period and Purchase Period that is in progress on the date that the
Plan is assumed by a corporation shall continue unchanged.
6. Participation in the Plan
Eligible employees may become participants in an Offering Period under the
Plan on the first Offering Date after satisfying the eligibility requirements by
delivering a subscription agreement to the Company's or Subsidiary's (whichever
employs such employee) treasury department (the "Treasury Department") no later
than the five (5) business days prior to such Offering Date unless a later time
for filing the subscription agreement authorizing payroll deductions is set by
the Board for all eligible employees with
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respect to a given Offering Period. An eligible employee who does not deliver a
subscription agreement to the Treasury Department by such date after becoming
eligible to participate in such Offering Period shall not participate in that
Offering Period or any subsequent Offering Period unless such employee enrolls
in the Plan by filing a subscription agreement with the Treasury Department not
later than the 15th day of the month preceding a subsequent Offering Date. Once
an employee becomes a participant in an Offering Period, such employee will
automatically participate in the Offering Period commencing immediately
following the last day of the prior Offering Period unless the employee
withdraws from the Plan or terminates further participation in the Offering
Period as set forth in Section 11 below. Such participant is not required to
file any additional subscription agreement in order to continue participation in
the Plan. A participant in the Plan may participate only in one Offering Period
at any time.
7. Grant of Option on Enrollment
Enrollment by an eligible employee in the Plan with respect to an Offering
Period will constitute the grant (as of the Offering Date) by the Company to
such employee of an option to purchase on each Purchase Date in such Offering
Period up to that number of shares of Common Stock of the Company determined by
dividing the amount accumulated in such employee's payroll deduction account
during such Purchase Period by the lower of (i) eighty-five percent (85%) of the
fair market value of a share of the Company's Common Stock on the Offering Date
(the "Entry Price") or (ii) eighty-five percent (85%) of the fair market value
of a share of the Company's Common Stock on the Purchase Date; provided,
however, that the number of shares of the Company's Common Stock subject to any
option granted pursuant to this Plan shall not exceed the lesser of (a) the
maximum number of shares set by the Board pursuant to Section 10(c) below with
respect to each applicable Purchase Period, or (b) 200% of the number of shares
determined by using 85% of the fair market value of a share of the Company's
Common Stock on the Offering Date as the denominator. Fair market value of a
share of the Company's Common Stock shall be determined as provided in Section 8
hereof.
8. Purchase Price
The purchase price per share at which a share of Common Stock will be sold
in any Offering Period shall be 85 percent of the lesser of:
(a) The fair market value on the applicable Offering Date; or
(b) The fair market value on the applicable Purchase Date in such
Offering Period.
For purposes of the Plan, the term "fair market value" on a given date
shall mean the fair market value of the Company's Common Stock as determined by
the Committee from time to time in good faith. If a public market exists for the
shares, the fair market value shall be the average of the last reported bid and
asked prices for the Common Stock of the Company on the last trading day prior
to the date of determination, or, in the event the Common Stock of the Company
is listed on the Nasdaq National Market, the fair market value shall be the
average of the high and low prices of the Common Stock on the determination date
as quoted on the Nasdaq National Market and reported in The Wall Street Journal.
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9. Payment of Purchase Price; Changes in Payroll Deductions; Issuance of Shares
(a) The purchase price of the shares is accumulated by regular payroll
deductions made during each Purchase Period. The deductions are made as a
percentage of the participant's compensation in one percent increments not less
than 2 percent nor greater than 10 percent, not to exceed $25,000 per year or
such lower limit set by the Committee. Compensation shall mean all W-2
compensation, including, but not limited to base salary, wages, commissions,
overtime, shift premiums and bonuses, plus draws against commissions; provided,
however, that for purposes of determining a participant's compensation, any
election by such participant to reduce his or her regular cash remuneration
under Sections 125 or 401(k) of the Code shall be treated as if the participant
did not make such election. Payroll deductions shall commence on the first
payday following the Offering Date and shall continue to the end of the Offering
Period unless sooner altered or terminated as provided in the Plan.
(b) A participant may lower (but not increase) the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than 15 days after
the Treasury Department's receipt of the authorization and shall continue for
the remainder of the Offering Period unless changed as described below. Such
change in the rate of payroll deductions may be made at any time during an
Offering Period, but not more than one change may be made effective during any
Purchase Period. A participant may increase or decrease the rate of payroll
deductions for any subsequent Offering Period by filing with the Treasury
Department a new authorization for payroll deductions not later than the 15th
day of the month before the beginning of such Offering Period.
(c) All payroll deductions made for a participant are credited to his or
her account under the Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(d) On each Purchase Date, so long as the Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under the Plan and have all payroll
deductions accumulated in the account maintained on behalf of the participant as
of that date returned to the participant, the Company shall apply the funds then
in the participant's account to the purchase of whole shares of Common Stock
reserved under the option granted to such participant with respect to the
Offering Period to the extent that such option is exercisable on the Purchase
Date. The purchase price per share shall be as specified in Section 8 of the
Plan. Any cash remaining in a participant's account after such purchase of
shares shall be refunded to such participant in cash, without interest;
provided, however, that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period or Offering Period, as the case may be. In the event
that the Plan has been oversubscribed, all funds not used to purchase shares on
the Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in the Plan has terminated prior to such Purchase Date.
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(e) As promptly as practicable after the Purchase Date, the Company shall
arrange the delivery to each participant of a certificate representing the
shares purchased upon exercise of his option.
(f) During a participant's lifetime, such participant's option to purchase
shares hereunder is exercisable only by him or her. The participant will have no
interest or voting right in shares covered by his or her option until such
option has been exercised. Shares to be delivered to a participant under the
Plan will be registered in the name of the participant or in the name of the
participant and his or her spouse.
10. Limitations on Shares to be Purchased
(a) No employee shall be entitled to purchase stock under the Plan at a
rate which, when aggregated with his or her rights to purchase stock under all
other employee stock purchase plans of the Company or any Subsidiary, exceeds
$25,000 in fair market value, determined as of the Offering Date (or such other
limit as may be imposed by the Code) for each calendar year in which the
employee participates in the Plan. The Company shall automatically suspend the
payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than 200% of the number of shares determined by using 85% of
the fair market value of a share of the Company's Common Stock on the Offering
Date as the denominator may be purchased by a participant on any single Purchase
Date.
(c) No employee shall be entitled to purchase more than the Maximum Share
Amount (as defined below) on any single Purchase Date. Not less than thirty days
prior to the commencement of any Purchase Period, the Board may, in its sole
discretion, set a maximum number of shares which may be purchased by any
employee at any single Purchase Date (hereinafter the "Maximum Share Amount").
In no event shall the Maximum Share Amount exceed the amounts permitted under
Section 10(b) above. If a new Maximum Share Amount is set, then all participants
must be notified of such Maximum Share Amount not less than fifteen days prior
to the commencement of the next Purchase Period. Once the Maximum Share Amount
is set, it shall continue to apply with respect to all succeeding Purchase Dates
and Purchase Periods unless revised by the Board as set forth above.
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in the Plan exceeds the number of shares then available
for issuance under the Plan, the Company will make a pro rata allocation of the
remaining shares in as uniform a manner as shall be practicable and as the Board
shall determine to be equitable. In such event, the Company shall give written
notice of such reduction of the number of shares to be purchased under a
participant's option to each participant affected thereby.
(e) Any payroll deductions accumulated in a participant's account which are
not used to purchase stock due to the limitations in this Section 10 shall be
returned to the participant as soon as practicable after the end of the Purchase
Period or Offering Period, as the case may be, without interest.
11. Withdrawal
(a) Each participant may withdraw from an Offering Period under the Plan by
signing and delivering to the Treasury Department notice on a form provided for
such
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purpose. Such withdrawal may be elected at any time at least 15 days prior to
the end of a Purchase Period.
(b) Upon withdrawal from the Plan, the accumulated payroll deductions shall
be returned to the withdrawn participant, without interest, and his or her
interest in the Plan shall terminate. In the event a participant voluntarily
elects to withdraw from the Plan, he or she may not resume his or her
participation in the Plan during the same Offering Period, but he or she may
participate in any Offering Period under the Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth above for initial participation in
the Plan.
(c) A participant may participate in the current Purchase Period under an
Offering Period (the "Current Offering Period") and enroll in the Offering
Period commencing immediately after such Purchase Period (the "New Offering
Period") by (i) withdrawing from participation in the Current Offering Period
effective as of the last day of a Purchase Period within that Offering Period
and (ii) enrolling in the New Offering Period. Such withdrawal and enrollment
shall be effected by filing with the Treasury Department at least 15 days prior
to the end of an Offering Period such form or forms as are provided for such
purposes.
12. Termination of Employment
Termination of a participant's employment for any reason, including
retirement, death or the failure of a participant to remain an eligible
employee, immediately terminates his or her participation in the Plan. In such
event, the payroll deductions credited to the participant's account will be
returned to him or her or, in the case of his or her death, to his or her legal
representative, without interest. For purposes of this Section 12, an employee
will not be deemed to have terminated employment or failed to remain in the
continuous employ of the Company in the case of sick leave, military leave, or
any other leave of absence approved by the Board; provided that such leave is
for a period of not more than ninety (90) days or reemployment upon the
expiration of such leave is guaranteed by contract or statute.
13. Return of Payroll Deductions
In the event a participant's interest in the Plan is terminated by
withdrawal, termination of employment or otherwise, or in the event the Plan is
terminated by the Board, the Company shall promptly deliver to the participant
all payroll deductions credited to his account. No interest shall accrue on the
payroll deductions of a participant in the Plan.
14. Capital Changes
Subject to any required action by the stockholders of the Company, the
number of shares of Common Stock covered by each option under the Plan which has
not yet been exercised and the number of shares of Common Stock which have been
authorized for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the price per share of Common Stock
covered by each option under the Plan which has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split or the payment of a stock
dividend (but only on the Common Stock) or any other increase or decrease in the
number of shares of Common Stock effected without
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receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination shall be final, binding and conclusive. Except as
expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that the options
under the Plan shall terminate as of a date fixed by the Board and give each
participant the right to exercise his or her option as to all of the optioned
stock, including shares which would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, each option under
the Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, that the participant shall have the right to
exercise the option as to all of the optioned stock. If the Board makes an
option exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify the participant that the option
shall be fully exercisable for a period of twenty (20) days from the date of
such notice, and the option will terminate upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, or
in the event of the Company being consolidated with or merged into any other
corporation.
15. Nonassignability
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an option or to receive shares under the
Plan may be assigned, transferred, pledged or otherwise disposed of in any way
(other than by will, the laws of descent and distribution or as provided in
Section 22 hereof) by the participant. Any such attempt at assignment, transfer,
pledge or other disposition shall be without effect.
16. Reports
Individual accounts will be maintained for each participant in the Plan.
Each participant shall receive promptly after the end of each Purchase Period a
report of his or her account setting forth the total payroll deductions
accumulated, the number of shares purchased, the per share price thereof and the
remaining cash balance, if any, carried forward to the next Purchase Period or
Offering Period, as the case may be.
17. Notice of Disposition
Each participant shall notify the Company if the participant disposes of
any of the shares purchased in any Offering Period pursuant to this Plan if such
disposition occurs
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within two years from the Offering Date or within one year from the Purchase
Date on which such shares were purchased (the "Notice Period"). Unless such
participant is disposing of any of such shares during the Notice Period, such
participant shall keep the certificates representing such shares in his or her
name (and not in the name of a nominee) during the Notice Period. The Company
may, at any time during the Notice Period, place a legend or legends on any
certificate representing shares acquired pursuant to the Plan requesting the
Company's transfer agent to notify the Company of any transfer of the shares.
The obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. No Rights to Continued Employment
Neither this Plan nor the grant of any option hereunder shall confer any
right on any employee to remain in the employ of the Company or any Subsidiary,
or restrict the right of the Company or any Subsidiary to terminate such
employee's employment.
19. Equal Rights and Privileges
All eligible employees shall have equal rights and privileges with respect
to the Plan so that the Plan qualifies as an "employee stock purchase plan"
within the meaning of Section 423 or any successor provision of the Code and the
related regulations. Any provision of the Plan which is inconsistent with
Section 423 or any successor provision of the Code shall, without further act or
amendment by the Company or the Board, be reformed to comply with the
requirements of Section 423. This Section 19 shall take precedence over all
other provisions in the Plan.
20. Notices
All notices or other communications by a participant to the Company under
or in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof.
21. Term; Shareholder Approval
This Plan shall become effective on the date that it is adopted by the
Board of the Company. This Plan shall be approved by the stockholders of the
Company, in any manner permitted by applicable corporate law, within twelve
months before or after the date this Plan is adopted by the Board. No purchase
of shares pursuant to the Plan shall occur prior to such shareholder approval.
The Plan shall continue until the earlier to occur of termination by the Board,
issuance of all of the shares of Common Stock reserved for issuance under the
Plan, or one (1) year from the adoption of the Plan by the Board (unless
extended by the Board for a period of up to ten (10) years from the adoption
date.)
22. Designation of Beneficiary
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to a Purchase Date.
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(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares or
cash to the executor or administrator of the estate of the participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
23. Conditions Upon Issuance of Shares; Limitation on Sale of Shares
Shares shall not be issued with respect to an option unless the exercise of
such option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
24. Applicable Law
The Plan shall be governed by the substantive laws (excluding the conflict
of laws rules) of the State of California.
25. Amendment or Termination of the Plan
The Board may at any time amend, terminate or extend the term of the Plan,
except that any such termination cannot affect options previously granted under
the Plan, nor may any amendment make any change in an option previously granted
which would adversely affect the right of any participant, nor may any amendment
be made without approval of the stockholders of the Company obtained in
accordance with Section 21 hereof within 12 months of the adoption of such
amendment (or earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under the Plan; or
(b) change the designation of the employees (or class of employees)
eligible for participation in the Plan.
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APPENDIX S
THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SEAGATE SOFTWARE, INC.
Stephen J. Luczo and Susan J. Wolfe certify that:
1. They are the Chairman of the Board of Directors and Secretary,
respectively, of Seagate Software, Inc., a Delaware corporation (the
"Corporation").
2. The Certificate of Incorporation of the Corporation, under the name of
ConnerSoft, Inc., was filed on November 10, 1993. This Third Amended and
Restated Certificate of Incorporation restates, integrates and further amends
the Second Amended and Restated Certificate of Incorporation (the "Second
Certificate") was filed on June 21, 1996 and the Certificate of the Powers,
Designations, Preferences and Rights of the Special Voting Preferred Stock filed
on December 20, 1996 (the "Special Voting Certificate"). The text of the Second
Certificate and the Special Voting Certificate are hereby amended and restated
in their entirety to read as follows:
ARTICLE I
The name of the Corporation (the "Corporation") is Seagate Software, Inc.
ARTICLE II
The address, including street, number, city, and county, of the registered
office of the Corporation in the State of Delaware is The Corporation Trust
Center, 1209 Orange Street, City of Wilmington, County of New Castle; and the
name of the registered agent of the Corporation in the State of Delaware at such
address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful business, promote any lawful purpose, and
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE IV
The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Common Stock" and "Preferred Stock". The number of
shares of Common Stock authorized to be issued is Three Hundred Million
(300,000,000), par value $.001 per share, and the number of shares of Preferred
Stock authorized to be issued is Seventy-Three Million (73,000,000), par value
$0.001. Of the Preferred Stock, 54,633,333 shall be designated Series A
Preferred Stock and One (1) share shall be designated Special Voting Preferred
Stock.
The undesignated 18,366,666 shares of Preferred Stock may be issued from
time to time in one or more series. The Board of Directors is authorized to
determine the number of shares of any such series. The Board of Directors is
also authorized to determine or
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alter the powers, designations, preferences, rights and restrictions to be
imposed upon any wholly unissued series of Preferred Stock and, within the
limits and restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series, to
increase (but not above the total number of authorized shares of the class) or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any series subsequent to the issue of shares of that
series.
The authority of the Board of Directors with respect to each series shall
include, but not be limited to, determination of the following: (a) the number
of shares constituting that series and the distinctive designation of that
series; (b) the dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(c) whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights; (d) whether
that series shall have conversion privileges, and, if so, the terms and
conditions of such conversion, including provision for adjustment of the
conversion rate or conversion price in such events as the Board of Directors
shall determine; (e) whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the date or date upon or after which they shall be redeemable, and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates; (f) whether that series shall have
a sinking fund for the redemption or purchase of shares of that series, and, if
so, the terms and amount of such sinking fund; (g) the rights of the shares of
that series in the event of voluntary or involuntary liquidation, dissolution or
winding up of the corporation, and the relative rights of priority, if any, of
payment of shares of that series; and (h) any other relative rights, preferences
and limitations of that series.
The relative designations, rights, preferences and restrictions granted to
or imposed upon the Series A Preferred Stock, the Special Voting Preferred Stock
and the Common Stock are as follows:
1. Dividends
(a) Non-Cumulative Dividends. Subject to the provisions set forth below,
the holders of shares of Series A Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors (the "Board") out of funds
legally available for the purpose, an annual cash dividend in the amount of
$0.45 per share (as adjusted to reflect any stock split, stock dividend,
combination, recapitalization and the like (collectively, a "Recapitalization")
with respect to the Series A Preferred Stock), prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock) on
the Common Stock of the Corporation. Such dividends shall not be cumulative, and
no right shall accrue to holders of Series A Preferred Stock by reason of the
fact that dividends on such shares are not declared or paid in any year.
(b) The Special Voting Preferred Stock shall not be entitled to receive
any dividends declared and paid by the Corporation.
(c) Notwithstanding the provisions of Sections 2(a) and 2(b), the
Corporation may at any time, out of funds legally available therefor, repurchase
shares of Common Stock of the Corporation (i) issued to or held by employees,
directors or consultants of the Corporation or its subsidiaries upon termination
of their employment or services, pursuant to any agreement providing for such
right of repurchase, or (ii) issued to or held by any
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person subject to the Corporation's right of first refusal to purchase such
shares where the purchase is pursuant to the exercise of such right of first
refusal, in either case whether or not dividends on the Series A Preferred Stock
shall have been declared and paid or funds set aside therefor.
(d) Notwithstanding the provisions of this Section 2 set forth above, in
the event any dividend shall be paid to the holders of Common Stock such
dividend shall be distributed among the holders of the Common Stock and the
Series A Preferred Stock in proportion to the shares of Common Stock then held
by them and the shares of Common Stock which they then have the right to acquire
upon the conversion of the Series A Preferred Stock held by them.
2. Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary (a "Liquidation
Event"), a distribution shall be made to the holders of Series A Preferred Stock
and the Special Voting Preferred Stock in respect of such Series A Preferred
Stock and the Special Voting Preferred Stock before any amount shall be paid to
the holders of Common Stock in respect of such Common Stock, in the following
manner:
(a) Series A Preferred Stock. The holders of the Series A Preferred
Stock shall be entitled to receive prior and in preference to any distribution
of the assets of the Corporation to the holders of the Common Stock by reason of
their ownership thereof as a result of a Liquidation Event, an amount per share
equal to (i) $7.50, as adjusted to reflect any Recapitalization of the Series A
Preferred Stock, plus (ii) all accrued or declared but unpaid dividends, if any.
If, upon the occurrence of a Liquidation Event, the assets and funds thus
distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of their full liquidation
preference, then the entire assets and funds of the Corporation legally
available for distribution to the holders of capital stock shall be distributed
ratably among the holders of the Series A Preferred Stock.
(b) Special Voting Preferred Stock. In the event of any Liquidation
Event, and subject to any prior rights of holders of shares of preferred stock
ranking senior to the Special Voting Preferred Stock, a distribution shall be
made to the holder of the share of Special Voting Preferred Stock in respect of
such Special Voting Preferred Stock in an amount equal to $1.00, together with
payment to any class of stock ranking equally with the Special Voting Preferred
Stock, and before payment shall be made to holders of any stock ranking on
liquidation junior to the Special Voting Preferred Stock. The Special Voting
Preferred Stock shall rank pari passu with the Series A Preferred Stock of the
Corporation in all respects.
(c) Series A Preferred Stock and Common Stock. After payment has been
made to the holders of the Series A Preferred Stock and the Special Voting
Preferred Stock of the full amounts to which they shall be entitled as set forth
in Sections 3(a) and 3(b) above, then the entire remaining assets and funds of
the Corporation shall be distributed among the holders of the Common Stock and
the Series A Preferred Stock in proportion to the shares of Common Stock then
held by them and the shares of Common Stock which they then have the right to
acquire upon the conversion of the Series A Preferred Stock held by them.
(d) Events Deemed a Liquidation. A consolidation or merger of the
Corporation with or into any other corporation or the sale or other transfer in
a single transaction or a series of related transactions of all or substantially
all of the assets of this Corporation, or
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any other reorganization of this Corporation shall be deemed a Liquidation Event
of the Corporation for purposes of this Section 2; provided that the merger or
consolidation of the Corporation with or into a wholly-owned subsidiary of the
Corporation or into another corporation or person or entity in which the holders
of the capital stock of the Corporation hold at least 50% of the voting
securities of the surviving entity shall not be deemed to be a Liquidation Event
of the Corporation; provided further, however, that the contribution of
substantially all of the assets related to the Network & Storage Management
Group business of the Corporation to a third party for which the consideration
received is capital stock of the third party shall not be a Liquidation Event.
(e) Valuation of Property. In the event the Corporation proposes to
distribute assets other than cash in connection with any Liquidation Event of
the Corporation, the value of the assets to be distributed upon the occurrence
of a Liquidation Event shall be determined in good faith by the Board of
Directors of the Corporation.
3. Voting Rights.
(a) Subject to the provision for adjustment hereinafter set forth, the
holder of each share of Series A Preferred Stock shall be entitled to the number
of votes equal to the number of shares of Common Stock into which such share of
Series A Preferred Stock could be converted at the record date for the
determination of the stockholders entitled to vote on such matters, or, if no
such record date is established, at the date such vote is taken or any written
consent of the stockholders is solicited. Holders of Series A Preferred Stock
shall be entitled to notice of any stockholders' meeting in accordance with the
Bylaws of the Corporation. Fractional votes by the holders of Series A Preferred
Stock shall not, however, be permitted and any fractional voting rights shall
(after aggregating all shares into which shares of Series A Preferred Stock held
by each holder could be converted) be rounded down to the nearest whole number.
(b) Except as otherwise required by law and notwithstanding Section 3(a)
of Article V below, so long as Seagate Technology International Holdings, a
Cayman Islands corporation ("Seagate Cayman Holdings"), is the holder of record
of the share of Special Voting Preferred Stock, then Seagate Cayman Holdings
shall have a number of votes equal to the number of votes that Seagate Cayman
Holdings, as holder of outstanding Class B Exchangeable Shares (the
"Exchangeable Shares") of Seagate Software Information Management Group, Inc.
("Seagate Canada"), from time to time would be entitled to if all such
Exchangeable Shares were exchanged by Seagate Cayman Holdings, at the record
date for the determination of the stockholders entitled to vote on such matters
or, if no such record date is established, at the date such vote is taken or any
written consent of the stockholders is solicited, for shares of the Series A
Preferred pursuant to the terms of the Exchangeable Shares, in each case for the
election of directors and on all matters submitted to a vote of the stockholders
of the Corporation.
(c) Except as otherwise provided herein or by law, the holders of shares
of Series A Preferred Stock, the holder of the Special Voting Preferred Stock
and the holders of shares of Common Stock shall vote together as one class on
all matters submitted to a vote of stockholders of the Corporation, and except
as required by law, holders of Series A Preferred Stock or the Special Voting
Preferred Stock shall have no special voting rights.
4. Conversion. The Special Voting Preferred Stock shall not be convertible.
The holders of the Series A Preferred Stock have conversion rights as follows:
(a) Right to Convert. Each share of Series A Preferred Stock shall
initially be convertible, at the option of the holder thereof, at any time after
the date of issuance of
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such share, at the office of the Corporation or any transfer agent for the
Series A Preferred Stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $7.50 by the Conversion
Price, determined as provided below, at the time of conversion. The price at
which shares of Common Stock shall be deliverable upon conversion of the shares
of Series A Preferred Stock without the payment of any additional consideration
by the holders thereof, shall initially be $7.50 per share of Common Stock (the
"Conversion Price"). Such initial Conversion Price shall be subject to
adjustment, in order to adjust the number of shares of Common Stock into which
the Series A Preferred Stock is convertible, as provided below. Upon conversion,
the holder's right to any accrued or declared but unpaid dividends on such
shares to be converted shall be forfeited and the holder shall no longer be
entitled to any such dividends.
(b) Automatic Conversion. Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price upon the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of securities for the
account of the Corporation to the public. Upon conversion, the holder's right to
any accrued or declared but unpaid dividends on such shares to be converted
shall be forfeited and the holder shall no longer be entitled to any such
dividends.
(c) Mechanics of Conversion. No fractional shares of Common Stock shall
be issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation at its election shall either (i) pay cash equal to such fraction
multiplied by the then effective Conversion Price, or (ii) issue one whole share
of Common Stock for each fractional share to which the holder would otherwise be
entitled.
Before any holder of Series A Preferred Stock shall be entitled to convert
the same into shares of Common Stock and to receive certificates therefor, he or
she shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Corporation or of any transfer agent for the Series A
Preferred Stock and shall give written notice to the Corporation at such office
that he or she elects to convert the same; provided, however, that in the event
of an automatic conversion pursuant to Section 4(b) hereof, the outstanding
shares of Series A Preferred Stock shall be converted automatically without any
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent; and provided further that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such automatic
conversion unless and until the certificates evidencing such shares of Series A
Preferred Stock are either delivered to the Corporation or its transfer agent as
provided above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. The Corporation shall,
as soon as practicable after such delivery, or after such agreement and
indemnification, issue and deliver at such office to such holder of Series A
Preferred Stock, a certificate or certificates for the number of shares of
Common Stock to which he or she shall be entitled as aforesaid and a check
payable to the holder in the amount of any cash amounts payable as the result of
a conversion into fractional shares of Common Stock. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Series A Preferred Stock to be converted, or,
in the case of automatic conversion, immediately prior to the occurrence of the
event leading to such
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automatic conversion, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock on such date.
(d) Adjustments to Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this Section 4(d), the
following definitions shall apply:
(1) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(2) "Original Issue Date" shall mean April 4, 1996.
(3) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities convertible into or exchangeable for
Common Stock.
(4) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued (or, pursuant to Section 4(d)(iii), deemed to be issued)
by the Corporation after the Original Issue Date, other than shares of Common
Stock issued or issuable:
(A) upon conversion of shares of Series A Preferred Stock;
(B) as a dividend or distribution on Series A Preferred
Stock or any event for which adjustment is made pursuant to Section 4(d)(vi)
hereof;
(C) pursuant to equipment lease financing transactions
approved by the Board of Directors;
(D) to directors and employees of, and consultants to, the
Corporation, its parent company or subsidiaries, in a manner determined by the
Board of Directors including, without limitation, any options or Common Stock
issuable pursuant to the 1996 Stock Option Plan, as such plan may be amended
from time to time by the Board of Directors of the Corporation; or
(E) by way of dividend or other distribution on shares of
Common Stock excluded from the definition of Additional Shares of Common Stock
by the foregoing clause(s) (A), (B), (C), (D) or this clause (E).
(ii) No Adjustment of Conversion Price. No adjustment in the number
of shares of Common Stock into which the Series A Preferred Stock is convertible
shall be made, by adjustment in the Conversion Price of such Series A Preferred
Stock in respect of the issuance of Additional Shares of Common Stock or
otherwise, unless the consideration per share (determined pursuant to Section
4(d)(v) below) for an Additional Share of Common Stock issued or deemed to be
issued by the Corporation is less than the Conversion Price of such Series A
Preferred Stock in effect on the date of, and immediately prior to, the issue of
such Additional Share of Common Stock.
(iii) Deemed Issuances of Additional Shares of Common Stock.
(1) Options and Convertible Securities. Except as otherwise
provided in Section 4(d)(ii), in the event the Corporation at any time or from
time to time after the Original Issue Date shall issue any Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities,
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shall be deemed to be Additional Shares of Common Stock issued as of the time of
such issue, provided that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or decrease or
increase in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange under
such Convertible Securities;
(C) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto) and any
subsequent adjustments based thereon shall, upon such expiration, be recomputed
as if:
(x) in the case of Convertible Securities or Options
for Common Stock, the only Additional Shares of Common Stock issued were the
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of such exercised Options plus the consideration
actually received by the Corporation upon such exercise or for the issue of all
such Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange, and
(y) in the case of Options for Convertible Securities
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the consideration
received by the Corporation for the Additional Shares of Common Stock deemed to
have been then issued was the consideration actually received by the Corporation
for the issue of such exercised Options, plus the consideration deemed to have
been received by the Corporation (determined pursuant to Section 4(d)(v), upon
the issue of the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clauses (B) or (C) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date; and
(E) in the case of any Options which expire by their terms
not more than 30 days after the date of issue thereof, no adjustment of the
Conversion Price shall be made until the expiration or exercise of all such
Options issued on the same date, whereupon such adjustment shall be made in the
same manner provided in clause (C) above.
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(2) Stock Dividends, Stock Distributions and Subdivisions. In
the event the Corporation at any time or from time to time after the Original
Issue Date shall declare or pay any dividend or make any other distribution on
the Common Stock payable in Common Stock, or effect a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock), then and in any such event, Additional
Shares of Common Stock shall be deemed to have been issued:
(A) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of any class of securities entitled to receive such dividend or
distribution, or
(B) in the case of any such subdivision, at the close of
business on the date immediately prior to the date upon which such corporate
action becomes effective.
If such record date shall have been fixed and such dividend shall not have
been paid on the date fixed therefor, the adjustment previously made in the
Conversion Price which became effective on such record date shall be canceled as
of the close of business on such record date, and thereafter the Conversion
Price shall be adjusted pursuant to this Section 4(d)(iii) as of the time of
actual payment of such dividend.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
Shares of Common Stock. In the event the Corporation shall issue Additional
Shares of Common Stock (including Additional Shares of Common Stock deemed to be
issued pursuant to Section 4(d)(iii)(1), but excluding Additional Shares of
Common Stock issued pursuant to Section 4(d)(iii)(2), which event is dealt with
in Section 4(d)(vi) hereof), without consideration or for a consideration per
share less than the Conversion Price in effect on the date of and immediately
prior to such issue, then and in such event, the Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying the Conversion Price by a fraction (x) the
numerator of which shall be (1) the number of shares of Common Stock outstanding
immediately prior to such issue, plus (2) the number of shares of Common Stock
which the aggregate consideration received by the Corporation for the total
number of Additional Shares of Common Stock so issued would purchase at that
Conversion Price, and (y) the denominator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior to such issue plus (2) the
number of such Additional Shares of Common Stock so issued, provided that for
the purposes of this Section 4(d)(iv), all shares of Common Stock issuable upon
exercise, conversion or exchange of outstanding Options or Convertible
Securities, as the case may be, shall be deemed to be outstanding, and
immediately after any Additional Shares of Common Stock are deemed issued
pursuant to Section 4(d)(iii) above, such Additional Shares of Common Stock
shall be deemed to be outstanding, and provided further that the Conversion
Price shall not be so reduced at such time if the amount of such reduction would
be an amount less than $0.01, but any such amount shall be carried forward and
reduction with respect thereto made at the time of and together with any
subsequent reduction which, together with such amount and any other amount or
amounts so carried forward, shall aggregate $0.01 or more.
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(v) Determination of Consideration. For purposes of this
Section 4(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends and prior to any commissions
or expenses paid by the Corporation;
(B) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue, as determined in
good faith by the Board of Directors; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board.
(2) Options and Convertible Securities. The consideration per
share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to Section 4(d)(iii)(1), relating to Options and
Convertible Securities, shall be determined by dividing
(A) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(B) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities, as determined in Section 4(d)(iii) above.
(vi) Subdivisions, Combinations, or Consolidations of Common
Stock. In the event the outstanding shares of Common Stock shall be subdivided,
combined or consolidated, by stock split, stock dividend, reverse stock split,
combination or like event, into a greater or lesser number of shares of Common
Stock, the Conversion Price then in effect shall concurrently with the
effectiveness of such subdivision, combination or consolidation, be
proportionately adjusted.
(vii) Distributions Other Than Cash Dividends Out of Retained
Earnings. In case the Corporation shall declare a cash dividend upon its Common
Stock payable otherwise than out of retained earnings or shall distribute to
holders of its Common Stock shares of its capital stock (other than Common
Stock), stock or other securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends out
of retained earnings) or options or rights (excluding options to purchase and
rights to subscribe for Common Stock or other securities of the Corporation
convertible into or exchangeable for Common Stock), then, in each such case,
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the holders of shares of Series A Preferred Stock shall, concurrently with the
distribution to holders of Common Stock, receive a like distribution based upon
the number of shares of Common Stock into which such share of Series A Preferred
Stock is then convertible.
(viii) Adjustments for Reclassification, Exchange and
Substitution. If the Common Stock issuable upon conversion of the Series A
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for above), the Conversion Price then in effect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted such that the Series A Preferred Stock shall be
convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of the Series A Preferred Stock immediately before that change.
(ix) Reorganization, Mergers, Consolidations, or Sales of
Assets. Subject to Section 2 hereof, if at any time or from time to time there
shall be a capital reorganization of the Common Stock (other than a subdivision,
combination, reclassification, or exchange of shares provided for elsewhere in
this Section 4) or a merger or consolidation of this Corporation with or into
another corporation, or the sale of all or substantially all of this
Corporation's properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation, or sale, provision shall be made so that
the holders of the Series A Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Preferred Stock held by them, the number
of shares of stock or other securities or property of this Corporation, or of
the successor corporation resulting from such merger or consolidation or sale,
to which a holder of Common Stock deliverable upon conversion would have been
entitled upon such capital reorganization, merger, consolidation, or sale. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of the
Series A Preferred Stock after the reorganization, merger, consolidation, or
sale to the end that the provisions of this Section 4 (including adjustment of
the Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock) shall be applicable after that event
as nearly equivalent as may be practicable.
(e) Status of Converted Stock. In case any shares of Series A Preferred
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be canceled, shall not be reissuable and shall cease to be a part of the
authorized capital stock of the Corporation.
(f) Reservation of Stock Issuable Upon Conversion. The Corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series A Preferred Stock. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then-outstanding shares of Series A Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(g) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger,
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dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Series A Preferred Stock against
impairment.
(h) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of Series A Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series A Preferred Stock, at least twenty (20) days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
5. Cancellation of the Special Voting Preferred Stock. At such time as the
Special Voting Preferred Stock has no votes attached to it because there are no
Exchangeable Shares of Seagate Canada outstanding which are owned of record by
Seagate Cayman Holdings, the share of Special Voting Preferred Stock shall
automatically be deemed canceled.
6. Covenants. In addition to any other rights provided by law, so long as
any Series A Preferred Stock shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of not less than a majority of such outstanding shares of Series A Preferred
Stock:
(a) amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or Bylaws if such action would alter
or change the rights, preferences, privileges or powers of, or the restrictions
provided for the benefit of, any Series A Preferred Stock, or increase or
decrease the number of shares of Series A Preferred Stock authorized hereby;
(b) authorize or reclassify any Common Stock or other stock of the
Corporation into shares having any preference or priority as to dividends or
assets superior to or on a parity with any such preference or priority of the
Series A Preferred Stock; or
(c) pay or declare any dividend on any Common Stock (except dividends
payable solely in shares of Common Stock) while the Series A Preferred Stock
remains outstanding;
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(d) repurchase, acquire or retire any shares of Common Stock other than
pursuant to the terms of any stock repurchase agreement between the Corporation
and any stockholder in connection with the employment of, or the rendering of
consulting services by, such stockholder;
(e) enter into any agreement for, or engage in, any merger or
consolidation of the Corporation with or into any other corporation (other than
a merger or consolidation where the stockholders of the Corporation immediately
prior to such merger of consolidation hold one hundred percent (100%) of the
outstanding capital stock of the Corporation immediately following such merger
or consolidation);
(f) enter into any agreement for, or engage in, any sale, lease,
exchange or distribution (in one transaction or a series of transactions) of all
or substantially all of the property and assets of the Corporation; or
(g) authorize or adopt any plan or proposal for the liquidation,
dissolution or winding up of the Corporation.
ARTICLE V
To the fullest extent permitted by the General Corporation Law of Delaware
as the same exists or as may hereafter be amended, a director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
The Corporation shall indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that
such person, such person's testator or intestate is or was a director or officer
of the Corporation or any predecessor of the Corporation or serves or served at
any other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor to the Corporation.
Neither any amendment nor repeal of this Article V, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article V,
shall eliminate or reduce the effect of this Article V, in respect of any matter
occurring, or any cause of action, suit, claim or proceeding that, but for this
Article V, would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
ARTICLE VI
This Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute or this Certificate of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE VII
In furthermore and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
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ARTICLE VIII
The number of directors which constitute the entire Board of Directors of
the Corporation shall be as specified in the Bylaws of the Corporation. At each
annual meeting of stockholders, directors of the Corporation shall be elected to
hold office until the expiration for the term for which they are elected and
until their successors have been duly elected and qualified; except that if any
such election shall not be so held, such election shall take place at a
stockholders' meeting called and held in accordance with the General Corporation
Law of Delaware.
ARTICLE IX
This Corporation is to have perpetual existence.
3. The total number of outstanding shares of the Corporation is
shares of Common Stock, 47,433,333 shares of Series A Preferred Stock and one
(1) share of Special Voting Preferred Stock. The foregoing amendment and
restatement of the Second Amended and Restated Certificate of Incorporation of
the Corporation and the Certificate of the Powers, Designations, Preferences and
Rights of the Special Voting Preferred Stock has been duly approved in an action
by written consent by the stockholders of the Corporation's not less than 50% of
each of the Common Stock and the Series A Preferred Stock and by the holder of
the Special Voting Preferred Stock in accordance with Sections 228 and 242 of
the General Corporation Law of Delaware.
4. The foregoing amendment and restatement of the Second Amended and
Restated Certificate of Incorporation of the Corporation and the Certificate of
the Powers, Designations, Preferences and Rights of the Special Voting Preferred
Stock has been adopted in accordance with the provisions of Section 242 of the
General Corporation Law of Delaware.
IN WITNESS WHEREOF, said Seagate Software, Inc. has duly caused this
Certificate to be signed by its Chairman, and attested to by its Secretary, this
day of , 1999.
SEAGATE SOFTWARE, INC.
a Delaware Corporation
By:
-----------------------------------
Stephen J. Luczo, Chairman
ATTEST:
By:
-----------------------------------
Susan J. Wolfe, Secretary
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APPENDIX T
SEAGATE SOFTWARE, INC.
1996 STOCK OPTION PLAN
(AMENDED AND RESTATED, EFFECTIVE JUNE 28, 1996)
(AMENDED APRIL 3, 1999)
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees appointed
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board of Directors in
accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Seagate Software, Inc., a Delaware corporation.
(g) "Consultant" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any director of the Company whether
compensated for such services or not. If and in the event the Company registers
any class of any equity security pursuant to the Exchange Act, the term
Consultant shall thereafter not include directors who are not compensated for
their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave approved by an authorized representative of
the Company. For purposes of Incentive Stock Options, no such leave may exceed
90 days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract, including Company policies. If reemployment upon expiration
of a leave of absence approved by the Company is not so guaranteed, on the 181st
day of such leave any Incentive Stock Option held by the Optionee shall cease to
be treated as an Incentive Stock Option and shall be treated for tax purposes as
a Nonstatutory Stock Option.
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(i) "Employee" means any person, including Officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last market
trading day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination, or;
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.
(n) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "Option" means a stock option granted pursuant to the Plan.
(p) "Optioned Stock" means the Common Stock subject to an Option.
(q) "Optionee" means an Employee or Consultant who receives an Option.
(r) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(s) "Plan" means this 1996 Stock Option Plan.
(t) "Section 16(b)" means Section 16(b) of the Exchange Act.
(u) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 11 below.
(v) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is Sixteen Million Six Hundred Thousand (16,600,000) Shares. The
Shares may be authorized, but unissued, or reacquired Common Stock.
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If an Option expires or becomes unexercisable without having been exercised
in full, or is surrendered pursuant to an option exchange program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
however, that Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if unvested Shares are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.
4. Administration of the Plan.
(a) Initial Plan Procedure. Prior to the date, if any, upon which the
Company becomes subject to the Exchange Act, the Plan shall be administered by
the Board or a committee appointed by the Board.
(b) Plan Procedure after the Date, if any, upon Which the Company
becomes Subject to the Exchange Act.
(i) Administration with Respect to Directors and Officers. With
respect to grants of Options to Employees who are also Officers or directors of
the Company, the Plan shall be administered by (A) the Board if the Board may
administer the Plan in compliance with the rules under Rule 16b-3 promulgated
under the Exchange Act or any successor thereto ("Rule 16b-3") relating to the
disinterested administration of employee benefit plans under which Section 16(b)
exempt discretionary grants and awards of equity securities are to be made, or
(B) a Committee designated by the Board to administer the Plan, which Committee
shall be constituted to comply with the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section 16(b)
exempt discretionary grants and awards of equity securities are to be made. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
rules under Rule 16b-3 relating to the disinterested administration of employee
benefit plans under which Section 16(b) exempt discretionary grants and awards
of equity securities are to be made.
(ii) Multiple Administrative Bodies. If permitted by Rule 16b-3,
the Plan may be administered by different bodies with respect to directors,
non-director Officers and Employees who are neither directors nor Officers.
(iii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Options to Employees or Consultants who are
neither directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a committee designated by the Board, which committee shall
be constituted in such a manner as to satisfy the legal requirements relating to
the administration of incentive stock option plans, if any, of state corporate
and securities laws, of the Code, and of any applicable stock exchange (the
"Applicable Laws"). Once appointed, such Committee shall continue to serve in
its designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new
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members in substitution therefor, fill vacancies, however caused, and remove all
members of the Committee and thereafter directly administer the Plan, all to the
extent permitted by the Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the Plan
and, in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are granted
hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any award granted
hereunder;
(vii) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option that number of Shares having a Fair Market Value equal to the
amount required to be withheld. The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined. All elections by Optionees to have Shares withheld for this
purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted; and
(ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(d) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in
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which they were granted. The Fair Market Value of the Shares shall be determined
as of the time the Option with respect to such Shares is granted.
(c) The Plan shall not confer upon any Optionee any right with respect
to continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with his or her right or the Company's right to
terminate his or her employment or consulting relationship at any time, with or
without cause.
(d) Upon the Company or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 5,000,000 Shares.
(ii) In connection with his or her initial employment, an Employee
may be granted Options to purchase up to an additional 3,000,000 Shares which
shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 11.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 11), the cancelled Option will be counted against the limit
set forth in subsection (i) above. For this purpose, if the exercise price of an
Option is reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the stockholders of
the Company, as described in Section 17 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 13 of the
Plan.
7. Term of Option. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued pursuant to
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
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(B) granted to any Employee other than an Employee described
in the preceding paragraph, the per Share exercise price shall be no less than
100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any person, the per Share exercise price shall
be no less than 85% of the Fair Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option have been owned by the Optionee for more
than six months on the date of surrender and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, (6) the cancellation of a portion of the Shares subject to the
Option with a Fair Market Value equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, or (7) any combination of the
foregoing methods of payment. In making its determination as to the type of
consideration to accept, the Administrator shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, including performance criteria with respect to
the Company and/or the Optionee, and as shall be permissible under the terms of
the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
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Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the event
of termination of an Optionee's Continuous Status as an Employee or Consultant
with the Company (but not in the event of an Optionee's change of status from
Employee to Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the date three (3)
months and one day from the date of such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was entitled
to exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise the Option at the date of such termination, or if
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event of termination of an Optionee's
consulting relationship or Continuous Status as an Employee as a result of his
or her disability, Optionee may, but only within twelve (12) months from the
date of such termination (and in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise the Option
to the extent otherwise entitled to exercise it at the date of such termination;
provided, however, that if such disability is not a "disability" as such term is
defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock
Option such Incentive Stock Option shall automatically convert to a Nonstatutory
Stock Option on the day three months and one day following such termination. To
the extent that Optionee is not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b) of
the Exchange Act must comply with Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
10. Non-Transferability of Options. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws
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of descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, the Administrator shall notify the Optionee at
least fifteen (15) days prior to such proposed action. To the extent it has not
been previously exercised, the Option will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the assets of
the Company, the Option may be assumed or an equivalent option may be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. If, in such event, the Option is not assumed or
substituted, the Option shall terminate as of the date of the closing of the
merger or sale of assets. For the purposes of this paragraph, the Option shall
be considered assumed if, following the merger or sale of assets, the Option
confers the right to purchase, for each Share of Optioned Stock subject to the
Option immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the merger or
sale of assets by holders of Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger or
sale of assets was not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option for
each Share of Optioned Stock subject to the Option to be solely common stock of
the successor corporation or its Parent equal in fair market value to the per
share consideration received by holders of Common Stock in the merger or sale of
assets.
12. Time of Granting Options. The date of grant of an Option shall, for all
purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
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<PAGE> 683
13. Amendment and Termination of the Plan. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her written consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or with Sections 162(m) or 422 of the Code (or any other
applicable law or regulation, including the requirements of the NASD or an
established stock exchange), the Company shall obtain stockholder approval of
any Plan amendment in such a manner and to such a degree as required.
14. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
16. Agreements. Options shall be evidenced by written agreements in such
form as the Administrator shall approve from time to time.
17. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
18. Information to Optionees and Purchasers. The Company shall provide to
each Optionee, not less frequently than annually, copies of annual financial
statements. The Company shall also provide such statements to each individual
who acquires Shares pursuant to the Plan while such individual owns such Shares.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.
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<PAGE> 684
APPENDIX U
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM 10-K/A
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 3, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 000-23169
SEAGATE SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 77-0397623
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
915 DISC DRIVE 95066
SCOTTS VALLEY, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (831) 438-6550
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
SERIES A PREFERRED STOCK, $.001 PAR VALUE PER SHARE COMMON STOCK, $.001 PAR
VALUE PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A. [X]
The aggregate market value of the Common Stock held by non-affiliates of
the registrant as of July 3, 1998 was $4,705,604. Shares of Common Stock held by
each officer, each director, and each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of shares outstanding of the registrant's Common Stock as of
July 3, 1998 was 975,567.
DOCUMENTS INCORPORATED BY REFERENCE
None.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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<PAGE> 685
PART I
CERTAIN FORWARD-LOOKING INFORMATION
The information contained in this Form 10-K/A includes forward-looking
statements. Since this information is based on current expectations that involve
risks and uncertainties, actual results could differ materially from those
expressed in the forward-looking statements. Various important factors known to
Seagate Software, Inc. (the "Company" or "Seagate Software") that could cause
such material differences are identified in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Future Operating Results" contained in Item 7 of
this Form 10-K/A. Certain sections of this Form 10-K/A have been identified as
containing forward-looking statements. The reader is cautioned that other
sections and other sentences not so identified may also contain forward-looking
information.
ITEM 1. BUSINESS
GENERAL
The Company develops and markets software products and provides related
services enabling business users and information technology ("IT") professionals
to store, access and manage enterprise information. Headquartered in Scotts
Valley, California, the Company has over 40 offices and operations in 17
countries worldwide. The Company is a majority-owned and consolidated subsidiary
of Seagate Technology, Inc. (the "Parent Company" or "Seagate Technology"), a
data technology company that provides products for storing, managing and
accessing digital information on computer systems. As of July 3, 1998, the
Parent Company and one of its subsidiaries held 99.7% of the Company's
outstanding capital stock. On a diluted basis, the outstanding minority
interests of the Company amounted to approximately 17.8%, which consisted of
Common Stock and options to purchase its Common Stock issued pursuant to the
Seagate Software 1996 Stock Option Plan (the "Option Plan"). Such options to
purchase the Company's Common Stock are held by certain employees, directors and
consultants of the Company and the Parent Company.
The Company believes that managing the exponential growth of information
and the growing need for information infrastructures combined with increasingly
decentralized decision making are key challenges inherent in today's
client/server computing environments. The Company's strategy is to respond to
these challenges by offering Enterprise Information Management ("EIM") software
solutions which consist of three core components -- Information Delivery,
Information Analysis and Information Availability. The purpose of EIM is to
integrate departmental information, optimize decision-making and ensure
consistent access to information by providing comprehensive data availability
and protection. Seagate Software is comprised of two operating groups,
Information Management Group ("IMG") and Network & Storage Management Group
("NSMG"), each focused on the growing need for superior EIM.
IMG offers business intelligence ("BI") software solutions featuring the
Delivery and Analysis components of EIM. IMG's products include features such as
query and reporting, automated report scheduling and distribution, information
delivery across the World Wide Web, on-line analytical processing ("OLAP"),
forecasting, statistical analysis, discovery and data mining.
NSMG offers network and storage management software solutions, which focus
on the Availability component of EIM by enabling IT professionals to manage
distributed network resources and to secure and protect enterprise data. NSMG's
products include features such as system backup, disaster recovery, migration,
replication, automated client protection, storage resource management,
scheduling, event correlation and desktop management.
The Company's strategy is to deliver a comprehensive EIM solution to its
customers by developing a technology roadmap that leverages the core
competencies of its BI and network and storage management products. Combinations
of EIM components are available today in a number of integrated solutions from
the Company. Seagate Backup Exec, Seagate Desktop Management Suite, Seagate
Manage Exec and Seagate NerveCenter provide the combination of Information
Availability and Information Analysis by integrating
U-2
<PAGE> 686
technology from Seagate Crystal Reports. Seagate Crystal Reports, Seagate
Crystal Info and Seagate Holos provide a combination of technology that delivers
Information Delivery and Information Analysis solutions.
PRODUCTS
Seagate Software offers a breadth of BI and network and storage management
products featuring EIM functionality:
EIM PRODUCTS FOR BUSINESS INTELLIGENCE
- 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 products.
- Seagate Crystal Info(TM) -- Provides decision-makers with shared access
to reporting and analysis capabilities, so users get fast access to
business information without having to interact with the database.
Whether using a Web browser or Windows, users can schedule, view and
analyze reports and multidimensional OLAP cubes in a secure environment.
This product contains an enterprise-friendly multi-tier architecture to
lower network traffic and increase user productivity.
- 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 PC and structured query
language data and design a variety of reports and integrate them into
database applications.
- Seagate Holos(R) -- Provides a flexible OLAP development environment for
rapidly delivering a range of applications that focus on key business
issues and accurately reflect business processes. These "business-aware"
applications allow enterprises to harness and analyze the increasing
volumes of data and guide users to the information to improve
decision-making.
EIM PRODUCTS FOR NETWORK AND STORAGE MANAGEMENT
- Seagate Backup Exec(R) Desktop Editions -- Provides complete
plug-and-play backup and restore functions for desktop users running
Microsoft Windows NT Workstation, Windows 98, Windows 95, Windows 3.x and
DOS.
- Seagate Backup Exec(R) Server and Enterprise Editions -- Provides a
backup and restore solution for server and network users running Novell
NetWare, Microsoft Windows NT LANs and workstations.
- Seagate Backup Exec(R) Storage Migrator -- Facilitates the proactive
management of inactive data by migrating it from on-line storage (such as
disk drives) to near-line devices (such as optical drives) or to archival
storage resources (such as tape devices) over user-defined periods of
time through a multi-tier hierarchical storage management ("HSM")
application delivering enterprise functionality to client/server
environments.
- Seagate Client Exec(TM) -- Protects critical client data on workstations
and laptops. Users receive automatic, regular and transparent protection
of their critical data, and administrators have the flexibility to
control which users are protected, what type of data is protected and
when the protection should occur.
- Seagate Desktop Management Suite(TM) -- Provides a fully integrated suite
of software solutions including network inventory, software distribution,
remote control, network backup and software metering.
- Seagate ExecView(TM) -- Provides an integrated cross-platform storage
management console for enterprise networks using Microsoft Windows NT and
Novell NetWare. Users can manage both Seagate Backup Exec for NetWare and
Seagate Backup Exec for Windows NT servers from a single console.
- Seagate Manage Exec(TM) -- Centralizes enterprise administration by
providing IT professionals with a unique view of servers worldwide and
real-time problem analysis through a proactive server health monitoring,
alerting and reporting solution.
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- Seagate NerveCenter(R) -- Provides an enterprise-event automation
solution for Windows NT and UNIX environments.
- Seagate WinINSTALL(TM) -- Provides a script-free, automated software
distribution tool for 16- and 32-bit applications.
The Company 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 Company does not sell or
transfer title to its software products to customers. The Company enters into
both object-code only and source-code licenses of its products. Under the
Company'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.
STRATEGIC RELATIONSHIPS
The Company has developed strategic relationships with a number of
application software developers and computer hardware manufacturers that sell
and support the Company's products as well as integrate the Company's products
into their operating system platforms. Such strategic relationships have been
established with Compaq, Hewlett-Packard, IBM, Informix, Microsoft, Netscape,
Novell, Oracle, PeopleSoft and Seagate Technology's original equipment
manufacturer ("OEM") tape drive operations.
The Company's strategic relationship with Microsoft includes the bundling
of its leading BI and storage management products with selected Microsoft
products. Seagate Crystal Reports is bundled with Microsoft BackOffice products
and developer tools such as Microsoft Visual Basic, and Seagate Crystal Info is
bundled in BackOffice Server 4.0. Additionally, the Company developed the backup
utility for Microsoft Windows 98 and is developing the system disaster recovery
and backup utilities for Windows NT 5.0. The Company has also developed the HSM
technology to be included in Windows NT Server 5.0.*
RESEARCH AND DEVELOPMENT
The Company incurred research and development expenses of approximately
$47,173,000, $42,842,000 and $36,897,000 in 1998, 1997 and 1996, respectively.
Certain of the research and development expenses, which have not been material
to date, are funded by the Company's customers. The Company is pursuing its
product development objectives by continuing its emphasis on internally
developing new software products and product enhancements, acquiring products,
technologies and businesses complementary to the Company's existing product
lines and forming alliances with leading technology companies.*
SALES AND MARKETING
The Company employs a multi-faceted sales strategy. The Company utilizes
direct sales forces and certain indirect sales channels, such as distributors
and OEM relationships, for sales of its selected products to end users. These
distributors and OEMs may also sell other products that are complementary to or
compete with those of the Company. The Company provides sales and marketing
programs to encourage the sale of its products, but there can be no assurance
that its distributors and OEMs will not place a higher priority on competing
products. Agreements with its distributors and OEMs are generally non-exclusive
and may be terminated by either party without cause. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Future Operating Results."
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance
that the Company's actual future performance will meet the Company's current
expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking
information.
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<PAGE> 688
The Company generally markets its products domestically and overseas
through a network of wholly-owned subsidiaries. These subsidiaries utilize
authorized distributors and direct sales forces. The Company adapts certain
products for foreign markets, including translation and documentation, and the
Company prepares marketing and sales support programs accordingly. The Company
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. There are four regions: the Americas, Europe/Middle East/Africa,
Japan, and Asia/Pacific.
The Company's marketing efforts are designed to increase awareness and
consideration of, and to generate leads for, the Company's products. Marketing
activities include print advertising 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 Company'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 for the Company.
Revenue from one third party customer, Ingram Micro Inc., accounted for
22%, 18% and 16% of the Company's total revenues in 1998, 1997 and 1996,
respectively. Indirect revenues, which include sales to distributors and OEMs,
were 69%, 63% and 70% of total revenues during 1998, 1997 and 1996,
respectively. Revenues outside of the Americas were 32%, 30% and 11% of total
revenues during 1998, 1997 and 1996, respectively.
During 1998 the Company generated export revenues from the United States of
approximately $66,250,000. Revenues and expenses from the Company's operations
outside of the Americas were approximately $26,809,000 and $52,143,000,
respectively, as translated to the U.S. dollar from foreign currencies. The
principal currency for such operations is the British pound. The Company
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 Company's technical support groups, located at various sites around the
world, including the U.S., Canada and Europe, provide pre-sale, installation and
post-sale support to current users and potential customers evaluating the
Company's products. Certain technical support groups also offer seven-day,
24-hour toll-free telephone services. The Company 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 Company 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 business intelligence and network and storage management software
markets in which the Company competes are comprised of numerous competitors, and
the Company expects competition to increase.* The Company has recently
experienced increased competition from additional entrants into its markets,
including companies that specialize in the development, marketing and support of
information management and network and storage management software products.
Many of the Company's current and prospective
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance
that the Company's actual future performance will meet the Company's current
expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking
information.
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<PAGE> 689
competitors have significantly greater financial, technical and marketing
resources than the Company. In addition, many prospective customers may have the
internal capability to implement solutions to their problems.
The competitive factors affecting the market for the Company's software
products include the following: product functionality; performance and
reliability; demonstrable economic benefits for users relative to cost; price;
quality of customer support and user documentation and ease of installation;
vendor reputation; experience; and financial stability. The Company believes
that it currently competes effectively with respect to these factors. The
Company'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 Company 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 Company's ability to attract and
retain highly qualified technical personnel in a competitive market for
experienced and talented software developers.* The Company also expects to
continue its strategy of identifying and acquiring business intelligence and
network and storage management assets and technologies and businesses that have
developed such products and technologies.*
PATENTS AND INTELLECTUAL PROPERTY RIGHTS
The Company by and through its Parent Company and/or predecessor companies,
has been awarded four (4) United States patents and has three (3) United States
and three (3) foreign patent applications pending. Because software technology
changes rapidly, the Company 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 Company
nevertheless believes that patents are of value to its business and intends to
continue its efforts to obtain patents, when available, in connection with its
research and development programs.* There can be no assurance that any patents
obtained will provide substantial protection or be of commercial benefit to the
Company, or that their validity will not be challenged.
The Company's license agreements have restrictions in place to protect and
defend the Company's intellectual property. The Company 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
Company has an ongoing trademark registration program in which it registers
certain of its product names, slogans, and logos in the United States and in
some foreign countries.
EMPLOYEES
As of July 3, 1998, the Company employed approximately 1,800 persons. The
Company'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 Company's employees are represented by a labor
union or are the subject of a collective bargaining agreement. The Company has
never experienced a work stoppage and believes that its employee relations are
good.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance
that the Company's actual future performance will meet the Company's current
expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking
information.
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<PAGE> 690
ITEM 2. PROPERTIES
Seagate Software's executive offices are located in Scotts Valley,
California. Principal facilities are located in Florida, California, Canada and
the United Kingdom. A major portion of the Company's facilities are occupied
under leases that expire at various times through 2008. The following is a
summary of square footage leased by the Company:
FACILITIES
<TABLE>
<CAPTION>
TOTAL
LOCATION SQUARE FEET
-------- -----------
<S> <C>
North America
California
Central California..................................... 53,429
Northern California.................................... 16,084(1)
Colorado.................................................. 18,348
Mid-Continent............................................. 7,607
Northeast USA............................................. 33,428
Southeast USA............................................. 121,112(2)
Other USA................................................. 5,481(3)
Canada.................................................... 140,044
---------
Total North America............................... 395,533
Europe
England................................................... 39,141
Germany................................................... 6,858(4)
Other Europe.............................................. 10,379
---------
Total Europe...................................... 56,378
Asia
Australia................................................. 11,233
Japan..................................................... 6,938
Hong Kong................................................. 2,206
Other Pacific Rim......................................... 3,885
---------
Total Asia........................................ 24,262
---------
Total............................................. 476,173
=========
</TABLE>
- ---------------
(1) Excludes approximately 44,361 square feet of space leased to others.
(2) Excludes approximately 5,000 square feet of unoccupied space.
(3) Excludes approximately 19,206 square feet of unoccupied space.
(4) Excludes approximately 3,263 square feet of space leased to others.
ITEM 3. 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 Ltd. claiming breach of an oral agreement
and infringement of a Vedatech U.K. copyright in the Japanese translation of one
of the Company's products (the "Complaint") and seeking monetary and injunctive
relief. No specific damage amount has yet been claimed. The Company has hired
local counsel in the U.K., reviewed documents and conducted interviews. The
Company filed an initial response in the U.K. court on January 13, 1998 and is
now in the discovery process. The Company believes the Complaint has no merit
and intends to vigorously defend the action. However, if an unfavorable outcome
were to arise, there can be no assurance that such outcome would not have a
material adverse effect on the Company's liquidity, financial position or
results of operations.
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In addition to the foregoing, the Company 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 the
Company's financial position, liquidity, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of July 3, 1998, the Company had outstanding 975,567 shares of Common
Stock held by 225 shareholders and 54,633,333 shares of Series A Preferred Stock
(including shares exchangeable to Series A Preferred Stock) held by the Parent
Company and one of its subsidiaries. There is no established public trading
market for any class of the Company's securities.
The Company has not paid any dividends on any of its capital stock and does
not anticipate that any cash dividends will be declared in the foreseeable
future.*
ITEM 6. SELECTED FINANCIAL DATA
The consolidated financial data with respect to the fiscal years ended July
3, 1998, June 27, 1997 and June 28, 1996 are derived from the audited
Consolidated Financial Statements of the Company that are included or
incorporated by reference in this Form 10-K/A. The consolidated financial data
set forth below with respect to the fiscal years ended June 30, 1995 and July 1,
1994 are derived from the Consolidated Financial Statements of the Company that
are not included in this Form 10-K/A. The following data should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included elsewhere in this Form 10-K/A and in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------
JULY 3, JUNE 27, JUNE 28, JUNE 30, JULY 1,
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues.............................. $293,226 $216,950 $141,586 $92,796 $30,696
Gross profit.......................... 242,766 169,161 112,567 70,417 23,556
Income (loss) from operations......... 6,125 (60,296) (137,806) (80,166) (11,068)
Net loss.............................. (9,270) (53,963) (129,668) (82,864) (6,884)
Net loss per common share (basic and
diluted)............................ (56.33) (796.93)
Total assets.......................... 138,997 147,331 201,598 101,928 20,854
Stockholders' equity.................. $ 57,106 $ 63,355 $115,602 $47,215 $ 6,978
Weighted average common shares
outstanding......................... 164,571 67,714
</TABLE>
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance
that the Company's actual future performance will meet the Company's current
expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking
information.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CERTAIN FORWARD-LOOKING INFORMATION
Certain statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") of Seagate Software and
contained elsewhere in this Form 10-K/A are forward-looking statements based on
current expectations, and entail various risks and uncertainties that could
cause actual results to differ from those projected in such forward-looking
statements. Certain of these risks and uncertainties are set forth below in the
sections entitled "Liquidity and Capital Resources" and "Factors Affecting
Seagate Software's Future Operating Results". Certain sections in this Form
10-K/A have been identified as containing forward-looking statements. The reader
is cautioned that other sections and other sentences not so identified may also
contain forward-looking information.
OVERVIEW
Seagate Software develops and markets software products and provides
related services enabling business users and information technology
professionals to manage enterprise information. Headquartered in Scotts Valley,
California, Seagate Software has over 40 offices and operations in 17 countries
worldwide. The Company is a majority-owned and consolidated subsidiary of
Seagate Technology, Inc. (the "Parent Company" or "Seagate Technology"), a data
technology company that provides products for storing, managing and accessing
digital information on computer systems. As of July 3, 1998, the Parent Company
and one of its subsidiaries held 99.7% of Seagate Software's outstanding capital
stock. On a fully converted basis the outstanding minority interests of Seagate
Software amounted to approximately 17.8%, which consisted of common stock and
options to purchase its common stock issued pursuant to the 1996 Stock Option
Plan (the "Option Plan") and common stock subject to repurchase. Such options
and stock are held by certain current and former employees, directors and
consultants of Seagate Software and Seagate Technology.
Seagate Software was incorporated in Delaware in November 1993 and
commenced operations in May 1994 pursuant to Seagate Technology's merger with
Crystal Computer Services, Inc., a company engaged in developing and marketing
report writing software. From August 1994 to June 1996, Seagate Technology
acquired eight software companies, which were engaged in developing and
marketing business intelligence ("BI") or network and/or storage management
software products. In February 1996, Seagate Technology merged with Conner
Peripherals, Inc. in a transaction accounted for as a pooling-of-interests. In
connection with the merger, Seagate Technology purchased the outstanding
minority interests in Conner's storage management software operations under
Arcada Holdings, Inc. ("Arcada") for $85.1 million, which resulted in
allocations to goodwill and other intangibles for $47.4 million, write off of
in-process research and development of $43.9 million and a deferred tax
liability of $6.3 million.
In April 1996, the Parent Company consolidated its software operations into
Seagate Software. In June 1998, the Company acquired all of the outstanding
capital stock of Eastman Software Storage Management Group, Inc. , a company
engaged in developing, producing and marketing hierarchical storage management
products for the Windows NT platform. The purchase price of approximately
$10,000,000 was paid in cash which resulted in allocations to goodwill and other
intangibles of $3.2 million and a write off of in-process research and
development of $6.8 million. Seagate Software accounted for the acquisition
using the purchase method, and the results of operations of Eastman are only
included in Seagate Software's operations since the acquisition was completed.
Seagate Software operates and reports financial results on a fiscal year of
52 or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 1998
ended on July 3, 1998, fiscal 1997 ended on June 27, 1997 and fiscal 1996 ended
on June 28, 1996. Fiscal 1998 was comprised of 53 weeks and fiscals 1997 and
1996 were comprised of 52 weeks. All references to years in this Form 10-K/A
represent fiscal years unless otherwise noted.
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BUSINESS COMBINATIONS
Valuation Methodology
In accordance with the provisions of APB Opinion 16, all identifiable
assets, including identifiable intangible assets, were assigned a portion of the
cost of the acquired enterprise (purchase price) on the basis of their
respective fair values. This included the portion of the purchase price properly
attributed to incomplete research and development projects that should be
expensed according to the requirements of Interpretation 4 of SFAS No. 2.
Intangible assets were identified through (i) analysis of the acquisition
agreement, (ii) consideration of the Network & Storage Management Group's
intentions for future use of the acquired assets, and (iii) analysis of data
available concerning Arcada's products, technologies, markets, historical
financial performance, estimates of future performance and the assumptions
underlying those estimates. The economic and competitive environment in which
the Network & Storage Management Group and Arcada operate was also considered in
the valuation analysis.
Specifically, purchased research and development ("purchased R&D") was
identified and valued through extensive interviews and discussions with the
Network & Storage Management Group and Arcada management and the analysis of
data provided by Arcada concerning Arcada's developmental products, their
respective stage of development, the time and resources needed to complete them,
their expected income generating ability, target markets and associated risks.
The Income Approach, which includes an analysis of the markets, cash flows, and
risks associated with achieving such cash flows, was the primary technique
utilized in valuing each purchased R&D project. A portion of the purchase price
was allocated to the developmental projects based on the appraised fair values
of such projects.
ARCADA SOFTWARE, INC.
Overview
As of the acquisition date, Arcada had spent a significant amount of money
on research and development related to the re-development efforts to add
features and utilities to the Desktop, NetWare and Windows NT products such as
disk grooming, hierarchical storage management, upgraded graphical user
interfaces, file and server replication, and server mirroring in order to
continue to meet increasingly complex user needs.
In accordance with SFAS 86, paragraph 38 ("Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed"), "the cost of
software purchased to be integrated with another product or process will be
capitalized only if technological feasibility was established for the software
component and if all research and development activities for the other
components of the product or process were completed at the time of the
purchase." Although Seagate purchased existing products from Arcada, since the
majority of the original underlying code and base technology for the NetWare and
Windows NT product families was completed in the 1990 time frame, the
technologies, as of the date of valuation, were desperately in need of, and
therefore, as mentioned above, was undergoing significant re-development.
Assumptions
Revenue
Future revenue estimates were generated for the following product families:
(i) Desktop, (ii) NetWare, and (iii) Windows NT. Aggregate revenue for Arcada
products was estimated to be approximately $94 million for the ten and one-half
months ending December 31, 1996. Revenues were estimated to increase to
approximately $161 million and $233 million for calendar years 1997 and 1998
when most of the in-process projects were expected to be complete and shipping.
Thereafter, revenue was estimated to increase at rates ranging from 35% to 40%
for calendar years 1999 through 2002. Revenue estimates were based on (i)
aggregate revenue growth rates for the business as a whole, (ii) individual
product revenues, (iii) growth rates for the storage management software market,
(iv) the aggregate size of the storage management
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<PAGE> 694
software market, (v) anticipated product development and introduction schedules,
(vi) product sales cycles, and (vii) the estimated life of a product's
underlying technology. The estimated product development cycle for the new
products ranged from 12 to 18 months.
Operating expenses
Operating expenses used in the valuation analysis of Arcada included (i)
cost of goods sold, (ii) general and administrative expense, (iii) selling and
marketing expense, and (iv) research and development expense. In developing
future expense estimates, an evaluation of both Seagate Software and Arcada's
overall business model, specific product results, including both historical and
expected direct expense levels (as appropriate), and an assessment of general
industry metrics was conducted.
Cost of goods sold. Cost of goods sold, expressed as a percentage of
revenue, for the developed and in-process technologies ranged from approximately
5% to 30% (30% for Desktop, 10% for NetWare, and 5% for Windows NT). Seagate
Software's cost of goods sold was 20% for fiscal 1996, 22% for fiscal 1997, and
17% for fiscal 1998.
General and administrative ("G&A") expense. G&A expense, expressed as a
percentage of revenue, for the developed and in-process technologies ranged from
12% in calendar 1996 to 8% in calendar 1998 and beyond.
Selling and marketing ("S&M") expense. S&M expense, expressed as a
percentage of revenue, for the developed and in-process technologies was
estimated to be 30% throughout the estimation period.
Research and development ("R&D") expense. R&D expense consists of the costs
associated with activities undertaken to correct errors or keep products updated
with current information (also referred to as "maintenance" R&D). Maintenance
R&D includes all activities undertaken after a product is available for general
release to customers to correct errors or keep the product updated with current
information. These activities include routine changes and additions. The
maintenance R&D expense was estimated to be 5% of revenue for the developed
technologies and 3% of revenue for the in-process technologies throughout the
estimation period.
In addition, as of the date of acquisition, Seagate Software management
anticipated the costs to complete the Desktop, NetWare, and Windows NT
technologies at approximately $6.8 million, $4.5 million, and $7.5 million,
respectively. Since the acquisition date, all projects originally acquired from
Arcada were commercially released prior to the end of the fourth quarter of
fiscal 1997.
Effective tax rate
The effective tax rate utilized in the analysis of developed and in-process
technologies was 38%, which reflects Seagate's combined federal and state
statutory income tax rates, exclusive of non-recurring charges at the time of
the acquisition and estimated for future years.
Discount rate
The discount rates selected for Arcada's developed and in-process
technologies were 15% and 17.5%, respectively. In the selection of the
appropriate discount rates, consideration was given to (i) the Weighted Average
Cost of Capital (approximately 13% to 15% at the date of acquisition) and (ii)
the Weighted Average Return on Assets (approximately 18%). The discount rate
utilized for the in-process technology was determined to be higher than
Seagate's WACC due to the fact that the technology had not yet reached
technological feasibility as of the date of valuation. In utilizing a discount
rate greater than Seagate's WACC, management has reflected the risk premium
associated with achieving the forecasted cash flows associated with these
projects.
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EASTMAN SOFTWARE STORAGE MANAGEMENT GROUP.
Overview
Eastman Software SMG's two primary products are OPEN/stor for Windows NT
and AvailHSM for NetWare. By integrating Eastman's product line, Seagate will be
able to convert their Storage Migrator product into a stand-alone HSM
application for Windows NT environments. As of the date of acquisition, the
Company abandoned the AvailHSM product and technology due to dated features and
functionality; the valuation analysis did not include a fair value for the
AvailHSM product.
As for OPEN/stor at the date of acquisition, the Company planned to phase
out the product over the following 12 to 15 months. Seagate's purpose for the
acquisition was for the next generation technologies that were underway at
Eastman, referenced by project names Sakkara and Phoenix. These projects were
complete re-writes of Eastman's prior generation technology that would allow the
product to be sold stand-alone upon completion.
In accordance with SFAS 86, paragraph 38 ("Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed"), "the cost of
software purchased to be integrated with another product or process will be
capitalized only if technological feasibility was established for the software
component and if all research and development activities for the other
components of the product or process were completed at the time of the
purchase." Although Seagate purchased existing products from Eastman, the
existing products did not operate on a stand-alone basis. Therefore, as
mentioned above, all of the original underlying code and base technology for the
next generation products were in the process of being completely re-written as
date of valuation.
Assumptions
Revenue
Future revenue estimates were generated for the following technologies: (i)
OPEN/stor, (ii) Sakkara, and (iii) Phoenix. Aggregate revenue for existing
Eastman products was estimated to be approximately $167,000 for the one month
ending June 30, 1998. Revenues were estimated to increase to approximately $3.9
million and $7.1 million for fiscal years 1999 and 2000 when most of the
in-process projects were expected to be complete and shipping. Thereafter,
revenue was estimated to increase at rates ranging from 20% to 30% for fiscal
years 2001 through 2006. Revenue estimates were based on (i) aggregate revenue
growth rates for the business as a whole, (ii) individual product revenues,
(iii) growth rates for the storage management software market, (iv) the
aggregate size of the storage management software market, (v) anticipated
product development and introduction schedules, (vi) product sales cycles, and
(vii) the estimated life of a product's underlying technology.
Operating expenses
Operating expenses used in the valuation analysis of Eastman included (i)
cost of goods sold, (ii) general and administrative expense, (iii) selling and
marketing expense, and (iv) research and development expense. In developing
future expense estimates, an evaluation of both Seagate and Eastman's overall
business model, specific product results, including both historical and expected
direct expense levels (as appropriate), and an assessment of general industry
metrics was conducted.
Cost of goods sold. Cost of goods sold, expressed as a percentage of
revenue, for the developed and in-process technologies was estimated to be
approximately 5% throughout the estimation period. Seagate Software's cost of
goods sold was 20% for fiscal 1996 and 22% for fiscal 1997.
General and administrative ("G&A") expense. G&A expense, expressed as a
percentage of revenue, for the developed and in-process technologies was
estimated to be approximately 10% throughout the estimation period.
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<PAGE> 696
Selling and marketing ("S&M") expense. S&M expense, expressed as a
percentage of revenue, for the developed and in-process technologies was
estimated to be 27% throughout the estimation period.
Research and development ("R&D") expense. R&D expense consists of the costs
associated with activities undertaken to correct errors or keep products updated
with current information (also referred to as "maintenance" R&D). Maintenance
R&D includes all activities undertaken after a product is available for general
release to customers to correct errors or keep the product updated with current
information. These activities include routine changes and additions. The
maintenance R&D expense was estimated to be 5% of revenue for the developed and
in-process technologies throughout the estimation period.
In addition, as of the date of acquisition, Seagate Software's management
anticipated the costs to complete the in-process technologies at approximately
$1.8 million.
Effective tax rate
The effective tax rate utilized in the analysis of developed and in-process
technologies was 38%, which reflects Seagate's combined federal and state
statutory income tax rates, exclusive of non-recurring charges at the time of
the acquisition and estimated for future years.
Discount rate
The discount rates selected for Eastman's developed and in-process
technologies were 15% and 20%, respectively. In the selection of the appropriate
discount rates, consideration was given to (i) the Weighted Average Cost of
Capital (approximately 15% at the date of acquisition) and (ii) the Weighted
Average Return on Assets (approximately 18%). The discount rate utilized for the
in-process technology was determined to be higher than Seagate's WACC due to the
fact that the technology had not yet reached technological feasibility as of the
date of valuation. In utilizing a discount rate greater than Seagate's WACC,
management has reflected the risk premium associated with achieving the
forecasted cash flows associated with these projects.
CALYPSO SOFTWARE SYSTEMS, INC.
Calypso is a software developer in the enterprise network/system management
market. Calypso provides software which is designed to enable companies to
automate the management of their distributed applications. At the date of
acquisition, Calypso had two main products: Maestro Vision ("Maestro") and
Atrium Extendible Management System ("EMS") for Spectrum. Both existing
products, as of the acquisition date, were planned to be phased out over the
following 24 months. Calypso, at the acquisition date, was in the process of
developing the next generation Atrium EMS product that can be sold stand-alone.
Both Maestro and Atrium EMS for Spectrum were originally designed for use only
on certain system platforms, Cabletron and Spectrum, respectively. However,
Atrium EMS (stand-alone) would allow systems managers on any system platform to
distribute software; monitor CPU, memory, and operating system administration;
manage applications, file systems, and print services; and perform UNIX and NT
system administration.
As of the date of acquisition, Calypso had undergone or was in the process
of undergoing the re-write of code in C+, adding navigator capabilities,
developing web server and browser interoperability, developing CORBA
interoperability, and developing Network OLE/COM interoperability for Atrium EMS
(stand-alone). The estimated cost to complete, at the date of acquisition, was
approximately $750,000. These in process research and development projects were
successfully completed prior to a restructuring of operations in the third
quarter of fiscal 1997. As a result of this restructuring and a change in
Seagate Software's strategic direction, in the first quarter of fiscal 1998
Seagate Software disposed of all the developed and in process technologies
originally acquired from Calypso.
ONDEMAND SOFTWARE, INC.
OnDemand develops and markets electronic software distribution products
involved in network management in the client/server environment. OnDemand's
flagship product is WinINSTALL. As of the date of
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acquisition, OnDemand was in the process of developing the next generation of
WinINSTALL Version 6.0. A significant feature of Version 6.0 (not available by
any competitive product) was a rollback with clone capability, which would allow
the user to selectively return a PC to a previous state upon installation
failure or upon user demand. In order for WinINSTALL Version 6.0 to become a
commercially viable product, OnDemand, as of the valuation date, had undergone
or was in the process of undergoing significant development efforts, including
(i) developing rollback facilities, including clone capability, (ii) expanding
global editor to be included in the WinINSTALL registry file, (iii) improving
WinINSTALL Remote to ease package generation and distribution, (iv) adding a
feature that would allow optional electronic mail notification on installation
failure and on installation refusals due to reaching license limitations, and
(v) expanding copy options and interactive install displays, adding substitution
variables, and allowing version control of backup files.
As of the date of acquisition, Seagate Software management anticipated the
costs to complete WinINSTALL Version 6.0 at approximately $920,000. Since the
acquisition date, the acquired in-process research and development from OnDemand
has been completed and the related products have been released prior to the end
of fiscal 1997.
HOLISTIC SYSTEMS LTD.
Holistic's sole software product is Holos -- a product that enables users
to develop and utilize the wide variety of applications found in large scale
management information systems. As of the date of acquisition, Holistic was in
the process of developing the next generation of Holos, version 6.0, which was
planned for release during the summer of 1997.
As of the date of acquisition, Holistic had undergone or was in the process
of undergoing the re-write of the front-end code of the system from C to C++,
the re-write of the back-end code of the system in C, and the creation of the
Holos product to be object oriented. The estimated cost to complete, at the date
of acquisition, was approximately $3.5 million.
Since the acquisition date, the project originally acquired from Holistic
was commercially released as planned, fourth quarter of fiscal 1997.
RESTATEMENT OF FINANCIAL STATEMENTS
Seagate Software had previously allocated a portion of goodwill to
developed technology and evaluated the impairment of goodwill based on the
revenues from the related software. Using this method, Seagate Software recorded
write-downs and write-offs of goodwill in fiscal 1997 in the amount of
$10,259,000. Seagate Software has re-evaluated its methodology and determined
that goodwill should not be allocated to developed technology under Accounting
Principles Board Opinion 17, "Intangible Assets". As a result, Seagate Software
has made adjustments to decrease the amounts of goodwill previously written-down
and written-off from $10,259,000 to $6,173,000 in fiscal 1997. The additional
goodwill of $4,086,000 is being amortized over the remaining estimated useful
lives of approximately 5 years. The effect of this adjustment on previously
reported consolidated financial statements as of and for the years ended July 3,
1998 and June 27, 1997 is as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
AS REPORTED AS RESTATED
---------------------------- ----------------------------
JULY 3, 1998 JUNE 27, 1997 JULY 3, 1998 JUNE 27, 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Amortization of goodwill........................ $ 15,421 $ 27,202 $ 16,201 $ 23,465
Income (loss) from operations................... 6,905 (64,033) 6,125 (60,296)
Net income (loss)............................... (8,490) (57,700) (9,270) (53,963)
Basic and diluted (loss) per share.............. (51.59) (852.11) (56.33) (796.93)
Goodwill and other intangible assets, net....... 53,879 75,306 56,836 79,043
Accumulated deficit............................. (289,175) (280,685) (286,218) (276,948)
</TABLE>
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FISCAL YEAR 1998 VERSUS FISCAL YEAR 1997
REVENUES. Total revenues increased 35% to $293,226,000 in 1998 from
$216,950,000 in 1997. License revenues grew 33% to $243,285,000 in 1998 from
$183,556,000 in 1997 due primarily to increased sales of Seagate Backup Exec,
the Network & Storage Management Group business's leading storage management
product featuring backup and restore solutions for Microsoft's Windows NT Server
and Windows NT Workstation operating systems. License revenue growth was also
due to increased sales of Seagate Crystal Reports and Seagate Crystal Info, the
Information Management Group's leading business intelligence products featuring
enterprise report writing and scheduling technologies. Seagate Software
continued to expand both its indirect and direct sales channels. Indirect
revenues, which include distribution and OEM sales, increased 37% to
$203,273,000 in 1998 from $147,991,000 in 1997 while direct revenues, which
include corporate licensing and other direct sales to users, increased 30% to
$89,953,000 in 1998 from $68,959,000 in 1997. Revenues increased within the
Americas 30% to $198,820,000 in 1998 from $153,368,000 in 1997 and
internationally 48% to $94,407,000 in 1998 from $63,582,000 in 1997, which was
due in part to Seagate Software's continued expansion of its European
distribution channel. Revenues from Seagate Technology decreased 5% primarily
due to fewer unit shipments to Seagate Technology's OEM tape drive operations.
Total maintenance, support and other revenues grew 61% to $44,472,000 in 1998
from $27,632,000 in 1997 primarily due to increases in the sales of maintenance
agreements and training and consulting services resulting from a larger
installed customer base.
During 1998 Seagate Software generated export revenues from the United
States of approximately $66,250,000. Revenues and expenses from Seagate
Software's operations outside of the Americas were approximately $26,809,000 and
$52,143,000, respectively, as translated to the U.S. dollar from foreign
currencies. The principal currency for such operations is the British pound.
Seagate Software believes that its exposure to foreign currency fluctuations is
not material and does not engage in foreign currency hedging programs.*
COST OF REVENUES. The decrease in the cost of license revenues to
$16,963,000 in 1998 from $17,535,000 in 1997, representing 7% and 10% of related
license revenues, respectively, and the decrease in the cost of license revenues
from Seagate Technology was due primarily to reductions in product packaging and
documentation costs resulting from a shift in mix to CD-ROMs from disks and
increased sales of higher-margin server products. The increase in the cost of
maintenance, support and other revenues to $19,687,000 in 1998 from $6,560,000
in 1997, representing 44% and 24% of related service revenues, respectively, was
primarily due to expansion of Seagate Software's professional services workforce
necessary to support the growth in training and consulting revenues. The lower
service revenue margins in 1998 were primarily due to increased spending for
additional personnel and new facilities to support higher levels of customer
support services, such as training, consulting and preferred technical support.
The decrease in the amortization of developed technology to $13,271,000 in 1998
from $21,860,000 in 1997, representing 5% and 10% of total revenues,
respectively, was primarily due to write-downs of certain developed technologies
amounting to approximately $6,918,000 during 1997 as a result of asset values
that had become impaired based on reductions in estimated future cash flows.
Unamortized software costs for developed technology were reviewed under the
guidance of SFAS No. 86 for potential impairment. Seagate Software compares the
undiscounted future cash flows on a product by product basis to the unamortized
costs including goodwill. Unamortized costs, including goodwill, in excess of
undiscounted future cash flows are recorded as an impairment loss. Impairment
losses in 1997 were caused by a number of factors including Seagate Software's
business decision to stop selling products or technologies such as DOS, new
acquisitions, or new product designs. Additionally in 1997, Seagate Software
incurred a write-off related to the decision to close down and sell one of its
acquisitions, Calypso Software Systems, Inc.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance
that the Company's actual future performance will meet the Company's current
expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking
information.
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<PAGE> 699
The write-off was to the expected net realizable value. Seagate Software is not
currently generating any revenues from any products for which the related
developed technology has been impaired.
SALES AND MARKETING. The increase in sales and marketing expenses to
$129,343,000 in 1998 from $107,706,000 in 1997, representing 44% and 50% of
total revenues, respectively, was primarily due to expansion of Seagate
Software's sales force and increases in advertising, promotion, including
allocations from Seagate Technology for the proportional cost of television and
newspaper advertisements and technical support costs necessary to support
revenue growth. Such increases were partially offset by reductions in workforce
in 1997 within the Network & Storage Management Group business unit due to
facility consolidations.
RESEARCH AND DEVELOPMENT. The increase in research and development expenses
to $47,173,000 in 1998 from $42,842,000 in 1997, representing 16% and 20% of
total revenues, respectively, was primarily due to increases in personnel and
related expenses, new product development and localization costs, partially
offset by facility consolidations and reductions in workforce in 1997 within the
Network and Storage Management Group business unit.
GENERAL AND ADMINISTRATIVE. The increase in general and administrative
expenses to $37,124,000 in 1998 from $36,861,000 in 1997, representing 13% and
17% of total revenues, respectively, was primarily due to increases in personnel
and related expenses and legal costs, partially offset by facility
consolidations and reductions in workforce in 1997 within the Network & Storage
Management Group business unit.
WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT. As a result of its
acquisitions, Seagate Software has acquired a number of projects and products
that were considered in-process research and development on the date of
acquisition. Seagate Software determined that purchased in-process technology
had not reached technological feasibility as no working model or detail program
design existed at the time of purchase, and no alternative uses had been
identified. Accordingly, in-process research and development was expensed when
acquired. During 1998, $6,800,000 of in-process research and development was
written off in connection with the purchase of Eastman Software Storage
Management Group, Inc. During 1997, total write-offs of in-process research and
development were $2,613,000. Seagate Software incurred this charge in connection
with additional amounts paid with respect to the June 1996 acquisition of
Holistic Systems, Ltd. ("Holistic").
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. The decrease in the
amortization of goodwill and other intangibles to $16,201,000 in 1998 from
$23,465,000 in 1997, representing 6% and 11% of total revenues, respectively,
was primarily due to decreases in amortization expense based on lower levels of
intangible assets and write-downs and write-offs of the carrying value of
developed technology of approximately $1,900,000 in 1998 versus $6,173,000 in
1997 as a result of asset values that had become impaired based on reductions in
estimated future cash flows.
Long-lived assets other than developed technology, including associated
goodwill, are assessed for impairment under the guidance of Statement of
Financial Accounting Standards Board No. 121 ("SFAS 121"), and any write-offs or
write-downs are included in amortization of goodwill and other intangibles.
Goodwill not within the scope of SFAS 121 is assessed for impairment under the
guidance of Accounting Principles Board No. 17, and any write-offs or
write-downs are also included in amortization of goodwill and other intangibles.
Developed technology acquired in business combinations is assessed for
impairment under the guidance of Statement of Financial Accounting Standards
Board No. 86, and any related write-offs or write-downs are included in costs of
revenues. During fiscal 1997 and 1998, Seagate Software recorded impairment
charges for write-offs and write-downs of acquired intangible assets and
goodwill, exclusive of amounts relating to developed technology included in
costs of revenues, as follows:
In 1997, Seagate Software determined that it would abandon and discontinue
selling substantially all of the current and future products and technologies
obtained in the 1994 acquisition of Palindrome Corporation in favor of selling
and supporting the current and future products and technologies obtained in the
1996 acquisition of Arcada Holdings, Inc. Additionally, in 1997, Seagate
Software decided to close down and sell Calypso Software Systems, Inc. and to
abandon and discontinue sales of the developed and future DOS products and
technologies acquired from Frye Computer Systems, Inc. In connection with these
determina-
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<PAGE> 700
tions, Seagate Software recorded impairment charges to write-off and write-down
goodwill amounting to approximately $6.2 million.
In 1998, Seagate Software capitalized the acquired assembled workforce in
most of its acquisitions. When Seagate Software reviews the carrying value of
its intangibles, if there remains less than 5% of the original assembled
workforce the related intangible assets is deemed impaired. In fiscal 1998,
Seagate Software wrote-off a total of $1.9 million relating to the capitalized
assembled workforces and the associated goodwill for Network Computing, Inc.,
Netlabs, Inc. and Creative Interaction Technologies, Inc. because less than 5%
of the original assembled workforces remained.
RESTRUCTURING. Restructuring charges were $2,524,000 in 1997, representing
1% of total revenues. The restructuring charges were incurred as a result of
reorganizations and closures within the Network & Storage Management Group unit
for the reduction of personnel, write-off or write-down of equipment,
intangibles and other assets, closure of duplicate facilities, fees for legal
and accounting services, contract cancellations and other related expenses.
UNUSUAL ITEMS. Unusual items of $13,446,000 were recognized during 1997,
representing 6% of total revenues. In connection with the June 1996 acquisition
of Holistic, $18,000,000 of funds were placed in escrow pending the outcome of
certain purchase price contingencies. Prior to the expiration of the contingency
period, Seagate Software elected to release the funds to the Holistic
shareholders even though certain contingencies had not been met. Of the
$18,000,000 total contingency payment, the Company recorded $13,446,000 as
compensation expense for amounts paid to former Holistic shareholders who were
employees of Seagate Software and recorded the remaining $4,554,000 paid to
non-employee shareholders as additional purchase price.
Seagate Software released the funds prior to the expiration of the
contingency period, because in order to position the Information Management
Group business unit for future growth and product development, Seagate Software
needed to begin an aggressive plan to integrate the operations of Holistic.
These activities resulted in the diversion of the attention of certain Holistic
employees from their responsibilities at Holistic. As such, Holistic's ability
to achieve the purchase price contingencies necessary to trigger the $18,000,000
contingency payment was impaired. Seagate Software believed that the Holistic
employees should not be penalized, because they had sacrificed achievement of
their individual goals in order to meet the overall needs of Seagate Software.
Accordingly, Seagate Software elected to make the full payment of $18,000,000.
INTEREST AND OTHER, NET. Total interest and other, net decreased to a net
expense of $10,000 in 1998 from a net expense of $2,381,000 in 1997,
representing 0% and 1% of total revenues, respectively. The decrease in interest
and other, net was primarily due to lower interest expense on a lower level of
outstanding borrowings from Seagate Technology and an increase in foreign
exchange gains.
INCOME TAXES. Seagate Software recorded a $15,385,000 provision for income
taxes at an effective rate of 252% in 1998 compared with a $8,714,000 benefit
from income taxes at an effective rate of 14% for 1997. The effective rate used
to record the provision for income taxes in 1998 was greater than the statutory
rate primarily due to foreign tax rates that were in excess of the U.S.
statutory tax rate, increases in the valuation allowance for deferred tax assets
and goodwill amortization for certain acquisitions that were not deductible for
tax purposes. The effective rate used to record the benefit from income taxes in
1997 was less than the statutory rate primarily due to increases in the
valuation allowance for deferred tax assets and goodwill amortization for
certain acquisitions that were not deductible for tax purposes.
FISCAL YEAR 1997 VERSUS FISCAL YEAR 1996
REVENUES. Total revenues increased 53% to $216,950,000 in 1997 from
$141,586,000 in 1996. The increase in licensing revenues was due in part to
growth in the market for business intelligence and information technology
infrastructure management software products and related services, expansion of
Seagate Software's European distribution channels and market demand for Network
& Storage Management Group's Seagate Backup Exec, a storage management product
that supports Microsoft's Windows NT operating system. The increase in
maintenance, support and other revenues was due in part to higher training and
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<PAGE> 701
consulting revenues resulting from a larger customer base. Additionally, the
1997 results included a full year of operations for the 1996 acquisitions of
OnDemand Software, Inc. ("OnDemand") and Holistic. These 1996 acquisitions
accounted for increases in licensing, licensing from Seagate Technology and
maintenance, support and other revenues of approximately $26,039,000, $842,000
and $14,758,000, respectively, in 1997 as compared with 1996.
During 1997 Seagate Software generated export revenues from the United
States of approximately $44,129,000. Revenues and expenses from Seagate
Software's operations outside of the Americas were approximately $18,896,000 and
$23,938,000, respectively, as translated to the U.S. dollar from foreign
currencies. The principal currency for such operations is the British pound.
COST OF REVENUES. The cost of revenues increased to $47,789,000 in 1997
from $29,019,000 in 1996, representing 22% and 20% of total revenues,
respectively. The majority of the increase in absolute dollars was due to an
increase in the amortization of acquired developed technology due to a higher
level of intangible assets and an increase in the Information Management Group's
costs related to service revenues and related costs resulting from the inclusion
of a full year of operations in 1997 of the 1996 acquisition of Holistic.
Additionally, in 1997 Seagate Software wrote off and wrote down certain
developed technologies amounting to approximately $6,918,000 as a result of
asset values that had become impaired based on Seagate Software's phasing out of
certain products.
In 1997, the unamortized software costs for developed technology were
reviewed under the guidance of SFAS No. 86 for potential impairment. Seagate
Software compared the net realizable value on a product by product basis to the
unamortized costs including goodwill. Impairments were caused by a number of
factors including Seagate Software's business decision to stop selling
technologies such as DOS, new acquisitions, or new product designs. Additionally
in 1997, Seagate Software incurred a write-off related to the decision to close
down and sell one of its acquisitions, Calypso Software Systems, Inc. The
write-off was to the expected net realizable value.
SALES AND MARKETING. Sales and marketing costs increased to $107,706,000 in
1997 from $71,129,000 in 1996, representing 50% of total revenues in both
periods. The increase in absolute dollars was due to increased personnel,
advertising and promotion costs necessary to support revenue growth and the
expansion of Seagate Software's European distribution channel. Additionally, the
1997 results included a full year of operations for Seagate Software's 1996
acquisitions compared with a partial year of operations in 1996.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$42,842,000 in 1997 from $36,897,000 in 1996, representing 20% and 26% of total
revenues, respectively. The increase in absolute dollars was primarily due to
increases in personnel and related expenses, new product development and
localization costs, partially offset by facility consolidations and reductions
in workforce within the Network & Storage Management Group business unit.
Additionally, the 1997 results included a full year of operations for Seagate
Software's 1996 acquisitions compared with a partial year of operations in 1996.
GENERAL AND ADMINISTRATIVE. Total general and administrative expenses
increased to $36,861,000 in 1997 from $22,852,000 in 1996, representing 17% and
16% of total revenues, respectively. The increase in absolute dollars was
primarily due to increases in personnel and related expenses and increases in
corporate administrative expenses and information systems necessary to support
Seagate Software's growth. Additionally, the 1997 results included a full year
of operations for Seagate Software's 1996 acquisitions compared with a partial
year of operations in 1996.
WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT. During 1997, total
write-offs of in-process research and development were $2,613,000. Seagate
Software incurred this charge in connection with additional amounts paid with
respect to the June 1996 acquisition of Holistic. During 1996, total write-offs
of in-process research and development were $96,958,000, which resulted from
Seagate Software's 1996 acquisitions.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles increased to $23,465,000 in 1997 from $13,035,000 in 1996,
representing 11% and 9% of total revenues, respectively. The increase in
absolute dollars was primarily due to increased amortization expense on a higher
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<PAGE> 702
level of intangible assets and write-downs and write-offs of the carrying value
of goodwill and other intangible assets of approximately $10,259,000 based on
shortfalls of estimated future cash flows.
Long-lived assets other than developed technology, including associated
goodwill, are assessed for impairment under the guidance of Statement of
Financial Accounting Standards Board No. 121 ("SFAS 121"), and any write-offs or
write-downs are included in amortization of goodwill and other intangibles.
Goodwill not within the scope of SFAS 121 is assessed for impairment under the
guidance of Accounting Principals Board No. 17, and any write-downs or
write-offs are also included in amortization of goodwill and other intangibles.
Developed technology acquired in business combinations is assessed for
impairment under the guidance of Statement of Financial Accounting Standards
Board No. 86, and any related write-offs or write-downs are included in costs of
revenues. During 1997 and 1996, Seagate Software recorded impairment charges for
write-off and write-downs of acquired intangible assets and goodwill, exclusive
of amounts relating to developed technology included in costs of revenues, as
follows:
In 1997, Seagate Software determined that it would abandon and discontinue
selling substantially all of the current and future products and technologies
obtained from the 1994 acquisition of Palindrome Corporation in favor of selling
and supporting the current and future products and technologies obtained from
the 1996 acquisition of Arcada Holdings, Inc. Additionally, in 1997, Seagate
Software decided to close down and sell Calypso Software Systems, Inc. and to
abandon and discontinue sales of the developed and future products and
technologies acquired from Frye Computer Systems, Inc. In connection with these
determinations, Seagate Software recorded write-offs and write-downs of goodwill
amounting to approximately $6.2 million.
In 1996, the former owner of Frye Computer Systems, Inc., a 1995
acquisition, Mr. Frye, left Seagate Software. With his departure, Seagate
Software decided to release Mr. Frye from his remaining non-compete period and
to not use the Frye name trademark in future periods. As a result, the remaining
carrying value of the intangible assets relating to the covenant not to compete
and the trademark, and associated goodwill, totaling $2.2 million were written
off in their entirety. Seagate Software is not currently generating revenue from
any products for which the related developed technology has been impaired.
RESTRUCTURING. Restructuring charges were $9.5 million in fiscal 1996 and
$2.5 million in fiscal 1997. The 1996 restructuring charges pertain to the
acquisition of Arcada Holdings, Inc. in February 1996. As a result of the
acquisition, Seagate Software had obtained duplicate technologies and product
lines in data protection and storage management software as those assets
acquired in the Palindrome Corporation (Palindrome) acquisition in fiscal 1995.
Seagate Software determined that it would be beneficial to consolidate the
world-wide sales, marketing, research and development, technical support and
other operations and administrative functions of its network and storage
management business. A restructuring plan was approved by the Board of Directors
in March 1996 and the plan resulted in facility closures and staff reductions of
43 at the Arcada facilities in Westboro, Massachusetts, the United Kingdom and
France, as well as staff reductions of 69 at the former Palindrome facility in
Naperville, Illinois. In addition, because Arcada had a better industry
reputation and superior products to those of Palindrome, Seagate Software's plan
and strategy going forward was to focus on the technologies and products
acquired from Arcada. The revenue and net operating loss relating to products
acquired from Palindrome for fiscal 1996 was $15.9 million and $2.1 million
respectively. For fiscal 1997, the revenue and net operating loss relating to
products acquired from Palindrome was $3.3 million and $3.7 million
respectively.
The non-cash restructuring charges included amounts for abandonment of the
Palindrome trademarks, impairment of the capitalized workforce intangible assets
pertaining to the acquisition of Palindrome because of the planned layoff of
personnel, write-off of a duplicate trade show booth, and write-off of obsolete
Palindrome marketing materials. Cash restructuring charges included amounts for
severance and benefits to terminated Palindrome employees, costs for facilities
lease termination, other contract cancellation fees, and merger related costs
incurred by Arcada in the acquisition of the Arcada minority interests by
Seagate Technology.
The fiscal 1997 restructuring charges netted to $2.5 million, comprised of
a $3.4 million restructuring charge that included the closure of the Network &
Storage Management Group's facility located in Cupertino,
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<PAGE> 703
California. This facility closure resulted in cash charges for severance and
benefits for 69 employee terminations and non-charges for excess facilities and
the write down of equipment. In addition, the $3.4 million included amounts
related to Seagate Software's decision, after concluding a sale was no longer
viable, to no longer pursue the technologies acquired in the 1996 acquisition of
Calypso Software Systems, Inc. (Calypso) and to shutdown its operations. This
decision resulted in cash charges for severance and benefits for 35 employee
terminations and non-cash charges for the write off of certain remaining
intangible assets of Calypso. The revenue and net operating loss relating to
Calypso for fiscal 1996 was $444,000 and $53,000 respectively. For fiscal 1997,
the revenue and net operating loss relating to Calypso was $640,000 and $47,000
respectively.
The restructuring charges recorded in fiscal 1997 were reduced by $957,000
for the reversal of amounts pertaining to the fiscal 1996 restructuring charges
as a result of a higher than planned number of voluntary employee terminations
without severance benefits prior to the facility shutdown and completion of
other aspects of the restructuring plan at less than the originally estimated
cost, net of an increase in the accrual for facilities lease payments due to
changes in estimates of the costs to terminate leases after facilities closure.
A summary of Seagate Software's restructuring activities for fiscal years
1996, 1997 and 1998, and the first six months of fiscal 1999 is provided below
(in thousands):
<TABLE>
<CAPTION>
SEVERANCE
AND CONTRACT LEGAL AND
EMPLOYEE CANCELLATION ACCOUNTING OTHER
BENEFITS FACILITIES EQUIPMENT INVENTORY INTANGIBLES FEES FEES EXPENSES
--------- ---------- --------- --------- ----------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 charges......... $1,554 $1,571 $ 1,018 $ 300 $ 4,312 $ 67 $ 525 $ 155
Cash charges......... (518) -- -- -- -- -- (568) --
Non-cash charges..... -- (121) (116) -- (4,052) -- -- (138)
------ ------ ------- ----- ------- ---- ----- -----
Reserves 1996........ 1,036 1,450 902 300 260 67 (43) 17
1997 charges......... 770 505 728 -- 1,378 -- -- 100
Cash charges......... (975) (915) -- -- -- -- -- --
Non-cash charges..... -- (72) (44) -- (1,378) -- -- --
Adjustment........... (351) 267 (172) (300) (260) (67) 43 (117)
------ ------ ------- ----- ------- ---- ----- -----
Reserves 1997........ 480 1,235 1,414 -- -- -- -- --
Cash charges......... (373) (519) (9) -- -- -- -- --
Non-cash charges..... -- -- (1,045) -- -- -- -- --
Adjustment........... (107) 467 (360) -- -- -- -- --
------ ------ ------- ----- ------- ---- ----- -----
Reserves 1998........ -- 1,183 -- -- -- -- -- --
Cash charges
(unaudited)........ -- (251) -- -- -- -- -- --
------ ------ ------- ----- ------- ---- ----- -----
Balance 1/1/99
(unaudited)........ $ -- $ 932 $ -- $ -- $ -- $ -- $ -- $ --
====== ====== ======= ===== ======= ==== ===== =====
<CAPTION>
TOTAL
-------
<S> <C>
1996 charges......... $ 9,502
Cash charges......... (1,086)
Non-cash charges..... (4,427)
-------
Reserves 1996........ 3,989
1997 charges......... 3,481
Cash charges......... (1,890)
Non-cash charges..... (1,494)
Adjustment........... (957)
-------
Reserves 1997........ 3,129
Cash charges......... (901)
Non-cash charges..... (1,045)
Adjustment........... --
-------
Reserves 1998........ 1,183
Cash charges
(unaudited)........ (251)
-------
Balance 1/1/99
(unaudited)........ $ 932
=======
</TABLE>
Seagate Software's remaining restructuring reserves pertain to continuing
lease payments on facilities that were closed and abandoned as a result of the
Palindrome restructuring. Seagate Software has been unable to sublease these
facilities and anticipates that the remaining restructuring reserves will be
utilized over the period through lease termination in fiscal 2002.
In fiscal 1996, Seagate Software recorded a restructuring reserve of
$9,502,000 for the following items:
Severance and employee benefits ($1,554,000) -- Severance and employee
benefits included amounts for consolidation of operations and termination of
employees at the Arcada facilities in Westboro, Massachusetts, the United
Kingdom and France, as well as at the former Palindrome facility in Naperville,
Illinois.
Excess facilities ($1,571,000) -- This accrual was designed to provide for
rent termination costs and rent expense for facilities located in Naperville,
Westboro, the United Kingdom and France that are to be closed as a result of the
restructuring actions.
Equipment ($1,018,000) -- This amount is a reserve for equipment at the
Naperville, Westboro, the United Kingdom and France facilities. It consists of
computer equipment, furniture and fixtures and software
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<PAGE> 704
at these facilities that will not be used after the locations are closed. All of
the equipment provided for in this reserve has been abandoned.
Inventory ($300,000) -- This consists of obsolete packaging material that
will no longer be used and OEM inventory of $80,000 that will no longer be sold.
Intangibles ($4,312,000) -- This write down consists of Palindrome
intangible assets of $3,534,000, $390,000 of developed technology related to
Atlas and $388,000 of goodwill related to the Sytron acquisition. The Palindrome
intangible assets were further broken down into trademark of $1,000,000,
workforce of $1,188,000, distribution network of $69,000 and goodwill of
$1,277,000. Seagate Software decided to pursue the Arcada brand name and
trademark and abandon the Palindrome trademark. As a result, Seagate Software
determined that it would lay off substantially all of the 121 employees of
Palindrome located at the Naperville facility. At the time of original purchase,
Seagate Software proportionally allocated goodwill to long-lived intangible
assets based upon the original purchase price. The amounts of goodwill included
in the restructuring reserve relate to the remaining unamortized goodwill
associated with the intangible assets written off.
Contract Cancellation ($67,000) -- This $67,000 item is a canceled contract
for outsourced Technical Support with a vendor used by Palindrome.
Legal/Accounting Fees ($525,000) -- This $525,000 represents and estimate
of the legal and accounting fees that were to be incurred by Arcada from the
acquisition of Arcada stock by Seagate Technology.
Other ($155,000) -- This represents a trade show booth valued at $100,000
that is redundant and $55,000 worth of obsolete marketing materials.
The above assets were not impaired in a prior period because their
impairment arose specifically from the restructuring actions taken as a result
of the acquisition of the minority interest in Arcada in the third quarter of
fiscal 1996. Prior to the acquisition, Palindrome products were marketed and
sold as part of the Seagate Software portfolio. Seagate Software has not
generated any income from these activities in subsequent periods.
In fiscal 1997, Seagate Software recorded an additional restructuring
reserve of $3,481,000 that resulted primarily from the plan to shutdown
Manchester operations and the decision to try to sell the Calypso technology and
a separate decision to consolidate NSMG operations which resulted in the
shutdown of Seagate Software's facility in Cupertino, California.
Severance and employee benefits ($770,000) -- Severance and employee
benefits included amounts for the shutdown and termination of employees at the
Cupertino, California facility due to a consolidation of operations and the
shutdown and termination of employees at the Calypso facility in Manchester, New
Hampshire due to a decision to no longer pursue the Calypso products and
technologies.
Excess facilities ($505,000) -- This accrual was designed to provide for
rent termination costs and rent expense for facilities closures in Manchester,
New Hampshire and Cupertino, California.
Equipment ($728,000) -- This equipment is in the Manchester and Cupertino
facilities that would not be used after the shutdowns. It consisted of largely
of computer equipment but also included amounts for furniture and fixtures and
software. All of the equipment provided for in this reserve has been abandoned.
Intangibles ($1,378,000) -- This asset consisted of Calypso related
intangibles first capitalized upon the acquisition of Calypso in fiscal 1996.
The amounts written down included net developed technology of $1,086,000 and
assembled workforce of $292,000. These assets were written down based on
management's plan to sell Calypso and its products and technologies.
Other ($100,000) -- This represents miscellaneous additional costs related
to the Manchester (Calypso) shutdown.
The above assets were not impaired in a period prior to recording the
restructuring reserves because their impairment arose specifically from the
business decision and plan in the fourth quarter of fiscal 1997 to close
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<PAGE> 705
the Manchester (Calypso) facility and abandon that technology and the additional
decision to consolidate operations of the company and close the Cupertino
facility.
UNUSUAL ITEMS. In connection with the June 1996 acquisition of Holistic,
Seagate Software recorded $13,446,000 in fiscal 1997, representing 6% of total
revenues, as compensation expense for amounts paid to former Holistic
shareholders who were employees of Seagate Software.
INTEREST AND OTHER, NET. Total interest and other, net increased to a net
expense of $2,381,000 in 1997 from a net expense of $610,000 in 1996,
representing 1% and 0% of total revenues, respectively. The increase in interest
and other, net was primarily due to higher interest expense on a higher level of
outstanding borrowings from Seagate Technology.
INCOME TAXES. Seagate Software recorded a $8,714,000 benefit from income
taxes at an effective rate of 14% in 1997 compared with a $8,748,000 benefit
from income taxes at an effective rate of 6% for 1996. The effective rate used
to record the benefit from income taxes in each fiscal year was less than the
statutory rate primarily due to increases in the valuation allowance for
deferred tax assets and charges in 1996 for in-process research and development
for certain acquisitions that were not deductible for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Seagate Software's total cash was $15,130,000 and $12,085,000 as of July 3,
1998 and June 27, 1997, respectively. The increase in cash was primarily due to
loan borrowings from the parent company of $261.9 million, cash provided by
operating activities and the sale of common stock under the Option Plan,
partially offset by a reduction in the Company's loan repayments to the parent
company of $274.8 million, acquisition of a business, purchases of property and
equipment and purchases of intangible assets. The Company's cash is maintained
in highly liquid operating accounts and primarily consists of bank deposits.
Seagate Software's operations have been financed by cash flows from
operating activities and borrowings from Seagate Technology. Such borrowings are
available to Seagate Software under a Revolving Loan Agreement, between Seagate
Software and Seagate Technology, which was renewed on July 4, 1998 on
substantially the same terms and conditions as the prior agreement which was
dated June 28, 1996. Under the Revolving Loan Agreement, Seagate Technology
finances certain of Seagate Software's working capital requirements. The
Revolving Loan Agreement, which provides for maximum borrowings of up to
$60,000,000, is renewable every two years and expires on July 3, 2000. Beginning
in fiscal year 1999, the Company will pay interest at the LIBOR rate plus 2% per
annum on such borrowings; the Company previously paid interest at 6%. The loan
balance was $16,054,000 as of July 3, 1998.
In addition to the Revolving Loan Agreement with Seagate Technology,
certain foreign subsidiaries have line of credit facilities with third party
financial institutions. These line of credit facilities provide for additional
borrowings of up to an equivalent of approximately $1,100,000 at July 3, 1998.
Interest rates payable on borrowings are based on local bank prime interest
rates. At July 3, 1998, there were no outstanding borrowings under any of these
lines of credit.
During the year ended July 3, 1998, Seagate Software made investments in
property and equipment totaling approximately $10,387,000 for new office
facilities, leasehold improvements, computers, furniture and office equipment.
Seagate Software presently anticipates it will make investments in 1999 of
approximately $15,000,000 in property and equipment.* Additionally, product
development activities may include cash used to acquire technology.* Seagate
Software expects that such investments will be funded from existing cash
balances and cash flows from operations.*
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance
that the Company's actual future performance will meet the Company's current
expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking
information.
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<PAGE> 706
Seagate Software believes its current cash balances, its available
borrowings from Seagate Technology and cash flows generated from Seagate
Software's operations will be sufficient to meet its anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.*
Furthermore, Seagate Software anticipates that future operating and investing
activities may be financed by additional borrowings from Seagate Technology,
equity financing or other sources.* Seagate Software believes that additional
financing from Seagate Technology will be available at a reasonable cost.*
NEW ACCOUNTING PRONOUNCEMENTS
In October 1997 and March 1998, the American Institute of Certified Public
Accountants issued Statements of Position 97-2, "Software Revenue Recognition"
("SOP 97-2") and 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition" ("SOP 98-4"), which the Company currently is
required to adopt for transactions entered into after July 3, 1998. SOP 97-2 and
SOP 98-4 provide guidance on recognizing revenue on software transactions and
supersede SOP 91-1. The Company has assessed the impact of the requirements of
SOP 97-2 and SOP 98-4 and has changed certain of its policies and procedures.
The Company believes that the adoption of SOP 97-2 and SOP 98-4 will not have a
significant impact on the Company's revenues or results of operations.
The Company intends to adopt Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130") and No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131") during
fiscal 1999. Both standards will require additional disclosure, but will not
have a material effect on the Company's financial position or results of
operations.* SFAS 130 establishes standards for the reporting and display of
comprehensive income and is expected to first be reflected in the Company's
first quarter of 1999 interim financial statements. The components of
comprehensive income include net income and items that are currently reported
directly as a component of shareholders' equity such as changes in foreign
currency translation adjustments and changes in the fair value of
available-for-sale financial instruments. SFAS 131 changes the way companies
report segment information and requires segments to be determined based on how
management measures performance and makes decisions about allocating resources.
SFAS 131 will first be reflected in the Company's 1999 Annual Report on Form
10-K.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance on capitalization of the costs incurred for computer software developed
or obtained for internal use. It also provides guidance for determining whether
computer software is internal-use software and on accounting for the proceeds of
computer software originally developed or obtained for internal use and then
subsequently sold to the public. The Company has not yet determined the impact,
if any, of adopting this statement. The disclosures prescribed by SOP 98-1 will
be effective for the Company's consolidated financial statements for the fiscal
year ending June 30, 2000.
FACTORS AFFECTING FUTURE OPERATING RESULTS
POTENTIAL FLUCTUATIONS IN ANNUAL AND/OR QUARTERLY OPERATING RESULTS. The
Company's future results of operations may be subject to substantial
fluctuations.* The Company operates with no backlog because its software
products are generally shipped shortly after orders are received. Annual and/or
quarterly sales and operating results therefore depend on the volume and timing
of and the ability to fill orders received within a given quarter, and such
factors are difficult to forecast.* The Company recognizes a substantial portion
of its revenue in the last month of each quarter and, therefore, may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall.* If revenue levels in a given year or quarter are below expectations,
the Company's operating results may be materially adversely affected.*
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance
that the Company's actual future performance will meet the Company's current
expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking
information.
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<PAGE> 707
The Company expects to experience significant fluctuations in annual and/or
quarterly operating results based upon a number of factors including, but not
limited to, (i) market acceptance of new products and product enhancements, (ii)
the Company's ability to develop, introduce and market new products and product
enhancements in a timely fashion, (iii) the timing of large orders, (iv)
increased competition, (v) changes in pricing policies by the Company and/or its
competitors, (vi) the Company's ability to control costs, (vii) the amount of
one-time charges incurred in future acquisitions, (viii) the Company's ability
to integrate future acquisitions into its operations, (ix) technological changes
in the Company's markets, (x) personnel changes and (xi) general economic
factors.* Because of these considerations, the Company believes that a
period-to-period comparison of its operations is not necessarily meaningful and
should not be relied upon as any indication of future performance.
REVENUE CONCENTRATION. The Company derives a substantial majority of its
revenues from a limited number of software products and anticipates that revenue
from these products will continue to account for a majority of the Company's
revenues in the foreseeable future.* Broad market acceptance of such products is
therefore critical to the Company's future success, and failure to achieve broad
market acceptance of these products as a result of competition, technological
change or other factors would have a material adverse effect on the business,
operating results and financial condition of the Company.* The life cycle of
these products is difficult to estimate, and the Company's future financial
performance may depend in part on the successful development, introduction and
market acceptance of new products, applications and product enhancements.* There
can be no assurance that the Company will continue to be successful in marketing
its key products or any new products, applications or product enhancements.
Further, the Company derived 22% of its revenues from sales to its top customer,
Ingram Micro Inc., in 1998. A significant reduction in orders from this
customer, if not offset by increased sales to other customers, could have a
material adverse effect on the Company's business, operating results, or
financial condition.* Accordingly, there can be no assurance that the Company
will continue to be successful in marketing its products to such customer.
NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE. The markets for the
Company's products are characterized by rapidly changing technology, changing
customer needs, evolving industry standards and frequent new product
introductions. The Company's future success will therefore depend on its ability
to design, develop, test and support new software products and enhancements on a
timely and cost effective basis.* There can be no assurance that the Company
will be successful in developing and marketing new products that respond to
technological changes and changing customer needs, or that the Company's new
products will achieve market acceptance. If the Company is unable for
technological or other reasons to develop and introduce new products in a timely
manner in response to changing market conditions or customer requirements, the
Company's business, operating results or financial condition could be materially
adversely affected. If potential new products are delayed or fail to achieve
market acceptance, the Company's business, operating results and financial
condition would be materially adversely affected. In addition, significant order
deferrals due to customers waiting for the introduction of new or announced
products could have a material adverse effect on the Company's business,
operating results or financial condition.
RELIANCE ON SALES STAFF AND CHANNEL PARTNERS. The Company sells and
supports its products through its sales staff and third party distributors and
OEMs. In particular, the Company has a strategic relationship with Microsoft
pursuant to which (i) the Company's products are bundled with Microsoft's
products and (ii) the Company has in the past and is currently participating in
the development of certain utilities and products for inclusion in Microsoft's
products. Any material diminution in the level and breadth of activities with
Microsoft could have a material adverse effect on the Company's business,
operating results or financial condition. The Company has made significant
expenditures in recent years for the expansion of its sales and marketing force
and plans to continue to expand its sales and marketing force.* The Company's
future success will depend in part upon the productivity of its sales and
marketing force and the ability of the Company to continue to
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance
that the Company's actual future performance will meet the Company's current
expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking
information.
U-24
<PAGE> 708
attract, integrate, train, motivate and retain new sales and marketing
personnel.* Competition for sales and marketing personnel in the software
industry is intense. There can be no assurance that the Company will be
successful in hiring and retaining such personnel in accordance with its plans.
There can be no assurance that the Company's recent and other planned expenses
in sales and marketing will ultimately prove to be successful or that the
incremental revenue generated will exceed the significant incremental costs
associated with these efforts. In addition, there can be no assurance that the
Company's sales and marketing organization will be able to compete successfully
against the significantly more extensive and better funded sales and marketing
operations of many of the Company's current and potential competitors. If the
Company is unable to develop and manage its sales and marketing force expansion
effectively, the Company's business, operating results and financial condition
would be materially adversely affected.
The Company derives a substantial portion of its revenue from the marketing
and distribution of its products by its distributors and OEMs. The Company's
agreements with distributors and OEMs typically allow such resellers to carry
product lines that are competitive with those of the Company and in many cases
may be terminated by either party without cause. There can be no assurance that
such distributors and OEMs will place high priority on the marketing of the
Company's products or that they will continue to carry the Company's products.
Loss of the Company's current distributors and OEMs or the inability to attract
new distributors and OEMs could materially adversely affect the Company's
business, operating results or financial condition.
COMPETITION. The markets for the Company's products are highly competitive
and characterized by rapidly changing technology and evolving standards. The
Company expects additional competition from other established and/or emerging
companies and as a result of future software industry consolidations.* Increased
competition can be expected to cause price reductions, reduced gross margins and
loss of market share, any of which could have a material adverse effect on the
Company's business, operating results or financial condition. Current and
potential competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion, sale and support of their products than
the Company.* It is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. In addition, network
operating system vendors could introduce new or upgrade existing operating
systems or environments that could render the Company's products obsolete and
unmarketable. There can be no assurance that the Company will successfully
compete against current or future competitors, or that competitive pressures
faced by the Company will not materially adversely affect its business,
operating results or financial condition.
DEPENDENCE ON KEY PERSONNEL. The Company's future performance depends to a
significant degree upon the continued service of its key members of management
as well as marketing, sales and product development personnel.* The loss of one
or more of the Company's key personnel would have a material adverse effect on
the Company's business, operating results and financial condition. The Company
believes its future success will also depend in large part upon its ability to
attract and retain highly skilled management, marketing, sales and product
development personnel.* Competition for such personnel is intense, and there can
be no assurance that the Company will be able to retain its key employees or
that it will be successful in attracting, assimilating and retaining them in the
future.
MANAGEMENT OF GROWTH. The Company is in the process of expanding the
geographic scope of its customer base and operations. This expansion has
resulted and will continue to result in substantial demands on the Company's
management resources.* The Company's future operating results will depend on the
ability of its officers and other key employees to continue to implement and
improve its operations, customer support and financial control systems and to
effectively expand, train and manage its employee base.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance
that the Company's actual future performance will meet the Company's current
expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking
information.
U-25
<PAGE> 709
RISK OF ACQUISITIONS. The Company has acquired numerous businesses and
intends to enter into future business combinations and acquisitions of
complementary companies, products and technologies. There can, however, be no
assurance that suitable companies, divisions or products will be available for
acquisition.* Such acquisitions are inherently subject to certain risks,
including the difficulty of assimilating the operations and personnel of the
combined companies, the potential disruption of the Company's ongoing business,
the potential inability to retain key technical and managerial personnel,
additional expenses associated with the amortization of acquired intangible
assets, and the potential impairment of relationships with employees and
customers as a result of any integration of new personnel. There can be no
assurance that the Company will be successful in overcoming these risks or that
such transactions will not have a material adverse effect upon the Company's
business, financial condition or results of operations.
RISKS OF INFRINGEMENT. The Company's success depends to a substantial
degree on its proprietary technology. The Company relies on a combination of
patent, copyright, trademark and trade secret rights, confidentiality
procedures, employee and third party nondisclosure agreements and licensing
arrangements to protect its proprietary rights. As part of its confidentiality
procedures, the Company enters into license agreements with respect to its
software, documentation and other proprietary information. In licensing its
products, the Company relies in part on shrink wrap licenses that are not signed
by the end user and, therefore, may be unenforceable under the laws of certain
jurisdictions. Despite the precautions undertaken by the Company, it may be
possible for a third party to copy or otherwise obtain and use the Company's
products and technology without authorization. Policing unauthorized use of the
Company's products is difficult and, although the Company is unable to determine
the extent to which piracy of its software products exists, software piracy can
be expected to be a persistent problem.*
PROTECTION OF INTELLECTUAL PROPERTY. No assurance can be given that
competitors will not successfully challenge the validity or scope of the
Company's patents, copyrights and trademarks and that such patents, copyrights
and trademarks will provide a competitive advantage to the Company. As part of
its confidentiality procedures, the Company generally enters into non-disclosure
agreements with its employees, distributors and corporate partners, and license
agreements with respect to its software documentation and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use the Company's products or technology without
authorization or to develop similar technology independently. Effective
protection of intellectual property rights is unavailable or limited in certain
foreign countries. There can be no assurance that the Company's protection of
its proprietary rights will be adequate or that the Company's competitors will
not independently develop similar technology, duplicate the Company's products
or design around any patents issued to the Company or other intellectual
property rights of the Company.
The Company is not aware that any of its products infringe upon the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim such infringement by the Company with respect to
current or future products. The Company believes that software product
developers will be increasingly subject to claims of infringement as the number
of products and competitors in the Company's industry segment grows and the
functionality of products in the industry segment overlaps.* Any such claims,
with or without merit, could result in costly litigation that could absorb
significant management time, which could have a material adverse effect on the
Company's business, operating results or financial condition.* Such claims might
require the Company to enter into royalty or license agreements. Such royalty or
license agreements, if required, may not be available on terms acceptable to the
Company or at all, and the Company's inability to enter such agreements could
have a material adverse effect on the Company's business, operating results or
financial condition.
PRODUCT LIABILITY. The Company markets its products to customers for
information technology system management and resource optimization and to
access, analyze, report and deliver enterprise data. The
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance
that the Company's actual future performance will meet the Company's current
expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking
information.
U-26
<PAGE> 710
Company's license agreements with its customers typically contain provisions
designed to limit the Company's exposure to potential product liability claims.
It is possible, however, that the limitation of liability provisions contained
in the Company's license agreements may not be effective as a result of existing
or future federal, state or local laws or ordinances or unfavorable judicial
decisions. The sale and support of its products by the Company may entail the
risk of such claims, which could be substantial in light of the use of such
products in system management, resource optimization and BI applications. A
successful product liability claim brought against the Company could have a
material adverse effect upon the Company's business, operating results or
financial condition.
POTENTIAL LITIGATION/LIABILITY RELATED TO YEAR 2000 READINESS. It is likely
that, commencing in the Year 2000, the functionality of certain operating
environments will be adversely affected when one or more component products of
the environment is unable to process four-digit characters representing years.*
This could result in a system failure or miscalculation causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in normal business activities. The Year
2000 problem is pervasive and complex as virtually every computer operation will
be affected in some way by the rollover of the two-digit year value to 00.
The Company's products are used in numerous operating environments. The
Company considers a product Year 2000 ready if the product's performance and
functionality are unaffected by processing dates prior to, during, and after the
Year 2000, but only if all products (for example hardware, firmware, and
software) used with the product properly exchange accurate date data with it.
The Company has determined that certain of its software products are not and
will not be Year 2000 ready and is taking measures to inform its customers of
that fact. The inability of one or more of the Company's products to properly
manage and manipulate data related to the Year 2000 could result in a material
adverse effect on the Company's business, financial condition or results of
operations, including increased warranty costs, customer satisfaction issues and
potential lawsuits.
Even if the Company successfully brings certain of its products into Year
2000 readiness and publicizes the non-readiness of its other products, the
Company anticipates that substantial litigation may be brought against vendors
of all component products of noncompliant operating environments, including the
Company.* The Company's agreements with its customers typically contain
provisions designed to limit the Company's liability for such claims. It is
possible, however, that these measures will not provide protection from
liability claims, as a result of existing or future federal, state or local laws
or ordinances or unfavorable judicial decisions. The Company believes that any
such claims, with or without merit, could result in costly litigation (and
possible adverse judgment) that could absorb significant management and product
development time and potentially result in significant liability to the Company,
which could have a material adverse effect on the Company's business, operating
results or financial condition.*
The Company has initiated a program to address Year 2000 readiness in its
internal systems. It has also initiated communications with its large suppliers
and customers to determine the extent to which the Company is vulnerable to
those third parties' failure to remediate their own Year 2000 issues. The
Company is still in the process of conducting its Year 2000 audit and therefore
is unable to make a reasonable estimate of the costs associated with Year 2000
readiness. Accordingly, no assurance can be given that the costs required to
address the Year 2000 issue will not have a material adverse effect on the
Company's business, financial condition or results of operations. Assessment and
remediation are proceeding in tandem, and the Company intends to have its
critical internal systems in Year 2000 compliance by July 3, 1999.* These
activities are intended to encompass all major categories of systems in use by
the Company, including manufacturing, engineering, sales, finance and human
resources. The costs incurred to date related to these programs have not been
and are not expected to be material.*
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance
that the Company's actual future performance will meet the Company's current
expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking
information.
U-27
<PAGE> 711
While the Company currently expects that the Year 2000 issue will not pose
significant operational problems, delays in the implementation of new
information systems, or a failure to fully identify all Year 2000 dependencies
in the Company's systems and in the systems of its suppliers, customers and
financial institutions could have material adverse consequences, including
delays in the delivery or sale of products.* Therefore, the Company is
developing contingency plans for continuing operations in the event such
problems arise.
The Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or patch their current software systems for
Year 2000 readiness.* These expenditures may result in reduced funds available
to purchase products such as those offered by the Company, which could have a
material adverse effect on the Company's business, operating results or
financial condition.*
SOFTWARE PRODUCT ERRORS OR DEFECTS. Software products as complex as those
offered by the Company frequently contain errors or defects, especially when
first introduced or when new versions or enhancements are released. Despite
product testing, the Company's recently introduced products or any products may
contain defects or software errors and, as a result, the Company may experience
delayed or lost revenues during the period required to correct any defects or
errors.* Any such defects or errors could result in adverse customer reactions,
negative publicity regarding the Company and its products, harm to the Company's
reputation or loss of or delay in market acceptance, or could require extensive
product changes, any of which could have a material adverse effect upon the
Company's business, operating results or financial condition.
RISK OF INTERNATIONAL SALES. The Company's international business involves
a number of risks, including lack of acceptance of localized products, cultural
differences in the conduct of business, longer accounts receivable payment
cycles, greater difficulty in accounts receivable collection, seasonality due to
the slow down in European business activity during the summer months, unexpected
changes in regulatory requirements, royalties and withholding taxes that
restrict repatriation of earnings, tariffs and other trade barriers, difficulty
in hiring qualified personnel, economic and political conditions in each
country, management of an enterprise spread over various countries, the burden
of complying with a wide variety of foreign laws and an increase in
international competition. A majority of the Company's international sales are
currently denominated in U.S. dollars, and an increase in the value of the U.S.
dollar relative to foreign currencies could make the Company's products more
expensive and potentially less competitive in foreign markets. There can be no
assurance that such factors will not have a material adverse effect on the
Company's future international sales and therefore the overall operating results
and financial condition of the Company.
The Company continues to expand its international operations, which
requires significant management attention and financial resources and could
materially adversely affect the Company's operating results. To the extent the
Company is unable to effect this expansion in a timely manner, the Company
growth, if any, in international sales will be limited and the Company's
business, operating results or financial condition could be materially adversely
affected.
The Company anticipates that the recent deterioration of the underlying
economic conditions in certain Asian countries may have an impact on its sales
to customers or OEMs located in those countries due to the impact of currency
fluctuations on the relative price of the Company's products and/or restrictions
on government spending imposed by the International Monetary Fund (the "IMF") on
those countries receiving the IMF's assistance.* In addition, customers in those
countries may face reduced access to working capital to fund component
purchases, such as the Company's products, due to higher interest rates, reduced
bank lending due to contractions in the money supply or the deterioration in the
customer's or its bank's financial condition or the inability to access local
equity financing. During fiscal 1998, sales to OEMs or end-user customers
located in or to OEMs whose end customers were located in the countries of
Japan, Korea,
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance
that the Company's actual future performance will meet the Company's current
expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking
information.
U-28
<PAGE> 712
Malaysia, Thailand, Taiwan and Hong Kong were not material to the Company's
business, operating results or financial condition.
The Company is in the process of addressing the issues raised by the
introduction of the Single European Currency ("Euro") as of January 1, 1999 and
during the transition period through January 1, 2002. The Company expects that
its internal systems that will be affected by the initial introduction of the
Euro will be Euro-capable by January 1, 1999 and does not expect the costs of
system modifications to be material. The Company does not presently expect that
introduction and use of the Euro will materially affect the Company's foreign
exchange activities, or the Company's use of derivative instruments, or will
result in any material increase in costs to the Company.* While the Company will
continue to evaluate the impact of the Euro introduction over time, based on
currently available information, management does not believe that the
introduction of the Euro currency will have a material adverse impact on the
Company's financial condition or overall trends in results of operations.*
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance
that the Company's actual future performance will meet the Company's current
expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking
information.
U-29
<PAGE> 713
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... U-31
Consolidated Balance Sheets as of July 3, 1998 and June 27,
1997...................................................... U-32
Consolidated Statements of Operations for the Years Ended
July 3, 1998, June 27, 1997 and June 28, 1996............. U-33
Consolidated Statements of Cash Flows for the Years Ended
July 3, 1998, June 27, 1997 and June 28, 1996............. U-34
Consolidated Statements of Stockholders' Equity for the
Years Ended July 3, 1998, June 27, 1997 and June 28,
1996...................................................... U-35
Notes to the Consolidated Financial Statements.............. U-36
</TABLE>
U-30
<PAGE> 714
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Seagate Software, Inc.
We have audited the accompanying consolidated balance sheets of Seagate
Software, Inc. as of July 3, 1998 and June 27, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended July 3, 1998. Our audits also
included the financial statement schedule listed in the Index at Item 14(a)(2).
These consolidated financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Seagate Software, Inc. at July 3, 1998 and June 27, 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended July 3, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
As discussed more fully in the Summary of Significant Accounting Policies
footnote, Seagate Software, Inc. has modified the methods used to assess
impairment of goodwill and, accordingly, has restated the consolidated financial
statements for the fiscal years ended July 3, 1998 and June 27, 1997 to reflect
this change.
/s/ Ernst & Young LLP
San Jose, California
July 17, 1998, except for the second paragraph of the Summary of Significant
Accounting Policies footnote, as to which the date is April 8, 1999
U-31
<PAGE> 715
SEAGATE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JULY 3, JUNE 27,
1998 1997
-------- --------
<S> <C> <C>
Cash........................................................ $ 15,130 $ 12,085
Accounts receivable, net.................................... 46,564 28,172
Inventories................................................. 1,117 3,206
Other current assets........................................ 2,474 4,040
-------- --------
Total current assets.............................. 65,285 47,503
Property, equipment and leasehold improvements, net......... 16,876 20,785
Goodwill and other intangibles, net......................... 56,836 79,043
-------- --------
Total assets...................................... $138,997 $147,331
======== ========
LIABILITIES
Loan payable to Seagate Technology.......................... $ 16,054 $ 28,971
Accounts payable............................................ 10,994 9,116
Accrued employee compensation............................... 14,365 10,267
Accrued expenses............................................ 15,339 16,035
Accrued income taxes........................................ 5,562 2,699
Deferred revenue............................................ 13,714 8,354
-------- --------
Total current liabilities......................... 76,028 75,442
Deferred income taxes....................................... 1,691 6,233
Other liabilities........................................... 255 301
-------- --------
Total liabilities................................. 77,974 81,976
Common stock subject to repurchase.......................... 3,917 --
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par value--73,000,000
shares authorized;
Series A: shares issued and outstanding -- 54,633,333 in
1998 and 1997 (aggregate liquidation preference of
$409,750 in 1998 and 1997)................................ 55 55
Common stock, $.001 par value -- 95,600,000 shares
authorized; shares issued and outstanding -- 235,502 in
1998 and 83,355 in 1997................................... -- --
Additional paid-in capital.................................. 343,526 342,091
Accumulated deficit......................................... (286,218) (276,948)
Foreign currency translation adjustment..................... (257) 157
-------- --------
Total stockholders' equity........................ 57,106 65,355
-------- --------
Total liabilities and stockholders' equity........ $138,997 $147,331
======== ========
</TABLE>
See notes to consolidated financial statements.
U-32
<PAGE> 716
SEAGATE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------------------------
JULY 3, JUNE 27, JUNE 28,
1998 1997 1996
-------- ------------ ---------
<S> <C> <C> <C>
Revenues:
Licensing............................................ $243,285 $ 183,556 $ 124,380
Licensing from Seagate Technology.................... 5,469 5,762 9,374
Maintenance, support and other....................... 44,472 27,632 7,832
-------- ------------ ---------
Total revenues.................................... 293,226 216,950 141,586
Cost of revenues:
Licensing............................................ 16,963 17,535 14,885
Licensing from Seagate Technology.................... 539 1,834 3,999
Maintenance, support and other....................... 19,687 6,560 194
Amortization of developed technologies............... 13,271 21,860 9,941
-------- ------------ ---------
Total cost of revenues............................ 50,460 47,789 29,019
-------- ------------ ---------
Gross profit........................................... 242,766 169,161 112,567
Operating expenses:
Sales and marketing.................................. 129,343 107,706 71,129
Research and development............................. 47,173 42,842 36,897
General and administrative........................... 37,124 36,861 22,852
In-process research and development.................. 6,800 2,613 96,958
Amortization of goodwill and other intangibles....... 16,201 23,465 13,035
Restructuring costs.................................. -- 2,524 9,502
Unusual items........................................ -- 13,446 --
-------- ------------ ---------
Total operating expenses.......................... 236,641 229,457 250,373
-------- ------------ ---------
Income (loss) from operations.......................... 6,125 (60,296) (137,806)
Interest expense....................................... (1,021) (2,688) (970)
Other, net............................................. 1,011 307 360
-------- ------------ ---------
Interest and other, net.............................. (10) (2,381) (610)
-------- ------------ ---------
Income (loss) before income taxes...................... 6,115 (62,677) (13,416)
Benefit from (provision for) income taxes.............. (15,385) 8,714 8,748
-------- ------------ ---------
Net loss............................................... $ (9,270) $ (53,963) $(129,668)
======== ============ =========
Net loss per common share:
Basic................................................ $ (56.33) $ (796.93)
Diluted.............................................. $ (56.33) $ (796.93)
Number of shares used in per share computations:
Basic................................................ 164,571 67,714
Diluted.............................................. 164,571 67,714
</TABLE>
See notes to consolidated financial statements.
U-33
<PAGE> 717
SEAGATE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------
JULY 3, JUNE 27, JUNE 28,
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (9,270) $(53,963) $(129,668)
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization............................. 39,932 41,730 24,737
Deferred income taxes..................................... (4,542) (7,505) (3,021)
Write-off of in-process research and development.......... 6,800 2,613 96,958
Write-off or write-down of goodwill and intangibles....... 1,900 13,106 2,157
Unusual items............................................. -- 13,446 --
Write-offs due to restructure............................. -- 1,494 4,427
Changes in operating assets and liabilities:
Accounts receivable.................................... (18,157) 4,583 (12,129)
Inventories............................................ 2,099 (1,581) (11)
Other current assets................................... 1,575 (1,207) 1,080
Accounts payable....................................... 1,552 (1,609) 4,887
Accrued employee compensation.......................... 4,020 2,078 2,570
Accrued expenses....................................... (725) 2,430 4,629
Accrued income taxes................................... 3,633 5,796 (3,297)
Deferred revenue....................................... 5,285 2,648 1,613
Other liabilities...................................... (46) 44 (3,267)
--------- -------- ---------
Net cash provided by (used in) operating activities....... 34,056 24,103 (8,335)
INVESTING ACTIVITIES
Acquisitions of businesses, net of cash acquired............ (10,000) -- (94,007)
Acquisition of property, equipment and leasehold
improvements, net......................................... (7,992) (15,823) (10,167)
Escrow establishment........................................ -- -- (18,000)
Decrease in other non-current assets, net................... -- -- 1,560
Acquisition of intangibles.................................. (4,270) -- --
--------- -------- ---------
Net cash (used in) investing activities................... (22,262) (15,823) (120,614)
FINANCING ACTIVITIES
Sale of common stock........................................ 665 79 --
Sale of common stock subject to repurchase.................. 3,917 -- --
Funding by Seagate Technology for acquisitions of
businesses................................................ -- -- 108,400
Borrowings from Seagate Technology.......................... 261,917 217,513 150,117
Payment to Seagate Technology............................... (274,834) (221,533) (129,699)
--------- -------- ---------
Net cash provided by (used in) financing activities....... (8,335) (3,941) 128,818
Effect of exchange rate changes on cash..................... (414) 151 8
--------- -------- ---------
Increase (decrease) in cash............................... 3,045 4,490 (123)
Elimination of Arcada's net cash activity for the
duplicated six months ended December 31, 1995.......... -- -- 1,768
Cash at the beginning of the year........................... 12,085 7,595 5,950
--------- -------- ---------
Cash at the end of the year................................. $ 15,130 $ 12,085 $ 7,595
========= ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.................................... $ 50 $ 214 $ 36
Cash paid for income taxes................................ 7,945 2,357 4,892
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 718
SEAGATE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A
FOR THE YEARS ENDED CONVERTIBLE COMMON FOREIGN
JULY 3, 1998, JUNE 27, 1997 PREFERRED STOCK STOCK ADDITIONAL CURRENCY
AND JUNE 28, 1996 ------------------- ---------------- PAID-IN TRANSLATION ACCUMULATED
(IN THOUSANDS, EXCEPT SHARE DATA) SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT TOTAL
--------------------------------- ---------- ------ ------- ------ ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1995............ -- $-- -- $-- $140,610 $ 2 $ (93,397) $ 47,215
Acquisition by Seagate Technology of
OnDemand Software, Inc. and
minority interest of Arcada
Holdings, Inc..................... -- -- -- -- 98,249 -- -- 98,249
Issuance of convertible preferred
stock and common stock to Seagate
Technology pursuant to the
formation of Seagate Software..... 34,500,000 34 62,500 -- (34) -- -- --
Issuance of convertible preferred
stock to Seagate Technology
pursuant to the acquisition of
Calypso Software Systems, Inc..... 1,733,333 2 -- -- 13,797 -- -- 13,799
Issuance of convertible preferred
stock to Seagate Technology
pursuant to the acquisition of
Holistic Systems, Ltd............. 11,200,000 11 -- -- 84,046 -- -- 84,057
Income tax benefit from Seagate
Technology stock option
exercises......................... -- -- -- -- 1,866 -- -- 1,866
Foreign currency translation
adjustment........................ -- -- -- -- -- 4 -- 4
Net loss............................ -- -- -- -- -- -- (129,668) (129,668)
Elimination of Arcada Holdings, Inc.
activity for the duplicated six
months ended December 31, 1995.... -- -- -- -- -- -- 80 80
---------- --- ------- --- -------- ----- --------- ---------
BALANCE AT JUNE 28, 1996............ 47,433,333 47 62,500 -- 338,534 6 (222,985) 115,602
Income tax benefit from Seagate
Technology stock option
exercises......................... -- -- -- -- 3,486 -- -- 3,486
Issuance of common stock upon
exercise of employee stock
options........................... -- -- 20,855 -- 79 -- -- 79
Issuance of convertible preferred
stock pursuant to the transfer to
the Company of IMG Vancouver...... 7,200,000 8 -- -- (8) -- -- --
Foreign currency translation
adjustment........................ -- -- -- -- -- 151 -- 151
Net loss............................ -- -- -- -- -- -- (53,963) (53,963)
---------- --- ------- --- -------- ----- --------- ---------
BALANCE AT JUNE 27, 1997............ 54,633,333 55 83,355 -- 342,091 157 (276,948) 65,355
Income tax benefit from Seagate
Technology stock option
exercises......................... -- -- -- -- 770 -- -- 770
Issuance of common stock upon
exercise of employee stock
options........................... -- -- 152,147 -- 665 -- -- 665
Foreign currency translation
adjustment........................ -- -- -- -- -- (414) -- (414)
Net loss............................ -- -- -- -- -- -- (9,270) (9,270)
---------- --- ------- --- -------- ----- --------- ---------
BALANCE AT JULY 3, 1998............. 54,633,333 $55 235,502 $-- $343,526 $(257) $(286,218) $ 57,106
========== === ======= === ======== ===== ========= =========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 719
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS. Seagate Software, Inc. ("Seagate Software")
develops and markets software products and provides related services enabling
business users and information technology professionals to manage enterprise
information. Headquartered in Scotts Valley, California, Seagate Software has
over 40 offices and operations in 17 countries worldwide. Seagate Software is a
majority-owned and consolidated subsidiary of Seagate Technology, Inc. (the
"Parent Company" or "Seagate Technology"), a data technology company that
provides products for storing, managing and accessing digital information on
computer systems. As of July 3, 1998, Seagate Technology and one of its
subsidiaries held 99.7% of Seagate Software's outstanding capital stock. On a
diluted basis, the outstanding minority interests of Seagate Software amounted
to approximately 17.8%, which consisted of Common Stock and options to purchase
Common Stock issued pursuant to the Option Plan. Such options to purchase
Seagate Software's Common Stock are held by certain employees, directors and
consultants of Seagate Software and Seagate Technology.
RESTATEMENT OF FINANCIAL STATEMENTS. Seagate Software had previously
allocated a portion of goodwill to developed technology and evaluated the
impairment of goodwill based on the revenues from the related software. Using
this method, Seagate Software recorded write-downs and write-offs of goodwill in
fiscal 1997 in the amount of $10,259,000. Seagate Software has re-evaluated its
methodology and determined that goodwill should not be allocated to developed
technology under Accounting Principles Board Opinion 17, "Intangible Assets". As
a result, Seagate Software has made adjustments to decrease the amounts of
goodwill previously written-down and written-off from $10,259,000 to $6,173,000
in fiscal 1997. The additional goodwill of $4,086,000 is being amortized over
the remaining estimated useful lives of approximately 5 years. The effect of
this adjustment on previously reported consolidated financial statements as of
and for the years ended July 3, 1998 and June 27, 1997 is as follows (in
thousands except per share amounts):
<TABLE>
<CAPTION>
AS REPORTED AS RESTATED
---------------------------- ----------------------------
JULY 3, 1998 JUNE 27, 1997 JULY 3, 1998 JUNE 27, 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Amortization of goodwill..................... $ 15,421 $ 27,202 $ 16,201 $ 23,465
Income(loss) from operations................. 6,905 (64,033) 6,125 (60,296)
Net (loss)................................... (8,490) (57,700) (9,270) (53,963)
Basic and diluted (loss) per share........... (51.59) (852.11) (56.33) (796.93)
Goodwill and other intangible assets, net.... 53,879 75,306 56,836 79,043
Accumulated deficit.......................... (289,175) (280,685) (286,218) (276,948)
</TABLE>
BASIS OF PRESENTATION. These financial statements are presented as if
Seagate Software had existed as an entity separate from Seagate Technology
during the periods presented and include the historical assets, liabilities,
revenues and expenses that are directly related to Seagate Software's
operations. Intercompany transactions and balances have been eliminated.
Seagate Software was incorporated in Delaware in November 1993 and
commenced operations in May 1994 pursuant to Seagate Technology's merger with
Crystal Computer Services, Inc., a company engaged in developing and marketing
report writing software. From August 1994 to June 1996, Seagate Technology
acquired eight software companies, which were engaged in developing and
marketing business intelligence or network and/or storage management software
products. The amount of capital contributed by Seagate Technology for
acquisitions was determined by the amounts paid for such acquisitions by Seagate
Technology on behalf of Seagate Software. In February 1996, Seagate Technology
merged with Conner Peripherals, Inc. in a transaction accounted for as a
pooling-of-interests. In connection with the merger, Seagate Technology
purchased the outstanding minority interests in Conner's storage management
software operations under Arcada Holdings, Inc. In April 1996, Seagate
Technology consolidated its software operations into Seagate Software.
Prior to December 1996, Seagate Technology International, a wholly-owned
subsidiary of Seagate Technology, owned all outstanding capital stock of
Information Management Group Vancouver (formerly Crystal Services, Inc.).
Pursuant to an agreement among Seagate Technology, Seagate Software and
Information Management Group Vancouver dated December 19, 1996, Seagate
Technology surrendered the
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<PAGE> 720
Information Management Group Stock (which was subsequently cancelled by
Information Management Group Vancouver) in exchange for 7,200,000 Convertible
Preference Shares of Information Management Group Vancouver. On December 26,
1996, the Convertible Preference Shares were exchanged for 7,200,000 Class B
Exchangeable Shares of Information Management Group Vancouver. These Class B
Exchangeable Shares do not have voting rights except as required by law, but can
be exchanged at Seagate Technology's sole discretion for 7,200,000 shares of
Seagate Software Series A Preferred Stock. In connection with the issuance of
the Class B Exchangeable Shares described above, Seagate Technology was granted
voting rights in Seagate Software equivalent to 7,200,000 shares of Series A
Preferred Stock. Also on December 26, 1996, Information Management Group
Vancouver issued 10,000 Class A Common Shares, which carry the right to vote, to
Seagate Software. Seagate Software therefore now owns all voting shares of
Information Management Group Vancouver. For financial reporting purposes,
Seagate Software has control over Information Management Group Vancouver and
therefore consolidates the results of Information Management Group Vancouver.
Additionally, the 7,200,000 shares of Series A Preferred Stock of Seagate
Software which Seagate Technology could elect to receive in exchange for the
Class B Exchangeable Shares of Information Management Group Vancouver have been
treated as issued and outstanding shares of Series A Preferred Stock of Seagate
Software.
In June 1998, Seagate Software Company acquired all of the outstanding
capital stock of Eastman Software Storage Management Group, Inc., a company
engaged in developing, producing and marketing hierarchical storage management
products for the Windows NT platform. The purchase price of approximately
$10,000,000 was paid in cash. Approximately $6,800,000 of the total purchase
price represented the value of in-process technology that had not yet reached
technological feasibility, had no alternative future use and was charged to
Seagate Software's operations in the quarter ended July 3, 1998. The Company
accounted for the acquisition using the purchase method, and the results of
operations of Eastman are only included in Seagate Software's operations since
the acquisition was completed. Pro forma financial information is not presented
as such amounts are not material.
Seagate Software operates and reports financial results on a fiscal year of
52 or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 1998
ended on July 3, 1998, fiscal 1997 ended on June 27, 1997 and fiscal 1996 ended
on June 28, 1996. Fiscal 1998 was comprised of 53 weeks and fiscals 1997 and
1996 were comprised of 52 weeks. Fiscal 1999 will be a 52-week year and will end
on July 2, 1999. All references to years in the notes to consolidated financial
statements represent fiscal years unless otherwise noted.
Arcada, which was acquired by Seagate Software pursuant to Seagate
Technology's merger with Conner, had a fiscal year that ended on the Saturday
closest to December 31. Accordingly, Arcada's statement of operations for the
year ended December 30, 1995 has been combined with Seagate Software's statement
of operations for the year ended June 30, 1995. In order to conform Arcada's
fiscal year end to Seagate Software's fiscal year end, Seagate Software's
consolidated statement of operations for the year ended June 28, 1996 includes
six months (July 1, 1995 through December 31, 1995) for Arcada which are also
included in Seagate software's consolidated statement of operations for the year
ended June 30, 1995.
ECONOMIC DEPENDENCE ON SEAGATE TECHNOLOGY. Seagate Software has incurred
net losses since inception and had net losses aggregating $192,901,000 during
the three year period ended July 3, 1998 and had a working capital deficit at
July 3, 1998 of $10,743,000. On July 4, 1998 Seagate Software and Seagate
Technology renewed the Revolving Loan Agreement on substantially the same terms
and conditions as the prior agreement which was dated June 28, 1996. Under the
Revolving Loan Agreement, Seagate Technology finances certain of Seagate
Software's working capital needs. The Revolving Loan Agreement provides for
maximum outstanding borrowings of up to $60,000,000 and is renewable every two
years. Outstanding borrowings from the Parent Company were $16,054,000 and
$28,971,000 at July 3, 1998 and June 27, 1997, respectively. Borrowings from
Seagate Technology consist primarily of amounts used to fund Seagate Software's
operating activities. Beginning in fiscal 1999, Seagate Software will pay
interest at the LIBOR rate plus 2% per annum on such borrowings; Seagate
Software previously paid interest at 6%. Seagate Software is economically
dependent on Seagate Technology and believes that to the extent future cash
flows from operations and borrowings under the existing loan agreement with
Seagate Technology are not sufficient to
U-37
<PAGE> 721
fund Seagate Software's working capital deficit and planned activities during
the next 12 months, that additional funding will be available at a reasonable
cost from Seagate Technology.
ACCOUNTING ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ materially from
those estimates.
CONCENTRATION OF CREDIT RISK. Financial instruments that potentially
subject Seagate Software to significant concentrations of credit risk consist
primarily of cash and accounts receivable. Seagate Software places its cash and
cash equivalents in high credit quality financial institutions. Accounts
receivable are derived from revenues earned from customers primarily located in
North America and Europe. Seagate Software performs ongoing credit evaluations
of its customers and generally does not require collateral. Seagate Software
maintains reserves for potential credit losses and historically such losses have
been immaterial. Revenue from one third party customer, Ingram Micro Inc.,
accounted for 22%, 18% and 16% of Seagate Software's total revenues in 1998,
1997 and 1996, respectively.
FOREIGN CURRENCY TRANSLATION. The U.S. dollar is the functional currency
for most of Seagate Software's foreign operations. Gains and losses on the
remeasurement into U.S. dollars of amounts denominated in foreign currencies are
included in net income for those operations whose functional currency is the
U.S. dollar. Gains and losses on translation into U.S. dollars of foreign
operations whose functional currency is the local currency are recorded as a
separate component of stockholders' equity.
CASH MANAGEMENT. Seagate Technology uses a centralized cash management
function for all of its domestic operations, including certain domestic
operations of Seagate Software. A substantial majority of Seagate Software's
cash is from balances maintained by Seagate Software's foreign subsidiaries.
CASH AND CASH EQUIVALENTS. Seagate Software considers all highly liquid
investments with an original maturity of 90 days or less at the time of purchase
to be cash equivalents. Seagate Software typically uses available cash in excess
of amounts required for operating activities to pay amounts due under the
Revolving Loan Agreement. Accordingly, Seagate Software has not had significant
cash equivalents to date.
INVENTORIES. Inventories are stated at the lower of cost (first in, first
out method) or market, and consist primarily of materials used in software
products, related supplies and packaging materials.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS. Property and equipment,
including leasehold improvements, are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets
which range from two to five years. Assets under capital leases and leasehold
improvements are amortized using the straight-line method over the shorter of
the estimated useful lives of the assets or the remaining lease term.
GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill represents the excess of the
purchase price of acquired companies over estimated fair values of tangible and
intangible net assets acquired. Goodwill is amortized on a straight-line basis
over five to seven years. The carrying values of long-term assets and
intangibles other than developed technology ("other intangibles") are reviewed
if facts and circumstances suggest that they may be impaired. If this review
indicates that carrying values of long-term assets and other intangibles and
associated goodwill will not be recoverable based on projected undiscounted
future cash flows, carrying values are reduced to estimated fair values by first
reducing goodwill and second by reducing long-term assets and other intangibles.
Other intangible assets consist of trademarks, assembled workforces,
distribution networks, developed technology, customer bases, and covenants not
to compete related to acquisitions accounted for by the purchase method. See
Note on Business Combinations and Acquisitions. Amortization of purchased
intangibles, other than acquired developed technology, is provided on the
straight-line basis over the respective useful lives of the assets ranging from
36 to 60 months for trademarks, 24 to 48 months for assembled workforces and
distribution networks, 12 to 36 months for customer bases and 18 to 24 months
for covenants
U-38
<PAGE> 722
not to compete. In-process research and development without alternative future
use is expensed when acquired.
DEVELOPED TECHNOLOGY. Seagate Software applies Statement of Financial
Accounting Standards No. 86 ("SFAS 86"), "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed", to software technologies
developed internally, acquired in business acquisitions, and purchased.
Internal development costs are included in research and development and are
expensed as incurred. SFAS 86 requires the capitalization of certain internal
development costs once technological feasibility is established, which based on
Seagate Software's development process generally occurs upon the completion of a
working model. As the time period between the completion of a working model and
the general availability of software has been short, capitalization of internal
development costs has not been material to date. Capitalized costs are amortized
based on the greater of the straight-line basis over the estimated product life
(generally 30 to 48 months) or the ratio of current revenues to the total of
current and anticipated future revenues.
Purchased developed technology is amortized based on the greater of the
straight-line basis over the estimated useful life (30 to 48 months) or the
ratio of current revenues to the total of current and anticipated future
revenues. The recoverability of the carrying value of purchased developed
technology and associated goodwill is reviewed periodically. The carrying value
of developed technology is compared to the estimated future gross revenues from
that product reduced by the estimated future costs of completing and disposing
of that product, including the costs of performing maintenance and customer
support (net undiscounted cash flows ) and to the extent that the carrying value
exceeds the undiscounted cash flows the difference is written off.
FAIR VALUE DISCLOSURES. Seagate Software maintains its cash principally
with major banks in interest-and non-interest-bearing bank accounts. There are
no realized or unrealized gains or losses and fair value approximates carrying
value for all cash balances.
PUSHDOWN AND CARVEOUT ACCOUNTING. Seagate Technology has provided
substantial services to Seagate Software, including general management,
treasury, tax, financial reporting, benefits administration, insurance,
information technology, legal, accounts payable and receivable and credit
functions. Seagate Technology has charged Seagate Software for these services
through corporate expense allocations. The amount of corporate expense
allocations is dependent upon the total amount of allocable costs incurred by
Seagate Technology on behalf of Seagate Software less amounts charged as a
specific cost or expense rather than by allocation. Such costs were
proportionately allocated to Seagate Software based on detailed inquiries and
estimates of time incurred by Seagate Technology's corporate marketing and
general and administrative departmental managers. Included in general and
administrative expenses are corporate allocation charges of $1,004,000,
$1,939,000 and $2,242,000 for 1998, 1997 and 1996, respectively. Included in
sales and marketing expenses are corporate allocation charges of $769,000,
$19,000 and $18,000 for 1998, 1997 and 1996, respectively. The increase in sales
and marketing expenses in 1998 was due to proportional costs allocations from
Seagate Technology's corporate branding program, which consisted of television
and newspaper advertisements.
Seagate Software participated in Seagate Technology's profit sharing plan
through the first quarter of fiscal 1998 and in Seagate Technology's management
bonus plan during 1997. Seagate Software has since adopted its own bonus plan.
Compensation expenses recorded by Seagate Software under Seagate Technology's
plans totaled $0, $3,158,000 and $910,000 for 1998, 1997 and 1996, respectively.
The employees of Seagate Software also participate in the Seagate
Technology Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan
permits eligible employees who have completed thirty days of employment prior to
the inception of the offering period to purchase common stock of Seagate
Technology through payroll deductions at the lower of 85% of the fair market
value of the common stock at the beginning or at the end of each six-month
offering period. Under the plan, 115,058, 80,643 and 41,574 shares of common
stock of Seagate Technology were issued to Seagate Software's employees in 1998,
1997 and 1996, respectively.
U-39
<PAGE> 723
The employees of Seagate Software also participate in the Seagate
Technology tax-deferred savings plan, the Seagate Technology, Inc. Savings and
Investment Plan ("the 401(k) plan"). The 401(k) plan is designed to provide
qualified employees with an accumulation of funds at retirement. Qualified
employees may elect to make contributions to the 401(k) plan on a monthly basis.
Seagate Software may make annual contributions to the 401(k) plan at the
discretion of the Board of Directors. No material contributions were made by
Seagate Software in fiscal years 1998, 1997 or 1996.
REVENUE RECOGNITION. Seagate Software recognizes revenue in accordance with
the American Institute of Certified Public Accountants Statement of Position
91-1, "Software Revenue Recognition". Seagate Software's total revenues are
derived from license revenues for its various software products as well as
maintenance, support, training and consulting. Revenues for maintenance, support
services, training and consulting are recognized separately from software
licenses. License revenues are recognized upon delivery of the product if no
significant vendor obligations remain and collection of the resulting receivable
is probable. Allowances for estimated future returns are provided upon shipment.
Maintenance and support revenues consist of ongoing support and product updates
and are recognized ratably over the term of the contract, which is typically
twelve months. Revenues from training and consulting are recognized when the
services are performed.
Revenues from resellers, including VARs, OEMs, distributors and Seagate
Technology, are primarily recognized at the time of product delivery to the
reseller. Seagate Software's policy to defer such revenues if resale
contingencies exists. Some of the factors that are considered to determine the
existence of such contingencies include payment terms, collectibility and past
history with the customer.
Product returns are reserved for in accordance with SFAS 48. Such returns
are estimated based on historical return rates. Seagate Software considers other
factors such as fixed and determinable fees, resale contingencies, arms length
contract terms and the ability to reasonably estimate returns to ensure
compliance with SFAS 48. Additionally, Seagate Software continually reviews its
estimated product return provisions to ensure that they are reasonable in
relation to actual product returns, which are quantified based on approved
return authorization forms received prior to fiscal cutoff dates. Historically,
Seagate Software's estimated product return rates have not varied materially
from actual product return rates.
In October 1997 and March 1998, the American Institute of Certified Public
Accountants issued Statements of Position 97-2, "Software Revenue Recognition"
("SOP 97-2") and 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition" ("SOP 98-4"), which Seagate Software
currently is required to adopt for transactions entered into after July 3, 1998.
SOP 97-2 and SOP 98-4 provide guidance on recognizing revenue on software
transactions and supersede SOP 91-1. Seagate Software has assessed the impact of
the requirements of SOP 97-2 and SOP 98-4 and has changed certain of its
policies and procedures. Seagate Software believes that the adoption of SOP 97-2
and SOP 98-4 will not have a significant impact on Seagate Software's revenues
or results of operations.
ADVERTISING EXPENSE. The cost of advertising is expensed as incurred.
Seagate Software does not incur any direct response advertising costs.
Advertising costs totaled $19,112,000, $21,617,000 and $15,748,000 for 1998,
1997 and 1996, respectively.
NET LOSS PER SHARE. The net loss per common share is computed using the
weighted average number of shares of common stock outstanding during the period.
Common equivalent shares from common stock options and convertible preferred
stock are excluded from the computation of diluted net loss per share, as their
effect is antidilutive. The net loss per common share for 1996 is not presented
because Seagate Software's current capital structure did not exist prior to
April 1996, making presentation for prior periods not meaningful. During 1998,
Seagate Software adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"). The adoption of SFAS 128 and the required
restatement of the 1997 net loss per share had no impact on Seagate Software
because the weighted average shares used in the per share computations were
unchanged under SFAS 128 because the effect of stock options would have been
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<PAGE> 724
antidilutive. Below is a reconciliation of the numerator and denominator used to
calculate earnings per share (in thousands, except share and per share data):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JULY 3, JUNE 27,
1998 1997
------- --------
<S> <C> <C>
Net loss per share computation -- basic and diluted:
Numerator: Net loss................................... $(9,270) $(53,963)
------- --------
Denominator:
Weighted average number of common shares
outstanding during the period.................... 164,571 67,714
------- --------
Net loss per share -- basic and diluted.......... $(56.33) $(796.93)
======= ========
</TABLE>
Incremental common shares attributable to the exercise of outstanding
options and common stock subject to repurchase (assuming the proceeds would be
used to purchase treasury stock) aggregating 2,118,034 shares for the year ended
July 3, 1998 and 317,453 shares for 1997 were not included in the diluted net
loss per share computations because the effect would have been antidilutive.
ACCOUNTS RECEIVABLE. Accounts receivable are summarized below, in
thousands:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Accounts receivable...................................... $48,200 $29,442
Less allowance for non-collection........................ (1,636) (1,270)
------- -------
$46,564 $28,172
======= =======
</TABLE>
INVENTORY. The write-downs of inventory to the lower of cost or market were
$3,674,000, $531,000 and $800,000 in 1998, 1997, and 1996 respectively. The
write-down in fiscal 1998 was a result of consolidating Seagate Software's
fulfillment warehouses and changing their strategy to have fulfillment
activities handled by an outsourcing partner. As a result of this consolidation
excess and obsolete components and finished goods were written down. The
write-down in fiscal 1997 and 1996 related to excess and obsolete components and
finished goods inventory.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS. Property, equipment and
leasehold improvements consisted of the following, in thousands:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1998 1997
----------------- ------- -------
<S> <C> <C> <C>
Equipment..................................... Two to five years $30,999 $30,009
Building and leasehold improvements........... Life of lease 9,424 6,428
------- -------
40,423 36,437
Less accumulated depreciation and
amortization................................ (23,547) (15,652)
------- -------
$16,876 $20,785
======= =======
</TABLE>
Depreciation expense was $11,727,000, $8,911,000 and $3,918,000 in 1998,
1997 and 1996, respectively.
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<PAGE> 725
GOODWILL AND OTHER INTANGIBLES. Goodwill and other intangibles consisted of
the following, in thousands:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Goodwill................................................. $49,039 $50,286
Developed technology..................................... 48,049 46,136
Trademarks............................................... 9,972 9,972
Assembled workforce...................................... 4,596 6,666
Distribution network..................................... 2,925 2,925
Other intangibles........................................ 13,813 12,853
------- -------
128,394 128,838
Accumulated amortization................................. (71,558) (49,795)
------- -------
Goodwill and other intangibles........................... $56,836 $79,043
======= =======
</TABLE>
Amortization of developed technologies is included in costs of revenues. In
1998, 1997 and 1996 the amortization of goodwill and other intangibles includes
write-offs and write-downs to the estimated fair value of $1,900,000, $6,173,000
and $2,157,000, respectively. In 1997 the amortization of acquired developed
technologies included in cost of revenues includes write-downs and write-offs to
net realizable value of $6,918,000.
Periodically, Seagate Software reviews the carrying value of its
intangibles other than developed technology to ascertain if there has been any
impairment. In 1996 the former owner of Frye computer Systems, Inc. (a 1995
acquisition), Mr. Frye, left Seagate Software. With his departure, Seagate
Software decided to release Mr. Frye from the remaining period of his covenant
not to compete and to not use the Frye name trademark in future products. As a
result, the remaining carrying value of the covenant not to compete and
trademark and associated goodwill totaling $1,932,000 were written off.
Seagate Software also periodically reviews the net realizable value of
developed technology under the guidance of SFAS No. 86. Seagate Software
compares the estimated undiscounted future cash flows on a product by product
basis to the unamortized cost of developed technology and unamortized costs in
excess of the estimated undiscounted cash flows are written off. The impairment
write-offs for developed technology recorded in 1997 were caused by a number of
factors including Seagate Software's decision to stop selling products or
technologies such as DOS, new acquisitions, or new product designs. Seagate
Software is not currently generating revenue from any products for which the
related developed technology has been impaired.
In addition, Seagate Software assesses the impairment of goodwill not
included in the scope of SFAS 121 under Accounting Principles Board Opinion No.
17, "Intangible Assets", (APB17). During 1997, Seagate Software wrote-off and
wrote-down goodwill amounting to $6,173,000. The write-offs and write-downs
related to the decision to abandon and stop selling all current and future
products acquired from Frye Computer Systems, Inc., the decision to abandon and
stop selling virtually all current and future products acquired in the
acquisition of Palindrome Corporation, and the decision to close down and sell
Calypso Software Systems, Inc.
Seagate Software has capitalized the assembled workforce in most of its
acquisitions. When Seagate Software reviews the carrying value of its
intangibles, if there remains less than 5% of the original workforce, the
related intangible is deemed impaired. In 1998, Seagate Software wrote off the
workforces for three previous acquisitions, Network Computing, Inc., Netlabs,
Inc., and Creative Interaction Technologies, Inc., because less than 5% of the
original workforces remained.
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<PAGE> 726
The following table provides quantitative information about the write-offs
and write-downs of goodwill and other intangibles, in thousands:
<TABLE>
<CAPTION>
1996 1997 1998
---------------------- --------------------- ----------------------
DEVELOPED
INTANGIBLES GOODWILL TECHNOLOGY GOODWILL INTANGIBLES GOODWILL
----------- -------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Covenant not to compete
Frye Computer Systems, Inc.......... $1,188 $744
Trademark
Frye Computer Systems, Inc.......... $ 225
Developed Technology
Netlabs, Inc........................ $ 780
Palindrome Corporation.............. 2,740 $2,930
Calypso Software Systems, Inc....... 1,627 2,573
Creative Interaction Technologies,
Inc.............................. 1,176
Frye Computer Systems, Inc.......... 463 670
Network Computing, Inc.............. 132
Assembled Workforce
Network Computing, Inc.............. $120 $ 155
Netlabs, Inc........................ 431 1,045
Creative Interaction Technologies,
Inc.............................. 82 67
------ ---- ------ ------ ---- ------
Total....................... $1,413 $744 $6,918 $6,173 $633 $1,267
====== ==== ====== ====== ==== ======
</TABLE>
COMMON STOCK SUBJECT TO REPURCHASE. Current employees and directors of
Seagate Software and of Seagate Technology have exercised 740,065 shares of
common stock under the Option Plan. At July 3, 1998, 176,455 shares were vested
and 563,610 shares were unvested. At the option of the employee or director,
within 30 days of termination such vested and unvested shares may be sold back
to Seagate Software at the original issue price. In addition, upon termination,
unvested shares are subject to repurchase at the option of Seagate Software at
original issue price. Because of the obligation to repurchase vested and
unvested shares of common stock, Seagate Software has excluded the amounts
associated with the repurchase obligation from Stockholders' Equity in the
accompanying balance sheet. At July 3, 1998, the repurchase obligation amounted
to $3,917,000.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1997 and March 1998, the American Institute of Certified Public
Accountants issued Statements of Position 97-2, "Software Revenue Recognition"
("SOP 97-2") and 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition" ("SOP 98-4"), which Seagate Software
currently is required to adopt for transactions entered into after July 3, 1998.
SOP 97-2 and SOP 98-4 provide guidance on recognizing revenue on software
transactions and supersede SOP 91-1. Seagate Software has assessed the impact of
the requirements of SOP 97-2 and SOP 98-4 and has changed certain of its
policies and procedures. Seagate Software believes that the adoption of SOP 97-2
and SOP 98-4 will not have a significant impact on Seagate Software's revenues
or results of operations.
Seagate Software intends to adopt Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), and No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") during fiscal 1999. Both standards will require additional disclosure, but
will not have a material effect on Seagate Software's financial position or
results of operations. SFAS 130 establishes standards for the reporting and
display of comprehensive income and is expected to first be reflected in Seagate
Software's first quarter of 1999 interim financial statements. The components of
comprehensive income include net income and items that are currently reported
directly as a component of stockholders' equity such as changes in foreign
currency translation adjustments and changes in the fair value of
available-for-sale financial instruments. SFAS 131 changes the way companies
report segment information
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<PAGE> 727
and requires segments to be determined based on how management measures
performance and makes decisions about allocating resources. SFAS 131 will first
be reflected in Seagate Software's 1999 Annual Report on Form 10-K.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance on capitalization of the costs incurred for computer software developed
or obtained for internal use. It also provides guidance for determining whether
computer software is internal-use software and on accounting for the proceeds of
computer software originally developed or obtained for internal use and then
subsequently sold to the public. Seagate Software has not yet determined the
impact, if any, of adopting this statement. The disclosures prescribed by SOP
98-1 will be effective for Seagate Software's consolidated financial statements
for the fiscal year ending June 30, 2000.
BUSINESS COMBINATIONS AND ACQUISITIONS
Seagate Software acquired Eastman Software Storage Management Group, Inc.
in 1998 and Arcada Holdings, Inc., Holistic Systems, Ltd., Calypso Software
Systems, Inc., OnDemand Software, Inc. and Sytron Corporation in 1996. There
were no acquisitions in 1997. Management is primarily responsible for estimating
the fair values of tangible and intangible assets and liabilities acquired.
In accordance with the provisions of APB Opinion 16, all identifiable
assets, including identifiable intangible assets, were assigned a portion of the
cost of the acquired enterprise (purchase price) on the basis of their
respective fair values. This included the portion of the purchase price properly
attributed to incomplete research and development projects that should be
expenses according to the requirements of Interpretation 4 of SFAS No. 2.
VALUATION OF ACQUIRED INTANGIBLE ASSETS. To determine the value of
in-process research and development, Seagate Software considered, among other
factors, the stage of development of each project, the time and cost needed to
complete each project, expected income, associated risks which included the
inherent difficulties and uncertainties in completing each project and thereby
achieving technological feasibility and risks related to the viability of and
potential changes to future target markets. This analysis resulted in amounts
assigned to in-process research and development for projects that had not yet
reached technological feasibility and which did not have alternative future
uses.
The Income Approach, which includes analysis of markets, cash flows, and
risks associated with achieving such cash flows, was the primary technique
utilized in valuing each in-process research and development project. The
underlying in-process projects acquired were the most significant and uncertain
assumptions utilized in the valuation analysis of in-process research and
development projects.
To determine the value of developed technologies, the expected future cash
flows of existing product technologies were evaluated, taking into account risks
related to the characteristics and applications of each product, existing and
future markets and assessments of the life cycle stage of each product. Based on
this analysis, the existing technologies that had reached technological
feasibility were capitalized.
To determine the value of the distribution networks and customer bases,
Seagate Software considered, among other factors, the size of the current and
potential future customer bases, the quality of existing relationships with
customers, the historical costs to develop customer relationships, the expected
income and associated risks. Associated risks included the inherent difficulties
and uncertainties in transitioning the business relationships from the acquired
entity to Seagate Software and risks related to the viability of and potential
changes to future target markets.
To determine the value of trademarks, Seagate Software considered, 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.
To determine the value of assembled workforces, Seagate Software
considered, among other factors, the costs to replace existing employees
including search costs, interview costs and training costs.
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<PAGE> 728
Goodwill is determined based on the residual difference between the amount
paid and the values assigned to identified tangible and intangible assets. If
the values assigned to identified tangible and intangible assets exceed the
amounts paid, including the effect of deferred taxes, the values assigned to
long-term assets were reduced proportionally until there was no negative
goodwill.
ACQUISITION OF EASTMAN SOFTWARE STORAGE MANAGEMENT GROUP, INC. In June
1998, Seagate Software acquired all of the outstanding capital stock of Eastman
Software Storage Management Group, Inc. ("Eastman"), a company engaged in
developing, producing and marketing hierarchical storage management products for
the Windows NT platform. The purchase price of approximately $10,000,000 was
paid in cash. Approximately $6,800,000 of the total purchase price represented
the value of in-process technology that had not yet reached technological
feasibility, had no alternative future uses and was charged to Seagate
Software's operations in the quarter ended July 3, 1998. Seagate Software
accounted for the acquisition using the purchase method, and the results of
operations of Eastman are only included in Seagate Software's operations since
the date the acquisition was completed. Pro forma financial information is not
presented as such amounts are not material. The following is a summary of the
purchase price allocation, in thousands:
<TABLE>
<S> <C>
Current assets and other tangible assets................... $ 535
Liabilities assumed........................................ (508)
Assembled workforce........................................ 340
Developed technology....................................... 500
In-process research and development........................ 6,800
Microsoft agreement........................................ 1,500
Goodwill................................................... 833
-------
$10,000
=======
</TABLE>
Overview
Eastman's two primary products are OPEN/stor for Windows NT and AvailHSM
for NetWare. By integrating Eastman's product line, Seagate will be able to
convert their Storage Migrator product into a stand-alone HSM application for
Windows NT environments. As of the date of acquisition, the Company abandoned
the AvailHSM product and technology due to dated features and functionality; the
valuation analysis did not include a fair value for the AvailHSM product.
As for OPEN/stor at the date of acquisition, the Company planned to phase
out the product over the following 12 to 15 months. Seagate's purpose for the
acquisition was for the next generation technologies that were underway at
Eastman, referenced by project names Sakkara and Phoenix. These projects were
complete re-writes of Eastman's prior generation technology that would allow the
product to be sold stand-alone upon completion.
In accordance with SFAS 86, paragraph 38 ("Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed"), "the cost of
software purchased to be integrated with another product or process will be
capitalized only if technological feasibility was established for the software
component and if all research and development activities for the other
components of the product or process were completed at the time of the
purchase." Although Seagate purchased existing products from Eastman, the
existing products did not operate on a stand-alone basis. Therefore, as
mentioned above, all of the original underlying code and base technology for the
next generation products were in the process of being completely re-written as
date of valuation.
Assumptions
Revenue
Future revenue estimates were generated for the following technologies: (i)
OPEN/stor, (ii) Sakkara, and (iii) Phoenix. Aggregate revenue for existing
Eastman products was estimated to be approximately $167,000 for the one month
ending June 30, 1998. Revenues were estimated to increase to approximately
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<PAGE> 729
$3.9 million and $7.1 million for fiscal years 1999 and 2000 when most of the
in-process projects were expected to be complete and shipping. Thereafter,
revenue was estimated to increase at rates ranging from 20% to 30% for fiscal
years 2001 through 2006. Revenue estimates were based on (i) aggregate revenue
growth rates for the business as a whole, (ii) individual product revenues,
(iii) growth rates for the storage management software market, (iv) the
aggregate size of the storage management software market, (v) anticipated
product development and introduction schedules, (vi) product sales cycles, and
(vii) the estimated life of a product's underlying technology.
Operating expenses
Operating expenses used in the valuation analysis of Eastman included (i)
cost of goods sold, (ii) general and administrative expense, (iii) selling and
marketing expense, and (iv) research and development expense. In developing
future expense estimates, an evaluation of both Seagate and Eastman's overall
business model, specific product results, including both historical and expected
direct expense levels (as appropriate), and an assessment of general industry
metrics was conducted.
Cost of goods sold. Cost of goods sold, expressed as a percentage of
revenue, for the developed and in-process technologies was estimated to be
approximately 5% throughout the estimation period. Seagate Software's cost of
goods sold was 20% for fiscal 1996 and 22% for fiscal 1997.
General and administrative ("G&A") expense. G&A expense, expressed as a
percentage of revenue, for the developed and in-process technologies was
estimated to be approximately 10% throughout the estimation period.
Selling and marketing ("S&M") expense. S&M expense, expressed as a
percentage of revenue, for the developed and in-process technologies was
estimated to be 27% throughout the estimation period.
Research and development ("R&D") expense. R&D expense consists of the costs
associated with activities undertaken to correct errors or keep products updated
with current information (also referred to as "maintenance" R&D). Maintenance
R&D includes all activities undertaken after a product is available for general
release to customers to correct errors or keep the product updated with current
information. These activities include routine changes and additions. The
maintenance R&D expense was estimated to be 5% of revenue for the developed and
in-process technologies throughout the estimation period.
In addition, as of the date of acquisition, Seagate Software's management
anticipated the costs to complete the in-process technologies at approximately
$1.8 million.
Effective tax rate
The effective tax rate utilized in the analysis of developed and in-process
technologies was 38%, which reflects Seagate's combined federal and state
statutory income tax rates, exclusive of non-recurring charges at the time of
the acquisition and estimated for future years.
Discount rate
The discount rates selected for Eastman's developed and in-process
technologies were 15% and 20%, respectively. In the selection of the appropriate
discount rates, consideration was given to (i) the Weighted Average Cost of
Capital (approximately 15% at the date of acquisition) and (ii) the Weighted
Average Return on Assets (approximately 18%). The discount rate utilized for the
in-process technology was determined to be higher than Seagate's WACC due to the
fact that the technology had not yet reached technological feasibility as of the
date of valuation. In utilizing a discount rate greater than Seagate's WACC,
management has reflected the risk premium associated with achieving the
forecasted cash flows associated with these projects.
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<PAGE> 730
ACQUISITION OF HOLISTIC SYSTEMS, LTD.
In June 1996, Seagate Software acquired all of the outstanding shares of
Holistic Systems, Ltd. a company engaged in developing, producing and marketing
OLAP-compliant, integrated enterprise business intelligence systems encompassing
facilities for executive information, decision support and other business
intelligence applications. The purchase price of approximately $85,458,000 was
paid in cash, and a portion of such consideration ($18,000,000) was placed in
escrow for contingent consideration. The escrow was released by Seagate Software
during the third quarter of fiscal 1997. Seagate Software accounted for the
acquisition using the purchase method, and the results of operations of Holistic
are only included in Seagate Software's operations since the date the
acquisition was completed. The following is a summary of the initial purchase
price allocation, in thousands:
<TABLE>
<S> <C>
Current assets and other tangible assets................... $ 9,993
Liabilities assumed........................................ (5,087)
Trademarks................................................. 5,889
Assembled workforce........................................ 1,890
Developed technology....................................... 16,453
Customer base.............................................. 3,746
In-process research and development........................ 35,892
Restricted cash held in escrow............................. 18,000
Deferred tax liability..................................... (1,318)
Goodwill................................................... --
-------
$85,458
=======
</TABLE>
The discount rates selected for Holistic's developed and in-process
technologies were 15% and 17.5%, respectively. In the selection of the
appropriate discount rates, consideration was given to (i) the Weighted Average
Cost of Capital (approximately 15% at the date of the acquisition) and (ii) the
Weighted Average Return on Assets (approximately 17%). The discount rate
utilized for the in-process technology was determined to be higher than
Seagate's WACC due to the fact that the technology has not yet reached
technological feasibility as of the date of valuation. In utilizing a discount
rate greater than Seagate's WACC, management has reflected the risk premium
associated with achieving the forecasted cash flows associated with these
projects.
The underlying in-process project acquired was the most significant and
uncertain assumption utilized in the valuation analysis of the in-process
research and development. Management was primarily responsible for estimating
the fair value of the purchased R&D in the Holistic acquisition.
As noted above, $18,000,000 of the acquisition consideration was held in
escrow as contingent consideration. Seagate Software decided to release to the
former shareholders of Holistic the escrow funds of $18,000,000 in the third
quarter of fiscal 1997 even though the required contingencies had not been
satisfied. As a result, Seagate Software recorded compensation expense as an
unusual item amounting to $13,446,000 for payments made to Company employees who
were also former shareholders of Holistic and an additional purchase price
amount of $4,554,000 for payments to former shareholders of Holistic who were
not employees of Seagate Software. The additional purchase price was allocated
based on the same methodology as the original purchase price and in the third
quarter of 1997, Seagate Software recorded an additional in-process research and
development write-off of $2,613,000, acquired intangible assets of $2,037,000
and a deferred tax liability of $96,000.
As of the date of the acquisition, Holistic was in the process of
developing the next generation of Holos, version 6.0, which was planned for
release during the summer of 1997. Actual release of Holos, version 6.0,
occurred in the fourth quarter of fiscal 1997.
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<PAGE> 731
ACQUISITION OF CALYPSO SOFTWARE SYSTEMS, INC.
In May 1996, Seagate Software acquired all of the outstanding shares of
Calypso Software Systems, Inc. ("Calypso"), a company engaged in developing,
producing and marketing software for managing systems and applications in
complex, distributed client/server computer networks. The purchase price of
approximately $13,865,000 was paid in cash. Seagate Software accounted for the
acquisition using the purchase method, and the results of operations of Calypso
are only included in Seagate Software's operations since the date the
acquisition was completed. The following is a summary of the purchase price
allocation, in thousands:
<TABLE>
<S> <C>
Current assets and other tangible assets................... $ 1,209
Liabilities assumed........................................ (245)
Assembled workforce........................................ 400
Developed technology....................................... 3,600
Customer base.............................................. 540
In-process research and development........................ 5,400
Goodwill................................................... 2,961
-------
$13,865
=======
</TABLE>
As of the date of acquisition, Calypso had undergone or was in the process
of undergoing the re-write of code in C+, adding navigator capabilities,
developing web server and browser interoperability, developing CORBA
interoperability, and developing Network OLE/COM interoperability for Atrium EMS
(stand-alone). The estimated cost to complete the in-process research and
development projects acquired from Calypso was estimated to be approximately
$750,000 as of the date of the acquisition. These in process research and
development projects were successfully completed prior to a restructuring of
operations in the third quarter of fiscal 1997. As a result of this
restructuring and a change in Seagate Software's strategic direction, in the
first quarter of fiscal 1998, Seagate Sofware disposed of all the developed and
in process technologies originally acquired from Calypso.
ACQUISITION OF ONDEMAND SOFTWARE, INC.
In March 1996, Seagate Software acquired all of the outstanding shares and
stock options of OnDemand Software, Inc. ("OnDemand"), a company engaged in
developing, producing and marketing WinINSTALL, a product which automates
installation, upgrades and uninstalls of network applications throughout the
enterprise. The purchase price of approximately $13,425,000 was paid in cash.
Seagate Software accounted for the acquisition using the purchase method, and
the results of operations of OnDemand are only included in Seagate Software's
operations since the date the acquisition was completed. The following is a
summary of the purchase price allocation, in thousands:
<TABLE>
<S> <C>
Current assets and other tangible assets................... $ 832
Liabilities assumed........................................ (227)
Assembled workforce........................................ 270
Developed technology....................................... 2,000
Covenant not to compete.................................... 50
In-process research and development........................ 8,900
Goodwill................................................... 1,600
-------
$13,425
=======
</TABLE>
ACQUISITION OF MINORITY INTEREST OF ARCADA HOLDINGS, INC.
The combination of Seagate Software with Arcada Holdings, Inc. ("Arcada"),
a company which developed, marketed and supported data protection and storage
management software products that operated across multiple desktop and
client/server environments, was accounted for as a pooling-of-interests and,
accordingly, all prior periods presented in the accompanying consolidated
financial statements include the
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<PAGE> 732
accounts and operations of Arcada. Arcada's results of operations for the
duplicated six months ended December 30, 1995 were as follows, in thousands:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
DECEMBER 30, 1995
-----------------
<S> <C>
Net revenues......................................... $37,700
Operating expenses................................... 29,320
Other income......................................... 588
Net loss............................................. (80)
</TABLE>
In connection with the pooling-of-interests, Seagate Software acquired the
then outstanding minority interest of Arcada. The minority interest was
approximately 31% on a fully diluted basis. The acquisition of the minority
interest was accounted for as a purchase and in connection with the acquisition,
Seagate Technology issued 2,553,000 shares of common stock with a fair market
value of approximately $52,009,000 and 1,817,000 options to purchase common
stock with a fair market value of approximately $33,065,000 (aggregate fair
value of $85,074,000). The value of the shares of Seagate Technology common
stock issued to shareholders of Arcada was determined based on the average
market price of Seagate Technology's common stock five days before and five days
after October 3, 1995, the date that the terms of the acquisition were agreed
to. The options were issued to employees of Arcada and Conner, Arcada's parent,
in exchange for options of Arcada. The options have a term of 10 years and vest
1/16 per quarter over 4 years. The value of the options were based on the
intrinsic value of options, which approximates the fair value The following is a
summary of the purchase price allocation for the acquisition of the minority
interest, in thousands:
<TABLE>
<S> <C>
Assembled workforce........................................ $ 1,355
Distribution network....................................... 94
Corporate accounts......................................... 375
Strategic alliances........................................ 1,437
OEM agreements............................................. 3,217
Value added resellers...................................... 2,030
Trademarks................................................. 2,811
Developed technology....................................... 4,623
In-process research and development........................ 43,949
Deferred tax liability..................................... (6,254)
Goodwill................................................... 31,437
-------
$85,074
=======
</TABLE>
Intangible assets were identified through (i) analysis of the acquisition
agreement, (ii) consideration of the Network & Storage Management Group's
intentions for future use of the acquired assets, and (iii) analysis of data
available concerning Arcada's products, technologies, markets, historical
financial performance, estimates of future performance and the assumptions
underlying those estimates. The economic and competitive environment in which
the Network & Storage Management Group and Arcada operate was also considered in
the valuation analysis.
Specifically, purchased research and development ("purchased R&D") was
identified and valued through extensive interviews and discussions with the
Network & Storage Management Group and Arcada management and the analysis of
data provided by Arcada concerning Arcada's developmental products, their
respective stage of development, the time and resources needed to complete them,
their expected income generating ability, target markets and associated risks.
The Income Approach, which includes an analysis of the markets, cash flows, and
risks associated with achieving such cash flows, was the primary technique
utilized in valuing each purchased R&D project. A portion of the purchase price
was allocated to the developmental projects based on the appraised fair values
of such projects.
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<PAGE> 733
DISCUSSION OF IN-PROCESS RESEARCH & DEVELOPMENT ONE TIME WRITE-OFF
Overview
As of the acquisition date, Arcada had spent a significant amount of money
on research and development related to the re-development efforts to add
features and utilities to the Desktop, NetWare and Windows NT products such as
disk grooming, hierarchical storage management, upgraded graphical user
interfaces, file and server replication, and server mirroring in order to
continue to meet increasingly complex user needs.
In accordance with SFAS 86, paragraph 38 ("Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed"), "the cost of
software purchased to be integrated with another product or process will be
capitalized only if technological feasibility was established for the software
component and if all research and development activities for the other
components of the product or process were completed at the time of the
purchase." Although Seagate purchased existing products from Arcada, since the
majority of the original underlying code and base technology for the NetWare and
Windows NT product families was completed in the 1990 time frame, the
technologies, as of the date of valuation, were desperately in need of, and
therefore, as mentioned above, was undergoing significant re-development.
Assumptions
Revenue
Future revenue estimates were generated for the following product families:
(i) Desktop, (ii) NetWare, and (iii) Windows NT. Aggregate revenue for Arcada
products was estimated to be approximately $94 million for the ten and one-half
months ending December 31, 1996. Revenues were estimated to increase to
approximately $161 million and $233 million for calendar years 1997 and 1998
when most of the in-process projects were expected to be complete and shipping.
Thereafter, revenue was estimated to increase at rates ranging from 35% to 40%
for calendar years 1999 through 2002. Revenue estimates were based on (i)
aggregate revenue growth rates for the business as a whole, (ii) individual
product revenues, (iii) growth rates for the storage management software market,
(iv) the aggregate size of the storage management software market, (v)
anticipated product development and introduction schedules, (vi) product sales
cycles, and (vii) the estimated life of a product's underlying technology. The
estimated product development cycle for the new products ranged from 12 to 18
months.
Operating expenses
Operating expenses used in the valuation analysis of Arcada included (i)
cost of goods sold, (ii) general and administrative expense, (iii) selling and
marketing expense, and (iv) research and development expense. In developing
future expense estimates, an evaluation of both Seagate Software and Arcada's
overall business model, specific product results, including both historical and
expected direct expense levels (as appropriate), and an assessment of general
industry metrics was conducted.
Cost of goods sold. Cost of goods sold, expressed as a percentage of
revenue, for the developed and in-process technologies ranged from approximately
5% to 30% (30% for Desktop, 10% for NetWare, and 5% for Windows NT). Seagate
Software's cost of goods sold was 20% for fiscal 1996, 22% for fiscal 1997, and
17% for fiscal 1998.
General and administrative ("G&A") expense. G&A expense, expressed as a
percentage of revenue, for the developed and in-process technologies ranged from
12% in calendar 1996 to 8% in calendar 1998 and beyond.
Selling and marketing ("S&M") expense. S&M expense, expressed as a
percentage of revenue, for the developed and in-process technologies was
estimated to be 30% throughout the estimation period.
Research and development ("R&D") expense. R&D expense consists of the costs
associated with activities undertaken to correct errors or keep products updated
with current information (also referred to as "maintenance" R&D). Maintenance
R&D includes all activities undertaken after a product is available for general
release to customers to correct errors or keep the product updated with current
information. These
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<PAGE> 734
activities include routine changes and additions. The maintenance R&D expense
was estimated to be 5% of revenue for the developed technologies and 3% of
revenue for the in-process technologies throughout the estimation period.
In addition, as of the date of acquisition, the Network & Storage
Management Group management anticipated the costs to complete the Desktop,
NetWare, and Windows NT technologies at approximately $6.8 million, $4.5
million, and $7.5 million, respectively. Since the acquisition date, all
projects originally acquired from Arcada were commercially released prior to the
end of the fourth quarter of fiscal 1997.
Effective tax rate
The effective tax rate utilized in the analysis of developed and in-process
technologies was 38%, which reflects Seagate's combined federal and state
statutory income tax rates, exclusive of non-recurring charges at the time of
the acquisition and estimated for future years.
Discount rate
The discount rates selected for Arcada's developed and in-process
technologies were 15% and 17.5%, respectively. In the selection of the
appropriate discount rates, consideration was given to (i) the Weighted Average
Cost of Capital (approximately 13% to 15% at the date of acquisition) and (ii)
the Weighted Average Return on Assets (approximately 18%). The discount rate
utilized for the in-process technology was determined to be higher than
Seagate's WACC due to the fact that the technology had not yet reached
technological feasibility as of the date of valuation. In utilizing a discount
rate greater than Seagate's WACC, management has reflected the risk premium
associated with achieving the forecasted cash flows associated with these
projects.
ACQUISITION OF SYTRON CORPORATION.
In July 1995, Arcada Software, Inc., a majority-owned subsidiary of Arcada,
acquired the assets and liabilities of Sytron Corporation, a company which
developed, produced and marketed software products for data storage management.
The purchase price of approximately $5,017,000 was paid in cash. Arcada
accounted for the acquisition using the purchase method, and the results of
operations of Sytron are only included in Seagate Software's operations since
the acquisition was completed. The following is a summary of the purchase price
allocation, in thousands:
<TABLE>
<S> <C>
Current assets and other tangible assets.................... $ 848
Liabilities assumed......................................... (508)
Developed technology........................................ 1,487
In-process research and development......................... 2,817
Goodwill.................................................... 373
------
$5,017
======
</TABLE>
STOCKHOLDERS' EQUITY
Seagate Software's authorized capital stock consists of 95,600,000 shares
of common stock and 73,000,000 shares of preferred stock, 54,633,333 of which
have been designated as Series A preferred stock and 18,366,667 of which remain
undesignated.
PREFERRED STOCK. The Series A preferred have the following rights,
preferences and privileges:
Conversion. The holders of the Series A preferred stock have the right to
convert the Series A preferred stock at any time into common stock. The Series A
preferred stock will be automatically converted into common stock, at the
then-effective conversion price, upon the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended. The initial conversion rate will
be one share of preferred stock for each share of common stock. The
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conversion price of the Series A preferred stock will be subject to adjustment
to reduce the effect of dilution in the event that Seagate Software issues
additional shares of common stock or equivalents.
Voting. Each share of Series A preferred stock entitles the holder to one
vote for each share of common stock into which such share could then be
converted. Except as required by law, the holders of shares of Series A
preferred stock and the holders of shares of common stock shall vote together as
one class on all matters submitted to a vote of stockholders of Seagate
Software.
Dividend Preference. The holders of shares of Series A preferred stock
shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, an annual cash dividend in the
amount of $0.45 per share (as adjusted to reflect any stock split, stock
dividend, combination, recapitalization and the like (collectively a
"Recapitalization") with respect to the Series A preferred stock), prior and in
preference to any declaration or payment of any dividend (payable other than in
common stock) on the common stock of Seagate Software. Such dividends shall not
be cumulative, and no right shall accrue to holders of Series A preferred stock
by reason of the fact that dividends on such shares are not declared or paid in
any year. On the date that is the end of the first fiscal year in which Seagate
Software recognizes net income after taxes, the holders of shares of Series A
preferred stock shall be entitled to receive, out of funds legally available for
the purpose, an annual cash dividend in the amount of $0.45 per share (as
adjusted to reflect any Recapitalization) prior and in preference to any
declaration or payment of any dividend (payable other than in common stock) on
the common stock of Seagate Software (the "Cumulative Dividend"). The Cumulative
Dividend shall accrue from the Cumulative Dividend Date and shall be payable
only when, as and if determined by the Board, provided, that if the Cumulative
Dividend shall not have been paid and a sum sufficient for the payment thereof
set apart, the deficiency shall first be fully paid before any dividend or other
distribution (other than dividends payable solely in common stock) shall be paid
or declared and set apart for the common stock of Seagate Software. In the event
any dividend shall be paid to the holders of common stock such dividend shall be
distributed among the holders of the common stock and the Series A preferred
stock in proportion to the shares of common stock then held by them and the
shares of common stock which they then have the right to acquire upon the
conversion of the Series A preferred stock held by them.
Liquidation Preference. In the event of any liquidation, dissolution or
winding up of Seagate Software or other reorganization, a distribution of $7.50
per share, as adjusted to reflect any Recapitalization of Series A preferred
stock, plus all accrued or declared but unpaid dividends, if any, shall be made
to the holders of Series A preferred stock before any amount shall be paid to
the holders of common stock.
DIVIDENDS. No dividends have been declared, or paid, to date by Seagate
Software on any of the outstanding common stock or preferred stock.
STOCK OPTION PLANS. The Option Plan provides for the issuance of either
incentive or nonstatutory stock options to employees and consultants of Seagate
Software. Seagate Software has reserved a total of 12,600,000 shares under the
Plan. Options granted under Seagate Software's Plan are granted at fair market
value, expire ten years from the date of the grant and vest over four years; 20%
at the end of years one and two and 30% at
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<PAGE> 736
the end of years three and four. Following is a summary of stock option activity
from the inception of the plan through the year ended July 3, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------
NUMBER OF SHARES WEIGHTED AVERAGE EXERCISE PRICE
---------------- -------------------------------
<S> <C> <C>
Balance at June 30, 1995............ -- $ --
Granted........................... 3,276,200 4.00
Exercised......................... -- --
Canceled.......................... (45,088) 4.00
----------
Balance at June 28, 1996............ 3,231,112 4.00
Granted........................... 2,851,255 5.42
Exercised......................... (20,855) 4.00
Canceled.......................... (973,733) 4.36
----------
Balance at June 27, 1997............ 5,087,779 4.73
Granted........................... 8,039,707 9.04
Exercised......................... (892,212) 5.13
Canceled.......................... (1,299,143) 5.27
----------
Balance at July 3, 1998............. 10,936,131 7.81
==========
</TABLE>
Options available for grant were 750,802, 7,491,366 and 9,368,888 at the
end of fiscal 1998, 1997 and 1996, respectively. The following tables summarize
information about options outstanding at July 3, 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING EXERCISABLE OPTIONS
--------------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES SHARES LIFE (IN YEARS) PRICE OF SHARES PRICE
-------- ---------- --------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$ 4.00................................... 2,288,427 8.0 $4.00 891,653 $4.00
$ 6.00................................... 3,860,158 9.0 6.00 305,374 6.00
$ 7.50 - 11.00........................... 2,043,397 9.6 8.83 11,760 7.86
$12.75................................... 2,744,149 10.0 12.75 -- --
---------- ---------
Total.................................. 10,936,131 9.1 7.81 1,208,787 4.54
========== =========
</TABLE>
PRO FORMA INFORMATION. In October 1995, the Financial Accounting Standards
Board released Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 provides an alternative to
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" ("APBO 25") and requires additional disclosures. Seagate Software has
elected to follow APBO 25 in accounting for stock options granted. Under APBO
25, Seagate Software generally recognized no compensation expense with respect
to such options.
Pro forma information regarding net income and earnings per share is
required by SFAS 123 for stock options granted after June 30, 1995 as if Seagate
Software had accounted for its stock options under the fair value method of SFAS
123. The fair value of Seagate Software's stock options was estimated using a
Black-Scholes option valuation model. The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded options that have
no vesting restrictions and are fully transferable. In addition, the
Black-Scholes model requires the input of highly subjective assumptions,
including the expected stock price volatility. Because Seagate Software's stock
options granted to employees have characteristics significantly different from
those of exchange-traded options (and are not fully transferable) and because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the Black-Scholes model does not necessarily
provide a reliable single measure of the fair value of its stock options granted
to employees. The fair value of Seagate Software's stock options granted to
employees was estimated assuming no expected dividends and the following
weighted average assumptions:
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<PAGE> 737
<TABLE>
<CAPTION>
SEAGATE
SEAGATE SOFTWARE TECHNOLOGY
INCENTIVE EMPLOYEE STOCK
STOCK OPTION PURCHASE
PLAN SHARES PLAN SHARES
-------------------- --------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected life (in years).......................... 3.67 3.65 3.65 .56 .50 .50
Risk-free interest rate........................... 5.7% 6.2% 5.6% 5.5% 5.4% 5.4%
Volatility........................................ .55 .55 .55 .63 .46 .46
</TABLE>
The weighted average exercise price and weighted average fair value of
stock options granted in 1998 under Seagate Software's Plan were $9.04 and $4.20
per share, respectively. The weighted average purchase price and weighted
average fair value of shares granted in 1998 under the Seagate Technology
Employee Stock Purchase Plan (the "Purchase Plan") were $26.99 and $12.03,
respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period (for stock options) and
over the six-month purchase period for stock purchases under the Purchase Plan.
Pro forma net loss per common share for 1996 is not presented because Seagate
Software's current capital structure did not exist prior to April 1996, making
presentation for prior periods not meaningful. Seagate Software's pro forma
information follows, in thousands:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Net loss.......................................... $(16,496) $(57,831) $(130,043)
Net loss per common share......................... $(100.24) $(854.05)
</TABLE>
The effects on pro forma disclosures of applying SFAS 123 are not likely to
be representative of the effects on pro forma disclosures of future years.
Because SFAS 123 is applicable only to options granted subsequent to June 30,
1995, and Seagate Software did not commence granting stock options for the
purchase of Seagate Software common stock until June 1996, the pro forma effect
will not be fully reflected until 2000.
INCOME TAXES
Seagate Software is included in the consolidated federal and certain
combined and consolidated foreign and state income tax returns of Seagate
Technology. Seagate Technology and Seagate Software have entered into a tax
sharing agreement (the "Tax Allocation Agreement") pursuant to which Seagate
Software computes hypothetical tax returns (with certain modifications) as if
Seagate Software was not included in consolidated or combined returns with
Seagate Technology. Seagate Software must pay Seagate Technology the positive
amount of any such hypothetical taxes. If the hypothetical tax returns show
entitlement to refunds, including any refunds attributable to a carryback, then
Seagate Technology will pay Seagate Software the amount of such refunds. At the
end of fiscal 1998, $8,500,000 in intercompany tax-related balances was due from
Seagate Software to Seagate Technology. At the end of fiscal 1997 and 1996,
there were no intercompany tax-related balances outstanding between Seagate
Software and Seagate Technology.
The (benefit from) provision for income taxes consisted of the following,
in thousands:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current Tax Expense
Federal............................................. $ 9,444 $(5,007) $(7,196)
State............................................... 1,575 (384) (762)
Foreign............................................. 8,908 4,182 996
------- ------- -------
Total Current Tax Expense............................. 19,927 (1,209) (6,962)
Deferred Tax Expense
Federal............................................. (3,831) (6,330) (1,498)
State............................................... (711) (1,175) (288)
------- ------- -------
Total Deferred Tax Expense............................ (4,542) (7,505) (1,786)
------- ------- -------
(Benefit from) Provision for Income Taxes............. $15,385 $(8,714) $(8,748)
======= ======= =======
</TABLE>
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The (benefit from) provision for income taxes has been computed on a
separate return basis (with certain modifications), except that pursuant to the
Tax Allocation Agreement, the tax benefits of certain of Seagate Software's
fiscal 1997 and 1996 tax losses and credits were recognized in the year such
losses and credits were utilized by Seagate Technology in its tax returns. In
fiscal 1998, Seagate Software did not recognize the benefit of certain tax
credits because they were not expected to be utilized by Seagate Technology in
its tax returns.
The pro forma information assuming a tax benefit based on a separate return
basis is as follows, in thousands:
<TABLE>
<CAPTION>
YEAR ENDED
JULY 3, 1998
------------
<S> <C>
Income before provision for income taxes................. $6,115
Provision for income taxes............................... 4,548
------
Net income............................................... $1,567
======
</TABLE>
The income tax benefits related to the exercise of employee stock options
reduced amounts due to or increased amounts due from Seagate Technology pursuant
to the Tax Allocation Agreement and were credited to additional paid-in capital.
Such amounts approximated $770,000, $3,486,000 and $1,866,000 in 1998, 1997 and
1996, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of Seagate Software's deferred tax assets and liabilities were as
follows, in thousands:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS
Receivable reserves.................................... $ 1,951 $ 1,859
Accrued warranty....................................... 244 192
Inventory write-downs not currently deductible......... 504 299
Accrued compensation and benefits...................... 1,329 1,517
Depreciation........................................... (986) 827
Accrued restructuring.................................. -- 963
Accrued expenses not currently deductible.............. 2,532 850
Acquisition related items.............................. 36,264 34,745
Domestic and foreign net operating loss
carryforwards........................................ 13,116 13,098
Tax credit carryforwards............................... 8,686 1,155
Other.................................................. 2,164 2,372
-------- --------
Total Deferred Tax Assets............................ 65,804 57,877
Valuation allowance.................................... (65,804) (57,877)
-------- --------
Net Deferred Tax Assets.............................. -- --
======== ========
DEFERRED TAX LIABILITIES
Acquisition related items.............................. (1,691) (6,233)
-------- --------
Total Deferred Tax Liabilities....................... (1,691) (6,233)
-------- --------
Net Deferred Tax Liabilities........................... $ (1,691) $ (6,233)
======== ========
</TABLE>
A valuation allowance has been provided for the deferred tax assets as of
the end of fiscal 1998 and 1997. Realization of the deferred tax assets is
dependent on future earnings, the timing and amount of which are uncertain. In
addition, the net operating loss and tax credit carryforwards of acquired
subsidiaries are subject to further limitations on utilization due to the
"change in ownership" provisions of Internal Revenue Code Section 382 and the
"separate return limitation year" rules of the federal consolidated return
regulations. Approximately $8,213,000 of the valuation allowance in fiscal 1998
and 1997 is attributable to deferred tax assets that when realized, will reduce
unamortized goodwill or other intangible assets of the acquired
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<PAGE> 739
subsidiaries. The valuation allowance increased by $7,927,000, $11,946,000 and
$26,038,000 in 1998, 1997 and 1996, respectively.
As of June 27, 1997, Seagate Software has domestic and foreign net
operating loss carryforwards of approximately $37,515,000 expiring in 2003
through 2010 if not used to offset future taxable income. In addition, Seagate
Software, as of July 3, 1998, has research and development tax credit
carryforwards of approximately $1,155,000 expiring in 2005 through 2011 and
foreign tax credit carryforwards of $7,351,000, expiring in 2003, if not used to
offset future tax liabilities.
The reconciliation between the (benefit from) provision for income taxes at
the U.S. statutory rate and the effective rate is summarized as follows, in
thousands:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
(Benefit) provision at U.S. statutory rate.......... $ 2,140 $(21,937) $(48,446)
State income taxes (benefit), net................... 393 (382) (762)
Foreign taxes in excess of the U.S. statutory
rate.............................................. 2,084 255 25
In-process research and development................. -- -- 15,382
Goodwill and other acquisition related items........ 2,894 4,358 2,833
Valuation allowance................................. 7,927 8,871 22,216
Other............................................... (53) 121 4
------- -------- --------
$15,385 $ (8,714) $ (8,748)
======= ======== ========
</TABLE>
Cumulative undistributed earnings of certain foreign operations of Seagate
Software of $2,633,000 are considered to be permanently invested in non-U.S.
operations. No U.S. federal and state income tax has been provided on these
amounts. Additional U.S. federal and state income taxes that would have to be
provided if these earnings were repatriated to the U.S. cannot be determined at
this time.
RESTRUCTURING COSTS
Restructuring charges were $9.5 million in fiscal 1996 and $2.5 million in
fiscal 1997. The 1996 restructuring charges pertain to the acquisition of Arcada
Holdings, Inc. in February 1996. As a result of the acquisition, Seagate
Software had obtained duplicate technologies and product lines in data
protection and storage management software as those assets acquired in the
Palindrome Corporation (Palindrome) acquisition in fiscal 1995. Seagate Software
determined that it would be beneficial to consolidate the world-wide sales,
marketing, research and development, technical support and other operations and
administrative functions of its network and storage management business. A
restructuring plan was approved by the Board of Directors in March 1996 and the
plan resulted in facility closures and staff reductions of 43 at the Arcada
facilities in Westboro, Massachusetts, the United Kingdom and France, as well as
staff reductions of 69 at the former Palindrome facility in Naperville,
Illinois. In addition, because Arcada had a better industry reputation and
superior products to those of Palindrome, Seagate Software's plan and strategy
going forward was to focus on the technologies and products acquired from
Arcada. The revenue and net operating loss relating to products acquired from
Palindrome in fiscal 1996 was $15.9 million and $2.1 million respectively. For
fiscal 1997, the revenue and net operating loss relating to products acquired
from Palindrome was $3.3 million and $3.7 million respectively.
The non-cash restructuring charges included amounts for abandonment of the
Palindrome trademarks, impairment of the capitalized workforce intangible assets
pertaining to the acquisition of Palindrome because of the planned layoff of
personnel, write-off of a duplicate trade show booth, and write-off of obsolete
Palindrome marketing materials. Cash restructuring charges included amounts for
severance and benefits to terminated Palindrome employees, costs for facilities
lease termination, other contract cancellation fees, and merger related costs
incurred by Arcada in the acquisition of the Arcada minority interests by
Seagate Technology.
The fiscal 1997 restructuring charges netted to $2.5 million, comprised of
a $3.4 million restructuring charge that included the closure of Seagate
Software's Network & Storage Management Group's facility
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<PAGE> 740
located in Cupertino, California. This facility closure resulted in cash charges
for severance and benefits for 69 employee terminations and non-charges for
excess facilities and the write down of equipment. In addition, the $3.4 million
included amounts related to the Company's decision, after concluding a sale was
no longer viable, to no longer pursue the technologies acquired in the 1996
acquisition of Calypso Software Systems, Inc. and to shutdown its operations.
This decision resulted in cash charges for severance and benefits for 35
employee terminations and non-cash charges for the write off of certain
remaining intangible assets of Calypso. The revenue and net operating loss
relating to Calypso for fiscal 1996 was $444,000 and $53,000 respectively. For
fiscal 1997, the revenue and net operating loss relating to Calypso was $640,000
and $47,000 respectively.
The restructuring charges recorded in fiscal 1997 were reduced by $957,000
for the reversal of amounts pertaining to the fiscal 1996 restructuring charges
as a result of a higher than planned number of voluntary employee terminations
without severance benefits prior to the facility shutdown and completion of
other aspects of the restructuring plan at less than the originally estimated
cost, net of an increase in the accrual for facilities lease payments due to
changes in estimates of the costs to terminate leases after facilities closure.
A summary of Seagate Software's restructuring activities for the past three
years is provided below (in thousands):
<TABLE>
<CAPTION>
SEVERANCE
AND CONTRACT LEGAL AND
EMPLOYEE CANCELLATION ACCOUNTING OTHER
BENEFITS FACILITIES EQUIPMENT INVENTORY INTANGIBLES FEES FEES EXPENSES
--------- ---------- --------- --------- ----------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 charges......... $1,554 $1,571 $ 1,018 $ 300 $ 4,312 $ 67 $ 525 $ 155
Cash charges......... (518) -- -- -- -- -- (568) --
Non-cash charges..... -- (121) (116) -- (4,052) -- -- (138)
------ ------ ------- ----- ------- ---- ----- -----
Reserves 1996........ 1,036 1,450 902 300 260 67 (43) 17
1997 charges......... 770 505 728 -- 1,378 -- -- 100
Cash charges......... (975) (915) -- -- -- -- -- --
Non-cash charges..... -- (72) (44) -- (1,378) -- -- --
Adjustment........... (351) 267 (172) (300) (260) (67) 43 (117)
------ ------ ------- ----- ------- ---- ----- -----
Reserves 1997........ 480 1,235 1,414 -- -- -- -- --
Cash charges......... (373) (519) (9) -- -- -- -- --
Non-cash charges..... -- -- (1,045) -- -- -- -- --
Adjustment........... (107) 467 (360) -- -- -- -- --
------ ------ ------- ----- ------- ---- ----- -----
Reserves 1998........ $ -- $1,183 $ -- $ -- $ -- $ -- $ -- $ --
====== ====== ======= ===== ======= ==== ===== =====
<CAPTION>
TOTAL
-------
<S> <C>
1996 charges......... $ 9,502
Cash charges......... (1,086)
Non-cash charges..... (4,427)
-------
Reserves 1996........ 3,989
1997 charges......... 3,481
Cash charges......... (1,890)
Non-cash charges..... (1,494)
Adjustment........... (957)
-------
Reserves 1997........ 3,129
Cash charges......... (901)
Non-cash charges..... (1,045)
Adjustment........... --
-------
Reserves 1998........ $ 1,183
=======
</TABLE>
Seagate Software's remaining restructuring reserves pertain to continuing
lease payments on facilities that were closed and abandoned as a result of the
Palindrome restructuring. Seagate Software has been unable to sublease these
facilities and anticipates that the remaining restructuring reserves will be
utilized over the period through lease termination in fiscal 2002.
In fiscal 1996, Seagate Software recorded a restructuring reserve of
$9,502,000 for the following items:
Severance and employee benefits ($1,554,000) -- Severance and employee
benefits included amounts for consolidation of operations and termination of
employees at the Arcada facilities in Westboro, Massachusetts, the United
Kingdom and France, as well as at the former Palindrome facility in Naperville,
Illinois.
Excess facilities ($1,571,000) -- This accrual was designed to provide for
rent termination costs and rent expense for facilities located in Naperville,
Westboro, the United Kingdom and France that are to be closed as a result of the
restructuring actions.
Equipment ($1,018,000) -- This amount is a reserve for equipment at the
Naperville, Westboro, the United Kindgom and France facilities. It consists of
computer equipment, furniture and fixtures and software at these facilities that
will not be used after the locations are closed. All of the equipment provided
for in this reserve has been abandoned.
Inventory ($300,000) -- This consists of obsolete packaging material that
will no longer be used and OEM inventory of $80,000 that will no longer be sold.
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<PAGE> 741
Intangibles ($4,312,000) -- This write down consists of Palindrome
intangible assets of $3,534,000, $390,000 of developed technology related to
Atlas and $388,000 of goodwill related to the Sytron acquisition. The Palindrome
intangible assets were further broken down into trademark of $1,000,000,
workforce of $1,188,000, distribution network of $69,000 and goodwill of
$1,277,000. Seagate Software decided to pursue the Arcada brand name and
trademark and abandon the Palindrome trademark. As a result, Seagate Software
determined that it would lay off substantially all of the 121 employees of
Palindrome located at the Naperville facility. At the time of original purchase,
Seagate Software proportionally allocated goodwill to long-lived intangible
assets based upon the original purchase price. The amounts of goodwill included
in the restructuring reserve relate to the remaining unamortized goodwill
associated with the intangible assets written off.
Contract Cancellation ($67,000) -- This $67,000 item is a canceled contract
for outsourced Technical Support with a vendor used by Palindrome.
Legal/Accounting Fees ($525,000) -- This $525,000 represents and estimate
of the legal and accounting fees that were to be incurred by Arcada from the
acquisition of Arcada stock by Seagate Technology.
Other ($155,000) -- This represents a trade show booth valued at $100,000
that is redundant and $55,000 worth of obsolete marketing materials.
The above assets were not impaired in a prior period because their
impairment arose specifically from the restructuring actions taken as a result
of the acquisition of the minority interest in Arcada in the third quarter of
fiscal 1996. Prior to the acquisition, Palindrome products were marketed and
sold as part of the Seagate Software portfolio. Seagate Software has not
generated any income from these activities in subsequent periods.
In fiscal 1997, Seagate Software recorded an additional restructuring
reserve of $3,481,000 that resulted primarily from the plan to shutdown
Manchester operations and the decision to try to sell the Calypso technology and
a separate decision to consolidate Network & Storage Management Group operations
which resulted in the shutdown of Seagate Software's facility in Cupertino,
California.
Severance and employee benefits ($770,000) -- Severance and employee
benefits included amounts for the shutdown and termination of employees at the
Cupertino, California facility due to a consolidation of operations and the
shutdown and termination of employees at the Calypso facility in Manchester, New
Hampshire due to a decision to no longer pursue the Calypso products and
technologies.
Excess facilities ($505,000) -- This accrual was designed to provide for
rent termination costs and rent expense for facilities closures in Manchester,
New Hampshire and Cupertino, California.
Equipment ($728,000) -- This equipment is in the Manchester and Cupertino
facilities that would not be used after the shutdowns. It consisted largely of
computer equipment but also included amounts for furniture and fixtures and
software. All of the equipment provided for in this reserve has been abandoned.
Intangibles ($1,378,000) -- This asset consisted of Calypso related
intangibles first capitalized upon the acquisition of Calypso in fiscal 1996.
The amounts written down included net developed technology of $1,086,000 and
assembled workforce of $292,000. These assets were written down based on
management's plan to sell Calypso and its products and technologies.
Other ($100,000) -- This represents miscellaneous additional costs related
to the Manchester (Calypso) shutdown.
The above assets were not impaired in a period prior to recording the
restructuring reserves because their impairment arose specifically from the
business decision and plan in the fourth quarter of fiscal 1997 to close the
Manchester (Calypso) facility and abandon that technology and the additional
decision to consolidate operations of the company and close the Cupertino
facility.
LINES OF CREDIT
In addition to the Revolving Loan Agreement with Seagate Technology,
certain foreign subsidiaries have line of credit facilities with third party
financial institutions. These line of credit facilities provide for additional
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<PAGE> 742
borrowings of up to an equivalent of approximately $1,100,000 at July 3, 1998.
Interest rates payable on borrowings are based on local bank prime interest
rates. At July 3, 1998, there were no outstanding borrowings under any of these
lines of credit.
BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
Seagate Software operates in a single industry segment by developing,
marketing and supporting business intelligence and systems infrastructure
management software products, and related professional services. The following
tables summarize Seagate Software's operations in different geographic areas, in
thousands:
<TABLE>
<CAPTION>
YEAR ENDED JULY 3, 1998
-------------------------------------------------
ADJUSTMENTS
NORTH AND
AMERICA EUROPE ELIMINATIONS CONSOLIDATED
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues from unaffiliated customers.... $275,606 $ 17,620 $ -- $293,226
Transfers between geographic areas...... 2,368 30 (2,398) --
-------- -------- ------- --------
Total net sales......................... $277,974 $ 17,650 (2,398) $293,226
Income (loss) from operations........... 19,954 (13,829) -- 6,125
Other income (expense), net............. 287 (297) -- (10)
-------- -------- ------- --------
Income (loss) before income taxes....... $ 20,241 $(14,126) $ -- $ 6,115
-------- -------- ------- --------
Identifiable assets..................... $114,086 $ 24,911 $ -- $138,997
======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 27, 1997
------------------------------------------------
ADJUSTMENTS
NORTH AND
AMERICA EUROPE ELIMINATIONS CONSOLIDATED
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues from unaffiliated customers.... $203,324 $13,626 $ -- $216,950
Transfers between geographic areas...... 861 841 (1,702) --
-------- ------- ------- --------
Total net sales......................... $204,185 $14,467 $(1,702) $216,950
Loss from operations.................... (55,225) (5,071) -- (60,296)
Other expense, net...................... (2,315) (66) -- (2,381)
-------- ------- ------- --------
Loss before income taxes................ $(57,540) $(5,137) $ -- $(62,677)
======== ======= ======= ========
Identifiable assets..................... $107,617 $39,714 $ -- $147,331
======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 28, 1996
--------------------------------------------------
ADJUSTMENTS
NORTH AND
AMERICA EUROPE ELIMINATIONS CONSOLIDATED
--------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues from unaffiliated
customers........................... $ 139,123 $ 2,463 $ -- $ 141,586
Transfers between geographic areas.... 312 -- (312) --
--------- -------- ----- ---------
Total net sales....................... $ 139,435 $ 2,463 $(312) $ 141,586
Loss from operations.................. (102,273) (35,533) -- (137,806)
Other income (expense), net........... (644) 34 -- (610)
--------- -------- ----- ---------
Loss before income taxes.............. $(102,917) $(35,499) $ -- $(138,416)
========= ======== ===== =========
Identifiable assets................... $ 155,730 $ 45,868 $ -- $ 201,598
========= ======== ===== =========
</TABLE>
The loss from operations includes net revenues less operating expenses. The
loss from operations in Europe for the year ended June 28, 1996 is primarily
related to the write-off of $35,892,000 of in-process research and development
in connection with the Holistic acquisition. The loss from operations in Europe
for the year ended June 27, 1997 includes approximately $7,662,000 of
amortization of intangible assets relating to the Holistic acquisition and
$2,613,000 relating to the write-off of in-process research and development for
contingent payments made to the former shareholders of Holistic during 1997. The
loss from operations in Europe for the year ended July 3, 1998 includes
approximately $9,138,000 of amortization of intangible assets
U-59
<PAGE> 743
relating to the Holistic acquisition. The identifiable assets by geographic area
are those assets used in Seagate Software's operations in each area.
Seagate Software generated export revenues from the United States of
approximately $66,250,000, $44,129,000 and $33,617,000 in 1998, 1997 and 1996,
respectively.
COMMITMENTS
LEASES. Seagate Software leases certain property, facilities and equipment
under non-cancelable lease agreements. Facility leases expire at various dates
through 2008 and contain various provisions for rental adjustments. The leases
require Seagate Software to pay property taxes, insurance and normal maintenance
costs. Seagate Software also occupies certain facilities owned by Seagate
Technology. Future minimum payments for operating leases were as follows at July
3, 1998, in thousands:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1999....................................................... $ 8,918
2000....................................................... 7,581
2001....................................................... 5,507
2002....................................................... 4,953
2003....................................................... 3,866
After 2003................................................. 35,992
-------
$66,817
=======
</TABLE>
Total rent expense for all facility and equipment operating leases was
approximately $8,023,000, $5,292,000 and $3,181,000 for 1998, 1997 and 1996,
respectively.
NON-CANCELABLE CAPITAL OBLIGATIONS. Non-cancelable capital obligations
totaled $384,291 as of July 3, 1998.
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 Ltd. 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 (the "Complaint") 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. Seagate Software believes
the Complaint has no merit and intends to vigorously defend the action. However,
if an unfavorable outcome were to arise, there can be no assurance that such
outcome would not have a material adverse 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.
U-60
<PAGE> 744
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for fiscal years 1998 and 1997
are summarized below:
The quarterly information for 1998 and 1997 has been restated to reflect
the adjustment described in the Summary of Significant Accounting Policies note.
<TABLE>
<CAPTION>
AS REPORTED
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal year 1998
Net revenues............................. $ 63,022 $ 72,344 $ 78,588 $ 79,272
Gross profit............................. 49,226 60,842 65,314 67,384
Income (loss) from operations............ (3,399) 1,343 7,015 1,946
Net income (loss)........................ (2,915) 2,353 1,757 (9,685)
Basic net income (loss) per share........ (28.12) 15.30 9.22 (46.08)
Diluted net income (loss) per share...... (28.12) 0.04 0.03 (46.08)
</TABLE>
<TABLE>
<CAPTION>
AS RESTATED
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal year 1998
Net revenues............................. $ 63,022 $ 72,344 $ 78,588 $ 79,272
Gross profit............................. 49,226 60,842 65,314 67,384
Income (loss) from operations............ (3,594) 1,148 6,820 1,751
Net income (loss)........................ (3,110) 2,158 1,562 (9,880)
Basic net income (loss) per share........ (30.00) 14.03 8.19 (47.01)
Diluted net income (loss) per share...... (30.00) 0.04 0.03 (47.01)
</TABLE>
<TABLE>
<CAPTION>
AS REPORTED
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal year 1997
Net revenues............................. $ 51,463 $ 55,136 $ 54,174 $ 56,177
Gross profit............................. 39,837 43,328 39,777 46,219
Loss from operations..................... (7,608) (9,187) (37,182) (10,056)
Net loss................................. (7,864) (8,669) (27,636) (13,531)
Basic and diluted net loss per share..... (125.82) (138.70) (442.18) (162.33)
</TABLE>
<TABLE>
<CAPTION>
AS RESTATED
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal year 1997
Net revenues............................. $ 51,463 $ 55,136 $ 54,174 $ 56,177
Gross profit............................. 39,837 43,328 39,777 46,219
Loss from operations..................... (6,523) (8,053) (35,469) (10,251)
Net loss................................. (6,779) (7,535) (25,923) (13,726)
Basic and diluted net loss per share..... (108.46) (120.56) (414.77) (164.67)
</TABLE>
U-61
<PAGE> 745
The following reconciles previously reported amounts to restated amounts by
quarter for the years ended July 3, 1998 and June 27, 1997:
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal year 1998
Net income (loss) as originally
reported........................... $(2,915) $ 2,353 $ 1,757 $(9,685)
Increase in the amortization of
goodwill and intangibles........... (195) (195) (195) (195)
------- ------- ------- -------
Net income (loss) as restated......... $(3,110) $ 2,158 $ 1,562 $(9,880)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal year 1997
Net loss as originally reported....... $(7,864) $(8,669) $(27,636) $(13,531)
Reversal of goodwill write-offs and
write-downs........................ 1,085 1,184 1,817 --
Increase in the amortization of
goodwill and intangibles........... -- (50) (104) (195)
------- ------- -------- --------
Net loss as restated.................. $(6,779) $(7,535) $(25,923) $(13,726)
======= ======= ======== ========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
U-62
<PAGE> 746
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Seagate Software and certain
information about them as of September 2, 1998, are as follows:
<TABLE>
<CAPTION>
DIRECTOR OR
EXECUTIVE
NAME AGE POSITION OFFICER SINCE
---- --- -------- -------------
<S> <C> <C> <C>
Stephen J. Luczo....... 41 Chairman of the Board of Directors 1996
Gary B. Filler......... 57 Director 1996
Lawrence Perlman....... 60 Director 1996
Donald L. Waite........ 65 Director 1996
Terence R. 39 President and Chief Operating Officer 1996
Cunningham...........
Gregory B. Kerfoot..... 38 Chief Strategic Officer 1996
Ellen E. Chamberlain... 41 Senior Vice President, Treasurer and Chief 1996
Financial Officer
</TABLE>
Mr. Luczo currently serves as Chairman of the Board of Directors of Seagate
Software and as Chief Executive Officer, President and Director of Seagate
Technology. Prior to becoming the Company's Board Chairman in July 1997, Mr.
Luczo served as the Company's Chief Operating Officer between March 1995 and
July 1997. Mr. Luczo joined Seagate Technology in October 1993 as Senior Vice
President, Corporate Development and was promoted to Executive Vice President,
Corporate Development in March 1995, where he served until September 1997. He
was promoted to President and Chief Operating Officer in September 1997, serving
in the latter capacity until August 1998. In July 1998, Mr. Luczo was promoted
to Chief Executive Officer and appointed to the Board of Directors. Before
joining Seagate Technology in 1993, Mr. Luczo was Senior Managing Director and
Co-head of the Bear Stearns and Co. Global Technology Group from February 1992
to October 1993. Mr. Luczo also serves on the Boards of Directors of Gadzoox
Microsystems, Inc. and Dragon Systems, Inc.
Mr. Filler currently serves as a Director of the Company and as Co-chairman
of the Board of Directors of Seagate Technology. Mr. Filler has held various
positions on Seagate Technology's Board of Directors, including Vice Chairman
from October 1990 until September 1991, Chairman from September 1991 until
October 1992, and Co-chairman since July 1998. Mr. Filler has been a financial
consultant since September 1996. He was Senior Vice President and Chief
Financial Officer of Diamond Multimedia Systems, Inc., a multimedia and graphics
company, from January 1995 to September 1996. From June 1994 to January 1995,
Mr. Filler was a business consultant and private investor. From February 1994
until June 1994, he served as Executive Vice President and Chief Financial
Officer of ASK Group, Inc., a computer systems company. Mr. Filler also serves
on the Board of Directors of Sento Corporation.
Mr. Perlman currently serves as a Director of the Company and as
Co-chairman of the Board of Directors of Seagate Technology. He was appointed
Chairman of the Board of Directors of Ceridian Corporation (formerly Control
Data Corporation), a technology-based services company, in November 1992. Mr.
Perlman previously held several executive positions at Ceridian Corporation,
including President and Chief Executive Officer of Imprimis Technology
Incorporated, a subsidiary of Control Data Corporation. He was a regent of the
University of Minnesota from 1992 to 1995. Mr. Perlman also serves on the Boards
of Directors of Computer Network Technology Corporation, AMDOCS Limited, and
Valspar Corporation.
Mr. Waite currently serves as a Director of the Company and as Executive
Vice President, Chief Administrative Officer, and Assistant Secretary of Seagate
Technology. Since joining Seagate Technology in 1983, Mr. Waite has served in
various roles, including Chief Financial Officer from 1983 to February 1998. He
has served as Executive Vice President and Chief Administrative Officer since
March 1995 and as Assistant Secretary since July 1998. Mr. Waite also serves on
the Boards of Directors of California Micro Devices and CVC Holdings, Inc.
U-63
<PAGE> 747
Mr. Cunningham currently serves as the Company's President and Chief
Operating Officer and as Executive Vice President and General Manager of NSMG.
He founded Crystal Computer Services, Inc. ("Crystal") in 1984 and served as its
President. In May 1994 he joined Seagate Technology in connection with its
acquisition of Crystal and continued as Crystal's President until May 1996, when
he was named President of the Storage Management Group. Later in 1996, he was
named Executive Vice President and General Manager of Seagate Software NSMG.
Since fiscal 1998 Mr. Cunningham has served as President and Chief Operating
Officer for the Company as well as Executive Vice President and General Manager
of NSMG. In his role as President and Chief Operating Officer of the Company,
Mr. Cunningham is responsible for the day to day operations of Seagate Software
and serves in a role functionally equivalent to that of a chief executive
officer of a corporation.
Mr. Kerfoot currently serves as the Company's Chief Strategic Officer and
as Executive Vice President and General Manager of IMG. He joined Crystal in
September 1988 as the Director of Research and Development and Chief Architect
of Crystal Reports. In May 1994 he joined Seagate Technology in connection with
its acquisition of Crystal and continued as Crystal's Director of Research and
Development until May 1996, when he was named President of the Information
Management Group. Later in 1996, he was named Executive Vice President and
General Manager of Seagate Software IMG. Since fiscal 1998 Mr. Kerfoot has
served as Chief Strategic Officer for the Company as well as Executive Vice
President and General Manager of IMG.
Ms. Chamberlain currently serves as the Company's Senior Vice President,
Treasurer, and Chief Financial Officer. She joined Seagate Technology in March
1985 and served in various finance positions, including Vice President and
Treasurer between November 1994 and February 1996. In March 1994, Ms.
Chamberlain began simultaneously supporting the development of the Company. She
served as the Company's Vice President between April and December 1996, when she
was promoted to Senior Vice President and Chief Financial Officer. Ms.
Chamberlain was also promoted to Treasurer of the Company in fiscal 1998 after
serving as its Assistant Treasurer since April 1996.
U-64
<PAGE> 748
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by the Company to the
President and to the three next most highly compensated executive officers of
the Company (the "Named Executive Officers") whose compensation exceeded
$100,000 in the fiscal year ended July 3, 1998.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
SECURITIES
UNDERLYING
NAME AND FISCAL OTHER ANNUAL OPTIONS
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) GRANTED(1)
------------------ ------ --------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Stephen J. Luczo................... 1998 $ 92,756(2) $ -- $ 2,971(2) 150,000
Chairman of the Board of
Directors 1997 100,000(2) 195,000(2) 1,659(2) 80,000
Terence R. Cunningham.............. 1998 155,002 803,800(3) -- 550,000
President and Chief Operating
Officer 1997 150,530 537,127(3) -- 100,000
Gregory B. Kerfoot................. 1998 151,450 803,800(3) -- 550,000
Chief Strategic Officer 1997 139,947 953,292(3) -- 100,000
Ellen E. Chamberlain............... 1998 155,002 391,500(3) 12,000 127,500
Senior Vice President, Treasurer,
and 1997 155,000 221,500(4) 6,000 28,000
Chief Financial Officer
</TABLE>
- ---------------
(1) The stock options listed in the table represent options to purchase Common
Stock of the Company. See "Executive Compensation -- Option Grants in Fiscal
1998" for additional information regarding options to purchase stock of the
Company granted during fiscal year 1998.
(2) Amount represents the percentage of Mr. Luczo's salary that directly
benefited the Company. This amount was directly paid by the Company to
Seagate Technology under a General Services Agreement. See Pushdown and
Carveout Accounting note to the Consolidated Financial Statements.
(3) Includes amounts earned under the Company's executive bonus plan.
(4) Includes amounts deferred under Seagate Technology's compensation plan.
U-65
<PAGE> 749
OPTION GRANTS IN 1998
The following table sets forth certain information concerning grants of
stock options to each of the Company's Named Executive Officers during the
fiscal year ended July 3, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL EXERCISE STOCK PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OR BASE OPTION TERM(4)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION -----------------------------
NAME GRANTED(1) FISCAL YEAR SHARE(2) DATE 5% 10%
---- ---------- --------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen J. Luczo........ 50,000 0.62% $6.00(3) 08/29/07 $ 188,668 $ 478,123
50,000 0.62% 8.75(3) 02/02/08 275,141 697,262
50,000 0.62% 12.75(3) 07/01/08 400,920 1,016,011
Terence R. Cunningham... 200,000 2.49% 6.00(3) 08/29/07 754,674 1,912,491
100,000 1.24% 8.75(3) 02/02/08 550,283 1,394,525
250,000 3.11% 12.75(3) 07/01/08 2,004,602 5,080,054
Gregory B. Kerfoot...... 200,000 2.49% 6.00(3) 08/29/07 754,674 1,912,491
100,000 1.24% 8.75(3) 02/02/08 550,283 1,394,525
250,000 3.11% 12.75 07/01/08 2,004,602 5,080,054
Ellen E. Chamberlain.... 40,000 0.50% 6.00(3) 08/29/07 150,935 382,498
25,000 0.31% 8.75(3) 02/02/08 137,571 348,631
62,500 0.78% 12.75(3) 07/01/08 501,150 1,270,014
</TABLE>
- ---------------
(1) All stock options granted in fiscal 1998 vest over four years; 20% at the
end of years one and two and 30% at the end of years three and four. Under
the Option Plan, the Company's Board retains discretion to modify the terms,
including the price, of outstanding options.
(2) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock on the grant date, as determined by the
Compensation Committee of the Board of Directors of Seagate Software. To
determine the fair market value of the Company's Common Stock, the
Compensation Committee of the Board of Directors considers a number of
factors, including, but not limited to, the Company's current financial
performance and prospects for future growth and profitability, the status of
product releases and product integration, the absence of a resale market for
the Company's Common Stock, the liquidity preferences of the Company's
Series A Preferred Stock, the control position held by Seagate Technology,
and comparisons of certain key valuation metrics for the Company with
similar metrics for comparable publicly traded companies, including measures
of market capitalization based on revenue multiples, price-to-earnings
ratios and operating margins.
(3) Exercise price and withholding obligations may be paid in cash or by
delivery of already-owned shares subject to certain conditions.
(4) Potential realizable value is based on the assumption that the Company's
Common Stock appreciates at the annual rate shown (compounded annually) from
the date of grant until the expiration of the ten year option term. These
numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's estimate
of future stock price growth.
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<PAGE> 750
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information regarding the exercise
of stock options in the last fiscal year by the persons named in the Summary
Compensation Table and the value of options held by such individuals at the end
of the fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT 1998 YEAR END AT 1998 YEAR END(2)
ACQUIRED RECEIVED --------------------------- ---------------------------
NAME ON EXERCISE $(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen J. Luczo........ -- $ -- 34,000 216,000 $245,500 $1,007,000
Terence R. Cunningham... 400,000 200,000 -- 350,000 -- 400,000
Gregory B. Kerfoot...... -- -- 100,000 650,000 755,000 2,545,000
Ellen E. Chamberlain.... 12,000 12,800 14,400 161,100 110,000 635,200
</TABLE>
- ---------------
(1) Market value of the Company's Common Stock at the exercise date minus the
exercise price.
(2) Market value of the Company's Common Stock at fiscal year end minus the
exercise price. The fair market value of Seagate Software Common Stock on
July 3, 1998, as determined by the Compensation Committee of the Board of
Directors, was $12.75 per share. To determine the fair market value of the
Company's Common Stock, the Compensation Committee of the Board of Directors
considers a number of factors, including, but not limited to, the Company's
current financial performance and prospects for future growth and
profitability, the status of product releases and product integration, the
absence of a resale market for the Company's Common Stock, the liquidity
preferences of the Company's Preferred Stock, the control position held by
Seagate Technology, and comparisons of certain key valuation metrics for the
Company with similar metrics for comparable publicly traded companies,
including measures of market capitalization based on revenue multiples,
price-to-earnings ratios and operating margins.
EMPLOYMENT CONTRACTS, CHANGE-OF-CONTROL ARRANGEMENTS AND SEPARATION AGREEMENTS
The Company currently has no employment contracts with any of the Named
Officers who are currently employees of the Company, and the Company has no
compensatory plan or arrangement with such current Named Officers where the
amount to be paid exceeds $100,000 and which are activated upon resignation,
termination or retirement of any such Named Officer upon a change in control of
the Company.
In July 1998, Seagate Technology entered into a Separation Agreement and
Release with Alan F. Shugart pursuant to which Mr. Shugart is entitled to
receive $2.25 million in compensation (of which none will be paid by the
Company) plus certain benefits, the right to certain deferred compensation and
the continued vesting and lapse of repurchase rights in shares of the Parent
Company's common stock. In addition, options to purchase 88,000 shares of the
Company's common stock with exercise prices ranging from $4.00 to $12.75
previously granted to Mr. Shugart by the Company vested in full and will remain
exercisable until August 19, 2001.
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<PAGE> 751
DIRECTOR COMPENSATION
Directors receive no additional cash compensation for service on the Board
of Directors and any of its committees or sub-committees. The following table
sets forth certain information concerning grants of stock options to each of the
Company's directors during the fiscal year ended July 3, 1998.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE OR
SECURITIES UNDERLYING BASE PRICE
NAME OPTIONS GRANTED(1) PER SHARE(2)
---- --------------------- ------------
<S> <C> <C>
Alan F. Shugart(3)............................ 30,000 $ 6.00
15,000 8.75
25,000 12.75
Stephen J. Luczo.............................. 50,000 6.00
50,000 8.75
50,000 12.75
Donald L. Waite............................... -- --
Gary B. Filler................................ 15,000 6.00
Lawrence Perlman.............................. 15,000 6.00
</TABLE>
- ---------------
(1) All stock options granted in fiscal 1998 vest over four years; 20% at the
end of years one and two and 30% at the end of years three and four. Under
the Option Plan, the Company's Board retains discretion to modify the terms,
including the price, of outstanding options.
(2) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock on the grant date, as determined by the
Compensation Committee of the Board of Directors of Seagate Software. To
determine the fair market value of the Company's Common Stock, the
Compensation Committee of the Board of Directors considers a number of
factors, including, but not limited to, the Company's current financial
performance and prospects for future growth and profitability, the status of
product releases and product integration, the absence of a resale market for
the Company's Common Stock, the liquidity preferences of the Company's
Series A Preferred Stock, the control position held by Seagate Technology,
and comparisons of certain key valuation metrics for the Company with
similar metrics for comparable publicly traded companies, including measures
of market capitalization based on revenue multiples, price-to-earnings
ratios and operating margins.
(3) Mr. Shugart resigned as a director of the Company effective August 6, 1998
pursuant to the terms of the Separation Agreement and Release between
Seagate Technology, Inc. and Mr. Shugart.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission
("Commission"). Executive officers, directors and greater than ten percent
stockholders are required by the Commission's regulation to furnish the Company
with copies of all Section 16(a) forms they file. Based solely on its review of
the copies of such forms received by it, or written representations from certain
reporting persons, the Company believes that with the exception noted below,
during the period from December 2, 1997 to July 3, 1998, its executive officers
and directors complied with all filing requirements. The Company was delinquent
in filing the initial reports on Form 3 by such persons due upon the
effectiveness of the Company's Registration Statement on Form 10 but filed such
reports later in December 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding shares of Common Stock and Series A
Preferred Stock on an as-converted basis (collectively with the Common Stock,
the "Common Equivalent Shares") as of July 3, 1998 by (i) each person who is
known to the Company to be the beneficial owner of 5% or more of the Company's
outstanding Common Equivalent Shares, (ii) each of the Company's executive
officers named in the Summary Compensation Table at Item 11,
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<PAGE> 752
(iii) each of the Company's directors in office as of July 3, 1998, and (iv) all
directors and executive officers as of July 3, 1998 as a group.
<TABLE>
<CAPTION>
NUMBER OF COMMON PERCENT OF COMMON
EQUIVALENT SHARES EQUIVALENT SHARES(1)
----------------- --------------------
<S> <C> <C>
Seagate Technology, Inc.(2)................ 54,695,833 98.4%
920 Disc Drive
Scotts Valley, CA 95066
Alan F. Shugart(3)......................... 54,795,833 98.5%
Stephen J. Luczo(4)........................ 54,729,833 98.4%
Donald L. Waite(5)......................... 54,715,833 98.4%
Gary B. Filler(6).......................... 54,706,833 98.4%
Lawrence Perlman(7)........................ 54,706,833 98.4%
Ellen E. Chamberlain(8).................... 26,400 *
Terence R. Cunningham(9)................... 400,000 *
Gregory B. Kerfoot(10)..................... 100,000 *
All directors and executive officers as a
group (8 persons)(11).................... 55,398,233 99.6%
</TABLE>
- ---------------
* Less than one percent.
(1) Applicable percentage ownership is based on 55,608,900 Common Equivalent
Shares outstanding as of July 3, 1998 together with applicable options for
such stockholder. The Company's Series A Preferred Stock is reflected on an
as-converted basis assuming a 1:1 conversion. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission based on factors including voting and investment power with
respect to shares subject to applicable community property laws. Common
Equivalent Shares subject to options currently exercisable or exercisable
within 60 days after July 3, 1998 are deemed outstanding for computing the
percentage ownership of the person holding such options, but are not deemed
outstanding for computing the percentage of any other person.
(2) Includes 7,200,000 shares of Class B Exchangeable Shares of Seagate
Software Information Management Group (Canada), Inc., Vancouver, British
Columbia ("IMG Vancouver"), which may be exchanged at the option of the
holder, Seagate Technology International, a subsidiary of the Parent
Company, for an equal number of shares of Series A Preferred Stock of the
Company within 60 days of July 3, 1998. Excludes 176,000 shares of the
Company's Common Stock held by or issuable pursuant to options granted to
Messrs. Shugart, Luczo, Waite, Filler and Perlman over which Seagate
Technology does not possess sole or shared voting or investment control and
therefore of which Seagate Technology disclaims beneficial ownership.
(3) Includes 88,000 shares of Common Stock that may be acquired upon the
exercise of stock options exercisable within 60 days after July 3, 1998.
Includes 54,695,833 shares of Series A Preferred Stock (and 7,200,000
shares of Class B Exchangeable Shares of IMG Vancouver) beneficially owned
by Seagate Technology to which Mr. Shugart may be deemed, in his capacity
as an officer of Seagate Technology, to have shared power to vote or
dispose of. However, Mr. Shugart disclaims such beneficial ownership. Mr.
Shugart resigned as a director of the Company effective August 6, 1998.
(4) Includes 34,000 shares of Common Stock that may be acquired upon the
exercise of stock options exercisable within 60 days after July 3, 1998.
Includes 54,695,833 shares of Series A Preferred Stock (and 7,200,000
shares of Class B Exchangeable Shares of IMG Vancouver) beneficially owned
by Seagate Technology to which Mr. Luczo may be deemed, in his capacity as
an officer of Seagate Technology, to have shared power to vote or dispose
of. However, Mr. Luczo disclaims such beneficial ownership.
(5) Includes 12,000 shares of Common Stock that are subject to repurchase by
the Company. The Company's repurchase right lapses for 6,000 and 6,000
shares on April 4, 1999 and 2000, respectively. Includes 54,695,833 shares
of Series A Preferred Stock (and 7,200,000 shares of Class B Exchangeable
Shares of IMG Vancouver) beneficially owned by Seagate Technology to which
Mr. Waite may be
U-69
<PAGE> 753
deemed, in his capacity as an officer of Seagate Technology, to have shared
power to vote or dispose of. However, Mr. Waite disclaims such beneficial
ownership.
(6) Includes 11,000 shares of Common Stock that may be acquired upon the
exercise of stock options exercisable within 60 days after July 3, 1998.
Includes 54,695,833 shares of Series A Preferred Stock (and 7,200,000
shares of Class B Exchangeable Shares of IMG Vancouver) beneficially owned
by Seagate Technology to which Mr. Filler may be deemed, in his capacity as
a director of Seagate Technology, to have shared power to vote or dispose
of. However, Mr. Filler disclaims such beneficial ownership.
(7) Includes 11,000 shares of Common Stock that may be acquired upon the
exercise of stock options exercisable within 60 days after July 3, 1998.
Includes 54,695,833 shares of Series A Preferred Stock (and 7,200,000
shares of Class B Exchangeable Shares of IMG Vancouver) beneficially owned
by Seagate Technology to which Mr. Perlman may be deemed, in his capacity
as a director of Seagate Technology, to have shared power to vote or
dispose of. However, Mr. Perlman disclaims such beneficial ownership.
(8) Includes 14,400 shares of Common Stock that may be acquired upon the
exercise of stock options exercisable within 60 days after July 3, 1998.
(9) Includes 260,000 shares of Common Stock that are subject to repurchase by
the Company on various dates through 2001.
(10) Includes 100,000 shares of Common Stock that may be acquired upon the
exercise of stock options exercisable within 60 days after July 3, 1998.
(11) Includes 258,400 shares of Common Stock that may be acquired upon the
exercise of stock options exercisable within 60 days after July 3, 1998.
See notes 2 through 7 to this table regarding reporting of shares held by
Seagate Technology.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a General Services Agreement between the Company and Seagate
Technology dated June 28, 1997 (the "General Services Agreement"), Seagate
Technology provides administrative, accounting and similar services requested by
the Company. The services provided by Seagate Technology may include, but are
not limited to: (i) providing general accounting services, budgeting,
forecasting, cost control and other financial planning services; (ii) assisting
with employee benefits administration, hiring and payroll administration; (iii)
providing legal and government relations services such as preparing applications
for export licenses; (iv) tax analysis, documentation, reporting and withholding
for customs duties, import taxes, value-added taxes, and any other charges or
taxes imposed on the Company's products; (v) assisting the Company with federal,
state, and international tax planning, provisions, audits, and compliance,
including income, sales and use, property, VAT, and similar taxes; (vi)
providing assistance relating to the marketing, promotion, and sale of the
Company's products; (vii) providing services and support relating to information
technology and facilities; and (viii) managerial oversight, including screening
of potential acquisitions, partnerings, joint ventures, or similar transactions.
During 1998, 1997 and 1996 Seagate Technology charged the Company
$1,773,000, $1,958,000 and $2,260,000, respectively, for various corporate
services. The Company pays service fees to the Parent Company each fiscal year
that represent a reasonable estimate of the Parent Company's direct and indirect
costs incurred in performing services for the Company. Service fees are to be
paid in equal monthly installments within 30 days after the end of the month.
Additionally, the Company and Seagate Technology are required to review, on an
annual basis, the actual level of services provided and the corresponding
reasonably determinable direct and indirect costs incurred by the Parent Company
pursuant to the General Services Agreement. If the reasonably determinable costs
are greater than or less than the service fees paid, the difference will be
charged to or refunded to the Company, as the case may be, within 30 days after
such review.
The service fees assessed to the Company and the end of period adjustments
thereto are intended by the Company and Seagate Technology to allocate costs for
those services provided on a basis no less favorable
U-70
<PAGE> 754
than the Company could obtain from an unaffiliated third party. The Company has
audit rights with respect to the computation and analysis of service fees
pursuant to the General Services Agreement. In addition, the Parent Company is
required to indemnify, defend and hold the Company harmless against any and all
claims, suits, actions, demands, proceedings, losses, damages, liabilities,
costs and expenses, including, without limitation, interest and reasonable
attorneys' fees, arising out of, relating to, or resulting from services
performed by the Parent Company pursuant to the General Services Agreement,
other than those liabilities that would not have arisen but for any act, error
and/or omission of the Company and/or any of its officers, directors, employees
and/or agents.
Additionally, on July 4, 1998, the Company and Seagate Technology renewed
the Intercompany Revolving Loan Agreement ("Loan Agreement") on substantially
the same terms and conditions as the prior agreement which was dated June 28,
1996. Under the Revolving Loan Agreement, Seagate Technology finances certain of
the Company's working capital requirements. The Loan Agreement provides for
maximum borrowings of up to $60,000,000 and is renewable every two years.
Borrowings from the Parent Company were $16,054,000 and $28,971,000 at July 3,
1998 and June 27, 1997, respectively. Borrowings from the Parent Company consist
primarily of funding the Company's operating activities. During 1998, gross
borrowings and gross repayments under the Loan Agreement were $175,919,000 and
$188,836,000, respectively. Average outstanding borrowings under the Loan
Agreement were $14,656,000 during 1998. Beginning in fiscal 1999, the Company
will pay interest at the LIBOR rate plus 2% per annum on such borrowings; the
Company previously paid interest at 6%.
Revenues from the Parent Company were $5,469,000, $5,762,000 and $9,374,000
in fiscal 1998, 1997 and 1996, respectively. This revenue primarily consisted of
shipments to Seagate Technology's OEM tape drive divisions located in Costa
Mesa, California and Scotland. Additionally, this revenue is supported by
license agreements, which have comparable terms and pricing as those agreements
between the Company and third party customers.
The Company is included in the consolidated federal and certain combined
and consolidated foreign and state income tax returns of Seagate Technology.
Seagate Technology and the Company have entered into a tax sharing agreement
(the "Tax Allocation Agreement") pursuant to which the Company computes
hypothetical tax returns as if the Company was not joined in consolidated or
combined returns with Seagate Technology. The Company must pay Seagate
Technology the positive amount of any such hypothetical taxes. If the
hypothetical tax returns show entitlement to refunds, including any refunds
attributable to a carryback, then Seagate Technology will pay the Company the
amount of such refunds. At year end for both 1998 and 1997, there were no
outstanding intercompany tax-related balances between the Company and Seagate
Technology.
U-71
<PAGE> 755
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1.Financial Statements. The consolidated financial statements of Seagate
Software and subsidiaries and supplemental schedule of the registrant
as set forth under Item 8 are filed as part of this Form 10-K/A.
2. Financial Statement Schedules. The following consolidated financial
statement schedules of Seagate Software and subsidiaries are filed as part of
this Form 10-K/A and should be read in conjunction with the consolidated
financial statements of Seagate Software and subsidiaries.
<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C>
Schedule II -- Valuation and Qualifying Accounts............ 74
</TABLE>
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.
The independent auditors' report with respect to the above-listed
financial statements and schedules appears on page 25 of this report on
Form 10-K/A.
3. Exhibits
<TABLE>
<S> <C>
3.1+ Certificate of Incorporation of Registrant, as amended
3.2+ Bylaws of Registrant, as amended
4.1+ Voting Agreement dated December 26, 1996 among the
Registrant, Seagate Software Information Management Group,
Inc. and Seagate Technology International Holdings
10.1+ 1996 Stock Option Plan, as amended, form of Stock Option
Agreement and form of Amendment to Stock Option Agreement
10.2(A) Seagate Technology, Inc. Employee Stock Purchase Plan, as
amended
10.3+ Lease Agreement, dated December 27, 1994, between the
Registrant and Clover Investments, Inc.
10.4+ Lease Agreement, dated March 21, 1996 between the Registrant
and 400 International Parkway Development Company
10.5*+ General Services Agreement dated June 28, 1997 between the
Registrant and Seagate Technology, Inc.
10.6+ Tax Allocation Agreement dated April 4, 1996 between the
Registrant and Seagate Technology, Inc.
10.7+ Intercompany Revolving Loan Agreement dated June 28, 1996
between the Registrant and Seagate Technology, Inc.
10.7.1(A) Amendment No. 1 dated July 4, 1998 to Intercompany Revolving
Loan Agreement between the Registrant and Seagate
Technology, Inc.
10.8+ Form of Indemnification Agreement entered into between the
Registrant and its directors and officers
10.9+ Support Agreement dated December 26, 1996 between the
Registrant and Seagate Software Information Management
Group, Inc.
10.10(A) Lease Agreement dated as of November 1, 1997 by and among
Seagate Technology, Inc., Seagate Software Information
Management Group, Inc. and No. 163 Cathedral Ventures Ltd.
</TABLE>
U-72
<PAGE> 756
<TABLE>
<S> <C>
10.11(A) Separation Agreement and Release dated July 29, 1998 between
Seagate Technology, Inc. and Alan F. Shugart
13.1+ Holistic Systems Ltd. (now Seagate Software Information
Management Group Limited) Statements of Consolidated Profits
and Cash Flows and Related Notes Year Ended 31 March 1996
21.1(A) Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1(A) Power of Attorney
27.1 Amended Financial Data Schedule
27.2 Amended Financial Data Schedule
</TABLE>
- ---------------
* Confidential treatment has been requested for a portion of this exhibit
pursuant to a request for confidential treatment filed with the Securities
and Exchange Commission. Omitted portions have been filed separately with
the Commission.
+ Incorporated by reference to exhibits filed in response to Item 15(a),
"Exhibits" to the Registrant's Registration Statement on Form 10 as filed
with the Securities and Exchange Commission on October 3, 1997 as amended on
December 11, 1997.
(A) Incorporated by reference to exhibits filed in connection with Seagate
Technology's Annual Report on Form 10-K for the fiscal year ended July 3,
1998 as filed with the Securities and Exchange Commission on August 21, 1998
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the quarter
ended July 3, 1998.
U-73
<PAGE> 757
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amended report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
SEAGATE SOFTWARE, INC.
By: *
------------------------------------
Terence R. Cunningham
President and Chief Operating
Officer
Dated: April 16, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amended report on Form 10-K has been signed by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
* President and Chief April 16, 1999
- ----------------------------------------------------- Operating Officer
(Terence R. Cunningham)
* Chief Strategic Officer April 16, 1999
- -----------------------------------------------------
(Gregory B. Kerfoot)
/s/ ELLEN E. CHAMBERLAIN Senior Vice President, April 16, 1999
- ----------------------------------------------------- Treasurer and Chief
(Ellen E. Chamberlain) Financial Officer
* Chairman of the Board April 16, 1999
- ----------------------------------------------------- of Directors
(Stephen J. Luczo)
* Director April 16, 1999
- -----------------------------------------------------
(Gary B. Filler)
* Director April 16, 1999
- -----------------------------------------------------
(Lawrence Perlman)
* Director April 16, 1999
- -----------------------------------------------------
(Donald L. Waite)
</TABLE>
*By: /s/ Ellen E. Chamberlain
------------------------------------------------------
Ellen E. Chamberlain
Attorney-in-fact
U-74
<PAGE> 758
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND DEDUCTIONS- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE(1) PERIOD
----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED JULY 3, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts............ $1,270,000 $1,177,000 $811,000 $1,636,000
========== ========== ======== ==========
YEAR ENDED JUNE 27, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts............ $ 597,000 $1,522,000 $849,000 $1,270,000
========== ========== ======== ==========
YEAR ENDED JUNE 28, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts............ $ 405,000 $ 408,000 $216,000 $ 597,000
========== ========== ======== ==========
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
U-75
<PAGE> 759
APPENDIX V
- --------------------------------------------------------------------------------
---------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED OCTOBER 2, 1998
COMMISSION FILE NO. 000-23169
-----------------------------
SEAGATE SOFTWARE, INC.
(REGISTRANT)
-----------------------------
INCORPORATED IN THE STATE OF DELAWARE
I.R.S. EMPLOYER IDENTIFICATION NUMBER 77-0397623
915 DISC DRIVE, SCOTTS VALLEY, CALIFORNIA 95066
TELEPHONE: (831) 438-6550
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ]
The number of shares outstanding of the registrant's Common Stock as of
October 2, 1998 was 1,030,362.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
V-1
<PAGE> 760
INDEX
SEAGATE SOFTWARE, INC.
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of October 2, 1998
(unaudited) and July 3, 1998................................ V-3
Condensed Consolidated Statements of Operations for the
three months ended October 2, 1998 and October 3, 1997
(unaudited)................................................. V-4
Condensed Consolidated Statements of Cash Flows for the
three months ended October 2, 1998 and October 3, 1997
(unaudited)................................................. V-5
Notes to the Condensed Consolidated Financial Statements
(unaudited)................................................. V-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... V-12
Item 3. Quantitative and Qualitative Disclosures about Market
Risks....................................................... V-24
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... V-24
Item 6. Exhibits and Reports on Form 8-K............................ V-25
SIGNATURES.................................................. V-26
</TABLE>
V-2
<PAGE> 761
SEAGATE SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 2, 1998 JULY 3, 1998
--------------- ------------
(UNAUDITED) (1)
<S> <C> <C>
ASSETS
Cash........................................................ $ 10,418 $ 15,130
Accounts receivable, net.................................... 44,416 46,564
Inventories................................................. 776 1,117
Other current assets........................................ 4,386 2,474
-------- --------
Total current assets.............................. 59,996 65,285
Equipment and leasehold improvements, net................... 15,257 16,876
Goodwill and other intangibles, net......................... 50,781 56,836
-------- --------
Total assets...................................... $126,034 $138,997
======== ========
LIABILITIES
Loan payable to Seagate Technology.......................... $ 3,895 $ 16,054
Accounts payable............................................ 11,795 10,994
Accrued employee compensation............................... 14,100 14,365
Accrued expenses............................................ 17,080 15,339
Accrued income taxes........................................ 652 5,562
Deferred revenue............................................ 14,208 13,714
-------- --------
Total current liabilities......................... 61,730 76,028
Deferred income taxes....................................... 1,343 1,691
Other liabilities........................................... 284 255
-------- --------
Total liabilities................................. 63,357 77,974
Common stock subject to repurchase.......................... 3,899 3,917
STOCKHOLDERS' EQUITY
Convertible preferred stock................................. 55 55
Common stock................................................ -- --
Additional paid-in capital.................................. 344,744 343,526
Accumulated deficit......................................... (285,561) (286,218)
Foreign currency translation adjustment..................... (460) (257)
-------- --------
Total stockholders' equity........................ 58,778 57,106
-------- --------
Total liabilities and stockholders' equity........ $126,034 $138,997
======== ========
</TABLE>
- ---------------
(1) The information in this column was derived from the Company's audited
consolidated balance sheet as of July 3, 1998.
See notes to condensed consolidated financial statements.
V-3
<PAGE> 762
SEAGATE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
OCTOBER 2, OCTOBER 3,
1998 1997
----------- ----------
<S> <C> <C>
Revenues:
Licensing................................................. $ 58,671 $ 51,797
Licensing from Seagate Technology......................... 2,156 1,000
Maintenance, support and other............................ 14,048 10,225
----------- --------
Total revenues.................................... 74,875 63,022
Cost of revenues:
Licensing................................................. 2,935 4,969
Licensing from Seagate Technology......................... 129 285
Maintenance, support and other............................ 6,430 4,600
Amortization of developed technologies.................... 2,866 3,942
----------- --------
Total cost of revenues............................ 12,360 13,796
----------- --------
Gross profit................................................ 62,515 49,226
Operating expenses:
Sales and marketing....................................... 36,007 28,697
Research and development.................................. 12,787 11,393
General and administrative................................ 8,940 9,079
Amortization of goodwill and other intangibles............ 3,393 3,651
----------- --------
Total operating expenses.......................... 61,127 52,820
----------- --------
Income (loss) from operations............................... 1,388 (3,594)
Interest expense............................................ (156) (300)
Other, net.................................................. 468 165
----------- --------
Interest and other, net........................... 312 (135)
----------- --------
Income (loss) before income taxes........................... 1,700 (3,729)
Benefit from (provision for) income taxes................... (1,043) 619
----------- --------
Net income (loss)........................................... $ 657 $ (3,110)
=========== ========
Net income (loss) per common share:
Basic..................................................... $ 2.39 $ (30.00)
Diluted................................................... $ 0.01 $ (30.00)
Number of shares used in per share computations:
Basic..................................................... 275,314 103,659
Diluted................................................... 59,984,218 103,659
</TABLE>
See notes to condensed consolidated financial statements.
V-4
<PAGE> 763
SEAGATE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
OCTOBER 2, OCTOBER 3,
OPERATING ACTIVITIES 1998 1997
-------------------- ---------- ----------
<S> <C> <C>
Net income (loss)........................................... $ 657 $ (3,110)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 8,442 10,440
Deferred income taxes.................................. (348) (1,507)
Write-offs due to restructure.......................... -- 553
Changes in operating assets and liabilities:
Accounts receivable.................................. 2,148 (2,702)
Inventories.......................................... 341 831
Other current assets................................. (1,912) 73
Accounts payable..................................... 801 (607)
Accrued employee compensation........................ (265) 717
Accrued expenses..................................... 1,741 (4,152)
Accrued income taxes................................. (4,810) (512)
Deferred revenue..................................... 494 443
Other liabilities.................................... 29 (24)
-------- --------
Net cash provided by operating activities.............. 7,318 443
INVESTING ACTIVITIES
Acquisition of equipment and leasehold improvements, net.... (572) (1,948)
Acquisition of intangibles.................................. (204) --
-------- --------
Net cash used in investing activities.................. (776) (1,948)
FINANCING ACTIVITIES
Sale of common stock........................................ 278 169
Borrowings from Seagate Technology.......................... 65,686 58,784
Payments to Seagate Technology.............................. (77,023) (60,320)
-------- --------
Net cash used in financing activities.................. (11,059) (1,367)
Effect of exchange rate changes on cash..................... (195) (38)
-------- --------
Decrease in cash....................................... (4,712) (2,910)
Cash at the beginning of the period......................... 15,130 12,085
-------- --------
Cash at the end of the period............................... $ 10,418 $ 9,175
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.................................... $ -- $ 14
Cash paid for income taxes................................ 5,201 991
</TABLE>
See notes to condensed consolidated financial statements.
V-5
<PAGE> 764
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated condensed financial statements have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes the
disclosures included in the unaudited condensed consolidated financial
statements, when read in conjunction with the consolidated financial statements
of the Company as of July 3, 1998 and notes thereto, are adequate to make the
information presented not misleading.
The condensed consolidated financial statements reflect, in the opinion of
management, all normal recurring adjustments necessary to summarize fairly the
consolidated financial position, results of operations and cash flows for such
periods.
The results of operations for the three months ended October 2, 1998 are
not necessarily indicative of the results that may be expected for the fiscal
year ending July 2, 1999.
The Company operates and reports financial results on a fiscal year of 52
or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 1998
was 53 weeks and ended on July 3, 1998 and fiscal 1999 will be 52 weeks and will
end on July 2, 1999. All references to years in this Form 10-Q/A represent
fiscal years unless otherwise noted.
RESTATEMENT OF FINANCIAL STATEMENTS. Seagate Software had previously
allocated a portion of goodwill to developed technology and evaluated the
impairment of goodwill based on the revenues from the related software. Seagate
Software recorded write-downs and write-offs of goodwill in fiscal 1997 in the
amount of $10,259,000. Using this method, Seagate Software has re-evaluated its
methodology and determined that goodwill should not be allocated to developed
technology under guidance of the Accounting Principles Board Opinion 17,
"Intangible Assets". As a result, Seagate Software has made adjustments to
decrease the amounts of goodwill previously written-down and written-off from
$10,259,000 to $6,173,000 in fiscal 1997. The additional goodwill of $4,086,000
is being amortized over the remaining estimated useful lives of approximately 5
years.
The effect of this adjustment on previously reported consolidated financial
statements as of and for the three months ended October 2, 1998 and October 3,
1997 is as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
AS REPORTED AS RESTATED
----------------------- -----------------------
OCTOBER 2, OCTOBER 3, OCTOBER 2, OCTOBER 3,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Amortization of goodwill and other
intangibles................................... $ 3,198 $ 3,456 $ 3,393 $ 3,651
Income(loss) from operations.................... 1,583 (3,399) 1,388 (3,594)
Net income (loss)............................... 852 (2,915) 657 (3,110)
Basic income (loss) per share................... 3.09 (28.12) 2.39 (30.00)
Diluted income (loss) per share................. 0.01 (28.12) 0.01 (30.00)
Goodwill and other intangible assets, net....... 48,019 67,729 50,781 71,271
Accumulated deficit............................. (288,323) (283,600) (285,561) (280,058)
</TABLE>
REVENUE RECOGNITION. The Company's revenues are primarily derived from the
sale of product licenses, software maintenance, technical support, training and
consulting. During the first quarter of 1999, the Company began recognizing
license revenues in accordance with the American Institute of Certified Public
Accountants Statement of Position 97-2, "Software Revenue Recognition". Revenues
from software license agreements are generally recognized at the time of product
delivery, provided that fees are fixed or
V-6
<PAGE> 765
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
determinable, evidence of an arrangement exists, collectibility is probable and
the Company has vendor-specific objective evidence of fair value. Service
revenues from customer maintenance fees for ongoing customer support and product
updates are recognized ratably over the maintenance term, which is typically 12
months. Service revenues from training and consulting are recognized when such
services are performed.
Revenues from resellers including VARs, OEMs, Distributors and Seagate
Technology, are primarily recognized at the time of product delivery to the
reseller. The Company's policy is to defer such revenues if resale contingencies
exist. Factors considered in the determination of whether such contingencies
exist, including but are not limited to payment terms, collectibility and past
history with the customer.
Product returns are reserved for in accordance with SFAS 48. Such returns
are estimated based on historical return rates. The Company considers other
factors such as fixed and determinable fees, resale contingencies, arms length
contract terms and the ability to reasonably estimate returns to insure
compliance with SFAS 48. Additionally, Seagate Software continually reviews its
estimated product return provisions to ensure that they are reasonable in
relation to actual product returns, which are quantified based on approved
return authorization forms received prior to fiscal cutoff dates. Historically,
Seagate Software's estimated product return rates have not varied materially
from actual product return rates.
NET INCOME (LOSS) PER SHARE. Basic net income (loss) per common share is
computed using the weighted average number of shares of common stock outstanding
during the period. For periods in which the Company had losses, common
equivalent shares from stock options, shares subject to repurchase and
convertible preferred stock are excluded from the computation of diluted net
loss per share, as their effect is antidilutive. Below is a reconciliation of
the numerator and denominator used to calculate basic and diluted earnings per
share (in thousands, except share and per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
OCTOBER 2, OCTOBER 3,
1998 1997
----------- ----------
<S> <C> <C>
Basic net income (loss) per share computation:
Numerator:
Net income (loss)...................................... $ 657 $ (3,110)
----------- --------
Denominator:
Weighted average number of common shares outstanding
during the period...................................... 275,314 103,659
----------- --------
Net income (loss) per share -- basic................. $ 2.39 $ (30.00)
----------- --------
Diluted net income (loss) per share computation:
Numerator:
Net income (loss)...................................... $ 657 $ (3,110)
----------- --------
Denominator:
Weighted average number of common shares outstanding
during the period...................................... 275,314 103,659
Convertible preferred stock............................... 54,633,333 --
Incremental common shares attributable to exercise of
outstanding options and shares subject to repurchase
(assuming proceeds would be used to purchase treasury
stock)................................................. 5,075,571 --
----------- --------
59,984,218 103,659
----------- --------
Net income (loss) per share -- diluted............... $ 0.01 $ (30.00)
=========== ========
</TABLE>
For the period ended October 3, 1997, 11,332 shares of common stock subject
to repurchase at an average exercise price of $6.00 per share and options to
purchase 7,789,770 shares of common stock at an average
V-7
<PAGE> 766
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
exercise price of $5.24 per share were excluded from the computation of diluted
earnings per share because the effect would have been antidilutive.
ACCOUNTS RECEIVABLE. Accounts receivable are summarized below, in
thousands:
<TABLE>
<CAPTION>
OCTOBER 2, 1998 JULY 3, 1998
--------------- ------------
<S> <C> <C>
Accounts receivable............................... $46,126 $48,200
Less allowance for non-collection................. (1,710) (1,636)
------- -------
$44,416 $46,564
======= =======
</TABLE>
EQUIPMENT AND LEASEHOLD IMPROVEMENTS. Equipment and leasehold improvements
consisted of the following, in thousands:
<TABLE>
<CAPTION>
OCTOBER 2, JULY 3,
1998 1998
---------- --------
<S> <C> <C>
Equipment.............................................. $ 32,431 $ 30,999
Leasehold improvements................................. 8,495 9,424
-------- --------
40,926 40,423
Less accumulated depreciation and amortization......... (25,669) (23,547)
-------- --------
$ 15,257 $ 16,876
======== ========
</TABLE>
GOODWILL AND OTHER INTANGIBLES. Goodwill and other intangibles consisted of
the following, in thousands:
<TABLE>
<CAPTION>
OCTOBER 2, JULY 3,
1998 1998
---------- --------
<S> <C> <C>
Goodwill............................................... $ 49,054 $ 49,039
Developed technology................................... 48,239 48,049
Trademarks............................................. 9,972 9,972
Assembled workforce.................................... 4,596 4,596
Distribution network................................... 2,925 2,925
Other intangibles...................................... 13,813 13,813
-------- --------
128,599 128,394
Accumulated amortization............................... (77,818) (71,558)
-------- --------
Goodwill and other intangibles......................... $ 50,781 $ 56,836
======== ========
</TABLE>
COMMON STOCK SUBJECT TO REPURCHASE. Current employees and directors of the
Company and of Seagate Technology have exercised 732,042 shares of common stock
under the 1996 Stock Option Plan (the "Option Plan"). At October 2, 1998,
279,242 shares were vested and 452,800 shares were unvested. At the option of
the employee or director, within 30 days of termination such vested and unvested
shares may be sold back to the Company at the original issue price. In addition,
upon termination, unvested shares are subject to repurchase at the option of the
Company at original issue price. Because of the obligation to repurchase vested
and unvested shares of common stock, the Company has excluded the amounts
associated with the repurchase obligation from Stockholders' Equity in the
accompanying balance sheet. At October 2, 1998, the repurchase obligation
amounted to $3,899,000.
NEW ACCOUNTING PRONOUNCEMENTS
The Company intends to adopt Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131") during fiscal 1999. This standard will require additional
disclosure, but will not have a material effect on the Company's financial
position or
V-8
<PAGE> 767
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
results of operations. SFAS 131 changes the way companies report segment
information and requires segments to be determined based on how management
measures performance and makes decisions about allocating resources. SFAS 131
will first be reflected in the Company's 1999 Annual Report on Form 10-K.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance on capitalization of the costs incurred for computer software developed
or obtained for internal use. It also provides guidance for determining whether
computer software is internal-use software and on accounting for the proceeds of
computer software originally developed or obtained for internal use and then
subsequently sold to the public. The Company has not yet determined the impact,
if any, of adopting this statement. The disclosures prescribed by SOP 98-1 will
be effective for the Company's consolidated financial statements for the fiscal
year ending June 30, 2000.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that derivatives
be recognized in the balance sheet at fair value and specifies the accounting
for changes in fair value. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999, and will be effective for the
Company's fiscal year 2000. The Company generally does not use derivative
financial instruments.
STOCKHOLDERS' EQUITY
Shares authorized and outstanding are as follows:
<TABLE>
<CAPTION>
SHARES OUTSTANDING
------------------------
OCTOBER 2, JULY 3,
1998 1998
---------- ----------
<S> <C> <C>
Preferred stock, par value $.001 per share,
73,000,000 shares authorized...................... 54,633,333 54,633,333
Common stock, par value $.001 per share, 95,600,000
shares authorized................................. 298,320 235,502
</TABLE>
INCOME TAXES
The effective tax rate used to record the provision for income taxes for
the three month period ended October 2, 1998 was 61% compared with a 17%
effective tax rate used to record the benefit from income taxes for the three
month period ended October 3, 1997. The effective tax rate used to record the
provision for taxes for the three month period ended October 2, 1998 exceeds the
U.S. statutory rate primarily due to the amortization of goodwill and certain
other purchased intangible assets that is not deductible for tax purposes, and
foreign taxes on certain earnings generated in higher tax rate jurisdictions.
The effective tax rate used to record the benefit from income taxes for the
three month period ended October 3, 1997 was less than the U.S. statutory rate
primarily due to increases in the valuation allowance for deferred tax assets
and the amortization of nondeductible goodwill. Seagate Software expects its
annual effective tax rate on anticipated operating income for fiscal 1999 (see
"Subsequent Event") to approximate 55% absent the effects, if any, of its
anticipated contribution of Seagate Software's Network & Storage Management
Group to Veritas Holding Corporation. The projected effective tax rate exceeds
the U.S. statutory rate primarily due to the amortization of goodwill and
certain other purchased intangible assets that is not deductible for tax
purposes and foreign taxes on certain earnings generated in higher tax rate
jurisdictions.
The Company is included in the consolidated federal and certain combined
and consolidated state and foreign income tax returns of Seagate Technology, the
Company's majority stockholder. Seagate Technology
V-9
<PAGE> 768
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
and the Company have entered into a tax sharing agreement ("the Tax Allocation
Agreement"). Pursuant to certain terms of the Tax Allocation Agreement, the
Company's ability to recognize the tax benefits of certain net operating loss
carryforwards and foreign and domestic tax credits can be impacted by Seagate
Technology's anticipated operating income for fiscal 1999. Accordingly, the
Company's expected annual effective tax rate of 55% on anticipated operating
income may be subject to adjustment in future quarters.
COMPREHENSIVE INCOME
As of July 4, 1998 the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income. SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of SFAS 130 had no impact on the Company's
net income or stockholders' equity. SFAS 130 requires that foreign currency
translation adjustments, which prior to adoption were reported separately in
stockholders' equity, be included in other comprehensive income. Accordingly,
the differences between the Company's comprehensive income and net income for
the periods presented are not material.
LITIGATION
See Part II, Item 1 of this Form 10-Q for a description of legal
proceedings.
SUBSEQUENT EVENT
The Company, its parent company, Seagate Technology, Inc. ("STI") and its
Seagate Software Network & Storage Management Group, Inc. ("NSMG") subsidiary
announced on October 5, 1998 that they had entered into an Agreement and Plan of
Reorganization (the "Plan") as of such date with Veritas Holding Corporation
("Newco") and Veritas Software Corporation ("VERITAS"). VERITAS provides
end-to-end storage management software solutions. The Plan provides for the
contribution by the Company, STI and certain of their respective subsidiaries to
Newco of (a) the outstanding stock of NSMG and certain other subsidiaries of the
Company, and (b) those assets used primarily in the network storage management
business of the Company (the "NSMG Business"), in consideration for the issuance
of shares of Common Stock of Newco to the Company and the offer by Newco to
grant options to purchase Common Stock of Newco to certain of the Company's
employees who become employees of Newco or its subsidiaries. As part of the
Plan, Newco will also assume certain liabilities of the NSMG Business. The Plan
is structured to qualify as a tax-free exchange. The merger will be accounted
for as a non-monetary transaction using the fair value of the assets exchanged.
Upon consummation of the merger, Newco shall issue shares of Common Stock
to the Company equal to approximately 40% of the fully diluted Common Stock
equivalent equity interests in Newco (assuming conversion of all convertible
securities, including the VERITAS convertible debentures, and exercise of all
assumed options and warrants) less that number of shares of Newco Common Stock
issuable upon exercise of Newco options issued to the Company employees who
surrender their outstanding options to purchase shares of the Company's Common
Stock. Upon consummation of the merger, the former security holders of VERITAS
will be issued Newco securities representing approximately 60% of the fully
diluted Common Stock equivalent equity interests in Newco.
The merger is subject to a number of conditions, including but not limited
to the effectiveness of a Registration Statement on Form S-4 to be filed by
Newco with the Securities and Exchange Commission, approval by the stockholders
of VERITAS and the Company, the expiration or termination of the waiting period
(and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and other customary closing conditions.
V-10
<PAGE> 769
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Company anticipates recording a substantial gain and certain expenses
in connection with the merger. The gain will be recorded in fiscal 1999. The
expenses will include a substantial one-time write-off of in-process research
and development during fiscal 1999 as well as amortization of goodwill and
intangibles over periods up to five years following the merger. The magnitude of
the gain and expenses will depend on several factors, including the average
stock price of Veritas around the date of the merger, the number of shares of
stock exchanged and an independent valuation of Veritas' business. The Company
will account for its investment in Veritas using the equity method and currently
anticipates the merger will be consummated in the third quarter of fiscal 1999.
NSMG comprised approximately 53% of consolidated assets, 60% of
consolidated revenues, and (43)% of consolidated net loss at and for the fiscal
year ended 1998 (60% of consolidated assets, 65% of consolidated revenues, and
493% of consolidated net income at and for the first fiscal quarter of 1999). If
the exchange with Veritas is consummated along the lines currently comtemplated,
it will result in a substantial reduction in ongoing consolidated revenues and
will result in net losses in periods subsequent to the exchange resulting from
the amortization of intangible assets and goodwill.
V-11
<PAGE> 770
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CERTAIN FORWARD-LOOKING INFORMATION
Certain statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") are forward-looking
statements based on current expectations, and entail various risks and
uncertainties that could cause actual results to differ from those projected in
such forward-looking statements. Certain of these risks and uncertainties are
set forth below in the sections entitled "Results of Operations," "Liquidity and
Capital Resources" and "Factors Affecting Future Operating Results." Certain
sections in this Quarterly Report on Form 10-Q/A have been identified as
containing forward-looking statements. The reader is cautioned that other
sections and other sentences not so identified may also contain forward-looking
information.
OVERVIEW
The Company develops and markets software products and provides related
services enabling business users and information technology ("IT") professionals
to manage enterprise information. Headquartered in Scotts Valley, California,
the Company has over 40 offices and operations in 17 countries worldwide. The
Company is a majority-owned and consolidated subsidiary of Seagate Technology,
Inc. (the "Parent Company" or "Seagate Technology"), a data technology company
that provides products for storing, managing and accessing digital information
on computer systems. As of October 2, 1998, the Parent Company and one of its
subsidiaries held 99.6% of the Company's outstanding capital stock. On a fully
converted basis, the outstanding minority interests of the Company amounted to
approximately 18.2%, which consisted of Common Stock, options to purchase its
Common Stock issued pursuant to the 1996 Stock Option Plan (the "Option Plan")
and Common Stock subject to repurchase. Such options and stock are held by
certain current and former employees, directors and consultants of the Company
and the Parent Company.
The Company was incorporated in Delaware in November 1993 and commenced
operations in May 1994 pursuant to the Parent Company's merger with Crystal
Computer Services, Inc., a company engaged in developing and marketing report
writing software. From August 1994 to June 1996, the Parent Company acquired
eight software companies, which were engaged in developing and marketing
business intelligence ("BI") or network and/or storage management software
products. In February 1996, the Parent Company merged with Conner Peripherals,
Inc. ("Conner") in a transaction accounted for as a pooling-of-interests. In
connection with the merger, the Parent Company purchased the outstanding
minority interests in Conner's storage management software operations under
Arcada Holdings, Inc. ("Arcada") for $85.1 million, which resulted in
allocations to goodwill and other intangibles for $47.4 million, write-off of
in-process research and development of $43.9 million and a deferred tax
liability of $6.2 million. In April 1996, the Parent Company consolidated its
software operations into Seagate Software. In June 1998, the Company acquired
Eastman Software Storage Management Group, Inc. ("Eastman"), a company engaged
in developing, producing and marketing hierarchical storage management ("HSM")
products for the Windows NT platform. The purchase price of approximately
$10,000,000 was paid in cash which resulted in allocations to goodwill and other
intangibles of $3.2 million and a write-off of in-process research and
development of $6.8 million. The Company accounted for the acquisition using the
purchase method, and the results of operations of Eastman are only included in
the Company's operations since the acquisition was completed.
On October 5, 1998, the Company signed a definitive agreement to contribute
its Network & Storage Management Group subsidiary ("NSMG") to a new holding
company that will also acquire VERITAS Software Corporation ("Veritas"). See
"Notes to Condensed Consolidated Financial Statements -- Subsequent Event."
The Company expects to incur certain expenses in connection with the
contribution of NSMG to Newco. These expenses include a substantial one-time
write-off of in-process research and development during fiscal 1999 as well as
amortization of goodwill and intangibles over the next four to five years and
amortization of the Company's portion of the amortization related to its
acquisition of Newco's stock and the consolidation of Newco's amortization of
its balance sheet items on a pro rata basis in fiscal 1999 and over the next
three to five
V-12
<PAGE> 771
years. The Company also expects to record a substantial gain on the sale of
NSMG.* The magnitude of the expenses and the gain will depend on several
factors, including the stock price of Veritas on the date of the merger, the
number of options to purchase Seagate Software common stock that are surrendered
by employees of NSMG who receive Newco options, and an independent valuation of
Veritas' business.
NSMG comprised approximately 54% of consolidated assets, 60% of
consolidated revenues, and contributed $2.9 million in profit to the
consolidated net loss of $9.3 million and for the fiscal year ended 1998 (54% of
consolidated assets, 65% of consolidated revenues, and 609% of consolidated net
income at and for the first fiscal quarter of 1999). If the exchange with
Veritas is consummated along the lines currently contemplated, it will result in
a substantial reduction in ongoing consolidated revenues and will result in net
losses in periods subsequent to the exchange resulting from the amortization of
intangible assets and goodwill.
The Company operates and reports financial results on a fiscal year of 52
or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 1998
was 53 weeks and ended on July 3, 1998 and fiscal 1999 will be 52 weeks and will
end on July 2, 1999. All references to years in this Form 10-Q/A represent
fiscal years unless otherwise noted.
RESTATEMENT OF FINANCIAL STATEMENTS
Seagate Software had previously allocated a portion of goodwill to
developed technology and evaluated the impairment of goodwill based on the
revenues from the related software. Seagate Software recorded write-downs and
write-offs of goodwill in fiscal 1997 in the amount of $10,259,000. Using this
method, Seagate Software has re-evaluated its methodology and determined that
goodwill should not be allocated to developed technology under guidance of the
Accounting Principles Board Opinion 17, "Intangible Assets". As a result,
Seagate Software has made adjustments to decrease the amounts of goodwill
previously written-down and written-off from $10,259,000 to $6,173,000 in fiscal
1997. The additional goodwill of $4,086,000 is being amortized over the
remaining estimated useful lives of approximately 5 years.
The effect of this adjustment on previously reported consolidated financial
statements as of and for the three months ended October 2, 1998 and October 3,
1997 is as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
AS REPORTED AS RESTATED
----------------------- -----------------------
OCTOBER 2, OCTOBER 3, OCTOBER 2, OCTOBER 3,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Amortization of goodwill and other
intangibles............................. $ 3,198 $ 3,456 $ 3,393 $ 3,651
Income(loss) from operations.............. 1,583 (3,399) 1,388 (3,594)
Net income (loss)......................... 852 (2,915) 657 (3,110)
Basic income (loss) per share............. 3.09 (28.12) 2.39 (30.00)
Diluted income (loss) per share........... 0.01 (28.12) 0.01 (30.00)
Goodwill and other intangible assets,
net..................................... 48,019 67,729 50,781 71,271
Accumulated deficit....................... (288,323) (283,600) (285,561) (280,058)
</TABLE>
RESULTS OF OPERATIONS
REVENUES. Total revenues increased 19% in the three months ended October 2,
1998, to $74.9 million from $63.0 million for the three months ended October 3,
1997. Licensing revenues increased 15% to $60.8 million for the three months
ended October 2, 1998 from $52.8 million for the three months ended October 3,
1997. The increase in licensing revenues over the comparable year-ago quarter
was primarily due to a net increase in the number of NSMG product licenses sold
for sales of NSMG's Backup Exec for Windows
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain
forward-looking information.
V-13
<PAGE> 772
NT and Desktop Management Suite and IMG's Crystal Reports and Crystal Info
products. Maintenance, support, and other revenues increased 37% to $14.0
million for the three months ended October 2, 1998 from $10.2 million for the
three months ended October 3, 1997. The increase in maintenance, support and
other revenues over the comparable year-ago quarter was primarily due to
increases in training and consulting revenues resulting from a larger installed
customer base. Additionally, the Company continued to expand both its indirect
and direct sales channels. Revenues from indirect sales channels increased 25%
to $53.0 million in the three months ended October 2, 1998 from $42.2 million in
the three months ended October 3, 1997. Revenues from direct sales channels
increased 5% to $21.9 million in the three months ended October 2, 1998 from
$20.8 million in the three months ended October 3, 1997.
COST OF REVENUES. The cost of revenues consists of amortization of acquired
developed technology, royalties, product packaging, documentation, duplication,
production and the cost of maintenance, consulting support and other services.
Acquired developed technology is amortized based on the greater of the straight-
line method over its estimated useful life (30 to 48 months) or the ratio of
current revenues to total current and anticipated future revenues. Cost of
revenues declined 10% to $12.4 million in the three months ended October 2, 1998
from $13.8 million in the three months ended October 3, 1997. The cost of
license revenue as a percent of license revenue declined to 5% in the three
months ended October 2, 1998 from 10% in the comparable year-ago quarter. This
decrease over the comparable year-ago quarter was primarily due to a
nonrecurring charge of $1 million write-off for obsolete inventory during the
three months ended October 3, 1997. Reductions in product packaging and
documentation costs, resulting from a shift in mix to CD-ROMs from disks and
increased sales of higher margin server products, also contributed to the
decrease. The increase in the cost of maintenance, support and other revenues
over the comparable year-ago quarter was primarily due to expansion of the
Company's professional services work force necessary to support the growth in
training and consulting revenues. The lower service revenue margins in the three
months ended October 2, 1998 were primarily due to increased spending for
additional personnel and new facilities to support higher levels of customer
support services, such as training, consulting and preferred technical
support.The 27% decrease in the amortization of developed technology over the
three months ended October 3, 1997 was primarily due to certain intangible
assets that were fully amortized during or at the start of the first quarter of
fiscal 1999.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
personnel-related expenses, advertising, sales and marketing promotions and
customer technical support costs. Total sales and marketing expenses increased
25% to $36.0 million in the three months ended October 2, 1998 from $28.7
million in the three months ended October 3, 1997. The increase in sales and
marketing expenses over the comparable year-ago quarter was primarily due to
expansion of the Company's sales force and increases in advertising, promotion
and technical support costs necessary to support revenue growth, particularly
outside of North America. As a percentage of total revenues, total sales and
marketing expenses were 48% and 46% in the three months ended October 2, 1998
and October 3, 1997, respectively.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of personnel-related expenses, depreciation of development equipment
and facilities and occupancy costs. In accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed," software development costs are expensed
as incurred until technological feasibility has been established, at which time
such costs are capitalized until the product is available for general release to
customers. To date, the establishment of technological feasibility of the
Company's products and general release of such software has substantially
coincided. As a result, software development costs qualifying for capitalization
have been insignificant. Total research and development expenses increased 12%
to $12.8 million in the three months ended October 2, 1998 from $11.4 million in
the three months ended October 3, 1997. The increase in research and development
expenses over the comparable year-ago quarter was primarily due to increases in
personnel and related expenses, many specifically related to the Eastman
acquisition, necessary to support new product development and localization
costs. As a percentage of total revenues, research and development expenses were
17% and 18% in the three months ended October 2, 1998 and October 3, 1997,
respectively.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of personnel-related expenses for finance, legal, information
technology, human resources and general management, fixed asset
V-14
<PAGE> 773
provisions and outside services. Total general and administrative expenses
decreased 2% to $8.9 million in the three months ended October 2, 1998 from $9.1
million in the three months ended October 3, 1997. The decrease over the
comparable year-ago quarter was primarily due to management's efforts to reduce
general management and administrative costs. As a percentage of total revenues,
general and administrative expenses were 12% and 14% in the three months ended
October 2, 1998 and October 3, 1997, respectively.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Goodwill represents the
excess of the purchase price of acquired companies over the estimated fair
values of the tangible and intangible net assets acquired. Goodwill is amortized
on a straight-line basis over six to seven years. Other intangible assets
consist of acquired trademarks, assembled workforces, distribution networks,
developed technology, customer bases, and covenants not to compete. Amortization
of other intangibles, other than acquired developed technology, which is
included in the cost of revenues, is provided based on the straight-line method
over the respective useful lives of the assets ranging from one to five years.
Total amortization of goodwill and other intangibles decreased 7% to $3.4
million in the three months ended October 2, 1998 from $3.7 million in the three
months ended October 3, 1997. The decrease in the amortization of goodwill and
other intangibles over the comparable year-ago quarter was primarily due to
decreases in amortization expense based on certain amounts becoming fully
amortized during or as of the start of the first fiscal quarter of 1999,
partially offset by increases in amortization expense due to goodwill acquired
as part of the Eastman acquisition. As a percentage of total revenues,
amortization of goodwill and other intangibles were 5% and 6% in the three
months ended October 2, 1998 and October 3, 1997, respectively.
INTEREST EXPENSE AND OTHER, NET. Interest expense decreased 48% to $156,000
in the three months ended October 2, 1998 from $300,000 in the three months
ended October 3, 1997. The decrease in interest expense over the comparable
year-ago quarter was primarily due to a lower level of outstanding borrowings
from Seagate Technology. Other income, net increased 184% to $468,000 in the
three months ended October 3, 1998 from $165,000 in the three months ended
October 2, 1997 primarily due to foreign currency translation gains resulting
from the Company's Canadian operations.
INCOME TAXES. The effective tax rate used to record the provision for
income taxes for the three month period ended October 2, 1998 was 61% compared
with a 17% effective tax rate used to record the benefit from income taxes for
the three month period ended October 3, 1997. The effective tax rate used to
record the provision for taxes for the three month period ended October 2, 1998
exceeds the U.S. statutory rate primarily due to the amortization of goodwill
and certain other purchased intangible assets that is not deductible for tax
purposes, and foreign taxes on certain earnings generated in higher tax rate
jurisdictions. The effective tax rate used to record the benefit from income
taxes for the three month period ended October 3, 1997 was less than the U.S.
statutory rate primarily due to increases in the valuation allowance for
deferred tax assets and the amortization of nondeductible goodwill. Seagate
Software expects its annual effective tax rate on anticipated operating income
for fiscal 1999 (see "Subsequent Event") to approximate 55% absent the effects,
if any, of its anticipated contribution of Seagate Software's Network & Storage
Management Group to Veritas Holding Corporation. The projected effective tax
rate exceeds the U.S. statutory rate primarily due to the amortization of
goodwill and certain other purchased intangible assets that is not deductible
for tax purposes and foreign taxes on certain earnings generated in higher tax
rate jurisdictions.
The Company is included in the consolidated federal and certain combined
and consolidated state and foreign income tax returns of Seagate Technology, the
Company's majority stockholder. Seagate Technology and the Company have entered
into a tax sharing agreement ("the Tax Allocation Agreement"). Pursuant to
certain terms of the Tax Allocation Agreement, the Company's ability to
recognize the tax benefits of certain net operating loss carryforwards and
foreign and domestic tax credits can be impacted by Seagate Technology's
anticipated operating income for fiscal 1999. Accordingly, the Company's
expected annual effective tax rate of 55% on anticipated operating income may be
subject to adjustment in future quarters.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total cash was $10,418,000 and $15,130,000 as of October 2,
1998 and July 3 1998, respectively. The decrease in cash was primarily due to
payments on the Company's loan payable balance to
V-15
<PAGE> 774
the Parent Company of $77.0 million and purchases of equipment, leasehold
improvements and intangible assets, partially offset by cash provided by
operating activities, loan borrowings from the Parent Company of $65.7 million,
and the sale of common stock. The Company's cash is maintained in highly liquid
operating accounts and primarily consists of bank deposits.
The Company's operations have been financed by cash flows from operating
activities and borrowings from the Parent Company. Such borrowings are available
to the Company under a Revolving Loan Agreement between the Company and Seagate
Technology. Under the Revolving Loan Agreement, Seagate Technology finances
certain of the Company's working capital requirements. The Revolving Loan
Agreement, which provides for maximum borrowings of up to $60,000,000, is
renewable every two years and expires on July 3, 2000. Interest is paid at the
LIBOR rate plus 2% per annum on such borrowings (7.375% at October 2, 1998). The
loan balance was $3,895,000 as of October 2, 1998.
In addition to the Revolving Loan Agreement with Seagate Technology,
certain foreign subsidiaries have line of credit facilities with third party
financial institutions. These line of credit facilities provide for additional
borrowings of up to an equivalent of approximately $1,139,000 at October 2,
1998. Interest rates payable on borrowings are based on local bank prime
interest rates. At October 2, 1998, there were no outstanding borrowings under
any of these lines of credit.
During the three months ended October 2, 1998, the Company made investments
totaling approximately $1,918,000 for new office facilities, leasehold
improvements, computers, furniture and office equipment. The Company presently
anticipates it will make investments in 1999 of approximately $15,000,000 in
equipment and leasehold improvements.* Additionally, product development
activities may include cash used to acquire technology.* The Company expects
that such investments will be funded from existing cash balances and cash flows
from operations.*
The Company believes its current cash balances, its available borrowings
from the Parent Company and cash flows generated from the Company's operations
will be sufficient to meet its anticipated cash needs for working capital and
capital expenditures for at least the next 12 months.* Furthermore, the Company
anticipates that future operating and investing activities may be financed by
additional borrowings from the Parent Company, equity financing or other
sources.* The Company believes that additional financing from the Parent Company
will be available at a reasonable cost.*
FACTORS AFFECTING FUTURE OPERATING RESULTS
POTENTIAL FLUCTUATIONS IN ANNUAL AND/OR QUARTERLY OPERATING RESULTS
We often experience a high volume of sales at the end of the quarter.
Therefore, it may be late in the quarter before we are able to determine that
our costs are too high in relation to our sales. If this were to happen, we
would not be able to reduce these costs and, consequently, our net income would
be reduced or our net loss increased.* In addition, our operating results have
been and may, in the future, be subject to significant quarterly fluctuations as
a result of a number of other factors including:
- the timing of orders from and shipment of products to major customers;
- our ability to develop, introduce, and market new products and product
enhancements in a timely fashion;
- changes in the prices of our products and our competitors' products;
- our ability to fill orders received within a given quarter;
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain
forward-looking information.
V-16
<PAGE> 775
- our customers' preference for competing technologies in lieu of our
products;
- our inability to reduce our costs in relation to our revenues (because we
ship our products shortly after we receive orders and operate with no
backlog);
- the impact of changes in foreign currency exchange rates on the cost of
our products and the effective price of such products to foreign
consumers;
- competition and consolidation in our industry; and
- general economic conditions.
REVENUE CONCENTRATION
We currently obtain most of our revenue from a limited number of software
products and anticipate this to be the case in the foreseeable future.* Our new
products must be accepted by customers in order for us to be successful. If our
products are not purchased as a result of competition, technological change or
other factors, then our business, operating results and financial condition
would be materially adversely affected.
Our software products have a fixed life cycle that is difficult to
estimate. If we do not develop and introduce new products before our existing
products have completed their life cycles, then we will be unable to sustain or
increase our level of sales.* We cannot be sure that we will continue to be
successful in marketing our key products or any new products, applications or
product enhancements.
Sales to a small number of customers generate a disproportionate amount of
our revenues. For example, Seagate Software derived 24% of its revenues from
sales to its top customer, Ingram Micro Inc. ("Ingram"), in the three months
ended October 2, 1998. If Ingram, or any other significant customer, reduces its
purchases from us, our business, financial condition, and results of operations
would be materially adversely affected unless we substantially increased sales
to other customers. Because our contracts with Ingram (or any other customer) do
not require them to purchase any specified number of software licenses from us,
we cannot be sure that our significant customers will continue to purchase our
products at their current levels.
RELIANCE ON SALES STAFF, CHANNEL PARTNERS AND STRATEGIC RELATIONSHIPS
We sell and support our products through:
- sales staff,
- third party distributors, and
- Original Equipment Manufacturers ("OEMs").
We also have a strategic relationship with Microsoft that enables us to
bundle our products with Microsoft's products, and we have developed and are
developing certain utilities and products to be a part of Microsoft's products.*
If Microsoft reduces the nature and quantity of its relationship with us, our
business, operating results and financial condition would be materially
adversely affected.
We have made significant expenditures in recent years to expand our sales
and marketing force and plan to continue this expansion. Our future success will
depend in part upon the productivity of our sales and marketing force.* We
believe that our ability to continue to attract, integrate, train, motivate and
retain new sales and marketing personnel will also affect our success.* We face
intense competition for sales and marketing personnel in the software industry,
and we cannot be sure that we will be successful in hiring and retaining such
personnel in accordance with our plans. Even if we hire and train sufficient
numbers of sales and
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain
forward-looking information.
V-17
<PAGE> 776
marketing personnel, we cannot be sure that our recent and other planned
expenses will generate enough additional revenue to exceed these costs.
We generate a substantial portion of our revenue by selling our products to
distributors and OEMs. Our distributors and OEMs decide whether or not to
include our products with those they sell and generally can carry and sell
product lines that are competitive with ours. Because OEMs and distributors
carry other product lines and are not required to make a specified level of
purchases from us, we cannot be sure that they will prioritize selling our
products. These distributors and OEMs are also generally entitled to terminate
our relationship without cause. Our business, financial results and operating
condition would be materially adversely affected if some or all of our current
distributors and OEMs discontinued selling our products and we failed to find
comparable replacements.*
NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE
We had research and development expenses of:
<TABLE>
<CAPTION>
FISCAL YEAR EXPENSE
----------- -------------
(IN MILLIONS)
<S> <C>
1996................................................... $36.9
1997................................................... $42.8
1998................................................... $47.1
the three months ended October 2, 1998................... $12.8
</TABLE>
Our products are used in combination with other software. The markets for
our products are characterized by rapidly changing technology, changing customer
needs, evolving industry standards and frequent new product introductions. Our
future success will therefore depend on our ability to design, develop, test and
support new software products and enhancements on a timely and cost effective
basis.*
If we do not respond to changing market conditions and customer
requirements by developing and introducing new products in a timely manner, then
our business, operating results or financial condition could be materially
adversely affected.*
COMPETITION
Our industry is intensely competitive and is characterized by rapidly
changing technology and evolving standards. We expect additional competition
from other established and/or emerging companies and as a result of future
software industry consolidations.* We expect that our competitors will offer new
and existing products at lower prices, if necessary, to gain or retain market
share and customers.* We have experienced and expect to continue to experience
intense competition from a number of domestic and foreign companies. Increased
competition can be expected to cause price reductions, reduced gross margins and
loss of market share, any of which could have a material adverse effect on our
business, operating results or financial condition.* Current and potential
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
development, promotion, sale and support of their products than we are able to
do.*
It is possible that new competitors or alliances among our competitors may
emerge and rapidly acquire significant market share. In addition, network
operating system vendors could introduce new or upgrade existing operating
systems or environments that could render our products obsolete and
unmarketable.
We also face indirect competition from present and potential customers,
including Microsoft or other strategic partners, that continuously evaluate
whether to develop their own software products and components
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain
forward-looking information.
V-18
<PAGE> 777
internally or obtain them from outside sources. If our strategic partners decide
to develop the utilities and other products we have in the past provided, it
could have a material adverse effect on our business, results of operations and
financial condition.*
There can be no assurance that we will be able to compete successfully
against current or future competitors. If we fail to compete successfully, our
business, operating results and financial condition may be materially adversely
affected.*
RISKS FROM THE CONTRIBUTION OF THE NETWORK & STORAGE MANAGEMENT GROUP
Seagate Technology consolidated its software businesses into a single
entity called Seagate Software in 1996. Seagate Software's business consists of
two primary divisions, the Network & Storage Management Group and the
Information Management Group. We announced on October 5, 1998 that we will
contribute our Network & Storage Management Group business to a newly formed
company that will also acquire Veritas Software Corporation. Seagate Software
and our optionees who are employees of the Network & Storage Management Group
who go to work for the newly formed company will receive 40% of the fully
diluted equity in the new company.*
We face a number of risks prior to and after the closing of the spin-off of
the Network & Storage Management Group including:
- our management resources may be distracted from day to day operations by
the transaction;
- employees of the Information Management Group may be distracted by
concerns about whether we continue to operate that business or spin it
off;
- the Network & Storage Management Group's customers may delay or cancel
orders due to uncertainty about the transaction;
- the ongoing OEM relationship with the Network & Storage Management Group
and Seagate Technology's tape drive operations may be disrupted;
- we have agreed not to compete in certain storage management software
businesses for a specified period of time after the closing and may not
be able to benefit from future opportunities in that market;
- we will not have control over the management of the new company, although
initially we will have two representatives on its board of directors; and
- we will be limited from liquidating our interest in the new company for a
certain period of time. Thereafter, if we choose to do so, we will be
required to sell our interest in the new company in increments to comply
with certain Securities and Exchange Commission rules or to bear the
expense of filing a registration statement.
ACQUISITIONS
We intend to continue our expansion into software through internal growth
as well as acquisitions.* Acquisitions involve numerous risks including:
- the difficulties of integrating the operations and products of the
acquired businesses,
- 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
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain
forward-looking information.
V-19
<PAGE> 778
charge to operations in the fourth quarter of fiscal 1998 of approximately $7
million for the write-off of in-process research and development related to our
acquisition of Eastman Software Storage Management Group, Inc.
RISKS OF SYSTEMS FAILURES
Our operations are dependent on our ability to protect our computer
equipment and the information stored in our databases from damage by
catastrophic events such as fire, natural disaster, power loss,
telecommunications failures, and unauthorized intrusion. We believe that we have
taken prudent measures to reduce the risk of interruption in our operations.
However, we cannot be sure that these measures are sufficient. Any damage or
failure that causes interruptions in our operations could have a material
adverse effect on our business, results of operations and financial condition.
YEAR 2000 RISKS
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. This could result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions, send invoices, or engage in
normal business activities.*
We consider a product to be "Year 2000 Ready" if the product's performance
and functionality are unaffected by processing of dates prior to, during and
after the year 2000, but only if all products (for example hardware, firmware,
and software) used with the products properly exchange accurate date data with
it.
Seagate's Products
Our products are used in numerous operating environments. We are assessing
our products to determine whether or not they are Year 2000 Ready. Although we
believe certain of our software products are Year 2000 Ready, we have determined
that certain of our software products are not and will not be Year 2000 Ready.
The inability of one or more of our products to properly manage and manipulate
dates related to the Year 2000 could result in a material adverse effect on our
business, financial condition or results of operations, including increased
warranty costs, customer satisfaction issues and potential lawsuits. We are
taking measures to inform our customers that those products are not and will not
be Year 2000 Ready. To assist our customers in evaluating their Year 2000
issues, we have developed a list of those products that are Year 2000 Ready as
stand-alone products. The list is located on Seagate Software's World Wide Web
page and is periodically updated when we make additional product assessments.
We anticipate that substantial litigation may be brought against vendors,
including Seagate Software, of all software components of systems that are
unable to properly manage data related to the Year 2000. Our customer agreements
typically contain provisions designed to limit our liability for such claims. As
a result of existing or future federal, state or local laws or ordinances or
unfavorable judicial decisions, it is possible that these measures will not
provide us with protection from liability claims.* If any such claims are
brought against us, regardless of their merit, our business, financial condition
and results of operations could be materially adversely affected from factors
that include increased warranty costs, customer satisfaction issues and the
costs of potential lawsuits.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain
forward-looking information.
V-20
<PAGE> 779
Seagate's Systems
We have also initiated a comprehensive program to address Year 2000
readiness in our internal systems and with our customers and suppliers. Our
program has been designed to address our most critical internal systems first
and to gather information regarding the Year 2000 compliance of products
supplied to Seagate Software and into which our products are integrated.
Assessment and remediation are proceeding in tandem, and we intend to have our
critical internal systems Year 2000 Ready by July 3, 1999, the first day of
Seagate Software's fiscal year 2000. These activities are intended to encompass
all major categories of systems in use by Seagate Software, including
operations, technical support, engineering, sales, finance and human resources.*
To date, we have not incurred material costs related to assessment and
remediation of Year 2000 readiness. We are still in the process of conducting
our Year 2000 audit and therefore are unable to make a reasonable estimate of
the costs associated with Year 2000 readiness. Accordingly, no assurance can be
given that the costs required to address the Year 2000 issue will not have a
material adverse effect on our business, financial condition or results of
operations. The costs incurred to date related to these programs have not been
and are not expected to be material.
We have also initiated formal communications with our significant suppliers
to determine the extent to which Seagate Software is vulnerable to those third
parties' failure to remedy their own Year 2000 issues. To date we have contacted
our significant suppliers and have received assurances of Year 2000 compliance
from a number of those contacted. However, most of our suppliers are under no
contractual obligation to provide such information to us. We could experience
material adverse effects on our business if we fail to fully identify all Year
2000 dependencies in Seagate Software's 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 our products.* Therefore, we are
developing contingency plans for continuing operations in the event such
problems arise.*
Customer Purchasing Patterns
We believe that the purchasing patterns of customer and potential customers
may be affected by Year 2000 issues as companies expend significant resources to
correct or patch their current software systems for Year 2000 readiness.* These
expenditures may result in reduced funds available to purchase products such as
those offered by Seagate Software, which could have a material adverse effect on
our business, operating results or financial condition.*
Risks from International Operations.
We have significant offshore operations including development facilities,
sales personnel and customer support operations. Our offshore operations are
subject to certain inherent risks including:
- fluctuations in currency exchange rates;
- lack of acceptance of localized products;
- longer payment cycles for sales in foreign countries;
- difficulties in staffing and managing international operations;
- seasonal reductions in business activity in the summer months in Europe
and certain other countries;
- increases in tariffs, duties, price controls, other restrictions on
foreign currencies or trade barriers imposed by foreign countries;
- management of an enterprise spread over various countries;
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain
forward-looking information.
V-21
<PAGE> 780
- the burden of complying with a wide variety of foreign laws; and
- political unrest, particularly in areas in which we have facilities.
These factors could have a material adverse effect on our business,
operating results and financial condition in the future.
Our products are priced in U.S. dollars even when sold to customers who are
located abroad. The currency instability in the Asian and other financial
markets may make our products more expensive than products sold by other
manufacturers that are priced in one of the effected currencies. Therefore,
foreign customers may reduce purchases of our products.* We anticipate that the
recent turmoil in financial markets and the recent deterioration of the
underlying economic conditions in certain countries, including those in Asia and
the Far East, may have an impact on our sales to customers located in or whose
end-user customers are located in those countries due to:*
- the impact of currency fluctuations on the relative price of Seagate
Software's products,
- restrictions on government spending imposed by the International Monetary
Fund (the "IMF") in those countries receiving the IMF's assistance,
- customers' reduced access to working capital to fund software purchases,
such as our products, due to:
- higher interest rates,
- reduced bank lending due to contractions in the money supply or the
deterioration in the customer's or its bank's financial condition, or
- the inability to access other financing
DEPENDENCE ON PROPRIETARY TECHNOLOGY
Our success will be heavily dependent on our proprietary technology. We
rely primarily on the following to protect our proprietary rights:
- patents,
- copyrights,
- trademarks and trade secret rights,
- confidentiality procedures,
- employee and third party nondisclosure agreements, and
- licensing restrictions.
Such efforts provide only limited protection.
We also rely in part on shrink-wrap licenses that are not signed by end
users and, therefore, may be unenforceable under the laws of certain
jurisdictions.
Even though we take these steps, someone may be able to copy or otherwise
obtain and use our products and technology without authorization. Policing
unauthorized use of our products is difficult. Although we cannot determine the
extent of existing piracy of our products, we expect that software piracy will
be a persistent problem.* Third parties may also develop similar technology
independently. We believe that effective protection of intellectual property
rights is unavailable or limited in certain foreign countries.*
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain
forward-looking information.
V-22
<PAGE> 781
Our competitors may successfully challenge the validity or scope of our
patents, copyrights and trademarks.* We cannot be sure that our patents,
copyrights and trademarks will provide us with a competitive advantage or that
our competitors will not design around any patents issued to us. We are not
aware that any of our products infringe upon the proprietary rights of third
parties, but, in the future, third parties may claim that our current or future
products infringe that party's rights.* We believe that software product
developers will be increasingly subject to claims of infringement as the
functionality of products in our industry segment overlaps.* If we were subject
to a claim of infringement, regardless of its merit, such claim would have the
following impacts on us that could have a material adverse effect on our
business, operating results or financial condition:
- require costly litigation to resolve,
- absorb significant management time, or
- require us to enter into unfavorable royalty or license agreements.
SOFTWARE PRODUCT ERRORS OR DEFECTS
Software products as complex as those we offer frequently contain errors or
defects, especially when first introduced or when new versions or enhancements
are released. Despite product testing, our products may contain defects or
software errors.* If our products have errors, they could:
- cause a negative customer reaction that could reduce future sales;
- generate negative publicity regarding Seagate Software and our products;
- harm our reputation;
- reduce or limit customer's adoption of our products;
- require us to make extensive changes to the product; or
- result in customers' delaying their purchase until the errors or defects
have been remedied, which would cause our revenues to be reduced or
delayed.
Any of these occurrences could have a material adverse effect upon our business,
operating results or financial condition.
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. Existing
or future federal, state or local laws or ordinances or unfavorable judicial
decisions may make these provisions ineffective.* Because our products are used
in system management, resource optimization and business intelligence
applications, our liability could be substantial if we receive an unfavorable
judgement, which could have a material adverse effect upon our business,
operating results or financial condition.*
DEPENDENCE ON KEY PERSONNEL.
Our future performance depends to a significant degree upon the continued
service of our key members of management as well as marketing, sales, and
product development personnel.* The loss of one or more of our key personnel
would have a material adverse effect on our business, operating results and
financial condition.* We believe our future success will also depend in large
part upon our ability to attract and retain highly skilled management,
marketing, sales, and product development personnel.* We have experienced
intense competition for such personnel and there can be no assurance that we
will be able to retain our key employees or that we will be successful in
attracting, assimilating and retaining them in the future.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain
forward-looking information.
V-23
<PAGE> 782
RISKS FROM CONVERSION TO SINGLE EUROPEAN CURRENCY.
On January 1, 1999, certain member states of the European Economic
Community will fix their respective currencies to a new currency, the Single
European Currency ("Euro"). On that day the Euro will become a functional legal
currency within these countries. During the three years beginning on January 1,
1999, business in these countries will be conducted both in the existing
national currency, such as the French Franc or the Deutsche Mark, as well as the
Euro. Companies operating in or conducting business in these countries, will
need to ensure that their financial and other software systems are capable of
processing transactions and properly handling the existing currencies and the
Euro.
We are still assessing the impact that the introduction and use of the Euro
will have on our internal systems. We will take corrective actions based on such
assessment but do not presently expect that introduction and use of the Euro
will materially affect our foreign exchange and hedging activities or use of
derivative instruments or will result in any material increase in our costs.*
While we will continue to evaluate the impact of the Euro introduction over
time, based on currently available information, we do not believe that the
introduction of the Euro will have a material adverse impact on Seagate
Software's financial condition or overall trends in results of operations.*
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY RISK. The U.S. dollar is the functional currency for most
of the Company's foreign operations. Gains and losses on the remeasurement into
U.S. dollars of amounts denominated in foreign currencies are included in net
income for those operations whose functional currency is the U.S. dollar. Gains
and losses on translation into U.S. dollars of foreign operations whose
functional currency is the local currency are recorded as a separate component
of stockholders' equity. Foreign currency fluctuations have not had a
significant effect on the Company's results of operations, and the Company does
not engage in foreign currency hedging programs.
INTEREST RATE RISK. The Company's exposure to market risk for changes in
interest rates relates primarily to the Company's borrowings under a Revolving
Loan Agreement between the Company and Seagate Technology. The Company pays
interest to Seagate Technology at the LIBOR rate plus 2% per annum on such
borrowings (7.375% at October 2, 1998). The Company typically uses available
cash in excess of amounts required for operating activities to pay amounts due
under the Revolving Loan Agreement. Accordingly, the Company has not had a
significant level of funds available for investment purposes. Interest rate
fluctuations have not had a significant effect on the Company's results of
operations.
PART II
OTHER INFORMATION
ITEM 1. 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 Ltd. claiming breach of an oral agreement
and infringement of a Vedatech U.K. copyright in the Japanese translation of one
of the Company's products (the "Complaint") and seeking monetary and injunctive
relief. No specific damage amount has yet been claimed. The Company has hired
local counsel in the U.K., reviewed documents and conducted interviews. The
Company filed an initial response in the U.K. court on January 13, 1998 and is
now in the discovery process. The Company believes the Complaint has no merit
and intends to vigorously defend the action. However, if an unfavorable outcome
were to arise, there can be no assurance that
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain
forward-looking information.
V-24
<PAGE> 783
such outcome would not have a material adverse effect on the Company's
liquidity, financial position or results of operations.
In addition to the foregoing, the Company 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 the
Company's financial position, liquidity, or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are included herein:
<TABLE>
<S> <C>
10.12 Lease Dated April 15, 1995 between Fiero II Associates and
Arcada Software, Inc. for the premises located at Building
1, Fiero Commerce Park II, San Luis Obispo, California, as
amended to date
Lease dated November 20, 1995 between Fiero II Associates
10.12.1 and Arcada Software, Inc. for the premises located at
Building 1, Fiero Commerce Park II, San Luis Obispo,
California
Lease dated December 17, 1993 between Morgan Investments and
10.12.2 Quest Development Corporation for the premises located at
708 Fiero Commerce Park, San Luis Obispo, California
Addendum dated March 26, 1997 to Lease dated May 14, 1995
10.12.3 between Seagate Software Storage Management Group, Inc. and
Jerry Michael
Lease dated April 18, 1995 between WHC-SIX Real Estate
10.13 Limited Partnership and Seagate Technology, Inc. for the
premises located at 19925 Stevens Creek Blvd., Cupertino,
California, as amended by the First Amendment to Lease dated
May 1, 1995 and the Second Amendment to Lease dated January
16, 1996
Occupational Lease dated June 24, 1998 between the
10.14 Universities Superannuation Scheme, Seagate Software Limited
and Seagate Technology, Inc. for the premises located at
Acquis House, Blagrave Street, Reading, England
Amended Financial Data Schedule
27.1*
</TABLE>
* Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the three months ended October 2, 1998.
V-25
<PAGE> 784
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEAGATE SOFTWARE, INC.
(REGISTRANT)
DATE: April 16, 1999 By: /s/ TERENCE R. CUNNINGHAM
------------------------------------
Terence R. Cunningham
President and Chief Operating
Officer
DATE: April 16, 1999 By: /s/ ELLEN E. CHAMBERLAIN
------------------------------------
Ellen E. Chamberlain
Senior Vice President, Treasurer and
Chief Financial Officer
V-26
<PAGE> 785
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q/A
AMENDMENT NO. 2
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JANUARY 1, 1999
COMMISSION FILE NO. 000-23169
SEAGATE SOFTWARE, INC.
(REGISTRANT)
------------------------
INCORPORATED IN THE STATE OF DELAWARE
I.R.S. EMPLOYER IDENTIFICATION NUMBER 77-0397623
915 DISC DRIVE, SCOTTS VALLEY, CALIFORNIA 95066
TELEPHONE: (831) 438-6550
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]
The number of shares outstanding of the registrant's Common Stock as of January
1, 1999 was 1,058,906.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
V-27
<PAGE> 786
INDEX
SEAGATE SOFTWARE, INC.
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of January 1, 1999
(unaudited) and July 3, 1998.............................. V-29
Condensed Consolidated Statements of Operations for the
three and six months ended January 1, 1999 and January 2,
1998 (unaudited).......................................... V-30
Condensed Consolidated Statements of Cash Flows for the six
months ended January 1, 1999 and January 2, 1998
(unaudited)............................................... V-31
Notes to the Condensed Consolidated Financial Statements
(unaudited)............................................... V-32
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. V-39
Item 3. Quantitative and Qualitative Disclosures about Market
Risks..................................................... V-53
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... V-54
Item 6. Exhibits and Reports on Form 8-K............................ V-54
SIGNATURES.................................................. V-56
</TABLE>
V-28
<PAGE> 787
SEAGATE SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, JULY 3,
1999 1998
----------- --------
(UNAUDITED) (1)
<S> <C> <C>
ASSETS
Cash........................................................ $ 848 $ 15,130
Accounts receivable, net.................................... 59,292 46,564
Inventories................................................. 1,261 1,117
Loan receivable from Seagate Technology..................... 18,276 --
Other current assets........................................ 5,863 2,474
--------- --------
Total current assets.............................. 85,540 65,285
--------- --------
Equipment and leasehold improvements, net................... 17,031 16,876
Goodwill and other intangibles, net......................... 44,677 56,836
--------- --------
Total assets...................................... $ 147,248 $138,997
========= ========
LIABILITIES
Loan payable to Seagate Technology.......................... $ -- $ 16,054
Accounts payable............................................ 12,250 10,994
Accrued employee compensation............................... 17,266 14,365
Accrued expenses............................................ 19,438 15,339
Accrued income taxes........................................ 6,759 5,562
Deferred revenue............................................ 17,952 13,714
--------- --------
Total current liabilities......................... 73,665 76,028
Deferred income taxes....................................... 1,021 1,691
Other liabilities........................................... 280 255
--------- --------
Total liabilities................................. 74,966 77,974
Commitments and Contingencies
Common stock subject to repurchase.......................... 3,685 3,917
STOCKHOLDERS' EQUITY
Convertible preferred stock................................. 55 55
Common stock................................................ -- --
Additional paid-in capital.................................. 346,650 343,526
Accumulated deficit......................................... (277,731) (286,218)
Accumulated other comprehensive income...................... (377) (257)
--------- --------
Total stockholders' equity........................ 68,597 57,106
--------- --------
Total liabilities and stockholders' equity........ $ 147,248 $138,997
========= ========
</TABLE>
- ---------------
(1) The information in this column was derived from Seagate Software's audited
consolidated balance sheet as of July 3, 1998.
See notes to condensed consolidated financial statements.
V-29
<PAGE> 788
SEAGATE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ -------------------------
JANUARY 1, JANUARY 2, JANUARY 1, JANUARY 2,
1999 1998 1999 1998
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Licensing................................. $74,791 $60,183 $133,462 $111,980
Licensing from Seagate Technology......... 1,850 1,433 4,006 2,433
Maintenance, support and other............ 15,414 10,728 29,462 20,953
---------- ---------- ----------- --------
Total revenues.................. 92,055 72,344 166,930 135,366
Cost of revenues:
Licensing................................. 3,225 3,704 6,160 8,673
Licensing from Seagate Technology......... 145 86 274 371
Maintenance, support and other............ 5,887 4,675 12,317 9,275
Amortization of developed technologies.... 2,847 3,037 5,713 6,979
---------- ---------- ----------- --------
Total cost of revenues.......... 12,104 11,502 24,464 25,298
---------- ---------- ----------- --------
Gross profit.............................. 79,951 60,842 142,466 110,068
Operating expenses:
Sales and marketing....................... 39,889 31,761 75,896 60,458
Research and development.................. 13,554 11,778 26,341 23,171
General and administrative................ 8,325 10,414 17,265 19,493
Amortization of goodwill and other
intangibles............................. 3,343 5,741 6,736 9,392
---------- ---------- ----------- --------
Total operating expenses........ 65,111 59,694 126,238 112,514
---------- ---------- ----------- --------
Income (loss) from operations............. 14,840 1,148 16,228 (2,446)
Interest expense.......................... (46) (358) (202) (658)
Other, net................................ 871 301 1,339 466
---------- ---------- ----------- --------
Interest expense and other,
net........................... 825 (57) 1,137 (192)
---------- ---------- ----------- --------
Income (loss) before income taxes......... 15,665 1,091 17,365 (2,638)
Benefit from (provision for) income
taxes................................... (7,835) 1,067 (8,878) 1,686
---------- ---------- ----------- --------
Net income (loss)......................... $ 7,830 $ 2,158 $ 8,487 $ (952)
========== ========== =========== ========
Net income (loss) per common share:
Basic..................................... $31.98 $14.03 $36.11 $(7.42)
Diluted................................... $ 0.13 $ 0.04 $ 0.14 $(7.42)
Number of shares used in per share
computations:
Basic..................................... 244,867 153,777 235,012 128,326
Diluted................................... 62,564,936 56,933,790 61,572,394 128,326
</TABLE>
See notes to condensed consolidated financial statements.
V-30
<PAGE> 789
SEAGATE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
JANUARY 1, JANUARY 2,
1999 1998
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 8,487 $ (952)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 17,199 20,688
Deferred income taxes..................................... (670) (2,821)
Write-offs of goodwill and intangibles.................... -- 1,900
Changes in operating assets and liabilities:
Accounts receivable.................................... (12,728) (11,284)
Inventories............................................ (144) 849
Other current assets................................... (3,389) 69
Accounts payable....................................... 1,256 1,348
Accrued employee compensation.......................... 2,901 3,041
Accrued expenses....................................... 4,099 4,420
Accrued income taxes................................... 1,663 (2,953)
Deferred revenue....................................... 4,238 2,162
Other liabilities...................................... 25 (31)
--------- ---------
Net cash provided by operating activities................. 22,937 16,436
INVESTING ACTIVITIES
Acquisition of equipment and leasehold improvements, net.... (4,910) (3,193)
Acquisition of intangibles.................................. (289) --
--------- ---------
Net cash used in investing activities..................... (5,199) (3,193)
FINANCING ACTIVITIES
Sale of common stock........................................ 461 346
Borrowings from Seagate Technology.......................... 121,837 110,131
Payments to Seagate Technology.............................. (154,202) (124,082)
--------- ---------
Net cash used in financing activities..................... (31,904) (13,605)
Effect of exchange rate changes on cash..................... (116) (258)
--------- ---------
Decrease in cash.......................................... (14,282) (620)
Cash at the beginning of the period......................... 15,130 12,085
--------- ---------
Cash at the end of the period............................... $ 848 $ 11,465
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.................................... $ -- $ 36
Cash paid for income taxes................................ 6,346 3,975
</TABLE>
See notes to condensed consolidated financial statements.
V-31
<PAGE> 790
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated condensed financial statements have
been prepared by Seagate Software, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. Seagate Software believes the
disclosures included in the unaudited condensed consolidated financial
statements, when read in conjunction with the consolidated financial statements
of Seagate Software as of July 3, 1998 and notes thereto, are adequate to make
the information presented not misleading.
The condensed consolidated financial statements reflect, in the opinion of
management, all normal recurring adjustments necessary to summarize fairly the
consolidated financial position, results of operations and cash flows for such
periods.
The results of operations for the six months ended January 1, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ending July 2, 1999.
Seagate Software operates and reports financial results on a fiscal year of
52 or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 1998
was 53 weeks and ended on July 3, 1998 and fiscal 1999 will be 52 weeks and will
end on July 2, 1999. All references to years in this Form 10-Q/A represent
fiscal years unless otherwise noted.
RESTATEMENT OF FINANCIAL STATEMENTS. Seagate Software had previously
allocated a portion of goodwill to developed technology and evaluated the
impairment of goodwill based on the revenues from related software. Using this
method, Seagate Software recorded write-downs and write-offs of goodwill in
fiscal 1997 in the amount of $10,259,000. Seagate Software has re-evaluated its
methodology and determined that goodwill should not be allocated to developed
technology under Accounting Principles Board Opinion 17, "Intangible Assets". As
a result, Seagate Software has made adjustments to decrease the amounts of
goodwill previously written-down and written-off from $10,259,000 to $6,173,000
in fiscal 1997. The additional goodwill of $4,086,000 is being amortized over
the remaining estimated useful lives of approximately 5 years.
The effect of this adjustment on previously reported consolidated financial
statements as of and for the three months ended January 1, 1999 and January 2,
1998 is as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
AS REPORTED AS RESTATED
------------------------ ------------------------
JANUARY 1, JANUARY 2, JANUARY 1, JANUARY 2,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Amortization of goodwill and other
intangibles............................... $ 3,148 $ 5,546 $ 3,343 $ 5,741
Income(loss) from operations................ 15,035 1,343 14,840 1,148
Net income (loss)........................... 8,025 2,353 7,830 2,158
Basic income (loss) per share............... 32.77 15.30 31.98 14.03
Diluted income (loss) per share............. 0.13 0.04 0.13 0.04
Goodwill and other intangible assets, net... 42,110 59,146 44,677 62,493
Accumulated deficit......................... (280,298) (281,247 (277,731) (277,900)
</TABLE>
V-32
<PAGE> 791
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The effect of this adjustment on previously reported consolidated financial
statements as of and for the six months ended January 1, 1999 and January 2,
1998 is as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
AS REPORTED AS RESTATED
------------------------ ------------------------
JANUARY 1, JANUARY 2, JANUARY 1, JANUARY 2,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Amortization of goodwill and other
intangibles............................... $ 6,346 $ 9,002 $ 6,736 $ 9,392
Income(loss) from operations................ 16,618 (2,056) 16,228 (2,446)
Net income (loss)........................... 8,877 (562) 8,487 (952)
Basic income (loss) per share............... 37.77 (4.38) 36.11 (7.42)
Diluted income (loss) per share............. 0.14 (4.38) 0.14 (7.42)
Goodwill and other intangible assets, net... 42,110 59,146 44,677 62,493
Accumulated deficit......................... (280,298) (281,247) (277,731) (277,900)
</TABLE>
REVENUE RECOGNITION. Seagate Software's revenues are primarily derived from
the sale of product licenses, software maintenance, technical support, training
and consulting. During the first quarter of 1999, Seagate Software began
recognizing license revenues in accordance with the American Institute of
Certified Public Accountants Statement of Position 97-2, "Software Revenue
Recognition". Revenues from software license agreements are generally recognized
at the time of product delivery, provided that fees are fixed or determinable,
evidence of an arrangement exists, collectibility is probable and the Company
has vendor-specific objective evidence of fair value. Service revenues from
customer maintenance fees for ongoing customer support and product updates are
recognized ratably over the maintenance term, which is typically 12 months.
Service revenues from training and consulting are recognized when such services
are performed.
Revenues from resellers including VARs, OEMs, distributors and Seagate
Software's parent company, Seagate Technology, Inc. ("Seagate Technology"), are
primarily recognized at the time of product shipment to the reseller. Seagate
Software's policy is to defer such revenues if resale contingencies exist.
Factors considered in the determination of whether such contingencies exist,
include but are not limited to payment terms, collectibility and past history
with the customer.
Product returns are reserved for in accordance with SFAS 48. Such returns
are estimated based on historical return rates. Seagate Software considers other
factors such as fixed and determinable fees, resale contingencies, arms length
contract terms and the ability to reasonably estimate returns to insure
compliance with SFAS 48. Additionally, Seagate Software continually reviews its
estimated product return provisions to ensure that they are reasonable in
relation to actual product returns, which are quantified based on approved
return authorization forms received prior to fiscal cutoff dates. Historically,
Seagate Software's estimated product return rates have not varied materially
from actual product return rates.
NET INCOME (LOSS) PER SHARE. Basic net income (loss) per common share is
computed using the weighted average number of shares of common stock outstanding
during the period. For periods in which Seagate Software had losses, common
equivalent shares from stock options, shares subject to repurchase and
convertible preferred stock are excluded from the computation of diluted net
loss per share, as their effect is
V-33
<PAGE> 792
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
antidilutive. Below is a reconciliation of the numerator and denominator used to
calculate basic and diluted earnings per share (in thousands, except share and
per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- -------------------------
JANUARY 1, JANUARY 2, JANUARY 1, JANUARY 2,
1999 1998 1999 1998
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Basic net income (loss) per
share computation:
Numerator:
Net income (loss)........ $ 7,830 $ 2,158 $ 8,487 $ (952)
----------- ----------- ----------- --------
Denominator:
Weighted average number of
common shares outstanding
during the period........ 244,867 153,777 235,012 128,326
----------- ----------- ----------- --------
Net income (loss) per
share -- basic...... $ 31.98 $ 14.03 $ 36.11 $ (7.42)
=========== =========== =========== ========
Diluted net income (loss) per
share computation:
Numerator:
Net income (loss)........ $ 7,830 $ 2,158 $ 8,487 $ (952)
----------- ----------- ----------- --------
Denominator:
Weighted average number of
common shares outstanding
during the period........ 244,867 153,777 235,012 128,326
Convertible preferred
stock.................... 54,633,333 54,633,333 54,633,333 --
Incremental common shares
attributable to exercise
of outstanding options
and shares subject to
repurchase (assuming
proceeds would be used to
purchase treasury
stock)................... 7,686,736 2,146,680 6,704,049 --
----------- ----------- ----------- --------
62,564,936 56,933,790 61,572,394 128,326
----------- ----------- ----------- --------
Net income (loss) per
share -- diluted.... $ 0.13 $ 0.04 $ 0.14 $ (7.42)
=========== =========== =========== ========
</TABLE>
For the six months ended January 2, 1998, 711,032 shares of common stock
subject to repurchase at an average price of $5.33 per share and options to
purchase 9,544,747 shares of common stock at an average exercise price of $6.75
per share were excluded from the computation of diluted earnings per share
because the effect would have been antidilutive.
ACCOUNTS RECEIVABLE. Accounts receivable are summarized below, in
thousands:
<TABLE>
<CAPTION>
JANUARY 1, JULY 3,
1999 1998
---------- -------
<S> <C> <C>
Accounts receivable....................................... $60,887 $48,200
Less allowance for non-collection......................... (1,595) (1,636)
------- -------
$59,292 $46,564
======= =======
</TABLE>
V-34
<PAGE> 793
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
OTHER CURRENT ASSETS. Other current assets included prepaid merger costs
that will be expensed upon the closing of Seagate Software's contribution of its
Network & Storage Management Group business ("NSMG") to Veritas Holding
Corporation ("New Veritas"). See "Notes to Condensed Consolidated Financial
Statements -- Veritas Transaction" below. These prepaid merger costs amounted to
approximately $2.2 million as of January 1, 1999 and consisted of legal fees,
accounting fees, banking fees, government filing fees and other expenses
directly related to this proposed transaction.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS. Equipment and leasehold improvements
consisted of the following, in thousands:
<TABLE>
<CAPTION>
JANUARY 1, JULY 3,
1999 1998
---------- -------
<S> <C> <C>
Equipment................................................. $36,011 $30,999
Leasehold improvements.................................... 9,040 9,424
------- -------
45,051 40,423
Less accumulated depreciation and amortization............ (28,020) (23,547)
------- -------
$17,031 $16,876
======= =======
</TABLE>
GOODWILL AND OTHER INTANGIBLES. Goodwill and other intangibles consisted of
the following, in thousands:
<TABLE>
<CAPTION>
JANUARY 1, JULY 3,
1999 1998
---------- -------
<S> <C> <C>
Goodwill.................................................. $49,139 $49,039
Developed technology...................................... 48,239 48,049
Trademarks................................................ 9,972 9,972
Assembled workforce....................................... 4,596 4,596
Distribution network...................................... 2,925 2,925
Other intangibles......................................... 13,813 13,813
------- -------
128,684 128,394
Accumulated amortization.................................. (84,007) (71,558)
------- -------
Goodwill and other intangibles............................ $44,677 $56,836
======= =======
</TABLE>
COMMON STOCK SUBJECT TO REPURCHASE. Current employees and directors of
Seagate Software and of Seagate Technology have exercised 692,872 shares of
common stock under the 1996 Stock Option Plan (the "Option Plan"). At January 1,
1999, 267,072 shares were vested and 425,800 shares were unvested. At the option
of the employee or director, within 30 days of termination such vested and
unvested shares may be sold back to Seagate Software at the original issue
price. In addition, upon termination, unvested shares are subject to repurchase
at the option of Seagate Software at the original issue price. Because of the
obligation to repurchase vested and unvested shares of common stock, Seagate
Software has excluded the amounts associated with the repurchase obligation from
Stockholders' Equity in the accompanying balance sheet.
NEW ACCOUNTING PRONOUNCEMENTS
Seagate Software intends to adopt Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131") during fiscal 1999. This standard will require
additional disclosure, but will not have a material effect on Seagate Software's
financial position or results of operations. SFAS 131 changes the way companies
report segment information and requires segments to be determined based on how
management measures performance and makes decisions about
V-35
<PAGE> 794
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
allocating resources. SFAS 131 will first be reflected in Seagate Software's
1999 Annual Report on Form 10-K.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance on capitalization of the costs incurred for computer software developed
or obtained for internal use. It also provides guidance for determining whether
computer software is internal-use software and on accounting for the proceeds of
computer software originally developed or obtained for internal use and then
subsequently sold to the public. Seagate Software has not yet determined the
impact, if any, of adopting this statement. The disclosures prescribed by SOP
98-1 will be effective for Seagate Software's consolidated financial statements
for the fiscal year ending June 30, 2000.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that derivatives
be recognized in the balance sheet at fair value and specifies the accounting
for changes in fair value. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999, and will be effective for Seagate
Software's fiscal year 2000. Seagate Software generally does not use derivative
financial instruments.
STOCKHOLDERS' EQUITY
Shares authorized and outstanding are as follows:
<TABLE>
<CAPTION>
SHARES OUTSTANDING
-----------------------
JANUARY 1, JULY 3,
1999 1998
---------- ----------
<S> <C> <C>
Preferred stock, par value $.001 per share, 73,000,000
shares authorized................................... 54,633,333 54,633,333
Common stock, par value $.001 per share, 95,600,000
shares authorized................................... 366,034 235,502
</TABLE>
INCOME TAXES
The effective tax rate used to record the provision for income taxes for
the six month period ended January 1, 1999 was 51% compared with a 64% effective
tax rate used to record the benefit from income taxes for the six month period
ended January 2, 1998. The effective tax rate used to record the provision for
taxes for the six month period ended January 1, 1999 exceeds the U.S. statutory
rate primarily due to the amortization of goodwill and certain other purchased
intangible assets that is not deductible for tax purposes, and foreign taxes on
certain earnings generated in higher tax rate jurisdictions. The effective tax
rate used to record the benefit from income taxes for the six month period ended
January 2, 1998 was based on the expected annual effective tax rate applicable
to anticipated fiscal 1998 operating income as adjusted for the amortization of
nondeductible goodwill. Seagate Software expects its annual effective tax rate
on anticipated operating income for fiscal 1999 to approximate 50% absent the
effects, if any, of its anticipated contribution of NSMG to New Veritas. The
projected effective tax rate exceeds the U.S. statutory rate primarily due to
the amortization of goodwill and certain other purchased intangible assets that
is not deductible for tax purposes and foreign taxes on certain earnings
generated in higher tax rate jurisdictions.
Seagate Software is included in the consolidated federal and certain
combined and consolidated state and foreign income tax returns of Seagate
Technology, Seagate Software's majority stockholder. Seagate Technology and
Seagate Software have entered into a tax sharing agreement (the "Tax Allocation
Agreement"). Pursuant to certain terms of the Tax Allocation Agreement, Seagate
Software's ability to recognize the tax benefits of certain net operating loss
carryforwards and foreign and domestic tax credits can
V-36
<PAGE> 795
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
be impacted by Seagate Technology's anticipated operating income for fiscal
1999. Accordingly, Seagate Software's expected annual effective tax rate of 50%
on anticipated operating income may be subject to adjustment in future quarters.
COMPREHENSIVE INCOME
As of July 4, 1998 Seagate Software adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income. SFAS
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of SFAS 130 had no impact on Seagate
Software's net income or stockholders' equity. SFAS 130 requires that foreign
currency translation adjustments, which prior to adoption were reported
separately in stockholders' equity, be included in accumulated other
comprehensive income. The differences between Seagate Software's comprehensive
income and net income for the periods presented are not material.
CONTRIBUTION OF NSMG TO NEW VERITAS
Seagate Software, Seagate Technology and NSMG announced on October 5, 1998
that they had entered into an Agreement and Plan of Reorganization (the "Plan")
as of such date with Veritas Software Corporation ("Veritas") and a newly-formed
holding company, Veritas Holding Corporation ("New Veritas"). The Plan provides
for the contribution by Seagate Software of those assets used primarily in the
network and storage management business of Seagate Software (the "NSMG
Business"), in consideration for the issuance of shares of Common Stock of New
Veritas to Seagate Software and the offer by New Veritas to grant options to
purchase Common Stock of New Veritas to certain of Seagate Software's employees
who become employees of New Veritas. New Veritas will also assume certain
liabilities of the NSMG Business. In addition, Veritas will become a
wholly-owned subsidiary of New Veritas. This contribution of NSMG to New Veritas
is structured to qualify as a tax-free exchange and will be accounted for as a
non-monetary transaction and Seagate Software will record a substantial gain and
a step-up in basis for its investment in New Veritas as more fully disclosed
below.
In connection with the contribution of NSMG to New Veritas, New Veritas
will issue shares of Common Stock to Seagate Software equal to 40% of the fully
diluted Common Stock equivalent equity interests in New Veritas (assuming
conversion of all convertible securities, including the Veritas convertible
debentures, and exercise of all dilutive options and warrants) less that number
of shares of New Veritas Common Stock issuable upon exercise of New Veritas
options issued to Seagate Software employees who surrender their outstanding
options to purchase shares of Seagate Software's Common Stock. In addition, the
former security holders of Veritas will be issued New Veritas securities
representing approximately 60% of the fully diluted Common Stock equivalent
equity interests in New Veritas.
The contribution of NSMG to New Veritas is subject to a number of
conditions, including but not limited to the effectiveness of a Registration
Statement on Form S-4 to be filed by New Veritas with the Securities and
Exchange Commission, approval by the stockholders of Veritas and Seagate
Software, the expiration or termination of the waiting period (and any extension
thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and other customary closing conditions.
Seagate Software anticipates recording a substantial gain and certain
expenses in connection with the contribution of NSMG to New Veritas. The gain
will be recorded in fiscal 1999. However, because Seagate Software will own
approximately 41% (computed on an outstanding shares basis) 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 NSMG to New Veritas. Seagate
Software will record a gain on the exchange equivalent to the difference between
approximately 59% of the fair value of the New Veritas stock received and
approximately 59% of Seagate Software's basis in the net NSMG business assets
exchanged. Seagate
V-37
<PAGE> 796
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
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 approximately 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. The expenses will include a substantial one-time
write-off of in-process research and development during fiscal 1999 as well as
amortization of goodwill and intangibles over the next four years. The magnitude
of the gain and expenses to be recorded will depend on several factors,
including the price of New Veritas common stock, the number of shares of stock
exchanged, and the number of options to purchase Seagate Software common stock
that are surrendered by employees of NSMG who receive New Veritas options.
NSMG comprised approximately 54% of consolidated assets, 60% of
consolidated revenues, and contributed $2.9 million in profit to the total
consolidated net loss of $9.3 million for the fiscal year ended 1998 (65% of
consolidated assets, 64% of consolidated revenues, and 119% of consolidated net
income at and for the second fiscal quarter of 1999). If the transaction with
New Veritas is consummated along the lines currently contemplated, it will
result in a substantial reduction in ongoing consolidated revenues and will
result in net losses in periods subsequent to the exchange resulting from the
amortization of intangible assets and goodwill associated with New Veritas.
Seagate Technology, the Company's parent, anticipates that it will offer to
purchase outstanding vested and unvested shares of Seagate Software in exchange
for shares of Seagate Technology common stock. The exchange ratio of Seagate
Software shares for Seagate Technology shares will be determined based on the
estimated fair value of the 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 NSMG business (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 by Seagate Software 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 as the purchase of minority interest and,
accordingly, the fair value of the shares exchanged will be 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.
LITIGATION
See Part II, Item 1 of this Form 10-Q/A for a description of legal
proceedings.
V-38
<PAGE> 797
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CERTAIN FORWARD-LOOKING INFORMATION
Certain statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") are forward-looking
statements based on current expectations, and entail various risks and
uncertainties that could cause actual results to differ from those projected in
such forward-looking statements. Certain of these risks and uncertainties are
set forth below in the sections entitled "Results of Operations," "Liquidity and
Capital Resources" and "Factors Affecting Future Operating Results." Certain
sections in this Quarterly Report on Form 10-Q/A have been identified as
containing forward-looking statements. The reader is cautioned that other
sections and other sentences not so identified may also contain forward-looking
information.
OVERVIEW
Seagate Software develops and markets software products and provides
related services enabling business users and information technology ("IT")
professionals to manage enterprise information. Headquartered in Scotts Valley,
California, Seagate Software has over 40 offices and operations in 17 countries
worldwide. Seagate Software is a majority-owned and consolidated subsidiary of
Seagate Technology, Inc. ("Seagate Technology"), a data technology company that
provides products for storing, managing and accessing digital information on
computer systems. As of January 1, 1999, Seagate Technology and one of its
subsidiaries held 99.4% of Seagate Software's outstanding capital stock. On a
fully converted basis, the outstanding minority interests of Seagate Software
amounted to approximately 18.0%, which consisted of Common Stock, options to
purchase its Common Stock issued pursuant to the 1996 Stock Option Plan (the
"Option Plan") and Common Stock subject to repurchase. Such options and stock
are held by certain current and former employees, directors and consultants of
Seagate Software and Seagate Technology.
Seagate Software was incorporated in Delaware in November 1993 and
commenced operations in May 1994 pursuant to Seagate Technology's merger with
Crystal Computer Services, Inc., a company engaged in developing and marketing
report writing software. From August 1994 to June 1996, Seagate Technology
acquired eight software companies, which were engaged in developing and
marketing business intelligence ("BI") or network and/or storage management
software products. In February 1996, Seagate Technology merged with Conner
Peripherals, Inc. ("Conner") in a transaction accounted for as a
pooling-of-interests. In connection with the merger, Seagate Technology
purchased the outstanding minority interests in Conner's storage management
software operations under Arcada Holdings, Inc. ("Arcada") for $85.1 million,
which resulted in allocations to goodwill and other intangibles for $47.4
million, write-off of in-process research and development of $43.9 million and a
deferred tax liability of $6.2 million. In April 1996, Seagate Technology
consolidated its software operations into Seagate Software. In June 1998,
Seagate Software acquired Eastman Software Storage Management Group, Inc.
("Eastman"), a company engaged in developing, producing and marketing
hierarchical storage management ("HSM") products for the Windows NT platform.
The purchase price of approximately $10,000,000 was paid in cash which resulted
in allocations to goodwill and other intangibles of $3.2 million and a write-off
of in-process research and development of $6.8 million. Seagate Software
accounted for the acquisition using the purchase method, and the results of
operations of Eastman are only included in Seagate Software's operations since
the acquisition was completed.
On October 5, 1998, Seagate Software signed a definitive agreement to
contribute its Network & Storage Management Group business ("NSMG") to a
newly-formed holding company, Veritas Holding Corporation ("New Veritas"), which
will also acquire Veritas Software Corporation ("Veritas"). See "Notes to
Condensed Consolidated Financial Statements -- Veritas Transaction."
Seagate Software expects to incur certain expenses in connection with the
contribution of NSMG to New Veritas. These expenses include a substantial
one-time write-off of in-process research and development during fiscal 1999, as
well as amortization of goodwill and intangibles over the next four years
related to the Company's investment in New Veritas. Seagate Software also
expects to record a substantial gain on the
V-39
<PAGE> 798
contribution of NSMG to New Veritas.* The magnitude of the expenses and the gain
will depend on several factors, including the price of Veritas common stock, the
number of shares of stock exchanged, and the number of options to purchase
Seagate Software common stock that are surrendered by employees of NSMG who
receive New Veritas options.
NSMG comprised approximately 54% of consolidated assets, 60% of
consolidated revenues, and contributed $2.9 million in profit to the total
consolidated net loss of $9.3 million for the fiscal year ended 1998 (65% of
consolidated assets, 64% of consolidated revenues, and 119% of consolidated net
income at and for the second fiscal quarter of 1999). If the transaction with
New Veritas is consummated along the lines currently contemplated, it will
result in a substantial reduction in ongoing consolidated revenues and will
result in net losses in periods subsequent to the exchange resulting from the
amortization of intangible assets and goodwill.
Seagate Software operates and reports financial results on a fiscal year of
52 or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 1998
was 53 weeks and ended on July 3, 1998 and fiscal 1999 will be 52 weeks and will
end on July 2, 1999. All references to years in this Form 10-Q/A represent
fiscal years unless otherwise noted.
RESTATEMENT OF FINANCIAL STATEMENTS
Seagate Software had previously allocated a portion of goodwill to
developed technology and evaluated the impairment of goodwill based on the
revenues from related software. Using this method, Seagate Software recorded
write-downs and write-offs of goodwill in fiscal 1997 in the amount of
$10,259,000. Seagate Software has re-evaluated its methodology and determined
that goodwill should not be allocated to developed technology under Accounting
Principles Board Opinion 17, "Intangible Assets". As a result, Seagate Software
has made adjustments to decrease the amounts of goodwill previously written-down
and written-off from $10,259,000 to $6,173,000 in fiscal 1997. The additional
goodwill of $4,086,000 is being amortized over the remaining estimated useful
lives of approximately 5 years.
The effect of this adjustment on previously reported consolidated financial
statements as of and for the three months ended January 1, 1999 and January 2,
1998 is as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
AS REPORTED AS RESTATED
----------------------- -----------------------
JANUARY 1, JANUARY 2, JANUARY 1, JANUARY 2,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Amortization of goodwill and other intangibles.... $ 3,148 $ 5,546 $ 3,343 $ 5,741
Income (loss) from operations..................... 15,035 1,343 14,840 1,148
Net income (loss)................................. 8,025 2,353 7,830 2,158
Basic income (loss) per share..................... 32.77 15.30 31.98 14.03
Diluted income (loss) per share................... 0.13 0.04 0.13 0.04
Goodwill and other intangible assets, net......... 42,110 59,146 44,677 62,493
Accumulated deficit............................... (280,298) (281,247) (277,731) (277,900)
</TABLE>
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that Seagate Software's actual future performance will
meet Seagate Software's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain forward-looking
information.
V-40
<PAGE> 799
The effect of this adjustment on previously reported consolidated financial
statements as of and for the six months ended January 1, 1999 and January 2,
1998 is as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
AS REPORTED AS RESTATED
----------------------- -----------------------
JANUARY 1, JANUARY 2, JANUARY 1, JANUARY 2,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Amortization of goodwill and other intangibles.... $ 6,346 $ 9,002 $ 6,736 $ 9,392
Income (loss) from operations..................... 16,618 (2,056) 16,228 (2,446)
Net income (loss)................................. 8,877 (562) 8,487 (952)
Basic income (loss) per share..................... 37.77 (4.38) 36.11 (7.42)
Diluted income (loss) per share................... 0.14 (4.38) 0.14 (7.42)
Goodwill and other intangible assets, net......... 42,110 59,146 44,677 62,493
Accumulated deficit............................... (280,298) (281,247) (277,731) (277,900)
</TABLE>
RESULTS OF OPERATIONS
REVENUES. Seagate Software's revenues are primarily derived from the sale
of product licenses, software maintenance, technical support, training and
consulting. During the first quarter of 1999, Seagate Software began recognizing
license revenues in accordance with the American Institute of Certified Public
Accountants Statement of Position 97-2, "Software Revenue Recognition". Revenues
from software license agreements are generally recognized at the time of product
delivery, provided that fees are fixed or determinable, evidence of an
arrangement exists, collectibility is probable and Seagate Software has
vendor-specific objective evidence of fair value. Service revenues from customer
maintenance fees for ongoing customer support and product updates are recognized
ratably over the maintenance term, which is typically 12 months. Service
revenues from training and consulting are recognized when such services are
performed.
Total revenues increased 27% and 23% over the comparable year-ago quarter
and the comparable year-ago six month period, respectively. Licensing revenues
increased 24% to $76.6 million and 20% to $137.5 million for the three and six
months ended January 1, 1999 as compared to the three and six months ended
January 2, 1998. The increase in licensing revenues over the comparable year-ago
periods was primarily due to a net increase in the number of NSMG product
licenses sold for sales of NSMG's Backup Exec for Windows NT and Desktop
Management Suite and IMG's Crystal Info products. Maintenance, support, and
other revenues increased 44% to $15.4 million and 41% to $29.5 million for the
three and six months ended January 1, 1999 from $10.7 million and $21.0 million
for the three and six months ended January 2, 1998. The increase in maintenance,
support and other revenues over the comparable year-ago quarter was primarily
due to increases in maintenance, training and consulting revenues resulting from
a larger installed customer base. Additionally, Seagate Software continued to
expand both its indirect and direct sales channels. Revenues from indirect sales
channels increased 28% to $65.4 million and 27% to $118.3 million in the three
and six months ended January 1, 1999 from $50.9 million and $93.1 million for
the comparable three and six month year-ago periods. Revenues from direct sales
channels increased 25% to $26.7 million and 15% to $48.6 million in the three
and six months ended January 1, 1999 from $21.4 million and $42.2 million in the
three and six months ended January 2, 1998.
COST OF REVENUES. The cost of revenues consists of amortization of acquired
developed technology, royalties, product packaging, documentation, duplication,
production and the cost of maintenance, consulting support and other services.
Acquired developed technology is amortized based on the greater of the straight-
line method over its estimated useful life (30 to 48 months) or the ratio of
current revenues to total current and anticipated future revenues. The total
cost of revenues as a percentage of total revenues decreased 3% and 4% over the
comparable year-ago quarter and the comparable year-ago six month period,
respectively. The primary reasons for the improved gross margins were a decline
in the amortization of developed technology for the three and six months ended
January 1, 1999 as a result of intangible assets that were fully amortized
during or at the start of the first quarter of fiscal 1999 and one time
write-offs of obsolete inventory during the first quarter of 1998. Additionally,
the cost of license revenues as a percentage of related revenues continues to
decline due to lower product packaging and documentation costs resulting from
higher licensing and royalty
V-41
<PAGE> 800
based revenues. The gross margins from maintenance, support and other revenues
increased 6% and 2% over the comparable year-ago quarter and the comparable
year-ago six month period, respectively, primarily due to an increase in higher
margin maintenance revenues.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
personnel-related expenses, advertising, sales and marketing promotions and
customer technical support costs. Total sales and marketing expenses increased
26% for the three and six months ended January 2, 1999 over the comparable
year-ago periods. The increase in sales and marketing expenses over the
comparable year-ago periods was primarily due to expansion of Seagate Software's
sales force and increases in advertising, promotion and technical support costs
necessary to support revenue growth, particularly outside of North America. As a
percent of total revenues, total sales and marketing expenses were 43% and 44%
for the three months ended January 1, 1999 and January 2, 1998, respectively.
Total sales and marketing expenses as a percent of total revenues remained at
45% for the six months ended January 1, 1999 and January 2, 1998, respectively.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of personnel-related expenses, depreciation of development equipment
and facilities and occupancy costs. In accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed," software development costs are expensed
as incurred until technological feasibility has been established, at which time
such costs are capitalized until the product is available for general release to
customers. To date, the establishment of technological feasibility of Seagate
Software's products and general release of such software has substantially
coincided. As a result, software development costs qualifying for capitalization
have been insignificant. Total research and development expenses increased 15%
to $13.6 million in the three months ended January 1, 1999 from $11.8 million in
the three months ended January 2, 1998 and increased 14% to $26.3 million in the
six months ended January 1, 1999 from $23.2 million in the comparable year-ago
six month period. The increase in research and development expenses over the
comparable year-ago quarter was primarily due to increases in personnel and
related expenses, including those specifically related to the Eastman
acquisition, the support of new product development and localization costs. As a
percentage of total revenues, research and development expenses were 15% and 16%
in the three months ended January 1, 1999 and January 2, 1998, respectively and
16% and 17% in the six months ended January 1, 1999 and January 2, 1998,
respectively.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of personnel-related expenses for finance, legal, information
technology, human resources and general management, fixed asset depreciation and
outside services. Total general and administrative expenses decreased 20% to
$8.3 million in the three months ended January 1, 1999 from $10.4 million in the
three months ended January 2, 1998. A decrease in total general and
administrative expenses of 11% to $17.3 million occurred in the six month period
ended January 1, 1999 when compared to the comparable year-ago period. The
decrease over the comparable year-ago quarter was primarily due to management's
efforts to reduce general management and administrative costs. As a percentage
of total revenues, general and administrative expenses were 9% and 14% in the
three months ended January 1, 1999 and January 2, 1998, respectively. These same
expenses were 10% and 14% in the six months ended January 1, 1999 and January 2,
1998, respectively.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Goodwill represents the
excess of the purchase price of acquired companies over the estimated fair
values of the tangible and intangible net assets acquired. Goodwill is amortized
on a straight-line basis over six to seven years. Other intangible assets
consist of acquired trademarks, assembled workforces, distribution networks,
developed technology, customer bases, and covenants not to compete. Amortization
of other intangibles, other than acquired developed technology, which is
included in the cost of revenues, is provided based on the straight-line method
over the respective useful lives of the assets ranging from one to five years.
Total amortization of goodwill and other intangibles decreased 42% to $3.3
million in the three months ended January 1, 1999 from $5.7 million in the three
months ended January 2, 1998. Amortization of goodwill and other intangibles
decreased 28% to $6.7 million during the six months ended January 1, 1999 from
$9.4 million for the six months ended January 2, 1998. The decrease in the
amortization of goodwill and other intangibles over the comparable year-ago
three and six month periods was primarily due to decreases in amortization
expense based on certain amounts becoming fully amortized during or as of the
start of the first fiscal quarter of 1999, partially offset by increases in
amortization expense
V-42
<PAGE> 801
due to goodwill acquired as part of the Eastman acquisition. As a percentage of
total revenues, amortization of goodwill and other intangibles was 4% and 8% in
the three months ended January 1, 1999 and January 2, 1998, respectively and 4%
and 7% in the six months ended January 1, 1999 and January 2, 1998,
respectively.
INTEREST EXPENSE AND OTHER, NET. Interest expense was $46,000 and $202,000
for the three and six months ended January 1, 1999, a decrease of 87% and 69%
from the comparable three and six month year-ago periods. The decrease in
interest expense over the comparable year-ago quarter was primarily due to
repayments on the revolving loan to Seagate Technology as a result of increased
cash flow generated from operations. Other income, net increased $570,000 and
$873,000 for the three and six months ended January 1, 1999 as compared to the
three and six months ended January 2, 1998 primarily due to foreign currency
translation gains resulting from Seagate Software's Canadian operations.
INCOME TAXES. The effective tax rate used to record the provision for
income taxes for the six month period ended January 1, 1999 was 51% compared
with a 64% effective tax rate used to record the benefit from income taxes for
the six month period ended January 2, 1998. The effective tax rate used to
record the provision for taxes for the six month period ended January 1, 1999
exceeds the U.S. statutory rate primarily due to the amortization of goodwill
and certain other purchased intangible assets that is not deductible for tax
purposes, and foreign taxes on certain earnings generated in higher tax rate
jurisdictions. The effective tax rate used to record the benefit from income
taxes for the six month period ended January 2, 1998 was based on the expected
annual effective tax rate applicable to anticipated fiscal 1998 operating income
as adjusted for the amortization of nondeductible goodwill. Seagate Software
expects its annual effective tax rate on anticipated operating income for fiscal
1999 to approximate 50% absent the effects, if any, of its anticipated
contribution of NSMG to New Veritas. The projected effective tax rate exceeds
the U.S. statutory rate primarily due to the amortization of goodwill and
certain other purchased intangible assets that is not deductible for tax
purposes and foreign taxes on certain earnings generated in higher tax rate
jurisdictions.
Seagate Software is included in the consolidated federal and certain
combined and consolidated state and foreign income tax returns of Seagate
Technology, Seagate Software's majority stockholder. Seagate Technology and
Seagate Software have entered into a tax sharing agreement (the "Tax Allocation
Agreement"). Pursuant to certain terms of the Tax Allocation Agreement, Seagate
Software's ability to recognize the tax benefits of certain net operating loss
carryforwards and foreign and domestic tax credits can be impacted by Seagate
Technology's anticipated operating income for fiscal 1999. Accordingly, Seagate
Software's expected annual effective tax rate of 50% on anticipated operating
income may be subject to adjustment in future quarters.
LIQUIDITY AND CAPITAL RESOURCES
Seagate Software's total cash was $848,000 and $15.1 million as of January
1, 1999 and July 3 1998, respectively. The decrease in cash was primarily due to
loan repayments to Seagate Technology of $154.2 million and purchases of
equipment, leasehold improvements and intangible assets of $5.2 million,
partially offset by borrowings from Seagate Technology of $121.8 million, cash
flows from operating activities of $22.9 million and the sale of common stock
for $461,000. Seagate Software's cash is maintained in highly liquid operating
accounts and primarily consists of bank deposits.
Seagate Software's operations have been financed by cash flows from
operating activities and borrowings from the Seagate Technology. Such borrowings
are available to Seagate Software under a Revolving Loan Agreement between
Seagate Software and Seagate Technology. Under the Revolving Loan Agreement,
Seagate Technology finances certain of Seagate Software's working capital
requirements. The Revolving Loan Agreement, which provides for maximum
borrowings of up to $60,000,000, is renewable every two years and expires on
July 3, 2000. Interest is paid at the LIBOR rate plus 2% per annum on such
borrowings (7.063% at January 1, 1999). The loan balance was $0 as of January 1,
1999.
In addition to the Revolving Loan Agreement with Seagate Technology,
certain foreign subsidiaries have line of credit facilities with third party
financial institutions. These line of credit facilities provide for additional
borrowings of up to an equivalent of approximately $1,139,000 at January 1,
1999. Interest rates payable on
V-43
<PAGE> 802
borrowings are based on local bank prime interest rates. At January 1, 1999,
there were $639,000 of outstanding borrowings under one line of credit.
During the three months ended January 1, 1999, Seagate Software made
investments totaling approximately $4.3 million for new office facilities,
leasehold improvements, computers, furniture and office equipment. Seagate
Software presently anticipates it will make investments in 1999 of approximately
$15.0 million in equipment and leasehold improvements. * Additionally, product
development activities may include cash to acquire technology.* Seagate Software
expects that such investments will be funded from existing cash balances and
cash flows from operations.*
Seagate Software anticipates that the proposed contribution of NSMG to New
Veritas will have a significant impact on its cash flows from continuing
operations with respect to the exclusion of NSMG's operations. However, Seagate
Software believes its current cash balances, its available borrowings from
Seagate Technology and cash flows generated from Seagate Software's operations
will be sufficient to meet its anticipated cash needs for working capital and
capital expenditures for at least the next 12 months.* Furthermore, Seagate
Software anticipates that future operating and investing activities may be
financed by additional borrowings from Seagate Technology, equity financing or
other sources.* Seagate Software believes that additional financing from Seagate
Technology will be available at a reasonable cost.*
YEAR 2000 READINESS
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. This could result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions, send invoices, or engage in
normal business activities.*
We consider a product to be "Year 2000 Ready" if the product's performance
and functionality are unaffected by processing of dates prior to, during and
after the year 2000, but only if all products (for example hardware, firmware,
and software) used with the products properly exchange accurate date data with
it.
Seagate Software's Products
Our products are used in numerous operating environments. We have assessed
our products to determine whether or not they are Year 2000 Ready. Although we
believe certain of our software products are Year 2000 Ready, we have determined
that certain of our software products are not and will not be Year 2000 Ready.
Our products that are not Year 2000 Ready are not material to our business,
financial condition or results of operations. The inability of one or more of
our products to properly manage and manipulate dates related to the Year 2000
could result in a material adverse effect on our business, financial condition
or results of operations, including increased warranty costs, customer
satisfaction issues and potential lawsuits. We are taking measures to inform our
customers that those products are not and will not be Year 2000 Ready. To assist
our customers in evaluating their Year 2000 issues, we have developed a list of
those products that are Year 2000 Ready as stand-alone products. The list is
located on Seagate Software's World Wide Web page and is periodically updated
when we make additional product assessments.
We anticipate that substantial litigation may be brought against vendors,
including Seagate Software, of all software components of systems in which
another vendor's component products are unable to properly manage data related
to the Year 2000. Our customer agreements typically contain provisions designed
to limit our liability for such claims. As a result of existing or future
federal, state or local laws or ordinances or unfavorable judicial decisions, it
is possible that these measures will not provide us with protection from
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that Seagate Software's actual future performance will
meet Seagate Software's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain forward-looking
information.
V-44
<PAGE> 803
liability claims.* If any such claims are brought against us, regardless of
their merit, our business, financial condition and results of operations could
be materially adversely affected from factors that include increased warranty
costs, customer satisfaction issues and the costs of potential lawsuits.
Our Systems
We have also initiated a comprehensive program to address Year 2000
readiness in our internal systems and in those of our customers and suppliers.
Our program has been designed to address our most critical internal systems
first and to gather information regarding the Year 2000 compliance of products
supplied to Seagate Software and into which our products are integrated. The
scope of our internal Year 2000 readiness project includes information
technology, non-information technology and embedded technology for all critical
systems, and includes all offices worldwide, critical vendors, suppliers,
customers and partners. We currently expect to be Year 2000 ready by December
31, 1999.
We are using the following phased approach to Year 2000 readiness:
inventory, assessment, testing, remediation and contingency planning.
Anticipated dates of completion for our two lines of business are as follows:
<TABLE>
<CAPTION>
NETWORK & STORAGE INFORMATION
MANAGEMENT GROUP MANAGEMENT GROUP
------------------ ----------------
<S> <C> <C>
1. Inventory................................. Complete March 1, 1999
2. Assessment................................ April 30, 1999 April 1, 1999
3. Testing................................... June 1, 1999 July 1, 1999
4. Remediation............................... September 30, 1999 December 1, 1999
5. Contingency Planning...................... September 30, 1999 August 1, 1999
</TABLE>
These activities are intended to encompass all major categories of systems
in use by Seagate Software, including operations, technical support,
engineering, sales, finance and human resources. To date, we have not incurred
material costs related to assessment and remediation of Year 2000 readiness. We
are still in the process of conducting our Year 2000 audit. We currently
estimate the cost of internal Year 2000 issues will be less than $3.0 million.
However, if the costs of future remediation exceed such amount, then the costs
required to address the Year 2000 issue could have a material adverse effect on
our business, financial condition or results of operations.
Our material third party relationships include relationships with
fulfillment houses, banks, payroll services vendors, utilities, distribution
partners and key customers. These relationships have been inventoried, and we
are now assessing the risks relating to these relationships. We believe that
certain of these relationships are of significant importance to our future
operations.* We have contacted our significant suppliers and have received
assurances of Year 2000 compliance from a number of those contacted. However,
most of our suppliers are under no contractual obligation to provide such
information to us. We do not currently have reason to believe that any such
third parties have significant internal Year 2000 problems that will not
remediated.* However, in the event any such third parties were to have an
unremediated Year 2000 problem, it could have a material adverse effect on our
business, financial condition or results of operations.
Customer Purchasing Patterns
We believe that the purchasing patterns of customers and potential
customers may be affected by Year 2000 issues as companies expend significant
resources to correct or patch their current software systems for Year 2000
readiness or defer purchases of new systems to avoid encountering additional
unforeseen Year 2000 problems. Additional short-term expenditures for
remediation of existing Year 2000 problems may result in
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that Seagate Software's actual future performance will
meet Seagate Software's current expectation. Readers are cautioned that other
sections and other sentences not so identified may also contain forward-looking
information.
V-45
<PAGE> 804
reduced funds available to purchase products such as those offered by Seagate
Software, which could have a material adverse effect on our business, operating
results or financial condition.*
We believe that a most likely worst case Year 2000 scenario would result in
a disruption of infrastructure, including the possible loss of power and
disruption of transportation systems. We believe that no effective contingency
planning for such disruption is possible. We also believe that additional
elements of the most likely worst case Year 2000 scenario include the loss of
fulfillment services, banking services, and/or distribution services. Although
discussions of contingency planning for these problems has begun, no contingency
plan is yet in place. We currently expect to complete contingency planning by
September 30, 1999.* We could experience material adverse effects on our
business if we fail to successfully implement a contingency plan. Those material
adverse effects could include delays in the delivery or sale of our products.
FACTORS AFFECTING FUTURE OPERATING RESULTS
RISKS FROM THE CONTRIBUTION OF OUR NETWORK & STORAGE MANAGEMENT GROUP
Seagate Technology consolidated its software businesses into a single
entity called Seagate Software in 1996. Seagate Software's business currently
consists of two primary divisions, NSMG and the Information Management Group.
Seagate Software announced on October 5, 1998 that it will contribute NSMG to
New Veritas. Seagate Software and Seagate Software optionees who will become
employees of New Veritas will receive approximately 40% of the fully-diluted
equity in New Veritas.
Seagate Software faces a number of risks prior to and after the closing of
the contribution of NSMG to New Veritas including:
- our management personnel may be distracted from day to day operations by
the transaction;
- employees of the Information Management Group may be distracted by
concerns about whether we will continue to operate that business or spin
it off;
- NSMG's customers may delay or cancel orders due to uncertainty about the
transaction;
- the ongoing original equipment manufacturer ("OEM") relationship between
NSMG and Seagate Technology's tape drive operations may be disrupted;
- we have agreed not to compete in certain storage management software
businesses for a specified period of time after the closing and may not
be able to benefit from future opportunities in that market;
- we will not have control over the management of New Veritas, although
initially we will have two representatives on its board of directors;
- we will only be permitted to sell our interest in New Veritas in limited
increments in compliance with certain SEC rules or to bear the expense in
filing a registration statement; and
- our Information Management Group has shared certain employees with NSMG
who have provided accounting, legal, information technology, and other
services to us. Many of these employees will become employees of New
Veritas. The Information Management Group may experience delay and
difficulty in conducting its day to day operations until replacement
services have been fully implemented.
POTENTIAL FLUCTUATIONS IN ANNUAL AND/OR QUARTERLY OPERATING RESULTS
We often experience a high volume of sales at the end of our fiscal
quarter. Therefore, it may be late in the quarter before we are able to
determine that our costs are too high in relation to our actual sales. If this
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that Seagate Software's actual future performance will
meet Seagate Software's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain forward-looking
information.
V-46
<PAGE> 805
were to happen, we would not be able to reduce these costs and, consequently,
our net income would be reduced or our net loss increased.* In addition, our
operating results have been and may, in the future, be subject to significant
quarterly fluctuations as a result of a number of other factors including:
- the timing of orders from and shipment of products to major customers,
primarily distributors such as Ingram Micro Inc. ("Ingram");
- our ability to develop, introduce, and market new products and product
enhancements in a timely fashion, particularly with respect to Seagate
Backup Exec, Seagate Info and Seagate Crystal Reports;
- changes in the prices of our products and our competitors' products;
- our customers' preference for competing technologies in lieu of our
products such as Seagate Backup Exec, Seagate Info and Seagate Crystal
Reports;
- our inability to reduce our costs in relation to our revenues (because we
ship our products shortly after we receive orders and operate with no
backlog);
- the impact of changes in foreign currency exchange rates on the cost of
our products and the effective price of such products to foreign
consumers; and
- competition and consolidation in our industry.
REVENUE CONCENTRATION
Our new products must be accepted by customers in order for us to be
successful. If our products are not purchased as a result of competition,
technological change or other factors, then our business, operating results and
financial condition would be materially adversely affected.
Our software products have a fixed life cycle that is difficult to
estimate. If we do not develop and introduce new products before our existing
products have completed their life cycles, then we will be unable to sustain or
increase our level of sales.* We cannot be sure that we will continue to be
successful in marketing our key products or any new products, applications or
product enhancements.
We currently obtain most of our revenue from a limited number of software
products and anticipate this to be the case in the foreseeable future.* Sales to
a small number of customers generate a disproportionate amount of our revenues.
For example, Seagate Software derived 21% of its revenues from sales to Ingram
in the six months ended January 1, 1999. If Ingram, or any other significant
customer, reduces its purchases from us, our business, financial condition, and
results of operations would be materially adversely affected unless we
substantially increased sales to other customers. Because our contracts with
Ingram (or any other customer) do not require them to purchase any specified
number of software licenses from us, we cannot be sure that our significant
customers will continue to purchase our products at their current levels.
RELIANCE ON SALES STAFF, CHANNEL PARTNERS AND STRATEGIC RELATIONSHIPS
We sell and support our products through: our sales staff, third party
distributors, and OEMs. We also have a strategic relationship with Microsoft
that enables us to bundle our products with Microsoft's products, and we have
developed and are developing certain utilities and products to be a part of
Microsoft's products.* If Microsoft reduces the nature and quantity of its
relationship with us, our business, operating results and financial condition
would be materially adversely affected.
We have made significant expenditures in recent years to expand our sales
and marketing force. We intend to continue to expand our Information Management
Group sales and marketing force after the closing
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that Seagate Software's actual future performance will
meet Seagate Software's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain forward-looking
information.
V-47
<PAGE> 806
of the contribution of NSMG to New Veritas.* Our future success will depend in
part upon the productivity of our Information Management Group sales and
marketing force.* During the second quarter of fiscal 1999, we experienced
significant turnover in our Information Management Group's sales personnel
management. We believe that our ability to continue to attract, integrate,
train, motivate and retain new sales and marketing personnel will also affect
our success.* We face intense competition for sales and marketing personnel in
the software industry, and we cannot be sure that we will be successful in
hiring and retaining such personnel in accordance with our plans. Even if we
hire and train sufficient numbers of sales and marketing personnel, we cannot be
sure that our recent and other planned expenses will generate enough additional
revenue to exceed these costs. In the event that the contribution of NSMG to New
Veritas does not close, we would also continue to expand NSMG's sales and
marketing force.*
We generate a substantial portion of our revenue by selling our products to
distributors and OEMs. Our distributors and OEMs decide whether or not to
include our products with those they sell and generally can carry and sell
product lines that are competitive with ours. Because OEMs and distributors
carry other product lines and are not required to make a specified level of
purchases from us, we cannot be sure that they will prioritize selling our
products. These distributors and OEMs are also generally entitled to terminate
their relationship with us without cause. Our business, financial results and
operating condition would be materially adversely affected if some or all of our
current distributors and OEMs discontinued selling our products and we failed to
find comparable replacements.*
NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE
Our products are used in combination with other software and computer
hardware systems. The market for our products is characterized by rapidly
changing technology, changing customer needs, evolving industry standards and
frequent new product introductions. Our future success will therefore depend on
our ability to design, develop, test and support new software products and
enhancements on a timely and cost effective basis.*
If we do not respond to changing market conditions and customer
requirements by developing and introducing new products in a timely manner, then
our business, operating results or financial condition could be materially
adversely affected.*
COMPETITION
Our industry, including the business intelligence market in which the
Information Management Group participates and the network and storage management
software market in which NSMG participates, is intensely competitive and is
characterized by rapidly changing technology and evolving standards. We expect
additional competition from other established and/or emerging companies and as a
result of future software industry consolidations.* We expect that our
competitors will offer new and existing products at lower prices, if necessary,
to gain or retain market share and customers.* We have experienced and expect to
continue to experience intense competition from a number of domestic and foreign
companies. Increased competition can be expected to cause price reductions,
reduced gross margins and loss of market share, any of which could have a
material adverse effect on our business, operating results or financial
condition.* Current and potential competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements, or
to devote greater resources to the development, promotion, sale and support of
their products than we are able to do.*
It is possible that new competitors or alliances among our competitors may
emerge and rapidly acquire significant market share. In addition, network
operating system vendors could introduce new or upgrade existing operating
systems or environments that could render our products obsolete and
unmarketable.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that Seagate Software's actual future performance will
meet Seagate Software's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain forward-looking
information.
V-48
<PAGE> 807
In connection with the contribution of NSMG to New Veritas, we have agreed
not to re-enter some of the segments in which NSMG participates for a specified
period of time. We may not be able to compete effectively with other companies
that can offer solutions in the business intelligence software segment and the
areas in which we have agreed not to re-enter.*
We also face indirect competition from present and potential customers,
including Microsoft or other strategic partners, that continuously evaluate
whether to develop their own software products and components internally or
obtain them from outside sources. If our strategic partners decide to develop
the utilities and other products we have in the past provided, it could have a
material adverse effect on our business, results of operations and financial
condition.*
There can be no assurance that we will be able to compete successfully
against current or future competitors. If we fail to compete successfully, our
business, operating results and financial condition may be materially adversely
affected.*
ACQUISITION RELATED ACCOUNTING CHARGES WILL REDUCE OUR PROFITS
We intend to continue our expansion of the Information Management Group
through internal growth as well as acquisitions.* Acquisitions involve numerous
risks including:
- the difficulties of integrating the operations and products of the
acquired businesses,
- 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 fourth quarter of fiscal 1998 of
approximately $7 million for the write-off of in-process research and
development related to our acquisition of Eastman Software Storage Management
Group, Inc.
THE SECURITIES AND EXCHANGE COMMISSION'S COMMENTS REGARDING IN-PROCESS RESEARCH
AND DEVELOPMENT MAY RESULT IN RESTATEMENTS OF OUR HISTORICAL FINANCIAL
STATEMENTS
We have accounted for several of our past acquisitions, including the
write-off of in-process research and development activities, in accordance with
established accounting practices and based upon expert third party valuations.
After the fiscal years in which these transactions occurred, the Securities and
Exchange Commission provided additional guidance on the determination of
in-process research and development write-offs in a letter dated October 9, 1998
to the American Institute of Certified Public Accountants. In connection with
filings with the Securities and Exchange Commission regarding the contribution
of the Network & Storage Management Group business to New Veritas and related
transactions, the staff of the Securities and Exchange Commission commented upon
the application of such additional guidance with respect to our historical
financial statements. Until the Securities and Exchange Commission completes its
review and its comments have been resolved, any impact from the application of
the additional guidance can not be quantified.
RISKS OF SYSTEMS FAILURES
Our operations are dependent on our ability to protect our computer
equipment and the information stored in our databases from damage by
catastrophic events such as fire, natural disaster, power loss,
telecommunications failures, and unauthorized intrusion. We believe that we have
taken prudent measures to
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that Seagate Software's actual future performance will
meet Seagate Software's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain forward-looking
information.
V-49
<PAGE> 808
reduce the risk of interruption in our operations. However, we cannot be sure
that these measures are sufficient. Any damage or failure that causes
interruptions in our operations could have a material adverse effect on our
business, results of operations and financial condition.
RISKS FROM INTERNATIONAL OPERATIONS
We have significant offshore operations including development facilities,
sales personnel and customer support operations. Our offshore operations are
subject to certain inherent risks including:
- fluctuations in currency exchange rates;
- lack of acceptance of localized products;
- longer payment cycles for sales in foreign countries;
- difficulties in staffing and managing international operations;
- seasonal reductions in business activity in the summer months in Europe
and certain other countries;
- increases in tariffs, duties, price controls, other restrictions on
foreign currencies or trade barriers imposed by foreign countries;
- management of an enterprise spread over various countries;
- the burden of complying with a wide variety of foreign laws; and
- political unrest, particularly in areas in which we have facilities.
These factors could have a material adverse effect on our business,
operating results and financial condition in the future.
Our products are priced in U.S. dollars even when sold to customers who are
located abroad. The currency instability in the Asian and other financial
markets may make our products more expensive than products sold by other
manufacturers that are priced in one of the effected currencies. Therefore,
foreign customers may reduce purchases of our products.* We anticipate that the
recent turmoil in financial markets and the recent deterioration of the
underlying economic conditions in certain countries, including those in Asia and
the Far East, may have an impact on our sales to customers located in or whose
end-user customers are located in those countries due to:*
- the impact of currency fluctuations on the relative price of Seagate
Software's products,
- restrictions on government spending imposed by the International Monetary
Fund in those countries receiving the International Monetary Fund's
assistance,
- customers' reduced access to working capital to fund software purchases,
such as our products, due to:
- higher interest rates,
- reduced bank lending due to contractions in the money supply or the
deterioration in the customer's or its bank's financial condition, or
- the inability to access other financing
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that Seagate Software's actual future performance will
meet Seagate Software's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain forward-looking
information.
V-50
<PAGE> 809
DEPENDENCE ON PROPRIETARY TECHNOLOGY
Our success will be heavily dependent on our proprietary technology. We
rely primarily on the following to protect our proprietary rights:
- patents,
- copyrights,
- trademarks and trade secret rights,
- confidentiality procedures,
- employee and third party nondisclosure agreements, and
- licensing restrictions.
Such efforts provide only limited protection.
We also rely in part on shrink-wrap licenses that are not signed by end
users and, therefore, may be unenforceable under the laws of certain
jurisdictions.
Even though we take these steps, someone may be able to copy or otherwise
obtain and use our products and technology without authorization. Policing
unauthorized use of our products is difficult. Although we cannot determine the
extent of existing piracy of our products, we expect that software piracy will
be a persistent problem.* Third parties may also develop similar technology
independently. We believe that effective protection of intellectual property
rights is unavailable or limited in certain foreign countries.*
Our competitors may successfully challenge the validity or scope of our
patents, copyrights and trademarks.* We cannot be sure that our patents,
copyrights and trademarks will provide us with a competitive advantage or that
our competitors will not design around any patents issued to us. We are not
aware that any of our products infringe upon the proprietary rights of third
parties, but, in the future, third parties may claim that our current or future
products infringe that party's rights.* We believe that software product
developers will be increasingly subject to claims of infringement as the
functionality of products in our industry segment overlaps.* If we were subject
to a claim of infringement, regardless of its merit, such claim would have the
following impacts on us that could have a material adverse effect on our
business, operating results or financial condition:
- require costly litigation to resolve,
- absorb significant management time, or
- require us to enter into unfavorable royalty or license agreements.
SOFTWARE PRODUCT ERRORS OR DEFECTS
Software products as complex as those we offer frequently contain errors or
defects, especially when first introduced or when new versions or enhancements
are released. Despite product testing, our products may contain defects or
software errors.* If our products have errors, they could:
- cause a negative customer reaction that could reduce future sales;
- generate negative publicity regarding Seagate Software and our products;
- harm our reputation;
- reduce or limit customer's adoption of our products;
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that Seagate Software's actual future performance will
meet Seagate Software's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain forward-looking
information.
V-51
<PAGE> 810
- require us to make extensive changes to the product; or
- result in customers' delaying their purchase until the errors or defects
have been remedied, which would cause our revenues to be reduced or
delayed.
Any of these occurrences could have a material adverse effect upon our
business, operating results or financial condition.
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. Existing
or future federal, state or local laws or ordinances or unfavorable judicial
decisions may make these provisions ineffective.* Because our products are used
in system management, resource optimization and business intelligence
applications, our liability could be substantial if we receive an unfavorable
judgement, which could have a material adverse effect upon our business,
operating results or financial condition.*
DEPENDENCE ON KEY PERSONNEL
Our future performance depends to a significant degree upon the continued
service of our key members of management as well as marketing, sales, and
product development personnel.* The loss of one or more of our key personnel
would have a material adverse effect on our business, operating results and
financial condition.* We believe our future success, particularly with respect
to the Information Management Group after the contribution of NSMG to New
Veritas, will also depend in large part upon our ability to attract and retain
highly skilled management, marketing, sales, and product development personnel.*
We have experienced intense competition for such personnel and there can be no
assurance that we will be able to retain our key employees or that we will be
successful in attracting, assimilating and retaining them in the future.
FACING RISKS OF LITIGATION
We are subject to litigation arising in the ordinary course of our
business. While we believe that the ultimate outcome of these actions will not
have a material adverse effect on us, the outcome of these actions is not
determinable, and negative outcomes may adversely effect our financial position,
liquidity, or results of operations. See Part II, Item 1 of this Form 10-Q for a
description of legal proceedings.
RISKS FROM CONVERSION TO SINGLE EUROPEAN CURRENCY.
On January 1, 1999, certain member states of the European Economic
Community fixed their respective currencies to a new currency, the Single
European Currency. On that day the Single European Currency became a functional
legal currency within these countries. During the three years beginning on
January 1, 1999, business in these countries will be conducted both in the
existing national currency, such as the French Franc or the Deutsche Mark, as
well as the Single European Currency. Companies operating in or conducting
business in these countries, will need to ensure that their financial and other
software systems are capable of processing transactions and properly handling
the existing currencies and the Single European Currency.
We are still assessing the impact that the introduction and use of the
Single European Currency will have on our internal systems. We will take
corrective actions based on such assessment but do not presently expect that
introduction and use of the Single European Currency will materially affect our
foreign exchange and hedging activities or use of derivative instruments or will
result in any material increase in our costs.* While we will continue to
evaluate the impact of the Single European Currency introduction over time,
based on currently available information, we do not believe that the
introduction of the Single European Currency will have a material adverse impact
on Seagate Software's financial condition or overall trends in results of
operations, nor have the introduction and use of the Single European Currency
had such effects to date.*
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that Seagate Software's actual future performance will
meet Seagate Software's current expectations. Readers are cautioned that other
sections and other sentences not so identified may also contain forward-looking
information.
V-52
<PAGE> 811
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
FOREIGN CURRENCY RISK. The local currency is the functional currency for
Seagate Software's foreign operations. Gains and losses on translation into U.S.
dollars of foreign operations are recorded as a separate component of
stockholders' equity. Foreign currency fluctuations have not had a significant
effect on Seagate Software's results of operations, and Seagate Software does
not engage in foreign currency hedging programs.
INTEREST RATE RISK. Seagate Software's exposure to market risk for changes
in interest rates relates primarily to Seagate Software's borrowings under a
Revolving Loan Agreement between Seagate Software and Seagate Technology.
Seagate Software pays interest to Seagate Technology at the LIBOR rate plus 2%
per annum on such borrowings (7.063% at January 1, 1999). Seagate Software
typically uses available cash in excess of amounts required for operating
activities to pay amounts due under the Revolving Loan Agreement. Accordingly,
Seagate Software has not had a significant level of funds available for
investment purposes. Interest rate fluctuations have not had a significant
effect on Seagate Software's results of operations.
V-53
<PAGE> 812
PART II
OTHER INFORMATION
ITEM 1. 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 Ltd., our wholly owned subsidiary,
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. We have hired local counsel in the U.K., reviewed documents and
conducted interviews. We filed an initial response in the U.K. court on January
13, 1998 and are now in the discovery process.
Furthermore, on December 22, 1998, a former employee commenced an action in
the Superior Court of Santa Cruz County, California, 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 our Network & Storage
Management Group business. No specific damage amount has been claimed.
Seagate Software believes these complaints have no merit and intends
vigorously to 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are included herein:
<TABLE>
<S> <C>
2.1.1 Amended and Restated Agreement and Plan of Reorganization by
and among VERITAS Holding Corporation, VERITAS Software
Corporation, Seagate Technology, Inc., Seagate Software,
Inc. and Seagate Software Network & Storage Management
Group, Inc.
4.2 Form of Stockholder Agreement by and among VERITAS Holding
Corporation, VERITAS Software Corporation, Seagate
Technology, Inc. and Seagate Software, Inc.
4.3(A) Form of Registration Rights Agreement by and among VERITAS
Holding Corporation and Seagate Software, Inc.
10.1.1(A) 1996 Stock Option Plan, as amended
10.15+(A) 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+(A) Cross License and Original Equipment Manufacturing 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 to Cross-License and OEM Agreement.
27.1(A) Amended Financial Data Schedule
</TABLE>
- ---------------
+ Certain information in these exhibits has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment filed pursuant to 17 C.F.R. 200.80(b)(4), 200.83 and
230.24b-2.
(A) Previously filed.
V-54 (II-1)
<PAGE> 813
(b) Reports on Form 8-K
A report on Form 8-K was filed with the Securities and Exchange Commission
on October 20, 1998 regarding the agreement of Seagate Technology, Seagate
Software, Veritas Software Corporation and Veritas Holding Corporation to
contribute Seagate Software's Network & Storage Management Group business and
Veritas Software Corporation's business to Veritas Holding Corporation.
V-55 (II-2)
<PAGE> 814
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEAGATE SOFTWARE, INC.
(Registrant)
<TABLE>
<S> <C>
DATE: April 21, 1999 By: /s/ TERENCE R. CUNNINGHAM
TERENCE R. CUNNINGHAM
President and Chief Operating Officer
DATE: April 21, 1999 By: /s/ ELLEN E. CHAMBERLAIN
ELLEN E. CHAMBERLAIN
Senior Vice President, Treasurer and
Chief Financial Officer
</TABLE>
V-56 (II-3)
<PAGE> 815
APPENDIX W
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS FOR TELEBACKUP SHAREHOLDERS
In the opinion of Parlee McLaws, Calgary, Alberta, counsel for TeleBackup,
and Osler, Hoskin and Harcourt, Calgary, Alberta, counsel for New VERITAS, the
following is a summary of the principal Canadian federal income tax
considerations generally applicable to TeleBackup shareholders in relation to
the transactions described herein, who, for purposes of the Income Tax Act
(Canada), hold their TeleBackup common shares and will hold their Exchangeco
class A non-voting shares, Exchangeco exchangeable shares and shares of New
VERITAS common stock as capital property and deal at arm's length with
TeleBackup, Exchangeco and New VERITAS. All TeleBackup shareholders should
consult their own tax advisors as to whether, as a matter of fact, they hold
their TeleBackup common shares and will hold their Exchangeco class A non-voting
shares, Exchangeco exchangeable shares and shares of New VERITAS common stock as
capital property for purposes of the Tax Act. This summary does not apply to a
holder with respect to whom New VERITAS is a foreign affiliate within the
meaning of the Tax Act. This summary also does not apply to a holder that is a
"financial institution" as defined in the Tax Act for purposes of certain
provisions in the Tax Act relating to securities held by financial institutions
(the mark-to-market rules).
This summary is based on the current provisions of the Tax Act, the
Regulations thereunder, the current provisions of the Canada-United States
Income Tax Convention, or the "Tax Treaty", and counsel's understanding of the
current published administrative practices of Revenue Canada. This summary takes
into account the amendments to the Tax Act and Regulations publicly announced
prior to the date hereof and assumes that all such proposed amendments will be
enacted in their present form. However, no assurances can be given that the
proposed amendments will be enacted in the form proposed, or at all.
Except for the foregoing, this summary does not take into account or
anticipate any changes in law or administrative practice, whether by
legislative, administrative or judicial decision or action, nor does it take
into account provincial, territorial or foreign income tax legislation or
considerations, which may differ from the Canadian federal income tax
considerations described herein.
WHILE THIS SUMMARY IS INTENDED TO ADDRESS THE PRINCIPAL CANADIAN FEDERAL
INCOME TAX CONSIDERATIONS, IT IS OF A GENERAL NATURE ONLY, IS NOT EXHAUSTIVE OF
ALL POSSIBLE CANADIAN FEDERAL INCOME TAX CONSEQUENCES, AND IS NOT INTENDED TO
BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO ANY
PARTICULAR TELEBACKUP SHAREHOLDER. THE INCOME TAX CONSEQUENCES OF THE
TRANSACTIONS DESCRIBED HEREIN WILL VARY DEPENDING ON A NUMBER OF FACTORS.
THEREFORE, SUCH HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THEIR PARTICULAR CIRCUMSTANCES AND THE CONSEQUENCES OF THE TRANSACTIONS
DESCRIBED HEREIN. NO ADVANCE INCOME TAX RULING HAS BEEN OBTAINED FROM REVENUE
CANADA TO CONFIRM THE TAX CONSEQUENCES OF ANY OF THE TRANSACTIONS DESCRIBED
HEREIN.
For purposes of the Tax Act, all amounts relating to the acquisition,
holding or disposition of shares of New VERITAS common stock, including
dividends, adjusted cost base and proceeds of disposition must be converted into
Canadian dollars based on the prevailing U.S. dollar exchange rate at the time
such amounts arise.
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<PAGE> 816
SHAREHOLDERS RESIDENT IN CANADA
The following portion of the summary is applicable to TeleBackup
shareholders who, for purposes of the Tax Act and any bilateral tax treaty, are
resident or deemed to be resident in Canada.
AMALGAMATION OF AMALCO AND TELEBACKUP AND RECEIPT OF EXCHANGECO CLASS A NON-
VOTING SHARES.
Upon the amalgamation of Amalco and TeleBackup holders of TeleBackup common
shares will be deemed to have disposed of their TeleBackup common shares for
proceeds of disposition equal to their adjusted cost base immediately before the
amalgamation and to have acquired the Exchangeco class A non-voting shares for a
cost equal to such proceeds of disposition.
EXCHANGE OF EXCHANGECO CLASS A NON-VOTING SHARES FOR NEW VERITAS COMMON SHARES
On the exchange of Exchangeco class A non-voting shares for New VERITAS
common shares, holders will, in general, realize a capital gain or a capital
loss equal to the amount by which the proceeds of disposition of the Exchangeco
class A non-voting shares, net of any reasonable costs of disposition, exceed or
are less than the adjusted cost base to the holders of the Exchangeco class A
non-voting shares. For these purposes, the proceeds of disposition will
generally be the fair market value of the New VERITAS common shares received on
the exchange plus any amount received by the holder in lieu of a fractional New
VERITAS common share. The taxation of capital gains and capital losses is
described below in respect of a redemption or exchange of Exchangeco
exchangeable shares.
EXCHANGE OF EXCHANGECO CLASS A NON-VOTING SHARES FOR EXCHANGECO EXCHANGEABLE
SHARES
Provided that, at the closing of the TeleBackup combination, the aggregate
adjusted cost base of a holder's Exchangeco class A non-voting shares exceeds
the sum of (i) the amount of any cash received in respect of a fractional
Exchangeco exchangeable share and (ii) the fair market value of the voting
rights and exchange rights under the trust agreement acquired by such holder in
connection with the exchange of its Exchangeco class A non-voting shares and net
of any reasonable costs of disposition, such holder will not realize a capital
gain for purposes of the Tax Act on the exchange. To the extent that such sum,
net of any reasonable costs of disposition, exceeds the aggregate adjusted cost
base of such holder's Exchangeco class A non-voting shares, such holder will
realize a capital gain for purposes of the Tax Act. The taxation of capital
gains is described below in respect of a redemption or exchange of Exchangeco
exchangeable shares.
On the exchange, an Exchangeco shareholder will be deemed to have acquired:
(i) Exchangeco exchangeable shares for a cost equal to the amount, if
any, by which the adjusted cost base to such holder of the Exchangeco class
A non-voting shares exceeds the sum of (i) the fair market value of the
voting rights and exchange rights in respect of the shareholder's
Exchangeco exchangeable shares and (ii) any cash received by the holder in
lieu of a fractional Exchangeco exchangeable share; and
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<PAGE> 817
(ii) the voting rights and exchange rights in respect of the
shareholder's Exchangeco exchangeable shares for a cost equal to their fair
market value.
For these purposes, a holder of Exchangeco class A non-voting shares will
be required to determine the fair market value of the voting rights and exchange
rights on a reasonable basis for purposes of the Tax Act. TeleBackup is of the
view and has advised counsel that the voting rights and exchange rights have
only nominal value. Therefore, a holder of Exchangeco class A non-voting shares
should not realize a capital gain on the exchange of Exchangeco class A
non-voting shares for Exchangeco exchangeable shares. Such determination of
value is not binding on Revenue Canada and counsel can express no opinion on
matters of factual determination such as this.
CALL RIGHTS
TeleBackup is of the view and has advised counsel that no amount should be
allocated to the liquidation call right, the redemption call right and the
retraction call right granted to New VERITAS under the plan of arrangement
(collectively, the "Call Rights"). In particular, TeleBackup is of the view that
the Call Rights have only nominal value. On this basis, no shareholder should
realize a gain at the time that any of such rights are granted to New VERITAS.
Such determinations of value are not binding on Revenue Canada and counsel can
express no opinion on matters of factual determination such as this. If Revenue
Canada successfully asserts that a holder of Exchangeco exchangeable shares had
received consideration for granting the Call Rights, the holder will realize a
capital gain equal to the amount of the consideration received.
DIVIDENDS
In the case of an Exchangeco shareholder who is an individual, dividends
received or deemed to be received on the Exchangeco exchangeable shares will be
included in computing the Exchangeco shareholder's income, and will be subject
to the gross-up and dividend tax credit rules contained in the Tax Act normally
applicable to taxable dividends received from corporations resident in Canada.
The Exchangeco exchangeable shares will be "taxable preferred shares" and
"short-term preferred shares" for purposes of the Tax Act. Accordingly,
Exchangeco will be subject to a 66 2/3% tax under Part VI.1 of the Tax Act on
dividends (other than certain excluded dividends) paid or deemed to be paid on
the Exchangeco exchangeable shares. Such tax may be recoverable if and to the
extent Exchangeco is subject to tax under Part I of the Tax Act. Dividends
received or deemed to be received on the Exchangeco exchangeable shares will not
be subject to the 10% tax under Part IV.1 of the Tax Act applicable to certain
corporate shareholders.
If New VERITAS or any person with whom New VERITAS does not deal at arm's
length is a "specified financial institution" under the Tax Act at a point in
time that a dividend is paid on an Exchangeco exchangeable share, then, subject
to the exemption described below, dividends received or deemed to be received by
an Exchangeco shareholder that is a corporation will not be deductible in
computing taxable income but will be fully includable in taxable income under
Part I of the Tax Act. Such dividend will not be subject to tax under Part IV of
the Tax Act. A corporation will generally be a specified financial institution
for these purposes if it is a bank, a trust company, a credit union, an
insurance corporation or a corporation whose principal business is the lending
of money to persons with whom the corporation is dealing at arm's length or the
purchasing of debt obligations issued by such persons or a combination thereof,
and corporations
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<PAGE> 818
controlled by or related to such entities. New VERITAS has informed counsel that
it is of the view that neither it, nor any person with whom it does not deal at
arm's length or any partnership or trust of which New VERITAS or any person with
whom it does not deal at arm's length is a member or beneficiary, is a specified
financial institution at the current time but there can be not assurances that
this status will not change prior to any dividend which is received or deemed to
be received by a corporate shareholder.
This denial of the dividend deduction for a corporate shareholder will not
in any event apply if at the time a dividend is received or deemed to be
received, the Exchangeco exchangeable shares are listed on a prescribed stock
exchange, which currently includes the Alberta Stock Exchange, New VERITAS
controls Exchangeco, and the recipient, together with persons with whom the
recipient does not deal at arm's length or any partnership or trust of which the
recipient or person is a member or beneficiary, respectively, does not receive
dividends on more that 10% of the issued and outstanding Exchangeco exchangeable
shares.
Subject to the foregoing, in the case of a shareholder that is a
corporation, other than a "specified financial institution" as defined in the
Tax Act, dividends received or deemed to be received on the Exchangeco
exchangeable shares will normally be deductible in computing its taxable income.
In the case of a shareholder that is a specified financial institution,
such a dividend will be deductible in computing its taxable income only if
either:
(i) the specified financial institution did not acquire the Exchangeco
exchangeable shares in the ordinary course of the business carried on by
such institution; or
(ii) at the time of the receipt of the dividend by the specified
financial institution, the Exchangeco exchangeable shares are listed on a
prescribed stock exchange in Canada, which currently includes the Alberta
Stock Exchange, and the specified financial institution, either alone or
together with persons with whom it does not deal at arm's length, does not
receive or is not deemed to receive dividends in respect of more than 10%
of the issued and outstanding Exchangeco exchangeable shares.
A shareholder that is a "private corporation", as defined by the Tax Act,
or any other corporation resident in Canada and controlled or deemed to be
controlled by or for the benefit of an individual or a related group of
individuals may be liable under Part IV of the Tax Act to pay a refundable tax
of 33 1/3% on dividends received or deemed to be received on the Exchangeco
exchangeable shares to the extent that such dividends are deductible in
computing the shareholder's taxable income.
REDEMPTION OR EXCHANGE OF TELEBACKUP EXCHANGEABLE SHARES
On the redemption, including a retraction of an Exchangeco exchangeable
share by Exchangeco, the holder of an Exchangeco exchangeable share will be
deemed to have received a dividend equal to the amount, if any, by which the
redemption proceeds (the fair market value, at the time of the redemption, of
the share of New VERITAS common stock received by the shareholder from
Exchangeco on the redemption plus the amount, if any, of all accrued but unpaid
dividends on the Exchangeco exchangeable share) exceeds the paid-up capital at
that time of the Exchangeco exchangeable share so redeemed. The amount of any
such deemed dividend will be subject to the tax treatment accorded to dividends
described above. On the redemption, the holder of an Exchangeco exchangeable
share will also be considered to have disposed of the Exchangeco exchangeable
share, but
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<PAGE> 819
the amount of such deemed dividend will be excluded in computing the
shareholder's proceeds of disposition for purposes of computing any capital gain
or capital loss arising on the disposition of the Exchangeco exchangeable share.
In the case of a shareholder that is a corporation, in some circumstances, the
amount of any such deemed dividend may be treated as proceeds of disposition and
not as a dividend.
On the exchange of an Exchangeco exchangeable share by the holder thereof
with New VERITAS for a share of New VERITAS common stock, or upon the
disposition of an Exchangeco exchangeable share to New VERITAS under New
VERITAS' retraction call right or the redemption call right under the Plan of
Arrangement, the holder will in general realize a capital gain or a capital loss
equal to the amount by which the proceeds of disposition of the Exchangeco
exchangeable share, net of any reasonable costs of disposition, exceed or are
less than the adjusted cost base to the holder of the Exchangeco exchangeable
share. For these purposes, the proceeds of disposition will generally be the
fair market value of a share of New VERITAS common stock at the time of exchange
plus the amount of all accrued but unpaid dividends on the Exchangeco
exchangeable share received by the holder as part of the exchange consideration.
Three-quarters of any such capital gain, the "taxable capital gain", will
be included in the Exchangeco shareholder's income for the year of disposition.
Three-quarters of any capital loss so realized the "allowable capital loss" may,
subject to the detailed rules of the Tax Act, be deducted by the holder against
taxable capital gains for the year of disposition. Any excess of allowable
capital losses over taxable capital gains of the shareholder for the year of
disposition may, subject to the detailed rules of the Tax Act, be carried back
up to three taxation years or forward indefinitely and deducted against net
taxable capital gains in those other years.
A shareholder that is throughout the relevant taxation year a
"Canadian-controlled private corporation" as defined in the Tax Act may be
liable to pay an additional refundable tax of 6 2/3% on its "aggregate
investment income" for the year, which is defined to include an amount in
respect of taxable capital gains but not dividends or deemed dividends
deductible in computing taxable income.
If the holder of an Exchangeco exchangeable share is a corporation, the
amount of any capital loss arising from a disposition or deemed disposition of
an Exchangeco exchangeable share may be reduced by the amount of dividends
received or deemed to have been received by it on such share or on the
Exchangeco class A non-voting shares previously owned by such holder, to the
extent and under circumstances prescribed by the Tax Act. Similar rules may
apply where a holder is a member of a partnership or a beneficiary of a trust
that owns Exchangeco exchangeable shares or where a trust or partnership of
which a corporation is a beneficiary or a member is a member of a partnership or
a beneficiary of a trust that owns Exchangeco exchangeable shares.
The cost base of a share of New VERITAS common stock received on the
retraction, redemption or exchange of an Exchangeco exchangeable share will be
equal to the fair market value of the share of New VERITAS common stock at the
time of such event. The cost of any such New VERITAS common stock will be
averaged with the adjusted cost base of any other New VERITAS common stock held
by an Exchangeco shareholder immediately before that time for purposes of
determining the holder's adjusted cost base of the holder's New VERITAS common
stock.
Because of the existence of the retraction call right, a holder exercising
the right of retraction in respect of an Exchangeco exchangeable share cannot
control whether such
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holder will receive a share of New VERITAS common stock by way of redemption of
the Exchangeco exchangeable share by Exchangeco or by way of purchase of the
Exchangeco Exchangeable share by New VERITAS. As described above, the Canadian
federal income tax consequences of a redemption differ from those of a purchase.
However, a holder who exercises the right of retraction will be notified if the
retraction call right will not be exercised by New VERITAS, and if such holder
does not wish to proceed, such holder may cancel the notice of retraction and
retain such holder's Exchangeco exchangeable share.
NEW VERITAS COMMON STOCK
Dividends on New VERITAS common stock will be included in the recipient's
income for the purposes of the Tax Act. Such dividends received by an individual
New VERITAS shareholder will not be subject to the gross-up and dividend tax
credit rules in the Tax Act. A corporation which is a New VERITAS shareholder
will include such dividends in computing its income and generally will not be
entitled to deduct the amount of such dividends in computing its taxable income.
United States non-resident withholding tax on such dividends will be eligible
for foreign tax credit or deduction treatment where applicable under the Tax
Act.
DISPOSITION OF NEW VERITAS COMMON STOCK
A disposition or deemed disposition of a share of New VERITAS common stock
by a holder will generally result in a capital gain or capital loss equal to the
amount by which the proceeds of disposition, net of any reasonable costs of
disposition, exceed or are less than the adjusted cost base to the holder of the
share of New VERITAS common stock.
ELIGIBILITY FOR INVESTMENT
FOREIGN PROPERTY. Provided the Exchangeco exchangeable shares are listed on
a prescribed stock exchange in Canada which currently includes the Alberta Stock
Exchange and Exchangeco maintains a substantial presence in Canada, the
Exchangeco exchangeable shares will not be foreign property under the Tax Act
for trusts governed by registered pension plans, registered retirement savings
plans, registered retirement income funds and deferred profit sharing plans or
for certain other tax-exempt persons. TeleBackup has informed Canadian tax
counsel that it currently satisfies the substantial presence test and expects
that Exchangeco will continue to do so. The voting rights and exchange rights
will be foreign property under the Tax Act. However, as indicated above,
TeleBackup is of the view that the fair market value of these rights is nominal.
New VERITAS common stock will be foreign property under the Tax Act.
QUALIFIED INVESTMENTS. Provided the Exchangeco class A non-voting and
Exchangeco exchangeable shares are listed on a prescribed stock exchange in
Canada, which currently includes the Alberta Stock Exchange, the Exchangeco
class A non-voting and Exchangeco exchangeable shares will be qualified
investments under the Tax Act for trusts governed by registered retirement
savings plans, registered retirement income funds and deferred profit sharing
plans. In certain other circumstances, such shares may also be qualified
investments. New VERITAS common stock will be a qualified investment under the
Tax Act for such plans provided such shares remain listed on the Nasdaq National
Market or are listed on certain other stock exchanges prescribed under the
Regulations to the Tax Act. The voting rights and exchange rights of the
Exchangeco exchangeable shares will not be qualified investments under the Tax
Act. However, as indicated above, TeleBackup is of the view that the fair market
value of these rights is nominal.
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DISSENTING SHAREHOLDERS
Holders of TeleBackup common shares are permitted to dissent from the plan
of arrangement in the manner set out in section 184 of the Alberta Act, as
modified by the interim order of the Alberta court. A dissenting TeleBackup
shareholder will be entitled, in the event the plan of arrangement becomes
effective, to be paid by TeleBackup the fair value of the TeleBackup common
shares hold by such holder determined as of the appropriate date. See "-- Rights
of dissent" on page 127 of the attached document. Under the current
administrative practice of Revenue Canada, where a shareholder dissents from an
amalgamation and receives a cash payment for his shares from the amalgamated
corporation, the shareholder is considered to have realized proceeds of
disposition rather than a deemed dividend. Because of uncertainties under the
relevant legislation as to whether an amount paid to a holder of TeleBackup
common shares who dissents from the Arrangement will be treated as proceeds of
disposition, or as the payment of a dividend to the extent such payment exceeds
the paid-up capital of the TeleBackup common shares, dissenting shareholders
should consult their own tax advisors in this regard. Additional income tax
considerations may be relevant to dissenting shareholders who fail to perfect or
withdraw their claims pursuant to the right of dissent.
SHAREHOLDERS NOT RESIDENT IN CANADA
The following portion of the summary is applicable to holders of TeleBackup
common shares who, for purposes of the Tax Act and any bilateral tax treaty,
have not been and will not be resident or deemed to be resident in Canada at any
time while they have held TeleBackup common shares or will hold Exchangeco class
A non-voting and Exchangeco exchangeable shares or shares of New VERITAS common
stock and to whom such shares are not taxable Canadian property and in the case
of a non-resident of Canada who carries on an insurance business in Canada and
elsewhere, the shares are not "designated insurance property" as defined in the
Tax Act and are not effectively connected with its Canadian insurance business.
Generally, TeleBackup common shares, Exchangeco class A non-voting and
Exchangeco exchangeable shares and shares of New VERITAS common stock will not
be taxable Canadian property provided that such shares are listed on a
prescribed stock exchange, which currently include the Alberta Stock Exchange
and Nasdaq National Market, the holder does not use or hold, and is not deemed
to use or hold, the TeleBackup common shares, the Exchangeco class A non-voting
and Exchangeco exchangeable shares or the shares of New VERITAS common stock, as
applicable, in connection with carrying on a business in Canada and the holder,
persons with whom such holder does not deal at arm's length, or the holder and
such persons, has not owned (or had under option) 25% or more of the issued
shares of any class or series of the capital stock of TeleBackup, Exchangeco or
New VERITAS at any time within five years preceding the date in question. In the
case of shares of New VERITAS, even if the holder exceeds the 25% threshold with
respect to shares of New VERITAS common stock referred to in the preceding
sentence, the shares of New VERITAS common stock may not be taxable Canadian
property; such holders should consult their own tax advisors to determine
whether their shares of New VERITAS common stock constitute taxable Canadian
property. TeleBackup has applied for the listing of the Exchangeco class A
non-voting and Exchangeco exchangeable shares on the Alberta Stock Exchange and
New VERITAS has indicated that it intends to use its best efforts to cause
Exchangeco to maintain such listing.
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<PAGE> 822
A holder of TeleBackup common shares will not be subject to tax under the
Tax Act on the amalgamation of TeleBackup and Amalco and the receipt of the
Exchangeco class A non-voting shares, the exchange of Exchangeco class A
non-voting shares for Exchangeco exchangeable shares or on the exchange of an
Exchangeco exchangeable share for a share of New VERITAS common stock, except to
the extent the exchange gives rise to a deemed dividend (discussed below), or on
the sale or other disposition of an Exchangeco exchangeable share or a share of
New VERITAS common stock.
Dividends paid on the Exchangeco exchangeable shares are subject to
non-resident withholding tax under the Tax Act at the rate of 25%, although such
rate may be reduced under the provisions of an applicable income tax treaty. For
example, under the Tax Treaty, the rate is generally reduced to 15% in respect
of dividends paid to a person who is the beneficial owner and who is resident in
the United States for purposes of the Tax Treaty.
A holder whose Exchangeco exchangeable shares are redeemed either under
TeleBackup's redemption right or pursuant to the holder's retraction rights will
be deemed to receive a dividend as described above, which deemed dividend will
be subject to withholding tax as described in the preceding paragraph.
Holders of TeleBackup common shares are permitted to dissent from the plan
of arrangement in the manner set out in section 184 of the Alberta Act, as
modified by the interim order of the Alberta court. A dissenting TeleBackup
shareholder will be entitled, in the event the plan of arrangement becomes
effective, to be paid by TeleBackup the fair value of the TeleBackup common
shares held by such holder determined as of the appropriate date. See "-- Rights
of dissent" on page 127 of the attached document. Under the current
administrative practice of Revenue Canada, where a shareholder dissents from an
amalgamation and receives a cash payment for his shares from the amalgamated
corporation, the shareholder is considered to have realized proceeds of
disposition rather than a deemed dividend. Because of uncertainties under the
relevant legislation as to whether an amount paid to a holder of TeleBackup
common shares who dissents from the Arrangement will be treated as proceeds of
disposition, or as the payment of a dividend to the extent such payment exceeds
the paid-up capital of the TeleBackup common shares, dissenting shareholders
should consult their own tax advisors in this regard. Deemed dividends will be
subject to withholding tax as described above. Any capital gain realized by a
dissenting TeleBackup shareholder will not be taxed under the Tax Act if the
TeleBackup common shares in respect of which the right of dissent is exercised
are not taxable Canadian property, as described above. Additional income tax
considerations may be relevant to dissenting TeleBackup shareholders who fail to
perfect or withdraw their claims pursuant to the right of dissent.
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APPENDIX X
ELECTION FORM
TO: TELEBACKUP SYSTEMS INC. ("TELEBACKUP")
AND TO: MONTREAL TRUST COMPANY OF CANADA (THE "TRUSTEE")
This Election Form is for use by registered holders of TeleBackup Common
Shares in connection with the proposed Arrangement of TeleBackup under section
186 of the Business Corporations Act (Alberta) which is being submitted for
shareholder approval at the special meeting of shareholders of TeleBackup to be
held on May 26, 1999 and any adjournment or postponement thereof. It is
understood that the election to be made hereby is subject to the terms,
conditions and limitations set forth in the Plan of Arrangement. Capitalized
terms used herein but not defined have the same meanings herein as in the
Management Information Circular/Joint Proxy Statement/Prospectus ("Proxy
Circular") dated on or about April 19, 1999.
PLEASE CAREFULLY READ THE PROXY CIRCULAR AND THIS ENTIRE ELECTION FORM
BEFORE EXECUTING AND RETURNING THIS ELECTION FORM. PLEASE ALSO NOTE THAT THIS IS
NOT A LETTER OF TRANSMITTAL. DO NOT INCLUDE YOUR TELEBACKUP COMMON SHARES WITH
THIS ELECTION FORM. IN THE EVENT THAT THE PROPOSED ARRANGEMENT OF TELEBACKUP IS
COMPLETED, A LETTER OF TRANSMITTAL WILL BE FORWARDED TO YOU.
ONLY REGISTERED HOLDERS OF TELEBACKUP COMMON SHARES WHO ARE CANADIAN
RESIDENTS ARE ENTITLED TO MAKE THE ELECTION PROVIDED IN THIS ELECTION FORM. IF
YOU ARE NOT A CANADIAN RESIDENT, OR YOU DO NOT WISH TO MAKE THE ELECTION, YOU
MAY DISCARD THIS ELECTION FORM. HOLDERS OF TELEBACKUP COMMON SHARES WHO ARE
CANADIAN RESIDENTS SHOULD BE AWARE THAT FAILURE TO ELECT TO RECEIVE TELEBACKUP
EXCHANGECO INC. EXCHANGEABLE SHARES (THE "EXCHANGEABLE SHARES") MAY RESULT IN
UNFAVOURABLE TAX CONSEQUENCES.
I. REPRESENTATIONS
The undersigned represents and warrants that:
(a) the undersigned is a resident of Canada within the meaning of the
Income Tax Act (Canada):
[ ] Yes ________________________
(Social Insurance Number)
[ ] No
(b) the undersigned is the registered owner of the TeleBackup Common Shares
to which this election relates; and
(c) the undersigned has full power and authority to make the election
herein contained.
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II. ELECTION
In accordance with the Plan of Arrangement, the undersigned irrevocably
elects to exchange the TeleBackup Exchangeco Inc. Class "A" non-voting shares
(the "Class "A" non-voting shares") that will be issued to the undersigned for
Exchangeable Shares (the "Election"), such exchange to be effected at the
Exchange Ratio pursuant to the terms of the Plan of Arrangement, as follows:
(check one box)
[ ] all Class "A" non-voting shares to which the undersigned is entitled to
receive in exchange for the undersigned's TeleBackup Common Shares
which are registered in the undersigned's name; OR
[ ] ____________ Class "A" non-voting shares only.
III. DEADLINE TO ELECT
In order for your Election to be effective, this Election Form must be
received by Montreal Trust Company of Canada at the address shown below no later
than 4:30 p.m. Calgary time on May 25, 1999. IF THIS ELECTION FORM IS NOT
RECEIVED BY MONTREAL TRUST COMPANY OF CANADA BY THAT TIME, YOU SHALL BE DEEMED
NOT TO HAVE MADE THE ELECTION.
IV. LETTER OF TRANSMITTAL
This is not a Letter of Transmittal and therefore you should not include
any TeleBackup Common Share certificates with this Election Form. If the
Arrangement is completed, a formal Letter of Transmittal will be mailed to you
with instructions as to how you are to complete the Letter of Transmittal and
receive your Exchangeable Shares.
V. DELIVERY
The method used to deliver this Election Form is at your option and risk,
and delivery will be deemed effective only when this Election Form is actually
received. This Election Form must be delivered to the address set forth below.
Otherwise, the use of registered mail is highly recommended.
VI. STREET NAME CERTIFICATES
In addition to the TeleBackup Common Shares that are registered in your
name, you may also hold other TeleBackup Common Shares in "street name". Shares
are held in "street name" if your shares are listed on your account statement
provided by your broker. If your TeleBackup Common Shares are registered in the
name of a broker, your broker must make the election for you. They will make
that election only if you so instruct them. WE STRONGLY RECOMMEND THAT YOU
CONTACT YOUR BROKER AND PROVIDE YOUR BROKER WITH YOUR INSTRUCTIONS.
VII. GUARANTEE OF SIGNATURES
If this Election Form is signed by an authorized representative of the
registered owner of the TeleBackup Common Shares, such signature must be
guaranteed by a Canadian chartered bank, trust company in Canada, a member of
the Investment Dealers Association of Canada, a member of a recognized stock
exchange in Canada or a member of the Securities Transfer Association Medallion
(STAMP) Program (an "Eligible Institution"). This Election Form must also be
accompanied by evidence of authority of
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<PAGE> 825
the authorized representative to act for the registered owner. No guarantee is
required if the signature is that of an Eligible Institution.
VIII. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES
Questions and requests for assistance may be directed to the Trustee and
additional copies of this Election Form may be obtained without charge from the
Trustee at the phone number or the addresses listed below:
<TABLE>
<S> <C>
Telephone: By hand, courier or registered mail:
Montreal Trust Company of Canada Montreal Trust Company of Canada
(Calgary) Office Stock Transfer Services
Telephone: (403) 267-6555 Western Gas Tower
OR 600, 530 -- 8th Avenue S.W.
1-888-267-6555 (Toll Free) Calgary, Alberta T2P 3S8
</TABLE>
IX. SIGNATURES
<TABLE>
<S> <C>
Dated: , 1999 Signature of authorized
representative
- ------------------------------------- guaranteed by:
Signature of registered holder or
authorized representative -------------------------------------
Authorized signature
- -------------------------------------
Signature of any joint holder
- -------------------------------------
Name of shareholder (please print)
- -------------------------------------
Telephone number
- -------------------------------------
Name of authorized representative
(please print)
</TABLE>
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PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS
SEAGATE SOFTWARE, INC.
1999 SPECIAL MEETING OF STOCKHOLDERS
MAY 27, 1999
The undersigned stockholder of SEAGATE SOFTWARE, INC., a Delaware
corporation, hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and Proxy Statement, each dated April 22, 1999, and hereby appoints
Stephen J. Luczo, Susan J. Wolfe and Ellen E. Chamberlain, and each of them,
proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
1999 Special Meeting of Stockholders of SEAGATE SOFTWARE, INC., to be held on
May 27, 1999, at 8:00 a.m., local time, at SEAGATE SOFTWARE, INC., 915 Disc
Drive, Scotts Valley, California 95066 and at any adjournment or adjournments
thereof, and to vote all shares of stock which the undersigned would be entitled
to vote if then and there personally present, on the matters set forth on the
reverse.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE CONTRIBUTION OF NETWORK & STORAGE MANAGEMENT GROUP TO
VERITAS HOLDING CORPORATION, FOR THE ELECTION OF DIRECTORS, FOR THE AMENDMENT
AND RESTATEMENT OF THE CERTIFICATE OF INCORPORATION, FOR THE AMENDMENT TO THE
SEAGATE SOFTWARE 1998 STOCK OPTION PLAN, FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTER AS MAY PROPERLY COME BEFORE THE MEETING.
(Continued and to be signed on the other side.)
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<PAGE> 827
SEAGATE SOFTWARE, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
<TABLE>
<CAPTION>
[ ]
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS: FOR WITHHOLD FOR ALL
If you wish to withhold authority to vote for any Individual nominee, ALL ALL EXCEPT
strike a line through that nominee's name in the list below. [ ] [ ] [ ]
Nominees: Gary B. Filler, Gregory B. Kerfoot;
Stephen J. Luczo; Lawrence Perlman and Donald L. Waite
2. TO APPROVE THE CONTRIBUTION OF NETWORK & STORAGE MANAGEMENT FOR AGAINST ABSTAIN
GROUP TO VERITAS HOLDING CORPORATION. [ ] [ ] [ ]
3. TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE CERTIFICATE FOR AGAINST ABSTAIN
OF INCORPORATION. [ ] [ ] [ ]
4. TO APPROVE AN AMENDMENT TO THE SEAGATE SOFTWARE 1996 STOCK FOR AGAINST ABSTAIN
OPTION PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK [ ] [ ] [ ]
RESERVED FOR ISSUANCE THEREUNDER BY 4,000,000.
5. TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT FOR AGAINST ABSTAIN
AUDITORS OF SEAGATE SOFTWARE FOR THE FISCAL YEAR ENDING JULY 2, 1999. [ ] [ ] [ ]
And, in their discretion, upon such other matter or
matters which may properly come before the meeting
or any adjournment or adjournments thereof.
---------------------------------------------------
Signature
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Signature (if held jointly)
Dated: , 1999
---------------------------------------
</TABLE>
(This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.
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