<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 18, 1996
REGISTRATION NO. 333-00035
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
SEAGATE TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3573 94-2612933
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or organization)
</TABLE>
920 DISC DRIVE
SCOTTS VALLEY, CALIFORNIA 95066
(408) 438-6550
(Address, including zip code and telephone number, including
area code, of Registrant's principal executive offices)
--------------------------
ALAN F. SHUGART
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
SEAGATE TECHNOLOGY, INC.
920 DISC DRIVE
SCOTTS VALLEY, CALIFORNIA 95066
(408) 438-6550
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
LARRY W. SONSINI, ESQ. EDMUND M. KAUFMAN, ESQ.
JOHN V. ROOS, ESQ. DANIEL G. CHRISTOPHER, ESQ.
PAGE MAILLIARD, ESQ. Irell & Manella
Wilson Sonsini Goodrich & Rosati, PC 333 South Hope Street
650 Page Mill Road Suite 3300
Palo Alto, California 94304 Los Angeles, California 90071
(415) 493-9300 (310) 277-1010
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: The
proposed sale will take place at the effective time of the merger of a wholly
owned subsidiary of Registrant, with and into Arcada Holdings, Inc.
--------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
THE REGISTRATION HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SEAGATE TECHNOLOGY, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
ITEM
NO. FORM S-4 CAPTION PROSPECTUS CAPTION
- --------- -------------------------------------------------- --------------------------------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
Item 1 Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page of Prospectus
Item 2 Inside Front and Outside Back Cover Pages of
Prospectus....................................... Available Information; Incorporation of Certain
Documents by Reference; Table of Contents
Item 3 Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................ Summary; Risk Factors; The Merger and Related
Transactions; Unaudited Pro Forma Combined
Condensed Financial Statements
Item 4 Terms of the Transaction.......................... Summary; The Merger and Related Transactions;
Comparison of Rights of Stockholders of Seagate
and Arcada
Item 5 Pro Forma Financial Information................... Summary; Unaudited Pro Forma Combined Condensed
Financial Statements
Item 6 Material Contacts with the Company Being
Acquired......................................... Summary; The Merger and Related Transactions
Item 7 Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters.... Not Applicable
Item 8 Interests of Named Experts and Counsel............ Not Applicable
Item 9 Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM
NO. FORM S-4 CAPTION PROSPECTUS CAPTION
- --------- -------------------------------------------------- --------------------------------------------------
B. INFORMATION ABOUT THE REGISTRANT
<S> <C> <C>
Item 10 Information with Respect to S-3 Registrants....... Available Information; Incorporation of Certain
Documents by Reference; Summary; Unaudited Pro
Forma Combined Condensed Financial Statements
Item 11 Incorporation of Certain Information by
Reference........................................ Incorporation of Certain Documents by Reference
Item 12 Information with Respect to S-2 or S-3
Registrants...................................... Not Applicable
Item 13 Incorporation of Certain Information by
Reference........................................ Not Applicable
Item 14 Information with Respect to Registrants Other than
S-3 or S-2 Registrants........................... Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
Item 15 Information with Respect to S-3 Companies......... Not Applicable
Item 16 Information with Respect to S-2 or S-3
Companies........................................ Not Applicable
Item 17 Information with Respect to Companies Other than
S-3 or S-2 Companies............................. Available Information; Summary; Selected
Historical and Pro Forma Financial Data;
Additional Information Regarding Arcada; Arcada
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Unaudited
Pro Forma Combined Condensed Financial
Statements; Arcada Consolidated Financial
Statements
D. VOTING AND MANAGEMENT INFORMATION
Item 18 Information if Proxies, Consents or Authorizations
are to be Solicited.............................. Incorporation of Certain Documents by Reference;
Summary; The Arcada Special Meeting; The Merger
and Related Transactions; Additional Information
Regarding Arcada
Item 19 Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange
Offer............................................ Not Applicable
</TABLE>
<PAGE>
ARCADA HOLDINGS, INC.
37 SKYLINE DRIVE, SUITE 1101
LAKE MARY, FLORIDA 32746
JANUARY 19, 1996
DEAR STOCKHOLDER:
You are cordially invited to attend the Special Meeting of Stockholders of
Arcada Holdings, Inc. ("Arcada") to be held at 9:00 a.m. Pacific Standard Time,
on February 16, 1996, at the Red Lion Inn, 2050 Gateway Place, San Jose,
California 95110.
At this meeting, you will be asked to consider and vote upon a proposal to
approve the Agreement and Plan of Reorganization, dated as of December 21, 1995
(the "Reorganization Agreement"), among Arcada, Seagate Technology, Inc.
("Seagate"), and Kevin H. Azzouz (the President, a director and a significant
stockholder of Arcada), the related Agreement of Merger (the "Merger Agreement,"
and collectively with the Reorganization Agreement, the "Merger Agreements")
between Arcada and a newly-formed, wholly-owned subsidiary of Seagate ("Sub"),
and the merger (the "Merger") of Sub with and into Arcada pursuant to the Merger
Agreement. As a result of the Merger, holders of Arcada capital stock other than
Conner Peripherals, Inc. will receive 0.1545 (the "Exchange Ratio") shares of
Seagate common stock for each share of their Arcada capital stock, and Arcada
will become a wholly-owned subsidiary of Seagate. In addition, concurrently with
the Merger, each outstanding option to purchase Arcada capital stock will be
converted into an option to acquire such number of shares of Seagate common
stock as the holder would have been entitled to receive had such holder
exercised such option in full immediately prior to the effective time of the
Merger, at an exercise price per share equal to the aggregate exercise price per
share for the shares of Arcada capital stock otherwise purchasable pursuant to
such option immediately prior to the effective time of the Merger, divided by
the number of full shares of Seagate common stock deemed purchasable pursuant to
such option, with such exercise price rounded up to the nearest whole cent.
Based on the last reported sale price of Seagate common stock on the New York
Stock Exchange on January 16, 1996, the Exchange Ratio would result in a per
share purchase price for Arcada capital stock of $7.49. If the Merger is
completed, Arcada stockholders would no longer hold any interest in Arcada
following the Merger other than through their interest in shares of Seagate
common stock. Consummation of the Merger is conditioned upon, among other
things, approval by holders of a majority of the outstanding shares of Arcada
capital stock.
THE ARCADA BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND
RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE MERGER AGREEMENTS AND APPROVAL
OF THE MERGER.
Details of the proposed Merger and other important information concerning
Seagate and Arcada appear in the accompanying Proxy Statement/Prospectus. Please
give this material your careful attention. In addition, since the Merger is also
conditioned upon the consummation of the merger of Conner Peripherals, Inc., a
Delaware corporation and the majority stockholder of Arcada ("Conner"), with
another newly-formed subsidiary of Seagate, we have also enclosed the Joint
Proxy Statement/ Prospectus of Seagate and Conner, which should also be given
your careful attention.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the accompanying proxy card and return it in the enclosed prepaid
envelope. You may revoke your proxy in the manner described in the accompanying
Proxy Statement/Prospectus at any time before it has been voted at the Special
Meeting. If you attend the Special Meeting, you may vote in person even if you
have previously returned your proxy card. Your prompt cooperation will be
greatly appreciated.
Sincerely,
/s/ KEVIN H. AZZOUZ
------------------------------------------------------------------
Kevin H. Azzouz
PRESIDENT
<PAGE>
ARCADA HOLDINGS, INC.
------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
---------------------
JANUARY 19, 1996
TO THE STOCKHOLDERS OF ARCADA HOLDINGS, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Arcada
Holdings, Inc., a Delaware corporation ("Arcada"), will be held at 9:00 a.m.,
Pacific Standard Time on February 16, 1996, at the Red Lion Inn, 2050 Gateway
Place, San Jose, California 95110, to consider and vote upon a proposal to
approve the Agreement and Plan of Reorganization, dated as of December 21, 1995
(the "Reorganization Agreement"), among Arcada, Seagate Technology, Inc.
("Seagate"), and Kevin H. Azzouz (the President, a director and a significant
stockholder of Arcada), the related Agreement of Merger (the "Merger Agreement")
between Arcada and a newly-formed wholly-owned subsidiary of Seagate ("Sub"),
and the merger (the "Merger") of Sub with and into Arcada pursuant to the Merger
Agreement. As a result of the Merger, Arcada stockholders other than Conner
Peripherals, Inc. will receive 0.1545 (the "Exchange Ratio") shares of Seagate
common stock for each share of their Arcada capital stock, and Arcada will
become a wholly-owned subsidiary of Seagate. In addition, concurrently with the
Merger, each outstanding option to purchase Arcada capital stock will be
converted into an option to acquire such number of shares of Seagate common
stock as the holder would have been entitled to receive had such holder
exercised such option in full immediately prior to the effective time of the
Merger, at an exercise price per share equal to the aggregate exercise price per
share for the shares of Arcada capital stock otherwise purchasable pursuant to
such option immediately prior to the effective time of the Merger, divided by
the number of full shares of Seagate Common Stock deemed purchasable pursuant to
such option, with such exercise price rounded up to the nearest whole cent.
Only stockholders of record at the close of business on January 16, 1996,
are entitled to notice of and to vote at the Special Meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to
complete, sign, date and return the enclosed proxy card as promptly as possible
in the postage-prepaid envelope enclosed for that purpose. YOU MAY REVOKE YOUR
PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS AT
ANY TIME BEFORE IT HAS BEEN VOTED AT THE SPECIAL MEETING. ANY STOCKHOLDER
ATTENDING THE SPECIAL MEETING MAY VOTE IN PERSON EVEN IF SUCH STOCKHOLDER HAS
RETURNED A PROXY. EXECUTED BUT UNMARKED PROXIES WILL BE VOTED FOR APPROVAL OF
THE REORGANIZATION AGREEMENT, THE MERGER AGREEMENT AND THE MERGER.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES
WITH THEIR PROXY CARDS.
Sincerely,
/s/ KEVIN H. AZZOUZ
------------------------------------------------------------------
KEVIN H. AZZOUZ
PRESIDENT
Lake Mary, Florida
January 19, 1996
<PAGE>
PROXY STATEMENT OF ARCADA HOLDINGS, INC.
---------------------
PROSPECTUS OF SEAGATE TECHNOLOGY, INC.
---------------------
This Proxy Statement/Prospectus is being furnished to the stockholders of
Arcada Holdings, Inc., a Delaware corporation ("Arcada"), in connection with the
solicitation of proxies by the Arcada Board of Directors for use at the Special
Meeting of Arcada stockholders (the "Special Meeting") to be held at 9:00 a.m.,
Pacific Standard time, on Friday, February 16, 1996, at the Red Lion Inn, 2050
Gateway Place, San Jose, California 95110, and at any adjournments or
postponements of the Special Meeting. At the Special Meeting, holders of Common
Stock of Arcada, $.001 par value ("Arcada Common Stock"), Series A Preferred
Stock of Arcada, $.001 par value ("Arcada Series A Preferred Stock"), and Series
B Preferred Stock of Arcada, $.001 par value ("Arcada Series B Preferred Stock,"
and collectively with the Arcada Series A Preferred Stock, "Arcada Preferred
Stock") (Arcada Common Stock and Arcada Preferred Stock are hereinafter
collectively referred to as "Arcada Capital Stock") will be asked to consider
and vote upon a proposal to approve and adopt the terms of the Agreement and
Plan of Reorganization dated as of December 21, 1995 (the "Reorganization
Agreement") entered into by and between Seagate Technology, Inc., a Delaware
corporation ("Seagate"), Arcada and Kevin H. Azzouz ("Azzouz"), and a related
Agreement of Merger between a newly-formed, wholly-owned subsidiary of Seagate
("Sub") and Arcada (the "Merger Agreement," and, collectively with the
Reorganization Agreement, the "Merger Agreements"). Pursuant to the Merger
Agreements, among other things, Arcada would be acquired by Seagate by means of
the merger of Sub with and into Arcada, with Arcada being the surviving
corporation and becoming an indirect wholly-owned subsidiary of Seagate (the
"Merger").
This Proxy Statement/Prospectus constitutes the prospectus of Seagate for
use in connection with the offer and issuance of shares of Common Stock of
Seagate, $.01 par value per share ("Seagate Common Stock"), pursuant to the
Merger. Upon the effectiveness of the Merger, each outstanding share of Arcada
Capital Stock (other than treasury shares and all shares (excluding 2,087,500
shares subject to the Conner Arcada Options (as defined below)) held directly or
indirectly by Conner Peripherals, Inc., a Delaware corporation and the holder of
a majority of the outstanding shares of Arcada Capital Stock ("Conner")) will be
converted into the right to receive 0.1545 (the "Exchange Ratio") of a share of
Seagate Common Stock. In addition, as a result of the Merger, each outstanding
option to purchase Arcada Common Stock (an "Arcada Option"), other than the
Conner Arcada Options, will be assumed by Seagate and converted into an option
to acquire such number of shares of Seagate Common Stock as the holder would
have been entitled to receive had such holder exercised such Arcada Option in
full immediately prior to the effective time of the Merger, at an exercise price
per share equal to the aggregate exercise price for the shares of Arcada Common
Stock otherwise purchasable pursuant to such option immediately prior to the
effective time of the Merger divided by the number of full shares of Seagate
Common Stock deemed purchasable pursuant to such Arcada Option, with such
exercise price rounded up to the nearest whole cent. In addition to the
outstanding Arcada Options, there are outstanding options (the "Conner Arcada
Options") granted by Conner to purchase an aggregate of 2,087,500 shares of
Arcada Common Stock issuable to Conner upon conversion of the Arcada Series A
Preferred Stock held by Conner. Coincident with the Merger, with the consent of
the holder of any outstanding Conner Arcada Option such Conner Arcada Option
will be converted into an option to acquire such number of shares of Seagate
Common Stock as the holder would have been entitled to receive had such holder
exercised such Conner Arcada Option in full immediately prior to the effective
time of the Merger, at an exercise price per share equal to the aggregate
exercise price for the shares of Arcada Common Stock otherwise purchasable
pursuant to such option immediately prior to the effective time of the Merger
divided by the number of full shares of Seagate Common Stock deemed purchasable
pursuant to such Conner Arcada Option, with such exercise price rounded up to
the nearest whole cent. In addition, if the Seagate/Conner Merger (as
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JANUARY 19, 1996.
<PAGE>
defined below) is consummated and the Merger Agreements are terminated, with the
consent of the holder of any outstanding Conner Arcada Option such Conner Arcada
Option will be assumed by Seagate and similarly will become exercisable for
Seagate Common Stock.
In October 1995, Seagate and Conner entered into an Agreement and Plan of
Reorganization pursuant to which, among other things, Conner would be combined
with Seagate by means of the merger of a newly-formed, wholly-owned subsidiary
of Seagate with and into Conner, with Conner being the surviving corporation and
becoming a wholly-owned subsidiary of Seagate and each outstanding share of
Common Stock of Conner, $.001 par value per share, being converted into the
right to receive 0.442 of a share of Seagate Common Stock (the "Seagate/Conner
Merger"). It is a condition to the obligations of Seagate, Arcada and Azzouz to
consummate the Merger that the Seagate/Conner Merger shall have been
consummated. If the Seagate/Conner Merger is not consummated, the Merger will
not be consummated. Based upon the number of shares of Seagate Common Stock and
Common Stock of Conner, $.001 par value per share, outstanding at December 15,
1995, an aggregate of approximately 24,202,875 shares of Seagate Common Stock
would be issued in connection with the Seagate/Conner Merger. Enclosed for your
information in a copy of the Joint Proxy Statement/ Prospectus relating to the
Seagate/Conner Merger.
Based upon the number of shares of Seagate Common Stock outstanding as of
December 29, 1995 and Arcada Capital Stock (other than shares held by Conner)
outstanding as of the Arcada Record Date (as defined below), an aggregate of
approximately 1,260,007 shares of Seagate Common Stock would be issued in
connection with the Merger, representing approximately 1.3% of the total number
of shares of Seagate Common Stock outstanding after giving effect to such
issuance and after giving effect to the issuance of approximately 24,202,875
shares to the stockholders of Conner in the Seagate/ Conner Merger. Based upon
the number of Arcada Options and Conner Arcada Options outstanding as of the
Arcada Record Date, an additional 924,193 shares of Seagate Common Stock would
be reserved for issuance to holders of such Arcada Options and Conner Arcada
Options.
The outstanding shares of Seagate Common Stock are listed on the New York
Stock Exchange (the "NYSE") under the symbol "SEG," and it is a condition to the
obligations of Arcada and Azzouz to consummate the Merger that the shares of
Seagate Common Stock to be issued in the Merger be approved for listing on the
NYSE, upon official notice of issuance. The last reported sale price of Seagate
Common Stock on the NYSE composite tape on January 16, 1996 was $48.50 per
share. Based on such last reported sale price, the Exchange Ratio would result
in a per share purchase price for the Arcada Capital Stock of $7.49. Because the
Exchange Ratio is fixed, a change in the market price of Seagate Common Stock
before the Merger will affect the dollar market value of the Seagate Common
Stock to be received by the stockholders of Arcada in the Merger.
This Proxy Statement/Prospectus does not cover resales of Seagate Common
Stock received by stockholders of Arcada in the Merger, and no person is
authorized to make use of this Proxy Statement/Prospectus in connection with any
such resale.
This Proxy Statement/Prospectus and the accompanying Proxy Cards are first
being mailed to stockholders of Arcada on or about January 19, 1996.
THE SHARES OF SEAGATE COMMON STOCK TO BE ISSUED IN THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT/
PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS ARE
STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT/ PROSPECTUS
AND THE JOINT PROXY STATEMENT/PROSPECTUS RELATING TO THE SEAGATE/ CONNER MERGER
IN THEIR ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO ON PAGE 26 HEREIN UNDER
"RISK FACTORS."
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION...................................................................................... 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 6
SUMMARY.................................................................................................... 7
The Companies............................................................................................ 7
The Proposed Merger...................................................................................... 9
Special Meeting of Arcada Stockholders................................................................... 10
Recommendation of the Arcada Board of Directors.......................................................... 10
The Seagate/Conner Merger................................................................................ 11
The Merger and Related Transactions...................................................................... 11
Market and Price Data for the Seagate and Arcada Common Stock............................................ 16
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA........................................................... 18
COMPARATIVE PER SHARE DATA................................................................................. 23
RISK FACTORS............................................................................................... 26
Risks Related to the Merger and the Seagate/Conner Merger................................................ 26
Risks Related to the Business and Operations of Seagate.................................................. 27
Risks Related to the Business and Operations of Arcada................................................... 34
THE ARCADA SPECIAL MEETING................................................................................. 38
General.................................................................................................. 38
Record Date and Outstanding Shares....................................................................... 38
Voting of Proxies........................................................................................ 38
Vote Required............................................................................................ 39
Abstentions.............................................................................................. 39
Solicitation of Proxies and Expenses..................................................................... 39
THE MERGER AND RELATED TRANSACTIONS........................................................................ 40
General.................................................................................................. 40
Background of the Merger................................................................................. 42
Reasons for the Merger................................................................................... 42
Arcada Board Recommendation.............................................................................. 44
Interests of Certain Persons in the Merger............................................................... 44
Representations and Warranties; Covenants................................................................ 46
Azzouz Noncompetition Agreement.......................................................................... 47
Conditions to Consummation of the Merger................................................................. 48
The Seagate/Conner Merger................................................................................ 48
Regulatory Approvals Required............................................................................ 50
Termination of Stockholders' Rights Agreement............................................................ 50
Limitation on Negotiations............................................................................... 50
Termination, Amendment and Waiver........................................................................ 50
Certain Federal Income Tax Matters....................................................................... 51
Accounting Treatment..................................................................................... 53
Restrictions on Resale of Seagate Common Stock........................................................... 53
Dissenters' Appraisal Rights............................................................................. 53
Stock Exchange Listing of Seagate Common Stock........................................................... 56
Expenses................................................................................................. 56
Surrender of Certificates Representing Arcada Capital Stock.............................................. 56
ADDITIONAL INFORMATION REGARDING ARCADA.................................................................... 57
Business of Arcada....................................................................................... 57
Principal Stockholders of Arcada......................................................................... 60
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
Stockholders' and Registration Rights Agreement.......................................................... 62
<S> <C>
ARCADA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 64
Overview................................................................................................. 64
Results of Operations.................................................................................... 64
Litigation............................................................................................... 68
Liquidity and Capital Resources.......................................................................... 68
Recent Pronouncements.................................................................................... 69
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................................................ 70
DISCUSSION AND ANALYSIS OF PRO FORMA INFORMATION........................................................... 78
COMPARISON OF RIGHTS OF STOCKHOLDERS OF SEAGATE AND ARCADA................................................. 79
Stockholder Meetings..................................................................................... 79
Stockholder Action by Written Consent.................................................................... 79
Director Nominations..................................................................................... 79
Indemnification.......................................................................................... 80
Election of Directors.................................................................................... 80
Comparison of the Rights of Holders of Arcada Preferred Stock and Seagate Common Stock................... 80
DESCRIPTION OF SEAGATE CAPITAL STOCK....................................................................... 81
Common Stock............................................................................................. 81
Preferred Stock.......................................................................................... 82
Delaware General Corporation Law Section 203............................................................. 82
STOCKHOLDER PROPOSALS...................................................................................... 82
ADJOURNMENT OF THE SPECIAL MEETING......................................................................... 82
EXPERTS.................................................................................................... 82
LEGAL MATTERS.............................................................................................. 83
ARCADA CONSOLIDATED FINANCIAL STATEMENTS................................................................... F-1
Appendix A -- Agreement and Plan of Reorganization
Appendix B -- Agreement of Merger
Appendix C -- Delaware General Corporation Law Section 262
</TABLE>
4
<PAGE>
NO PERSON HAS BEEN AUTHORIZED BY SEAGATE OR ARCADA TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES
MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SEAGATE OR ARCADA. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS OR A
SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT
WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION
OF THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Seagate is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). These materials can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices at Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of these materials can also be obtained
from the Commission at prescribed rates by writing to the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. Such
reports, proxy or information statements and other information concerning
Seagate can also be inspected at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.
Under the rules and regulations of the Commission, the solicitation of
proxies from stockholders of Arcada to approve and adopt the Merger Agreements
constitutes an offering of the Seagate Common Stock to be issued in connection
with the Merger. Accordingly, Seagate has filed with the Commission a
Registration Statement on Form S-4 under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to such offering (the "Registration
Statement"). This Proxy Statement/Prospectus constitutes the prospectus of
Seagate that is filed as part of the Registration Statement. Other parts of the
Registration Statement are omitted from this Proxy Statement/Prospectus in
accordance with the rules and regulations of the Commission. Copies of the
Registration Statement, including the exhibits to the Registration Statement and
other material that is not included herein, may be inspected, without charge, at
the offices of the Commission referred to above, or obtained at prescribed rates
from the Public Reference Section of the Commission at the address set forth
above.
Statements made in this Proxy Statement/Prospectus concerning the contents
of any contract or other documents are not necessarily complete. With respect to
each contract or other document filed as an exhibit to the Registration
Statement, reference is hereby made to that exhibit for a more complete
description of the matter involved, and each such statement is hereby qualified
in its entirety by such reference.
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS RELATING TO
SEAGATE AND ITS AFFILIATES HAS BEEN SUPPLIED BY SEAGATE, AND ALL INFORMATION
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS RELATING TO ARCADA AND ITS
AFFILIATES HAS BEEN SUPPLIED BY ARCADA.
5
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THERE WILL BE PROVIDED WITHOUT
CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A PROXY
STATEMENT/PROSPECTUS IS DELIVERED, UPON ORAL OR WRITTEN REQUEST OF ANY SUCH
PERSON, A COPY OF ALL DOCUMENTS INCORPORATED BY REFERENCE HEREIN (EXCLUDING
EXHIBITS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
HEREIN). REQUESTS SHOULD BE DIRECTED TO SEAGATE TECHNOLOGY, INC., INVESTOR
RELATIONS, 920 DISC DRIVE, SCOTTS VALLEY, CA 95066 (TELEPHONE (408) 439-2371).
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE SPECIAL
MEETING TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES, ANY SUCH REQUEST
SHOULD BE MADE BY FEBRUARY 9, 1996.
Seagate incorporates herein by reference Seagate's Annual Report on Form
10-K for the fiscal year ended June 30, 1995, Seagate's Quarterly Report on Form
10-Q for the quarter ended September 29, 1995 and the description of Seagate's
Common Stock set forth in Seagate's Registration Statement on Form 8-A/A dated
December 2, 1994. Seagate's Commission file number is 0-10630.
Incorporated by reference herein are Conner Peripherals, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, as amended by
the Form 10-K/A filed on November 14, 1995, and Quarterly Reports on Form 10-Q
for the fiscal quarters ended March 31, 1995, June 30, 1995 and September 30,
1995. Conner Peripherals, Inc.'s Commission file number is 0-10639.
All reports and definitive proxy or information statements filed by Seagate
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Proxy Statement/ Prospectus and prior to the date of the
Special Meeting shall be deemed to be incorporated by reference into this Proxy
Statement/Prospectus from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated herein shall
be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
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SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS PROXY STATEMENT/PROSPECTUS. THE SUMMARY DOES NOT CONTAIN A COMPLETE
DESCRIPTION OF THE AGREEMENT AND PLAN OF REORGANIZATION DATED AS OF DECEMBER 21,
1995, ENTERED INTO BY AND AMONG SEAGATE TECHNOLOGY, INC., A DELAWARE CORPORATION
("SEAGATE"), ARCADA HOLDINGS, INC., A DELAWARE CORPORATION ("ARCADA"), AND KEVIN
H. AZZOUZ ("AZZOUZ"), A COPY OF WHICH IS ATTACHED HERETO AS APPENDIX A (THE
"REORGANIZATION AGREEMENT"), THE RELATED AGREEMENT OF MERGER BETWEEN A
NEWLY-FORMED, WHOLLY-OWNED SUBSIDIARY OF SEAGATE ("SUB") AND ARCADA, A COPY OF
THE FORM OF WHICH IS ATTACHED HERETO AS APPENDIX B (THE "MERGER AGREEMENT," AND,
COLLECTIVELY WITH THE REORGANIZATION AGREEMENT, THE "MERGER AGREEMENTS"), OR THE
MERGER OF SUB WITH AND INTO ARCADA (THE "MERGER"). THE SUMMARY IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THIS PROXY STATEMENT/PROSPECTUS,
THE ATTACHED APPENDICES AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. THE
ARCADA STOCKHOLDERS ARE URGED TO READ CAREFULLY THIS PROXY STATEMENT/PROSPECTUS
AND THE ATTACHED APPENDICES IN THEIR ENTIRETY.
THE COMPANIES
SEAGATE. Seagate designs, manufactures and markets a broad line of rigid
magnetic disc drives for use in computer systems ranging from notebook computers
and desktop personal computers to workstations and supercomputers as well as in
multimedia applications such as digital video and video-on-demand. Seagate's
products include approximately 100 rigid disc drive models with form factors
from 2.5 to 5.25 inches and capacities from 300 megabytes to 9 gigabytes.
Seagate sells its products to original equipment manufacturers ("OEMs") for
inclusion in their computer systems or subsystems, and to distributors,
resellers and dealers. Seagate has pursued a strategy of vertical integration
and accordingly designs and manufactures rigid disc drive components including
recording heads, discs, substrates and motors. Seagate also assembles certain of
the key subassemblies for use in its products including printed circuit board
and head stack assemblies. Seagate's products are currently manufactured
primarily in the Far East with limited production in the United States.
In addition to pursuing its core rigid disc drive business, Seagate has
broadened its business strategy as a data technology company to more fully
address the markets for storage, retrieval and management of data. In this
regard, Seagate has invested in, and continues to investigate opportunities to
invest in, software activities. Seagate anticipates that users of computer
systems will increasingly rely upon client/server network computing environments
and believes that as this reliance increases, users will demand software that
more efficiently and securely manages and provides access to data across
computer networked environments. As a result, Seagate is broadening its core
competencies to include software products to meet these requirements. In
addition, Seagate has implemented a strategy to establish itself as a leading
supplier of selected magnetic recording components, including thin-film heads,
to other manufacturers. Finally, Seagate's broadened strategy includes expanding
its traditional rigid disc drive business to include other forms of data storage
and retrieval, such as flash memory, where Seagate has made a significant
investment in SanDisk Corporation (formerly SunDisk Corporation), a flash memory
company.
In October 1995, Seagate and Conner Peripherals, Inc., a Delaware
corporation ("Conner") entered into an Agreement and Plan of Reorganization (the
"Seagate/Conner Reorganization Agreement") pursuant to which, among other
things, Conner would be combined with Seagate by means of a merger of a
newly-formed, wholly-owned subsidiary of Seagate with and into Conner, with
Conner being the surviving corporation and becoming a wholly-owned subsidiary of
Seagate, and each outstanding share of Common Stock of Conner, $.001 par value
per share, being converted into a right to receive 0.442 of a share of Seagate
Common Stock (the "Seagate/Conner Merger"). See "The Merger and Related
Transactions -- The Seagate/Conner Merger." Conner designs, builds and sells
information storage solutions products, including a large selection of hard disc
drives, tape drives, storage management software and integrated storage systems
for a wide range of computer applications. Conner's hard disc drive products
include 2.5 inch and 3.5 inch disc drives which offer storage capacities ranging
from 210 megabytes to over 4 gigabytes of formatted capacity. Conner also
designs
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and sells tape drive products which are peripheral hardware devices that store
or protect large volumes of data through the use of tape stored on small
cartridges used singly or, in the case of Digital Audio Tape, in multiple
autoloader applications. Conner storage systems integrate hardware and software
solutions to allow consumers to meet the demanding requirements of the current
mixed network environments. Conner sells its hard disc drive, tape drive,
software and storage systems products principally to OEMs through a direct sales
force and to non-OEM purchasers such as distributors. Conner also owns
approximately 79% of the outstanding equity of Arcada.
Seagate's predecessor was incorporated in California in 1978. In February
1987, Seagate was reincorporated under the laws of Delaware. Unless otherwise
indicated, "Seagate" refers to Seagate and its wholly-owned subsidiaries.
Seagate's principal executive offices are located at 920 Disc Drive, Scotts
Valley, California 95066, and its telephone number at that location is (408)
438-6550.
ARCADA. Arcada develops, markets and supports data protection and storage
management software products that operate across multiple desktop and
client/server environments, including those of Microsoft, Novell and IBM. Arcada
develops, markets and supports a wide range of backup software products and
utilities, including utilities in Windows NT and DOS and Windows backup
utilities in MS-DOS 6.0 for Microsoft, PMTape and EZTape/Dual-Stor products for
IBM and both the DOS and Windows versions of "The Norton Backup" for Symantec
Corporation. In addition, Arcada develops, markets and supports backup utilities
for products marketed by Conner or Archive Corporation under the names of
MaynStream, QICStream and EZTape. Arcada currently markets its products
worldwide under the Arcada Backup, Backup Exec and Storage Exec brand names to
OEMs, commercial distributors, systems integrators, value added resellers,
retailers and large corporate end users. Leading tape drive manufacturers,
operating system developers and network server, controller and software
providers are also included in Arcada's customer base.
Arcada's operations and product development are conducted primarily in the
United States in California, Florida and Massachusetts. A sales office in the
United Kingdom was established late in 1994 primarily to conduct the European
sales activities. Arcada anticipates that an additional European sales office
will be established in France in early 1996 and another such office will be
established in Germany later in 1996. See "Additional Information Regarding
Arcada -- Business of Arcada."
Arcada was incorporated in Delaware in November 1993, as a wholly-owned
subsidiary of Conner, to operate Conner's software business which had previously
been operated under Conner's "Conner Software" division and which Conner had
previously acquired from Archive Corporation. Shortly, thereafter, Arcada also
acquired the business of Quest Development Corporation ("Quest"). Unless
otherwise indicated, "Arcada" refers to Arcada, its wholly-owned subsidiary
Arcada Software, Inc., a Delaware corporation ("Arcada Software") and Arcada
Software's subsidiary. Arcada's principal executive offices are located at 37
Skyline Drive, Suite 1101, Lake Mary, Florida 32746, telephone number (407)
333-7500.
SUB. Sub, a Delaware corporation, is a newly-formed, wholly-owned
subsidiary of Seagate formed solely for the purposes of the Merger. Subsequent
to the Seagate/Conner Merger, Seagate will contribute the capital stock of Sub
to Conner such that Sub will become a wholly-owned subsidiary of Conner prior to
the Merger. Other than in connection with the proposed Merger, Sub has no
material assets or liabilities and has not engaged in any activities. Sub's
principal executive offices are located at 920 Disc Drive, Scotts Valley,
California 95066, and its telephone number at that location is (408) 438-6550.
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THE PROPOSED MERGER
The Merger Agreements provide for the merger of a newly-formed, wholly-owned
subsidiary of Seagate with and into Arcada, with Arcada being the surviving
corporation of the Merger and becoming an indirect wholly-owned subsidiary of
Seagate. The Merger will become effective upon the filing of the properly
executed Merger Agreement with the Secretary of State of the State of Delaware
(the "Effective Time"). Upon consummation of the Merger, each then outstanding
share of Common Stock of Arcada, $.001 par value ("Arcada Common Stock"), Series
A Preferred Stock of Arcada, $.001 par value ("Arcada Series A Preferred
Stock"), and Series B Preferred Stock of Arcada, $.001 par value ("Arcada Series
B Preferred Stock," and collectively with the Arcada Series A Preferred Stock,
"Arcada Preferred Stock") (Arcada Common Stock and Arcada Preferred Stock are
hereinafter collectively referred to as "Arcada Capital Stock") other than
shares held by Conner will automatically be converted into 0.1545 (the "Exchange
Ratio") of a share of Common Stock of Seagate, $.01 par value per share
("Seagate Common Stock"). Cash will be paid in lieu of fractional shares. If the
Merger is consummated, Arcada stockholders other than Conner will no longer hold
any interest in Arcada other than through their interest in shares of Seagate
Common Stock. In addition, each outstanding option issued by Arcada to purchase
Arcada Common Stock (an "Arcada Option") will be assumed by Seagate and
converted into an option to acquire such number of shares of Seagate Common
Stock as the holder would have been entitled to receive had such holder
exercised such Arcada Option in full immediately prior to the Effective Time, at
an exercise price per share equal to the aggregate exercise price for the shares
of Arcada Common Stock otherwise purchasable pursuant to such option immediately
prior to the Effective Time divided by the number of full shares of Seagate
Common Stock deemed purchasable pursuant to such Arcada Option, with such
exercise price rounded up to the nearest whole cent. In addition to the
outstanding Arcada Options, there are outstanding options ("Conner Arcada
Options") granted by Conner to purchase an aggregate of 2,087,500 shares of
Arcada Common Stock issuable upon conversion of the Arcada Series A Preferred
Stock held by Conner. Coincident with the Merger, with the consent of the holder
of any outstanding Conner Arcada Option such Conner Arcada Option will be
converted into an option to acquire such number of shares of Seagate Common
Stock as the holder would have been entitled to receive had such holder
exercised such Conner Arcada Option in full immediately prior to the Effective
Time at an exercise price per share equal to the aggregate exercise price for
the shares of Arcada Common Stock otherwise purchasable pursuant to such option
immediately prior to the Effective Time divided by the number of full shares of
Seagate Common Stock deemed purchasable pursuant to such Conner Arcada option,
with such exercise price rounded up to the nearest whole cent. Seagate will file
a registration statement on Form S-8 with the Commission with respect to the
shares of Seagate Common Stock subject to such assumed Arcada Options and
converted Conner Arcada Options. In addition, if the Seagate/Conner Merger is
consummated and the Merger Agreements are terminated, with the consent of the
holder of any outstanding Conner Arcada Option such Conner Arcada Option will be
similarly converted into an option exercisable for Seagate Common Stock. See
"The Merger and Related Transactions -- General."
Each outstanding share of Seagate Common Stock will remain outstanding and
unchanged following the Merger. Based upon the number of shares of Seagate
Common Stock outstanding as of December 29, 1995 and Arcada Capital Stock (other
than shares held by Conner) outstanding as of the Arcada Record Date (as defined
below), an aggregate of approximately 1,260,007 shares of Seagate Common Stock
would be issued in connection with the Merger, representing approximately 1.3%
of the total number of shares of Seagate Common Stock outstanding after giving
effect to such issuance and after giving effect to the issuance of approximately
24,202,875 shares of Seagate Common Stock to the stockholders of Conner in the
Seagate/Conner Merger. Based upon the number of Arcada Options and Conner Arcada
Options outstanding as of the Arcada Record Date, an additional 924,193 shares
of Seagate Common Stock would be reserved for issuance to holders of such Arcada
Options and Conner Arcada Options.
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The outstanding shares of Seagate Common Stock are listed on the New York
Stock Exchange (the "NYSE") under the symbol "SEG," and it is a condition to the
obligations of Arcada and Azzouz to consummate the Merger that the shares of
Seagate Common Stock to be issued in the Merger be approved for listing on the
NYSE, upon official notice of issuance.
SPECIAL MEETING OF ARCADA STOCKHOLDERS
DATE, TIME AND PLACE
The Special Meeting of Arcada's stockholders (the "Special Meeting") will be
held on February 16, 1996 at 9:00 a.m. Pacific Standard Time, at the Red Lion
Inn, 2050 Gateway Place, San Jose, California 95110.
PURPOSES OF THE SPECIAL MEETING
At the Special Meeting, stockholders of record of Arcada as of the close of
business on the Arcada Record Date (as defined below) will be asked to consider
and vote upon proposals to approve and adopt the Merger Agreements and to
approve the Merger. As of the date of this Proxy Statement/Prospectus, the Board
of Directors of Arcada does not know of any business to be presented at the
Special Meeting other than as set forth in the notice accompanying this Proxy
Statement/Prospectus. If any other matters should properly come before the
Special Meeting, it is intended that the shares represented by proxies will be
voted with respect to such matters in accordance with the judgment of the
persons voting such proxies.
RECORD DATE AND OUTSTANDING SHARES
Only those holders of record of Arcada Capital Stock at the close of
business on January 16, 1996 (the "Arcada Record Date") are entitled to notice
of and to vote at the Special Meeting. At the close of business on the Arcada
Record Date, there were 38,511,590 shares of Arcada Capital Stock outstanding,
each of which will be entitled to one vote on each matter to be acted upon.
QUORUM
The required quorum for the transaction of business at the Special Meeting
is a majority of the shares of Arcada Capital Stock issued and outstanding on
the Arcada Record Date. Abstentions will be included in determining the number
of shares present for purposes of determining the presence of a quorum.
VOTE REQUIRED
Pursuant to the Delaware General Corporation Law ("DGCL"), the Restated
Certificate of Incorporation of Arcada, as amended (the "Arcada Certificate of
Incorporation"), and the Bylaws of Arcada, as amended (the "Arcada Bylaws"),
approval of the Merger Agreements and the Merger requires the affirmative vote
of at least a majority of the outstanding shares of Arcada Capital Stock
entitled to vote at the Special Meeting.
It is expected that all of the 6,144,000 shares of Arcada Capital Stock
(which excludes shares subject to Arcada Options) held by Mr. Azzouz
(representing approximately 16% of the total number of shares of Arcada Capital
Stock outstanding on the Arcada Record Date and approximately 76% of the number
of shares of Arcada Capital Stock not held by Conner) will be voted for approval
and adoption of the Merger Agreements. In addition, Conner has agreed to vote
its 30,356,200 shares of Arcada Capital Stock (representing approximately 79% of
the shares of Arcada Capital Stock outstanding on the Arcada Record Date) "for"
and "against" the Merger and the Merger Agreements in the same proportion as the
aggregate vote of the other Arcada stockholders.
RECOMMENDATION OF THE ARCADA BOARD OF DIRECTORS
The Board of Directors of Arcada (the "Arcada Board") has unanimously
approved the Merger Agreements and the Merger and believes that the terms of the
Merger Agreements are fair to, and that the Merger is in the best interests of,
Arcada and its stockholders and therefore recommends that holders of Arcada
Capital Stock vote for approval and adoption of the Merger Agreements and
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approval of the Merger. The primary factors considered and relied upon by the
Arcada Board in reaching its recommendation are referred to in "The Merger and
Related Transactions -- Reasons for the Merger -- Reasons of Arcada for the
Merger."
THE SEAGATE/CONNER MERGER
Pursuant to the Seagate/Conner Merger, each outstanding share of Common
Stock of Conner ("Conner Common Stock") will be converted into the right to
receive 0.442 of a share of Seagate Common Stock. In addition, as a result of
the Seagate/Conner Merger, each outstanding option to purchase Conner Common
Stock will be assumed by Seagate and converted into an option to acquire shares
of Seagate Common Stock. Based upon the number of shares of Seagate Common Stock
and Conner Common Stock outstanding at December 15, 1995, an aggregate of
approximately 24,202,875 shares of Seagate Common Stock would be issued in
connection with the Seagate/Conner Merger, representing approximately 24.9% of
the total number of shares of Seagate Common Stock outstanding after giving
effect to such issuance. Based upon the number of options to purchase Conner
Common Stock outstanding at December 15, 1995, an additional 2,848,683 shares of
Seagate Common Stock would be reserved for issuance to holders of such Conner
options in connection with Seagate's assumption of such options. It is a
condition to the obligations of Seagate, Arcada and Azzouz to consummate the
Merger that the Seagate/Conner Merger shall have been consummated. If the
Seagate/Conner Merger is not consummated, the Merger will not be consummated.
Consummation of the Seagate/Conner Merger is subject to a number of conditions
which, if not satisfied or waived, could cause the Seagate/Conner Merger not to
be consummated and the Seagate/Conner Reorganization Agreement to be terminated,
including, among other things, the approval by the stockholders of Seagate of
the issuance of Seagate Common Stock in the Seagate/Conner Merger and the
approval by the stockholders of Conner of the Seagate/Conner Reorganization
Agreement. The Seagate/Conner Reorganization Agreement may be terminated at any
time before the Effective Time of the Seagate/ Conner Merger, before or after
approval by the stockholders of Seagate and Conner in a number of instances,
including, among others, by mutual written consent of Seagate and Conner, by
Seagate or Conner, if Conner shall have accepted or recommended to the
stockholders of Conner a proposal superior to that of Seagate, or by Seagate or
Conner if any court or governmental entity of competent jurisdiction shall have
taken any final and nonappealable action having the effect of permanently
restraining, enjoining or otherwise prohibiting the Seagate/Conner Merger. See
"The Merger and Related Transactions -- The Seagate/Conner Merger."
THE MERGER AND RELATED TRANSACTIONS
CONDITIONS TO THE MERGER
In addition to the requirement that the Arcada stockholders approve the
Merger Agreements, consummation of the Merger is subject to a number of other
conditions which, if not satisfied or waived, could cause the Merger not to be
consummated and the Reorganization Agreement to be terminated. Each party's
obligation to consummate the Merger is conditioned upon, among other things, the
absence of legal action preventing consummation of the Merger, the consummation
of the Seagate/Conner Merger, the accuracy of the other party's representations,
each party's performance of its obligations under the Reorganization Agreement
and the absence of specified material adverse changes in the business of the
other party. In addition, the obligations of Arcada and Azzouz to consummate the
Merger are further conditioned upon, among other things, the receipt of a
written opinion from legal counsel to Arcada to the effect that the Merger
should constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the authorization
for listing on the NYSE, upon official notice of issuance, of the shares of
Seagate Common Stock to be issued in the Merger. The obligations of Seagate to
consummate the Merger are further subject to the condition, among others, that
holders of not more than two percent of the outstanding Arcada Capital Stock
shall exercise appraisal rights with respect to the transactions contemplated by
the Reorganization Agreement. See "The Merger and Related Transactions --
Conditions to Consummation of the Merger."
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REGULATORY MATTERS
Consummation of the Merger is subject to the expiration or termination of
any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"). The applicable waiting period under the
HSR Act expired on November 17, 1995. See "The Merger and Related Transactions
- -- Regulatory Approvals Required."
REPRESENTATIONS AND WARRANTIES; COVENANTS
Under the Reorganization Agreement, Azzouz and Arcada made representations
to Seagate relating to, among other things, Arcada's organization and similar
corporate matters, the capital structure of Arcada, the authorization,
execution, delivery, performance and enforceability of the Merger Agreements,
and the nature of finders' fees or similar charges incurred by Arcada and Azzouz
in connection with the Merger Agreements or the transactions contemplated
thereby. In addition, Azzouz made certain additional representations to Seagate
relating to, among other things, the absence of material litigation or material
undisclosed liabilities regarding Arcada and the title to Arcada's intellectual
property and certain other intellectual property matters. Under the
Reorganization Agreement, Seagate made representations to Arcada and Azzouz
relating to, among other things, Seagate's organization and similar corporate
matters, the authorization, execution, delivery, performance and enforceability
of the Merger Agreements, the documents filed with the Commission by Seagate and
the accuracy of the information contained therein, the absence of material
undisclosed obligations, and the issuance of Seagate Common Stock in the Merger.
Pursuant to a letter agreement of Conner dated December 21, 1995 (the
"Conner/Arcada Letter Agreement") delivered to Arcada and Azzouz, Conner has
made certain representations and warranties to Arcada and Azzouz with respect to
the shares of Arcada Common Stock reserved, and options outstanding, under the
Conner Peripherals, Inc. Arcada Holdings, Inc. Stock Option Plan (the "Conner
Arcada Plan"), and with respect to certain other options, warrants, calls,
rights, commitments or agreements related to the capital stock of Arcada to
which Conner is a party or by which Conner is bound. Pursuant to the
Conner/Arcada Letter Agreement, Conner has also agreed, but subject to and only
after consummation of the Seagate/ Conner Merger, to make, prior to the
effectiveness of the Proxy Statement/Prospectus, and again immediately prior to
the Effective Time, certain additional representations. See "The Merger and
Related Transactions -- Representations and Warranties; Covenants."
AZZOUZ NONCOMPETITION AGREEMENT
The obligation of Seagate to consummate the Merger is subject to the
condition that Mr. Azzouz shall have executed and delivered to Seagate a
noncompetition agreement (the "Noncompetition Agreement") in place of his
existing noncompetition agreement. The Noncompetition Agreement provides that
until the later of (i) one year after the date of a voluntary or involuntary
termination of Mr. Azzouz' employment with Seagate or any direct or indirect
subsidiary of Seagate, and (ii) two years after the effective date of the Merger
(the "Noncompete Period"), Mr. Azzouz will not, directly or indirectly, engage
anywhere in the world in the operation of any business that engages in the
storage management software market. In addition, the Noncompetition Agreement
provides that during the Noncompete Period, Mr. Azzouz will not, directly or
indirectly, solicit, encourage or take any action intended to induce any
employee of Seagate to terminate his or her employment with Seagate, or
interfere in any manner with the contractual employment relationship between
Seagate and any employee of Seagate. The Noncompetition Agreement provides that
in the event Seagate or Arcada terminates Mr. Azzouz' employment other than for
cause, or if Mr. Azzouz terminates his employment with Seagate as a result of a
constructive termination, Seagate will elect to either (i) pay Mr. Azzouz for
the remaining portion of the Noncompete Period an amount equal to his base
salary plus cash bonus received during the preceding twelve months (not to
exceed $300,000 in the aggregate), or (ii) terminate the noncompete provisions
of the Noncompetition Agreement such that they are of no further force and
effect. See "The Merger and Related Transactions -- Azzouz Noncompetition
Agreement."
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TERMINATION OF ARCADA STOCKHOLDERS' AND REGISTRATION RIGHTS AGREEMENT
In the Reorganization Agreement, Seagate, Arcada and Azzouz have agreed that
at the Effective Time, the Stockholders' and Registration Rights Agreement dated
as of January 5, 1994 by and among Arcada, Conner and Azzouz (the "Stockholders'
Rights Agreement") shall terminate and be of no further force and effect. As a
result, in connection with the Merger, Conner and Azzouz will be relinquishing
their rights under the Stockholders' Rights Agreement. See "The Merger and
Related Transactions -- Termination of Stockholders' Rights Agreement" and
"Additional Information Regarding Arcada -- Stockholders' and Registration
Rights Agreement."
LIMITATION ON NEGOTIATIONS
The Reorganization Agreement provides that Azzouz will not, directly or
indirectly, solicit, conduct discussions with or engage in negotiations with any
person, other than Seagate, or take any other action intended or designed to
facilitate the efforts of any person, other than Seagate, relating to the
possible acquisition (by any third party other than Seagate or Conner) of Arcada
Capital Stock. See "The Merger and Related Transactions -- Limitation on
Negotiations."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
AZZOUZ NONCOMPETITION AGREEMENT. Mr. Azzouz is currently a party to a
noncompetition agreement with Arcada, pursuant to which he may not engage in the
business of developing or selling data protection or storage management software
through January 5, 1997. However, the obligation of Seagate to consummate the
Merger is conditioned upon the delivery of the Noncompetition Agreement by
Azzouz, which will supersede Mr. Azzouz' existing noncompetition agreement with
Arcada. If the Merger is not consummated, the Noncompetition Agreement will not
be executed and the existing agreement will remain in effect. Under the
Noncompetition Agreement, if Mr. Azzouz' employment with Seagate or Arcada is
terminated by Seagate or Arcada without cause (as defined in the Noncompetition
Agreement) or by Mr. Azzouz due to a constructive termination (as defined in the
Noncompetition Agreement) by Seagate or Arcada, Seagate must either release Mr.
Azzouz from his obligations under the Noncompetition Agreement or pay Mr. Azzouz
for the remaining portion of the Noncompetition Period, based on an amount equal
to his base salary plus cash bonus (but not to exceed $300,000). See "The Merger
and Related Transactions -- Azzouz Noncompetition Agreement."
TERMINATION OF STOCKHOLDERS' RIGHTS AGREEMENT. Mr. Azzouz is currently a
party to the Stockholders' Rights Agreement with Conner and Arcada, pursuant to
which Mr. Azzouz has certain rights and obligations relating to Arcada Capital
Stock. If the Merger is consummated, the Stockholders' Rights Agreement, and all
of Mr. Azzouz' rights and obligations thereunder, will terminate. If the Merger
is not consummated, the Stockholders' Rights Agreement, and all of Mr. Azzouz'
rights and obligations thereunder, will remain in effect. See "Additional
Information Regarding Arcada -- Stockholders' and Registration Rights
Agreement."
AZZOUZ EMPLOYMENT AGREEMENT. Mr. Azzouz currently serves as the President
and Chief Operating Officer of Arcada Software pursuant to the terms of an
Employment Agreement dated January 5, 1994 (the "Azzouz Employment Agreement").
The Azzouz Employment Agreement is terminable by either party upon thirty days'
prior written notice. However, if Mr. Azzouz terminates his employment without
good reason or Arcada Software terminates Mr. Azzouz' employment for cause (each
as defined in the Azzouz Employment Agreement) before January 5, 1997, Arcada
will have the right to repurchase a declining percentage of Mr. Azzouz' shares
of Arcada Preferred Stock (or any shares of Arcada Common Stock acquired upon
conversion thereof). If such a termination occurred on the date hereof, this
option would give Arcada the right to repurchase 1,176,000 of Mr. Azzouz' shares
of Arcada Preferred Stock, at a price of $2.45 per share (or an aggregate price
of $2,881,200). If the Merger is consummated, the Azzouz Employment Agreement
(including Arcada's repurchase option on Mr. Azzouz' shares) will terminate in
all respects. If the Merger is not consummated, the Azzouz Employment Agreement
will continue in effect.
13
<PAGE>
AZZOUZ STANDSTILL AGREEMENT. The Reorganization Agreement provides that, if
the Merger is consummated, Mr. Azzouz will not sell, offer to sell, pledge,
hypothecate or otherwise dispose of, in the aggregate, (i) more than fifty
percent (50%) of the total number of shares of Seagate Common Stock received by
Mr. Azzouz (the "Azzouz Shares"), including shares of Seagate Common Stock
subject to Arcada Options assumed by Seagate in the Merger, prior to the first
anniversary of the Effective Time and (ii) more than seventy-five percent (75%)
of the Azzouz Shares prior to the second anniversary of the Effective Time.
INDEMNIFICATION AND INSURANCE. The Reorganization Agreement provides that
the Bylaws and Certificate of Incorporation of the surviving corporation in the
Merger shall contain provisions regarding indemnification identical to those in
the Arcada Certificate of Incorporation and the Arcada Bylaws and that such
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights thereunder of the Directors or officers of Arcada. The Reorganization
Agreement also provides that the directors and officers of Arcada and its
subsidiaries at the Effective Time will be third-party beneficiaries of certain
provisions of the Seagate/Conner Reorganization Agreement. These provisions
require Seagate or the surviving corporation in the Seagate/Conner Merger to
maintain directors' and officers' liability insurance comparable to Conner's
current policy for three years after the Seagate/Conner Merger or to purchase a
three-year extended reporting period endorsement (i.e. "tail coverage") under
Conner's existing policy.
INTERESTS IN ARCADA CAPITAL STOCK AND OPTIONS. As of the Arcada Record
Date, Mr. Azzouz held an aggregate of 6,144,000 shares of Arcada Capital Stock
and unexercised options to acquire from Arcada an additional 50,000 shares of
Arcada Capital Stock. In addition, under the terms of Arcada's stock option
plan, all shares acquired pursuant to the exercise of stock options are subject
to a right of first refusal in favor of Arcada. This right of first refusal
automatically terminates immediately upon a merger involving a public company or
90 days after an initial public offering by Arcada. As a result, Arcada's right
of first refusal on shares of Arcada Capital Stock acquired by Mr. Azzouz
pursuant to the exercise of stock options will terminate upon consummation of
the Merger. Mr. Azzouz currently holds 500,000 shares of Arcada Common Stock
acquired pursuant to the exercise of stock options and holds options to acquire
an additional 50,000 shares of Arcada Common Stock.
As of the Arcada Record Date, Messrs. F. Conner and P. Jackson Bell (both
directors and officers of Arcada) held Conner Arcada Options to acquire from
Conner 600,000 and 300,000, respectively, of the shares of Arcada Common Stock
issuable upon conversion of the Arcada Preferred Stock held by Conner. These
Conner Arcada Options held by Messrs. Conner and Bell are unvested but will vest
in full upon consummation of the Seagate/Conner Merger.
Based upon the closing sale price of the Seagate Common Stock on the Arcada
Record Date of $48.50, and assuming the exercise of outstanding Arcada Options
and Conner/Arcada Options exercisable upon consummation of the Merger, the
aggregate dollar value of Seagate Common Stock to be received in the Merger by
the executive officers and directors of Arcada, less the aggregate exercise
price of such options, is approximately $51,487,233.
TERMINATION
The Merger Agreements may be terminated any time before the Effective Time,
before or after approval of the Merger Agreements by the stockholders of Arcada
(i) by mutual written consent of Seagate, Arcada and Azzouz; (ii) automatically
if the Seagate/Conner Reorganization Agreement shall have been terminated; (iii)
by Arcada or Azzouz if the Merger shall not have been consummated at the end of
the forty-fifth day following consummation of the Seagate/Conner Merger,
provided, however, that such right to terminate shall not be available if any
action or failure to act by Arcada or Azzouz has been the cause of or resulted
in the failure of the Merger to occur on or before such date and such action or
failure to act constitutes a breach of the Reorganization Agreement; (iv) by
Seagate, Arcada or Azzouz if there shall be a final nonappealable order of a
federal or state court in effect preventing consummation of the Merger, or there
shall be any action taken, or any statute, rule, regulation or
14
<PAGE>
order enacted, promulgated or issued or deemed applicable to the Merger by any
governmental entity which would make the consummation of the Merger illegal; (v)
by Seagate if there shall be any action taken, or any statute, rule, regulation
or order enacted, promulgated or issued or deemed applicable to the Merger by
any governmental entity, which would (a) prohibit Seagate's or Arcada's
ownership or operation of all or a material portion of the business of Arcada or
(b) compel Seagate or Arcada to dispose of or hold separate all or a material
portion of the business or assets of Arcada or Seagate as a result of the
Merger; (vi) by Seagate if it is not in breach of its obligations under the
Reorganization Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in the Reorganization Agreement on the
part of Arcada or Azzouz such that the conditions to the consummation of the
Merger would not be satisfied or (vii) by Arcada or Azzouz if they are not in
breach of their obligations under the Reorganization Agreement and there has
been a breach of any representation, warranty, covenant or agreement contained
in the Reorganization Agreement on the part of Seagate such that the conditions
to the consummation of the Merger would not be satisfied. See "The Merger and
Related Transactions -- Termination, Amendment and Waiver."
AMENDMENT
The Merger Agreements may be amended by Seagate, Arcada and Azzouz at any
time before or after the approval of the Merger Agreements by the stockholders
of Arcada, but after any such stockholder approval, no amendment may be made
which by law requires the further approval of such stockholders without
obtaining such further approval.
CERTAIN FEDERAL INCOME TAX MATTERS
The Merger is intended to qualify as a tax-free reorganization for federal
income tax purposes, so that no gain or loss would generally be recognized by
the stockholders of Arcada on the exchange of their shares of Arcada Capital
Stock for shares of Seagate Common Stock, except to the extent of cash received
in lieu of a fractional share of Seagate Common Stock. Arcada stockholders are
urged to consult their own tax advisors as to the specific tax consequences of
the Merger. See "The Merger and Related Transactions -- Certain Federal Income
Tax Matters."
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase, and accordingly, acquired
assets and liabilities pertaining to the minority interest in Arcada will be
recorded at estimated fair values. Under the purchase accounting method,
goodwill and other intangibles in the amount of approximately $64.2 million will
be capitalized and non-recurring charges of approximately $37.1 million relating
to in-process research and development will be recorded in the quarter the
Merger is consummated. These amounts are estimates based on a preliminary
purchase price allocation and a value of $44.625 per share of Seagate Common
Stock. See "The Merger and Related Transactions -- Accounting Treatment."
RESTRICTIONS ON RESALE OF SEAGATE COMMON STOCK
The issuance of the shares of Seagate Common Stock to stockholders of Arcada
upon consummation of the Merger has been registered under the Securities Act.
Such shares may be traded freely without restriction by those stockholders who
are not deemed to be "affiliates" of Arcada or Seagate, as that term is defined
in the rules under the Securities Act. Shares of Seagate Common Stock received
by those stockholders of Arcada who are deemed to be "affiliates" of Arcada may
be resold without registration under the Securities Act only as permitted by
Rule 145 under the Securities Act or as otherwise permitted under the Securities
Act. See "The Merger and Related Transactions -- Restrictions on Resale of
Seagate Common Stock."
The Reorganization Agreement provides that, if the Merger is consummated,
Mr. Azzouz will not sell, offer to sell, pledge, hypothecate or otherwise
dispose of, in the aggregate, (i) more than fifty percent (50%) of the total
number of shares of Seagate Common Stock received by Mr. Azzouz (the
15
<PAGE>
"Azzouz Shares"), including shares of Seagate Common Stock subject to Arcada
Options assumed by Seagate in the Merger, prior to the first anniversary of the
Effective Time and (ii) more than seventy-five percent (75%) of the Azzouz
Shares prior to the second anniversary of the Effective Time.
DISSENTERS' APPRAISAL RIGHTS
If the Merger is consummated, holders of Arcada Capital Stock who do not
vote in favor of the Merger will be entitled to certain appraisal rights under
Delaware Law with respect to each of their shares of Arcada Capital Stock for
which they properly perfect such rights ("Dissenting Shares"). Such appraisal
rights are described under "The Merger -- Dissenters' Appraisal Rights." Under
the Reorganization Agreement, Seagate is not obligated to consummate the Merger
if holders of more than two percent of the outstanding Arcada Capital Stock
either have exercised or continue to have the right to exercise such appraisal
rights.
MERGER EXPENSES AND FEES
The Reorganization Agreement provides that all fees and expenses incurred in
connection with the negotiation and effectuation of the Merger Agreements and
the transactions contemplated thereby, including, without limitation, all legal,
accounting, financial advisory, consulting and all other fees and expenses of
third parties, will be paid by the party incurring such fees and expenses;
provided, however, that whether or not the Merger or any other transaction is
consummated, Arcada will pay from its own funds and not with any funds provided
to Arcada by Seagate or Conner the reasonable fees of Irell & Manella, special
counsel to Arcada. See "The Merger and Related Transactions -- Expenses."
MARKET AND PRICE DATA FOR THE SEAGATE AND ARCADA COMMON STOCK
SEAGATE. Seagate Common Stock has been traded on the NYSE under the symbol
"SEG" since December 12, 1994. Prior to that time, the Seagate Common Stock
traded on the Nasdaq National Market under the symbol "SGAT." The following
table sets forth the range of high and low sale prices reported on the NYSE
composite tape or the Nasdaq National Market, as applicable, for the Seagate
Common Stock for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
---------- -----------
<S> <C> <C>
FISCAL YEAR ENDED JULY 1, 1994
First Quarter................................................................................. $ 21 $ 153/4
Second Quarter................................................................................ 25 167/8
Third Quarter................................................................................. 283/8 22
Fourth Quarter................................................................................ 263/4 19
FISCAL YEAR ENDED JUNE 30, 1995
First Quarter................................................................................. $ 27 $ 201/16
Second Quarter................................................................................ 263/4 217/8
Third Quarter................................................................................. 281/4 235/8
Fourth Quarter................................................................................ 427/8 27
FISCAL YEAR ENDING JUNE 28, 1996
First Quarter................................................................................. $ 493/8 $ 371/2
Second Quarter................................................................................ 543/4 365/8
Third Quarter (through January 16, 1996)...................................................... 503/5 443/4
</TABLE>
ARCADA. There is not now, and there has not been since Arcada's inception,
any public market for the Arcada Capital Stock. In addition, Arcada is not aware
of any recent arms-length transactions between third parties involving Arcada
Capital Stock.
The following table sets forth the closing sale prices per share of Seagate
Common Stock on the NYSE composite tape on September 19, 1995, the last trading
day before the announcement of the proposed Seagate/Conner Merger, and on
January 16, 1996, the latest practicable trading day before the printing of this
Proxy Statement/Prospectus for which information was obtainable, and the
16
<PAGE>
equivalent per share price for Arcada Capital Stock. The "equivalent per share
price" for Arcada Capital Stock as of such dates equals the closing sale price
per share of Seagate Common Stock on such dates multiplied by the Exchange Ratio
of 0.1545. See "The Merger and Related Transactions -- General."
<TABLE>
<CAPTION>
EQUIVALENT
SEAGATE COMMON STOCK PER SHARE PRICE
--------------------- ---------------
<S> <C> <C>
September 19, 1995.............................................. $ 471/4 $ 7.30
January 16, 1996................................................ $ 481/2 7.49
</TABLE>
Apart from the publicly disclosed information concerning Seagate which is
included and incorporated by reference in this Proxy Statement/Prospectus,
Seagate cannot state with certainty what factors account for changes in the
market price of the Seagate Common Stock.
Arcada stockholders are advised to obtain current market quotations for
Seagate Common Stock. No assurance can be given as to the market prices of
Seagate Common Stock at any time before the Effective Time or as to the market
price of Seagate Common Stock at any time thereafter. Because the Exchange Ratio
is fixed, the Exchange Ratio will not be adjusted to compensate Arcada
stockholders for decreases in the market price of Seagate Common Stock which
could occur before the Merger becomes effective. In the event the market price
of Seagate Common Stock decreases or increases prior to the Effective Time, the
value at the Effective Time of the Seagate Common Stock to be received in the
Merger in exchange for Arcada Capital Stock would correspondingly decrease or
increase.
Seagate and Arcada have never paid cash dividends on their respective shares
of Capital Stock. Pursuant to the Seagate/Conner Reorganization Agreement,
Seagate has agreed not to pay cash dividends pending the consummation of the
Seagate/Conner Merger, without the written consent of Conner. Subject to
completion of the Merger, the Arcada Board presently intends to continue a
policy of retaining all earnings to finance the expansion of its business. The
Seagate Board currently intends to retain all earnings for use in the business
of the combined companies and has no present intention to pay cash dividends.
17
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected historical financial information of Seagate, Conner,
and Arcada has been derived from their respective historical financial
statements and should be read in conjunction with such consolidated financial
statements and the notes thereto included or incorporated by reference herein.
The Seagate historical financial statement data as of and for the three months
ended September 30, 1995 and 1994 has been prepared on the same basis as the
historical information derived from the audited financial statements and, in the
opinion of management, contain all adjustments, consisting only of normal
recurring accruals, necessary for the fair presentation of the results of
operations for such periods. The Conner historical financial statement data as
of and for the nine months ended September 30, 1995 and 1994 has been prepared
on the same basis as the historical information derived from the audited
financial statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring accruals, necessary for the fair
presentation of the results of operations for such periods. The Arcada
historical financial statement data as of and for the nine months ended
September 30, 1995 and 1994 has been prepared on the same basis as the
historical information derived from the audited financial statements as of and
for the year ended December 31, 1994 and, in the opinion of management, contain
all adjustments, consisting only of normal recurring accruals, necessary for the
fair presentation of the results of operations for such periods. The historical
financial data as of and for the year ended December 31, 1993 is derived from
unaudited financial statements.
The unaudited selected pro forma combined condensed financial data is
derived from the unaudited pro forma combined condensed financial statements,
appearing elsewhere herein, which give effect to the Seagate/Conner Merger to be
accounted for as a pooling of interests and the Merger to be accounted for as a
purchase, and should be read in conjunction with such pro forma statements and
the notes thereto. For the purpose of the pro forma combined condensed statement
of operations data, Seagate's financial data for the three fiscal years ended
June 30, 1995, 1994 and 1993, and for the three months ended September 30, 1995
and 1994, have been combined with Conner's financial data (which consolidates
the results of Arcada) for the twelve months ended June 30, 1995, the fiscal
years ended December 31, 1994 and 1993, and the three months ended September 30,
1995 and 1994, respectively. No cash dividends have been declared or paid on
Seagate Common Stock, Conner Common Stock, or Arcada Capital Stock. The pro
forma combined condensed balance sheet includes adjustments necessary to give
effect to the Merger assuming the Merger was consummated at September 30, 1995.
The pro forma combined condensed income statements for the twelve months ended
June 30, 1995, and for the three months ended September 30, 1995 and 1994,
include adjustments which give effect to this transaction assuming the Merger
was consummated at the beginning of Seagate's fiscal 1995.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred had the Seagate/ Conner Merger and the Merger been
consummated in an earlier period, nor is it necessarily indicative of future
operating results or financial position.
18
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SEAGATE
HISTORICAL CONSOLIDATED STATEMENT OF INCOME DATA (1)(2):
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
SEPTEMBER
YEARS ENDED JUNE 30, 30,
---------------------------------------------------------- ----------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- 1995
----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales................................................ $4,539,570 $3,500,103 $3,043,604 $2,875,273 $2,676,980 $1,453,626
Gross profit............................................. 931,909 704,282 672,928 487,637 484,491 291,651
Income from operations................................... 372,622 310,957 269,027 106,046 111,285 146,390
Income before extraordinary gain......................... 260,082 225,110 195,434 63,183 62,845 108,046
Extraordinary gain on retirement of debt................. -- -- -- -- 4,613 --
Net income............................................... 260,082 225,110 195,434 63,183 67,458 108,046
Income per share:
Primary:
Income before extraordinary gain..................... $ 3.52 $ 3.08 $ 2.80 $ 0.92 $ 0.95 $ 1.44
Extraordinary gain on retirement of debt............. -- -- -- -- 0.07 --
---------- ---------- ---------- ---------- ---------- ----------
Net income........................................... $ 3.52 $ 3.08 $ 2.80 $ 0.92 $ 1.02 $ 1.44
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Fully diluted:
Income before extraordinary gain..................... $ 3.06 $ 2.83 $ 2.71 $ 0.91 $ 0.94 $ 1.23
Extraordinary gain on retirement of debt............. -- -- -- -- 0.07 --
---------- ---------- ---------- ---------- ---------- ----------
Net income........................................... $ 3.06 $ 2.83 $ 2.71 $ 0.91 $ 1.01 $ 1.23
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Number of shares used in per share computations:
Primary................................................ 73,839 73,064 69,821 68,860 66,140 75,088
Fully diluted.......................................... 91,474 85,012 76,265 69,805 66,584 91,681
<CAPTION>
1994
---------
<S> <C>
Net sales................................................ $ 933,146
Gross profit............................................. 198,145
Income from operations................................... 47,480
Income before extraordinary gain......................... 22,537
Extraordinary gain on retirement of debt................. --
Net income............................................... 22,537
Income per share:
Primary:
Income before extraordinary gain..................... $ 0.30
Extraordinary gain on retirement of debt............. --
---------
Net income........................................... $ 0.30
---------
---------
Fully diluted:
Income before extraordinary gain..................... $ 0.30
Extraordinary gain on retirement of debt............. --
---------
Net income........................................... $ 0.30
---------
---------
Number of shares used in per share computations:
Primary................................................ 74,904
Fully diluted.......................................... 91,501
</TABLE>
HISTORICAL CONSOLIDATED BALANCE SHEET DATA (1):
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- SEPTEMBER 30,
1995
--------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Total assets......................................... $3,361,262 $2,877,530 $2,031,193 $1,816,604 $1,880,060 $3,622,555
Long-term debt, less current portion................. 539,874 549,492 281,276 320,528 393,425 539,804
Stockholders' equity................................. 1,541,768 1,328,399 1,045,241 862,068 766,340 1,671,605
<CAPTION>
<S> <C>
Total assets.........................................
Long-term debt, less current portion.................
Stockholders' equity.................................
</TABLE>
- ----------------------------------
(1) Seagate's fiscal year ends on the Friday closest to June 30. For clarity of
presentation, annual and quarterly fiscal periods are reported as ending on
a calendar month end.
(2) The fiscal year 1995 results of operations include a $70,360 write-off of
in-process research and development incurred in connection with the
acquisition of software companies. The results of operations for the three
months ended September 30, 1994, include a $43,000 write-off of in-process
research and development in connection with the acquisition of a software
company.
19
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONNER
HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS DATA (1)(2):
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
YEARS ENDED DECEMBER 31, 30,
---------------------------------------------------------- ----------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- 1995
----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................................. $2,365,152 $2,151,672 $2,238,423 $1,598,984 $1,337,593 $1,939,912
Gross profit........................................... 468,649 237,954 458,464 316,257 328,211 316,887
Income (loss) from operations.......................... 166,564 (446,430) 153,530 130,211 172,732 52,801
Income (loss) before extraordinary gain................ 109,687 (445,314) 121,072 92,492 130,052 30,227
Extraordinary gain on retirement of debt............... -- -- -- -- -- 6,171
Net income (loss)...................................... 109,687 (445,314) 121,072 92,492 130,052 36,398
Income (loss) per share:
Primary:
Income (loss) before extraordinary gain............ $ 2.10 $ (9.03) $ 2.19 $ 1.57 $ 2.51 $ 0.57
Extraordinary gain on retirement of debt........... -- -- -- -- -- 0.11
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss).................................. $ 2.10 $ (9.03) $ 2.19 $ 1.57 $ 2.51 $ 0.68
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Fully diluted:
Income (loss) before extraordinary gain............ $ 1.77 $ (9.03) $ 1.89 $ 1.54 $ 2.41 $ 0.56
Extraordinary gain on retirement of debt........... -- -- -- -- -- 0.11
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss).................................. $ 1.77 $ (9.03) $ 1.89 $ 1.54 $ 2.41 $ 0.67
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Number of shares used in per share computations:
Primary.............................................. 52,253 49,339 55,242 58,863 51,727 53,471
Fully diluted........................................ 74,558 49,339 74,723 65,252 54,527 54,365
<CAPTION>
1994
----------
<S> <C>
Net sales.............................................. $1,773,541
Gross profit........................................... 371,223
Income (loss) from operations.......................... 124,017
Income (loss) before extraordinary gain................ 65,504
Extraordinary gain on retirement of debt............... --
Net income (loss)...................................... 65,504
Income (loss) per share:
Primary:
Income (loss) before extraordinary gain............ $ 1.26
Extraordinary gain on retirement of debt........... --
----------
Net income (loss).................................. $ 1.26
----------
----------
Fully diluted:
Income (loss) before extraordinary gain............ $ 1.10
Extraordinary gain on retirement of debt........... --
----------
Net income (loss).................................. $ 1.10
----------
----------
Number of shares used in per share computations:
Primary.............................................. 52,175
Fully diluted........................................ 74,489
</TABLE>
HISTORICAL CONSOLIDATED BALANCE SHEET DATA (1):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- SEPTEMBER 30,
1995
--------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Total assets......................................... $1,461,429 $1,464,051 $1,904,707 $1,334,538 $ 880,468 $ 1,490,787
Long-term debt, less current portion................. 627,059 660,606 704,845 367,916 36,731 527,961
Stockholders' equity................................. 336,676 208,851 626,036 712,825 603,862 383,715
<CAPTION>
<S> <C>
Total assets.........................................
Long-term debt, less current portion.................
Stockholders' equity.................................
</TABLE>
- ----------------------------------
(1) Conner's fiscal year ends on the Saturday closest to December 31. For
clarity of presentation, quarterly and annual fiscal periods are reported as
ending on a calendar month end.
(2) Income (loss) from operations for 1994 includes a credit of $38,019 for the
reduction of restructuring reserves established in 1993. This credit was
partially offset by a $5,000 charge to write off in-process research and
development in connection with the acquisition of a software company. Income
(loss) from operations for 1993 includes a charge of $40,300 to reflect
inventory write-offs resulting from the acceleration of the end-of-life of
certain disc drive products, $212,945 for the write-down of goodwill and
other intangibles, $106,457 for restructuring charges, and a charge of
$19,000 for certain contingencies. Income (loss) from operations for 1992
includes a charge of $57,611 for the write-off of in-process research and
development in connection with the acquisition of Archive Corporation.
Income (loss) from operations for the nine months ended September 30, 1995
includes a $2,817 write-off of in-process research and development in
connection with the acquisition of a software company.
20
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ARCADA
HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS DATA (1)(2):
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION NINE MONTHS ENDED
(JANUARY 1,
YEAR ENDED 1993) TO SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, --------------------
1994 1993 1995 1994
------------- ------------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales..................................................................... $ 24,866 $ 10,353 $ 42,658 $ 15,098
Gross profit.................................................................. 18,187 8,649 33,387 10,680
Income (loss) from operations................................................. (12,270) (5,273) 1,305 (12,670)
Net income (loss)............................................................. (8,724) (5,273) 679 (9,204)
Net income (loss) per share (3)............................................... $ (0.24) $ 0.02 $ (0.25)
Number of shares used in per share computations............................... 36,166 40,615 36,124
</TABLE>
HISTORICAL CONSOLIDATED BALANCE SHEET DATA (1):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1994 1993 1995
--------- ------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Total assets............................................................................. $ 18,312 $ 3,286 $ 28,884
Long-term debt, less current portion..................................................... 2,243 -- 3,241
Stockholders' equity..................................................................... 5,582 1,428 8,102
</TABLE>
- ----------------------------------
(1) Arcada's fiscal year ends on the Saturday closest to December 31. For
clarity of presentation, quarterly and annual fiscal periods are reported
as ending on a calendar month end.
(2) Loss from operations for the year ended December 31, 1994 includes a $7,632
write-off of in-process research and development in connection with the
acquisition of a software company. Income from operations for the nine
months ended September 30, 1995 includes a $2,817 write-off of in-process
research and development in connection with the acquisition of a software
company.
(3) Net loss per share data for the year ended December 31, 1993 is not
presented because Arcada had no formal capital structure until the end of
1993. Net income (loss) per share has been computed assuming the conversion
of outstanding preferred stock into common stock on a one-for-one basis.
21
<PAGE>
SEAGATE AND CONNER
UNAUDITED SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS DATA (2):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
---------------------------------- --------------------------
1995 1994 1993 1995 1994
---------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Net sales.................................................... $6,943,418 $5,865,255 $5,195,276 $ 2,140,805 $1,492,650
Gross profit................................................. 1,341,779 1,172,931 910,882 397,275 299,326
Income (loss) from operations................................ 457,550 477,521 (177,403) 168,173 67,141
Income (loss) before extraordinary gain...................... 323,021 334,797 (249,880) 119,376 30,693
Income (loss) per share before extraordinary gain:
Primary.................................................... $ 3.25 $ 3.48 $ (2.80) $ 1.18 $ 0.31
Fully diluted.............................................. $ 2.88 $ 3.16 $ (2.80) $ 1.02 $ 0.30
Number of shares used in per share computations:
Primary.................................................... 99,336 96,160 89,187 101,254 100,172
Fully diluted.............................................. 125,880 117,967 89,187 126,966 110,491
</TABLE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET DATA (2):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
--------------
<S> <C> <C> <C> <C> <C>
Working capital...................................................................... $ 2,257,953
Total assets......................................................................... 5,170,266
Long-term debt, less current portion................................................. 1,067,765
Stockholders' equity................................................................. 1,995,152
</TABLE>
- ----------------------------------
(1) See "Unaudited Pro Forma Combined Condensed Financial Statements" and the
notes thereto included elsewhere herein.
(2) Seagate expects to incur charges to operations currently estimated to range
from $140,000 to $180,000, in the quarter ending March 31, 1996, the
quarter in which the Seagate/Conner Merger is expected to be consummated.
An estimated charge at the midpoint of the above range of $121,000, net of
estimated tax benefits of $39,000, is reflected in the unaudited pro forma
combined condensed balance sheet. The charge, before estimated tax
benefits, primarily relates to costs associated with combining the
operations of the two companies and includes employee severance benefits of
$87 million, closure of duplicate and excess facilities of $53 million and
fees of financial advisors, attorneys and accountants of $20 million. This
range is a preliminary estimate only and is therefore subject to change.
In connection with the Merger, Seagate estimates that it will incur a
charge to operations of approximately $37,100 for the three months ending
March 31, 1996 to write off in-process research and development in
connection with the Merger. The estimated range of the write-off is from
$35,000 to $40,000; however, the actual write-off is subject to change
based on completion of the final purchase price allocation.
22
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth certain historical per share data of Seagate,
Conner, and Arcada, and combined per share data on an unaudited pro forma basis:
(i) after giving effect to the Seagate/ Conner Merger on a pooling of interests
basis assuming the issuance of 0.442 of a share of Seagate Common Stock in
exchange for each share of Conner Common Stock and the issuance of an option to
purchase 0.442 of a share of Seagate Common Stock for each outstanding Conner
Option and (ii) assuming Seagate issues shares of Seagate Common Stock and
options to purchase Seagate Common Stock totaling approximately 2,192,000 shares
(equivalent to approximately $97.8 million based on a value of $44.625 per share
of Seagate Common Stock) in exchange for the outstanding minority interest of
Arcada. The data below should be read in conjunction with the selected financial
data, the unaudited pro forma combined condensed financial statements included
elsewhere in this Proxy Statement/Prospectus, and the separate historical
financial statements of Seagate, Conner and Arcada included or incorporated by
reference herein. The unaudited pro forma combined financial data are not
necessarily indicative of the operating results that would have been achieved
had the Seagate/Conner Merger and the Merger been consummated in an earlier
period and should not be construed as representative of future operations.
Seagate expects to incur charges to operations currently estimated to range
from $140 million to $180 million, in the quarter ending March 31, 1996, the
quarter in which the Seagate/Conner Merger is expected to be consummated. An
estimated charge at the midpoint of the above range of $121 million, net of
estimated tax benefits of $39 million, is reflected in the unaudited pro forma
combined condensed balance sheet. The future cash requirements related to this
charge are estimated to be in the range of $100 million to $120 million, of
which approximately $29 million relates to lease payments for duplicative
facilities which will be paid on a monthly basis over periods extending through
2018. The charge, before estimated tax benefits, primarily relates to costs
associated with combining the operations of Seagate and Conner and includes
employee severance benefits of $87 million, closure of duplicate and excess
facilities of $53 million and fees of financial advisors, attorneys and
accountants of $20 million. These ranges are preliminary estimates only and are
therefore subject to change.
In connection with the Merger, Seagate estimates that it will incur a charge
to operations of approximately $35 million to $40 million in the quarter ending
March 31, 1996, in connection with the write-off of in-process research and
development. The write-off is an estimate and is subject to change based on
completion of the final purchase price allocation.
23
<PAGE>
COMPARATIVE PER SHARE DATA (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS
ENDED ENDED
JUNE 30, SEPTEMBER 30,
------------------------------- --------------------
1995 1994 1993 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
HISTORICAL -- SEAGATE (1):
Net income:
Primary........................................................ $ 3.52 $ 3.08 $ 2.80 $ 1.44 $ 0.30
Fully diluted.................................................. $ 3.06 $ 2.83 $ 2.71 $ 1.23 $ 0.30
Book value....................................................... $ 21.42 $ 22.92
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1993 1992 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
HISTORICAL -- CONNER (2):
Primary:
Income (loss) before extraordinary gain........................ $ 2.10 $ (9.03) $ 2.19 $ 0.57 $ 1.26
Extraordinary gain on retirement of debt....................... -- -- -- 0.11 --
--------- --------- --------- --------- ---------
Net income (loss).............................................. $ 2.10 $ (9.03) $ 2.19 $ 0.68 $ 1.26
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Fully diluted:
Income (loss) before extraordinary gain........................ $ 1.77 $ (9.03) $ 1.89 $ 0.56 $ 1.10
Extraordinary gain on retirement of debt....................... -- -- -- 0.11 --
--------- --------- --------- --------- ---------
Net income (loss).............................................. $ 1.77 $ (9.03) $ 1.89 $ 0.67 $ 1.10
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Book value....................................................... $ 6.42 $ 7.17
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR
ENDED SEPTEMBER 30,
DECEMBER 31, --------------------
1994 1995 1994
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
HISTORICAL -- ARCADA (2):
Net income (loss)............................................. $ (0.24) $ 0.02 $ (0.25)
Book value.................................................... $ 0.15 $ 0.21
</TABLE>
- ------------------------
(1) Seagate's fiscal year ends on the Friday closest to June 30, and includes 52
weeks for all annual periods presented and 13 weeks for both quarterly
periods presented. For clarity of presentation, quarterly and annual fiscal
periods are reported as ending on a calendar month end.
(2) Conner's and Arcada's fiscal years end on the Saturday closest to December
31, and include 52 weeks in fiscal 1994 and 1993, 53 weeks in fiscal 1992,
and 39 weeks in the nine month periods ended September 30, 1995 and 1994.
For clarity of presentation, quarterly and annual fiscal periods are
reported as ending on a calendar month end.
24
<PAGE>
COMPARATIVE PER SHARE DATA (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS ENDED
ENDED
JUNE 30, SEPTEMBER 30,
------------------------------- --------------------
1995 1994 1993 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
UNAUDITED PRO FORMA COMBINED -- PER SEAGATE SHARE (1):
Income (loss) before extraordinary gain:
Primary....................................................... $ 3.25 $ 3.48 $ (2.80) $ 1.18 $ 0.31
Fully diluted................................................. $ 2.88 $ 3.16 $ (2.80) $ 1.02 $ 0.30
Book value...................................................... $ 19.36 $ 20.66
UNAUDITED PRO FORMA COMBINED -- PER ARCADA SHARE (2):
Income (loss) before extraordinary gain:
Primary....................................................... $ 0.50 $ 0.18 $ 0.05
Fully diluted................................................. $ 0.44 $ 0.16 $ 0.05
Book value...................................................... $ 2.99 $ 3.19
</TABLE>
- ------------------------
(1) For purposes of pro forma combined data, Seagate's financial data for the
three fiscal years ended June 30, 1995, 1994, and 1993, and the three months
ended September 30, 1995 and 1994, have been combined with Conner's
financial data (which consolidates the results of Arcada) for the twelve
months ended June 30, 1995, the fiscal years ended December 31, 1994 and
1993, and the three months ended September 30, 1995 and 1994, respectively.
(2) The equivalent of Arcada's pro forma per share amounts are calculated by
multiplying the pro forma combined per share amounts by the Exchange Ratio
of 0.1545 of a share of Seagate Common Stock for each share of Arcada
Preferred and Common Stock.
25
<PAGE>
RISK FACTORS
THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY BY HOLDERS OF ARCADA
CAPITAL STOCK IN EVALUATING WHETHER TO APPROVE AND ADOPT THE MERGER AGREEMENTS.
THESE FACTORS SHOULD BE CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION
INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/ PROSPECTUS.
RISKS RELATED TO THE MERGER AND THE SEAGATE/CONNER MERGER
DIFFICULTY OF INTEGRATING TWO COMPANIES. The successful combination of
companies in the high technology industry may be more difficult to accomplish
than in other industries. The anticipated benefits of the Seagate/Conner Merger
will not be achieved unless the operations of Conner (including its interest in
Arcada) are successfully combined with those of Seagate in a timely manner. The
transition to a combined company will require substantial attention from
management. The diversion of the attention of management and any difficulties
encountered in the transition process could have an adverse impact on the
revenues and operating results of the combined company. The combination of
Seagate and Conner will also require integration of the companies' product
offerings and the coordination of their research and development and sales and
marketing efforts. The difficulties of assimilation may be increased by the
necessity of coordinating geographically separated organizations, integrating
personnel with disparate business backgrounds and combining different corporate
cultures. In addition, the process of combining the two organizations could
cause the interruption of, or a loss of momentum in, the activities of any or
all of the companies' businesses, which could have an adverse effect on their
combined operations. There can be no assurance that either company will retain
their key technical personnel, that the engineering teams will successfully
cooperate and realize any technological benefits or that Seagate will realize
any of the other anticipated benefits of the Seagate/Conner Merger. In addition,
the announcement and consummation of the Merger and the Seagate/Conner Merger
could cause customers and potential customers of Seagate, Conner or Arcada to
delay or cancel orders for products as a result of customer concerns and
uncertainty over product evolution, integration and support of the combined
company's products. Such a delay or cancellation of orders could have a material
adverse effect on the business, results of operations and financial condition of
Seagate, Conner or Arcada.
RISKS ASSOCIATED WITH FIXED EXCHANGE RATIO. As a result of the Merger, each
outstanding share of Arcada Capital Stock will be converted into the right to
receive 0.1545 of a share of Seagate Common Stock. The Merger Agreements do not
provide for adjustment of the Exchange Ratio based on fluctuations in the price
of Seagate Common Stock. Because the Exchange Ratio is fixed and will not
increase or decrease due to fluctuations in the market price of the Seagate
Common Stock, Arcada stockholders will not be compensated for decreases in the
market price of Seagate Common Stock which could occur before the Effective
Time. In the event that the market price of Seagate Common Stock decreases or
increases prior to the Effective Time, the market value at the Effective Time of
the Seagate Common Stock to be received by Arcada stockholders in the Merger
would correspondingly decrease or increase. The market price of Seagate Common
Stock as of a recent date are set forth herein under "Summary -- Market and
Price Data for the Seagate and Arcada Common Stock," and Arcada stockholders are
advised to obtain recent market quotations for Seagate Common Stock. The Seagate
Common Stock historically has been subject to substantial price volatility. No
assurance can be given as to the market price of Seagate Common Stock at any
time before the Effective Time or as to the market price of Seagate Common Stock
at any time thereafter. See "Summary -- Market and Price Data for the Seagate
and Arcada Common Stock" and "Risk Factors -- Risks Related to the Business and
Operations of Seagate -- Substantial Price Volatility of the Seagate Common
Stock."
THE SEAGATE/CONNER MERGER. Consummation of the Seagate/Conner Merger is
subject to the number of conditions which, if not satisfied or waived, could
cause the Seagate/Conner Merger not to be consummated and the Seagate/Conner
Reorganization Agreement to be terminated, including, among others, the approval
by the stockholders of Seagate of the issuance of Seagate Common Stock in the
Seagate/Conner Merger and the approval by the stockholders of Conner of the
Seagate/Conner
26
<PAGE>
Reorganization Agreement. It is a condition to the obligations of Seagate,
Arcada and Azzouz to consummate the Merger that the Seagate/Conner Merger shall
have been consummated. There can be no assurance that the Seagate/Conner Merger
will be consummated. If the Seagate/ Conner Merger is not consummated, the
Merger will not be consummated.
SUBSTANTIAL EXPENSES RESULTING FROM THE SEAGATE/CONNER MERGER. The
negotiation and implementation of the Seagate/Conner Merger will result in
aggregate pre-tax expenses to Seagate of approximately $140 million to $180
million. The restructuring charge, using a midpoint of $160 million, before
estimated tax benefits, primarily relates to costs associated with combining the
operations of Seagate and Conner and includes employee severance benefits of $87
million, closure of duplicate and excess facilities of $53 million and fees of
financial advisors, attorneys and accountants of $20 million. Although Seagate
does not believe that the costs will exceed the aforementioned range, there can
be no assurance that the estimate is correct or that unanticipated contingencies
will not occur that will substantially increase the costs of combining the
operations of Seagate and Conner. In any event, costs associated with the
Seagate/Conner Merger will negatively impact Seagate's results of operations in
the quarter in which the Seagate/Conner Merger is consummated. In addition, in
connection with the Merger, Seagate estimates that it will incur a charge to
operations of approximately $35 million to $40 million in the quarter ending
March 31, 1996, in connection with the write-off of in-process research and
development. The write-off is an estimate and is subject to change based on
completion of the final purchase price allocation.
SHARES ELIGIBLE FOR FUTURE SALE. If the Merger and the Seagate/Conner
Merger are consummated, Seagate will issue to stockholders of Conner and Arcada
an aggregate of approximately 25,462,882 shares of Seagate Common Stock based on
the number of shares of Conner Common Stock outstanding as of December 15, 1995
and the number of shares of Arcada Capital Stock outstanding as of the Arcada
Record Date. Immediately upon consummation of the Merger and the Seagate/Conner
Merger, up to approximately 24,818,984 of such shares will be freely tradeable.
As a result, substantial sales of Seagate Common Stock could occur after the
Merger and the Seagate/Conner Merger. Following publication of financial results
covering 30 days of post-Seagate/Conner Merger combined operations, an
additional approximately 643,898 shares issued in the Seagate/Conner Merger to
persons who may be deemed affiliates of Conner could be publicly sold pursuant
to Rule 145 under the Securities Act, subject to the volume and other
limitations thereof. Future sales of a substantial number of such shares of
Seagate Common Stock could adversely affect or cause substantial fluctuations in
the market price of Seagate Common Stock.
RISKS RELATED TO THE BUSINESS AND OPERATIONS OF SEAGATE
The Merger will not occur unless the Seagate/Conner Merger has occurred.
Hence, reference to Seagate set forth below includes Conner and its
subsidiaries, unless the context otherwise requires.
SIGNIFICANT VARIABILITY OF DEMAND, SEVERE PRICE EROSION AND OTHER
CHARACTERISTICS OF THE RIGID DISC DRIVE INDUSTRY. The rigid disc drive industry
in which Seagate competes is subject to a number of risks. The demand for rigid
disc drive products depends principally on demand for computer systems and
storage upgrades to computer systems, which historically has been volatile.
Changes in demand for computer systems often have an exaggerated effect on the
demand for rigid disc drive products in any given period, and unexpected
slowdowns in demand for computer systems generally cause sharp declines in
demand for rigid disc drive products. The industry has been characterized by
periodic situations in which the supply of rigid disc drives exceeds demand,
resulting in higher than anticipated inventory levels and strong price
competition. Even during periods of consistent demand, the industry is
characterized by intense competition and ongoing price erosion over the life of
a given rigid disc drive product. Seagate expects that price erosion in the
rigid disc drive industry will continue for the foreseeable future. In addition,
the demand of rigid disc drive customers for new generations of products has led
to short product life cycles, which require that industry participants
constantly develop and introduce new rigid disc drive products on a
cost-effective and timely basis. The manufacture of rigid disc drive products is
difficult and complex, and it is common in the industry for
27
<PAGE>
companies to experience production difficulties, due to contamination related
issues, yield short falls and other difficulties, occasionally creating
short-term delivery delays and quality problems that generally subside within 90
days. Most rigid disc drive products, including those of Seagate, are
manufactured outside of North America and foreign manufacturing is subject to a
number of risks, including changes in government policies, transportation
delays, tariffs, fluctuations in foreign exchange rates, and export and tax
controls. Seagate's principal manufacturing facilities are located in Thailand,
Singapore, California, Minnesota, Malaysia and Oklahoma. Conner's principal
manufacturing facilities are located in Malaysia, Singapore, the People's
Republic of China, Italy and California. Each of Seagate and Conner continually
evaluates its component and manufacturing processes, as well as the desirability
of transferring volume production of disc drives and related components between
facilities or to new facilities. In this regard, Seagate is considering
expanding its manufacturing operations into other countries overseas, but to
date has made no definitive decision. Effective January 1, 1995, the European
Union ("EU") established a new General System of Preferences ("GSP"). Under this
revised code, certain products which had been exempt from customs duties under
previous GSP rules, including rigid disc drives imported into the EU from
Singapore, became subject to certain customs duties. In addition, during
calendar 1995 Singapore is progressively losing its status as a beneficiary
country under the GSP. As a result, rigid disc drives produced in Singapore and
imported into the EU will realize no reduction from full most favored nation
customs duties after December 31, 1995. The imposition of such customs duties
may increase costs and could adversely impact Seagate's gross margins depending
upon the extent to which such duties are absorbed by Seagate. In addition,
future changes in tariff or duty structures in the EU or elsewhere could affect
production and increase costs in Seagate's manufacturing operations in Ireland,
China, Singapore and/or Thailand. For these reasons, as well as those discussed
in the following additional risk factors, an investment in the Seagate Common
Stock involves a high degree of risk.
RAPID TECHNOLOGICAL CHANGE AND REQUIREMENT OF ONGOING NEW PRODUCT
DEVELOPMENT. The rigid disc drive industry is characterized by rapidly changing
technology, short product life cycles and rapidly changing customer needs, each
of which require ongoing development and introduction of new products. Seagate
believes that its future success will depend upon its ability to develop,
manufacture and market products which meet changing customer needs, and which
successfully anticipate or respond to changes in technology and standards on a
cost-effective and timely basis. No assurance can be given that Seagate will be
able to successfully design or introduce new products in a timely manner, that
it will be able to manufacture new products in volume with acceptable
manufacturing yields and gross margins or successfully market such products, or
that such products will perform to specifications on a long-term basis. In
addition, during periods of new product introduction, each company must manage
its inventory carefully to avoid inventory obsolescence. The failure of Seagate
to achieve any of these objectives could have a material adverse effect on
Seagate's business, results of operations and financial condition.
The demand of rigid disc drive customers for products with ever increasing
storage capacity and more advanced technology has resulted in increased
dependence by Seagate on sales of high capacity disc drives. The increased
difficulty and complexity associated with production of higher capacity disc
drives increases the likelihood of reliability, quality or operability problems
that could result in reduced bookings, manufacturing rework costs, delays in
collecting accounts receivable, increased service and warranty costs and a
decline in Seagate's competitive position. There can be no assurance that,
despite testing by Seagate and its customers, quality problems will not be found
in new products after commencement of commercial shipments, resulting in loss or
delay in market acceptance and having a material adverse effect on Seagate's
business, results of operations and financial condition.
Today, all Seagate drives use thin-film heads which are based on
sophisticated technology that permits a high density of storage on each disc.
Seagate sources most of its heads internally. Seagate believes that as
requirements for even greater storage densities increase, demand for a more
advanced head technology will grow. In anticipation of such growth, Seagate
currently has under development magneto-resistive ("MR") heads to be
incorporated into future products. MR heads have discrete read
28
<PAGE>
and write structures which take advantage of special magnetic properties in
certain metals to achieve significantly higher storage capacities. There can be
no assurance that Seagate's MR head development efforts will be successful and a
failure of Seagate to successfully manufacture and market products incorporating
MR head technology in a timely manner could have a material adverse effect on
Seagate's business, results of operations and financial condition.
FLUCTUATION OF QUARTERLY RESULTS. The rigid disc drive industry in which
Seagate competes is characterized by variability of demand and declining unit
sales prices over the life of a product, and Seagate anticipates that these
characteristics will continue. Seagate expects that competitors will offer new
and existing products at prices necessary to gain or retain market share and
customers. This competition and continuing price erosion could adversely affect
Seagate's results of operations in any given quarter and such adverse effect
often cannot be anticipated until late in any given quarter. In addition,
Seagate's operating results may also 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, product mix, variations
in product costs and pricing, delays in product development, introduction and
production, increased competition and general economic and industry
fluctuations.
Seagate has invested in, and continues to investigate opportunities to
invest in, software and other complementary businesses. During fiscal 1995,
Seagate recognized aggregate charges of $70.4 million for write-offs of
in-process research and development in connection with acquisitions of software
companies. Seagate intends to continue its expansion into software and other
complementary businesses. As a result, Seagate expects that it will continue to
incur charges as it acquires businesses, including charges for the write-off of
in-process research and development. The timing of such write-offs has in the
past and may in the future lead to fluctuations in Seagate's operating results
on a quarterly and annual basis.
RISKS RELATED TO TAPE DRIVE BUSINESS. In addition to its rigid disc drive
business and software business, after the Seagate/Conner Merger, Seagate will
operate a tape drive business. The tape drive business accounted for
approximately 15% of Conner's total revenue for the fiscal year ended December
31, 1994. Like the disc drive business, the tape drive business is subject to a
number of risks, including variability of demand, price erosion, uncertainty
related to the introduction of new technology, component cost increases and
currency fluctuation. In addition, the tape drive business is subject to
competitive pressures from optical disc drives, floppy disc drives, removable
cartridge drives and potentially other technologies. While Conner has continued
to invest in new products, business development and customer and supplier
relationships in connection with the tape drive business, there can be no
assurance that these efforts will be successful, that the underlying business
will grow, or that new products or technologies will be successful. As a result,
revenues and financial results of the tape drive business could fluctuate
substantially and have a material adverse effect on Seagate's business, results
of operations and financial condition. In addition, the tape drive business
includes a significant relationship with Matsushita Kotobuki Electronics of
Japan ("MKE"), which produces most of the tape drives sold by Conner and which
owns certain technology rights related thereto. Pursuant to the agreement with
MKE, MKE has the right to terminate its relationship with Conner six months
after notification of a transaction that would result in a change of control of
Conner (the Seagate/Conner Merger would be a change of control for purposes of
such agreement). MKE also manufactures disc drives for another leading
independent disc drive manufacturer that is a competitor of Seagate and Conner.
As of December 29, 1995, MKE had not notified Seagate or Conner that it will
terminate its relationship with Conner. If Seagate's ability to obtain tape
drives from MKE after the Seagate/Conner Merger were interrupted or impaired for
any reason, Seagate's business, results of operations and financial condition
could be materially adversely affected.
VARIABILITY OF CUSTOMER REQUIREMENTS. The rigid disc drive industry has
been characterized by large volume OEM purchase agreements and large distributor
orders. Typically, Seagate's OEM purchase agreements permit customers to cancel
orders and reschedule delivery dates without significant penalties. Anticipated
orders from many of Seagate's OEM customers have in the past failed to
materialize or delivery schedules have been deferred as a result of changes in
customer requirements.
29
<PAGE>
Such OEM order fluctuations and deferrals have had a material adverse effect on
Seagate's results of operations in the past, and there can be no assurance that
Seagate will not experience such effects in the future. Distributors typically
furnish Seagate with non-binding indications of their near-term requirements,
with product deliveries based on weekly confirmations. To the extent actual
orders from distributors decrease from their non-binding forecasts, such
variances could have a material adverse effect on Seagate's business, results of
operations and financial condition.
AVAILABILITY OF COMPONENT SUPPLY. Seagate relies on single or limited
source suppliers for certain components used in its products. There can be no
assurance that these suppliers will continue to be able to meet Seagate's
requirements for these components or that the price of these components will not
increase. In the past, shortages have occurred in the market for certain
components, including heads, media, application specific integrated circuits and
motors. As a result, certain suppliers substantially increased the price of such
components, and Seagate is currently incurring increased costs for certain of
these components as a result of supply shortages. Any extended interruption or
reduction in the supply of any key components could have a material adverse
effect on Seagate's business, results of operations and financial condition.
NUMEROUS LEGAL PROCEEDINGS. Seagate is involved in a number of judicial and
administrative proceedings. Seagate has received a Notice of Deficiency (the
"Seagate Notice") from the Internal Revenue Service for fiscal years 1988
through 1990. Proposed adjustments to income and tax credits in the Seagate
Notice for fiscal years 1988 through 1990 resulted in proposed tax deficiencies
of approximately $66.0 million, plus penalties and interest of approximately
$61.0 million as of November 30, 1995. The proposed income adjustments would
also eliminate tax net operating loss and tax credit carryovers that have been
used to offset taxable income and tax liabilities in other fiscal years. The
impact on tax net operating losses and tax credit carryovers from the
adjustments proposed in the Seagate Notice would result in additional taxes of
approximately $22.0 million for the three years ended July 2, 1993, plus
interest of approximately $6.5 million as of November 30, 1995. Seagate filed a
Petition with the United States Tax Court in June 1994 contesting the proposed
tax deficiencies. In addition, Seagate's federal income tax returns for fiscal
years 1991 through 1993 are presently under examination by the Internal Revenue
Service. Seagate is also currently involved in numerous additional legal
proceedings, including securities class actions, patent claims and claims for
damages and costs relating to environmental matters.
Seagate and certain of its officers and certain directors are defendants in
a series of securities class action lawsuits filed in 1988 in the United States
District Court for the Northern District of California by a group of plaintiffs
purporting to represent a class of investors that purchased Seagate Common Stock
or 6 3/4% Convertible Subordinated Debentures of Seagate between September 23,
1987 and October 8, 1988. The plaintiffs in this series of lawsuits have filed a
consolidated amended complaint, consolidating all of the lawsuits into a single
complaint. The complaint alleges violations of Sections 10(b) and 20(a) of the
Exchange Act and Rule 10b-5 promulgated thereunder. The complaint seeks
unspecified damages and reimbursement of costs of the suit. On February 8, 1995,
the court granted defendants' motion for summary judgment completely dismissing
all claims against Seagate and the other defendants. On March 31, 1995, the
court also denied plaintiffs' motion for reconsideration of the summary judgment
decision. Plaintiffs have appealed this judgment to the United States Court of
Appeals for the Ninth Circuit, which appeal is pending. While Seagate cannot
predict the ultimate outcome of this litigation, based upon its review of the
allegations and upon the district court's dismissal of the claims, Seagate
believes that the outcome of this matter will not have a material adverse effect
on Seagate's financial condition or results of operations.
Seagate, certain of its officers, directors and other employees, certain
underwriters retained by Seagate in connection with a public offering completed
in February 1991 and other parties are defendants in a series of securities
class action lawsuits filed in 1991 in the United States District Court for the
Northern District of California by a group of plaintiffs purporting to represent
a class of investors that purchased Seagate Common Stock between October 11,
1990 and June 26, 1991. The plaintiffs in this series of lawsuits have filed a
consolidated amended complaint, consolidating all of
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the lawsuits into a single complaint. The complaint alleges violations of
Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated
thereunder. The complaint seeks unspecified damages, equitable relief and
reimbursement of costs of the suit. The case is currently in discovery and a
trial date has been set for February 1997. While Seagate cannot predict the
ultimate outcome of this litigation, based upon its review of the allegations
and the discovery completed to date, Seagate believes that the outcome of this
matter will not have a material adverse effect on Seagate's financial condition
and results of operations.
In November 1992, Rodime, PLC ("Rodime") filed a complaint against Seagate
in the United States District Court for the Central District of California,
alleging infringement of U.S. Patent No. B1 4,638,383 and various state law
unfair competition claims. No trial date has been scheduled. The court has
granted several motions for summary judgment by Seagate holding claims of the
Rodime patent invalid and holding that many of Seagate's products did not
infringe any claims of Rodime's patent. With these holdings only one of
Seagate's products remains accused in this action. This product is no longer
being sold by Seagate. Based upon its review of the patent and allegedly
infringing product in question, it is the opinion of Seagate's patent counsel
that the product did not and does not infringe any valid claims of the Rodime
patent. Therefore, while Seagate cannot predict the ultimate outcome of this
litigation, Seagate believes that the outcome of this matter will not have a
material adverse effect on Seagate's financial condition and results of
operations.
In October 1994, a patent infringement action was filed against Seagate by
an individual, James M. White, in the United States District Court of the
Northern District of California for alleged infringement of U.S. Patent No.
4,673,996 and 4,870,519. Both patents relate to air bearing sliders. Prior to
the filing of the lawsuit, Seagate filed a Petition for Reexamination of U.S.
Patent No. 4,673,996 with the United States Patent and Trademark Office ("PTO")
and this petition was granted shortly after the lawsuit was filed. Subsequently,
Seagate filed a Petition for Reexamination of U.S. Patent No. 4,870,519. This
second petition has also been granted by the PTO. The court stayed in the action
pending the outcome of the reexaminations. Based upon its review of the patents,
it is the opinion of Seagate's patent counsel that the claims of the two White
patents are invalid.
Amstrad PLC ("Amstrad") initiated a lawsuit against Seagate in London,
England in the High Court of Justice, Official Referees' Business in December
1992 concerning Seagate's sale of allegedly defective disc drives to Amstrad's
claim and asserting many affirmative defenses. Discovery is continuing and a
trial date has been set for April 1996 with various earlier dates for exchange
of fact and expert statements. Seagate intends to continue to defend itself
rigorously. While Seagate cannot predict the ultimate outcome of this
litigation, based upon its review of the allegations and discovery completed to
date, Seagate believes this lawsuit is without merit and, as a result, Seagate
believes that the outcome of this matter will not have a material adverse effect
on its financial condition or results of operations.
For a complete discussion of such legal proceedings see the "Income Taxes"
and "Litigation" footnotes of Seagate's consolidated financial statements
incorporated by reference in its Annual Report on Form 10-K for the year ended
June 30, 1995. Although Seagate believes that the outcome of each of the matters
described above will not have a material adverse effect on its financial
condition or results of operations, Seagate cannot predict the ultimate outcome.
In addition, Conner is involved in a number of judicial and administrative
proceedings which could impact Seagate after the Seagate/Conner Merger. Conner
and certain of its officers and certain directors are defendants in a securities
class action lawsuit in the United States District Court for the Northern
District of California which purports to represent a class of investors who
purchased or otherwise acquired Conner Common Stock between January 1992 and May
1993. Certain officers and directors are also defendants in a related
stockholders' derivative suit. The complaints seek unspecified damages and other
relief.
The hard disc drive industry has been characterized by significant
litigation relating to patent and other intellectual property rights. In 1992,
Conner filed a patent infringement lawsuit against
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Western Digital Corporation ("Western Digital") in the United States District
Court for the Northern District of California alleging the infringement of five
of Conner's patents by Western Digital. Western Digital has filed a counterclaim
alleging infringement of certain of its patents by Conner. The case is currently
in discovery. Conner has stated that on the basis of the advice of outside
counsel, it believes it has valid claims against Western Digital and meritorious
defenses to the claims asserted by Western Digital, based on invalidity of the
Western Digital patents and/or non-infringement of the Western Digital patents
by Conner. However, there can be no assurance that Conner will prevail in this
matter or that other intellectual property litigation will not be commenced by
or against Conner in the future.
In December 1994, the Internal Revenue Service concluded a field audit of
Conner's federal income tax returns for the fiscal years 1989 and 1990 and
issued to Conner a Notice of Deficiency (the "Conner Notice") with respect to
those fiscal years. The majority of the proposed adjustments to income in the
Conner Notice related to the allocation of income between Conner and its foreign
manufacturing subsidiaries. The Conner Notice resulted in proposed tax
deficiencies of approximately $43.0 million and assessed interest. On March 20,
1995, Conner filed a Petition in the United States Tax Court entitled Conner
Peripherals, Inc. v. Commissioner of Internal Revenue, Docket No. 4322-95
contesting such proposed tax deficiencies. On May 16, 1995, the Commissioner
filed her Answer to the Petition and, on August 4, 1995, a trial judge was
assigned to the case. The case is currently being reviewed by the Appeals Office
of the Internal Revenue Service.
RISKS ASSOCIATED WITH BUSINESS DIVERSIFICATION. In addition to pursuing its
core rigid disc drive business, Seagate has broadened its business strategy to
more fully address the markets for storage, retrieval and management of data.
Implementation of this broadened strategy entails risks of entering markets in
which Seagate may have limited or no experience. In addition, such broadened
strategy could result in the diversion of management's attention from the core
rigid disc drive business which could adversely impact the core business. The
strategy followed by each company to sell selected magnetic recording components
to other rigid disc drive manufacturers may improve such manufacturers' ability
to compete with Seagate in its core business. The broadened strategy may also
entail acquisitions of, or investments in, businesses, products and
technologies. Since July 1, 1993, Seagate has completed the acquisition of seven
businesses and made significant equity investments in three additional
companies. Six of such acquisitions were for cash consideration and in the
remaining acquisition, Seagate issued an aggregate of approximately 737,000
shares of Seagate Common Stock to the sole stockholder of the acquired company.
Acquisitions involve numerous risks, including potentially dilutive issuances of
equity securities, difficulties in the assimilation of the operations and
products of the acquired businesses and the potential loss of key employees or
customers of the acquired businesses.
HIGH FIXED COSTS. Seagate has pursued a strategy of vertical integration of
its manufacturing process in order to reduce unit costs, control quality and
assure availability of certain components. A strategy of vertical integration
entails a high level of fixed costs and requires a high volume of production and
sales to be successful. During periods of decreased demand, these high fixed
costs have had, and could in the future have, a material adverse effect on
Seagate's results of operations and financial condition.
MANUFACTURING RISKS. Continued improvement in manufacturing process
capabilities and reduced materials and manufacturing costs are critical factors
affecting Seagate's results of operations. Seagate frequently changes the
manufacturing processes for and constituent components of many of its products
and continually evaluates the transfer of volume production of many of its
components and products between facilities. There can be no assurance that such
changes and transfers will be implemented on a timely or cost-effective basis.
Delays or problems encountered in any of the foregoing could have a material
adverse effect on Seagate's results of operations.
INTENSE COMPETITION. Seagate has experienced and expects to continue to
experience intense competition from a number of domestic and foreign companies.
These companies include the other leading independent rigid disc drive
manufacturers, such as Quantum Corporation, Western Digital,
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Maxtor Corporation, SyQuest Technology, Inc., Integral Systems, Inc. and
Micropolis Corporation as well as large integrated multinational computer
manufacturers such as Fujitsu Limited, Hewlett-Packard Company, Hitachi, Ltd.,
Hyundai Motor Company, IBM, NEC Corporation, Samsung Electronics Co., Ltd. and
Toshiba Corporation. Seagate also continues to face indirect competition from
present and potential customers, including several of the computer manufacturers
listed above, which continuously evaluate whether to manufacture their own
drives or purchase them from outside sources. Such competition could materially
adversely affect Seagate's business, results of operations and financial
condition. The introduction of products using alternative data storage and
retrieval technologies could also be a significant source of competition.
Products based upon such alternative technologies, which include optical
recording technology and semiconductor memory (flash memory, SRAM and DRAM),
also compete or could compete with Seagate's products. There can be no assurance
that Seagate will be able to compete successfully against current or future
competitors or that competitive pressures faced by Seagate will not materially
adversely affect its business, operating results and financial condition.
RISKS ASSOCIATED WITH FOREIGN CURRENCY FLUCTUATIONS. Seagate's cash flows
are substantially U.S. dollar denominated. However, Seagate is exposed to
certain foreign currency fluctuations, primarily the Malaysian Ringgit,
Singapore Dollar and Thai Baht. Seagate from time to time enters into foreign
currency forward exchange and option contracts to manage exposure related to
certain foreign currency commitments, certain foreign currency denominated
balance sheet positions and anticipated foreign currency denominated
expenditures. At September 30, 1995, Seagate had outstanding foreign currency
forward exchange contracts and written option contracts aggregating
approximately $293.6 million and $190.3 million, respectively. These contracts
mature at various periods through September 1996 and are consistent with the
amounts and timing of the underlying anticipated cash flow requirements and
purchase commitments.
SUBSTANTIAL PRICE VOLATILITY OF THE SEAGATE COMMON STOCK. The Seagate
Common Stock historically has been subject to substantial price volatility as a
result of quarter-to-quarter variations in the financial results of Seagate or
its competitors, announcements of technological innovations or new products by
Seagate or its competitors, announcements of changing business conditions by
competitors or other companies within the computer industry, changes in
financial estimates by securities analysts or other events or factors. In
addition, the stock market has experienced and continues to experience extreme
price and volume fluctuations which have particularly affected the market prices
of equity securities for many technology companies and that have often been
unrelated to the operating performance of these companies. These broad market
fluctuations, as well as general economic and political conditions, may
adversely affect the market prices of the Seagate Common Stock. In addition,
Seagate's revenue or results of operations may, in some future quarter, be below
the expectations of public market analysts and investors. In such event, the
price of the Seagate Common Stock could be materially adversely affected. In the
past, following periods of volatility in the market price of the Seagate Common
Stock, securities class action litigation has been instituted against Seagate.
Such litigation has in the past and could in the future result in substantial
costs and diversion of management's attention and resources, which would have a
material adverse effect on Seagate's business, operating results and financial
condition.
ANTI-TAKEOVER EFFECTS OF POTENTIAL ISSUANCE OF PREFERRED STOCK. The Seagate
Board has the authority to issue up to 1,000,000 shares of preferred stock, $.01
par value (the "Seagate Preferred Stock"), and to determine the price, rights,
preferences, privileges and restrictions thereof, including voting rights,
without any further vote or action by Seagate's stockholders. The rights of the
holders of Seagate Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Seagate Preferred Stock that may
be issued in the future. The issuance of Seagate Preferred Stock could have the
effect of delaying, deferring or preventing a change in control of Seagate.
Seagate does not have any present plans to issue any shares of Seagate Preferred
Stock.
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RISKS RELATED TO THE BUSINESS AND OPERATIONS OF ARCADA
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; FUTURE OPERATING RESULTS
UNCERTAIN. Arcada's quarterly operating results have in the past varied and may
in the future vary significantly depending on a number of factors, including the
size and timing of significant orders; increased competition; market acceptance
of new products, applications and product enhancements; changes in pricing
policies by Arcada and its competitors; the ability of Arcada to timely develop,
introduce and market new products, applications and product enhancements and to
control costs; Arcada's success in expanding its sales and marketing programs;
technological changes in the network storage management markets; the mix of
sales among Arcada's channels; deferrals of customer orders in anticipation of
new products, applications or product enhancements; changes in Arcada's
strategy; personnel changes; and general economic factors. Arcada currently
anticipates continued growth and profitability. However, Arcada has only had two
consecutive quarters of profitability, and there can be no assurance that Arcada
will remain profitable on a quarterly or annual basis. See "Selected Historical
and Pro Forma Financial Data" and "Arcada Management's Discussion and Analysis
of Financial Condition and Results of Operations."
INTENSE COMPETITION. The network storage management market is intensely
competitive. Competitors vary in size and in the scope and breadth of the
products and services offered. Arcada's major competitors include Cheyenne
Software, Seagate (Palindrome), Symantec Corporation, Legato Systems, Legent
(Lachman), and Hewlett-Packard Company. Arcada expects additional competitors to
enter this market in the near future, which may result in price reductions,
reduced gross margins and loss of market share, any of which could materially
adversely affect Arcada's business, operating results and financial condition.
Also, many of Arcada's current and potential competitors have significantly
greater financial, technical, marketing and other resources than Arcada, which
may allow them to offer a more complete storage and system management product
line, 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 Arcada. There can be no
assurance that Arcada will be able to compete successfully against current or
future competitors or that competitive pressures faced by Arcada will not
materially adversely affect its business, operating results and financial
condition. See "Additional Information Regarding Arcada -- Business of Arcada --
Competition."
DEPENDENCE ON NEW SOFTWARE PRODUCTS; RAPID TECHNOLOGICAL CHANGE. The
network storage management market is characterized by rapid technological
change, changing customer needs, frequent new software product introduction and
evolving industry standards. The introduction of products embodying new
technologies and the emergence of new industry standards could render Arcada's
existing products obsolete and unmarketable. Arcada's future success will depend
upon its ability to develop and introduce new software products (including new
releases, applications and enhancements) on a timely basis that keep pace with
technological developments and emerging industry standards and address the
increasingly sophisticated needs of its customers. If Arcada 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, Arcada's business, operating results and financial condition will
be materially adversely affected. To address these concerns, Arcada has engaged
in substantial research and development efforts and, as part of Arcada's ongoing
development process, Arcada released a new versions of Backup Exec for Windows
NT in June 1995 and Backup Exec for NetWare and Windows 95 in September 1995,
and intends to release additional versions of Backup Exec products generally on
an annual basis. Arcada currently also has plans to introduce and market several
other potential new products in the next year, including Arcada Personal Storage
Manager for Windows 95. However, there can be no assurance that such potential
new products will be introduced on a timely basis or at all, or that they will
be accepted in the marketplace.
New product introductions and enhancements of existing products can have a
significant impact on Arcada's quarterly and annual revenues. Generally, sales
volumes of new products increase in the first few months following the
introduction of a new product due to the purchase of upgrades by
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existing users and the purchase of initial inventory by distribution channels.
Thereafter, revenues may decline and/or stabilize to a relatively consistent
level. Toward the end of a product's life cycle, revenues tend to decline
significantly. Due to the inherent uncertainties of software development, Arcada
cannot accurately predict the exact quarter in which a new product or version
will be ready to ship. Any delays in the scheduled release of major new products
and enhancements would have a material adverse impact on Arcada's total
revenues. In addition, Arcada operates with a minimal order backlog where its
distribution channel products are typically shipped shortly after orders are
received. The risk associated with carrying a minimal backlog is anticipated to
increase in the future, as Arcada's distribution sales are expected to continue
to grow as a percentage of total revenues. See "Additional Information Regarding
Arcada -- Business of Arcada -- Products" and "-- Research and Development."
RISKS ASSOCIATED WITH STRATEGY OF EXPANDING OEM CHANNEL; RELIANCE ON
RESELLERS. An integral part of Arcada's strategy is to increase the proportion
of Arcada's customers licensed through object and source code OEMs and private
label resellers. Arcada is currently investing significant resources to develop
this channel, which could materially adversely affect Arcada's operating
margins. There can be no assurance that Arcada will be successful in its efforts
to increase the revenues represented by this channel. Arcada is dependent upon
its OEMs' ability to develop new products, applications and product enhancements
on a timely and cost-effective basis that will meet changing customer needs and
respond to emerging industry standards and other technological changes. There is
no assurance that Arcada's OEMs will effectively meet these technological
challenges. These OEMs are not within the control of Arcada, may incorporate
into their products the technologies of other companies in addition to those of
Arcada and are not obligated to purchase products from Arcada. There can be no
assurance that any OEM will continue to carry Arcada's products, and the
inability to recruit, or the loss of, important OEMs could materially adversely
affect Arcada's business, operating results and financial condition.
Arcada also relies significantly on its distributors, systems integrators
and value added resellers (collectively, "resellers") for the marketing and
distribution of its products. Arcada's agreements with resellers are generally
not exclusive and in many cases may be terminated by either party without cause.
Many of Arcada's resellers carry product lines that are competitive with those
of Arcada. There can be no assurance that these resellers will give a high
priority to the marketing of Arcada's products (as compared to those of
competitors) or that they will continue to carry Arcada's products. Events or
occurrences of this nature could materially adversely affect Arcada's business,
operating results and financial condition. Arcada's results of operations could
also be materially adversely affected by changes in reseller inventory
strategies, which could occur rapidly, and in many cases may not be related to
end user demand. There can be no assurance that Arcada will retain any of its
current resellers, nor can there be any assurance that Arcada will be successful
in recruiting replacement or new organizations to represent it. Any such changes
in Arcada's distribution channels could materially adversely affect Arcada's
business, operating results and financial condition. See "Additional Information
Regarding Arcada -- Business of Arcada -- Marketing and Sales."
DEPENDENCE UPON KEY PERSONNEL. Arcada's future performance also depends in
significant part upon the continued service of its key technical and senior
management personnel. The loss of the services of one or more of Arcada's
officers or other key employees could have a material adverse effect on Arcada's
business, operating results and financial condition. Arcada's future success
also depends on its continuing ability to attract and retain highly qualified
technical and managerial personnel. Arcada provides equity and other incentives
designed to enhance retention of key personnel. However, competition for such
personnel is intense, and there can be no assurance that Arcada can retain its
key technical and managerial employees or that it can attract, assimilate or
retain other highly qualified technical and managerial personnel in the future.
See "Additional Information Regarding Arcada -- Business of Arcada -- Employees
and Facilities" and "-- Customer Service and Support."
DEPENDENCE ON GROWTH IN THE DESKTOP AND NETWORK STORAGE MANAGEMENT MARKET;
GENERAL ECONOMIC AND MARKET CONDITIONS. Substantially all of Arcada's business
is in the desktop and network
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storage management market, which is still an emerging market. Arcada's future
financial performance will depend in large part on continued growth in the
number of organizations adopting network storage management solutions for their
client/server computing environments. Arcada believes that this market will
continue to grow in the future, but there can be no assurance of such growth.
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT. Arcada depends
significantly upon proprietary technology. Arcada relies on a combination of
patent, copyright and trademark laws, trade secrets, confidentiality procedures
and contractual provisions to protect its proprietary rights. Arcada seeks to
protect its software, documentation and other written materials under patent,
trade secret and copyright laws, which afford only limited protection. Despite
Arcada's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of Arcada's products or to obtain and use information
that Arcada regards as proprietary. Policing unauthorized use of Arcada's
products is difficult, and although Arcada is unable to determine the extent to
which piracy of its software products exists, software piracy can be expected to
be a persistent problem. In selling its products, Arcada relies primarily on
"shrink wrap" licenses that are not signed by licensees, and, therefore, such
licenses may be unenforceable under the laws of certain jurisdictions. In
addition, the laws of some foreign countries do not protect Arcada's proprietary
rights to as great an extent as do the laws of the United States. There can be
no assurance that Arcada's means of protecting its proprietary rights will be
adequate or that Arcada's competitors will not independently develop similar
technology, duplicate Arcada's products or design around intellectual property
rights of Arcada.
There has also been substantial amounts of litigation in the software
industry regarding intellectual property rights. Arcada has from time to time
received claims that it is infringing third parties' intellectual property
rights, and there can be no assurance that third parties will not in the future
claim infringement by Arcada with respect to current or future products,
trademarks or other proprietary rights. Arcada expects that software product
developers will increasingly be subject to infringement claims as the number of
products and competitors in Arcada's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require Arcada to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to Arcada or at all, which
could have a material adverse effect upon Arcada's business, operating results
and financial condition. See "Additional Information Regarding Arcada --
Business of Arcada -- Proprietary Rights."
DEPENDENCE ON AND CONTROL BY CONNER/SEAGATE. Conner has controlled Arcada
since inception and, following completion of the Seagate/Conner Merger, Seagate
will control Arcada. As a result, Seagate will be in a position to elect all of
Arcada's Directors, most or all of whom may be affiliated with Seagate, and to
otherwise control the policies, business and operations of Arcada. Seagate will
also be able to cause or block a merger or sale of Arcada or an amendment to
Arcada's Certificate of Incorporation.
During the nine-months ended September 30, 1995, sales to or by Conner
accounted for a significant portion of Arcada's revenues. In addition, Conner
has supplied Arcada with its primary source of borrowings under the Line of
Credit and with international sales support and financial advisory services.
There can be no assurance that Conner will continue to utilize Arcada's products
following the Seagate/Conner Merger or continue to provide credit to Arcada
following expiration of the Line of Credit. Furthermore, neither Seagate, Conner
nor any of their affiliates will be contractually prohibited from competing with
Arcada, and one of Seagate's existing subsidiaries (Palindrome) is a current
competitor of Arcada. See "-- Intense Competition" and "Arcada Management's
Discussion and Analysis of Financial Condition and Results of Operations."
NO LIQUIDITY. If the Merger is not consummated, Arcada stockholders will
continue to hold a minority interest in a privately held company which has no
active trading market for its capital stock. Although Mr. Azzouz presently
intends to exercise certain demand registration rights under the Stockholders'
Rights Agreement if the Reorganization Agreement is terminated, there can be no
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assurance that a successful public offering will take place. In addition, if
Arcada fails to register Mr. Azzouz' shares within the time specified by the
Stockholders' Rights Agreement, Mr. Azzouz may instead elect to put his shares
to Arcada at a price equal to their fair market value. Consequently, there can
be no assurance that a stockholder wishing to sell his or her shares will be
able to dispose of them on favorable terms, if at all.
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THE ARCADA SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to the holders of Arcada
Capital Stock as part of the solicitation of proxies by the Arcada Board for use
at the Special Meeting to be held on Friday, February 16, 1996 at 9:00 a.m.,
local time at the Red Lion Inn, 2050 Gateway Place, San Jose, California 95110
and at any adjournments or postponements thereof. This Proxy
Statement/Prospectus, and the accompanying Proxy Card, are first being delivered
to holders of Arcada Capital Stock on or about January 19, 1996.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve the Merger Agreements (which set forth the terms and conditions of
the Merger and the transactions contemplated thereby) and the Merger. Upon
consummation of the Merger, each outstanding share of Arcada Capital Stock
(other than shares held by Conner) will be converted into the right to receive
the Exchange Ratio of 0.1545 of a share of Seagate Common Stock, with cash paid
in lieu of fractional shares. In addition, as a result of the Merger, each
outstanding Arcada Option will be assumed by Seagate and converted into an
option to acquire such number of shares of Seagate Common Stock as the holder
would have been entitled to receive had such holder exercised such Arcada Option
in full immediately prior to the Effective Time. In addition, coincident with
the Merger, each Conner Arcada Option will be similarly converted into an option
to acquire Seagate Common Stock. See "The Merger and Related Transactions --
General -- Assumption of Options."
Based on the last reported sale price of Seagate Common Stock on the NYSE
composite tape on January 16, 1996, the Exchange Ratio would result in a per
share purchase price for Arcada Capital Stock of $7.49. If the Merger is
completed, Arcada stockholders will no longer hold any interest in Arcada other
than through their interest in shares of Seagate Common Stock. Consummation of
the Merger is subject to a number of conditions, including the receipt of
required stockholder approval and the consummation of the Seagate/Conner Merger.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Arcada Capital Stock at the close of business on
January 16, 1996 (the "Arcada Record Date") are entitled to notice of and to
vote at the Special Meeting. As of the close of business on the Arcada Record
Date, there were 38,511,590 shares of Arcada Capital Stock outstanding and
entitled to vote, held of record by approximately 70 stockholders. A majority,
or 19,255,796 of these shares, present in person or represented by proxy, will
constitute a quorum for the transaction of business. Each Arcada stockholder is
entitled to one vote for each share of Arcada Capital Stock held as of the
Arcada Record Date.
VOTING OF PROXIES
The Arcada Proxy Card accompanying this Proxy Statement/Prospectus is
solicited on behalf of the Arcada Board for use at the Special Meeting.
Stockholders are requested to complete, date and sign the accompanying proxy and
promptly return it in the accompanying envelope or otherwise mail it to Arcada.
All proxies that are properly executed and returned, and that are not revoked,
will be voted at the Special Meeting in accordance with the instructions
indicated thereon. EXECUTED BUT UNMARKED PROXIES WILL BE VOTED FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENTS AND APPROVAL OF THE MERGER. The Arcada Board
does not presently intend to bring any other business before the Special Meeting
other than the specific proposals referred to in this Proxy Statement/Prospectus
and specified in the notice of the Special Meeting. So far as is known to the
Arcada Board, no other matters are to be brought before the Special Meeting. As
to any business that may properly come before the Special Meeting, including,
among other things, consideration of any motion made for adjournment of the
Special Meeting (including, without limitation, for purposes of soliciting
additional votes for approval and adoption of the Merger Agreements and approval
of the Merger), however, it is intended that proxies, in the form enclosed, will
be voted in respect thereof in accordance with the judgment of the persons
voting such proxies. An Arcada stockholder who has given a proxy may revoke it
at any time before it is exercised at the Special Meeting, by (i) filing a
written notice of revocation with, or
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delivering a duly executed proxy bearing a later date to Kevin H. Azzouz,
President, Arcada Holdings, Inc., 37 Skyline Drive, Suite 1101, Lake Mary,
Florida 32746 or (ii) attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not, by itself, revoke a
proxy).
VOTE REQUIRED
Pursuant to the DGCL and the Arcada Certificate of Incorporation and the
Arcada Bylaws, approval and adoption of the Merger Agreements requires the
affirmative vote of at least a majority of the outstanding shares of Arcada
Capital Stock entitled to vote at the Special Meeting. SINCE THE REQUIRED VOTE
OF THE ARCADA STOCKHOLDERS IS BASED UPON THE NUMBER OF OUTSTANDING SHARES OF
ARCADA COMMON STOCK AND ARCADA PREFERRED STOCK, RATHER THAN UPON THE SHARES
ACTUALLY VOTED, THE FAILURE BY THE HOLDER OF ANY SUCH SHARES TO SUBMIT A PROXY
OR TO VOTE IN PERSON AT THE SPECIAL MEETING (INCLUDING ABSTENTIONS) WILL HAVE
THE SAME EFFECT AS A VOTE AGAINST APPROVAL AND ADOPTION OF THE MERGER
AGREEMENTS.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF ARCADA. ACCORDINGLY, STOCKHOLDERS ARE URGED TO READ AND
CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT/PROSPECTUS,
AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
It is expected that all of the 6,144,000 shares of Arcada Capital Stock
(which excludes shares subject to Arcada Options) held by Mr. Azzouz
(representing approximately 16% of the total number of shares of Arcada Capital
Stock outstanding on the Arcada Record Date and approximately 76% of the number
of shares of Arcada Capital Stock not held by Conner) will be voted for approval
and adoption of the Merger Agreements. In addition, Conner has agreed to vote
its 30,356,200 shares of Arcada Capital Stock (representing approximately 79% of
shares of Arcada Capital Stock outstanding on the Arcada Record Date) "for" and
"against" the Merger and the Merger Agreements in the same proportion as the
aggregate vote of the other Arcada stockholders.
If the Merger is consummated, holders of Arcada Capital Stock who do not
vote in favor of the Merger will be entitled to certain appraisal rights under
Delaware Law with respect to each of their shares of Arcada Capital Stock for
which they properly perfect such rights ("Dissenting Shares"). Such appraisal
rights are described under "The Merger -- Dissenters' Appraisal Rights." Under
the Reorganization Agreement, Seagate is not obligated to consummate the Merger
if holders of more than two percent of the outstanding Arcada Capital Stock
either have exercised or continue to have the right to exercise such appraisal
rights.
ABSTENTIONS
If an executed Arcada proxy is returned and the stockholder has specifically
abstained from voting on any matter, the shares represented by such proxy will
be considered present at the Special Meeting for purposes of determining a
quorum. Since the required vote of the Arcada stockholders is based upon the
number of outstanding shares of Arcada capital stock, abstentions will have the
same effect as a vote against approval and adoption of the Merger Agreements and
against approval of the Merger.
SOLICITATION OF PROXIES AND EXPENSES
Arcada will bear the cost of the solicitation of proxies in the enclosed
form from its stockholders. In addition to solicitation by mail, the directors,
officers and employees of Arcada may solicit proxies from stockholders by
telephone, telegram, letter, facsimile or in person. Following the original
delivery of the proxies and other soliciting materials, Arcada will request that
custodians, nominees and other record holders forward copies of the proxy and
other soliciting materials to persons for whom they hold shares of Arcada
capital stock and request authority for the exercise of proxies. In such cases,
Arcada, upon the request of the record holders, will reimburse such record
holders for their reasonable expenses.
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THE MERGER AND RELATED TRANSACTIONS
This section of the Proxy Statement/Prospectus describes certain aspects of
the proposed Merger. The following description does not purport to be complete
and the discussion in this Proxy Statement/ Prospectus of the Merger and the
description of the principal terms of the Merger Agreements are subject to and
qualified in their entirety by reference to the Reorganization Agreement and the
Merger Agreement, copies of which are attached to this Proxy
Statement/Prospectus as Appendices A and B, respectively, and the other
appendices hereto, all of which are incorporated herein by reference. All
holders of Arcada Capital Stock are urged to read the Reorganization Agreement,
the Merger Agreement and the other appendices in their entirety.
GENERAL
The Merger Agreements provide for the merger of a newly-formed, wholly-owned
subsidiary of Seagate ("Sub") with and into Arcada, with Arcada being the
surviving corporation of the Merger and becoming an indirect wholly-owned
subsidiary of Seagate. Subsequent to the Seagate/Conner Merger, Seagate will
contribute the capital stock of Sub to Conner, which at that time will be a
wholly-owned subsidiary of Seagate, and Sub will then become a wholly-owned
subsidiary of Conner. The Arcada Certificate of Incorporation will be the
Certificate of Incorporation of the surviving corporation in the Merger until
further amended as provided therein and in accordance with applicable law. The
Bylaws of Sub as in effect immediately prior to the Merger will be the Bylaws of
the surviving corporation until further amended as provided therein and in
accordance with applicable law. The directors of Sub immediately prior to the
Merger will be the initial directors of the surviving corporation and the
officers of Sub immediately prior to the Merger will be the initial officers of
the surviving corporation. If the Merger is completed, holders of Arcada Capital
Stock other than Conner will no longer hold any interest in Arcada other than
through their interest in shares of Seagate Common Stock. The stockholders of
Arcada will become stockholders of Seagate (as described below) and their rights
will be governed by Seagate's Certificate of Incorporation and Bylaws.
EFFECTIVE TIME OF THE MERGER. The Merger will become effective upon the
filing of the properly executed Merger Agreement with the Secretary of State of
Delaware (the "Effective Time"). The Merger Agreements provide that the parties
thereto will use all reasonable efforts to cause the Merger Agreement to be
filed as soon as practicable after the holders of Arcada Capital Stock have
approved and adopted the Merger Agreements, all required regulatory approvals
and actions have been obtained or taken and all other conditions to the
consummation of the Merger, including the consummation of the Seagate/Conner
Merger, have been satisfied or waived. See "-- The Seagate/Conner Merger," "--
Regulatory Approvals Required" and "-- Conditions to Consummation of the
Merger." There can be no assurance that the conditions precedent to the Merger
will be satisfied. Moreover, the Merger Agreements may be terminated by either
Seagate or Arcada or Azzouz under various conditions as specified in the Merger
Agreements or automatically if the Seagate/Conner Reorganization Agreement is
terminated. See "-- Termination, Amendment and Waiver." Therefore, there can be
no assurance as to whether or when the Merger will become effective.
CONVERSION OF SHARES. Upon the consummation of the Merger, each then
outstanding share of Arcada Capital Stock other than shares held directly or
indirectly by Conner will automatically be converted at the Exchange Ratio into
0.1545 of a share of Seagate Common Stock. The Exchange Ratio is subject to
adjustment as described below under "Adjustment of Exchange Ratio." Treasury
shares and all shares of Arcada Capital Stock held directly or indirectly by
Conner (excluding the 2,087,500 shares of Arcada Common Stock subject to the
Conner Arcada Options) will not be so converted, but will remain outstanding. No
fractional shares of Seagate Common Stock will be issued in the Merger. The
Merger Agreements provide that, in lieu of any fractional share, each Arcada
stockholder who would otherwise be entitled to receive a fraction of a share of
Seagate Common Stock will receive an amount of cash equal to the per share
market value of Seagate Common Stock (based on the last sale price of a share of
Seagate Common Stock as reported on the NYSE composite tape at the Effective
Time) multiplied by the fraction of a share of Seagate Common Stock to which the
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stockholder would otherwise be entitled. Based upon the number of shares of
Seagate Common Stock outstanding as of December 29, 1995 and Arcada Capital
Stock (other than shares held by Conner) outstanding as of the Arcada Record
Date, an aggregate of approximately 1,260,007 shares of Seagate Common Stock
would be issued in connection with the Merger, representing approximately 1.3%
of the total number of shares of Seagate Common Stock outstanding after giving
effect to such issuance and after giving effect to the issuance of approximately
24,202,875 shares of Seagate Common Stock to the stockholders of Conner in the
Seagate/Conner Merger.
Because the Exchange Ratio will not increase or decrease due to fluctuations
in the market price of the Seagate Common Stock, Arcada stockholders will not be
compensated for decreases in the market price of Seagate Common Stock which
could occur before the Effective Time. In the event that the market price of
Seagate Common Stock decreases or increases prior to the Effective Time, the
value at the Effective Time of the Seagate Common Stock to be received by Arcada
stockholders in the Merger would correspondingly decrease or increase. The
market prices of Seagate Common Stock as of a recent date are set forth herein
under "Summary -- Market and Price Data for the Seagate and Arcada Common
Stock," and Arcada stockholders are advised to obtain recent market quotations
for Seagate Common Stock. No assurance can be given as to the market prices of
Seagate Common Stock at any time before the Effective Time or at any time
thereafter.
ASSUMPTION OF OPTIONS. Upon consummation of the Merger, each outstanding
Arcada Option will be assumed by Seagate and converted into an option to acquire
such number of shares of Seagate Common Stock as the holder would have been
entitled to receive had such holder exercised such Arcada Option in full
immediately prior to the Effective Time, at an exercise price per share equal to
the aggregate exercise price for the shares of Arcada Common Stock otherwise
purchasable pursuant to such option immediately prior to the Effective Time
divided by the number of full shares of Seagate Common Stock deemed purchasable
pursuant to such option, with such exercise price rounded up to the nearest
whole cent. To avoid fractional shares, the number of shares of Seagate Common
Stock subject to an assumed Arcada Option will be rounded down to the nearest
whole share. The vesting, duration and other terms of the new option will
otherwise be the same as those of the Arcada Option. In addition to the
outstanding Arcada Options, there are outstanding Conner Arcada Options granted
by Conner to purchase an aggregate of 2,087,500 shares of Arcada Common Stock
issuable upon conversion of Arcada Series A Preferred Stock held by Conner.
Coincident with the Merger, with the consent of the holder of any outstanding
Conner Arcada Option such Conner Arcada Option will be converted into an option
to acquire such number of shares of Seagate Common Stock as the holder would
have been entitled to receive had such holder exercised such Conner Arcada
Option in full immediately prior to the Effective Time, at an exercise price per
share equal to the aggregate exercise price for the shares of Arcada Common
Stock otherwise purchasable pursuant to such option immediately prior to the
Effective Time divided by the number of full shares of Seagate Common Stock
deemed purchasable pursuant to such option, with such exercise price rounded up
to the nearest whole cent. Based upon the number of Arcada Options and Conner
Arcada Options outstanding at the Arcada Record Date, an additional 924,193
shares of Seagate Common Stock would be reserved for issuance to holders such
options. As soon as practicable after the Effective Time, Seagate will file a
registration statement on Form S-8 with the Commission with respect to the
shares of Seagate Common Stock subject to the assumed Arcada Options and
converted Conner Arcada Options. In addition, if the Seagate/Conner Merger is
consummated and the Merger Agreements are terminated, with the consent of the
holder of any outstanding Conner Arcada Option such Conner Arcada Option will
similarly be converted into an option exercisable for Seagate Common Stock.
ADJUSTMENT OF EXCHANGE RATIO. The Merger Agreements provide that the
maximum number of shares of Seagate Common Stock that will be issued in the
Merger or reserved for issuance upon exercise of Arcada Options and Conner
Arcada Options assumed by Seagate in the Merger shall be equal to (i) 2,192,441
shares of Seagate Common Stock plus (ii) a number of shares of Seagate Common
Stock equal to the product of (A) the Exchange Ratio times (B) the number of
shares of Arcada Common Stock subject to additional Arcada Options issued
between October 3, 1995 and the
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Effective Time. Pursuant to the Reorganization Agreement, Arcada has covenanted
that it will not, without Seagate's prior written consent, grant Arcada Options
to purchase in excess of an aggregate of 200,000 shares of Arcada Common Stock
plus shares of Arcada Common Stock returned to the Arcada 1994 Stock Option Plan
or the Conner Arcada Plan after October 3, 1995. See "-- Representations and
Warranties; Covenants." Additional Arcada Options issued pursuant to such
provision of the Reorganization Agreement or issued with the consent of Seagate
are referred to in this Proxy Statement/Prospectus as "Additional Permitted
Arcada Options." The Merger Agreements provide that in the event that
immediately prior to the closing of the transactions contemplated by the Merger
Agreements, the outstanding shares of Arcada Capital Stock not held by Conner,
including shares subject to Arcada Options and shares subject to Conner Arcada
Options is greater than the sum of (i) 14,190,555 plus (ii) the number of shares
subject to Additional Permitted Arcada Options, the Exchange Ratio shall be
proportionately decreased.
BACKGROUND OF THE MERGER
In the spring and summer of 1995, Arcada's management considered and began
the process of preparing Arcada for an initial public offering of Arcada Common
Stock.
In June of 1995, representatives of management of Seagate discussed with
representatives of management of Conner a number of possible transactions,
including a possible acquisition by Seagate of Arcada, the possibility of a
commercial relationship concerning Conner's and Seagate's heads and media
operations, and a transaction combining Conner and Seagate. These discussions
evolved into negotiations that led to the Seagate/Conner Merger. On September
12, 1995, Mr. Azzouz was informed by P. Jackson Bell, Executive Vice President
and Chief Financial Officer of Conner and a director of Arcada, that Conner and
Seagate were involved in confidential negotiations concerning a possible
business combination of the two companies pursuant to which Conner would be
merged with a subsidiary of Seagate. Thereafter, Mr. Azzouz inquired whether
Conner would object if Mr. Azzouz were to engage, on behalf of the stock and
option holders of Arcada other than Conner, in negotiations with Seagate
regarding the acquisition by Seagate, following the Seagate/Conner Merger, of
the interests in Arcada other than those held by Conner. After consultation with
Seagate, Conner informed Mr. Azzouz that it would have no objection to such
negotiations.
In September 1995, Arcada retained Irell & Manella to represent Arcada with
respect to the interests of its independent stockholders and holders of options
other than Conner (the "Arcada Minority Stockholders") in connection with the
potential acquisition by Seagate of such stock and options. Thereafter, Mr.
Azzouz and Seagate, through its financial advisor, Morgan Stanley, engaged in
negotiations which resulted in an understanding whereby Seagate would acquire
the interests of the Arcada Minority Stockholders in Arcada in exchange for
Seagate Common Stock at an Exchange Ratio of 0.1545 shares of Seagate Common
Stock for each outstanding share of Arcada Capital Stock, and each share of
Arcada Capital Stock issuable upon exercise of Arcada Options or Conner Arcada
Options. This understanding, and the material terms of the Merger, were
memorialized in a nonbinding letter of intent dated October 3, 1995 among
Seagate, Arcada, Mr. Azzouz and certain other shareholders of Arcada.
Between October 3, 1995 and December 21, 1995, Mr. Azzouz and Irell &
Manella and Seagate and its counsel negotiated the specific terms of the
Reorganization Agreement and related agreements, and the Reorganization
Agreement was executed on December 21, 1995.
REASONS FOR THE MERGER
REASONS OF SEAGATE FOR THE MERGER
In reaching its conclusion to approve the Seagate/Conner Merger, the Seagate
Board identified the potential benefit to Seagate of an expanded storage
management software business that will result from the Seagate/Conner Merger. In
this regard, Seagate believes that Arcada will complement and strengthen
Seagate's existing software product line by expanding its products, technology
and customer base, and by providing important synergies for new product
development.
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Conner owns approximately 79.4% (approximately 68.6% on a fully diluted
basis) of the Arcada Capital Stock. After the Seagate/Conner Merger, Seagate's
ownership of Arcada will remain subject to the interests of the current
stockholders of Arcada other than Conner. Certain of such stockholders have
rights pursuant to the Stockholders' Rights Agreement, including the right to
require Arcada, on not more than two occasions, to file a registration statement
under the Securities Act in order to register the shares of Arcada Capital Stock
held by them or, in the alternative, the right, in certain instances, to require
Arcada to purchase all or a portion of the Arcada Capital Stock held by them.
See "-- Termination of Stockholders' Rights Agreement." Seagate desires to own
100% of the Arcada Capital Stock so that its interest in Arcada is not subject
to the interests of the minority stockholders of Arcada or to the rights of such
stockholders pursuant to the Stockholders' Rights Agreement. Seagate's reason
for the Merger is to acquire the remaining interest in Arcada that is not
already owned by Conner.
REASONS OF ARCADA FOR THE MERGER
In reaching its decision to approve the Reorganization Agreement and the
Merger Agreement, the Arcada Board considered, among other things, the following
factors:
1. The Arcada Board members other than Azzouz considered the fact that
Azzouz, as representative of the Arcada Minority Stockholders, had sought to
negotiate a transaction pursuant to which the interests in Arcada held by
the Arcada Minority Stockholders would be acquired by Seagate;
2. The Arcada Board members other than Azzouz considered the fact that
the Exchange Ratio had been negotiated and approved by the holder of
6,144,000 shares of Arcada Capital Stock (6,194,000 shares of Arcada Capital
Stock, including shares issuable upon exercise of Arcada Options), which
constitute approximately 76% of the total outstanding shares of Arcada
Capital Stock held by the Arcada Minority Stockholders (44% of the total
shares of Arcada Capital Stock held by the Arcada Minority Stockholders,
including shares issuable upon exercise of Arcada Options and Conner Arcada
Options).
3. The Arcada Board considered the facts that the Merger is conditioned
upon approval of the Merger Agreements by the holders of a majority of the
outstanding voting power of the Arcada Capital Stock, and that Conner had
agreed that the shares held by Conner would be voted for and against the
Merger in the same proportion as the shares held by the Arcada Minority
Stockholders;
4. The Board considered the fact that statutory appraisal rights would
be available to holders of outstanding Arcada Capital Stock that object to
the Merger and properly perfect such appraisal rights under the DGCL, and
that Seagate's obligation to consummate the Merger is conditioned upon,
among other things, holders of not more than 2% of the outstanding Arcada
Capital Stock exercising (or continuing to have the right to exercise) such
rights;
5. The Arcada Board considered the opportunity for Arcada stockholders
to obtain liquidity with respect to their Arcada investment through a
transaction which is designed to be tax-free to Arcada's stockholders;
6. The Arcada Board considered the current and recent prices of the
Seagate Common Stock and that the Exchange Ratio for the interests in Arcada
held by the Arcada Minority Stockholders implied a value of approximately
$325.5 million for all of Arcada, based on the closing price of the Seagate
Common Stock on September 19, 1995;
7. The Arcada Board considered its knowledge of the business,
operations, properties, assets, financial condition and operating results of
Arcada;
8. The Arcada Board considered its knowledge of the businesses,
technology, products, operations, financial condition and prospects of
Seagate, including as a result of Conner's due diligence investigation of
Seagate;
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9. The Arcada Board considered Arcada's future prospects;
10. The Arcada Board considered the terms and conditions of the
Reorganization Agreement and the Merger Agreement, which were the product of
extensive arms'-length negotiations; and
11. The Arcada Board considered the fact that the Merger is conditioned
upon consummation of the Seagate/Conner Merger.
The foregoing discussion of the information and factors considered by the
Arcada Board is not intended to be exhaustive but is believed to include all
material factors considered by the Arcada Board. In view of the variety of
factors considered in connection with its evaluation of the Merger, the Arcada
Board did not find it practicable to and did not quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Arcada Board may have
given different weights to different factors. The Arcada Board voted unanimously
to recommend to the holders of Arcada Common Stock that the Merger Agreements be
approved. For a discussion of the interests of certain members of Arcada's
management and the Arcada Board in the Merger, see "-- Interests of Certain
Persons in the Merger."
ARCADA BOARD RECOMMENDATION
THE ARCADA BOARD HAS APPROVED THE MERGER AGREEMENTS AND THE MERGER AND
BELIEVES THAT THE TERMS OF THE MERGER AGREEMENTS ARE FAIR TO, AND THAT THE
MERGER IS IN THE BEST INTERESTS OF, ARCADA AND ITS STOCKHOLDERS AND THEREFORE
RECOMMENDS THAT THE HOLDERS OF ARCADA CAPITAL STOCK VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENTS.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
AZZOUZ NONCOMPETITION AGREEMENT. Mr. Azzouz is currently a party to a
noncompetition agreement with Arcada, pursuant to which he may not engage in the
business of developing or selling data protection or storage management software
through January 5, 1997. However, the obligation of Seagate to consummate the
Merger is conditioned upon the delivery of the Noncompetition Agreement by
Azzouz, which will supersede Mr. Azzouz' existing noncompetition agreement with
Arcada. If the Merger is not consummated, the Noncompetition Agreement will not
be executed and the existing agreement will remain in effect. Under the
Noncompetition Agreement, if Mr. Azzouz' employment with Seagate or Arcada is
terminated by Seagate or Arcada without cause (as defined in the Noncompetition
Agreement) or by Mr. Azzouz due to a constructive termination (as defined in the
Noncompetition Agreement) by Seagate or Arcada, Seagate must either release Mr.
Azzouz from his obligations under the Noncompetition Agreement or pay Mr. Azzouz
for the remaining portion of the Noncompetition Period, based on an amount equal
to his base salary plus cash bonus (but not to exceed $300,000). See "-- Azzouz
Noncompetition Agreement."
TERMINATION OF STOCKHOLDERS' RIGHTS AGREEMENT. Mr. Azzouz is currently a
party to the Stockholders' Rights Agreement with Conner and Arcada, pursuant to
which Mr. Azzouz has certain rights and obligations relating to Arcada Capital
Stock. If the Merger is consummated, the Stockholders' Rights Agreement, and all
of Mr. Azzouz' rights and obligations thereunder, will terminate. If the Merger
is not consummated, the Stockholders' Rights Agreement, and all of Mr. Azzouz'
rights and obligations thereunder, will remain in effect. See "Additional
Information Regarding Arcada -- Stockholders' and Registration Rights
Agreement."
AZZOUZ EMPLOYMENT AGREEMENT. Mr. Azzouz currently serves as the President
and Chief Operating Officer of Arcada Software pursuant to the terms of an
Employment Agreement dated January 5, 1994 (the "Azzouz Employment Agreement").
The Azzouz Employment Agreement is terminable by either party upon thirty days'
prior written notice. However, if Mr. Azzouz terminates his employment without
good reason or Arcada Software terminates Mr. Azzouz' employment for cause (each
as defined in the Azzouz Employment Agreement) before January 5, 1997, Arcada
will have the right to repurchase a declining percentage of Mr. Azzouz' shares
of Arcada Preferred Stock (or any shares of
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Arcada Common Stock acquired upon conversion thereof). If such a termination
occurred on the date hereof, this option would give Arcada the right to
repurchase 1,176,000 of Mr. Azzouz' shares of Arcada Preferred Stock, at a price
of $2.45 per share (or an aggregate price of $2,881,200). If the Merger is
consummated, the Azzouz Employment Agreement (including Arcada's repurchase
option on Mr. Azzouz' shares) will terminate in all respects. If the Merger is
not consummated, the Azzouz Employment Agreement will continue in effect.
AZZOUZ STANDSTILL AGREEMENT. The Reorganization Agreement provides that, if
the Merger is consummated, Mr. Azzouz will not sell, offer to sell, pledge,
hypothecate or otherwise dispose of, in the aggregate, (i) more than fifty
percent (50%) of the total number of shares of Seagate Common Stock received by
Mr. Azzouz (the "Azzouz Shares"), including shares of Seagate Common Stock
subject to Arcada Options assumed by Seagate in the Merger, prior to the first
anniversary of the Effective Time and (ii) more than seventy-five percent (75%)
of the Azzouz Shares prior to the second anniversary of the Effective Time.
INDEMNIFICATION AND INSURANCE. The Reorganization Agreement provides that
the Bylaws and Certificate of Incorporation of the surviving corporation in the
Merger shall contain provisions regarding indemnification identical to those in
the Arcada Certificate of Incorporation and the Arcada Bylaws and that such
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights thereunder of the Directors or officers of Arcada. The Reorganization
Agreement also provides that the directors and officers of Arcada and its
subsidiaries at the Effective Time will be third-party beneficiaries of certain
provisions of the Seagate/Conner Reorganization Agreement. These provisions
require Seagate or the surviving corporation in the Seagate/Conner Merger to
maintain directors' and officers' liability insurance comparable to Conner's
current policy for three years after the Seagate/Conner Merger or to purchase a
three-year extended reporting period endorsement (i.e. "tail coverage") under
Conner's existing policy.
INTERESTS IN ARCADA CAPITAL STOCK AND OPTIONS. As of the Arcada Record
Date, Mr. Azzouz held an aggregate of 6,144,000 shares of Arcada Capital Stock
and unexercised options to acquire from Arcada an additional 50,000 shares of
Arcada Capital Stock. In addition, under the terms of Arcada's stock option
plan, all shares acquired pursuant to the exercise of stock options are subject
to a right of first refusal in favor of Arcada. This right of first refusal
automatically terminates immediately upon a merger involving a public company or
90 days after an initial public offering by Arcada. As a result, Arcada's right
of first refusal on shares of Arcada Capital Stock acquired by Mr. Azzouz
pursuant to the exercise of stock options will terminate upon consummation of
the Merger. Mr. Azzouz currently holds 500,000 shares of Arcada Common Stock
acquired pursuant to the exercise of stock options and holds options to acquire
an additional 50,000 shares of Arcada Common Stock.
As of the Arcada Record Date, Messrs. F. Conner and P. Jackson Bell (both
directors and officers of Arcada) held options to acquire from Conner 600,000
and 300,000, respectively, of the shares of Arcada Common Stock issuable upon
conversion of the Arcada Preferred Stock held by Conner. These Conner Arcada
Options held by Messrs. Conner and Bell are unvested but will vest in full upon
consummation of the Seagate/Conner Merger.
Based upon the closing sale price of the Seagate Common Stock on the Arcada
Record Date of $48.50, and assuming the exercise of outstanding Arcada Options
and Conner/Arcada Options exercisable upon consummation of the Merger, the
aggregate dollar value of Seagate Common Stock to be received in the Merger by
the executive officers and directors of Arcada, less the aggregate exercise
price of such options, is approximately $51,487,233.
The foregoing interests of the directors and certain members of management
of Arcada in the Merger may mean that such persons have personal interests in
the Merger which may not be identical to the interests of other stockholders.
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REPRESENTATIONS AND WARRANTIES; COVENANTS
Under the Reorganization Agreement, Azzouz and Arcada made representations
and warranties to Seagate relating to the following matters: (i) Arcada's
organization and similar corporate matters and the organization and similar
corporate matters regarding the subsidiaries of Arcada; (ii) the capital
structure of Arcada; (iii) the authorization, execution, delivery, performance
and enforceability of the Merger Agreements and related matters; (iv) the
approval of the Merger Agreements by the Arcada Board; (v) the absence of
required consents or approvals, violations of any instruments, orders or laws
and conflicts under the Arcada Certificate of Incorporation and the Arcada
Bylaws; and (vi) the nature of brokerage or finders' fees or agents' commissions
or any similar charges incurred in connection with the Merger Agreements or the
transactions contemplated thereby. In addition, Azzouz made certain additional
representations and warranties to Seagate relating to the following matters: (i)
the absence of material litigation or material undisclosed liabilities regarding
Arcada; (ii) title to intellectual property and certain other intellectual
property matters; and (iii) the accuracy of information supplied by each of
Arcada and Azzouz in connection with the preparation of this Proxy
Statement/Prospectus and the related Registration Statement.
Under the Reorganization Agreement, Seagate made representations and
warranties to Arcada and Azzouz relating to the following matters: (i) Seagate's
organization and similar corporate matters; (ii) the authorization, execution,
delivery, performance and enforceability of the Merger Agreements and related
matters; (iii) the absence of required consents or approvals, violations of any
instruments, orders or laws and conflicts under the Seagate Certificate of
Incorporation or Seagate Bylaws; (iv) the documents filed with the Commission by
Seagate and the accuracy of the information contained therein; (v) the absence
of material undisclosed obligations; (vi) the accuracy of information supplied
by Seagate in connection with the preparation of this Proxy Statement/Prospectus
and the related Registration Statement; and (vii) the issuance of Seagate Common
Stock in the Merger.
Pursuant to the Conner/Arcada Letter Agreement, Conner has made certain
representations and warranties to Arcada and Azzouz with respect to the shares
of Arcada Common Stock reserved, and options outstanding, under the Conner
Arcada Plan, and with respect to certain other options, warrants, calls, rights,
commitments or agreements concerning the capital stock of Arcada to which Conner
is a party or by which Conner is bound. Pursuant to the Conner/Arcada Letter
Agreement, Conner has also agreed, but subject to and only after consummation of
the Seagate/Conner Merger, to make, prior to the effectiveness of the Proxy
Statement/Prospectus, and again immediately prior to the Effective Time, certain
additional representations. In addition, Conner has agreed to (i) vote its
shares of Arcada Capital Stock at the Special Meeting "for" and "against" the
approval and adoption of the Merger Agreements, in the same proportion as the
aggregate vote of the other stockholders of Arcada and (ii) subject to and after
consummation of the Seagate/Conner Merger, to cause its representatives on the
Arcada Board to abstain with respect to any decisions or votes relating to the
Merger or the Merger Agreements, including, without limitation, any decisions or
votes relating to the waiver of any condition precedent to Arcada's obligation
to consummate the Merger or the exercise of any right to terminate the Merger
Agreements. Conner's obligations enumerated in the preceding sentence
automatically terminate if the Seagate/Conner Reorganization Agreement is
terminated for any reason. In addition, Conner has acknowledged in the
Conner/Arcada Letter Agreement that Azzouz has at all times served as a director
of Arcada and its subsidiary at the request of Conner and that, accordingly,
Azzouz is entitled to indemnification pursuant to the Bylaws of Conner.
Each party to the Reorganization Agreement has agreed promptly to notify the
other of the occurrence or non-occurrence of any event likely to cause any
representation or warranty to be untrue or inaccurate in any material respect at
or prior to the Effective Time and of any failure of such party to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it under the Reorganization Agreement.
Arcada covenanted that it will not, without Seagate's prior written consent,
issue any additional shares of, or grant any additional rights to acquire shares
of Arcada Capital Stock to any person, other
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than the issuance of shares of Arcada Common Stock upon the exercise of Arcada
Options outstanding as of October 3, 1995 and the granting of Arcada Options to
purchase up to an aggregate of 200,000 shares of Arcada Common Stock (plus
shares of Arcada Common Stock returned to the Arcada 1994 Stock Option Plan or
the Conner Arcada Plan after October 3, 1995 upon termination of the employment
of optionee in the ordinary course of business consistent with past practice).
The Reorganization Agreement provides that any such additional Arcada Options
granted shall be granted only to employees of Arcada and shall have an exercise
price per share equal to 100% of the fair market value per share of Arcada
Common Stock on the date of grant as determined by the Board of Directors of the
company granting such option.
Seagate has agreed to provide employees of Arcada and its subsidiaries with
credit for all service with such companies for purposes of vesting and
eligibility under any employee benefit plan, program or arrangement of Seagate
or its affiliates.
Seagate has also made certain covenants regarding Arcada's existing
indemnification agreements, maintenance of directors' and officers' liability
insurance and the indemnification provisions of the certificate of incorporation
and bylaws of the surviving corporation in the Merger. See "-- Interests of
Certain Persons in the Merger -- Indemnification and Insurance."
AZZOUZ NONCOMPETITION AGREEMENT
The obligation of Seagate to consummate the Merger is subject to the
condition that Mr. Azzouz shall have executed and delivered to Seagate the
Noncompetition Agreement. The Noncompetition Agreement provides that beginning
at the Effective Time of the Merger and continuing until the later of (i) one
year after the date of a voluntary or involuntary termination of Mr. Azzouz'
employment with Seagate or any direct or indirect subsidiary of Seagate,
including Arcada (a "Seagate Entity"), and (ii) two years after the effective
date of the Merger (the "Noncompete Period"), Mr. Azzouz will not, directly or
indirectly, whether as an employee, consultant, proprietor, partner, director or
otherwise, engage anywhere in the world in, or have any ownership interest in
(except for ownership of five percent or less of any entity whose securities are
registered under the Exchange Act), or participate in the financing, operation,
management or control of any firm, corporation or business that engages in the
storage management software market, including, but not limited to, the
development, design, manufacture, distribution or resale of backup/restore,
archival, hierarchical storage management or disaster recovery planning
software, or related devices for DOS, Novell NetWare, Microsoft Windows,
Microsoft Windows 95, Microsoft Windows NT, OS/2, Macintosh OS and Unix
platforms. In addition, the Noncompetition Agreement provides that during the
Noncompete Period Mr. Azzouz will not, directly or indirectly, (i) solicit,
encourage or take any other action which is intended to induce any employee of
any Seagate Entity to terminate his or her employment with such Seagate Entity,
or (ii) interfere in any manner with the contractual employment relationship
between any Seagate Entity and any employee of a Seagate Entity. The
Noncompetition Agreement further provides that after the Effective Time, Mr.
Azzouz will not use the name "Arcada," either alone or with any other words or
with any combination of letters, as the name of a hardware, software or other
product in the storage management market or in the name of a product in the
computer, computer peripherals, networking or telecommunications hardware or
software markets. The Noncompetition Agreement provides that in the event
Seagate or Arcada terminates Mr. Azzouz' employment with Seagate or Arcada other
than for "Cause" (as defined below), or if Mr. Azzouz terminates his employment
with Seagate or Arcada as a result of a "Constructive Termination" (as defined
in the Noncompetition Agreement), Seagate will, by written notice to Mr. Azzouz,
elect to either (i) continue to pay Mr. Azzouz for the remaining portion of the
Noncompete Period, an amount equal to his base salary plus cash bonus received
during the preceding twelve months (not to exceed $300,000 in the aggregate), or
(ii) terminate the noncompete provisions of the Noncompetition Agreement such
that they are of no further force and effect. For purposes of the Noncompetition
Agreement, "Cause" is defined as (i) the willful and continued failure by Mr.
Azzouz to perform his duties with any Seagate Entity in any material respect
after a written demand for performance is delivered to Mr. Azzouz and Mr. Azzouz
fails to rectify the deficiency within ten days of receipt of such written
notice, or (ii) the willful
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engaging and continued engaging by Mr. Azzouz in conduct which is materially
injurious to any Seagate Entity after written notice and failure by Mr. Azzouz
to cease and correct such conduct within ten days of receipt of such written
notice, or (iii) the commission of a felony or an act of fraud against, or the
misappropriation of property belonging to any Seagate Entity or (iv) the breach
in any material respect of any confidentiality or proprietary information
agreement between Mr. Azzouz and any Seagate Entity.
CONDITIONS TO CONSUMMATION OF THE MERGER
In addition to the approval of the stockholders of Arcada sought hereby, the
obligations of Seagate, Arcada and Azzouz to consummate the Merger are subject
to the satisfaction of the following conditions: (i) the effectiveness and the
absence of any stop orders or proceedings seeking a stop order with respect to
the Registration Statement; (ii) the absence of any temporary restraining order,
preliminary or permanent injunction, or other legal restraint or prohibition
issued or pending by any court or governmental authority, or any action taken or
any statute or regulation that would prohibit or render illegal the consummation
of the Merger; (iii) the consummation of the Seagate/Conner Merger; and (iv) the
expiration or termination of any waiting period applicable to the consummation
of the Merger under the HSR Act. See "-- Regulatory Approvals Required." Each
party's obligations to consummate the Merger are also conditioned upon the
accuracy of the representations and warranties made by the other party (without
regard to materiality qualifiers) except such inaccuracies as would not have a
material adverse effect individually or in the aggregate; the performance in all
material respects by the other party of its covenants and obligations under the
Merger Agreements; and the absence of specified material adverse changes in the
business of the other.
The obligations of Arcada and Azzouz to consummate the Merger are further
conditioned upon the receipt of a written opinion from the legal counsel of
Arcada to the effect that the Merger should constitute a reorganization within
the meaning of Section 368(a) of the Code; the authorization for listing on the
NYSE, upon official notice of issuance, of the shares of Seagate Common Stock to
be issued in the Merger; and the execution by Conner of the Conner/Arcada Letter
Agreement. The obligation of Seagate to consummate the Merger are further
subject to the conditions that holders of not more than two percent (2%) of the
outstanding Arcada Capital Stock shall exercise, or shall continue to have the
right to exercise, appraisal rights with respect to the transactions
contemplated by the Reorganization Agreement; that the Conner Arcada Plan shall
have been amended as specified and that the persons effected thereby shall have
executed such amendment; and that Arcada and Azzouz shall have executed and
delivered the Noncompetition Agreement.
THE SEAGATE/CONNER MERGER
In October 1995, Seagate and Conner entered into the Seagate/Conner
Reorganization Agreement pursuant to which, among other things, Conner would be
acquired by Seagate by means of the merger of a newly-formed, wholly-owned
subsidiary of Seagate with and into Conner, with Conner being the surviving
corporation and becoming a wholly-owned subsidiary of Seagate. Pursuant to the
Seagate/Conner Merger, each outstanding share of Common Stock of Conner ("Conner
Common Stock") will be converted into the right to receive 0.442 of a share of
Seagate Common Stock. In addition, as a result of the Seagate/Conner Merger,
each outstanding option to purchase Conner Common Stock will be assumed by
Seagate and converted into an option to acquire shares of Seagate Common Stock.
Each outstanding share of Seagate Common Stock will remain outstanding and
unchanged following the Seagate/Conner Merger. Based upon the number of shares
of Seagate Common Stock and Conner Common Stock outstanding at December 15,
1995, an aggregate of approximately 24,202,875 shares of Seagate Common Stock
would be issued in connection with the Seagate/ Conner Merger, representing
approximately 24.9% of the total number of shares of Seagate Common Stock
outstanding after giving effect to such issuance. Based upon the number of
options to purchase Conner Common Stock outstanding at December 15, 1995, an
additional 2,848,683 shares of Seagate Common Stock would be reserved for
issuance to holders of such Conner options in connection with Seagate's
assumption of such options. It is a condition to the obligations of Seagate,
Arcada and
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Azzouz to consummate the Merger, that the Seagate/Conner Merger shall have been
consummated. If the Seagate/Conner Merger is not consummated, the Merger
Agreements will be terminated and the Merger will not be consummated.
Consummation of the Seagate/Conner Merger is subject to a number of
conditions which, if not satisfied or waived, could cause the Seagate/Conner
Merger not to be consummated and the Seagate/ Conner Reorganization Agreement to
be terminated. Seagate's and Conner's obligations to consummate the
Seagate/Conner Merger are conditioned upon, among other things, the approval by
the stockholders of Seagate of the issuance of Seagate Common Stock in the
Seagate/Conner Merger, the approval by the stockholders of Conner of the
Seagate/Conner Reorganization Agreement and the related merger agreement, the
accuracy of each party's representations, each party's performance of its
obligations under the Seagate/Conner Reorganization Agreement and the related
merger agreement, the receipt of letters dated as of the effective date of the
Seagate/Conner Merger from the independent auditors of both Seagate and Conner
regarding the appropriateness of pooling of interests accounting for the
Seagate/Conner Merger under Accounting Principles Board Opinion No. 16, the
receipt of written opinions from the legal counsel of both Seagate and Conner to
the effect that the Seagate/Conner Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code, the absence of any legal
action preventing consummation of the Merger and the authorization for listing
on the NYSE, upon official notice of issuance, of the shares of Seagate Common
Stock to be issued in the Seagate/Conner Merger.
The Seagate/Conner Reorganization Agreement may be terminated any time
before the effective time of the Seagate/Conner Merger, before or after approval
of the issuance of Seagate Common Stock by the stockholders of Seagate and of
the Seagate/Conner Reorganization Agreement and the related merger agreement by
the stockholders of Conner (i) by mutual written consent of Seagate and Conner;
(ii) by Seagate or Conner if the Seagate/Conner Merger has not become effective
on or before April 3, 1996 (unless the Seagate/Conner Merger has not been
consummated due to an action having been instituted by the Department of Justice
or FTC challenging or seeking to enjoin the consummation of the Seagate/Conner
Merger, in which case such date shall be extended to June 3, 1996), unless
caused by the action or failure to act of the party seeking to terminate the
Seagate/Conner Reorganization Agreement in breach of such party's obligations
thereunder; (iii) by Seagate or Conner if any court or governmental entity of
competent jurisdiction shall (a) have taken any action having the effect of
permanently restraining, enjoining or otherwise prohibiting the Seagate/Conner
Merger, which action is final and nonappealable, or (b) seek to enjoin the
Seagate/Conner Merger and the terminating party reasonably believes that the
time period required to resolve such governmental action and the related
uncertainty is reasonably likely to have a material adverse effect on either
Seagate or Conner; (iv) by Seagate or Conner if the required approvals of the
stockholders of Seagate or Conner are not obtained, unless caused by the action
or failure to act of the party seeking to terminate the Seagate/Conner
Reorganization Agreement in breach of such party's obligations thereunder; (v)
by Seagate or Conner if Conner shall have accepted or recommended to the
stockholders of Conner a superior proposal and, in the case of the termination
of the Seagate/Conner Reorganization Agreement by Conner, Conner shall have paid
to Seagate a breakup fee of $35 million; (vi) by Seagate if the Conner Board of
Directors withdraws, modifies or refrains from making its recommendation for
approval in respect of the Seagate/Conner Merger or if a third party acquires
beneficial ownership of, or the right to acquire beneficial ownership of, at
least 20% of Conner's outstanding voting equity securities; (vii) by Seagate or
Conner upon a breach of any representation, warranty, covenant or agreement of
the other party, or if any representation or warranty of the other party shall
have become untrue, in either case such that the conditions to the consummation
of the Seagate/Conner Merger would not be satisfied as of the time of such
breach or as of the time such representation or warranty shall have become
untrue, provided that if such inaccuracy in the representations and warranties
or breach is curable by the party through the exercise of its reasonable efforts
and for so long as such party continues to exercise such reasonable efforts, the
other party may not terminate the Seagate/Conner Reorganization Agreement
pursuant to this provision; or (viii) by Seagate, at any time if, as a result of
any structural damage to the main manufacturing building at the Conner Penang
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facility, there is, or is reasonably expected to be, a cost to Conner (after
insurance) in excess of $20,000,000 or a substantial cessation of operations at
the Conner Penang facility for at least 15 work days.
Because the Seagate/Conner Merger is subject to a number of as of yet
unfulfilled conditions as described above, and because the Seagate/Conner
Reorganization Agreement may be terminated as described above, there can be no
assurance that the Seagate/Conner Merger will be consummated. As a result, there
can be no assurance that this condition to the closing of the Merger will be
satisfied.
REGULATORY APPROVALS REQUIRED
Under the Reorganization Agreement, the obligations of Seagate, Arcada and
Azzouz to consummate the Merger are subject to, among others, the following
conditions: (i) the expiration or termination of any waiting period applicable
to the consummation of the Merger under the HSR Act and (ii) no action having
been instituted by any governmental entity challenging or seeking to challenge
the consummation of the Merger, which action shall not have been withdrawn or
terminated and (iii) no action shall have been taken which makes the
consummation of the Merger illegal.
Transactions such as the Merger are reviewed by the Department of Justice
and the FTC to determine whether they comply with applicable antitrust laws.
Under the provisions of the HSR Act, the Merger may not be consummated until
such time as certain information has been furnished to the Department of Justice
and the FTC and the specified waiting period requirements of the HSR Act have
been satisfied. Pursuant to the HSR Act, on November 9, 1995, notification of
the Merger was furnished and certain information was provided to the Department
of Justice and the FTC. The specified waiting period requirements of the HSR Act
were terminated by the FTC on November 17, 1995.
At any time before or after the Effective Time, the Department of Justice,
the FTC, state attorneys general or a private person or entity could challenge
the Merger under antitrust laws and seek, among other things, to enjoin the
Merger or to cause Seagate to divest itself, in whole or in part, of Arcada or
of other businesses conducted by Seagate. Based on information available to
them, Seagate and Arcada believe that the Merger will not violate federal, state
or foreign antitrust laws. There can be no assurance, however, that a challenge
to the Merger on antitrust grounds will not be made or that, if such a challenge
is made, Seagate and Arcada would prevail or would not be required to accept
certain conditions, possibly including certain divestitures or hold-separate
agreements in order to consummate the Merger.
TERMINATION OF STOCKHOLDERS' RIGHTS AGREEMENT
In the Reorganization Agreement, Seagate, Arcada and Azzouz have agreed that
at the Effective Time, the Stockholders' Rights Agreement shall terminate and be
of no further force and effect. As a result, in connection with the Merger,
Azzouz will be relinquishing his rights and will be relieved of his obligations
under the Stockholders' Rights Agreement. See "Additional Information Regarding
Arcada -- Stockholders' and Registration Rights Agreement."
LIMITATION ON NEGOTIATIONS
The Reorganization Agreement provides that Azzouz will not, directly or
indirectly, solicit, conduct discussions with or engage in negotiations with any
person, other than Seagate, or take any other action intended or designed to
facilitate the efforts of any person, other than Seagate, relating to the
possible acquisition (by any third party other than Seagate or Conner) of Arcada
Capital Stock.
TERMINATION, AMENDMENT AND WAIVER
The Merger Agreements may be terminated any time before the Effective Time,
before or after approval of the Merger Agreements by the stockholders of Arcada
(i) by mutual written consent of Seagate, Arcada and Azzouz; (ii) automatically
if the Seagate/Conner Reorganization Agreement shall have been terminated; (iii)
by Arcada or Azzouz if the Merger shall not have been consummated at the end of
the forty-fifth day following consummation of the Seagate/Conner Merger,
provided, however,
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that such right to terminate shall not be available if any action or failure to
act by Arcada or Azzouz has been the cause of or resulted in the failure of the
Merger to occur on or before such date and such action or failure to act
constitutes a breach of the Reorganization Agreement; (iv) by Seagate, Arcada or
Azzouz if there shall be a final nonappealable order of a federal or state court
in effect preventing consummation of the Merger, or there shall be any action
taken, or any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the Merger by any governmental entity which would make
the consummation of the Merger illegal; (v) by Seagate if there shall be any
action taken, or any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger by any governmental entity, which
would (a) prohibit Seagate's or Arcada's ownership or operation of all or a
material portion of the business of Arcada or (b) compel Seagate or Arcada to
dispose of or hold separate all or a material portion of the business or assets
of Arcada or Seagate as a result of the Merger; (vi) by Seagate if it is not in
breach of its obligations under the Reorganization Agreement and there has been
a breach of any representation, warranty, covenant or agreement contained in the
Reorganization Agreement on the part of Arcada or Azzouz such that the
conditions to the consummation of the Merger would not be satisfied or (vii) by
Arcada or Azzouz if they are not in breach of their obligations under the
Reorganization Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in the Reorganization Agreement on the
part of Seagate such that the conditions to the consummation of the Merger would
not be satisfied.
In the event the Reorganization Agreement is terminated pursuant to any of
the foregoing provisions, the Merger will be deemed abandoned and such
termination will be without liability of any party thereto, including, without
limitation, for any breaches of the Reorganization Agreement prior to its
termination. As a result, termination is each party's sole and exclusive remedy
for a breach of the Reorganization Agreement, except in the case of fraud. In
the event of a termination of the Reorganization Agreement, the provisions of
the Reorganization Agreement regarding fees and expenses and termination shall
survive and remain in full force and effect. In addition, if the Seagate/Conner
Merger is consummated and the Merger Agreements are terminated, with the consent
of the holder of any outstanding Conner Arcada Option such Conner Arcada Option
will be converted into an option exercisable for Seagate Common Stock.
The Merger Agreements may be amended by Seagate, Arcada and Azzouz at any
time before or after the approval of the Merger Agreements by the stockholders
of Arcada, but after any such stockholder approval, no amendment may be made
which by law requires the further approval of such stockholders without
obtaining such further approval.
At any time before the Effective Time, Seagate and Sub, on the one hand, and
Arcada and Azzouz, on the other, may (i) extend the time for the performance of
any of the obligations of the other parties under the Reorganization Agreement;
(ii) waive any inaccuracies in the representations and warranties of the other
parties contained in the Reorganization Agreement or in any document delivered
pursuant thereto; or (iii) waive compliance by the other parties with any of the
agreements or conditions contained in the Reorganization Agreement.
CERTAIN FEDERAL INCOME TAX MATTERS
In the opinion of Irell & Manella, the following discussion summarizes the
material United States federal income tax consequences of the Merger to holders
of Arcada Capital Stock. Such opinion is based upon certain assumptions and
representations noted in the opinion attached as an Exhibit to the Registration
Statement of which this Proxy Statement/Prospectus is a part. The following
discussion is based on current law. The discussion does not address aspects of
federal taxation other than income taxation, nor does it address all aspects of
federal income taxation, including without limitation, aspects of federal income
taxation that may be applicable to particular Arcada stockholders, such as
stockholders who are dealers in securities, foreign persons or those who
acquired their Arcada Capital Stock in a compensation transaction. In addition,
it does not address the state, local or foreign tax consequences of the Merger,
if any.
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HOLDERS OF ARCADA CAPITAL STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO EACH OF THEM,
INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX
LAWS AND ANY PROPOSED CHANGES TO SUCH LAWS.
Assuming the Merger qualifies as a reorganization under Section 368(a) of
the Code, the following United States Federal income tax consequences will
occur:
(a) No gain or loss will be recognized by Seagate or Arcada in
connection with the Merger;
(b) No gain or loss will be recognized by a holder of Arcada Capital
Stock who exchanges all of his shares of Arcada Capital Stock solely for
shares of Seagate Common Stock in the Merger;
(c) The aggregate basis of the shares of Seagate Common Stock to be
received by an Arcada stockholder in the Merger (including any fractional
share not actually received) will be the same as the aggregate basis of the
shares of Arcada Capital Stock surrendered in exchange therefor;
(d) The holding period of the shares of Seagate Common Stock to be
received by an Arcada stockholder in the Merger will include the holding
period of the shares of Arcada Capital Stock surrendered in exchange
therefor, provided that such shares of Arcada Capital Stock are held as
capital assets at the Effective Time; and
(e) Cash payments in lieu of a fractional share will be treated as if a
fractional share of Seagate Common Stock had been received in the Merger and
then redeemed by Seagate. Such a redemption should qualify as a distribution
in full payment in exchange for the fractional share rather than as a
distribution of a dividend. Accordingly, an Arcada stockholder receiving
cash in lieu of a fractional share will recognize gain or loss upon such
payment equal to the difference, if any, between such stockholder's basis in
the fractional share (as described in paragraph (c) above) and the amount of
cash received. Such gain or loss will be a capital gain or loss if the
Arcada Capital Stock is held as a capital asset at the Effective Time.
It is a condition to the obligation of Arcada to consummate the Merger that
Arcada receive an opinion (the "Tax Opinion") from Irell & Manella to the effect
that, on the basis of certain facts, including facts derived from officers'
certificates delivered by Seagate, Conner and Arcada, the Merger should be
treated as a reorganization within the meaning of Section 368(a) of the Code
("Reorganization").
No ruling has been or will be obtained from the Internal Revenue Service
(the "Service") in connection with the Merger. The Tax Opinion is not binding on
the Service or the courts, and no assurance can be given that the Tax Opinion
would be followed if challenged by the Service.
A successful IRS challenge to the Reorganization status of the Merger would
result in Arcada stockholders being treated as if they sold their Arcada Capital
Stock in a taxable transaction. In such event, each Arcada stockholder would
recognize gain or loss with respect to each share of Arcada Capital Stock
surrendered equal to the difference between the stockholder's basis in such
share and the fair market value, as of the date the Merger becomes effective, of
the Seagate Common Stock received in exchange therefor (plus any cash received
for fractional shares). In such event, a stockholder's aggregate basis in the
Seagate Common Stock so received would equal its fair market value, and the
stockholder's holding period for such stock would begin the day after the
Merger.
Seagate has agreed to indemnify each stockholder of Arcada (other than
Azzouz and Conner) with respect to the shares held at the time of the execution
of the Merger Agreement in the event that the IRS successfully challenges the
Reorganization status of the Merger, unless the cause of such successful
challenge was (i) the disposition or intention to dispose of shares of Arcada
stock prior to the Merger or Seagate Common Stock received in the Merger by one
or more stockholders or (ii) the reporting of the Merger by such stockholder in
a manner inconsistent with it being a Reorganization. The indemnity is intended
to place each stockholder in the same economic position as such stockholder
would be in had the Merger been treated as a Reorganization.
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ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase, and accordingly, the
acquired assets and liabilities pertaining to the minority interest in Arcada
will be recorded at estimated fair values. Unaudited Pro Forma Combined
Condensed Financial Statements presented herein assume the consummation of the
Seagate/Conner Merger on a pooling-of-interest basis and reflect (i) the
elimination of Arcada's minority interest, (ii) the estimated allocation of
purchase price to the assets acquired, including goodwill and other intangibles,
(iii) the write-off of non-recurring charges related to in-process research and
development and (iv) the effect of recurring charges relating to the Merger,
primarily the amortization of goodwill and other intangibles. Under the purchase
accounting method, goodwill and other intangibles in the amount of approximately
$64.2 million will be capitalized and non-recurring charges of approximately
$37.1 million relating to in-process research and development will be recorded
in the quarter the Merger is consummated. These amounts are estimates based on a
preliminary purchase price allocation and a value of $44.625 per share of
Seagate Common Stock. The actual amounts recorded will vary based upon
completion of the final purchase price allocation. The amortization of goodwill
and other intangibles after the Merger will have an adverse effect on the
results of operations of Seagate. See "Risk Factors -- Risks Related to the
Merger and the Seagate/ Conner Merger" and "Unaudited Pro Forma Combined
Condensed Financial Statements."
RESTRICTIONS ON RESALE OF SEAGATE COMMON STOCK
The issuance of the shares of Seagate Common Stock to stockholders of Arcada
upon consummation of the Merger has been registered under the Securities Act.
Such shares may be traded freely without restriction by those stockholders who
are not deemed to be "affiliates" of Arcada or Seagate, as that term is defined
in the rules under the Securities Act.
Shares of Seagate Common Stock received by those stockholders of Arcada who
are deemed to be "affiliates" of Arcada may be resold without registration under
the Securities Act only as permitted by Rule 145 under the Securities Act or as
otherwise permitted under the Securities Act. Arcada agreed to use commercially
reasonable efforts to have delivered to Seagate agreements by each stockholder
of Arcada who is an affiliate of Arcada to the effect that such persons will not
offer to sell, transfer, exchange, pledge or otherwise dispose of, or make any
offer or agreement relating to any of the foregoing with respect to any of the
shares of Seagate Common Stock distributed to them pursuant to the Merger except
in compliance with Rule 145 under the Securities Act, or in a transaction that
is otherwise exempt from the registration requirements of the Securities Act, or
in an offering which is registered under the Securities Act. In such agreements,
Seagate has covenanted that, for so long as is necessary to permit affiliates of
Arcada to sell the shares of Seagate Common Stock received in the Merger, it
will use its best efforts to file, on a timely basis, all reports required to be
filed under the Exchange Act in order to afford such affiliates the ability to
utilize Rule 145 and, to the extent applicable, Rule 144 under the Securities
Act. This Proxy Statement/Prospectus does not cover any resales of Seagate
Common Stock received by persons who are deemed to be "affiliates" of Arcada.
The Reorganization Agreement provides that, if the Merger is consummated,
Mr. Azzouz will not sell, offer to sell, pledge, hypothecate or otherwise
dispose of, in the aggregate, (i) more than fifty percent (50%) of the total
number of shares of Seagate Common Stock received by Mr. Azzouz (the "Azzouz
Shares"), including shares of Seagate Common Stock subject to Arcada Options
assumed by Seagate in the Merger, prior to the first anniversary of the
Effective Time and (ii) more than seventy-five percent (75%) of the Azzouz
Shares prior to the second anniversary of the Effective Time.
DISSENTERS' APPRAISAL RIGHTS
If the Merger is consummated, dissenting holders of Arcada Capital Stock may
be entitled to have the "fair value" (exclusive of any element of value arising
from the accomplishment or expectation of the Merger) of any Dissenting Shares
at the Effective Time judicially determined and paid to them in cash by
complying with the provisions of Section 262 of the DGCL. ANY HOLDER OF ARCADA
CAPITAL STOCK THAT VOTES IN FAVOR OF THE MERGER WILL THEREBY WAIVE ALL RIGHTS TO
APPRAISAL UNDER DELAWARE LAW.
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The following is a brief summary of Section 262, which sets forth the
procedures for dissenting from the Merger and demanding statutory appraisal
rights, if such rights are available. This summary does not purport to be a
complete statement of provisions of the DGCL relating to the rights of Arcada
stockholders to an appraisal of the value of their shares, and Arcada
stockholders are urged to read Section 262, the full text of which is attached
as Appendix C. Failure to follow these procedures exactly could result in the
loss of appraisal rights (if available). This Proxy Statement/Prospectus
constitutes notice to holders of Arcada Capital Stock concerning the
availability of appraisal rights under Section 262. Under Section 262, a
stockholder of record wishing to assert appraisal rights must hold the shares of
stock on the date of making a demand for appraisal rights with respect to such
shares and must continuously hold such shares through the Effective Time.
Stockholders who desire to exercise their appraisal rights (if available)
must satisfy all of the conditions of Section 262. A written demand for
appraisal of shares must be delivered to Arcada before the taking of the vote on
the Merger. This written demand for appraisal of shares must be in addition to
and separate from any proxy vote abstaining from or voting against the Merger.
Any such abstention or vote against the Merger will not constitute a demand for
appraisal within the meaning of Section 262.
Stockholders electing to exercise their appraisal rights (if available)
under Section 262 must not vote for approval of the Merger. If a stockholder
returns a signed proxy but does not specify a vote against approval of the
Merger or a direction to abstain, the proxy will be voted for approval of the
Merger, which will have the effect of waiving that stockholder's appraisal
rights (if available).
A demand for appraisal must be executed by or for the stockholder of record,
fully and correctly, as such stockholder's name appears on the share
certificate. If the shares are owned of record in a fiduciary capacity, such as
by a trustee, guardian or custodian, this demand must be executed by or for the
fiduciary. If the shares are owned by or for more than one person, as in a joint
tenancy or tenancy in common, such demand must be executed by or for all joint
owners. An authorized agent, including an agent for two or more joint owners,
may execute the demand for appraisal for a stockholder of record; however, the
agent must identify the record owner and expressly disclose the fact that, in
exercising the demand, he is acting as agent for the record owner. A person
having a beneficial interest in Arcada Capital Stock held of record in the name
of another person, such as a nominee, must act promptly to cause the record
holder to follow the steps summarized below and in a timely manner to perfect
whatever appraisal rights the beneficial owner may have.
A record owner who holds Arcada Capital Stock as a nominee for others may
exercise his or her right of appraisal with respect to the shares for all or
less than all of the beneficial owners of shares as to which such nominee is the
record owner. In such case, the written demand must set forth the number of
shares covered by such demand. Where the number of shares is not expressly
stated, the demand will be presumed to cover all shares outstanding in the name
of such record owner.
An Arcada stockholder that elects to exercise appraisal rights (if
available) should mail or deliver its written demand to Arcada at its address at
37 Skyline Drive, Suite 1101, Lake Mary, Florida 32746, Attention: Kevin H.
Azzouz, President. The written demand for appraisal should specify the
stockholder's name and mailing address, and that the stockholder is thereby
demanding appraisal of its Arcada Capital Stock. If the Merger is approved,
within ten days after the Effective Time, Arcada must provide notice of the
Effective Time and that appraisal rights are available for any or all of the
shares of Common Stock of Arcada to all of its stockholders who have complied
with Section 262 and have not voted for approval of the Merger. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing such
notice, demand in writing from Seagate the appraisal of his shares.
Within 120 days after the Effective Time, any stockholder who has satisfied
the requirements of Section 262 may deliver to Seagate a written demand for a
statement listing the aggregate number of shares not voted in favor of the
Merger and with respect to which demands for appraisal have been received and
the aggregate number of holders of such shares. Seagate will respond to such
demand in accordance with Section 262.
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Within 120 days after the Effective Time (but not thereafter), either
Seagate or any stockholder who has complied with the required conditions of
Section 262 may file a petition in the Delaware Court of Chancery (the "Court")
demanding a determination of the fair value of the Dissenting Shares. Seagate
has no present intention to file such a petition if demand for appraisal is
made.
Upon the filing of any petition by a stockholder in accordance with Section
262, service of a copy will be made upon Seagate, which will, within 20 days
after service, file in the office of the Register in Chancery in which the
petition was filed, a duly verified list containing the names and addresses of
all stockholders who have demanded payment for their shares and with whom
agreements as to the value of their shares have not been reached by Seagate. If
the petition is filed by Seagate, the petition will be accompanied by the
verified list. The Register in Chancery, if so ordered by the Court, will give
notice of the time and place fixed for the hearing of such petition by
registered or certified mail to Seagate and to the stockholders shown on the
list at the addresses therein stated, and notice will also be given by
publishing a notice at least one week before the day of the hearing in a
newspaper of general circulation published in the City of Wilmington, Delaware
or such publication as the Court deems advisable. The forms of the notices by
mail and by publication must be approved by the Court, and the costs thereof
shall be borne by Seagate.
If a petition for an appraisal is filed in a timely fashion, after a hearing
on the petition, the Court will determine which stockholders are entitled to
appraisal rights and will appraise the shares owned by these stockholders,
determining the fair value of such shares, exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest to be paid, if any, upon the amount determined to be the
fair value. In determining fair value, the Court is to take into account all
relevant factors. In WEINBERGER V. UOP, INC. ET AL., the Delaware Supreme Court
stated that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered, and that "fair price obviously requires
consideration of all relevant factors involving the value of a company . . . ."
The Delaware Supreme Court stated that, in making a determination of fair value,
the agency fixing the value must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which could
be ascertained as of the date of the merger and which throw any light on future
prospects of the merged corporation. In WEINBERGER, the Delaware Supreme Court
held that the "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." In addition, the Delaware Supreme
Court has determined that the statutory appraisal remedy depending upon the
factual circumstances, may or may not be a stockholder's exclusive remedy in
connection with a merger.
Arcada stockholders considering seeking appraisal of their shares should
note that the fair value of their shares determined under Section 262 could be
more, the same or less than the consideration they would receive pursuant to the
Merger Agreement if they did not seek appraisal of their shares. The costs of
the appraisal proceeding may be determined by the Court and taxed against the
parties as the Court deems equitable in the circumstances. Upon application of a
dissenting stockholder, the Court may order that all or a portion of the
expenses incurred by any dissenting stockholder in connection with the appraisal
proceeding, including reasonable attorneys' fees and the fees and expenses of
experts, be charged pro rata against the value of all shares entitled to
appraisal. In the absence of a determination or assessment, each party bears its
own expense.
Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, after the Effective Time, be entitled to vote for any purpose the
shares subject to demand or to receive payment of dividends or other
distributions on such shares, except for dividends or distributions payable to
stockholders of record at a date prior to the Effective Time.
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At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw its demand for appraisal and to accept the terms
offered in the Merger Agreement. After this period, a stockholder may withdraw
its demand for appraisal and receive payment for its shares as provided in the
Merger Agreement only with the consent of Seagate. If no petition for appraisal
is filed with the Court within 120 days after the Effective Time, all
stockholders' rights to appraisal (if available) will cease and stockholders
will be entitled to receive shares of Seagate Common Stock as provided in the
Merger Agreement. Inasmuch as Seagate has no obligation to file such a petition,
any stockholder who desires a petition to be filed is advised to file it on a
timely basis. No petition timely filed in the Court demanding appraisal may be
dismissed as to any stockholder without the approval of the Court, which
approval may be conditional upon such terms as the Court deems just.
Pursuant to the Merger Agreement, Arcada will give Seagate prompt notice of
any demands received by Arcada, and Seagate will have the right to participate
in all negotiations and proceedings with respect to the demands. Arcada will
not, except with the prior written consent of Seagate, make any payment with
respect to, or settle or offer to settle, any such demands.
Under the Reorganization Agreement, Seagate is not obligated to consummate
the Merger if holders of more than two percent of the outstanding Arcada Capital
Stock either have exercised or continue to have the right to exercise such
appraisal rights.
STOCK EXCHANGE LISTING OF SEAGATE COMMON STOCK
It is a condition to the obligations of Arcada and Azzouz to consummate the
Merger that the shares of Seagate Common Stock to be issued in the Merger be
approved for listing on the NYSE, upon official notice of issuance. Seagate will
file a listing application with the NYSE covering such shares, and it is
anticipated that such application will be approved, subject to notice of
issuance, at or before the Effective Time.
EXPENSES
The Reorganization Agreement provides that all fees and expenses incurred in
connection with the negotiation and effectuation of the Merger Agreements and
the transactions contemplated thereby, including, without limitation, all legal,
accounting, financial advisory, consulting and all other fees and expenses of
third parties, will be paid by the party incurring such fees and expenses;
provided, however, that whether or not the Merger or any other transaction is
consummated, Arcada will pay from its own funds and not with any funds provided
to Arcada by Seagate or Conner the reasonable fees of Irell & Manella, special
counsel to Arcada.
SURRENDER OF CERTIFICATES REPRESENTING ARCADA CAPITAL STOCK
As soon as practicable after the Effective Time, Seagate will cause Harris
Trust Company of California (the "Exchange Agent") to mail to each Arcada
stockholder of record a letter of transmittal with instructions to be used by
such stockholder in surrendering certificates which, prior to the Merger,
represented shares of Arcada Capital Stock in exchange for certificates
representing shares of Seagate Common Stock. Letters of transmittal will also be
available as soon as practicable after the Effective Time at the offices of the
Exchange Agent. After the Effective Time, there will be no further registration
of transfers on the stock transfer books of the Surviving Corporation of shares
of Arcada Capital Stock which were outstanding immediately prior to the
Effective Time. SHARE CERTIFICATES SHOULD NOT BE SURRENDERED FOR EXCHANGE PRIOR
TO APPROVAL AND ADOPTION OF THE MERGER AGREEMENTS BY THE ARCADA STOCKHOLDERS.
Upon the surrender of a Arcada Capital Stock certificate to the Exchange
Agent or to such other agent as may be appointed by Seagate together with a duly
executed letter of transmittal and such other documents as may be reasonably
required by the Exchange Agent, the holder of such certificate will be entitled
to receive in exchange therefor a certificate representing the number of shares
of Seagate Common Stock to which the holder of Arcada Capital Stock is entitled
pursuant to the provisions of the Merger Agreements plus cash in lieu of
fractional shares. In the event of a transfer of ownership of Arcada Capital
Stock which is not registered in the transfer records of Arcada, a
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certificate representing the appropriate number of shares of Seagate Common
Stock may be issued to a transferee if the certificate representing such Arcada
Capital Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid, along with a duly executed
letter of transmittal.
Until a certificate representing Arcada Capital Stock has been surrendered
to the Exchange Agent, each such certificate will be deemed at any time after
the Effective Time to represent only the right to receive upon such surrender
the certificate representing the number of shares of Seagate Common Stock to
which the Arcada stockholder is entitled under the Merger Agreements plus cash
in lieu of fractional shares.
ADDITIONAL INFORMATION REGARDING ARCADA
BUSINESS OF ARCADA
GENERAL
Arcada, through its wholly-owned subsidiary Arcada Software develops,
markets and supports data protection and storage management software products
that operate across multiple desktop and client/server computing environments,
including those of Microsoft, Novell and IBM. Arcada believes it competes
effectively in the desktop and client/server storage management software market
because of the heterogeneity, scalability, performance and ease of use of its
software products. Arcada's network storage management software supports many
storage management server platforms and can accommodate a variety of clients,
servers and storage devices. Arcada intends to continue to exploit its existing
product architectures by enhancing the functionality of the products through new
releases, applications and other product enhancements which meet the evolving
storage management requirements of its customers. Arcada's long term strategy is
to create an integrated set of storage management solutions that enhance and
simplify desktop and network computing. Arcada utilizes multiple distribution
channels, including resellers, OEMs and direct sales, as a part of Arcada's
strategy to achieve comprehensive coverage in the market.
MARKET BACKGROUND
The ease of use and low cost of personal computers and workstations, the
development of personal productivity software and advances in network
connectivity, relational database software and application development tools are
all fueling a transition to distributed network computing. The distributed
nature of these networks, along with the increased use of computers throughout
organizations, has resulted in an increase in the amount and dispersion of
critical data across the clients and servers on these networks. Today, network
administrators are increasingly required to manage widely distributed stored
data on heterogenous network environments consisting of clients and servers
located at many different locations across an organization. Storage management
has, therefore, become an important component of the overall management of
distributed networks.
THE PRODUCTS
Arcada's Backup Exec, Arcada Backup and Storage Exec products have been
designed to address the emerging requirements of storage management in desktop
and client/server computing environments. Backup Exec and Storage Exec employ a
client/server architecture in which a server centralizes storage management
services for a wide variety of clients, including other servers and desktop
computers. Server and desktop computer clients supported by Backup Exec and
Storage Exec include DOS, NetWare, OS/2, UNIX, Windows 95, Macintosh, Windows
and Windows NT. Storage devices supported include a variety of tape drives,
optical and tape storage devices. Backup Exec's and Storage Exec's architecture
is designed to be scalable in order to adapt to the dynamic storage requirements
of a network. Clients, servers and storage devices can be upgraded or added
without requiring redesign of the entire system. The Arcada Backup product
addresses storage management requirements for the desktop computing
environments, and supports DOS, Windows, Windows 95 and OS/2 operating systems.
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MARKETING AND SALES
Arcada's marketing strategy is to achieve broad penetration of its targeted
customer base and subsequently emphasize follow-on sales to those customers.
Backup Exec's modular architecture allows it to be augmented with various
applications and product enhancements as a customer's needs expand in scope and
complexity. Further, Arcada intends to continue to develop additional
applications and product enhancements that can be marketed to its installed base
and that can attract customers with more sophisticated storage management
requirements. Arcada utilizes multiple distribution channels, including
resellers, OEMs and direct sales in order to achieve such broad penetration into
the market.
RESELLERS. Arcada receives a substantial portion of its revenues from
domestic and international sales to software resellers. Such resellers are
typically regional and national distributors who sell Arcada's products to end
users and third-party integrators specializing in storage management and
client/server network solutions to provide end user customers with complete data
management systems. Arcada's agreements with resellers are generally not
exclusive and in many cases may be terminated by either party without cause.
OEMS. Arcada also licenses its software products to leading computer system
and software suppliers who then package Arcada's software for resale as a
component of their own software or hardware systems. Generally, an OEM licensee
is also responsible, with Arcada's assistance, for porting Arcada's software to
its unique operating system environment, testing it, and providing the primary
customer support after installation. Existing OEM customers include IBM,
Hewlett-Packard Company, Compaq Computer, Digital Equipment Corporation, Conner,
Iomega Corporation, and Microsoft. These relationships enable Arcada to reach
significantly more customers, while reducing development, support and product
costs. There can be no assurance that any OEM will continue to carry Arcada's
products, and the failure to retain and recruit significant OEMs could
materially adversely affect Arcada's business, operating results and financial
condition.
DIRECT SALES AND MARKETING. Arcada attempts to establish and maintain close
relationships with its largest corporate users through direct sales to such
users using a dedicated salesperson and Arcada executive contact. Such users may
also participate in Arcada's technical exchange program and work directly with
Arcada to develop project plans for installations over a period of time.
CUSTOMER SERVICE AND SUPPORT
Arcada employs a staff of systems engineers who work with Arcada's direct
sales personnel to provide customers with technical support, education, training
and consulting services. These technical support engineers provide telephone and
electronic support, software updates and on-site reviews for customers from
Arcada's offices in Lake Mary, Florida. Arcada offers an education and training
program to end users and resellers. Training classes are offered through
in-house facilities at Arcada's offices, as well as at off-site locations.
RESEARCH AND DEVELOPMENT
Since its inception, Arcada has made substantial investments in product
development. Arcada's future success depends upon its ability to develop and
introduce new software products (including new releases, applications and
enhancements) that keep pace with technological developments and emerging
industry standards and address the increasingly sophisticated needs of its
customers. In particular, Arcada's strategy is to continue to exploit its
existing product architectures by enhancing the functionality of the products
through new releases, applications and other product enhancements which meet the
evolving storage management requirements of its customers.
There can be no assurance that Arcada will be successful in developing and
marketing new products on a timely basis that respond to technological change,
or that its new products will achieve market acceptance. Failure to timely
develop new products which gain such acceptance will have a material adverse
effect on Arcada's business, operating results and financial condition.
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COMPETITION
The network storage management market is intensely competitive, highly
fragmented and characterized by rapidly changing technology and evolving
standards. Competitors vary in size and in the scope and breadth of the products
and services offered. Presently, Arcada's major competitors include Cheyenne
Software, Seagate (Palindrome), Symantec Corporation, Legato Systems, Legent
(Lachman), and Hewlett-Packard Company, although additional competitors continue
to enter this market. Many of Arcada's current and potential competitors have
significantly greater financial, technical, marketing and other resources than
Arcada. As a result, they 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
Arcada. There can be no assurance that competitive pressures faced by Arcada
will not materially adversely affect its business, operating results and
financial condition.
PROPRIETARY RIGHTS
Arcada depends significantly on proprietary technology. Arcada seeks to
protect its software, documentation and other written materials primarily under
patent, trade secret and copyright laws, which afford only limited protection.
There can be no assurance that any issued patent will provide Arcada with any
competitive advantages or will not be challenged by third parties, or that the
patents of others will not have a material adverse effect on Arcada's ability to
do business. Despite Arcada's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of Arcada's products or to
obtain and use information that Arcada regards as proprietary. Policing
unauthorized use of Arcada's products is difficult, and software piracy has been
and will continue to be a persistent problem in the industry. Further, there can
be no assurance that Arcada's means of maintaining its proprietary rights will
be adequate or that Arcada's competitors will not independently develop similar
technology or design around Arcada's intellectual property rights.
LITIGATION
Arcada has from time to time received claims that it is infringing third
parties' intellectual property rights, and there can be no assurance that third
parties will not in the future claim infringement by Arcada with respect to
current or future products, trademarks or other proprietary rights. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require Arcada to enter into
royalty or licensing agreements, which may or may not be available on reasonable
terms.
In May 1995, PCPC brought various claims against Arcada alleging
infringement by Arcada of certain PCPC patent rights. However, without
acknowledging any liability, Arcada entered into a settlement agreement with
PCPC in November 1995 fully resolving all outstanding claims in that action. See
"Arcada Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Litigation."
EMPLOYEES AND FACILITIES
As of December 21, 1995, Arcada had a total of 406 employees, of which 174
were in research and development, 97 were in sales and marketing, 89 were in
operations, 26 were in finance and 20 were in the executive offices (including
senior management and staff). None of Arcada's employees is represented by a
labor union. Arcada has not experienced any work stoppages and considers its
relations with its employees to be good.
Arcada's future success depends in significant part upon the continued
service of its key technical and senior management personnel and its continuing
ability to attract and retain highly qualified technical and managerial
personnel. Competition for such personnel is intense, and there can be no
assurance that Arcada can retain its key technical and managerial employees or
that it can attract, assimilate or retain other highly qualified technical and
managerial personnel in the future.
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Arcada's principal sales, marketing, research and development facility is
located in approximately 40,000 square feet of leased space in Lake Mary,
Florida. Arcada also leases office facilities in San Luis Obispo, California, at
which it conducts, among other things, finance, human resources, OEM sales and
additional research and development, as well as various domestic and
international sales offices.
PRINCIPAL STOCKHOLDERS OF ARCADA
The following table sets forth certain information regarding the beneficial
ownership of Arcada's Common Stock as of December 21, 1995 by (i) each person
known to Arcada to be the beneficial owner of more than five percent of any
class of Arcada Capital Stock, (ii) each of the Directors and executive officers
of Arcada and (iii) all Directors and executive officers of Arcada as a group.
Unless otherwise indicated below, all persons named below have sole voting and
investment power with respect to the number of shares set forth opposite their
names, except to the extent that authority is shared by spouses under applicable
law.
<TABLE>
<CAPTION>
NAME AND ADDRESS TITLE OF NUMBER PERCENTAGE
OF BENEFICIAL OWNER (1) CLASS (2) OF SHARES OF CLASS
- ------------------------- ------------------- ------------- ------------
<S> <C> <C> <C>
Conner Peripherals, Inc. (3)............................ Series A 30,356,000 84.3%
3081 Zanker Road Preferred Stock
San Jose, California 95134
Kevin H. Azzouz......................................... Series A 5,644,000 15.7
Preferred Stock
Finis F. Conner (4)..................................... Series A 600,000 1.7
Preferred Stock
P. Jackson Bell (4)..................................... Series A 300,000 0.8
Preferred Stock
Conner Peripherals, Inc. (5)............................ Series B 3,075,100 100.0%
3081 Zanker Road Preferred Stock
San Jose, California 95134
Kevin H. Azzouz (6)..................................... Common Stock 512,500 20.4
Joseph Seebach (7)...................................... Common Stock 291,563 11.6
Donald Flanagan (8)..................................... Common Stock 252,500 10.1
Christopher Gibson (9).................................. Common Stock 252,500 10.1
David Krinker (10)...................................... Common Stock 201,000 8.0
Robert Brown (11)....................................... Common Stock 200,000 8.0
All Directors and Executive Officers as a group (3
persons) (12).......................................... Series A 6,544,000 15.7
Preferred Stock
All Directors and Executive Officers as a group (3
persons)............................................... Common Stock 512,500 20.4
</TABLE>
- ------------------------
(1) Except where noted, the stockholder's business address is Arcada Software,
37 Skyline Drive, Suite 1101, Lake Mary, Florida 32746.
(2) Each issued and outstanding share of Common Stock and Series A Preferred
Stock will entitle the holder thereof to one vote at the Special Meeting.
(3) Includes 2,087,500 shares subject to Conner Arcada Options granted by
Conner.
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(4) Represents shares subject to Conner Arcada Options granted by Conner,
vesting of which will accelerate upon consummation of the Seagate/Conner
Merger. Upon exercise of such Conner Arcada Options, the option holder will
receive shares of Common Stock issuable upon conversion of the Arcada Series
A Preferred Stock.
(5) All shares listed are issuable upon exercise of currently-exercisable
warrants.
(6) Includes 12,500 shares beneficially held by the stockholder that are
purchasable upon exercise of stock options which will become exercisable
within sixty days of the Arcada Record Date, and 500,000 shares which are
subject to a restricted stock purchase agreement between the stockholder and
Arcada.
(7) Includes 41,563 shares beneficially held by the stockholder that are
purchasable upon exercise of stock options which will become exercisable
within sixty days of the Arcada Record Date, and 250,000 shares which are
subject to a restricted stock purchase agreement between the stockholder and
Arcada.
(8) Includes 2,500 shares beneficially held by the stockholder that are
purchasable upon exercise of stock options which will become exercisable
within sixty days of the Arcada Record Date, and 250,000 shares which are
subject to a restricted stock purchase agreement between the stockholder and
Arcada.
(9) Includes 2,500 shares beneficially held by the stockholder that are
purchasable upon exercise of stock options which will become exercisable
within sixty days of the Arcada Record Date, and 250,000 shares which are
subject to a restricted stock purchase agreement between the stockholder and
Arcada.
(10)Includes 1,000 shares beneficially held by the stockholder that are
purchasable upon exercise of stock options which will become exercisable
within sixty days of the Arcada Record Date, and 200,000 shares which are
subject to a restricted stock purchase agreement between the stockholder and
Arcada.
(11)Includes 200,000 shares which are subject to a restricted stock purchase
agreement between the stockholder and Arcada.
(12)Includes 900,000 shares subject to Conner Arcada Options.
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STOCKHOLDERS' AND REGISTRATION RIGHTS AGREEMENT
Under the Stockholders' Rights Agreement, Conner and Azzouz (the "Holders")
are entitled to certain rights with respect to the registration under the
Securities Act of the shares of Arcada Capital Stock held by them. Pursuant to
such registration rights, if Arcada proposes to register any of its securities
under the Securities Act, either for its own account or the account of other
securityholders, the Holders are entitled to notice of such registration and to
include their shares of Arcada Capital Stock therein; provided, however, among
other conditions, that the underwriters of such registration have the right,
subject to certain limitations, to limit the number of shares included in any
such registration. In addition, the Holders have the right to require the
Company, on not more than two occasions, to file a registration statement under
the Securities Act in order to register their shares of Arcada Capital Stock.
Such demand registration rights are subject to a number of limitations,
including that (i) they may not be exercised during a period starting with the
date that is 60 days prior to Arcada's estimated date of filing of a
registration statement in connection with Arcada's initial public offering and
continuing until the date that is six months after the effective date of such
initial public offering, (ii) they may not be exercised during a period starting
with a date that is 60 days prior to Arcada's estimated date of filing of a
registration statement and ending on the date 90 days following the effective
date of any public offering subsequent to Arcada's initial public offering and
(iii) the Holder exercising such right or Arcada must have obtained the written
advice of a nationally recognized underwriter that such underwriter can complete
a firm commitment underwritten public offering of Arcada Capital Stock on
reasonable and customary terms and conditions at an aggregate valuation of
Arcada (after giving effect to such offering) of at least $90 million. In
addition, if after Arcada or the Holder exercising the demand registration right
has obtained the requisite written advice, Conner may furnish to Azzouz a
certificate stating that Conner desires to delay the filing of such a
registration statement and to elect not to include any shares of Arcada Capital
Stock held by it in such registration. Thereafter, Arcada's obligation to file a
registration statement under the Securities Act shall be deferred for a period
not to exceed 180 days from the date of the original request for registration.
If thereafter Arcada fails to register the shares of Arcada Capital Stock
requested to be registered within 210 days of the delivery of the aforementioned
certificate by Conner, each Holder that elected to include shares in a
registration may elect to sell to Arcada, and Arcada must agree to purchase, all
or any portion of the Arcada Capital Stock held by such Holder. In such event,
the purchase price per share will be the fair market value of a share of Arcada
Capital Stock as mutually determined by two nationally recognized investment
banking firms selected by each of Conner and Azzouz. The Stockholders' Rights
Agreement provides that if such nationally recognized investment banking firms
fail to mutually agree on the fair market value of the shares, such investment
banking firms shall together select a third nationally recognized investment
banking firm to make such determination. The Stockholders' Right Agreement
requires Arcada to bear all costs incurred in connection with the services
provided by such investment banking firms. The Holders may also require Arcada
to register all or a portion of their shares of Arcada Capital Stock on a Form
S-3 registration statement under the Securities Act when such form becomes
available to Arcada, provided such registration would result in an aggregate
offering of at least $500,000. Such demand registration rights are also subject
to certain limitations, including the limitation set forth in (ii) above and the
right of Arcada, if in the good faith judgment of the Arcada Board it would be
beneficial to Arcada or its stockholders, to defer Arcada's obligation to use
its best efforts to file a registration statement for 180 days.
Pursuant to the terms of the Stockholders' Rights Agreement, Arcada has
granted to each Holder the pro rata right of first offer to purchase all or any
part of any new securities issued by Arcada. Such right of first offer does not
apply to certain issuances by Arcada, including, among others, the issuance of
Arcada Common Stock upon conversion of Arcada Preferred Stock, the issuance of
securities offered to the public generally pursuant to a registration statement
under the Securities Act in an offering that causes the automatic conversion of
Arcada Preferred Stock into Arcada Common Stock, the issuance of shares of
Arcada Capital Stock or options convertible into Arcada Capital Stock to
employees, officers and directors of, and consultants to, Arcada, the issuance
of warrants (or shares of
62
<PAGE>
Arcada Capital Stock upon exercise of such warrants) to financial or equipment
leasing institutions in connection with the extension of credit to Arcada, and
shares issued pursuant to the acquisition of another corporation by Arcada. Such
right of first offer expires immediately prior to the closing of a firm
commitment underwritten public offering of Arcada Capital Stock registered under
the Securities Act.
Pursuant to the terms of the Stockholders' Rights Agreement, each Holder has
granted to Arcada a right of first refusal whereby if such Holder desires to
sell all or part of the Arcada Capital Stock then held by it pursuant to a
written offer from a party other than Conner or Azzouz, it will first submit an
offer to sell such Arcada Capital Stock to Arcada and, if Arcada does not elect
to purchase all of such shares, then to the other Holder. Arcada and the other
Holder have the right, collectively, to purchase all, but not less than all, of
the offered Arcada Common Stock. Any such sale would be on terms and conditions,
including price, no less favorable than those on which such shares are proposed
to be sold. Such right of first of refusal does not apply to sales of Arcada
Capital Stock to Arcada, sales in conjunction with a sale of Arcada or sales
pursuant to other provisions of the Stockholders' Rights Agreement.
Mr. Azzouz presently intends to submit to Arcada a demand under the
Stockholders' Rights Agreement that Arcada prepare and file a registration
statement covering some or all of the 5,644,000 shares of Arcada Common Stock
issuable upon conversion of his shares of Series A Preferred Stock. This demand
would also contain an extension for compliance by Arcada with such request until
the later of the date required under the Stockholders' Rights Agreement or sixty
days after the termination of the Reorganization Agreement. See "The Merger and
Related Transactions -- Termination, Amendment and Waiver."
63
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ARCADA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Arcada was originally incorporated in November 1993 as a wholly-owned
subsidiary of Conner to operate its software business. Conner commenced its
software operations in January 1993 by forming a separate division called Conner
Software. Conner Software was established by restructuring the business of
Archive Software, a division of Archive Corporation which Conner had acquired in
December 1992. Archive Software was originally established in July 1992. In
January 1994, the Company acquired the software business of Quest for $8.5
million in cash and the issuance of 7.6 million shares of Series A Convertible
Preferred Stock of Arcada.
In July 1995, the Company acquired certain assets of Sytron for $4.5 million
in cash and the assumption of certain liabilities. Both Quest and Sytron were
engaged in developing, producing and marketing software products for data
storage management.
As a result of these acquisitions, the Company incurred charges for the
write-off of in-process research and development of $7.6 million and $2.8
million in 1994 and 1995, respectively.
RESULTS OF OPERATIONS
The following table sets forth in dollars and as a percentage of total
revenues Arcada's results of operations for the period since inception (January
1, 1993) to December 31, 1993, the year ended December 31, 1994, and the
nine-month periods ended September 30, 1994 and 1995:
<TABLE>
<CAPTION>
NINE
PERIOD FROM PERIOD FROM MONTHS
INCEPTION NINE MONTHS INCEPTION ENDED
(JANUARY 1, ENDED (JANUARY 1, SEPTEMBER
YEAR ENDED 1993) TO SEPTEMBER 30, YEAR ENDED 1993) TO 30,
DECEMBER 31, DECEMBER 31, -------------------- DECEMBER 31, DECEMBER 31, ----------
1994 1993 1995 1994 1994 1993 1995
------------- ------------- --------- --------- --------------- -------------- ----------
(IN THOUSANDS) (AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License revenues............. $ 14,787 $ 1,776 $ 34,929 $ 7,570 59.5% 17.2% 81.9%
License revenues from
Conner...................... 9,044 8,577 7,152 6,709 36.4 82.8 16.8
Service revenues............. 1,035 -- 577 819 4.1 -- 1.3
------------- ------------- --------- --------- ----- ------- -----
Total revenues............. 24,866 10,353 42,658 15,098 100.0 100.0 100.0
------------- ------------- --------- --------- ----- ------- -----
Cost of revenues:
Cost of license revenues..... 3,814 672 6,053 2,312 15.3 6.5 14.2
Cost of license revenues from
Conner...................... 2,049 1,032 2,649 1,437 8.3 9.9 6.2
Cost of service revenues..... 816 -- 569 669 3.3 -- 1.3
------------- ------------- --------- --------- ----- ------- -----
Total cost of revenues..... 6,679 1,704 9,271 4,418 26.9 16.4 21.7
------------- ------------- --------- --------- ----- ------- -----
Gross profit................... 18,187 8,649 33,387 10,680 73.1 83.6 78.3
------------- ------------- --------- --------- ----- ------- -----
Operating expenses:
Research and development..... 8,920 8,696 12,128 6,645 35.8 84.0 28.4
In-process research and
development................. 7,632 -- 2,817 7,632 30.7 -- 6.6
Selling, general and
administrative.............. 13,905 5,226 17,137 9,073 55.9 50.5 40.2
------------- ------------- --------- --------- ----- ------- -----
Total operating expenses... 30,457 13,922 32,082 23,350 122.4 134.5 75.2
------------- ------------- --------- --------- ----- ------- -----
Income (loss) from
operations.................... (12,270) (5,273) 1,305 (12,670) (49.3) (50.9) 3.1
Interest expense for
borrowings from Conner.... (182) -- (378) (86) (0.8) -- (0.9)
Other income (expense), net.... 27 -- 86 (6) 0.1 -- 0.2
------------- ------------- --------- --------- ----- ------- -----
Income (loss) before income
taxes......................... (12,425) (5,273) 1,013 (12,762) (50.0) (50.9) 2.4
Benefit (provision) for income
taxes......................... 3,701 -- (334) 3,558 14.9 -- (0.8)
------------- ------------- --------- --------- ----- ------- -----
Net income (loss).............. $ (8,724) $ (5,273) $ 679 $ (9,204) (35.1)% (50.9)% 1.6%
------------- ------------- --------- --------- ----- ------- -----
------------- ------------- --------- --------- ----- ------- -----
<CAPTION>
1994
----------
<S> <C>
Revenues:
License revenues............. 50.2%
License revenues from
Conner...................... 44.4
Service revenues............. 5.4
-----
Total revenues............. 100.0
-----
Cost of revenues:
Cost of license revenues..... 15.3
Cost of license revenues from
Conner...................... 9.5
Cost of service revenues..... 4.5
-----
Total cost of revenues..... 29.3
-----
Gross profit................... 70.7
-----
Operating expenses:
Research and development..... 44.0
In-process research and
development................. 50.5
Selling, general and
administrative.............. 60.1
-----
Total operating expenses... 154.6
-----
Income (loss) from
operations.................... (83.9)
Interest expense for
borrowings from Conner.... (0.6)
Other income (expense), net.... --
-----
Income (loss) before income
taxes......................... (84.5)
Benefit (provision) for income
taxes......................... 23.5
-----
Net income (loss).............. (61.0)%
-----
-----
</TABLE>
64
<PAGE>
REVENUES
Arcada's total revenues are comprised of software license fees and service
revenues from customer funded engineering. License revenues are derived from
product licensing fees related to the sale of packaged software products,
royalties from OEMs and site licenses. Service revenues are derived from OEMs
for customer funded engineering. Arcada's total revenues have grown each year
since inception due to Arcada's strategic business acquisitions, product growth
and development and its ability to adapt its products to satisfy customer
quality and functionality requirements. In addition, although Arcada initially
generated revenue almost exclusively from Conner, an OEM of disk and tape drives
and Arcada's majority stockholder, over time it has broadened its channel focus
and customer base to include distributors, resellers, direct end users and other
third-party OEMs.
Total revenues for the year ended December 31, 1994 were $24.9 million, an
increase of $14.5 million from 1993. The increase in total revenues from 1993 to
1994 is due primarily to the acquisition of Quest in January 1994 and the growth
in the third-party customer base of Arcada. This increase in third-party
revenues resulted from the increasing market demand for data storage management
software products in the desktop and client/server operating environment,
increased market acceptance of Arcada's products and Arcada's increased spending
on sales and marketing. Arcada's total revenues in 1993 were $10.4 million.
Arcada's software products at this time were marketed under the names of
MaynStream, EzTape and QICStream. With the introduction of Backup Exec for
Windows NT in late 1993, Arcada began to increase its third-party customer base.
Total revenues for the nine-month periods ended September 30, 1995 and 1994
were $42.7 million and $15.1 million, respectively, an increase of $27.6
million. This increase resulted primarily from Arcada's on-going focus on
third-party license revenues. During the nine-month period ended September 30,
1995, Arcada began to realize more fully the benefit of investments made during
1994, including certain strategic relationships developed by Quest, Arcada's
increased spending on the research and development and selling, general and
administration infrastructures and increased spending on focused marketing
efforts to create brand name recognition. Arcada also began to expand its
product offerings and improve upon existing products. During the nine-month
period ended September 30, 1995, Arcada released new versions of its Backup Exec
for Windows NT and Backup Exec for NetWare and released a new product, Arcada
Backup for Windows 95.
Revenues from sales to Conner represented 36.4%, 82.8% and 16.8% of total
revenues in 1994, 1993 and the nine-month period ended September 30, 1995,
respectively. In addition, during 1994 and the nine-month period ended September
30, 1995 sales to two separate customers represented approximately 10% and 19%
of total revenues, respectively. No other customer accounted for more than 10%
of net revenues during these periods. The following table summarizes revenue
percentages resulting from Conner, OEM, distributor and direct customers as well
as foreign and domestic customers for the years ended December 31, 1994 and 1993
and the nine-month periods ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
SEPTEMBER 30,
------------------------ ------------------------
1994 1993 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Conner...................................................... 36.4% 82.8% 16.8% 44.4%
OEM......................................................... 29.8 -- 25.7 27.1
Distributor................................................. 24.4 14.6 48.3 16.9
Direct...................................................... 9.4 2.6 9.2 11.6
----- ----- ----- -----
Total..................................................... 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
----- ----- ----- -----
Foreign..................................................... 12.3% 2.5% 18.4% 8.1%
Domestic.................................................... 87.7 97.5 81.6 91.9
----- ----- ----- -----
Total..................................................... 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
The decrease in the percentage of Conner revenue in 1994, as compared to
1993, is due primarily to Arcada's sales and marketing efforts to expand its
revenues from third-party customers. These
65
<PAGE>
efforts included an increase in spending to broaden Arcada's existing
operational infrastructure and additional spending on sales and marketing. As a
result of these efforts, combined with the introduction of new products, the
percentage of revenues from distribution and direct sales increased in 1994, as
compared to 1993. The increase in the percentage of sales to OEM customers
reflects the addition of new strategic accounts as a result of the acquisition
of Quest in January 1994.
During the nine-month period ended September 30, 1995, Arcada continued to
increase its focus on the distribution channel. The distribution and direct
sales channels are the primary channels through which Arcada sells the Backup
Exec for Windows NT and Backup Exec for NetWare data management products. As a
result, for the nine-month period ended September 30, 1995 as compared to the
same period in 1994, the percentage of revenue attributable to the distribution
channel increased, while the percentage of revenue from Conner and other OEM's
decreased. The increase in foreign revenue as a percentage of total revenue in
1994 as compared to 1993, and for the nine-month period ended September 30,
1995, as compared to the same period in 1994, is due primarily to Arcada's sales
and marketing efforts to capture part of the market share of a growing market
for data storage management software in Europe. To facilitate this growth,
Arcada opened a sales office in the United Kingdom late in 1994 to manage
European sales activities. Arcada currently expects that it will open a sales
office in France by early 1996 and anticipates that further expansion of its
European sale's organization will result in the addition of a sales office in
Germany by the later part of 1996.
GROSS PROFIT
The cost of license revenues primarily consist of the amortization of
technology and related intangibles resulting from acquisition and the cost of
product packaging, documentation, duplication and production. Cost of service
revenues include direct costs associated with customer-funded engineering
activities.
Arcada's gross margin from the sale of packaged and bundled software is
affected by many factors, including pricing of Arcada's products, product mix,
the channels through which Arcada's products are distributed and product
maturity. In addition, gross margin for service revenues can be significantly
impacted by the pricing terms of customer-funded engineering activities, which
can vary from customer to customer and for the same customer from contract to
contract. Arcada's gross margin can and may be affected in particular periods by
pricing strategies and return privileges employed in connection with new product
introductions and upgrades. In these situations, existing users and other
targeted potential customers are offered favorable terms and conditions for an
introductory period to establish or increase acceptance of Arcada's products.
Upgrade and introductory customers generally receive all the manuals and
diskettes received by other customers. Accordingly, these policies can increase
total revenues, but have a negative effect on gross margin. Although Arcada has
not experienced any significant returns and price protection to date, there can
be no assurances that Arcada will not experience such costs in the future.
The gross margins were 73.1% and 83.6% for the years ended December 31, 1994
and 1993, respectively, and were 78.3% and 70.7% for the nine-month periods
ended September 30, 1995 and 1994, respectively. The increase in gross margins
for the first nine months of 1995 over the same period in 1994 is attributable
to a significant shift in Arcada's product mix towards the higher margin Backup
Exec products, including Backup Exec for Windows NT and Backup Exec for NetWare.
The reduction in gross margin for 1994 compared to 1993 is due primarily to the
acquisition of Quest and the license revenues derived from the acquired product
lines. The Quest product lines are used primarily by large OEM customers as
software accessories bundled within the tape drive products of OEM's. These OEM
products are in turn sold in the desktop tape drive market at relatively lower
margins. The acquisition of Quest also resulted in additional amortization
expense relating to acquired technology. The negative impact on the gross margin
relating to the Quest products was partially offset by increased sales of
Arcada's Backup Exec product lines. The Backup Exec product lines are sold
primarily through the distribution and direct sales channels, and the gross
margin percentages attained on these products is considerably higher than those
for the desktop product lines.
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<PAGE>
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of salaries and other
personnel-related expenses, depreciation of development equipment, facilities,
occupancy and production supplies. Research and development expenses increased
(i) $0.2 million from $8.7 million for the year ended December 31, 1993 to $8.9
million for the year ended December 31, 1994 and (ii) $5.5 million from $6.6
million for the nine-month period ended September 30, 1994 to $12.1 million for
the nine-month period ended September 30, 1995. These increases are due
primarily to Arcada's growth, emphasis on new product development and increased
headcount resulting from business acquisitions. Arcada anticipates that research
and development expenses will continue to increase in absolute dollars.
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 capitalized when technological feasibility is established which based on the
Company's development process is the completion of a working model. To date,
Arcada has not capitalized any software development costs as the amounts have
not been material.
IN-PROCESS RESEARCH AND DEVELOPMENT
In January 1994, Arcada acquired the business of Quest, for $8.5 million in
cash and the issuance of 7.6 million shares of Arcada Series A Preferred Stock.
The transaction was accounted for as a purchase and, accordingly, the purchase
price was allocated to the assets acquired and liabilities assumed based upon
their estimated fair market values. Based upon an appraisal, approximately $7.6
million was allocated to in-process research and development and charged to
earnings in 1994. During 1995, Arcada acquired the assets of Sytron for $4.5
million in cash and the assumption of certain liabilities. The Sytron
transaction was accounted for as a purchase and, accordingly, the purchase price
was allocated to the assets acquired and the liabilities assumed based upon
their estimated fair market values. Based upon an appraisal, approximately $2.8
million was allocated to in-process research and development and charged to
earnings in 1995.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses consist primarily of
sales and marketing promotions, personnel and related overhead costs,
information systems and customer technical support costs. SG&A expenses
increased from $5.2 million in 1993 to $13.9 million in 1994 and from $9.1
million for the nine-month period ended September 30, 1994 to $17.1 million for
the nine-month period ended September 30, 1995. SG&A expenses as a percentage of
total revenues were approximately 55.9% and 50.5% for 1994 and 1993,
respectively, and approximately 40.2% and 60.1% in the nine-month periods ended
September 30, 1995 and 1994, respectively. The increases in SG&A in absolute
dollars for all periods are primarily due to expenses associated with increased
sales and marketing efforts, amortization of certain intangibles and goodwill as
a result of business acquisitions and significant increases associated with the
growth and development of Arcada's infrastructure and operations. Infrastructure
spending included, among other things, increases in headcount throughout the
organization, the addition of new or expanded facilities, extensive travel
relating to both exploration of new market opportunities and the consolidation
of operations and the additional administrative costs associated with growing a
self-supporting entity independent of Conner.
Arcada expects that SG&A will increase in absolute dollars in 1996 as Arcada
continues to grow.
INTEREST EXPENSE
All interest expense relates to interest on borrowings under an $8 million
line of credit from Conner (the "Line of Credit"). Borrowings under the Line of
Credit carry interest at 5% per annum and are required to be fully paid off by
December 31, 1998. However, in the event that Arcada fails to make timely
payments of debt and interest, the interest rate increases to 7% per annum.
Arcada has not made any interest payments to date under the Line of Credit, and
accordingly has been accruing interest expense at 7% per annum. In addition, the
Line of Credit entitles Conner to receive certain warrants to purchase Series B
Preferred Stock (the "Conner Warrants"), and Arcada must recognize
67
<PAGE>
additional interest expense based on the amortization of the value of the Conner
Warrants over the term of the Line of Credit. Interest expense (including
expense attributable to amortization of the Conner Warrants) was $0.2 million in
1994 and $0.4 million and $0.1 million for the nine-month periods ended
September 30, 1995 and 1994, respectively.
BENEFIT (PROVISION) FOR INCOME TAXES
During 1993, Arcada filed a consolidated federal income tax return with
Conner and, accordingly, its net operating loss for 1993 were used by Conner. On
a separate return basis, no provision for income taxes has been recorded for
1993 as a result of the losses incurred. Since 1994, Arcada has been filing
separate federal income tax returns. Arcada's income tax benefit rate was 29.8%
in 1994 and 27.9% for the nine-month period ended September 30, 1994. For the
nine-month period ended September 30, 1995, Arcada's effective tax rate was
33.0%. In 1994 and the nine-month period ended September 30, 1994, the effective
tax rate used to record the tax benefit was lower than the federal statutory
rate of 35% as a result of non-deductible goodwill amortization and the
non-utilization of net operating losses. Arcada's effective tax rate for the
nine-month period ended September 30, 1995, was approximately 33.0%, which was
lower than the federal statutory rate of 35% primarily due to the expected
utilization of certain tax credits.
Based on its history of operating losses through 1994, Arcada has determined
that under FAS 109, it is more likely than not that the deferred tax assets
would not be realized and, accordingly, a valuation reserve has been established
at December 31, 1994 and 1993. See "Note 7 -- Income Taxes," in "Notes to Arcada
Consolidated Financial Statements."
LITIGATION
On November 2, 1995, Arcada entered into a settlement agreement with
Personal Computer Peripherals Corporation ("PCPC") settling various claims
brought by PCPC alleging infringement by Arcada of PCPC's patent. As a result of
this litigation and the settlement agreement, Arcada expects to incur a material
charge in the fourth quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Arcada has funded its operations to date primarily through cash flow from
operations, borrowings under the Line of Credit and other intercompany payments
made on behalf of Arcada by Conner. At December 31, 1994 and September 30, 1995,
gross borrowings under the Line of Credit (without deduction for unamortized
discount related to the Conner Warrants) aggregated $2.8 million and $4.9
million, respectively. Arcada is required to make sufficient principal
repayments such that the outstanding amounts will not exceed $5.3 million as of
December 31, 1996 and $2.7 million as of December 31, 1997.
Arcada had cash and cash equivalents of $1.2 million and $0.2 million at
December 31, 1994 and September 30, 1995, respectively, and working capital
deficiencies of $0.9 million and $0.2 million at December 31, 1994 and September
30, 1995, respectively. Arcada had net accounts receivable of $5.3 million and
$11.6 million, at December 31, 1994 and September 30, 1995, respectively. Net
cash used in operating activities was $3.0 million in 1993 and net cash provided
by operations was $0.7 million in 1994. Net cash used in operating activities
was $0.1 million for the nine-month period ended September 30, 1994 and net cash
provided by operations was $4.0 million for the nine-month period ended
September 30, 1995.
During 1994 and the nine-month period ended September 30, 1995, Arcada's
investing activities primarily consisted of capital expenditures related to the
acquisition of computers, equipment and facilities to support operations,
product development and the MIS infrastructure. In addition, in 1995, Arcada
acquired certain assets of Sytron for $4.5 million. As a consequence of that
acquisition, Arcada's working capital at September 30, 1995 fell to only $0.23
million; however, Arcada believes that the existing sources of liquidity,
together with anticipated funds from operations and the availability of
additional borrowings under the Line of Credit will be sufficient to meet its
minimum working capital and capital expenditure requirements for at least the
next twelve months.
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<PAGE>
RECENT PRONOUNCEMENTS
In 1995, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." FAS 121
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. FAS 121 is effective for fiscal years beginning
after December 15, 1995. Adoption of FAS 121 is not expected to have a material
impact on Arcada's financial position or results of operations.
In 1995, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation." FAS 123 provides an alternative to the Accounting Principles
Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees" and
is effective for fiscal years beginning after December 15, 1995. The Company
expects to continue to account for its employee stock plans in accordance with
the provisions of APB 25. Accordingly, FAS 123 is not expected to have any
material impact on Arcada's financial position or results of operations.
69
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
assume a business combination between Seagate and Conner accounted for on a
pooling of interests basis (the "Seagate/ Conner Merger") and are based on the
respective historical financial statements and the notes thereto, which are
incorporated by reference in this Proxy Statement/Prospectus. The pro forma
combined condensed balance sheet combines Seagate's September 30, 1995
consolidated balance sheet with Conner's September 30, 1995 consolidated balance
sheet (which includes Arcada on a consolidated basis). The pro forma statements
of operations combine Seagate's historical results for each of the three fiscal
years ended June 30, 1995, 1994 and 1993, and the three months ended September
30, 1995 and 1994, with the corresponding Conner results (which consolidates the
results of Arcada) for the twelve months ended June 30, 1995, the fiscal years
ended December 31, 1994 and 1993, and the three months ended September 30, 1995
and 1994, respectively.
In connection with the Seagate/Conner Merger, Seagate is to acquire the
outstanding minority interest of Arcada in a transaction to be accounted for as
a purchase (the "Merger"). The minority interest of Arcada amounts to a 31.4%
ownership interest on a fully diluted basis. The pro forma combined condensed
balance sheet includes adjustments necessary to give effect to the Merger
assuming it was consummated at September 30, 1995. The pro forma combined
condensed statements of operations for the twelve months ended June 30, 1995,
and for the three months ended September 30, 1995 and 1994, include adjustments
which give effect to the Merger assuming it was consummated at the beginning of
Seagate's fiscal year 1995.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Seagate/ Conner Merger and the Merger been
consummated in an earlier period, nor is it necessarily indicative of the future
operating results or financial position.
These pro forma financial statements are based on, and should be read in
conjunction with, the historical consolidated financial statements and the
related notes thereto of Seagate, Conner, and Arcada included or incorporated by
reference in the Proxy Statement/Prospectus.
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<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ARCADA
COMBINED PRO FORMA PRO FORMA
SEAGATE CONNER (A) SEAGATE & CONNER ADJUSTMENT (B) COMBINED
------------- ----------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales........................... $ 1,453,626 $ 687,179 $ 2,140,805 $ -- $ 2,140,805
Cost of sales....................... 1,161,975 581,555 1,743,530 -- 1,743,530
------------- ----------- ----------------- ------- --------------
Gross profit........................ 291,651 105,624 397,275 -- 397,275
------------- ----------- ----------------- ------- --------------
Operating expenses:
Product development............... 67,676 29,670 97,346 -- 97,346
Marketing and administrative...... 69,969 46,586 116,555 -- 116,555
Amortization of goodwill and other
intangibles...................... 7,616 2,694 10,310 2,074 12,384
In-process research and
development...................... -- 2,817 2,817 -- 2,817
------------- ----------- ----------------- ------- --------------
Total operating expenses........ 145,261 81,767 227,028 2,074 229,102
------------- ----------- ----------------- ------- --------------
Income from operations.............. 146,390 23,857 170,247 (2,074) 168,173
Interest income..................... 18,040 5,302 23,342 -- 23,342
Interest expense.................... (8,868) (8,671) (17,539) -- (17,539)
Other............................... (1,211) (482) (1,693) -- (1,693)
------------- ----------- ----------------- ------- --------------
Other income (expense), net..... 7,961 (3,851) 4,110 -- 4,110
------------- ----------- ----------------- ------- --------------
Income before income taxes and
extraordinary gain................. 154,351 20,006 174,357 (2,074) 172,283
Provision for income taxes.......... 46,305 6,602 52,907 -- 52,907
------------- ----------- ----------------- ------- --------------
Income before extraordinary gain.... $ 108,046 $ 13,404 $ 121,450 $ (2,074) $ 119,376
------------- ----------- ----------------- ------- --------------
------------- ----------- ----------------- ------- --------------
Income per share before
extraordinary gain:
Primary........................... $ 1.44 $ 0.56 $ 1.23 $ 1.18
Fully diluted..................... $ 1.23 $ 0.56 $ 1.05 $ 1.02
Number of shares used in per share
computations:
Primary........................... 75,088 23,974 99,062 101,254
Fully diluted..................... 91,681 33,093 124,774 126,966
</TABLE>
- ------------------------
(a) Income per share and number of shares reflect Seagate equivalent numbers of
0.442 share of Seagate Common Stock for each share of Conner Common Stock.
(b) Pro forma adjustment to reflect the acquisition of the minority interest of
Arcada in conjunction with the Seagate/Conner Merger as discussed in Notes 1
and 5.
See Accompanying Notes to Pro Forma Combined Condensed Financial Statements.
71
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1994
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ARCADA
COMBINED PRO FORMA PRO FORMA
SEAGATE CONNER (A) SEAGATE & CONNER ADJUSTMENT (B) COMBINED
------------- ----------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales........................... $ 933,146 $ 559,504 $ 1,492,650 $ -- $ 1,492,650
Cost of sales....................... 735,001 458,323 1,193,324 -- 1,193,324
------------- ----------- ----------------- ------- --------------
Gross profit........................ 198,145 101,181 299,326 -- 299,326
------------- ----------- ----------------- ------- --------------
Operating expenses:
Product development............... 47,252 32,297 79,549 -- 79,549
Marketing and administrative...... 56,163 43,375 99,538 -- 99,538
Amortization of goodwill and other
intangibles...................... 4,250 3,774 8,024 2,074 10,098
In-process research and
development...................... 43,000 -- 43,000 -- 43,000
------------- ----------- ----------------- ------- --------------
Total operating expenses........ 150,665 79,446 230,111 2,074 232,185
------------- ----------- ----------------- ------- --------------
Income from operations.............. 47,480 21,735 69,215 (2,074) 67,141
Interest income..................... 14,698 4,036 18,734 -- 18,734
Interest expense.................... (8,207) (11,496) (19,703) -- (19,703)
Other............................... 1,322 997 2,319 -- 2,319
------------- ----------- ----------------- ------- --------------
Other income (expense), net..... 7,813 (6,463) 1,350 -- 1,350
------------- ----------- ----------------- ------- --------------
Income before income taxes and
extraordinary gain................. 55,293 15,272 70,565 (2,074) 68,491
Provision for income taxes.......... 32,756 5,042 37,798 -- 37,798
------------- ----------- ----------------- ------- --------------
Income before extraordinary gain.... $ 22,537 $ 10,230 $ 32,767 $ (2,074) $ 30,693
------------- ----------- ----------------- ------- --------------
------------- ----------- ----------------- ------- --------------
Income per share before
extraordinary gain:
Primary........................... $ 0.30 $ 0.44 $ 0.33 $ 0.31
Fully diluted..................... $ 0.29 $ 0.44 $ 0.32 $ 0.30
Number of shares used in per share
computations:
Primary........................... 74,904 23,076 97,980 100,172
Fully diluted..................... 85,223 23,076 108,299 110,491
</TABLE>
- ------------------------
(a) Income per share and number of shares reflect Seagate equivalent numbers of
0.442 share of Seagate Common Stock for each share of Conner Common Stock.
(b) Pro forma adjustment to reflect the acquisition of the minority interest of
Arcada in conjunction with the Seagate/Conner Merger as discussed in Notes 1
and 5.
See Accompanying Notes to Pro Forma Combined Condensed Financial Statements.
72
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ARCADA
COMBINED PRO FORMA PRO FORMA
SEAGATE CONNER (A) SEAGATE & CONNER ADJUSTMENT (B) COMBINED
------------- ------------- ----------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales........................... $ 4,539,570 $ 2,403,848 $ 6,943,418 $ -- $ 6,943,418
Cost of sales....................... 3,607,661 1,993,978 5,601,639 -- 5,601,639
------------- ------------- ----------------- ------- -------------
Gross profit........................ 931,909 409,870 1,341,779 -- 1,341,779
------------- ------------- ----------------- ------- -------------
Operating expenses:
Product development............... 220,024 138,065 358,089 -- 358,089
Marketing and administrative...... 245,811 198,919 444,730 -- 444,730
Amortization of goodwill and other
intangibles...................... 23,092 12,680 35,772 8,297 44,069
In-process research and
development...................... 70,360 5,000 75,360 -- 75,360
Restructuring costs............... -- (38,019) (38,019) -- (38,019)
------------- ------------- ----------------- ------- -------------
Total operating expenses........ 559,287 316,645 875,932 8,297 884,229
------------- ------------- ----------------- ------- -------------
Income from operations.............. 372,622 93,225 465,847 (8,297) 457,550
Interest income..................... 65,560 20,171 85,731 -- 85,731
Interest expense.................... (32,966) (43,369) (76,335) -- (76,335)
Other............................... 4,123 27,211 31,334 -- 31,334
------------- ------------- ----------------- ------- -------------
Other income, net............... 36,717 4,013 40,730 -- 40,730
------------- ------------- ----------------- ------- -------------
Income before income taxes and
extraordinary gain................. 409,339 97,238 506,577 (8,297) 498,280
Provision for income taxes.......... 149,257 26,002 175,259 -- 175,259
------------- ------------- ----------------- ------- -------------
Income before extraordinary gain.... $ 260,082 $ 71,236 $ 331,318 $ (8,297) $ 323,021
------------- ------------- ----------------- ------- -------------
------------- ------------- ----------------- ------- -------------
Income per share before
extraordinary gain:
Primary........................... $ 3.52 $ 3.06 $ 3.41 $ 3.25
Fully diluted..................... $ 3.06 $ 2.84 $ 3.00 $ 2.88
Number of shares used in per share
computations:
Primary........................... 73,839 23,305 97,144 99,336
Fully diluted..................... 91,474 32,214 123,688 125,880
</TABLE>
- ------------------------
(a) Income per share and number of shares reflect Seagate equivalent numbers of
0.442 share of Seagate Common Stock for each share of Conner Common Stock.
(b) Pro forma adjustment to reflect the acquisition of the minority interest of
Arcada in conjunction with the Seagate/Conner Merger as discussed in Notes 1
and 5.
See Accompanying Notes to Pro Forma Combined Condensed Financial Statements.
73
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1994 (A) 1993 (A)
------------- -------------
<S> <C> <C>
Net Sales........................................................................... $ 5,865,255 $ 5,195,276
Cost of Sales....................................................................... 4,692,324 4,284,394
------------- -------------
Gross Profit........................................................................ 1,172,931 910,882
------------- -------------
Operating expenses:
Product development............................................................... 302,678 291,470
Marketing and administrative...................................................... 397,931 408,340
Amortization of goodwill and other intangibles.................................... 27,820 35,073
In-process research and development............................................... 5,000 --
Restructuring costs............................................................... (38,019) 121,457
Non-recurring items............................................................... -- 231,945
------------- -------------
Total operating expenses........................................................ 695,410 1,088,285
------------- -------------
Income (loss) from operations....................................................... 477,521 (177,403)
Interest income..................................................................... 53,384 41,359
Interest expense.................................................................... (73,576) (74,724)
Other............................................................................... 18,808 11,228
------------- -------------
Other (expense), net.............................................................. (1,384) (22,137)
------------- -------------
Income (loss) before income taxes and extraordinary gain............................ 476,137 (199,540)
Provision for income taxes.......................................................... 141,340 50,340
------------- -------------
Income (loss) before extraordinary gain............................................. $ 334,797 $ (249,880)
------------- -------------
------------- -------------
Income (loss) per share before extraordinary gain:
Primary........................................................................... $ 3.48 $ (2.80)
Fully diluted..................................................................... $ 3.16 $ (2.80)
Number of shares used in per share computations:
Primary........................................................................... 96,160 89,187
Fully diluted..................................................................... 117,967 89,187
</TABLE>
- ------------------------
(a) For the years ended June 30, 1994 and 1993 there were no pro forma
conforming adjustments and the above pro forma information reflects the
combination of Seagate and Conner for the fiscal periods as discussed in
Note 2.
See Accompanying Notes to Pro Forma Combined Condensed Financial Statements.
74
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEAGATE &
CONNER PRO FORMA
PRO FORMA COMBINED
ADJUSTMENTS SEAGATE &
SEAGATE CONNER (A) CONNER
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents........................................... $ 684,192 $ 164,156 $ -- $ 848,348
Short-term investments.............................................. 562,710 185,294 -- 748,004
Accounts receivable................................................. 662,097 418,377 -- 1,080,474
Inventories......................................................... 427,922 265,356 -- 693,278
Deferred income taxes............................................... 136,138 51,950 10,600 198,688
Other current assets................................................ 138,636 118,157 (1,500) 255,293
---------- ---------- ----------- ----------
Total Current Assets.............................................. 2,611,695 1,203,290 9,100 3,824,085
Property, equipment and leasehold improvements, net................. 721,688 242,076 (16,400) 947,364
Goodwill and other intangibles, net................................. 183,011 35,099 218,110
Other assets........................................................ 106,161 10,322 -- 116,483
---------- ---------- ----------- ----------
Total Assets...................................................... $3,622,555 $1,490,787 $ (7,300) $5,106,042
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
LIABILITIES:
Accounts payable.................................................... $ 539,534 $ 259,649 $ -- $ 799,183
Accrued employee compensation....................................... 130,758 37,212 86,700 254,670
Accrued expenses.................................................... 284,126 98,521 32,300 414,947
Accrued income taxes................................................ 38,179 45,660 -- 83,839
Current portion of long-term debt................................... 10,479 3,014 -- 13,493
---------- ---------- ----------- ----------
Total Current Liabilities......................................... 1,003,076 444,056 119,000 1,566,132
Deferred income taxes............................................... 269,909 129,346 (28,400) 370,855
Other liabilities................................................... 138,161 2,298 23,100 163,559
Long-term debt, less current portion................................ 539,804 527,961 -- 1,067,765
Minority interest................................................... -- 3,411 -- 3,411
---------- ---------- ----------- ----------
Total Liabilities................................................. 1,950,950 1,107,072 113,700 3,171,722
---------- ---------- ----------- ----------
STOCKHOLDERS' EQUITY:
Common stock and additional paid-in capital......................... 402,284 271,233 -- 673,517
Retained earnings and other......................................... 1,269,321 112,482 (121,000) 1,260,803
---------- ---------- ----------- ----------
Total Stockholders' Equity........................................ 1,671,605 383,715 (121,000) 1,934,320
---------- ---------- ----------- ----------
Total Liabilities and Stockholders' Equity........................ $3,622,555 $1,490,787 $ (7,300) $5,106,042
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
<CAPTION>
ARCADA
PRO FORMA PRO FORMA
ADJUSTMENT (B) COMBINED
--------------- ----------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents........................................... $ -- $ 848,348
Short-term investments.............................................. -- 748,004
Accounts receivable................................................. -- 1,080,474
Inventories......................................................... -- 693,278
Deferred income taxes............................................... -- 198,688
Other current assets................................................ -- 255,293
--------------- ----------
Total Current Assets.............................................. -- 3,824,085
Property, equipment and leasehold improvements, net................. -- 947,364
Goodwill and other intangibles, net................................. 64,224 282,334
Other assets........................................................ -- 116,483
--------------- ----------
Total Assets...................................................... $ 64,224 $5,170,266
--------------- ----------
--------------- ----------
LIABILITIES:
Accounts payable.................................................... $ -- $ 799,183
Accrued employee compensation....................................... -- 254,670
Accrued expenses.................................................... -- 414,947
Accrued income taxes................................................ -- 83,839
Current portion of long-term debt................................... -- 13,493
--------------- ----------
Total Current Liabilities......................................... -- 1,566,132
Deferred income taxes............................................... 3,744 374,599
Other liabilities................................................... -- 163,559
Long-term debt, less current portion................................ -- 1,067,765
Minority interest................................................... (352) 3,059
--------------- ----------
Total Liabilities................................................. 3,392 3,175,114
--------------- ----------
STOCKHOLDERS' EQUITY:
Common stock and additional paid-in capital......................... 97,838 771,355
Retained earnings and other......................................... (37,006) 1,223,797
--------------- ----------
Total Stockholders' Equity........................................ 60,832 1,995,152
--------------- ----------
Total Liabilities and Stockholders' Equity........................ $ 64,224 $5,170,266
--------------- ----------
--------------- ----------
</TABLE>
- ------------------------------
(a) Pro forma adjustment to reflect the restructuring charges as discussed in
Note 4.
(b) Pro forma adjustment to reflect the acquisition of the minority interest of
Arcada in conjunction with the Seagate/Conner Merger as discussed in Notes
1 and 5.
See Accompanying Notes to Pro Forma Combined Condensed Financial Statements.
75
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The unaudited pro forma combined condensed financial statements reflect the
issuance of 0.442 of a share of Seagate Common Stock in exchange for each
share of Conner Common Stock. In addition, Seagate will issue options to
purchase 0.442 of a share of Seagate Common Stock in exchange for each
outstanding Conner Option. The actual number of shares of Seagate Common
Stock and stock options to be issued in the Seagate/Conner Merger will be
determined at the Effective Time based on the Exchange Ratio and the number
of shares of Conner Common Stock and Conner Options then outstanding. In
addition, the unaudited pro forma combined condensed financial statements
reflect the acquisition by Seagate of the outstanding minority interest of
Arcada in exchange for 0.1545 share of Seagate Common Stock for each
outstanding share of Arcada Preferred and Common Stock and options to
purchase 0.1545 share of Seagate Common Stock in exchange for each
outstanding option to purchase Arcada Common Stock.
As of September 30, 1995, Conner had outstanding Common Stock of 53,537,032
shares and outstanding Conner Options to purchase 7,286,268 shares of Conner
Common Stock. Based on the Exchange Ratio as described above, as of
September 30, 1995, Seagate would issue approximately 23,663,368 shares of
Seagate Common Stock in exchange for all outstanding shares of Conner Common
Stock and would issue options to purchase approximately 3,220,530 shares of
Seagate Common Stock in exchange for all outstanding Conner Options.
Based on the outstanding minority interest of Arcada at September 30, 1995,
Seagate will exchange approximately 1,215,000 shares of Seagate Common Stock
and options to acquire 977,000 shares of Seagate Common Stock in exchange
for the outstanding minority interest.
2. The unaudited pro forma financial data combines Seagate's financial data for
the three fiscal years ended June 30, 1995, 1994, and 1993 and the three
months ended September 30, 1995 and 1994 with Conner's financial data (which
consolidates the results of Arcada) for the twelve months ended June 30,
1995, the fiscal years ended December 31, 1994 and 1993, and the three
months ended September 30, 1995 and 1994, respectively. The operating
results of Conner for the six months ended December 31, 1994 (revenue and
net income of $1,151 million and $54 million, respectively) are included in
the unaudited pro forma statements of operations for both fiscal years 1995
and 1994.
3. Seagate's fiscal year ends on the Friday closest to June 30 and includes 52
weeks in all fiscal years and 13 weeks in all quarterly periods presented.
Conner's fiscal year ends on the Saturday closest to December 31 and also
includes 52 weeks in all fiscal years and 13 weeks in all quarterly periods
presented. For clarity of presentation in the unaudited pro forma combined
condensed financial statements, fiscal periods are reported as ending on a
calendar month end.
4. Seagate expects to incur charges to operations currently estimated to range
from $140 million to $180 million in the quarter ending March 31, 1996, the
quarter in which the Seagate/Conner Merger is expected to be consummated. An
estimated charge at the midpoint of the above range of $121 million, net of
estimated tax benefits of $39 million, is reflected in the unaudited pro
forma combined condensed balance sheet. The charge, before estimated tax
benefits, primarily relates to costs associated with combining the
operations of the two companies and includes employee severance benefits of
$87 million, closure of duplicate and excess facilities of $53 million and
fees of financial advisors, attorneys and accountants of $20 million. The
future cash requirements related to these charges are estimated to range
from $100 million to $120 million. These ranges are preliminary estimates
only and are therefore subject to change.
5. The fair value of the Seagate Common Stock and stock options to be exchanged
by Seagate to acquire the outstanding minority interest of Arcada
approximates $97.8 million based on a value of $44.625 per share of Seagate
Common Stock. The minority interest in Arcada amounts to a
76
<PAGE>
31.4% ownership interest on a fully diluted basis. The acquisition will be
accounted for as a purchase, and accordingly, the acquired assets and
liabilities pertaining to the minority interest will be recorded at
estimated fair values. The unaudited pro forma combined condensed balance
sheet reflects the elimination of Arcada's minority interest and the
estimated allocation of purchase price to the assets acquired including
goodwill and other intangibles of approximately $64.2 million and the
write-off of non-recurring charges of approximately $37.1 million relating
to in-process research and development. The effect of recurring charges
relating to the purchase, primarily the amortization of goodwill and other
intangibles, has been reflected as pro forma adjustments in the unaudited
pro forma combined condensed statements of operations and totals
approximately $8.3 million for fiscal year 1995, $2.1 million for the three
months ended September 30, 1995, and $2.1 million for the three months ended
September 30, 1994. These amounts are estimates based on a preliminary
purchase price allocation and assume the issuance of 2,192,000 shares of
Seagate Common Stock valued at $44.625 per share.
6. Certain amounts have been reclassified to conform to the pro forma
presentation. Intercompany transactions were not material for any period
presented.
7. There were no material differences between the accounting policies of
Seagate and Conner.
77
<PAGE>
DISCUSSION AND ANALYSIS OF PRO FORMA INFORMATION
The following discussion should be read in conjunction with the unaudited
pro forma combined condensed financial statements presented above, the
historical financial statements that are included or incorporated by reference
in this Proxy Statement/Prospectus and from which such information was derived,
and Management's Discussion and Analysis of Financial Condition and Results of
Operations for Seagate, Conner and Arcada included or incorporated by reference
in this Proxy Statement/Prospectus.
Seagate expects to incur charges to operations currently estimated to be
between $140 million and $180 million in the quarter ending March 31, 1996, the
quarter in which the Seagate/Conner Merger is expected to be consummated. An
estimated charge at the midpoint of the above range of $121 million, net of
estimated tax benefits of $39 million, is reflected in the unaudited pro forma
combined condensed balance sheet. The charge, before estimated tax benefits,
primarily relates to costs associated with combining the operations of the two
companies and includes employee severance benefits of $87 million, closure of
duplicate and excess facilities of $53 million and fees of financial advisors,
attorneys, and accountants of $20 million. This range, and the ranges described
below, are preliminary estimates only and are therefore subject to change.
In connection with the Merger, Seagate estimates based on preliminary
information that it will incur a charge to operations of approximately $37.1
million for the three months ending March 31, 1996, to write off in-process
research and development. The actual amount of the write-off is subject to
change based on completion of the final purchase price allocation.
There can be no assurance that the revenues of Seagate will be equal to or
greater than the combined revenues of Seagate and Conner. Seagate believes that
future revenues will depend on, among other factors, demand for Seagate's
products, its ability to differentiate its products from competitors and general
economic conditions. Combined revenues in past periods may not be indicative of
revenue in the future.
The future cash requirements related to the above charges are estimated to
be in the range of $100 million to $120 million, of which approximately $29
million relates to lease payments for duplicate facilities which will be paid on
a monthly basis over periods extending through 2018. On a pro forma basis as of
September 30, 1995, before paying for the transaction and restructuring costs,
Seagate and Conner would have had an aggregate of $1.6 billion in cash, cash
equivalents and short-term investments. Seagate and Conner believe that this
cash, together with cash generated from operations, will be sufficient to meet
the combined Company's future cash requirements through the next 12 months.
78
<PAGE>
COMPARISON OF RIGHTS OF STOCKHOLDERS OF SEAGATE AND ARCADA
The rights of Seagate's stockholders are governed by the Seagate Certificate
of Incorporation, the Seagate Bylaws and the laws of the State of Delaware. The
rights of Arcada's stockholders are governed by the Arcada Certificate of
Incorporation, the Arcada Bylaws and the laws of the State of Delaware. After
the Effective Time, the rights of Arcada stockholders who become Seagate
stockholders will be governed by the Seagate Certificate of Incorporation,
Seagate Bylaws and the laws of the State of Delaware. In most respects, the
rights of Seagate stockholders and Arcada stockholders are similar. The
following discussion of certain similarities and material differences between
the rights of Seagate stockholders and the rights of Arcada stockholders under
their respective Certificates of Incorporation and Bylaws is only a summary of
certain provisions and does not purport to be a complete description of such
similarities and differences. The following discussion is qualified in its
entirety by reference to the laws of Delaware and the full texts of the
respective Certificates of Incorporation and Bylaws of Seagate and Arcada.
STOCKHOLDER MEETINGS
The Seagate Bylaws provide that Seagate stockholders holding shares
representing not less than 10% of the outstanding votes entitled to vote at a
stockholders' meeting may call a special meeting of stockholders. Any
stockholder request for a special meeting of stockholders must be in writing,
specifying the time of such meeting and the general nature of the business
proposed to be transacted, and must be delivered to the chairman of the board,
president, any vice president or secretary of Seagate. Under the Arcada Bylaws,
Arcada's stockholders cannot call a special meeting of stockholders.
STOCKHOLDER ACTION BY WRITTEN CONSENT
The Seagate Bylaws provide that, subject to exceptions contained in the
Seagate Certificate of Incorporation, any action that may be taken at any annual
or special meeting of the stockholders may be taken without a meeting, without
prior notice, and without a vote, if a consent in writing setting forth the
action taken is signed by the holders of outstanding stock having the number of
votes that would be necessary to take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Under the Arcada Bylaws,
Arcada's stockholders may not take action by written consent.
DIRECTOR NOMINATIONS
The Seagate Bylaws currently provide for an eight member Board of Directors.
Directors are elected at each annual meeting of stockholders to hold office
until the next annual meeting and until his or her successor is elected and
qualified or until his or her earlier resignation or removal. The Arcada Bylaws
provide that the number of directors shall be not less than three nor more than
seven, which number may be changed by a Bylaw amendment duly adopted by the
Arcada Board or by the stockholders of Arcada. The Arcada Board currently
consists of four directors. Directors are elected at each annual meeting of
stockholders to hold office until the next annual meeting and until his or her
successor is duly elected and qualified or until his or her earlier resignation
or removal.
The Arcada Bylaws provide that no nominations for directors of Arcada by any
person other than the Arcada Board may be presented at any annual meeting of
stockholders unless the person making the nomination is a record stockholder and
has delivered a written notice to the secretary of Arcada no later than 90
business days in advance of the stockholder meeting or 10 days after the date on
which notice of the meeting is first given to the stockholders, whichever is
later. The Seagate Certificate of Incorporation and Bylaws do not impose
comparable conditions on the submission of director nominations by stockholders.
STOCKHOLDER PROPOSALS
The Arcada Bylaws provide that no proposal by any person other than the
Arcada Board may be submitted for the approval of the Arcada stockholders at any
annual meeting of stockholders unless the person advancing the proposal is a
record stockholder and has delivered a written notice to the
79
<PAGE>
Secretary of Arcada no later than 90 business days in advance of the stockholder
meeting or 10 days after the date on which notice of the meeting is first given
to the stockholders, whichever is later. The Seagate Certificate of
Incorporation and Seagate Bylaws do not impose comparable conditions on the
submission of stockholder proposals.
INDEMNIFICATION
The Seagate Certificate of Incorporation and the Arcada Certificate of
Incorporation provide that directors will not be personally liable to their
respective companies or stockholders for monetary damages for breach of their
fiduciary duty as directors and shall be indemnified to the fullest extent
authorized by Delaware law. The Seagate Bylaws provide that directors, officers
and certain other persons will be indemnified with respect to third-party
actions or suits, provided such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of
Seagate. The Seagate Bylaws further provide that directors, officers and certain
other persons will be indemnified with respect to actions or suits by or in the
right of Seagate, provided that such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of
Seagate; except that no indemnification shall be made in the event that such
person shall be adjudged to be liable to Seagate, unless a court determines that
indemnification is fair and reasonable in view of all the circumstances. The
Seagate Bylaws and the Arcada Certificate of Incorporation require Seagate and
Arcada, respectively, to pay all expenses incurred by a director or officer in
defending any proceeding within the scope of the indemnification provisions as
such expenses are incurred in advance of its final disposition, subject to
repayment if it is ultimately determined that such party was not entitled to
indemnity by Seagate and Arcada, respectively. The Arcada Bylaws provide that
Arcada shall indemnify its officers and directors to the fullest extent
authorized by Delaware law and may elect to indemnify its employees and agents
to the fullest extent authorized by Delaware law.
ELECTION OF DIRECTORS
The Seagate Bylaws provide that the Seagate Board has the right to fill any
vacancy created on the Seagate Board, unless the directors then in office
constitute less than a majority of the whole board, in which case the Delaware
Court of Chancery may, upon application of stockholders holding at least 10% of
the outstanding shares, summarily order a stockholder election to fill the
vacancies. Under the Arcada Bylaws, the Arcada Board has the right to fill any
vacancy created on the Arcada Board; however, a vacancy created by the removal
of a director by the vote of the stockholders or by court order may be filled
only by the vote of the majority of the shares represented and voting at a duly
held stockholder meeting.
COMPARISON OF THE RIGHTS OF HOLDERS OF ARCADA
PREFERRED STOCK AND SEAGATE COMMON STOCK
In addition to the changes listed above, holders of Arcada Preferred Stock
should be aware that if the Merger is consummated and they have not properly
exercised statutory appraisal rights, their rights as preferred stockholders
will also change as set forth below.
CONVERSION RIGHTS OF ARCADA PREFERRED STOCK. Holders of Arcada Preferred
Stock have the right to convert such shares of Arcada Preferred Stock into
shares of Arcada Common Stock based on a different conversion formula for each
series of Arcada Preferred Stock. Additionally, the Arcada Preferred Stock shall
automatically convert into Arcada Common Stock in certain circumstances upon
consummation of an underwritten public offering of securities by Arcada.
Upon consummation of the Merger, the holders of Arcada Preferred Stock shall
become holders of Seagate Common Stock and as such shall have no conversion
rights with respect to any other class or series of Seagate securities.
VOTING RIGHTS OF ARCADA PREFERRED STOCK. Currently the holders of Arcada
Preferred Stock are entitled to the number of votes equal to the number of whole
shares of Arcada Common Stock into which their shares of Arcada Preferred Stock
are convertible. The holders of Arcada Preferred Stock
80
<PAGE>
are entitled to vote together with the holders of Arcada Common Stock as a
single class on all matters presented to the stockholders of Arcada for their
action or consideration. Furthermore, the holders of Arcada Preferred Stock also
are entitled to vote as a separate class and the holders of the separate series
of Arcada Preferred Stock are entitled to vote as separate series on any matter
which requires the consent of a majority of such class or series pursuant to
Delaware law. Under Delaware law, any proposed amendment to the Arcada
Certificate of Incorporation that would increase or decrease the aggregate
number of authorized shares of a class, increase or decrease the par value of
the shares of such class or alter or change the powers, preferences or special
rights of the shares of such class so as to affect them adversely shall be
entitled to vote as a separate class. If any proposed amendment would alter or
change the powers, preferences, or special rights of one or more series of a
class so as to affect them adversely, but shall not affect the entire class,
then only the shares of the series so affected by the amendment shall be
entitled to vote separately.
Upon consummation of the Merger, the holders of Arcada Preferred Stock will
become holders of Seagate Common Stock and shall be entitled to the number of
votes equal to the number of shares of Seagate Common Stock held by such holder,
and shall vote together with the other holders of Seagate Common Stock on all
matters presented to the Seagate shareholders for their consideration.
LIQUIDATION RIGHTS OF ARCADA PREFERRED STOCK. Upon liquidation of Arcada,
the holders of Arcada Preferred Stock are entitled to be paid out of the assets
available for distribution to Arcada stockholders an amount determined in the
manner described in the Arcada Certificate of Incorporation. After payment of
the above amount is made in full to all holders of Arcada Preferred Stock,
holders of Arcada Common Stock shall be entitled to receive any remaining assets
and funds legally available for distribution to Arcada stockholders.
Upon consummation of the Merger, holders of Arcada Preferred Stock shall
become holders of Seagate Common Stock and shall be entitled to receive their
pro rata share of assets and funds legally available for distribution to holders
of Seagate Common Stock upon liquidation of Seagate.
DESCRIPTION OF SEAGATE CAPITAL STOCK
The authorized capital stock of Seagate consists of 200,000,000 shares of
Seagate Common Stock, $.01 par value, and 1,000,000 shares of Seagate Preferred
Stock of which 800,000 shares are designated Series A Participating Preferred
Stock, $.01 par value.
COMMON STOCK
As of December 29, 1995, there were 73,103,326 shares of Seagate Common
Stock outstanding held of record by 4,511 registered stockholders.
Subject to preferences that may be applicable to any outstanding Seagate
Preferred Stock, holders of Seagate Common Stock are entitled to receive ratably
such dividends as may be declared by the Seagate Board out of funds legally
available therefor. Seagate has not paid any cash dividends on the Seagate
Common Stock. Each holder of Seagate Common Stock is entitled to one vote for
each share held of record on all matters submitted to a vote of stockholders,
except that upon giving notice required by law, stockholders may cumulate their
votes in the election of directors. In the event of a liquidation, dissolution
or winding up of Seagate, holders of Seagate Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preference of any outstanding Seagate Preferred Stock. Holders of Seagate Common
Stock have no preemptive rights and have no rights to convert their Seagate
Common Stock into any other securities and there are no redemption provisions
with respect to such shares. All of the outstanding shares of Seagate Common
Stock are, and the shares of Seagate Common Stock issuable upon conversion of
Seagate's outstanding debentures will be, fully paid and non-assessable.
The transfer agent and registrar for the Seagate Common Stock is Harris
Trust Company of California.
81
<PAGE>
PREFERRED STOCK
As of December 15, 1995, there were no shares of Seagate Preferred Stock
outstanding. The Seagate Preferred Stock may be issued from time to time in one
or more series. The Seagate Board has authority to fix the designation, powers,
preferences and rights of each such series and the qualifications, limitations
and restrictions thereon and to increase or decrease the number of shares of
such series (but not below the number of shares of such series then
outstanding), without any further vote or action by the stockholders. Seagate
has no present plans to issue any shares of Seagate Preferred Stock.
DELAWARE GENERAL CORPORATION LAW SECTION 203
As a corporation organized under the laws of the State of Delaware, Seagate
is subject to Section 203 of the DGCL which restricts certain business
combinations between Seagate and an "interested stockholder" (in general, a
stockholder owning 15% or more of the company's outstanding voting stock) or its
affiliates or associates for a period of three years following the date on which
the stockholder becomes an "interested stockholder." The restrictions do not
apply if (i) prior to an interested stockholder becoming such, the Seagate Board
approves either the business combination or the transaction in which the
stockholder becomes an interested stockholder, (ii) upon consummation of the
transaction in which any person becomes an interested stockholder, such
interested stockholder owns at least 85% of the voting stock of Seagate
outstanding at the time the transaction commences (excluding shares owned by
certain employee stock ownership plans and persons who are both directors and
officers of Seagate) or (iii) on or subsequent to the date an interested
stockholder becomes such, the business combination is both approved by the
Seagate Board and authorized at an annual or special meeting of Seagate's
stockholders, not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock not owned by the interested stockholder.
ADJOURNMENT OF THE SPECIAL MEETING
In the event that there are not sufficient votes to approve and adopt the
Merger Agreements at the time of the Special Meeting, such proposal could not be
approved unless the Special Meeting were adjourned in order to permit further
solicitation of proxies from Arcada stockholders. Proxies that are being
solicited by the Arcada Board grant the discretionary authority to vote for any
such adjournment, if necessary. If it is necessary to adjourn the Special
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
stockholders other than an announcement of such time and place at the Special
Meeting. A majority of the voting power represented and voting at the Special
Meeting is required to approve any such adjournment, provided that a quorum is
present. If a quorum is not present, then either the chairman of the meeting or
the stockholders entitled to vote at the meeting may adjourn the meeting.
EXPERTS
The consolidated financial statements of Seagate incorporated by reference
in Seagate's Annual Report (Form 10-K) for the year ended June 30, 1995, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements incorporated in this Proxy
Statement/Prospectus by reference to the Annual Report on Form 10-K, as amended
by the Form 10-K/A filed on November 14, 1995, of Conner for the year ended
December 31, 1994, have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
82
<PAGE>
The consolidated financial statements of Arcada Holdings, Inc., as of
December 31, 1994 and for the year then ended included in this Proxy
Statement/Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for Seagate by Wilson, Sonsini, Goodrich & Rosati, P.C. The federal income
tax consequences in connection with the Merger will be passed upon for Arcada by
Irell & Manella.
83
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Arcada Holdings, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Arcada
Holdings, Inc. and its subsidiaries at December 31, 1994, and the results of
their operations and their cash flows for the year in conformity with generally
accepted accounting principles. 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 audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
- --------------------------
Price Waterhouse LLP
San Jose, California
December 21, 1995
F-1
<PAGE>
ARCADA HOLDINGS, INC.
(A MAJORITY-OWNED SUBSIDIARY OF CONNER PERIPHERALS, INC.)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE AND SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994
---------- SEPTEMBER 30,
1995
1993 -------------
----------- (UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................................. $ 1,180 $ -- $ 150
Accounts receivable, net of allowances of $380, $66 (unaudited) and
$572 (unaudited)...................................................... 5,273 66 11,644
Accounts receivable from Conner........................................ 1,356 1,199 2,138
Inventories............................................................ 21 -- 658
Other current assets................................................... 817 -- 2,030
---------- ----------- -------------
Total current assets................................................. 8,647 1,265 16,620
---------- ----------- -------------
Property and equipment, net.............................................. 2,358 661 4,897
Goodwill and other intangibles, net...................................... 7,307 1,360 7,367
---------- ----------- -------------
$ 18,312 $ 3,286 $ 28,884
---------- ----------- -------------
---------- ----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 1,344 $ 472 $ 3,608
Accounts payable to Conner............................................. 5,788 -- 8,269
Accrued expenses....................................................... 2,121 1,386 4,974
Deferred revenue....................................................... 314 -- --
---------- ----------- -------------
Total current liabilities............................................ 9,567 1,858 16,851
---------- ----------- -------------
Borrowings from Conner................................................... 2,243 -- 3,241
Deferred income taxes.................................................... 920 -- 690
Commitments (Note 8)
Stockholders equity:
Series A and Series B convertible preferred stock, $.001 par value;
80,000,000 shares authorized; 36,000,000 shares as of December 31,
1994, 28,356,000 (unaudited) shares as of December 31, 1993 and
36,000,000 shares as of September 30, 1995 (unaudited) issued and
outstanding........................................................... 36 28 36
Common stock, $.001 par value; 120,000,000 shares authorized; 333,489
shares as of December 31, 1994, 200 (unaudited) shares as of December
31, 1993, and 2,146,968 (unaudited) shares as of September 30, 1995
issued and outstanding................................................ -- -- 2
Additional paid-in capital............................................. 19,543 6,673 21,382
Accumulated deficit.................................................... (13,997) (5,273) (13,318)
---------- ----------- -------------
Total stockholders' equity........................................... 5,582 1,428 8,102
---------- ----------- -------------
$ 18,312 $ 3,286 $ 28,884
---------- ----------- -------------
---------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
ARCADA HOLDINGS, INC.
(A MAJORITY-OWNED SUBSIDIARY OF CONNER PERIPHERALS, INC.)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------
1994 1995 1994
------------ --------- ----------
PERIOD FROM
INCEPTION
(JANUARY 1,
1993) TO
DECEMBER 31,
1993
------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
License revenues.......................................... $ 14,787 $ 1,776 $ 34,929 $ 7,570
License revenues from Conner.............................. 9,044 8,577 7,152 6,709
Service revenues.......................................... 1,035 -- 577 819
------------ ------------ --------- ----------
Total revenues.......................................... 24,866 10,353 42,658 15,098
------------ ------------ --------- ----------
Costs of revenues:
Cost of license revenues.................................. 3,814 672 6,053 2,312
Cost of license revenues from Conner...................... 2,049 1,032 2,649 1,437
Cost of service revenues.................................. 816 -- 569 669
------------ ------------ --------- ----------
Total costs of revenues................................. 6,679 1,704 9,271 4,418
------------ ------------ --------- ----------
Gross profit................................................ 18,187 8,649 33,387 10,680
------------ ------------ --------- ----------
Operating expenses:
Research and development.................................. 8,920 8,696 12,128 6,645
In-process research and development....................... 7,632 -- 2,817 7,632
Selling, general and administrative....................... 13,905 5,226 17,137 9,073
------------ ------------ --------- ----------
30,457 13,922 32,082 23,350
------------ ------------ --------- ----------
Income (loss) from operations............................... (12,270) (5,273) 1,305 (12,670)
Interest expense for borrowings from Conner................. (182) -- (378) (86)
Other income (expense), net................................. 27 -- 86 (6)
------------ ------------ --------- ----------
Income (loss) before income taxes........................... (12,425) (5,273) 1,013 (12,762)
Benefit (provision) for income taxes........................ 3,701 -- (334) 3,558
------------ ------------ --------- ----------
Net income (loss)........................................... $ (8,724) $ (5,273) $ 679 $ (9,204)
------------ ------------ --------- ----------
------------ ------------ --------- ----------
Net income (loss) per share................................. $ (0.24) $ 0.02 $ (0.25)
------------ --------- ----------
------------ --------- ----------
Shares and share equivalents used in per share
calculations............................................... 36,166 40,615 36,124
------------ --------- ----------
------------ --------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ARCADA HOLDINGS, INC.
(A MAJORITY-OWNED SUBSIDIARY OF CONNER PERIPHERALS, INC.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------- ------------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ----------- --------- ------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common and convertible
preferred stock to Conner
(unaudited)...................... 28,356,000 $ 28 200 $ -- $ 6,673 $ -- $ 6,701
Net loss (unaudited).............. -- -- -- -- -- (5,273) (5,273)
--
---------- --- --------- ----------- ------------ ---------
Balance funded by Conner at
December 31, 1993 (unaudited).... 28,356,000 28 200 -- 6,673 (5,273) 1,428
Capital contribution by Conner.... -- -- -- -- 8,500 -- 8,500
Issuance of convertible preferred
stock pursuant to the acquisition
of Quest Development
Corporation...................... 7,644,000 8 -- -- 3,128 -- 3,136
Issuance of common stock upon
exercise of options.............. -- -- 333,289 -- 26 -- 26
Issuance of warrants to Conner.... -- -- -- -- 641 -- 641
Equity funding provided by Conner
pursuant to research and
development arrangement.......... -- -- -- -- 575 -- 575
Net loss.......................... -- -- -- -- -- (8,724) (8,724)
--
---------- --- --------- ----------- ------------ ---------
Balance at December 31, 1994...... 36,000,000 36 333,489 -- 19,543 (13,997) 5,582
Issuance of common stock upon
exercise of options
(unaudited)...................... -- -- 2,160,354 2 172 -- 174
Issuance of warrants to Conner
(unaudited)...................... -- -- -- -- 1,300 -- 1,300
Repurchase of common stock
(unaudited)...................... -- -- (346,875) -- (8) -- (8)
Equity funding provided by Conner
pursuant to research and
development arrangement
(unaudited)...................... -- -- -- -- 375 -- 375
Net income (unaudited)............ -- -- -- -- -- 679 679
--
---------- --- --------- ----------- ------------ ---------
Balance at September 30, 1995
(unaudited)...................... 36,000,000 $ 36 2,146,968 $ 2 $ 21,382 $ (13,318) $ 8,102
--
--
---------- --- --------- ----------- ------------ ---------
---------- --- --------- ----------- ------------ ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ARCADA HOLDINGS, INC.
(A MAJORITY-OWNED SUBSIDIARY OF CONNER PERIPHERALS, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, --------------------
1994 1995 1994
------------ --------- ---------
PERIOD FROM
INCEPTION
(JANUARY 1,
1993) TO
DECEMBER 31,
1993
-------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $ (8,724) $ (5,273) $ 679 $ (9,204)
Adjustments to reconcile net income (loss) to cash (used in)
provided by operating activities:
Depreciation and amortization.............................. 1,153 307 932 865
Amortization of intangibles................................ 2,678 1,350 1,800 2,008
In-process research and development........................ 7,632 -- 2,817 7,632
Deferred income taxes...................................... (3,701) -- (230) (3,558)
Other...................................................... 114 -- 298 71
Changes in assets and liabilities, net of the effects of
acquisitions:
Accounts receivable...................................... (5,207) (66) (6,242) (2,311)
Accounts receivable from Conner.......................... (157) (1,199) (782) (419)
Inventories.............................................. (21) -- (340) (258)
Other current assets..................................... (817) -- (1,160) (145)
Accounts payable......................................... 872 472 2,102 (70)
Accounts payable to Conner............................... 5,788 -- 2,481 5,065
Accrued expenses......................................... 735 1,386 2,007 (190)
Deferred revenue......................................... 314 -- (314) 375
------------ ------------- --------- ---------
Net cash (used in) provided by operating activities.... 659 (3,023) 4,048 (139)
------------ ------------- --------- ---------
Cash flows from investing activities:
Acquisition of property and equipment, net................... (2,850) (968) (3,119) (2,702)
Acquisition of Quest Development Corporation................. (8,500) -- -- (8,500)
Acquisition of Sytron Corporation............................ -- -- (4,500) --
------------ ------------- --------- ---------
Net cash (used in) investing activities................ (11,350) (968) (7,619) (11,202)
------------ ------------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings from Conner......................... 2,770 -- 2,000 2,370
Research and development funding provided by Conner.......... 575 -- 375 500
Issuance of Series A convertible preferred stock shares to
Conner...................................................... 8,500 3,991 -- 8,500
Issuance of common stock, net................................ 26 -- 166 24
------------ ------------- --------- ---------
Net cash provided by financing activities.............. 11,871 3,991 2,541 11,394
------------ ------------- --------- ---------
Net increase (decrease) in cash and cash equivalents........... 1,180 -- (1,030) 53
Cash and cash equivalents at beginning of period............... -- -- 1,180 --
------------ ------------- --------- ---------
Cash and cash equivalents at end of period..................... $ 1,180 $ -- $ 150 $ 53
------------ ------------- --------- ---------
------------ ------------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes................................... $ -- $ -- $ 1,600 $ --
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of Series A convertible preferred stock for assets
contributed by Conner....................................... -- 2,710 -- --
Issuance of Series A convertible preferred stock upon the
acquisition of Quest Development Corporation................ 3,136 -- -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ARCADA HOLDINGS, INC.
(A MAJORITY-OWNED SUBSIDIARY OF CONNER PERIPHERALS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Arcada Holdings, Inc. (Arcada or the Company) was incorporated in Delaware
in November 1993 as a wholly-owned subsidiary of Conner Peripherals, Inc.
(Conner) to operate the software business of Conner which consists of
developing, producing and marketing software products for data protection and
storage management. Conner commenced its software operations in January 1993 by
forming a separate division called Conner Software. Conner Software was formed
by restructuring the business of Archive Software, a division of Archive
Corporation (Archive). Archive Software was established by Archive in July 1992
and commenced its operations in October 1992. Archive was acquired by Conner in
late December 1992. Due to a significant change in the nature of Archive
Software's operations upon its acquisition by Conner and the immateriality of
such operations, predecessor statements of operations and of cash flows of
Archive Software for 1992 are not considered relevant and have not been
presented.
In January 1994, Arcada acquired the business of Quest Development
Corporation (Quest) for $8,500,000 in cash and the issuance of 7,644,000 shares
of Series A Convertible Preferred Stock of Arcada. Quest developed, produced and
marketed software products for data storage management. The transaction was
accounted for as a purchase and, accordingly, the purchase price was allocated
to the assets acquired and liabilities assumed based upon their estimated fair
market values. After providing for deferred tax credits of $4,621,000 with
respect to tax effects of differences in book and tax basis of intangibles
acquired, the excess of the purchase price over fair market value of the net
tangible assets acquired was approximately $16,257,000. Based on an appraisal,
approximately $7,632,000 was allocated to in-process research and development,
$3,639,000 was allocated to various intangibles including technology and
customer lists, and the remaining $4,986,000 was allocated to goodwill. The
consolidated statement of operations for 1994 includes a charge of $7,632,000
for in-process research and development.
If the acquisition of Quest had occurred at the beginning of 1993, pro forma
revenues and pro forma loss from operations of Arcada would have been
$15,569,000 and $7,790,000, respectively (unaudited). The pro forma information
excludes the effect of the write-off of in-process research and development and
does not purport to be indicative of what operating results would have been had
the acquisition actually taken place at the beginning of 1993.
The Company's fiscal year ends on the Saturday nearest to December 31.
Results of operations for the fiscal years ended in 1994 and in 1993 include 52
weeks. For purposes of presentation, the Company has indicated its accounting
year and interim periods as ending on a calendar month end.
SEAGATE MERGER
On October 3, 1995, Conner entered into an Agreement and Plan of
Reorganization with Seagate Technology, Inc. (Seagate) and a wholly-owned
subsidiary of Seagate, pursuant to which Conner will merge with the wholly-owned
subsidiary of Seagate. As a result of the merger which will be accounted for as
a pooling of interests, each outstanding share of Conner's common stock will be
converted into 0.442 shares of common stock of Seagate. The merger is subject to
approvals of stockholders of Conner and Seagate.
In connection with the merger between Seagate and Conner, the Company
entered into an Agreement and Plan of Reorganization with Seagate on December
21, 1995 whereby shares of Arcada capital stock held by persons other than
Conner will be acquired by Seagate by issuing 0.1545 shares
F-6
<PAGE>
ARCADA HOLDINGS, INC.
(A MAJORITY-OWNED SUBSIDIARY OF CONNER PERIPHERALS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: (CONTINUED)
of its common stock for each outstanding share of Arcada's common and preferred
stock. The transaction will be accounted for as a purchase. Additionally, each
outstanding option to purchase Arcada's common stock will be exchanged for an
option to purchase 0.1545 shares of Seagate's common stock.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Arcada
Holdings, Inc., and its wholly-owned subsidiaries. All intercompany accounts and
transactions between Arcada and its subsidiaries have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No.115 (FAS 115), "Accounting for certain Investments in
Debt and Equity Securities." At December 31, 1993 (unaudited), 1994 and
September 30, 1995 (unaudited), the Company had no investments. Accordingly,
adoption of FAS 115 did not have a material effect on the Company's financial
position or results of operations.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants' Statement of Position 91-1 on Software Revenue
Recognition.
The Company's license revenues are derived from product licensing fees
relating to the sale of packaged software products, royalties from original
equipment manufacturers (OEMs) and site licenses. The Company's service revenues
are derived from OEMs for customer funded engineering.
Product licensing fees are recognized upon shipment if no significant vendor
obligations remain and if collection of the resulting receivable is deemed
probable. The Company grants distributors and resellers certain rights of return
and price protection on unsold merchandise held by those distributors and
resellers. Accordingly, reserves for estimated future returns, exchanges and
credits for price protection are accrued upon product shipment.
Minimum guaranteed royalty revenues not subject to significant future
obligations are generally recognized upon shipment of software. Royalty revenues
that exceed the minimum guarantees are recognized in the period they are earned.
Revenues from OEMs for funded engineering are recognized on a percentage of
completion basis. The percentage of completion is computed using progress to
milestones which approximates the input measure of labor hours. In 1994, the
Company entered into a Research and Development arrangement with Conner pursuant
to which Conner agreed to fund the development of certain software products in
the form of non-refundable capital contributions. During 1994 and the nine
months ended September 30, 1995 the Company received funding of $575,000 and
$375,000 (unaudited), respectively, from Conner. The amounts received under this
agreement have been included in additional paid-in capital.
Payments received in advance of revenue recognition are recorded as deferred
revenue.
F-7
<PAGE>
ARCADA HOLDINGS, INC.
(A MAJORITY-OWNED SUBSIDIARY OF CONNER PERIPHERALS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: (CONTINUED)
The Company provides a limited amount of free telephone technical support to
customers. These activities are generally considered insignificant postcontract
customer support obligations. Estimated costs of these activities are accrued at
the time of product shipment.
INVENTORIES
Inventories consist primarily of finished software products, manuals and
related supplies and are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles are being amortized over their estimated
useful lives, ranging from 1 to 6 years.
In 1995, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." FAS 121
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. FAS 121 is effective for fiscal years beginning
after December 15, 1995. Adoption of FAS 121 is not expected to have a material
impact on the Company's financial position or results of operations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon the useful life of the assets. The following
table sets forth the estimated useful lives of the Company's assets:
<TABLE>
<S> <C>
Computers and other equipment 3 to 5 years
Furniture and fixtures 5 years
Leasehold improvements the shorter of 5
years
or the lease term
</TABLE>
SOFTWARE DEVELOPMENT COSTS
Software development costs are included in research and development and are
expensed as incurred. Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed" requires the capitalization of certain software development costs once
technological feasibility is established, which based on the Company's
development process is the completion of a working model. The capitalized cost
is then amortized on a straight-line basis over the estimated product life, or
on the ratio of current revenues to total projected product revenues, whichever
is greater. To date, the Company has not capitalized any software development
costs as the amounts have not been material.
EMPLOYEE STOCK PLANS
The Company accounts for its employee stock option plan and Conner's
Employee Stock Purchase Plan in accordance with provisions of the Accounting
Principles Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees." In 1995, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation." FAS 123 provides an alternative to APB 25 and is effective for
fiscal years beginning after December 15, 1995. The Company expects to continue
to account for its employee stock plans in accordance with the provisions of APB
25. Accordingly, FAS 123 is not expected to have any material impact on the
Company's financial position or results of operations.
F-8
<PAGE>
ARCADA HOLDINGS, INC.
(A MAJORITY-OWNED SUBSIDIARY OF CONNER PERIPHERALS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: (CONTINUED)
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). FAS 109
requires an asset and liability approach that recognizes deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. In estimating
future tax consequences, FAS 109 generally considers all expected future events
other than enactments of changes in the tax law or rates.
During 1993, the results of operations of the Company were included in the
consolidated federal income tax return of Conner. Pursuant to FAS 109, for the
purposes of preparing these financial statements, the Company has computed the
provision for income taxes for 1993 on a separate return basis. Since 1994, the
Company has been filing separate federal income tax returns.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash in a money market
account and trade accounts receivable.
The Company sells its products primarily to distributors and OEMs. The
Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral from its customers. The Company
maintains an allowance for uncollectible accounts receivable based upon the
expected collectibility of all accounts receivable. Write-offs of accounts
receivable have not been significant.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding. Common equivalent
shares consist of stock options and warrants (using the treasury stock method).
Net loss per share data for 1993 has not been presented because the Company had
no formal capital structure until the end of 1993. As discussed before, after
the Company's proposed merger with Seagate, the outstanding preferred stock of
the Company held by the minority stockholders will be exchanged for Seagate's
common stock. Additionally, the Company has a relatively deminimus number of
common stock shares outstanding. Accordingly, net income (loss) per share for
the periods presented has been computed assuming the conversion of the
outstanding preferred stock into common stock on a one for one basis.
1993 AND INTERIM RESULTS (UNAUDITED)
The accompanying balance sheets as of December 31, 1993 and September 30,
1995 and the statements of operations, stockholders' equity and of cash flows
for the year ended December 31, 1993 and nine months ended September 30, 1995
and 1994 are unaudited. In the opinion of management, these statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of the results of 1993 and the interim periods. The data
disclosed in these notes to the consolidated financial statements for these
periods are unaudited.
F-9
<PAGE>
ARCADA HOLDINGS, INC.
(A MAJORITY-OWNED SUBSIDIARY OF CONNER PERIPHERALS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994
--------- SEPTEMBER 30,
1995
1993 -------------
----------- (UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C>
Property and equipment:
Computers and other equipment................................. $ 1,452 $ 831 $ 3,367
Furniture and fixtures........................................ 1,172 49 1,767
Leasehold improvements........................................ 1,194 88 1,374
--------- ----------- -------------
3,818 968 6,508
Less accumulated depreciation and amortization................ 1,460 307 1,611
--------- ----------- -------------
$ 2,358 $ 661 $ 4,897
--------- ----------- -------------
--------- ----------- -------------
Goodwill and other intangibles:
Goodwill...................................................... $ 4,986 $ -- $ 5,359
Other intangibles............................................. 6,349 2,710 7,836
--------- ----------- -------------
11,335 2,710 13,195
Less accumulated amortization................................. 4,028 1,350 5,828
--------- ----------- -------------
$ 7,307 $ 1,360 $ 7,367
--------- ----------- -------------
--------- ----------- -------------
Accrued expenses:
Accrued employee compensation................................. $ 865 $ 1,086 $ 2,100
Accrued sales incentives...................................... 444 -- 1,214
Other liabilities............................................. 812 300 1,660
--------- ----------- -------------
$ 2,121 $ 1,386 $ 4,974
--------- ----------- -------------
--------- ----------- -------------
</TABLE>
NOTE 3 -- RELATED PARTY TRANSACTIONS:
MINORITY STOCKHOLDER
Since January 1994, the Company has leased certain of its facilities from
entities partially owned by its principal minority stockholder who is also the
President of its operating subsidiary Arcada Software, Inc. and a member of its
Board of Directors. During 1994, the Company paid rent of $231,100 for use of
this facility.
In January 1994, the principal minority stockholder, Conner and Arcada
entered into a Stockholders' and Registration Rights Agreement ("Stockholders'
Rights Agreement") under which the principal minority stockholder and Conner are
entitled to certain rights with respect to the registration under the Securities
Act of the shares of Arcada capital stock held by them.
Pursuant to the terms of the Stockholders' Rights Agreement Arcada has
granted to the principal minority stockholder and Conner the pro rata right of
first offer to purchase all or any part of any new securities issued by Arcada.
However, these pro rata rights are not exercisable upon the issuance of stock to
public pursuant to a registration statement under the Securities Act and under
certain other circumstances as defined in the Stockholders' Rights Agreement.
Under the Stockholders' Rights Agreement the principal minority stockholder
and Conner have also granted to each other and to Arcada a right of first
refusal if either of them desires to sell all or part of the Arcada capital
stock held by them.
F-10
<PAGE>
ARCADA HOLDINGS, INC.
(A MAJORITY-OWNED SUBSIDIARY OF CONNER PERIPHERALS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- RELATED PARTY TRANSACTIONS: (CONTINUED)
CONNER
The Company has leased certain facilities from Conner for which it paid rent
of $242,000 and $222,000 (unaudited) in 1994 and 1993, respectively.
From inception through early 1994, Conner funded the operations of the
Company and managed its cash flows. The Company's consolidated financial
statements reflect funding provided by Conner during early 1994 and 1993 as
capital contributions of Conner.
Since inception Conner has provided varying levels of corporate, general and
administrative services (including legal, employee benefit, accounting and
payroll services) to the Company. Charges for these services are based upon
actual costs incurred to the extent practical and reasonable estimations made by
Conner management when actual identification is not possible. The Company's
consolidated financial statements also include an allocation, which management
believes to be reasonable, for corporate, general and administrative overhead
based on Conner management's estimation of such services provided to the
Company. Such allocated corporate overhead aggregated $320,000 in 1994 and
$396,000 in 1993 (unaudited). These charges have been included in selling,
general and administrative expenses.
In January 1994, the Company entered into a borrowing arrangement with
Conner, pursuant to which Conner agreed to provide the Company advances of up to
$8,000,000. Borrowings under this arrangement carry interest at 5% per annum and
are required to be fully paid off by December 31, 1998. The interest due on the
amounts borrowed is payable quarterly. Additionally, the Company is required to
make sufficient principal repayments such that the outstanding amounts will not
exceed $2,700,000 at December 31, 1997 and $5,300,000 at December 31, 1996 .
Under this borrowing arrangement, Conner is also entitled to receive
warrants to purchase up to 5,942,858 shares of Series B preferred stock of
Arcada at $0.88 per share. The number of warrants issuable to Conner is a
function of the size of Borrowings made by the Company. Based on the borrowings
made by the Company, warrants to purchase 2,857,144 shares of Series B preferred
stock (unaudited) are issuable to Conner as of September 30, 1995.
In the event that the Company fails to make timely payments of debt and
interest, Conner is entitled to receive additional warrants in the amount of the
overdue payment divided by the exercise price of the warrants and the interest
rate increases to 7% per annum. So far the Company has not made any interest
payments and, accordingly, the interest has been accruing at 7% per annum and at
September 30, 1995 Conner was entitled to the issuance of warrants to purchase
an additional 217,956 shares of Series B preferred stock (unaudited). In the
event that the Company fails to fully repay the advances prior to December 31,
1998, the exercise price for the warrants will become $.65. The warrants expire
December 31, 2001 and must be exercised in the event of an underwritten public
offering. The Company recognizes additional interest expense over the term of
the debt for the value of warrants issued to Conner. The Consolidated Statements
of Operations for 1994 and the nine months ended September 30, 1995 include
interest expense of $70,000 and $229,000 (unaudited), respectively, for warrants
issued to Conner.
At December 31, 1994 and September 30, 1995, outstanding borrowings under
this arrangement aggregated $2,243,000 and $3,241,000 (unaudited), respectively,
net of the unamortized discount related to warrants of $571,000 and $1,642,000
(unaudited), respectively.
F-11
<PAGE>
ARCADA HOLDINGS, INC.
(a majority-owned subsidiary of Conner Peripherals, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 -- STOCK SPLIT:
A two-for-one stock split was declared by the Board of Directors on July 26,
1994 and was effected on December 14, 1994. Accordingly, all share, per share
and stock option data for all periods presented have been restated to reflect
the stock split.
NOTE 5 -- CONVERTIBLE PREFERRED STOCK:
The Company's certificate of incorporation, as amended for the stock split
discussed in Note 4, authorizes the issuance of up to 80,000,000 shares of
Convertible Preferred Stock of which 40,000,000 shares are designated Series A
Convertible Preferred Stock (Series A) and 40,000,000 shares are designated
Series B Convertible Preferred Stock (Series B).
Upon incorporation of the Company, the Company issued 28,356,000 shares of
its Series A stock to Conner in December 1993 in exchange for all of the assets
of Conner's software operations (see Note 1). In January 1994, the Company
issued 7,644,000 shares of its Series A stock in conjunction with the
acquisition of Quest (see Note 1). No shares of Series B stock have been issued.
The rights with respect to Series A and Series B stock are as follows:
VOTING
Each share of Series A and Series B stock has voting rights equivalent to
the number of shares of Common Stock into which it is convertible.
DIVIDENDS
Holders of Series A and Series B stock are entitled to receive dividends at
10% of the liquidation value of the shares, respectively, when and as declared
by the Company's Board of Directors. The Company shall make no distribution to
holders of Common Stock until Series A and Series B dividends have been paid. No
dividends have been declared by the Board of Directors since inception.
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Series A stock are entitled to receive $.85 per share plus unpaid
dividends, and the holders of Series B stock are entitled to receive the value
of their initial investment plus unpaid dividends before holders of Common Stock
are paid. If the Company's assets are insufficient to permit payment in full
then distribution will be made ratably to the Preferred Stock stockholders.
CONVERSION
Each share of Series A and Series B stock is convertible into one share of
Common Stock at the option of the holder, subject to certain antidilution
provisions as described in the amended articles of incorporation. All shares of
Series A and Series B stock shall automatically be converted into shares of
Common Stock immediately prior to the closing of an underwritten public
offering. At December 31, 1994 and September 30, 1995, the Company had reserved
36,000,000 shares of Common Stock for issuance pursuant to the conversion of
Series A and Series B stock outstanding.
NOTE 6 -- EMPLOYEE BENEFIT PLANS:
ARCADA STOCK OPTION PLAN
In March 1994, the Company adopted the 1994 Stock Option Plan (the Plan)
which provides for the issuance of incentive and non-qualified stock options to
employees and consultants of the Company. Options are granted under the Plan for
periods not to exceed ten years, and generally must be issued at prices not less
than 100% and 85%, for incentive and non-qualified stock options, respectively,
of the estimated fair value of the stock as determined by the Board of Directors
on the date of grant. Options granted to stockholders who own greater than 10%
of the outstanding stock are for
F-12
<PAGE>
ARCADA HOLDINGS, INC.
(A MAJORITY-OWNED SUBSIDIARY OF CONNER PERIPHERALS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- EMPLOYEE BENEFIT PLANS: (CONTINUED)
periods not to exceed five years, and must be issued at prices not less than
110% of the estimated fair value of the stock on the date of grant. Options
granted under the Plan vest 1/16th per quarter over a four year period.
The following table summarizes activity under the Plan:
<TABLE>
<CAPTION>
SHARES OPTIONS
AVAILABLE OUTSTANDING OPTION PRICE
------------ ------------ ----------------
<S> <C> <C> <C>
Shares authorized....................................... 8,000,000 -- --
Options granted......................................... (6,282,306) 6,282,306 $0.075-$0.095
Options canceled........................................ 565,761 (565,761) $0.085
Options exercised....................................... -- (333,289) $0.075-$0.085
------------ ------------
Balance at December 31, 1994............................ 2,283,455 5,383,256 $0.075-$0.095
Options granted (unaudited)............................. (992,952) 992,952 $1.275-$ 1.65
Options canceled (unaudited)............................ 109,645 (109,645) $0.085-$ 1.50
Unvested shares repurchased (unaudited)................. 206,250 -- $0.075
Options exercised (unaudited)........................... -- (2,160,354) $0.075-$ 1.50
------------ ------------
Balance at September 30, 1995 (unaudited)............... 1,606,398 4,106,209 $0.075-$ 1.65
------------ ------------
------------ ------------
</TABLE>
At December 31, 1994 and September 30, 1995, the Company had reserved
8,000,000 shares of common stock for issuance under the plan. At December 31,
1994 and September 30, 1995, options to purchase 873,750 and 1,279,757
(unaudited) shares, respectively, were exercisable. In addition, at December 31,
1994 and September 30, 1995, approximately 243,750 and 1,450,000 (unaudited)
stock options, respectively, were exercised and converted to restricted common
stock which vests over the same period as the underlying options.
CONNER STOCK OPTION PLAN
Prior to 1994, certain employees' of the Company had received grants of
options to purchase common stock of Conner through Conner's stock option plan.
Such options were granted at the fair market value of Conner's common stock on
the dates of grants. At December 31, 1994, approximately 67,127 and at September
30, 1995 approximately 34,535 (unaudited) of these options were still
outstanding at prices ranging from $5.19 to $13.38. At December 31, 1994 and
September 30, 1995, approximately 26,580 and 18,341(unaudited), respectively, of
these options were vested.
CONNER EMPLOYEE STOCK PURCHASE PLAN
All employees of the Company are eligible to participate in the Conner
Employee Stock Purchase Plan (Purchase Plan). Shares may be purchased by
participants at the lower of 85% of the fair market value of the common stock at
the beginning or end of each six-month offering period. Shares are to be
purchased from payroll deductions which are limited to 15% of an employee's
compensation. As of December 31, 1994 and September 30, 1995, approximately
42,146 and 74,214 (unaudited) shares had been issued to Arcada employees,
respectively, under the Purchase Plan.
EMPLOYEE PENSION PLAN
The Company has a 401(k) plan covering all of its U.S. employees'. Under
this plan, U.S. employees may contribute a percentage of their compensation.
European employees participate in Conner's retirement savings plan, which is
funded through employee payroll deductions. The assets of these
F-13
<PAGE>
ARCADA HOLDINGS, INC.
(A MAJORITY-OWNED SUBSIDIARY OF CONNER PERIPHERALS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- EMPLOYEE BENEFIT PLANS: (CONTINUED)
plans are held separately from those of the Company in independently managed and
administered funds. The Company's contributions to the plan are discretionary.
As of December 31, 1994 and September 30, 1995 (unaudited), the Company has not
made any contributions to the Plan.
NOTE 7 -- INCOME TAXES:
During 1993, the Company filed a consolidated federal income tax return with
Conner and, accordingly, its net operating losses of 1993 were used by Conner.
On a separate return basis, no provision for income taxes has been recorded for
1993 as a result of the losses incurred. Since 1994, the Company has been filing
separate federal income tax returns.
The Company had no current taxes in 1994 as a result of the losses incurred.
In 1994, the Company recognized a tax benefit of $3,701,000, representing
amortization of certain deferred tax credits established upon the acquisition of
Quest for differences in book and tax basis of intangibles acquired, including
the identified intangibles and in-process research and development, but
excluding goodwill.
The following are the components of the 1994 benefit for income taxes (in
thousands):
<TABLE>
<S> <C>
Deferred:
Federal.......................................................... $ 3,160
State............................................................ 541
---------
Total.......................................................... $ 3,701
---------
---------
</TABLE>
At December 31, 1993, the Company did not have any material tax related
payables or receivables from Conner. Deferred taxes are provided for the
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities. Deferred tax assets (liabilities) at
December 31, 1994 and 1993 are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994
--------- 1993
-------------
(UNAUDITED)
<S> <C> <C>
Depreciation and amortization........................................ $ 139 $ 60
Accounts receivable reserves......................................... 134 --
Accrued expenses..................................................... 733 270
Tax credits.......................................................... 680 --
Other................................................................ 63 --
--------- ------
Subtotal........................................................... 1,749 330
Valuation reserve.................................................... (1,749) (330)
Technology and other intangibles..................................... (920) --
--------- ------
Total.............................................................. $ (920) $ --
--------- ------
--------- ------
</TABLE>
Based on its history of operating losses through 1994, the Company has
determined that under FAS 109, it is more likely than not that the deferred tax
assets would not be realized and, accordingly, a valuation reserve has been
established at December 31, 1994 and 1993.
F-14
<PAGE>
ARCADA HOLDINGS, INC.
(A MAJORITY-OWNED SUBSIDIARY OF CONNER PERIPHERALS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES: (CONTINUED)
A reconciliation of the Company's effective income tax benefit rate to the
federal statutory rate for 1994 follows:
<TABLE>
<S> <C>
Federal statutory rate............................................. (35.0%)
State taxes........................................................ (4.3%)
Non-deductible goodwill amortization............................... 2.3%
Non-utilization of net operating losses............................ 7.2%
---------
(29.8%)
---------
---------
</TABLE>
The Company's effective tax rate for the nine months ended September 30,
1995 (unaudited), was approximately 33%, which was lower than the US federal
statutory rate of 35% primarily due to the expected utilization of certain tax
credits (unaudited).
NOTE 8 -- LEASE COMMITMENTS:
The Company leases certain equipment and its facilities under noncancelable
operating leases, which expire at various dates. Certain facility leases require
the Company to pay taxes, maintenance and repair costs. In addition, the Company
has various options for renewal of certain of its facility leases. Future
minimum lease payments under noncancelable operating leases are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------------------------------------------------------------------
<S> <C>
1995................................................................................ $ 1,045
1996................................................................................ 1,183
1997................................................................................ 688
1998................................................................................ 421
1999................................................................................ 400
Thereafter.......................................................................... 393
---------
$ 4,130
---------
---------
</TABLE>
Approximately $543,000 and $1,387,000 of the lease commitments are due to
Conner and the entities partially owned by the principal minority stockholder,
respectively. Rent expense for all operating leases was approximately $911,000
in 1994 and $463,000 in 1993 (unaudited).
NOTE 9 -- ACQUISITION:
During the quarter ended September 30, 1995, the Company acquired the assets
of Sytron Corporation (Sytron), a subsidiary of REXON, Inc., for $4,500,000 in
cash and the assumption of certain liabilities. Sytron develops, produces and
markets software products for data storage management. The transaction was
accounted for as a purchase and, accordingly, the purchase price was allocated
to the assets acquired and the liabilities assumed based upon their estimated
fair market values. The excess of the purchase price over its fair market value
of the net tangible assets acquired was approximately $4,677,000. Based on an
appraisal, approximately $2,817,000 was allocated to in-process research and
development, $1,487,000 was allocated to various intangibles including
technology, and the remaining $373,000 was allocated to goodwill. The
consolidated statement of operations for the nine months ended September 30,
1995 includes a charge of $2,817,000 for in-process research and development.
Sytron's net assets and results of operations have been included in the
Company's consolidated financial statements for the nine months ended September
30, 1995 from the acquisition date.
F-15
<PAGE>
ARCADA HOLDINGS, INC.
(A MAJORITY-OWNED SUBSIDIARY OF CONNER PERIPHERALS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- ACQUISITION: (CONTINUED)
The following table presents unaudited pro forma results of operations of
Arcada as if the Sytron acquisition had occurred as of the beginning of the
respective periods after giving effect to certain adjustments and excluding the
write-off of in-process research and development. The unaudited pro forma
information is provided for comparative purposes only and does not purport to be
indicative of the results which actually would have been obtained if the
acquisition had been effected for the periods indicated, or of results which may
be obtained in the future (in thousands except per share data).
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
(UNAUDITED)
<S> <C> <C>
Revenues........................................................ $ 36,087 $ 47,587
Net loss........................................................ 10,946 2,788
Net loss per share.............................................. 0.30 0.08
</TABLE>
NOTE 10 -- SEGMENT INFORMATION:
The Company operates in a single industry segment. During 1994 and 1993,
revenues from sales to Conner represented approximately 36% and 83% (unaudited)
of total revenues, respectively. In addition, during 1994 sales to one other
customer represented approximately 10% of total revenues. No other customers
accounted for 10% or more of revenues during 1994 or 1993 (unaudited).
Export revenues from international customers, primarily in Europe,
represented approximately 12% and 3% of total revenues in 1994 and 1993
(unaudited), respectively.
NOTE 11 -- LITIGATION:
On May 19, 1995, Personal Computer Peripherals Corporation ( PCPC ) filed a
lawsuit in the United States District Court for the District of Delaware naming
Arcada, Legato Systems, Artisoft, Cheyenne Software, Palindrome (a subsidiary of
Seagate) and Symantec as defendants, and alleging infringement of a patent
issued to PCPC entitled "Backup Computer Program for Networks." PCPC sought an
injunction against infringement of PCPC's patent, treble damages, attorney's
fees and other damages. Without acknowledging any liability, Arcada entered into
a settlement agreement in November 1995 with PCPC fully resolving all
outstanding claims by making a lump sum payment.
F-16
<PAGE>
APPENDIX A
----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SEAGATE TECHNOLOGY, INC.,
A DELAWARE CORPORATION
ARCADA HOLDINGS, INC.,
A DELAWARE CORPORATION
AND
KEVIN H. AZZOUZ
DATED AS OF DECEMBER 21, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of December 21, 1995 among Seagate Technology, Inc., a Delaware
corporation ("Seagate"), Arcada Holdings, Inc., a Delaware corporation
("Arcada"), and Kevin H. Azzouz ("Azzouz").
RECITAL
A. Seagate, Conner Peripherals, Inc., a Delaware corporation ("Conner"),
and Athena Acquisition Corporation, Delaware corporation and wholly-owned
subsidiary of Seagate ("Sub"), have entered into an Agreement and Plan of
Reorganization dated as of October 3, 1995 (the "Seagate/ Conner Agreement"),
pursuant to which Sub will merge with and into Conner and become a wholly-owned
subsidiary of Seagate (the "Seagate/Conner Merger"), subject to the terms and
conditions of the Seagate/Conner Agreement.
B. Arcada is a majority-owned subsidiary of Conner.
C. Arcada, Seagate, Azzouz and certain other holders of stock or options to
acquire stock of Arcada entered into a Letter of Intent for the Acquisition of
Minority Interests of Arcada Holdings, Inc. (the "Letter of Intent") dated as of
October 3, 1995, regarding the parties' agreement in principle for Seagate's
acquisition (as soon as possible following the Seagate/Conner Merger) of all
minority equity interests in Arcada (the "Arcada Acquisition").
D. The parties now desire to enter into this Agreement regarding the Arcada
Acquisition.
E. The Boards of Directors of Arcada and Seagate believe it is in the best
interests of each company and their respective stockholders to consummate the
Arcada Acquisition pursuant to the terms and conditions set forth in this
Agreement.
F. The parties hereto intend that the Arcada Acquisition qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
SECTION 1
THE MERGER
1.1 MERGER: EFFECTIVE TIME. Subject to the terms and conditions of this
Agreement and the Agreement of Merger attached as EXHIBIT A (the "Merger
Agreement"), Merger Sub (as defined below in Section 1.3) will be merged into
Arcada (the "Merger") in accordance with the Delaware General Corporation Law
(the "Delaware Statute"). The Merger Agreement provides for the mode of
effecting the Merger and the effects thereof. Arcada and Merger Sub shall
execute the Merger Agreement immediately prior to the Closing (as defined in
Section 1.2 below).
Subject to the provisions of this Agreement and the Merger Agreement, the
Merger Agreement together with any required certificates, shall be duly filed in
accordance with the Delaware Statute on the Closing Date (as defined in Section
1.2). The Merger shall become effective (the "Effective Time") upon the filing
of the Merger Agreement (together with any required certificates) with the
Secretary of State of the State of Delaware (the date of the Effective Time is
referred to as the "Effective Date").
1.2 CLOSING. Assuming satisfaction or waiver of all conditions set forth
in Section 7, the closing of the Merger (the "Closing") will take place as soon
as possible after consummation of the Seagate/ Conner Merger (such date being
the "Closing Date"), at the offices of Wilson, Sonsini, Goodrich & Rosati, 650
Page Mill Road, Palo Alto, California 94304-1050, unless a different date or
place is agreed to in writing by the parties hereto.
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1.3 ORGANIZATION OF MERGER SUB. Prior to the closing and subject to
applicable corporate and securities laws, Seagate shall form a new, wholly-owned
subsidiary ("Merger Sub") to which it will contribute the number of shares of
Seagate Common Stock and cash in lieu of fractional shares to be distributed in
connection with the Merger. Subsequent to the Conner/Seagate Merger and subject
to applicable corporate and securities laws, Seagate shall contribute the
capital stock of Merger Sub to Conner such that Merger Sub becomes a
wholly-owned subsidiary of Conner prior to the Effective Date. In the event that
any of the foregoing transactions violate applicable corporate or securities
laws, the parties hereto shall use their best efforts to restructure the Arcada
Acquisition to qualify as a reorganization within the meaning of Section 368 of
the Code, such that no gain or loss will be recognized by the minority
stockholders of Arcada as a result of the Arcada Acquisition.
1.4 EFFECTS OF THE MERGER. At the Effective Time, the separate existence
of Merger Sub shall cease and Merger Sub shall be merged with and into Arcada,
and the effects of the Merger shall be as provided in this Agreement, the Merger
Agreement and the applicable provisions of the Delaware Statute. Merger Sub and
Arcada are sometimes referred to as the "Constituent Corporations" and Arcada
after the Merger is sometimes referred to as the "Surviving Corporation."
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
Arcada and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities, obligations and duties of Arcada and Merger Sub shall become the
debts, liabilities, obligations and duties of the Surviving Corporation.
1.5 CERTIFICATE OF INCORPORATION: BYLAWS: DIRECTORS: OFFICERS. At the
Effective Time, (i) the Certificate of Incorporation of Arcada shall be the
Certificate of Incorporation of the Surviving Corporation; (ii) the Bylaws of
Merger Sub as in effect immediately prior to the Effective Time shall be the
Bylaws of the Surviving Corporation until altered, amended or repealed; (iii)
the directors of Merger Sub shall be the initial directors of the Surviving
Corporation and will hold office from the Effective Time until their respective
successors are duly elected or appointed and qualified in the manner provided in
the Articles of Incorporation and Bylaws of the Surviving Corporation, as the
same may be amended from time to time or otherwise as provided by law; and (iv)
the officers of Merger Sub shall be the initial officers of the Surviving
Corporation.
SECTION 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of capital
stock of Arcada ("Arcada Capital Stock"):
(a) CAPITAL STOCK OF MERGER SUB. Each issued and outstanding share of
capital stock of Merger Sub shall continue to be issued and outstanding and
shall be converted into one share of validly issued, fully paid and
non-assessable Common Stock of the Surviving Corporation. Each stock certificate
of Merger Sub evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.
(b) CANCELLATION OF CERTAIN SHARES OF CAPITAL STOCK OF ARCADA. All shares
of Arcada Capital Stock that are owned directly or indirectly by Arcada shall be
canceled and no stock of Seagate or other consideration shall be delivered in
exchange therefor.
(c) CAPITAL STOCK HELD BY CONNER. All shares of Arcada Capital Stock that
are owned directly or indirectly by Conner (including rights to acquire such
shares but excluding the 3,035,600 shares of Arcada Capital Stock that are
reserved for issuance upon exercise of the Conner Arcada Options (as defined in
Section 4.2(b)) shall continue to be issued and outstanding shares of Arcada
Capital Stock and shall not be affected by the Merger.
(d) CONVERSION OF CAPITAL STOCK OF ARCADA. Subject to Sections 2.1(e),
(f), (g) and (h) below, each issued and outstanding share of common stock of
Arcada, $.001 par value ("Arcada Common Stock"),
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Series A Preferred Stock, $.001 par value, and Series B Preferred Stock, $.001
par value (other than shares to be canceled pursuant to Section 2.1(b) and
shares to remain outstanding pursuant to Section 2.1(c) above), that are issued
and outstanding immediately prior to the Effective Time shall automatically be
canceled and extinguished and converted, without any action on the part of the
holder thereof, into the right to receive 0.1545 shares of common stock of
Seagate, $.01 par value ("Seagate Common Stock"). All such shares of Arcada
Capital Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the shares of Seagate Common
Stock to be issued or paid in consideration therefor upon the surrender of such
certificate in accordance with Section 2.2 of this Agreement. The ratio pursuant
to which each share of Arcada Capital Stock will be exchanged for shares of
Seagate Common Stock, determined in accordance with the foregoing provisions, is
referred to as the "Exchange Ratio."
(e) ADJUSTMENT OF EXCHANGE RATIO. If, between the date of this Agreement
and the Effective Time, the outstanding shares of Seagate Common Stock or Arcada
Capital Stock shall have been changed into a different number of shares or a
different class by reason of any reclassification, split-up, stock dividend or
stock combination, then the Exchange Ratio shall be correspondingly adjusted.
(f) DISSENTERS' RIGHTS. Any shares of Arcada Capital Stock held by a
holder who has properly exercised dissenters' rights for such shares in
accordance with the Delaware Statute and who, as of the Effective Time, has not
effectively withdrawn or lost such dissenters' rights ("Dissenting Shares")
shall not be converted into Seagate Common Stock but shall be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to the Delaware Statute. Arcada shall give
Seagate prompt notice of any demand received by Arcada to require Arcada to
purchase shares of Arcada Capital Stock, and Seagate shall have the right to
participate in all negotiations and proceedings with respect to such demand.
Arcada agrees that, except with the prior written consent of Seagate, it will
not voluntarily make any payment with respect to, or settle or offer to settle,
any such purchase demand. Each holder of Dissenting Shares (a "Dissenting
Stockholder') who, pursuant to the provisions of the Delaware Statute, becomes
entitled to payment of the value of shares of Arcada Capital Stock shall receive
payment therefor (but only after the value therefor shall have been agreed upon
or finally determined pursuant to such provisions) provided that all funds used
to make such payment shall be paid solely by Arcada and neither Seagate nor
Conner shall have the obligation to provide funds to Arcada for such payment. In
the event of legal obligation, after the Effective Time, to deliver shares of
Seagate Common Stock to any holder of shares of Arcada Capital Stock who shall
have failed to make an effective purchase demand or shall have lost its status
as a Dissenting Stockholder, Seagate shall issue and deliver, upon surrender by
such Dissenting Stockholder of such holder's certificate or certificates
representing shares of Arcada Capital Stock, the shares of Seagate Common Stock
to which such Dissenting Stockholder is then entitled under this Section 2.1 and
the Merger Agreement.
(g) FRACTIONAL SHARES. No fractional shares of Seagate Common Stock shall
be issued, but in lieu thereof each holder of shares of Arcada Capital Stock who
would otherwise be entitled to receive a fraction of a share of Seagate Common
Stock shall receive an amount of cash equal to the per share market value of
Seagate Common Stock (based on the last sales price of Seagate Common Stock as
reported on the New York Stock Exchange, Inc. (the "NYSE") on the Effective
Date) multiplied by the fraction of a share of Seagate Common Stock to which
such holder would otherwise be entitled. The fractional share interests of each
stockholder of Arcada shall be aggregated, so that no Arcada stockholder shall
receive cash in an amount greater than the value of one full share of Seagate
Common Stock.
(h) MAXIMUM MERGER CONSIDERATION. The maximum consideration to be paid by
Seagate through Merger Sub (including Seagate Common Stock to be reserved for
issuance upon exercise of Arcada Options and Conner Arcada Options assumed by
Seagate pursuant to Section 6.13 below but excluding cash payments in lieu of
fractional shares pursuant to Section 2.1(g)) pursuant to the
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Merger shall be equal to (i) 2,192,441 shares of Seagate Common Stock PLUS (ii)
a number of shares of Seagate Common Stock equal to the product of (A) the
Exchange Ratio TIMES (B) the number of shares of Arcada Common Stock subject to
Additional Permitted Arcada Options (as defined below). In the event that
immediately prior to the Closing the outstanding shares of Arcada Capital Stock
not held by Conner, including shares subject to Arcada Options (as defined in
Section 3.2(b)) and Conner Arcada Options (as defined in Section 4.2(b)) is
greater than the sum of (y) 14,190,555 PLUS (z) the number of shares subject to
Additional Permitted Arcada Options, the Exchange Ratio shall be proportionately
decreased. No adjustment shall be made in the aggregate consideration to be paid
in the Merger as a result of any cash proceeds received by Arcada from the date
of this Agreement to the Closing Date pursuant to the exercise of currently
outstanding options to acquire Arcada Common Stock. Notwithstanding the
foregoing, no adjustment shall be made in the Exchange Ratio for increases in
the number of shares subject to Conner Arcada Options unless there has been a
breach of the representation made by Azzouz in the second sentence of Section
3.2(b). For purposes of this Agreement, "Additional Permitted Arcada Options"
means additional options issued under the Arcada Plan (as defined in Section
3.2(b)) between October 3, 1995 and the Effective Time in accordance with
Section 5.2(c) of the Seagate/Conner Agreement (of which options to purchase
199,800 shares were issued on November 21, 1995) or with the consent of Seagate.
(i) STOCK OPTIONS. All the outstanding Arcada Options (including any
Additional Permitted Arcada Options) and Conner Arcada Options shall be assumed
by Seagate in accordance with Section 6.13.
2.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Seagate shall designate a
bank or trust company, reasonably acceptable to Arcada, to act as exchange agent
(the "Exchange Agent") in the Merger.
(b) SEAGATE TO PROVIDE COMMON STOCK. Promptly after the Effective Time,
Seagate shall cause Merger Sub to deliver to the Exchange Agent in accordance
with this Section 2 and the Merger Agreement, the shares of Seagate Common Stock
issuable pursuant to Section 2.1 and the Merger Agreement in exchange for
outstanding shares of capital stock of Arcada, and cash in an amount sufficient
for payment in lieu of fractional shares pursuant to Section 2.1(g).
(c) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time,
the Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Arcada Common Stock (the "Certificates") whose
shares are being converted into Seagate Common Stock pursuant to Section 2.1 and
the Merger Agreement, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Seagate may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for Seagate Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Seagate, together with such letter of transmittal, duly executed,
the holder of such Certificate shall be entitled to receive in exchange therefor
the number of shares of Seagate Common Stock to which the holder of Arcada
Common Stock is entitled pursuant to Section 2.1. The Certificate so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of Arcada
Common Stock which is not registered on the transfer records of Arcada, the
appropriate number of shares of Seagate Common Stock may be delivered to a
transferee if the Certificate representing such capital stock of Arcada is
presented to the Exchange Agent and accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.2, each Certificate shall be deemed at any time after the Effective Time to
represent the right to receive upon such surrender the number of shares of
Seagate Common Stock as provided by this Section 2 and the provisions of the
Delaware Statute.
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(d) NO FURTHER OWNERSHIP RIGHTS IN CAPITAL STOCK OF ARCADA. All Seagate
Common Stock delivered upon the surrender for exchange of shares of Arcada
Common Stock in accordance with the terms hereof shall be deemed to have been
delivered in full satisfaction of all rights pertaining to such shares of Arcada
Common Stock, and following the Effective Time, the Certificates shall have no
further rights to, or ownership in, shares of capital stock of Arcada. There
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Arcada Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Section 2.
(e) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any certificates
evidencing shares of Arcada Common Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall make payment in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such shares of Seagate Common Stock and cash for
fractional shares, if any, as may be required pursuant to Section 2.1(g);
provided, however, that Seagate may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Seagate or the Exchange
Agent with respect to the certificates alleged to have been lost, stolen or
destroyed.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this Section
2.2, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to a holder of shares of Arcada Common Stock for any amount paid
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
(g) DISSENTING SHARES. The provisions of this Section 2.2 shall also apply
to Dissenting Shares that lose their status as such, except that the obligations
of Seagate under this Section 2.2 shall commence on the date of loss of such
status.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF AZZOUZ
Azzouz represents and warrants to Seagate that, to the best of his
knowledge:
3.1 ORGANIZATION OF ARCADA. Arcada is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
Delaware. Arcada has the corporate power to own its properties and to carry on
its business as now being conducted. Arcada is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction in which it
does business. Arcada has delivered and certified a true and correct copy of its
Certificate of Incorporation and Bylaws, each as amended to date, to Seagate.
Except as set forth on SCHEDULE 3.1, Arcada does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
3.2 ARCADA CAPITAL STRUCTURE.
(a) The authorized capital stock of Arcada consists of 200,000,000 shares of
capital stock, of which 120,000,000 shares are designated Common Stock $.001 par
value, 40,000,000 shares are designated Series A Preferred Stock $.001 par
value, and 40,000,000 shares are designated Series B Preferred Stock $.001 par
value. As of the date of this Agreement, 2,455,049 shares of Arcada Common
Stock, 36,000,000 shares of Arcada Series A Preferred Stock and no shares of
Arcada Series B Preferred Stock are issued and outstanding. All of such
outstanding shares have been duly authorized, validly issued, fully paid and
non-assessable. Except as provided in the Arcada Stockholders Agreement (defined
in Section 6.2), the outstanding shares of Arcada Common Stock are not subject
to preemptive rights created by statute, the Certificate of Incorporation or
Bylaws of Arcada, or any agreement to which Arcada is a party or by which it may
be bound. There are no voting
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agreements or voting trusts with respect to any of the outstanding shares of
Arcada Common Stock. The outstanding shares of Arcada capital stock are held of
record by the persons and in the amounts set forth on SCHEDULE 3.2(A). Except as
provided in the Arcada Stockholders Agreement, Azzouz has, and immediately prior
to the Effective Time will have, good and valid title to the shares of Arcada
Capital Stock owned by Azzouz as indicated on SCHEDULE 3.2(A), free and clear of
all liens, encumbrances or claims and, as a result of the Merger, will duly and
validly have transferred such title to Conner.
(b) Arcada has reserved 8,000,000 shares of Arcada Common Stock for issuance
to employees and consultants pursuant to the 1994 Arcada Stock Option Plan, as
amended (the "Arcada Plan"), of which 3,965,878 shares are subject to
outstanding options (the "Arcada Options") and 2,454,849 shares have been issued
thereunder and remain outstanding (2,093,750 of which were issued subject to
Restricted Stock Purchase Agreements), as of the date of this Agreement.
SCHEDULE 3.2(B) sets forth for each Arcada Option the name of the holder of such
option, the number of shares of Arcada Common Stock subject to such option, the
exercise price of such option and the vesting schedule for such option. The
exercisability of the Arcada Options will not be accelerated by the transactions
contemplated by this Agreement. Except for Arcada Options described in SCHEDULE
3.2(B), the conversion rights of holders of shares of preferred stock of Arcada,
the warrant to purchase up to 2,857,144 shares of Series B Preferred Stock held
by Conner, and the Arcada Stockholders Agreement, there are no options,
warrants, calls, rights, commitments or agreements of any character, written or
oral to which Arcada or Azzouz is a party or by which it or Azzouz is bound
obligating Arcada or Azzouz to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of Arcada or obligating Arcada or Azzouz to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. As a result of
the Merger, Conner will be the record and beneficial owner of all outstanding
capital stock of Arcada and rights to acquire capital stock of Arcada.
3.3 AUTHORITY.
(a) Subject only to the requisite approval of the Merger, this Agreement and
the Merger Agreement by Arcada's stockholders, Arcada has all requisite
corporate power and authority to enter into this Agreement, the Merger
Agreement, the Noncompetition Agreement (as defined in Section 7.2(d)) and to
consummate the transactions contemplated hereby and thereby. An affirmative vote
of the holders of a majority of the outstanding shares of Arcada Common Stock
and the holders of a majority of the outstanding shares of Arcada Preferred
Stock is the requisite vote to duly approve the Merger, this Agreement, the
Merger Agreement and the transactions contemplated hereby and thereby pursuant
to applicable law, Arcada's Certificate of Incorporation and Bylaws. The
execution and delivery of this Agreement and the Merger Agreement, the
performance by Arcada of its obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of Arcada, subject only
to the requisite approval by Arcada's stockholders. Arcada's Board of Directors
has (i) unanimously approved the Merger, this Agreement, the Merger Agreement
and the transactions contemplated hereby and thereby and (ii) recommended that
the stockholders of Arcada approve the Merger, this Agreement, the Merger
Agreement and the transactions contemplated hereby and thereby. Azzouz has all
requisite power and authority to enter into this Agreement and the
Noncompetition Agreement. This Agreement has been duly executed and delivered by
Arcada and Azzouz and constitutes, and the Noncompetition Agreement when
executed and delivered by Arcada and Azzouz will constitute, the valid and
binding obligation of Arcada and Azzouz, enforceable in accordance with their
respective terms except as such enforceability may be subject to the laws of
general application relating to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to creditors rights
generally and rules of law governing specific performance, injunctive relief or
other equitable remedies.
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(b) Subject only to the approval of the Merger, this Agreement and the
Merger Agreement by Arcada's stockholders, the execution and delivery of this
Agreement and the Merger Agreement by Arcada and Azzouz does not, and the
execution and delivery of the Noncompetition Agreement will not, and the
consummation of the transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of (a "Conflict") any material
statute, law, rule, regulation, judgment, order, decree, or ordinance applicable
to Arcada or Azzouz or any of their respective properties, or result in any
breach or default (or an event which with or without notice or lapse of time, or
both, would constitute a default) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of a material lien or material encumbrance on
any of the properties or assets of Arcada or Azzouz that would have a Material
Adverse Effect (as defined below) pursuant to (i) any provision of the
Certificate of Incorporation or Bylaws of Arcada or (ii) any material agreement,
contract, note, mortgage, indenture, lease, instrument, permit, franchise or
license to which Arcada or Azzouz is a party or by which Arcada or Azzouz or any
of their respective properties or assets may be bound or affected. When used in
connection with Arcada or any of its subsidiaries, the term "Material Adverse
Effect" means any change, event or effect that is materially adverse to the
business, assets (including intangible assets), liabilities, financial condition
or future prospects of Arcada and its subsidiaries taken as a whole; PROVIDED,
HOWEVER, that a "Material Adverse Effect" shall not include any adverse effect
following the date of this Agreement which is attributable to (i) a delay of,
reduction in or cancellation or change in the terms of product orders by
customers of Arcada or any of its subsidiaries or (ii) an increase in the price
of, a delay of, reduction in or cancellation of or change in terms with respect
to products or components supplied by vendors of Arcada or any of its
subsidiaries, which in either case is related to the announcement or pendency of
the transactions contemplated by this Agreement or the Seagate/ Conner
Agreement.
(c) No consent, waiver, approval, order or authorization of, or registration
or filing with, any court, administrative agency, commission or regulatory
authority, domestic or foreign ("Governmental Entity") or any third party,
including a party to any agreement with Arcada or Azzouz (so as not to trigger
any Conflict), is required by or with respect to Arcada or Azzouz in connection
with the execution and delivery of this Agreement, the Merger Agreement, the
Noncompetition Agreement or the consummation of the transactions contemplated
hereby or thereby, except for (i) the filing of the Merger Agreement with the
Secretary of State of the State of Delaware, (ii) the distribution of a proxy
statement relating to the Stockholders' Meeting (the "Proxy Statement") and the
obtaining of the approval of the Merger by Arcada's stockholders, (iii) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws and (iv) such consents, waivers, authorizations, filings,
approvals, permits and registrations which are set forth on SCHEDULE 3.3.
3.4 NO UNDISCLOSED LIABILITIES. Except as set forth on SCHEDULES 3.4 OR
3.6, neither Arcada nor any of its subsidiaries has any liabilities (absolute,
accrued, contingent or otherwise) of a nature required to be disclosed on a
balance sheet or in the related notes to the consolidated financial statements
prepared in accordance with generally accepted accounting principles ("GAAP")
which are, individually or in the aggregate, material to the business, results
of operations or financial condition of Arcada and its subsidiaries taken as a
whole, except liabilities (i) provided for in Arcada's balance sheet dated as of
September 30, 1995 (which has been delivered to Seagate) or (ii) incurred since
September 30, 1995 in the ordinary course of business, none of which could,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
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3.5 INTELLECTUAL PROPERTY.
(a) Arcada and its subsidiaries own, or have the right to use, sell or
license all material intellectual property rights necessary or required for the
conduct of their respective businesses as presently conducted (such intellectual
property rights are collectively referred to as the "Arcada Intellectual
Property Rights").
(b) Neither the manufacture, marketing, license, sale or intended use of any
product currently licensed or sold by Arcada or any of its subsidiaries violates
any license or agreement between Arcada or any of its subsidiaries and any third
party or infringes any intellectual property right of any other party; and there
is no pending or threatened claim or litigation contesting the validity,
ownership or right to use, sell, license or dispose of any Arcada Intellectual
Property Right nor is there any basis for any such claim, nor has Arcada
received any notice asserting that any Arcada Intellectual Property 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 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,
individually or in the aggregate, a Material Adverse Effect.
(c) Arcada has taken reasonable and practicable steps designed to safeguard
and maintain the secrecy and confidentiality of, and its proprietary rights in,
all material Arcada Intellectual Property Rights.
(d) Neither Arcada nor Azzouz has entered into any agreement under which
Arcada is restricted from selling, licensing or otherwise distributing any of
its respective products to any class of customers, in any geographic area,
during any period of time or in any segment of any market.
3.6 LITIGATION. Except as listed on SCHEDULE 3.6, there are no claims,
actions, suits or proceedings pending or threatened, or any investigation
pending or threatened, against Arcada or any of its subsidiaries, or any their
properties before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
3.7 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by Arcada or Azzouz for inclusion in the Registration Statement on Form
S-4 to be filed with the Securities and Exchange Commission by Seagate in
connection with the issuance of Seagate Common Stock in or as a result of the
Merger (the "S-4") at the date such information is supplied and at the time of
the Stockholders' Meeting (as defined in Section 6.4) contains or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading or will, in the case of the S-4 at the time S-4 becomes effective
under the Securities Act contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading.
3.8 BROKERS' AND FINDERS' FEES. Azzouz, for himself or on behalf of
Arcada, has not incurred or will incur, directly or indirectly, any liability
for brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.9 DISCLOSURE. None of the representations or warranties made herein, nor
any document, written information, statement, financial statement certificate,
schedule or exhibit prepared or furnished by Arcada, its representatives or
Azzouz pursuant to this Agreement or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact, or omits or will omit at the Effective Time to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
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SECTION 4
REPRESENTATIONS AND WARRANTIES OF ARCADA
Arcada represents and warrants to Seagate that:
4.1 ORGANIZATION OF ARCADA. Arcada is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
Delaware. Arcada has the corporate power to own its properties and to carry on
its business as now being conducted. Arcada is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction in which it
does business. Arcada has delivered and certified a true and correct copy of its
Certificate of Incorporation and Bylaws, each as amended to date, to Seagate.
Except as set forth on SCHEDULE 3.1, Arcada does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
4.2 ARCADA CAPITAL STRUCTURE.
(a) The authorized capital stock of Arcada consists of 200,000,000 shares of
capital stock, of which 120,000,000 shares are designated Common Stock $.001 par
value, 40,000,000 shares are designated Series A Preferred Stock $.001 par
value, and 40,000,000 shares are designated Series B Preferred Stock $.001 par
value. As of the date of this Agreement, 2,455,049 shares of Arcada Common
Stock, 36,000,000 shares of Arcada Series A Preferred Stock and no shares of
Arcada Series B Preferred Stock are issued and outstanding. All of such
outstanding shares have been duly authorized, validly issued, fully paid and
non-assessable. Except as provided in the Arcada Stockholders Agreement, the
outstanding shares of Arcada Common Stock are not subject to preemptive rights
created by statute, the Certificate of Incorporation or Bylaws of Arcada, or any
agreement to which Arcada is a party or by which it may be bound. There are no
voting agreements or voting trusts with respect to any of the outstanding shares
of Arcada Common Stock. The outstanding shares of Arcada capital stock are held
of record by the persons and in the amounts set forth on SCHEDULE 3.2(A). Except
as provided in the Arcada Stockholders Agreement, Conner has, and immediately
prior to the Effective Time will have, good and valid title to the shares of
Arcada Capital Stock owned by Conner as indicated on SCHEDULE 3.2(A), free and
clear of all liens, encumbrances or claims.
(b) There are 3,035,600 shares of Arcada Common Stock held by Conner that
are reserved for issuance under the Conner Arcada Stock Option Plan (the "Conner
Arcada Plan"), of which 2,087,500 shares are subject to outstanding options (the
"Conner Arcada Options"). Except for Additional Permitted Arcada Options which
may be granted after the date hereof, SCHEDULES 3.2(B) AND 4.2(B) set forth for
each Arcada Option and each Conner Arcada Option, respectively, the name of the
holder of such option, the number of shares of Arcada Common Stock subject to
such option, the exercise price of such option and the vesting date for such
option. Except (i) for Arcada Options and Conner Arcada Options described in
SCHEDULES 3.2(B) AND 4.2(B), respectively, (ii) for the Conner Arcada Stock
Option Plan, (iii) for the warrant to purchase up to 2,857,144 shares of Series
B Preferred Stock held by Conner and (iv) as otherwise disclosed in Conner's
Disclosure Letter to the Seagate/Conner Agreement or the Conner SEC Reports (as
defined in the Seagate/Conner Agreement), there are no options, warrants, calls,
rights, commitments or agreements of any character, written or oral to which
Arcada or Conner is a party or by which it or Conner is bound obligating Arcada
or Conner to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of
Arcada or obligating Arcada or Conner to grant, extend, accelerate the vesting
of, change the price of, otherwise amend or enter into any such option, warrant,
call, right, commitment or agreement. As a result of the Merger, Conner will be
the record and beneficial owner of all outstanding capital stock of Arcada and
rights to acquire capital stock of Arcada.
4.3 AUTHORITY.
(a) Subject only to the requisite approval of the Merger, this Agreement and
the Merger Agreement by Arcada's stockholders, Arcada has all requisite
corporate power and authority to enter into
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this Agreement, the Merger Agreement, the Noncompetition Agreement and to
consummate the transactions contemplated hereby and thereby. An affirmative vote
of the holders of a majority of the outstanding shares of Arcada Common Stock
and the holders of a majority of the outstanding shares of Arcada Preferred
Stock is the requisite vote to duly approve the Merger, this Agreement, the
Merger Agreement and the transactions contemplated hereby and thereby pursuant
to applicable law, Arcada's Certificate of Incorporation and Bylaws. The
execution and delivery of this Agreement and the Merger Agreement, the
performance by Arcada of its obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of Arcada, subject only
to the requisite approval by Arcada's stockholders. Arcada's Board of Directors
has (i) unanimously approved the Merger, this Agreement, the Merger Agreement
and the transactions contemplated hereby and thereby and (ii) recommended that
the stockholders of Arcada approve the Merger, this Agreement, the Merger
Agreement and the transactions contemplated hereby and thereby. This Agreement
has been duly executed and delivered by Arcada and constitutes, and the
Noncompetition Agreement when executed and delivered by Arcada will constitute,
the valid and binding obligation of Arcada, enforceable in accordance with their
respective terms except as such enforceability may be subject to the laws of
general application relating to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to creditors rights
generally and rules of law governing specific performance, injunctive relief or
other equitable remedies.
(b) Subject only to the approval of the Merger, this Agreement and the
Merger Agreement by Arcada's stockholders, the execution and delivery of this
Agreement and the Merger Agreement by Arcada does not, and the execution and
delivery of the Noncompetition Agreement will not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of (a "Conflict") any material statute, law, rule, regulation,
judgment, order, decree, or ordinance applicable to Arcada or any of its
respective properties, or result in any breach or default (or an event which
with or without notice or lapse of time, or both, would constitute a default)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the creation
of a material lien or material encumbrance on any of the properties or assets of
Arcada that would have a Material Adverse Effect pursuant to (i) any provision
of the Certificate of Incorporation or Bylaws of Arcada or (ii) any material
agreement, contract, note, mortgage, indenture, lease, instrument, permit,
franchise or license to which Arcada is a party or by which Arcada or any of its
properties or assets may be bound or affected.
(c) No consent, waiver, approval, order or authorization of, or registration
or filing with, any Governmental Entity or any third party, including a party to
any agreement with Arcada (so as not to trigger any Conflict), is required by or
with respect to Arcada in connection with the execution and delivery of this
Agreement, the Merger Agreement, the Noncompetition Agreement or the
consummation of the transactions contemplated hereby or thereby, except for (i)
the filing of the Merger Agreement with the Secretary of State of the State of
Delaware, (ii) the distribution of a Proxy Statement relating to the
Stockholders' Meeting and the obtaining of the approval of the Merger by
Arcada's stockholders, (iii) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and (iv) such consents, waivers,
authorizations, filings, approvals, permits and registrations which are set
forth on SCHEDULE 3.3.
4.4 BROKERS' AND FINDERS' FEES. Except as set forth in Section 3.18 of the
Seagate/Conner Agreement, Arcada has not incurred or will incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
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SECTION 5
REPRESENTATIONS AND WARRANTIES OF SEAGATE
Seagate represents and warrants to Arcada and Azzouz as follows:
5.1 ORGANIZATION, STANDING AND POWER. Seagate is a corporation duly
organized, validly existing and in good standing under the laws of Delaware.
Seagate has the corporate power to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on the ability of Seagate to consummate the
transactions contemplated hereby.
5.2 AUTHORITY. Seagate has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery by Seagate of this Agreement, and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Seagate. This Agreement has
been duly executed and delivered by Seagate and constitutes the valid and
binding obligation of Seagate, enforceable in accordance with its terms, except
as such enforceability may be subject to the laws of general application
relating to bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting or relating to creditors rights generally and rules of law
governing specific performance, injunctive relief or other equitable remedies.
The execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby will not, conflict with, or result in any
violation of, any material statute, law, rule, regulation, judgment, order,
decree, or ordinance applicable to Seagate or any of its properties or assets,
or conflict with or result in any breach of or default (with or without notice
or lapse of time, or both) under, or give rise to right of termination,
cancellation or acceleration of any obligation or loss or to loss of a material
benefit under, or result in the creation of a lien or encumbrance on any of the
properties or assets of Seagate pursuant to (i) any provision of the Certificate
of Incorporation or Bylaws of Seagate or (ii) any material agreement contract,
note, mortgage, indenture, lease, instrument, permit, concession, franchise or
license to which Seagate is a party or by which Seagate or any other of its
properties or assets may be bound or affected other than any such conflicts,
violations, defaults, terminations, cancellations or accelerations which would
not have a material adverse effect on the ability of Seagate to consummate the
transactions contemplated hereby. No consent, approval order or authorization
of, or registration, declaration or filing with, any Governmental Entity, is
required by or with respect to Seagate in connection with the execution and
delivery of this Agreement by Seagate or the consummation by Seagate and Merger
Sub of the transactions contemplated hereby or by the Merger Agreement, except
for (i) the filing of the Merger Agreement with the Secretary of State of the
State of Delaware, and (ii) the filing of the S-4 and such other documents with,
and the obtaining of such orders from, the SEC and various state securities or
"blue sky" authorities, and the making of such reports under the Exchange Act,
as one required in connection with the transactions contemplated by this
Agreement, orders, authorizations, registrations, declarations and filings as
may be required under applicable state and federal securities laws and the laws
of any foreign country.
5.3 SEC DOCUMENTS: SEAGATE FINANCIAL STATEMENTS. Seagate has furnished or
made available to Arcada a true and complete copy of its Form 10-K for the
fiscal year ended June 30, 1995, its Form 10-Q for the quarter ended September
29, 1995 and its proxy statement dated September 21, 1995, (collectively, the
"SEC Documents"), which Seagate filed under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") with the SEC. As of their respective filing
dates, the SEC Documents complied in all material respects with the requirements
of the Exchange Act and none of the SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed document with the SEC. The financial
statements of Seagate, including the notes thereto, included in the SEC
Documents (the "Seagate Financial Statements") comply as to form in all material
respects with applicable accounting requirements and with the published rules
and
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regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP consistently applied (except as may be indicated in the notes thereto
or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
and fairly present the consolidated financial position of Seagate at the dates
thereof and of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal, recurring audit
adjustments). There has been no change in Seagate accounting principles except
as described in the notes to the Seagate Financial Statements. Seagate has no
material obligations other than (i) those set forth in the Seagate Financial
Statements and (ii) those not required to be set forth in the Seagate Financial
Statements under generally accepted accounting principles.
5.4 INFORMATION SUPPLIED. None of the information supplied by Seagate for
inclusion in the Proxy Statement or the S-4 at the time such information is
supplied and at the time of the Stockholders' Meeting, contained or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or will, in the case of the S-4, at the time the S-4 becomes
effective under the Securities Act contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
5.5 DISCLOSURE. None of the representations or warranties made herein, nor
any document, written information, statement, financial statement certificate,
schedule or exhibit prepared or furnished by Seagate or its representatives
pursuant to this Agreement or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact, or
omits or will omit at the Effective Time to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
5.6 SEAGATE COMMON STOCK. The shares of Seagate Common Stock, when issued
in the Merger in compliance with this Agreement, will be validly issued, fully
paid and nonassessable. Such shares will be issued in compliance with applicable
state and federal securities laws.
SECTION 6
COVENANTS
6.1 CONDUCT OF BUSINESS. Arcada shall not issue any additional shares or
grant any additional rights to acquire shares of Arcada Capital Stock to any
person (other than Conner) from and after the date of this Agreement except as
may be expressly permitted under Section 5.2 of the Seagate/ Conner Agreement or
with Seagate's prior written consent; PROVIDED, HOWEVER, that notwithstanding
clause (C) of the proviso to Section 5.2(c)(iii) (limiting grants of Arcada
Options to "employees hired after June 19, 1995"), Arcada may grant Arcada
Options otherwise in compliance with such proviso to employees hired after May
21, 1995 who have not previously been granted any stock options.
6.2 NO ACTION. From and after the date of this Agreement, Azzouz agrees
his exercise of any registration right, put right, or any other similar right
under the Stockholders and Registration Rights Agreement (the "Arcada
Stockholders Agreement") dated as of January 5, 1994 by and among Conner, Arcada
and Azzouz shall include an extension for Arcada's compliance with such right
until the later of the date provided under the Arcada Stockholders Agreement or
sixty (60) days after termination of this Agreement. Furthermore, until the
earlier of the Effective Time or the termination of this Agreement pursuant to
the provisions of Section 8.1, Azzouz will not directly or indirectly, solicit,
conduct discussions with or engage in negotiations with any person other than
Seagate or take any other action intended or designed to facilitate the efforts
of any person, other than Seagate, relating to the possible acquisition (by any
third party other than Seagate or Conner) of Arcada Capital Stock or a material
portion of Arcada assets.
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6.3 PREPARATION OF S-4 AND PROXY STATEMENT. As promptly as practicable
after the date of this Agreement, Arcada shall provide to Seagate and its
counsel for inclusion in the Proxy Statement or S-4 in form and substance
satisfactory to Seagate and its counsel, such information concerning Arcada, its
operations, capitalization, technology, share ownership and other material as
Seagate or its counsel may reasonably request. As promptly as practicable after
the date of this Agreement, Seagate shall prepare and file with the SEC the S-4,
in which the Proxy Statement will be included. Each of Seagate and Arcada shall
use its reasonable efforts to respond to any comments of the SEC, to have the
S-4 declared effective under the Securities Act as promptly as practicable after
such filing and to cause the Proxy Statement to be mailed to Arcada stockholders
at the earliest practicable time. Each company will notify the other company
promptly with the receipt of any comments from the SEC or its staff and of any
request by the SEC or its staff or any other governmental officials for
amendments or supplements to the S-4, the Proxy Statement or for any additional
information and will supply the other company with copies of all correspondence
between such company or any of its representatives, on the one hand, and the SEC
or its staff or any other government official, on the other hand, with respect
to S-4, the Proxy Statement or the Merger. The S-4 and the Proxy Statement shall
comply in all material respects with all applicable requirements of law.
Whenever any event occurs which should be set forth in an amendment or
supplement to the Proxy Statement or the S-4, Seagate or Arcada, as the case may
be, shall promptly inform the other company of such occurrence and cooperate in
filing with the SEC or its staff or any other government officials, and/or
mailing to stockholders of Seagate and Arcada, such amendment or supplement.
6.4 STOCKHOLDER APPROVAL. Arcada will call a meeting of its stockholders
(the "Stockholders' Meeting") to be held as promptly as practicable for the
purpose of obtaining the stockholder approval required in connection with the
transactions contemplated hereby and by the Merger Agreement and shall use all
reasonable efforts to obtain such approval. Arcada shall coordinate and
cooperate with Seagate with respect to the timing of the Stockholders' Meeting.
Arcada shall not change the date of the Stockholders' Meeting without the prior
written consent of Seagate, nor shall Arcada adjourn the Stockholders' Meeting
without the prior written consent of Seagate, unless such adjournment is due to
the lack of a quorum, in which case the Chairman of the Stockholders' Meeting
shall announce at such meeting the time and place of the adjourned meeting.
6.5 ACCESS TO INFORMATION. Upon reasonable notice, Arcada shall afford
Seagate and its accountants, counsel and other representatives, reasonable
access during normal business hours during the period prior to the Effective
Time to (a) all of its properties, books, contracts, commitments and records,
and (b) all other information concerning its business, properties and personnel
(subject to restrictions imposed by applicable law) as may be reasonably
requested, including without limitation access upon reasonable request to
employees, customers and vendors for due diligence inquiry. Arcada also agrees
to provide to Seagate and its accountants, counsel and other representatives
copies of internal financial statements, business plans and projections promptly
upon request. Seagate shall respond to reasonable oral and written inquiries
from Arcada regarding any event, fact or condition (whether in existence on the
date hereof or arising hereafter) that has resulted in, or could reasonably be
expected to result in, a Material Adverse Effect (as defined in Section 7.3(c))
with respect to Seagate; provided, however, that Arcada may not make any
inquiries with respect to Seagate's storage management software business. No
information or knowledge obtained in any investigation pursuant to this Section
6.5 shall affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate the
Merger.
6.6 CONFIDENTIALITY: PUBLIC DISCLOSURE. Each of the parties agrees to keep
such information or knowledge obtained in any investigation pursuant to Section
6.5, or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby, confidential. Unless
otherwise required by law, prior to the Effective Time, no disclosure (whether
or not in response to an inquiry) of the subject matter of this Agreement shall
be made by any party hereto
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(except to Conner) unless approved by Seagate and Arcada prior to release,
provided that such approval shall not be unreasonably withheld, subject, in the
case of Seagate, to Seagate's obligation to comply with applicable securities
laws.
6.7 EXPENSES. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties incurred by a party in connection with the negotiation
and effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses; provided, however, that Arcada will pay
(from its own funds and not with any funds provided to Arcada by Seagate or
Conner) the reasonable fees and costs of Irell & Manella, special counsel to
Arcada for the benefit of the minority stockholders of Arcada, whether or not
the Merger or any other transaction is consummated.
6.8 CONSENTS. Each of Seagate and Arcada shall promptly apply for or
otherwise seek, and use its reasonable efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Merger, and
Arcada shall use all reasonable efforts to obtain all consents, waivers and
approvals under any of Arcada's agreements, contracts, licenses or leases in
order to preserve the benefits thereunder for the Surviving Corporation and
otherwise in connection with the Merger. All of such Arcada consents and
approvals are set forth in SCHEDULE 3.3
6.9 REASONABLE EFFORTS. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use all reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby, to obtain all necessary waivers, consents and approvals and to effect
all necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that Seagate shall not be required to agree to any divestiture by
Seagate or Arcada or any of Seagate's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Seagate or its
subsidiaries or affiliates or Arcada or its affiliates, or the imposition of any
material limitation on the ability of any of them to conduct their businesses or
to own or exercise control of such assets, properties and stock; provided,
further, that Arcada shall not be required to agree to any divestiture by Arcada
of any business, assets or property of Arcada or its subsidiaries, or the
imposition of any material limitation on the ability of any of them to conduct
their businesses or to own or exercise control of such assets, properties and
stock, which divestiture or limitation is not subject to consummation of the
Seagate/ Conner Merger and this Merger.
6.10 NOTIFICATION OF CERTAIN MATTERS. Arcada and Azzouz shall give prompt
notice to Seagate, and Seagate shall give prompt notice to Arcada and Azzouz, of
(i) the occurrence or non-occurrence of any event, the occurrence or
non-occurrence of which may cause any representation or warranty of Arcada,
Azzouz or Seagate, as the case may be, contained in this Agreement to be untrue
or inaccurate in any material respect at or prior to the Effective Time and (ii)
any failure of Arcada, Azzouz or Seagate, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; PROVIDED, HOWEVER, that the delivery of any notice pursuant to
this Section 6.10 shall not limit or otherwise affect any remedies available to
the party receiving such notice.
6.11 AFFILIATE AGREEMENTS. SCHEDULE 6.11 sets forth those persons who are,
in Arcada's reasonable judgment, "affiliates" of Arcada within the meaning of
Rule 145 (each such person an "Affiliate") promulgated under the Securities Act
("Rule 145"). Arcada shall provide Seagate with such information and documents
as Seagate shall reasonably request for purposes of reviewing such list. Arcada
shall use commercially reasonable efforts to deliver or cause to be delivered to
Seagate, concurrently with the execution of this Agreement from each of the
Affiliates of Arcada (other than Conner which is
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not receiving any Seagate Common Stock in the Merger), an executed Affiliate
Agreement in the form attached as EXHIBIT B. Seagate and Merger Sub shall be
entitled to place appropriate legends on the certificates evidencing any Seagate
Common Stock to be received by such Affiliates pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for Seagate Common Stock, consistent with the terms of such Affiliate
Agreements.
6.12 STANDSTILL. Azzouz agrees not to sell, offer to sell, pledge,
hypothecate or otherwise dispose, in the aggregate, (i) more than fifty percent
(50%) of the total number of shares of Seagate Common Stock, including shares of
Seagate Common Stock subject to options assumed by Seagate pursuant to Section
6.13 below, received by Azzouz (the "Azzouz Shares") prior to the first
anniversary of the Effective Time and (ii) more than seventy-five percent (75%)
of the Azzouz Shares prior to the second anniversary of the Effective Time. Any
sale of Azzouz Shares otherwise permitted under this Section 6.12 shall be
subject to compliance with applicable federal and state securities laws.
6.13 STOCK OPTIONS.
(a) ASSUMPTION OF STOCK OPTIONS AT THE EFFECTIVE TIME. Subject to Section
6.13(c), each outstanding Arcada Option (including any Additional Permitted
Arcada Options) and Conner Arcada Option, whether vested or unvested, shall be
assumed by Seagate at the Effective Time of the Merger. Accordingly, each Arcada
Option and each Conner Arcada Option shall be deemed to constitute an option to
acquire, on the same terms and conditions as were applicable under such Arcada
Option or Conner Arcada Option (as the case may be), the number, rounded down to
the nearest whole integer, of full shares of Seagate Common Stock the holder of
such Arcada Option or Conner Arcada Option (as the case may be) would have been
entitled to receive pursuant to the Merger had such holder exercised such Arcada
Option or Conner Arcada Option (as the case may be) in full, including as to
unvested shares, immediately prior to the Effective Time of the Merger at a
price per share equal to (y) the aggregate exercise price for the shares of
Arcada Common Stock otherwise purchasable pursuant to such Arcada Option or
Conner Arcada Option divided by (z) the number of full shares of Seagate Common
Stock deemed purchasable pursuant to such Arcada Option or Conner Arcada Option
(as the case may be) with such exercise price per share rounded up to the
nearest whole cent. The term, vesting schedule, status as an "incentive stock
option" under Section 422 of the Code, if applicable, and all other terms and
conditions of Arcada Options and Conner Arcada Options will otherwise be
unchanged except to the extent necessary to reflect that such Arcada Option or
Conner/Arcada Option shall be exercisable for Seagate Common Stock registered
pursuant to Section 6.13(b). From and after the Merger, all Conner Arcada
Options and Arcada Options, respectively, shall be options to purchase only
Seagate Common Stock on the terms described above and that each of such persons
shall have no further rights to acquire Arcada Capital Stock. As soon as
practicable after the Effective Time, Seagate shall deliver to each holder of an
outstanding Arcada Option or Conner Arcada Option immediately prior to the
Effective Time an appropriate notice setting forth such holder's rights pursuant
thereto.
(b) FORM S-8 REGISTRATION. As soon as practicable after the Effective
Time, Seagate shall file a registration statement on Form S-8 (or any successor
or other appropriate form), or another appropriate form with respect to the
shares of Seagate Common Stock subject to such assumed Arcada Options and Conner
Arcada Options (the "Assumed Options") and shall use its reasonable efforts to
maintain the effectiveness of such registration statement (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such Assumed Options remain outstanding.
(c) ASSUMPTION OF STOCK OPTIONS UPON TERMINATION. Notwithstanding Section
6.13(a), if the Seagate Conner Merger has been consummated and this Agreement is
subsequently terminated in accordance with Section 8.1, Seagate shall assume all
of the then outstanding Conner Arcada Options in accordance with the provisions
of Section 6.13(a) as if the date of termination of this Agreement was the
Effective Date.
6.14 TERMINATION OF EMPLOYMENT AGREEMENT AND STOCKHOLDERS
AGREEMENT. Seagate (for itself and, subsequent to the Seagate/Conner Merger, on
behalf of Conner), Arcada and Azzouz agree that at
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the Effective Time, each of the Employment Agreement dated as of January 5,
1994, by and between Arcada (formerly Astora Software, Inc.) and Azzouz, and the
Arcada Stockholders Agreement shall terminate and be of no further force and
effect and there shall be no further rights of any of the parties thereunder,
including, without limitation, any rights arising thereunder in connection with
any prior breaches thereof. The parties shall take any additional actions and
execute or cause to be executed any additional documents necessary to effect
such termination.
6.15 NYSE LISTING. Seagate shall use its reasonable efforts to cause the
shares of Seagate Common Stock issuable to the stockholders of Arcada in the
Merger to be authorized for listing on the NYSE, upon official notice of
issuance.
6.16 INDEMNIFICATION AND INSURANCE.
(a) Seagate acknowledges that Azzouz, Finis Conner and P. Jackson Bell have
at all times served in their respective capacities as officers and/or members of
the Boards of Directors of Arcada and its subsidiaries at the request of Conner
and that, accordingly, they are entitled to indemnification pursuant to Article
VI of the Bylaws of Conner for expenses and liabilities arising from facts or
events which occurred on or before consummation of the Seagate/Conner Merger,
including those relating to the Merger or transactions contemplated by this
Agreement. Seagate also acknowledges that, to the extent Azzouz continues to
serve as a member of the Board of Directors or an officer of any entity
controlled by Seagate after the Seagate/Conner Merger or the Merger contemplated
hereby, Azzouz will be serving in such capacity at the request of Seagate and
that, accordingly, Azzouz will be entitled to indemnification pursuant to
Article VI (including, without limitation, Section 6.8) of the Bylaws of Seagate
for expenses and liabilities arising from facts or events which occur on or
after the consummation the Seagate/ Conner Merger to the same extent as would
any member of the Board of Directors or officer of Seagate.
(b) The Certificate of Incorporation and Bylaws of the Surviving Corporation
shall contain provisions identical with respect to indemnification to those set
forth in Article V of the Amended and Restated Certificate of Incorporation of
Arcada and Article VI of the Bylaws of Arcada, respectively, which provisions
and Article V of the Amended and Restated Certificate of Incorporation of
Arcada, shall not be amended, repealed or otherwise modified for a period of six
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, agents or employees of Arcada or its subsidiary.
(c) The directors and officers of Arcada and its subsidiaries at the
Effective Time shall be deemed third-party beneficiaries of Section 5.16(c) of
the Seagate/Conner Agreement and are intended to be covered thereby.
6.17 BENEFIT PLANS GENERALLY. Seagate agrees to provide employees of
Arcada and its subsidiaries with credit for all service with such companies for
purposes of vesting and eligibility under any employee benefit plan, program or
arrangement of Seagate or its affiliates.
6.18 TAX COMPLIANCE AND REPORTING.
(a) The parties acknowledge that the Arcada Acquisition is intended to
qualify as a reorganization within the meaning of Section 368(a) of the Code.
Accordingly, Seagate shall comply with, and shall cause Conner and the Surviving
Corporation to comply with, the reporting requirements set forth in Treasury
Regulation Section 1.368-3 applicable to them with respect to the Arcada
Acquisition, and none of them shall engage in any transaction inconsistent with
the representations and certifications in the forms attached as EXHIBIT E, and
none of them shall make any election or take any reporting or other position
inconsistent with the treatment of the Arcada Acquisition as a reorganization
within the meaning of Section 368(a) of the Code except as required by law.
(b) In the event that the Merger is not treated as a reorganization within
the meaning of Section 368(a) of the Code with respect to any shareholder of
Arcada at the time of execution of this
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Agreement other than Azzouz or Conner (an "Indemnified Shareholder") pursuant to
a determination, as defined in Section 1313(a) of the Code, for any reason other
than (i) as a result of the disposition or intention to dispose of Arcada stock
prior to the Effective Time or Seagate Common Stock received pursuant to the
Merger by one or more Arcada shareholders or (ii) with respect to an Indemnified
Shareholder who reports the Merger in a manner inconsistent with a non-taxable
reorganization, then Seagate shall indemnify such Indemnified Shareholder so as
to put such Indemnified Shareholder in the same economic position such
Indemnified Shareholder would be in had the Merger been treated as a
reorganization within the meaning of Section 368(a) of the Code. Such
indemnification may include, but is not limited to, non-recoverable payments for
taxes, interest and penalties, interest-free loans and "gross up" payments to
cover the tax consequences of the receipt or deemed receipt of any amounts
pursuant to this provision.
SECTION 7
CONDITIONS TO THE MERGER
7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger and
the other transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) EFFECTIVENESS OF THE S-4. The S-4 shall have been declared effective
by the SEC under the Securities Act. No stop order suspending the effectiveness
of the S-4 shall have been issued by the SEC and no proceedings for that purpose
and no similar proceeding with respect to the Proxy Statement shall have been
initiated or threatened by the SEC.
(b) STOCKHOLDER APPROVAL. This Agreement, the Merger Agreement and the
Merger and other transactions contemplated hereby and thereby shall have been
approved and adopted by the affirmative vote or consent of the holders of at
least a majority of the outstanding Arcada Capital Stock present, in person or
by proxy, at the Stockholders Meeting contemplated by Section 6.4, in compliance
with applicable law and Arcada's Certificate of incorporation and Bylaws.
(c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by any Governmental Entity, seeking any of the foregoing be pending; nor shall
there be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger, which makes the
consummation of the Merger illegal.
(d) SEAGATE/CONNER MERGER. The Seagate/Conner Merger shall have been
consummated.
(e) HSR ACT. The waiting period applicable to the consummation of the
Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended shall have expired or been terminated.
7.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF SEAGATE. The obligations
of Seagate to consummate and effect the Merger and the other transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Effective Time of each of the following conditions, any of which may be
waived, in writing, by Seagate:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of Arcada and Azzouz set forth in this Agreement shall be true and
correct (determined without regard to any materiality qualifiers, including,
without limitation, "Material Adverse Effect") (i) as of the date of this
Agreement and (ii) as of the Closing Date (provided that, in the case of clauses
(i) and (ii), any such representation and warranty made as of a specific date
shall be true and correct as of such specific date), except for such
inaccuracies as individually or in the aggregate which would not have a
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Material Adverse Effect, and Arcada and Azzouz shall have performed and complied
with all covenants, obligations and conditions of this Agreement required to be
performed and complied with by each of them as of the Closing Date. Seagate
shall have been provided with a certificate dated as of the Closing Date
executed by Azzouz on behalf of himself and Arcada to such effect.
(b) NO DISSENTERS. Holders of no more than two percent (2%) of the
outstanding Arcada Capital Stock shall have exercised, nor shall they continue
to have the right to exercise, appraisal rights with respect to the transactions
contemplated by this Agreement.
(c) AMENDMENT OF CONNER/ARCADA PLAN. The "Amendment to Conner Peripherals,
Inc./Arcada Holdings, Inc. Stock Option Plan and Related Agreement" in the form
set forth on Exhibit C shall have been executed by the persons on Schedule
4.2(b).
(d) NONCOMPETITION AGREEMENT. The Noncompetition Agreement substantially
in the form attached as EXHIBIT D (the "Noncompetition Agreement") shall have
been executed and delivered by each of Azzouz, Arcada and Seagate. Seagate
acknowledges and agrees that the Noncompetition Agreement is an incidental part
of the Arcada Acquisition and that none of the consideration to be paid by
Seagate is separately allocable to the Noncompetition Agreement.
(e) NO MATERIAL ADVERSE EFFECT. There shall have been no Material Adverse
Effect from the date of this Agreement through the Closing Date, and Seagate
shall have received a certificate signed by Arcada and Azzouz to such effect on
the Closing Date.
7.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF ARCADA AND AZZOUZ. The
obligations of Arcada and Azzouz to consummate and effect the Merger and the
other transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Arcada and Azzouz:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of Seagate in this Agreement shall be true and correct in all
material respects on and as of the date of this Agreement and as of the Closing
Date as though such representations and warranties were made on and as of such
time and Seagate shall have performed and complied with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by it as of the Closing Date. Arcada shall have been provided with
a certificate dated as of the Closing Date and executed on behalf of Seagate by
an executive officer of Seagate to such effect.
(b) TAX OPINION. Arcada and Azzouz shall have received a written opinion
from Irell & Manella in form and substance reasonably satisfactory to them to
the effect that the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code with respect to the Seagate Common Stock to be
received by holders of Arcada Common Stock in the Merger. In rendering such
opinion, counsel may rely upon representations and certifications of Seagate and
Merger Sub and Arcada substantially in the forms attached as EXHIBIT E.
(c) NO MATERIAL ADVERSE EFFECT. There shall have been no material adverse
effect with respect to Seagate from the date of this Agreement through the
Closing Date, and Arcada and Azzouz shall have received a certificate signed by
Seagate to such effect on the Closing Date. When used in connection with
Seagate, the term "Material Adverse Effect" means any change, event or effect
that is materially adverse to the business, assets, liabilities, prospects or
financial condition of Seagate and its subsidiaries taken as a whole; PROVIDED,
HOWEVER, that a "Material Adverse Effect" shall not include any adverse effect
on the revenues or gross margins of Seagate (or the direct consequences thereof)
following the date of this Agreement which are attributable to (i) a delay of,
reduction in or cancellation or the change in the terms of product orders by
customers of Seagate or (ii) an increase in the price of, a delay of, reduction
in or cancellation of or change in terms with respect to products or components
supplied by vendors of Seagate, which in either case are attributable to the
announcement of the transactions contemplated by this Agreement or the
Seagate/Conner Agreement.
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(d) NYSE LISTING. The shares of Seagate Common Stock issuable to the
stockholders of Arcada in the Merger shall have been authorized for listing on
the NYSE upon official notice of issuance.
(e) CONNER/ARCADA LETTER AGREEMENT. Conner shall have executed and
delivered to Arcada a letter agreement substantially in the form attached hereto
as EXHIBIT F.
SECTION 8
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. This Agreement may be terminated and the Merger abandoned
at any time prior to the Effective Time, whether before or after approval of the
Merger by the stockholders of Arcada:
(a) by mutual written consent of Arcada, Azzouz and Seagate;
(b) automatically if the Seagate/Conner Agreement shall have been terminated
prior to consummation of the Seagate/Conner Merger;
(c) by Arcada or Azzouz if the Merger shall not have been consummated by the
end of the forty-fifth (45th) day following consummation of the Seagate/Conner
Merger; PROVIDED, that the right to terminate this Agreement under this Section
8.1(c) shall not be available to if any action or failure to act by Arcada or
Azzouz has been the cause of or resulted in the failure of the Merger to occur
on or before such date and such action or failure to act constitutes a breach of
this Agreement;
(d) by Arcada, Azzouz or Seagate if there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
Merger; or there shall be any action taken, or any statute, rule, regulation or
order enacted, promulgated or issued or deemed applicable to the Merger by any
Governmental Entity which would make the consummation of the Merger illegal;
(e) by Seagate if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental Entity, which would: (i) prohibit Seagate's or
Arcada's ownership or operation of all or a material portion of the business of
Arcada or (ii) compel Seagate or Arcada to dispose of or hold separate all or a
material portion of the business or assets of Arcada or Seagate as a result of
the Merger (provided, however, that the failure or refusal of Seagate or Arcada
to divest themselve of any portion of their respective businesses shall not be
deemed a breach of this Agreement);
(f) by Seagate if it is not in breach of its obligations under this
Agreement and there has been a breach of any representation, warranty, covenant
or agreement contained in this Agreement on the part of Arcada or Azzouz such
that the conditions set forth in Section 7.2(a) would not be satisfied; or
(g) by Arcada or Azzouz if they are not in breach of their obligations under
this Agreement and there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of Seagate such
that the conditions set forth in Section 7.3(a) would not be satisfied.
For purposes of this Agreement, a party alleging a breach of a
representation, warranty or covenant or the failure of a condition shall have
the burden of proof with respect to such alleged breach or failure.
8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Seagate (including any of its
subsidiaries), Arcada or Azzouz, or their respective officers, directors or
stockholders (including Conner), or Conner's directors and officers, including,
without limitation, for any breaches of this Agreement prior to its termination
(termination being each party's sole and exclusive remedy for a breach of this
Agreement except in the case of fraud) or for any termination of this Agreement
following termination of the Seagate/Conner Agreement, and provided
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further that the provisions of Sections 6.6 (confidentiality), 6.7 (expenses),
6.13(c) (Assumption of Stock Options Upon Termination), 8 (termination,
amendment and waiver) and 9 (miscellaneous) of this Agreement shall remain in
full force and effect and survive any termination of this Agreement.
8.3 AMENDMENT. This Agreement may be amended by the parties hereto at any
time prior to the Closing by execution of an instrument in writing signed on
behalf of each of the parties hereto, provided however that no amendment shall
be made which by law requires the further approval of the stockholders of Arcada
without obtaining such approval.
8.4 EXTENSION: WAIVER. At any time prior to the Effective Time, Seagate
and Merger Sub, on the one hand, and Arcada and Azzouz, on the other, may, to
the extent legally allowed, (i) extend the time for the performance of any of
the obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
8.5 NOTICE OF TERMINATION. Any termination of this Agreement under Section
8.1 above will be effective immediately upon the delivery of written notice of
the terminating party to the other parties hereto.
SECTION 9
MISCELLANEOUS
9.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Seagate, to:
Seagate Technology, Inc.
920 Disc Drive
Scotts Valley, CA 96067-0360
Attention: Donald L. Waite
Executive Vice President of Administration
and Chief Financial Officer
with a copy to:
Wilson, Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry W. Sonsini Esq.
Facsimile No.: (415) 493-6811
(b) if to Arcada, to:
Arcada Holdings, Inc.
708 Fiero Commerce Park 4-10
San Luis Obispo, CA 93401
Attention: Kevin Azzouz
Facsimile No.: (805) 782-4397
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with a copy to:
Irell & Manella
333 South Hope Street
Suite 3300
Los Angeles, CA 90071
Attention: Edmund M. Kaufman, Esq.
Fax: (213) 229-0553
and
Conner Peripherals, Inc.
3081 Zanker Road
San Jose, CA 95134
Attention: Thomas F. Mulvaney, Esq.
Facsimile No.: (408) 456-3841
(c) if to Azzouz, to:
Kevin H. Azzouz
2176 Alaqua Drive
Longwood, Florida 32779
Fax: (407) 333-8064
9.2 INTERPRETATION. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 ENTIRE AGREEMENT: ASSIGNMENT. This Agreement, the Schedules and
Exhibits hereto and the documents and instruments and other agreements among the
parties hereto referenced herein: (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof (including without limitation the Letter of
Intent (except paragraph 8 thereof)); (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided. This
Agreement is binding upon and will inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
9.5 SEVERABILITY. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
9.6 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall be deemed to be conditions
to the Merger and shall not survive the Merger, except for the agreements
contained in Sections 6.7 (expenses), 6.12 (standstill), 6.13 (options), 6.14
(termination of employment and stockholders agreement), 6.16 (indemnification
and insurance), 6.17 (benefit plans), 6.18 (tax reporting) and 9.9 (further
assurances), each of which shall survive the Merger.
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9.7 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 or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
9.9 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.
9.10 ABSENCE OF THIRD PART BENEFICIARY RIGHTS. No provision of this
Agreement is intended, nor will be interpreted, to provide to create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, employee, partner of any party hereto or any
other person or entity; PROVIDED, HOWEVER, that (i) the holders of Arcada
Options and Conner Arcada Options are intended beneficiaries of the covenants
and agreements contained in Sections 6.13 ("Stock Options") and 9.6
("Nonsurvival of Representations, Warranties and Covenants"), (ii) Finis Conner
and P. Jackson Bell are intended beneficiaries of the covenants and agreements
contained in Section 6.16 ("Indemnification and Insurance"), (iii) the
shareholders of Arcada at the time of execution of this Agreement other than
Azzouz and Conner are intended beneficiaries of the covenants and agreements
contained in Section 6.18(b) (Tax Compliance and Reporting); and (iv) Conner and
its officers and directors are intended beneficiaries of Sections 8.2 ("Effect
of Termination") and 9.6 ("Nonsurvival of Representations, Warranties and
Covenants").
9.11 MUTUAL DRAFTING. This Agreement is the collective product of the
parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of each of the parties, and shall not be
construed for or against any party hereto.
9.12 FURTHER REPRESENTATIONS. Each party to this Agreement acknowledges
and represents that it has been represented by its own legal counsel in
connection with the transactions contemplated by this Agreement with the
opportunity to seek advice as to its legal rights from such counsel. Each party
further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
[NEXT PAGE IS SIGNATURE PAGE]
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<PAGE>
SIGNATURE PAGE TO ARCADA REORGANIZATION AGREEMENT
IN WITNESS WHEREOF, Seagate, Arcada and Azzouz have entered into this
Agreement as of the date first written above.
<TABLE>
<S> <C>
ARCADA HOLDINGS, INC. SEAGATE TECHNOLOGY, INC.
By /s/ KEVIN H. AZZOUZ By /s/ STEPHEN J. LUCZO
----------------------------------------- -----------------------------------------
Name Kevin H. Azzouz Name Stephen J. Luczo
-------------------------------------- --------------------------------------
Title Authorized Signatory Title Executive Vice-President
---------------------------------------- ----------------------------------------
/s/ KEVIN H. AZZOUZ
--------------------------------------------
KEVIN H. AZZOUZ
</TABLE>
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<PAGE>
APPENDIX B
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (the "Merger Agreement") is made and entered into
as of , by and between [merger sub], a Delaware
corporation ("Merger Sub"), and Arcada Holdings, Inc., a Delaware corporation
("Arcada" or the "Surviving Corporation"; Merger Sub and Arcada are sometimes
referred to herein as the "Constituent Corporations"). Capitalized terms used
but not defined herein shall have the meanings as set forth in that certain
Agreement and Plan of Reorganization (the "Reorganization Agreement") dated as
of December 21, 1995, by and among Seagate Technology, Inc., a Delaware
corporation ("Seagate"), Arcada and Kevin H. Azzouz ("Azzouz"). Merger Sub is a
wholly-owned subsidiary of Seagate.
RECITALS
A. The respective Boards of Directors of Merger Sub and Arcada have deemed
it advisable and in the best interests of their respective corporations and
stockholders that Arcada be acquired by Seagate through the Merger (as defined
below) in the manner contemplated herein and have duly approved the
Reorganization Agreement and this Merger Agreement.
B. The sole stockholder of Merger Sub has voted for adoption of the
Reorganization Agreement and this Merger Agreement. A majority of the
outstanding stockholders of Arcada entitled to vote thereon have voted for
approval and adoption of the Reorganization Agreement and this Merger Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained herein, Merger Sub and Arcada agree as follows:
ARTICLE I
THE MERGER
1.1 MERGER OF MERGER SUB WITH AND INTO ARCADA.
(a) AGREEMENT TO ACQUIRE ARCADA. Subject to the terms of this Merger
Agreement and the Reorganization Agreement, Arcada shall be acquired by
Seagate through a merger (the "Merger") of Merger Sub with and into Arcada.
(b) EFFECTIVE TIME OF THE MERGER. The Merger shall become effective
upon the filing of this Merger Agreement, together with any required
officers' certificates of each Constituent Corporation with the Secretary of
State of the State of Delaware pursuant to Section 251 of the Delaware
General Corporation Law (the "Delaware Law"). The time of such filing is
referred to as the "Effective Time."
(c) SURVIVING CORPORATION. At the Effective Time, Merger Sub shall be
merged with and into Arcada and the separate corporate existence of Merger
Sub shall thereupon cease. Arcada shall be the Surviving Corporation in the
Merger and all the property, rights, privileges, powers and franchises of
Arcada and Merger Sub immediately prior to the Merger shall vest in the
Surviving Corporation, and all debts, liabilities, obligations and duties of
Arcada and Merger Sub shall become the debts, liabilities, obligations and
duties of the Surviving Corporation.
1.2 EFFECT OF THE MERGER, ADDITIONAL ACTIONS.
(a) EFFECTS. The Merger shall have the effects set forth in Section
259 of Delaware Law.
(b) ADDITIONAL ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary
or desirable (i) to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of
the rights, properties or assets of either Constituent Corporation acquired
or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger or (ii) to otherwise carry out the purposes of
this Merger Agreement, each Constituent Corporation and its officers and
directors shall be deemed
<PAGE>
to have granted to the Surviving Corporation an irrevocable power of
attorney to execute and deliver all such deeds, bills of sale, assignments
and assurances and to take and do all such other actions and things as may
be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets of the
Surviving Corporation and otherwise to carry out the purposes of this Merger
Agreement, and the officers and directors of the Surviving Corporation are
fully authorized in the name of each Constituent Corporation or otherwise to
take any and all such actions.
ARTICLE II
THE CONSTITUENT CORPORATIONS
2.1 ORGANIZATION OF ARCADA. Arcada was incorporated under the laws of the
State of Delaware on November 10, 1993. Arcada is authorized to issue an
aggregate of 200,000,000 shares of stock, $.001 par value (the "Arcada Capital
Stock"), of which 120,000,000 shares are Common Stock, $.001 par value (the
"Arcada Common Stock") and 80,000,000 shares are Preferred Stock, $.001 par
value, of which 40,000,000 shares have been designated as Series A Preferred
Stock, $.001 par value (the "Arcada Series A Preferred"), and 40,000,000 shares
have been designated as Series B Preferred Stock, $.001 par value (the "Arcada
Series B Preferred"). As of December 21, 1995, 2,455,049 shares of Arcada Common
Stock were outstanding, 36,000,000 shares of Arcada Series A Preferred Stock
were outstanding, and 0 shares of Arcada Series B Preferred were outstanding.
2.2 ORGANIZATION OF MERGER SUB. Merger Sub was incorporated under the laws
of the State of Delaware on . Merger Sub is authorized to issue an
aggregate of 3,000 shares of Common Stock, $0.01 par value per share, of which
100 shares are outstanding as of .
ARTICLE III
CERTIFICATE OF INCORPORATION, BYLAWS AND
CORPORATE ORGANIZATION OF THE SURVIVING CORPORATION
3.1 CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION. The
Certificate of Incorporation of Arcada, as amended and in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation unless and until amended as provided by law and such
Certificate of Incorporation.
3.2 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation unless and until altered, amended or repealed as provided
by applicable law, the Certificate of Incorporation of the Surviving Corporation
and such Bylaws.
3.3 DIRECTORS OF THE SURVIVING CORPORATION. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation and shall hold office from the Effective Time until their
respective successors shall have been duly elected or appointed or their
resignation or removal in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation, as the same may be
amended from time to time, or as otherwise provided by law.
3.4 OFFICERS OF THE SURVIVING CORPORATION. The officers of Merger Sub
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation.
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<PAGE>
ARTICLE IV
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
4.1 EFFECT ON CAPITAL STOCK. As of the Effective Time, subject and
pursuant to the terms of this Merger Agreement and the Reorganization Agreement,
by virtue of the Merger and without any action on the part of Constituent
Corporations or the holders of any shares of the capital stock of the
Constituent Corporations:
(a) CAPITAL STOCK OF MERGER SUB. Each issued and outstanding share of
capital stock of Merger Sub shall continue to be issued and outstanding and
shall be converted into one share of validly issued, fully paid and
non-assessable Common Stock of the Surviving Corporation. Each stock certificate
of Merger Sub evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.
(b) CANCELLATION OF CERTAIN SHARES OF ARCADA CAPITAL STOCK. All shares of
Arcada Capital Stock that are owned directly or indirectly by Arcada shall be
canceled and no stock of Seagate or other consideration shall be delivered in
exchange therefor.
(c) CAPITAL STOCK HELD BY CONNER PERIPHERALS, INC., A DELAWARE CORPORATION
("CONNER"). All shares of Arcada Capital Stock that are owned directly or
indirectly by Conner (including rights to acquire such shares but excluding the
3,035,600 shares of Arcada Capital Stock that are reserved for issuance upon
exercise of the Conner Arcada Options (as defined in Section 4.2(b) of the
Reorganization Agreement)) shall continue to be issued and outstanding shares of
Arcada Capital Stock and shall not be affected by the Merger.
(d) CONVERSION OF CAPITAL STOCK OF ARCADA. Subject to Sections 4.1(e),
(f), (g) and (h) below, each issued and outstanding share of Arcada Common
Stock, Arcada Series A Preferred Stock, and Arcada Series B Preferred Stock
(other than shares to be canceled pursuant to Section 4.1(b) above and shares to
remain outstanding pursuant to Section 4.1(c) above), that are issued and
outstanding immediately prior to the Effective Time shall automatically be
canceled and extinguished and converted, without any action on the part of the
holder thereof, into the right to receive 0.1545 shares of Seagate Common Stock,
$.01 par value (the "Seagate Common Stock"), which shares will be held by Merger
Sub at or prior to the Effective Time. All such shares of Arcada Capital Stock,
when so converted, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of Seagate Common Stock to be
issued or paid in consideration therefor upon the surrender of such certificate
in accordance with Section 4.2 of this Merger Agreement. The ratio pursuant to
which each share of Arcada Capital Stock will be exchanged for shares of Seagate
Common Stock, determined in accordance with the foregoing provisions, is
referred to as the "Exchange Ratio."
(e) ADJUSTMENT OF EXCHANGE RATIO. If, between the date of the
Reorganization Agreement and the Effective Time, the outstanding shares of
Seagate Common Stock or Arcada Capital Stock shall have been changed into a
different number of shares or a different class by reason of any
reclassification, split-up, stock dividend or stock combination, then the
Exchange Ratio shall be correspondingly adjusted.
(f) DISSENTERS' RIGHTS. Any shares of Arcada Capital Stock held by a
holder who has properly exercised dissenters' rights for such shares in
accordance with Delaware Law and who, as of the Effective Time, has not
effectively withdrawn or lost such dissenters' rights ("Dissenting Shares")
shall not be converted into Seagate Common Stock but shall be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to Delaware Law. Arcada shall give Seagate
prompt notice of any demand received by Arcada to require Arcada to purchase
shares of Arcada Capital Stock, and Seagate shall have the right to participate
in
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all negotiations and proceedings with respect to such demand. Arcada agrees
that, except with the prior written consent of Seagate, it will not voluntarily
make any payment with respect to, or settle or offer to settle, any such
purchase demand. Each holder of Dissenting Shares (a "Dissenting Stockholder")
who, pursuant to the provisions of Delaware Law, becomes entitled to payment of
the value of shares of Arcada Capital Stock shall receive payment therefor (but
only after the value therefor shall have been agreed upon or finally determined
pursuant to such provisions) provided that all funds used to make such payment
shall be paid solely by Arcada and neither Seagate nor Conner shall have the
obligation to provide funds to Arcada for such payment. In the event of legal
obligation, after the Effective Time, to deliver shares of Seagate Common Stock
to any holder of shares of Arcada Capital Stock who shall have failed to make an
effective purchase demand or shall have lost its status as a Dissenting
Stockholder, Seagate has agreed to issue and deliver, upon surrender by such
Dissenting Stockholder of such holder's certificate or certificates representing
shares of Arcada Capital Stock, the shares of Seagate Common Stock to which such
Dissenting Stockholder is then entitled under this Section 4.1 and this Merger
Agreement.
(g) FRACTIONAL SHARES. No fractional shares of Seagate Common Stock shall
be issued, but in lieu thereof each holder of shares of Arcada Capital Stock who
would otherwise be entitled to receive a fraction of a share of Seagate Common
Stock shall receive an amount of cash equal to the per share market value of
Seagate Common Stock (based on the last sales price of Seagate Common Stock as
reported on the New York Stock Exchange, Inc. (the "NYSE") on the Effective
Date) multiplied by the fraction of a share of Seagate Common Stock to which
such holder would otherwise be entitled. The fractional share interests of each
stockholder of Arcada shall be aggregated, so that no Arcada stockholder shall
receive cash in an amount greater than the value of one full share of Seagate
Common Stock.
(h) MAXIMUM MERGER CONSIDERATION. The maximum consideration to be paid by
Seagate through Merger Sub (including Seagate Common Stock to be reserved for
issuance upon exercise of Arcada Options and Conner Arcada Options assumed by
Seagate pursuant to Section 6.13 of the Reorganization Agreement but excluding
cash payments in lieu of fractional shares pursuant to Section 4.1(g) above)
pursuant to the Merger shall be equal to (i) 2,192,441 shares of Seagate Common
Stock PLUS (ii) a number of shares of Seagate Common Stock equal to the product
of (A) the Exchange Ratio TIMES (B) the number of shares of Arcada Common Stock
subject to Additional Permitted Arcada Options (as defined below). In the event
that immediately prior to the Closing the outstanding shares of Arcada Capital
Stock not held by Conner, including shares subject to Arcada Options (as defined
in Section 3.2(b) of the Reorganization Agreement) and Conner Arcada Options (as
defined in Section 4.2(b) of the Reorganization Agreement) is greater than the
sum of (y) 14,190,555 PLUS (z) the number of shares subject to Additional
Permitted Arcada Options, the Exchange Ratio shall be proportionately decreased.
No adjustment shall be made in the aggregate consideration to be paid in the
Merger as a result of any cash proceeds received by Arcada from the date of this
Agreement to the Closing Date pursuant to the exercise of currently outstanding
options to acquire Arcada Common Stock. Notwithstanding the foregoing, no
adjustment shall be made in the Exchange Ratio for increases in the number of
shares subject to Conner Arcada Options unless there has been a breach of the
representation made by Azzouz in the second sentence of Section 3.2(b) of the
Reorganization Agreement. For purposes of this Agreement, "Additional Permitted
Arcada Options" means additional options issued under the Arcada Plan (as
defined in Section 3.2(b) of the Reorganization Agreement) between October 3,
1995 and the Effective Time in accordance with Section 5.2(c) of the Agreement
and Plan of Reorganization dated as of October 3, 1995 among Seagate, Conner and
Athena Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of Seagate, (of which options to purchase 199,800 shares were issued
on November 21, 1995) or with the consent of Seagate.
(i) STOCK OPTIONS. All the outstanding Arcada Options (including any
Additional Permitted Arcada Options) and Conner Arcada Options shall be
assumed by Seagate in accordance with Section 6.13 of the Reorganization
Agreement.
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4.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Seagate shall
designate a bank or trust company, reasonably acceptable to Arcada, to act
as exchange agent (the "Exchange Agent") in the Merger.
(b) SEAGATE TO PROVIDE COMMON STOCK. Promptly after the Effective
Time, Merger Sub shall deliver to the Exchange Agent in accordance with this
Section 4.2, the shares of Seagate Common Stock issuable pursuant to Section
4.1 of this Merger Agreement in exchange for outstanding shares of capital
stock of Arcada, and cash in an amount sufficient for payment in lieu of
fractional shares pursuant to Section 4.1(g) of this Merger Agreement.
(c) EXCHANGE PROCEDURES. As soon as practicable after the Effective
Time, the Surviving Corporation shall cause to be mailed to each holder of
record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Arcada Common Stock (the
"Certificates") whose shares are being converted into Seagate Common Stock
pursuant to Section 4.1 of this Merger Agreement, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as Seagate may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for
Seagate Common Stock. Upon surrender of a Certificate for cancellation to
the Exchange Agent or to such other agent or agents as may be appointed by
Seagate, together with such letter of transmittal, duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefor the
number of shares of Seagate Common Stock to which the holder of Arcada
Common Stock is entitled pursuant to Section 4.1. The Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Arcada Common Stock which is not registered on the transfer
records of Arcada, the appropriate number of shares of Seagate Common Stock
may be delivered to a transferee if the Certificate representing such
capital stock of Arcada is presented to the Exchange Agent and accompanied
by all documents required to evidence and effect such transfer and to
evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 4.2, each Certificate shall be
deemed at any time after the Effective Time to represent the right to
receive upon such surrender the number of shares of Seagate Common Stock as
provided by this Section 4 and the provisions of Delaware Law.
(d) NO FURTHER OWNERSHIP RIGHTS IN CAPITAL STOCK OF ARCADA. All
Seagate Common Stock delivered upon the surrender for exchange of shares of
Arcada Common Stock in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such
shares of Arcada Common Stock, and following the Effective Time, the
Certificates shall have no further rights to, or ownership in, shares of
capital stock of Arcada. There shall be no further registration of transfers
on the stock transfer books of the Surviving Corporation of the shares of
Arcada Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Section 4.
(e) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
certificates evidencing shares of Arcada Common Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall make payment in exchange for
such lost, stolen or destroyed certificates, upon the making of an affidavit
of that fact by the holder thereof, such shares of Seagate Common Stock and
cash for fractional shares, if any, as may be required pursuant to Section
4.1(g) of this Merger Agreement; provided, however, that Seagate may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificates to deliver a bond in
such sum as it may reasonably direct as indemnity against any claim that may
be made against Seagate or the Exchange Agent with respect to the
certificates alleged to have been lost, stolen or destroyed.
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(f) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 5.2, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to a holder of shares of Arcada Common Stock
for any amount paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(g) DISSENTING SHARES. Dissenting Shares that lose their status as
such shall also be subject to the provisions of this Section 4.2 as of the
date of loss of such status.
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ARTICLE V
TERMINATION
5.1 TERMINATION BY MUTUAL AGREEMENT. Notwithstanding the approval of this
Merger Agreement by the stockholders of Arcada and Merger Sub, this Merger
Agreement may be terminated at any time prior to the Effective Time by the
mutual agreement of the Boards of Directors of Arcada and Merger Sub.
5.2 TERMINATION OF REORGANIZATION AGREEMENT. Notwithstanding the approval
of this Merger Agreement by the stockholders of Arcada and Merger Sub, this
Merger Agreement shall terminate forthwith in the event that the Reorganization
Agreement shall be terminated as therein provided.
5.3 EFFECTS OF TERMINATION. In the event of the termination of this Merger
Agreement, this Merger Agreement shall forthwith become void and there shall be
no liability on the part of Merger Sub or Arcada or their respective officers or
directors, except to the extent otherwise provided in the Reorganization
Agreement.
ARTICLE VI
GENERAL PROVISIONS
6.1 AMENDMENT. This Merger Agreement may be amended prior to the Effective
Time by the parties hereto, by any action taken by their respective Boards of
Directors, at any time before or after approval of the Merger by the
stockholders of Arcada and Merger Sub but, after any such approval, no amendment
shall be made which by law requires the further approval of the stockholders of
Arcada or Merger Sub without obtaining such further approval. This Merger
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties.
6.2 COUNTERPARTS. This Merger Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same agreement.
6.3 GOVERNING LAW. This Merger Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Delaware.
IN WITNESS WHEREOF, the parties have duly executed this Merger Agreement as
of the date first above written.
ARCADA HOLDINGS, INC.,
a Delaware corporation
By
--------------------------------------
Its
--------------------------------------
[merger sub],
a Delaware corporation
By
--------------------------------------
Its
--------------------------------------
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APPENDIX C
DELAWARE GENERAL CORPORATION LAW SECTION 262
262 APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of his shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word "stockholder"
means a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and include
what is ordinarily meant by those words and also membership or membership
interest of a member of a nonstock corporation; and the words "depository
receipt" mean a receipt or other instrument issued by a depository representing
an interest in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the holders of the surviving corporation as provided in
subsection (f) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it appears
on the records of the corporation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of the notice, demand
in writing from the surviving or resulting corporation the appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a
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statement setting forth the aggregate number of shares not voted in favor of the
merger or consolidation and with respect to which demands for appraisal have
been received and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days after this written
request for such a statement is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at last 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may
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order all or a portion of the expenses incurred by any stockholder in connection
with the appraisal proceeding, including, without limitation, reasonable
attorney's fees and the fees and expenses of experts, to be charged pro rata
against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director. The Registrant's
Bylaws provide that the directors, officers and certain other persons will be
indemnified with respect to third-party actions or suits, provided such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Registrant. The Registrant's Bylaws
further provide that directors, officers and certain other persons will be
indemnified with respect to actions or suits by or in the right of the
Registrant, provided that such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Registrant; except that no indemnification shall be made in the event that such
person shall be adjudged to be liable to the Registrant, unless a court
determines that indemnification is fair and reasonable in view of all the
circumstances. The Registrant's Bylaws require the Registrant to pay all
expenses incurred by a director, officer, employee or agent in defending any
proceeding within the scope of the indemnification provisions as such expenses
are incurred in advance of its final disposition, subject to repayment if it is
ultimately determined that such party was not entitled to indemnity by the
Registrant. The Registrant has entered into indemnification agreements with its
officers and directors containing provisions which are in some respects broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements require the Registrant, among
other things to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance, if available on reasonable terms. The Registrant believes
that these agreements are necessary to attract and retain qualified persons as
directors and officers.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent made a party to
an action by reason of that fact that he or she was a director, officer or agent
of the corporation or was serving at the request of the corporation against
expenses actually and reasonably incurred by him or her in connection with such
action if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation and
with respect to any criminal action, had no reasonable cause to believe his or
her conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers or persons controlling the Registrant pursuant to the foregoing
provisions, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ---------- ----------------------------------------------------------------------------------------------
<C> <S>
2.01* Agreement and Plan of Reorganization by and between the Registrant and Arcada Holdings, Inc.
dated as of December 21, 1995, and the related Agreement of Merger and (attached as Appendix
A and Appendix B, respectively, to the Proxy Statement/Prospectus contained in the
Registration Statement).
3.01* The Registrant's Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K filed on August 7, 1995).
3.02* The Registrant's Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant's Annual
Report on Form 10-K filed on August 7, 1995).
4.01* Form of Specimen Certificate for the Registrant's Common Stock.
5.01* Opinion of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, regarding the
legality of the securities being issued.
8.01 Opinion to be delivered by Irell & Manella.
23.01* Consent of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation (included in Exhibit
5.01).
23.02 Consent of Ernst & Young LLP with respect to the Registrant's financial statements.
23.03 Consent of Price Waterhouse LLP with respect to Arcada Holdings, Inc.'s financial statements.
23.04 Consent of Price Waterhouse LLP with respect to Conner Peripherals, Inc.'s financial
statements.
23.05 Consent of Irell & Manella (included in Exhibit 8.01).
24.01* Power of Attorney (see page II-5).
99.01 Form of proxy card to be used in soliciting Arcada Holdings, Inc.'s stockholders for its
special meeting.
</TABLE>
- ------------------------
* Previously filed.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to the Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) to
reflect in the prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration
Statement; (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration Statement;
(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
II-2
<PAGE>
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) that, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated
by reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(5) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of the Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form;
(6) that every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
(7) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of Form
S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of this Registration Statement through the date of responding
to the request; and
(8) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this Registration Statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Scotts
Valley, State of California, on the 17th day of January, 1996.
By ________/s/_ALAN F. SHUGART________
Alan F. Shugart
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ ---------------------------------------- ---------------------
<C> <S> <C>
/s/ALAN F. SHUGART* President, Chief Executive Officer and January 17, 1996
Alan F. Shugart Chairman of the Board of Directors
(Principal Executive Officer)
/s/DONALD L. WAITE* Executive Vice President, Chief January 17, 1996
Donald L. Waite Administrative Officer and Chief
Financial Officer (Principal Financial
and Accounting Officer)
/s/GARY B. FILLER* Director January 17, 1996
Gary B. Filler
/s/ROBERT A. KLEIST* Director January 17, 1996
Robert A. Kleist
/s/KENNETH E. HAUGHTON* Director January 17, 1996
Kenneth E. Haughton
/s/LAWRENCE PERLMAN* Director January 17, 1996
Lawrence Perlman
/s/THOMAS P. STAFFORD* Director January 17, 1996
Thomas P. Stafford
/s/LAUREL L. WILKENING* Director January 17, 1996
Laurel L. Wilkening
*By /s/DONALD L. WAITE
Donald L. Waite
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
[Irell & Manella Letterhead]
January 17, 1996
EXHIBIT 8.01
Arcada Holdings, Inc.
708 Fiero Commerce Park 4-10
San Luis Obispo, CA 93401
Gentlemen:
We have acted as counsel to you, Arcada Holdings, Inc., a corporation
organized under the laws of the State of Delaware ("Arcada"), in connection with
the proposed merger (the "Merger") of a subsidiary formed by Seagate Technology,
Inc., a corporation organized under the laws of the State of Delaware
("Seagate"), the stock of which will be contributed by Seagate to its
wholly-owned subsidiary at that time Conner Peripherals, Inc., a corporation
organized under the laws of the State of Delaware ("Conner"), causing it to be a
direct wholly-owned subsidiary of Conner ("Merger Sub"), with and into Arcada.
You have requested our opinion regarding the disclosure of the material United
States federal income tax consequences of the Merger to your shareholders.
In rendering our opinion, we have reviewed the Agreement and Plan of
Reorganization, dated December 21, 1995, by and among Seagate, Arcada and Kevin
H. Azzouz (the "Merger Agreement"), the Proxy Statement/Prospectus to
stockholders of Arcada, attached to the Registration Statement to which this
opinion is an exhibit (the "Proxy Statement/Prospectus"), and such other
materials as we have deemed necessary or appropriate as a basis for our opinion.
In rendering our opinion, we have assumed that the Merger will be
consummated in accordance with the Merger Agreement and that the Proxy
Statement/Prospectus accurately reflects the material facts of the Merger and
those surrounding Seagate, Merger Sub and Arcada. In addition, as to any facts
material to this opinion which we did not independently establish or verify, we
have relied upon the facts contained in the statements and representations of
officers and other representatives of Seagate, Arcada and others, which facts
may in certain instances derive from the best knowledge of such persons without
duty of inquiry. Certain of the representations of Seagate and Arcada are
attached hereto as Exhibits A and B, respectively.
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986 (the "Code"), Treasury regulations, pertinent
judicial authorities, rulings of the Internal Revenue Service, and such other
authorities as we have considered relevant. While it is possible that the
Internal Revenue Service may raise certain issues with regard to the
qualification of the Merger as a reorganization as defined in Section 368(a) of
the Code, in our opinion a discussion of such issues is not material in light of
our view that the Service is less likely than not to ultimately prevail on such
issues and the fact that the shareholders of Arcada other than Conner and Kevin
H. Azzouz (who, as Chief Executive Officer of Arcada, has been fully apprised of
such issues) have been indemnified by Seagate against the possibility of the
Merger not qualifying as a reorganization under the Code as a result of, among
other things, such issues.
Based upon the foregoing, it is our opinion that, under present law, the
discussion presented under the heading "Certain United States Federal Income Tax
Consequences" in the Proxy Statement/Prospectus relating to the Merger, although
general in nature, sets forth the material United States federal income tax
consequences of the Merger to Arcada and stockholders of Arcada.
<PAGE>
We express no opinion as to whether such discussion addresses all of the
United States federal income tax consequences of the Merger that may be
applicable to any particular stockholder of Arcada. In addition, we express no
opinion as to the U.S. federal, state, local, foreign or other tax consequences,
other than as set forth above.
This opinion is being furnished in connection with the Proxy
Statement/Prospectus. You may rely upon and refer to the foregoing opinion in
the Proxy Statement/Prospectus. Any material changes in the facts from those set
forth or assumed herein or in the Proxy Statement/Prospectus may affect the
conclusions stated herein.
We hereby consent to the reference to us in the section captioned "Certain
Federal Income Tax Matters" in the Proxy Statement/Prospectus and to the filing
of this opinion as an exhibit to the Registration Statement containing such
Proxy Statement/Prospectus. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the Rules and Regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ IRELL & MANELLA
<PAGE>
January 17, 1996
EXHIBIT A
Irell & Manella
1800 Avenue of the Stars
Suite 900
Los Angeles, California 90067
Dear Sirs:
In connection with the opinion to be delivered by you pursuant to Section
7.3(b) of the Agreement and Plan of Reorganization dated as of December 21, 1995
(the "Agreement"), by and among Seagate Technology, Inc., a Delaware corporation
("Seagate"), Arcada Holdings, Inc., a Delaware corporation ("Arcada"), and Kevin
H. Azzouz, an individual, relating to the proposed merger (the "Merger") of
Merger Sub with and into Arcada, and recognizing that you will rely on this
letter in rendering said opinion, the undersigned, a duly authorized officer of
Seagate and acting as such, hereby certifies that to the best knowledge of the
undersigned after reasonable inquiry, the facts relating to the Merger as
described in the Agreement and the Proxy Statement/Prospectus, expected to be
dated January 19, 1996, including attachments thereto, are true, correct and
complete in all material respects and hereby certifies, to the best knowledge of
the undersigned after reasonable inquiry, to the following as of the date
hereof. Insofar as such certification pertains to any person (including Conner
Peripherals, Inc., a Delaware corporation ("Conner"), Arcada and Merger Sub)
other than Seagate and any of its subsidiaries, the voting stock of which
Seagate owns at least eighty percent (80%) (an "Affiliate"), such certification
is only as to the knowledge of the undersigned without specific inquiry. We
understand that you will reaffirm your opinion at the time of the Merger and
that, in connection with such reaffirmation, you will require that we reaffirm
this certification at that time.
Capitalized terms in this letter shall have the same meanings ascribed to
them in the Agreement unless otherwise specified herein.
A. REPRESENTATIONS OF SEAGATE
1. The Merger will be consummated in accordance with the terms of the
Agreement and none of the material terms or conditions therein have been waived
or modified and Seagate has no plan or intention to waive or modify any such
material terms or conditions.
2. The Seagate/Conner Merger will be consummated in accordance with the
terms of the Seagate/Conner Agreement and none of the material terms or
conditions therein have been waived or modified and Seagate has no plan or
intention to waive or modify any such material terms or conditions.
3. The ratio for the exchange of shares of common stock of Arcada (the
"Arcada Common Stock") for voting common stock of Seagate ("Seagate Common
Stock") in the Merger was negotiated through arm's length bargaining.
4. It is the belief of management of Seagate that the fair market value of
the Seagate Common Stock to be received by Arcada stockholders is, in the
aggregate, approximately equal to the aggregate fair market value of the Arcada
Common Stock surrendered in exchange therefor.
5. To the knowledge of Seagate, there is no present plan or intention on
the part of the stockholders of Arcada other than Conner (a "Plan"), to engage
in a sale, exchange, transfer, reduction of risk of ownership or any other
direct or indirect disposition (a "Sale") of (i) shares of Seagate Common Stock
to be issued to them in the Merger, which shares have an aggregate fair market
value, as of the period ending at the effective time of the Merger (the
"Effective Time"), in excess of fifty percent (50%) of the aggregate fair market
value, immediately prior to the Merger, of the outstanding shares of Arcada
Common Stock held by shareholders other than Conner immediately prior to the
<PAGE>
Irell & Manella
January 17, 1996
Page 2
Merger ("Outstanding Arcada Common Stock") (including shares of Arcada Common
Stock issued after the date hereof and prior to the Effective Time pursuant to
exercise of options to acquire Arcada Common Stock issued to present or former
employees or directors of Arcada in the ordinary course of business (the "Arcada
Options")), or (ii) more than fifty percent (50%) of the shares of Seagate
Common Stock received by such stockholders in the Merger. For purposes of the
foregoing, a Sale of Seagate Common Stock shall be considered to have occurred
pursuant to a Plan if such Sale occurs in a transaction that is in contemplation
of or related to the Merger (a "Related Transaction"). In addition, shares of
Arcada Common Stock (or the portion thereof) (i) exchanged for cash in lieu of
fractional shares of Seagate Common Stock or (ii) with respect to which a Sale
occurred in a Related Transaction prior to the Merger shall be considered to
have been Outstanding Arcada Common Stock that was exchanged for Seagate Common
Stock in the Merger and then disposed of pursuant to a Plan.
6. Seagate has no plan or intention to redeem or otherwise reacquire any of
the Seagate Common Stock to be issued in the Merger.
7. Seagate has no present plan or intention: to liquidate Arcada; to merge
Arcada into another corporation (other than the possible merger of Arcada into a
direct, wholly owned subsidiary of Seagate following a merger of Conner into
Seagate); to cause Arcada to sell or otherwise dispose of any of its assets,
except for dispositions made in the ordinary course of business; or to sell or
otherwise dispose of any of the Arcada Common Stock acquired in the Merger or
otherwise, except for transfers described in Code Section 368(a)(2)(C) and the
possible transfer of Arcada Common Stock to Seagate pursuant to a merger of
Conner into Seagate which would qualify under Code Section 332.
8. Seagate, Conner, Merger Sub, Arcada and the stockholders of Arcada will
each pay separately its or their own expenses incurred in connection with the
Merger.
9. Conner will acquire Arcada Common Stock solely in exchange for Seagate
voting stock and immediately after the acquisition, Conner will have control of
Arcada, as defined in Section 368(c) of the Code. Furthermore, no liabilities of
Arcada or Arcada shareholder's will be assumed by Conner, nor will any of the
Arcada Common Stock be subject to any liabilities.
10. Neither Seagate, nor any Affiliate of Seagate, excluding Conner and any
of its subsidiaries, owns, nor has owned within the preceding five years,
directly or indirectly, any Arcada Common Stock.
11. Seagate is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code, nor will Seagate be an investment
company at the Effective Time.
12. Arcada will pay its dissenting shareholders the value of their stock out
of its own funds. No funds will be supplied for that purpose, directly or
indirectly, by Seagate, nor will Seagate directly or indirectly reimburse Arcada
for any payments to dissenters.
13. The fair market value of the assets of Arcada does and at the Effective
Time will exceed the aggregate liabilities of Arcada plus the amount of any
other liabilities to which such assets are subject that are not included in the
aggregate.
14. No fractional shares of Seagate Common Stock will be issued in the
Merger. In lieu thereof, cash will be paid to Arcada stockholders otherwise
entitled to a fractional share of Seagate Common Stock. The payment of cash in
lieu of fractional shares of Seagate Common Stock is made solely for the purpose
of avoiding the expense and inconvenience of issuing and transferring fractional
shares and is not separately bargained for consideration. The total amount of
cash that any holder of Seagate Common Stock will receive in lieu of a
fractional share interest will not equal or exceed the fair market value (as
determined in accordance with the Merger Agreement) of one full share of Seagate
Common Stock on the last trading day prior to the Effective Time, and the total
cash consideration that will be paid in the transaction to Arcada stockholders
in lieu of issuing fractional shares of Seagate Common Stock will not exceed one
percent (1%) of the total consideration that will be issued in the transaction
to the Arcada stockholders in exchange for their shares of Arcada Common Stock.
<PAGE>
Irell & Manella
January 17, 1996
Page 3
15. Any compensation paid to stockholders of Arcada who enter (or who have
entered) into an employment, consulting or non-competition contract, if any,
with Seagate (or any member of a Controlled Group in which Seagate is also a
member other than Conner and any of its subsidiaries) at any time or with Arcada
after the Effective Time will be for services actually rendered or to be
rendered (or compliance with restrictions on competition) and will be
commensurate with amounts paid to third parties bargaining at arm's length for
similar services (or compliance). None of such compensation represents
consideration for the exchange of shares of Arcada Common Stock for Seagate
Common Stock. None of the shares of Seagate Common Stock received by Arcada
stockholders in the Merger is separate consideration for or otherwise allocable
to anything other than Arcada Common Stock, such as for services or any covenant
not to compete.
16. The Seagate Common Stock issued pursuant to the Merger will not be
subject to any restriction, other than any restrictions imposed under any
applicable securities laws or any existing restrictions with respect to the
Arcada Common Stock exchanged therefor.
17. All shares of Arcada Common Stock owned directly or indirectly by Arcada
will be canceled at the Effective Time, and no consideration will be delivered
in exchange therefor. Such cancellation is solely for the purpose of avoiding
the expense and inconvenience of causing Seagate to issue shares to Arcada.
18. Seagate formed Merger Sub solely for the purpose of the Merger.
19. None of the shares of Seagate Common Stock received by any party
pursuant to the Merger is separate consideration for or allocable to the Arcada
Options or the Arcada Conner Options which remain outstanding after the
Effective Time.
20. Seagate is authorized to make all the representations made by it and set
forth herein.
B. LIMITATIONS ON OPINION: RELIANCE
1. Seagate has read and understands all the limitations and qualifications
to which your opinion is subject and the items upon which you have relied.
2. Seagate recognizes that your opinion will be based, in part, on the
representations herein and that such opinion will not be effective if any of
such representations is not accurate and complete in all material respects at
all relevant times.
This letter is being furnished to you solely for your benefit and for use in
rendering your opinion and is not to be used, circulated, quoted or otherwise
referred to for any purpose (other than inclusion in your opinion) without the
express written consent of Seagate. All of the foregoing certifications are true
to the best knowledge of the management of Seagate.
Very truly yours,
SEAGATE TECHNOLOGY, INC.
By:/s/ DONALD L. WAITE
-------------------------------------------------------------------------
Its:Executive Vice President
-------------------------------------------------------------------------
<PAGE>
ARCADA HOLDINGS INC.
January 17, 1996
EXHIBIT B
Irell & Manella
1800 Avenue of the Stars
Suite 900
Los Angeles, California 90067
Dear Sirs:
In connection with the opinion to be delivered by you pursuant to Section
7.3(b) of the Agreement and Plan of Reorganization dated December 21, 1995 (the
"Agreement"), by and among Seagate Technology, Inc., a Delaware corporation
("Seagate"), Arcada Holdings, Inc., a Delaware corporation ("Arcada"), and Kevin
H. Azzouz, an individual relating to the proposed merger (the "Merger") of
Merger Sub with and into Arcada, and recognizing that you will rely on this
letter in rendering said opinion, the undersigned, a duly authorized officer of
Arcada and acting as such, hereby certifies that to the best knowledge of the
undersigned after reasonable inquiry, the facts relating to the Merger as
described in the Agreement and the Proxy Statement/Prospectus, expected to be
dated January 19, 1996, including attachments thereto, are true, correct and
complete in all material respects and hereby certifies, to the best knowledge of
the undersigned after reasonable inquiry, to the following as of the date
hereof. Insofar as such certification pertains to any person (including Seagate,
Conner Peripherals, Inc., a Delaware corporation ("Conner") and Merger Sub)
other than Arcada and any of its subsidiaries, the voting stock of which Arcada
owns at least eighty percent (80%) (an "Affiliate"), such certification is only
as to the knowledge of the undersigned without specific inquiry. We understand
that you will reaffirm your opinion at the time of the Merger and that, in
connection with such reaffirmation, you will require that we reaffirm this
certification at that time.
Capitalized terms in this letter shall have the same meanings ascribed to
them in the Agreement unless otherwise specified herein.
A. REPRESENTATIONS OF ARCADA
1. The Merger will be consummated in accordance with the terms of the
Agreement and none of the material terms or conditions therein have been waived
or modified and Arcada has no plan or intention to waive or modify any such
material terms or conditions.
2. The ratio for the exchange of shares of common stock of Arcada (the
"Arcada Common Stock") for voting common stock of Seagate ("Seagate Common
Stock") in the Merger was negotiated through arm's length bargaining.
3. It is the belief of management of Arcada that the fair market value of
the Seagate Common Stock to be received by Arcada stockholders is, in the
aggregate, approximately equal to the aggregate fair market value of the Arcada
Common Stock surrendered in exchange therefor.
4. There is no present plan or intention on the part of the stockholders of
Arcada other than Conner who own one percent (1%) or more of Arcada Common Stock
(on an as-converted basis), or, to the knowledge of Arcada any plan or intention
on the part of Arcada's stockholders other than Conner (a "Plan"), to engage in
a sale, exchange, transfer, reduction of risk of ownership or any other direct
or indirect disposition (a "Sale") of (i) shares of Seagate Common Stock to be
issued to them in the Merger, which shares have an aggregate fair market value,
as of the period ending at the effective time of the Merger (the "Effective
Time"), in excess of fifty percent (50%) of the aggregate fair market
<PAGE>
Irell & Manella
January 17, 1996
Page 2
value, immediately prior to the Merger, of the outstanding shares of Arcada
Common Stock (assuming conversion of all outstanding convertible preferred stock
of Arcada) held by shareholders other than Conner immediately prior to the
Merger ("Outstanding Arcada Common Stock") (including shares of Arcada Common
Stock issued after the date hereof and prior to the Effective Time pursuant to
exercise of options to acquire Arcada Common Stock issued to present or former
employees or directors of Arcada in the ordinary course of business (the "Arcada
Options")), or (ii) more than fifty percent (50%) of the shares of Seagate
Common Stock received by such stockholders in the Merger. For purposes of the
foregoing, a Sale of Seagate Common Stock shall be considered to have occurred
pursuant to a Plan if such Sale occurs in a transaction that is in contemplation
of or related to the Merger (a "Related Transaction"). In addition, shares of
Arcada Common Stock (or the portion thereof) (i) exchanged for cash in lieu of
fractional shares of Seagate Common Stock or (ii) with respect to which a Sale
occurred in a Related Transaction prior to the Merger shall be considered to
have been Outstanding Arcada Common Stock that was exchanged for Seagate Common
Stock in the Merger and then disposed of pursuant to a Plan.
5. Arcada has no present plan or intention to issue additional shares of
its stock that would result in Conner losing control of Arcada within the
meaning of Section 368(c)(1) of the Internal Revenue Code, as amended (the
"Code"), other than pursuant to options issued to employees of Arcada with an
exercise price at or near the fair market value of the underlying stock of
Arcada at the time the options are issued.
6. To the knowledge of Arcada, neither Conner nor Seagate has a present
plan or intention: to liquidate Arcada; to merge Arcada into another corporation
(other than the possible merger of Arcada into a direct, wholly owned subsidiary
of Seagate following a merger of Conner into Seagate); to cause Arcada to sell
or otherwise dispose of any of its assets, except for dispositions made in the
ordinary course of business; or to sell or otherwise dispose of any of the
Arcada Common Stock acquired in the Merger or otherwise, except for transfers
described in Code Section 368(a)(2)(C) and the possible transfer of Arcada
Common Stock to Seagate pursuant to a merger of Conner into Seagate which would
qualify under Code Section 332.
7. Arcada has no plan or intention to acquire after the Merger any of the
Seagate Common Stock to be issued in the Merger.
8. Seagate, Conner, Merger Sub, Arcada and the stockholders of Arcada will
each pay separately its or their own expenses incurred in connection with the
Merger.
9. Conner will acquire Arcada Common Stock solely in exchange for Seagate
Common Stock and immediately after the acquisition, Conner will have control of
Arcada, as defined in Section 368(c) of the Code. Furthermore, no liabilities of
Arcada or Arcada shareholder's will be assumed by Conner, nor will any of the
Arcada Common Stock be subject to any liabilities.
10. At the Effective Time, Arcada will not have outstanding any warrants,
options, convertible securities, or any other type of right pursuant to which
any person could acquire stock in Arcada that, if exercised or converted, would
affect Conner's acquisition or retention of control of Arcada as defined in Code
Section 368(c)(1).
11. Arcada is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code, nor will Arcada be an investment company
at the Effective Time.
12. Arcada will pay its dissenting shareholders the value of their stock out
of its own funds. No funds will be supplied for that purpose, directly or
indirectly, by Conner, Seagate or Merger Sub nor will Conner, Seagate or Merger
Sub directly or indirectly reimburse Arcada for any payments to dissenters.
13. The fair market value of the assets of Arcada does and at the Effective
Time will exceed the aggregate liabilities of Arcada plus the amount of any
other liabilities to which such assets are subject that are not included in the
aggregate.
<PAGE>
Irell & Manella
January 17, 1996
Page 3
14. No fractional shares of Seagate Common Stock will be issued in the
Merger. In lieu thereof, cash will be paid to Arcada stockholders otherwise
entitled to a fractional share of Seagate Common Stock. The payment of cash in
lieu of fractional shares of Seagate Common Stock is made solely for the purpose
of avoiding the expense and inconvenience of issuing and transferring fractional
shares and is not separately bargained for consideration. The total amount of
cash that any holder of Seagate Common Stock will receive in lieu of a
fractional share interest will not equal or exceed the fair market value (as
determined in accordance with the Agreement) of one full share of Seagate Common
Stock on the last trading day prior to the Effective Time, and the total cash
consideration that will be paid in the transaction to Arcada stockholders in
lieu of issuing fractional shares of Seagate Common Stock will not exceed one
percent (1%) of the total consideration that will be issued in the transaction
to the Arcada stockholders in exchange for their shares of Arcada Common Stock.
15. Any compensation paid to stockholders of Arcada who enter (or who have
entered) into an employment, consulting or non-competition contract, if any,
with Conner, Seagate, Merger Sub (or any member of a Controlled Group in which
Conner, Seagate or Merger Sub is also a member) at any time or with Arcada after
the Effective Time will be for services actually rendered or to be rendered (or
compliance with restrictions on competition) and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services
(or compliance). None of such compensation represents consideration for the
exchange of shares of Arcada Common Stock for Seagate Common Stock. None of the
shares of Seagate Common Stock received by Arcada stockholders in the Merger is
separate consideration for or otherwise allocable to anything other than Arcada
Common Stock, such as for services or any covenant not to compete.
16. Other than in the ordinary course of its business, Arcada has made and
will make no transfer of any of its assets in contemplation of the Merger or
during the period ending at the Effective Time and beginning with the
commencement of negotiations (whether informal or formal) with Conner, Seagate
or Merger Sub regarding the Merger (or any other form of disposition of the
assets or stock of Arcada other than in the ordinary course of business). For
purposes of this paragraph, a transfer of assets includes any distribution of
assets with respect to stock or in redemption of stock other than the
distribution of regular dividends or the repurchase of unvested shares of stock
held by employees.
17. All shares of Arcada Common Stock owned directly or indirectly by Arcada
will be canceled at the Effective Time, and no consideration will be delivered
in exchange therefor. Such cancellation is solely for the purpose of avoiding
the expense and inconvenience of causing Seagate to issue shares to Arcada.
18. Neither Seagate, nor any Affiliate of Seagate, excluding Conner and any
of its subsidiaries, owns, nor has owned within the preceding five years,
directly or indirectly, any Arcada Common Stock.
19. None of the shares of Seagate Common Stock received by any party
pursuant to the Merger is separate consideration for or allocable to the Arcada
Options or the Arcada Conner Options which remain outstanding after the
Effective Time.
20. Arcada is authorized to make all the representations made by it and set
forth herein.
B. LIMITATIONS ON OPINION: RELIANCE
1. Arcada has read and understands all the limitations and qualifications
to which your opinion is subject and the items upon which you have relied.
2. Arcada recognizes that your opinion will be based, in part, on the
representations herein and that such opinion will not be effective if any of
such representations is not accurate and complete in all material respects at
all relevant times.
<PAGE>
Irell & Manella
January 17, 1996
Page 4
This letter is being furnished to you solely for your benefit and for use in
rendering your opinion and is not to be used, circulated, quoted or otherwise
referred to for any purpose (other than inclusion in your opinion) without the
express written consent of Arcada. All of the foregoing certifications are true
to the best knowledge of the management of Arcada.
Very truly yours,
ARCADA HOLDINGS, INC.
By:/s/ KEVIN H. AZZOUZ
---------------------------------------------------------------------
Kevin H. Azzouz
Authorized Signatory
<PAGE>
EXHIBIT 23.02
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Seagate Technology
for the registration of its common stock and to the incorporation by reference
therein of our reports dated July 11, 1995, except for the last paragraph of the
patent litigation note as to which the date is July 31, 1995, with respect to
the consolidated financial statements of Seagate Technology and subsidiaries
incorporated by reference in its Annual Report (Form 10-K) for the year ended
June 30, 1995 and the related financial statement schedule included therein,
filed with the Securities and Exchange Commission.
Ernst & Young LLP
San Jose, California
January 17, 1996
<PAGE>
EXHIBIT 23.03
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Proxy Statement/Prospectus constituting
part of this Registration Statement on Form S-4 of Seagate Technology, Inc. of
our report dated December 21, 1995 relating to the consolidated financial
statements of Arcada Holdings, Inc., which appears in such Proxy
Statement/Prospectus. We also consent to the reference to us under the heading
"Experts".
/s/ PRICE WATERHOUSE LLP
- --------------------------
Price Waterhouse LLP
San Jose, California
January 17, 1996
<PAGE>
EXHIBIT 23.04
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of Seagate Technology, Inc. of our report dated January 11, 1995, except as
to Note 15 which is dated as of July 25, 1995, appearing on page 21 of Conner
Peripherals, Inc.'s Annual Report on Form 10-K/A for the year ended December 31,
1994. We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on page S-2 of such Annual Report on
Form 10-K/A. We also consent to the reference to us under the heading "Experts"
in such Proxy Statement/Prospectus.
/s/ PRICE WATERHOUSE LLP
- --------------------------
Price Waterhouse LLP
San Jose, California
January 17, 1996
<PAGE>
[FORM OF PROXY]
ARCADA HOLDINGS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF STOCKHOLDERS
The undersigned stockholder of ARCADA HOLDINGS, INC., a Delaware
corporation, hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and Proxy Statement, each dated January 19, 1996, and hereby
appoints Kevin H. Azzouz and Christopher Gibson, 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 Special Meeting of
Stockholders of ARCADA HOLDINGS, INC. to be held on Friday, February 16, 1996,
at 9:00 a.m. at the Red Lion Inn, 2050 Gateway Place, San Jose, California
95110, and at any adjournments thereof, and to vote all shares of Common Stock
which the undersigned would be entitled to vote if then and there personally
present, on the matters set forth on the reverse side hereof:
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE PROVIDED.
SEE REVERSE SIDE
<PAGE>
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL
BE VOTED "FOR" THE PROPOSAL LISTED, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY COME BEFORE THE MEETING, INCLUDING, AMONG OTHER THINGS,
CONSIDERATION OF ANY MOTION MADE FOR ADJOURNMENT OF THE MEETING (INCLUDING,
WITHOUT LIMITATION, FOR PURPOSES OF SOLICITING ADDITIONAL VOTES TO APPROVE THE
MERGER AGREEMENTS).
<TABLE>
<S> <C> <C> <C>
1. PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION DATED AS OF DECEMBER 21, 1995 BY AND AMONG
ARCADA HOLDINGS, INC., A DELAWARE CORPORATION, SEAGATE TECHNOLOGY, INC., A DELAWARE CORPORATION, AND KEVIN
H. AZZOUZ, AND A RELATED AGREEMENT OF MERGER (COLLECTIVELY, THE "MERGER AGREEMENTS"), PROVIDING FOR A NEWLY-
FORMED, WHOLLY-OWNED SUBSIDIARY OF SEAGATE TECHNOLOGY, INC. ("SUB") TO BE MERGED WITH AND INTO ARCADA HOLD-
INGS, INC. WITH ARCADA HOLDINGS, INC. BEING THE SURVIVING CORPORATION AND BECOMING A WHOLLY-OWNED SUBSIDIARY
OF SEAGATE TECHNOLOGY, INC.
</TABLE>
/ / FOR / / AGAINST / / ABSTAIN
Please sign exactly as name appears
on Proxy
Signature: ________ Date __________
Signature: ________ Date __________
Note: When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee, guardian or
corporate officer or partner,
please give full title as such. If
a corporation, please sign in
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
The Arcada Holdings, Inc. Board of Directors Recommends a Vote FOR Proposal 1.
